What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-25 compared with 2024-02-21 · 129 added, 125 removed, 147 unchanged (63% of the section changed)

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We are a clinical-stage biopharmaceutical company focused on creating best-in-class therapies.

Using our robust and highly efficient drug discovery capability, we have created a significant portfolio of investigational products which are in clinical development, with our most advanced molecule, an anti-TIGIT antibody, now in multiple Phase 3 registrational studies targeting lung and gastrointestinal cancers.

Our deep portfolio of novel small molecules and enabling antibodies allows us to create highly differentiated therapies, which we are developing to treat multiple large indications.

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Corporate Developments

• In January 2024, we amended the Stock Purchase Agreement with Gilead, pursuant to which Gilead made an equity investment of $320 million through the purchase of our common stock at $21.00 per share (the "2024 Gilead Financing").

• In January 2024, concurrent with the 2024 Gilead Financing, we amended the Investor Rights Agreement to, among other things, increase the number of individuals that Gilead may designate to be appointed to our board of directors to three.

• In May 2023, we amended the Gilead Collaboration Agreement to expand our collaboration with Gilead.

Pursuant to this expansion, we will initiate up to four jointly selected research-stage programs against targets that are applicable to inflammatory diseases.

For each research program jointly selected under this expansion, prior to the first anniversary of the amendment, Gilead receives an option to license such research program at two separate, prespecified time points.

If Gilead exercises its option at the earlier time point for the first two research programs jointly selected, we would be eligible to receive up to $420 million in option and milestone payments as well as tiered royalties for each optioned program.

For any other research program jointly selected under this expansion, if Gilead exercises its option, the parties would have rights to co-develop and share global development costs and to co-commercialize and share profits in the United States for optioned programs.

TIGIT Program

• In January 2024, we announced that we and Gilead have reprioritized the joint domvanalimab development program (the "2024 Reprioritization").

This reprioritization is intended to allow us to focus on domvanalimab-containing regimen research in settings with high unmet need where it may have significant impact, such as our Phase 3 studies STAR-121 (lung cancer) and STAR-221 (gastrointestinal cancer), which are both all-comer studies and are expected to be fully enrolled by year-end.

The companies also plan to initiate STAR-131, a new registrational Phase 3 lung cancer study that includes the domvanalimab plus zimberelimab regimen.

• In January 2024, as part of the 2024 Reprioritization, we announced that we are discontinuing further enrollment in the Phase 3 ARC-10 study evaluating domvanalimab plus zimberelimab compared to pembrolizumab monotherapy in first-line locally advanced or metastatic PD-L1-high NSCLC.

• In November 2023, we presented preliminary data from Arm A1 of the Phase 2 EDGE-Gastric study, evaluating domvanalimab plus zimberelimab and chemotherapy in patients with previously untreated, locally advanced unresectable or metastatic upper gastrointestinal cancers.

These data were from the cohort that includes a similar patient population and dosing regimen as the ongoing Phase 3 study, STAR-221.

As of September 4, 2023, the data cut-off for the analysis:

◦ Domvanalimab plus zimberelimab and chemotherapy showed encouraging ORR of 80% (cORR of 73%) in patients with PD-L1-high tumors (TAP ≥5%), 46% (all confirmed) in patients with PD-L1-low tumors (TAP <5%) and 59% (cORR of 56%) for patients overall.

◦ Six-month landmark PFS was 93% for patients with PD-L1-high tumors (TAP ≥5%), 68% for patients with PD-L1-low tumors (TAP <5%) and 77% for patients overall.

Mature PFS has not been reached and data are expected in the second half of 2024.

◦ Domvanalimab plus zimberelimab and chemotherapy was well tolerated, with a similar safety profile to what has been reported for anti-PD1 plus chemotherapy in this setting.

• In June 2023, we provided results from an interim analysis from ARC-7, our Phase 2 study in first-line metastatic PD-L1≥50% NSCLC.

As of February 7, 2023, the data cut-off for the analysis, both domvanalimab-containing study arms demonstrated sustained, clinically meaningful improvements in PFS compared to zimberelimab monotherapy, with a 33% reduction in risk of disease progression or death for the doublet and 28% for the triplet.

Adenosine Program

• In January 2024, we announced overall survival data from ARC-8, our Phase 1b study in metastatic pancreatic cancer.

In the announcement we disclosed that, as of June 19, 2023 (the data cutoff for the analysis), the median overall survival was 15.7 months for all patients treated with 100 mg quemliclustat-based regimens.

Further, we announced that, in a post-hoc analysis of the data, patients treated with quemliclustat-based regimens showed a 37% reduction in risk of death and a 5.9-month improvement in median overall survival when compared to a Synthetic Control Arm of patients treated with chemotherapy alone.

• In January 2024, as part of the 2024 Reprioritization, we announced our plans for a Phase 3 study in first-line pancreatic cancer evaluating the investigational small molecule CD73 inhibitor quemliclustat that will be conducted and funded by Arcus.

• In February 2025, we announced that Gilead's time-limited exclusive option rights to our HIF-2α program (including casdatifan) have expired.

As a result, Gilead has no future rights to casdatifan and we retain full global development and commercial rights, subject to Taiho’s option right for the Taiho Territory.

• In February 2025, we issued through an underwritten offering, 13.6 million shares of our common stock at a price of $11.00 per share, for total gross proceeds of approximately $150 million, before deducting underwriting discounts, commissions and offering expenses.

• In October 2024, we entered into a clinical collaboration with AstraZeneca to evaluate casdatifan, our investigational HIF-2α inhibitor, in combination with volrustomig, AstraZeneca’s investigational PD-1/CTLA-4 bispecific antibody, in IO-naive patients with ccRCC.

AstraZeneca will operationalize the study.

• In July 2024, Taiho exercised its option for quemliclustat, our investigational small molecule CD73 inhibitor, for the Taiho Territory, and in October 2024, opted to participate in the global Phase 3 trial of quemliclustat, PRISM-1, and became obligated to reimburse us for their portion of the global study costs.

As a result, Taiho will operationalize the Japanese sites for the global Phase 3 PRISM-1 study evaluating quemliclustat in pancreatic cancer.

In February 2025, Taiho dosed their first patient in Japan for PRISM-1.

HIF-2⍺ Program

• In December 2023, we announced that we entered into a clinical trial collaboration with Exelixis for STELLAR-009, a Phase 1b/2 trial evaluating zanzalintinib, Exelixis’ next-generation TKI, in combination with casdatifan, our small molecule inhibitor of the transcription factor HIF-2⍺, in patients with ccRCC.

Exelixis is sponsoring STELLAR-009, and we are co-funding the study and providing casdatifan for use in the trial.

Patient enrollment for STELLAR-009 opened before the end of 2023.

• In February 2025, we presented clinical data from three monotherapy expansion cohorts of ARC-20 in a rapid oral session at the 2025 American Society of Clinical Oncology ("ASCO") Genitourinary Symposium.

At the time of data cut-off (January 3, 2025), observations from the expansion cohorts included:

◦ A 9.7-month mPFS was reached for the 50mg twice-a-day (BID) casdatifan monotherapy cohort;

mPFS was not yet reached for other cohorts.

◦ Confirmed objective response rate ("ORR") ranged from 25% to 33%, with 2 of the cohorts exceeding 30% (including one partial response that confirmed after the data cut-off).

◦ Rates of primary progressive disease (progression at or before their first disease assessment) ranged from 14% to 19%.

Most patients (81-87%) experienced disease control with either a partial response or stable disease and were still on treatment.

Anti-TIGIT Program

• In November 2024, we presented results at the Society for Immunotherapy of Cancer ("SITC") annual meeting from Part 1 of ARC-10, a randomized study evaluating domvanalimab plus zimberelimab in PD-L1-high NSCLC, which showed:

◦ A 36% reduction in risk of death (hazard ratio=0.64) was observed for domvanalimab plus zimberelimab compared to that of zimberelimab alone.

◦ Zimberelimab reached a median overall survival of two years, and the median overall survival for domvanalimab plus zimberelimab was not reached.

◦ Treatment-related adverse events leading to treatment discontinuation were low (10.5%) for the combination of domvanalimab and zimberelimab.

• In June 2024, we presented updated data at the ASCO Annual Meeting from Arm A1 of the Phase 2 EDGE-Gastric study which showed 12.9 months mPFS for domvanalimab plus zimberelimab and chemotherapy in first-line upper GI adenocarcinomas, which exceeded historical benchmarks for anti-PD-1 plus chemotherapy.

Adenosine-Pathway Programs

• In October 2024, we initiated PRISM-1, a Phase 3 trial of quemliclustat combined with gemcitabine/nab-paclitaxel versus gemcitabine/nab-paclitaxel in pancreatic cancer.

• In June 2024, we presented data at the ASCO Annual Meeting from ARC-9, a randomized Phase 1b/2 study evaluating etrumadenant plus zimberelimab, FOLFOX chemotherapy and bevacizumab ("EZFB") versus regorafenib in third-line metastatic colorectal cancer ("mCRC").

◦ Results showed 19.7 months median overall survival for the EZFB arm and EZFB significantly reduced the risk of death by 63% and risk of disease progression by 73% compared to regorafenib.

This is the longest median overall survival reported in third-line mCRC to date in a randomized trial.

Strategic Partnerships

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Under the Gilead Collaboration Agreement, Gilead obtained an exclusive license to zimberelimab and time-limited exclusive options to all of our then-current and future programs during the 10-year collaboration term.

In 2021, Gilead obtained rights to an additional four of our investigational products:

The agreement was amended in 2021 (the "First Gilead Collaboration Agreement Amendment"), under which Gilead obtained rights to an additional four of our investigational products:

domvanalimab, etrumadenant, quemliclustat and AB308.

For each program to which Gilead exercised or exercises its option, the parties will co-develop globally and co-commercialize the program in the U.S., subject to certain exceptions, and Gilead will have the right to commercialize the program outside of the United States, subject to the rights of our existing partners in certain territories.

Gilead's time-limited exclusive option rights to our HIF-2α program (including casdatifan) have expired.

For each program to which Gilead exercised or exercises its option, the parties will co-develop globally and co-commercialize the program in the U.S., subject to certain exceptions, and Gilead will have the right to commercialize the program outside of the U.S., subject to the rights of our existing partners in certain territories.

Furthermore, we and Gilead agreed to collaborate on two oncology research programs, for which we will lead discovery and early development activities.

In 2023, we amended the Gilead Collaboration Agreement to further expand the collaboration to provide Gilead with options to license up to four jointly selected research-stage programs that target inflammatory diseases for which we will lead discovery and early development activities.

In 2024, we further amended the Gilead Collaboration Agreement to provide that (i) Gilead is required to pay the $100 million option continuation payment due on the fourth anniversary of the Gilead Collaboration Agreement, and (ii) we would fund certain activities, including the Phase 3 study that we plan to initiate to evaluate quemliclustat in pancreatic cancer .

In 2023, we amended the Gilead Collaboration Agreement (the "Second Gilead Collaboration Agreement Amendment") to further expand the collaboration to include up to four jointly selected research-stage programs that target inflammatory diseases for which we will lead discovery and early development activities.

In the first quarter of 2024, we further amended the Gilead Collaboration Agreement (the "Third Gilead Collaboration Agreement Amendment") to provide that (i) Gilead is required to pay the $100 million option continuation payment due on the fourth anniversary of the Gilead Collaboration Agreement, which was received in the third quarter 2024 and (ii) we would fund certain activities, including the Phase 3 PRISM-1 study evaluating quemliclustat in pancreatic cancer .

Concurrent with the Gilead Collaboration Agreement in 2020, we also entered into the Stock Purchase Agreement and Investor Rights Agreement.

The Stock Purchase Agreement was amended in 2021 (the "First Stock Purchase Agreement Amendment"), in 2023 (the "Second Stock Purchase Agreement Amendment"), and was amended and restated in the first quarter 2024 (the "Third Stock Purchase Agreement Amendment").

Under the Stock Purchase Agreement, Gilead has the right, at its option until July 2025, to purchase up to a maximum ownership of 35% of our then-outstanding voting common stock.

The Investor Rights Agreement was amended in 2022 (the "First Investor Rights Agreement Amendment") and was amended and restated in the first quarter 2024 (the "Second Investor Rights Agreement Amendment").

Under the Investor Rights Agreement, as amended, Gilead has the right to designate three individuals to be appointed to our board of directors.

As of January 31, 2024, after including shares purchased in January 2024 under the Stock Purchase Agreement, Gilead held approximately 33.1% of our outstanding common stock.

As of December 31, 2024, Gilead held approximately 32.6% of our outstanding common stock.

Gilead acquired an additional 1.4 million shares of our common stock in the February 2025 underwritten offering and subsequently held approximately 29.7% of our common stock as of February 19, 2025.

Taiho Pharmaceutical Co., LTD.

In 2017, we entered into the Taiho Agreement pursuant to which Taiho was granted time-limited options to exclusively license for the Taiho Territory the development and commercialization rights to each of our programs that arose over a five-year period ending in September 2022.

As of December 31, 2023, Taiho has licenses to (i) etrumadenant (the adenosine receptor antagonist program);

As of December 31, 2024, Taiho has licenses for the Taiho Territory to (i) etrumadenant (the adenosine receptor antagonist program);

(ii) zimberelimab (the anti-PD-1 program);

and (iii) domvanalimab and AB308 (collectively, the anti-TIGIT program).

(iii) domvanalimab and AB308 (collectively, the anti-TIGIT program);

and (iv) quemliclustat (the CD73 program).

Other Licenses, Collaborations, and Research and Development Arrangements

We in-licensed rights to anti-PD-1 and CD39 antibodies from WuXi Biologics, and in-licensed rights to domvanalimab from Abmuno.

We also have a clinical collaboration agreement with AstraZeneca for the PACIFIC-8 trial evaluating domvanalimab and durvalumab in Stage 3 NSCLC;

Exelixis for the STELLAR-009 trial evaluating casdatifan and zanzalintinib in patients with ccRCC.

We have in-licensed rights to anti-PD-1 and CD39 antibodies from WuXi Biologics, and to domvanalimab from Abmuno.

We also have clinical collaboration agreements with AstraZeneca for the Phase 3 PACIFIC-8 trial evaluating domvanalimab and durvalumab in Stage 3 NSCLC and for a Phase 1/1b study evaluating casdatifan and volrustomig in IO-naive patients with ccRCC.

We are also party to an agreement with BVF Partners L.P.

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Since commencing operations in 2015, we have devoted substantially all of our efforts and financial resources to building our research and development capabilities, advancing our investigational product pipeline, and establishing our corporate infrastructure.

To date, we have financed our operations primarily from the sale of our equity securities and payments received under our research, collaboration and license agreements with our strategic partners, including Gilead.

To date, we have financed our operations primarily from the sale of our equity securities;

upfront or milestone payments received from our research, collaboration and license agreements with our strategic partners, including Gilead;

and debt financing.

We expect to incur substantial expenditures in the foreseeable future for the development and potential commercialization of our investigational products and ongoing internal research and development programs.

At this time, we cannot reasonably estimate the nature, timing or aggregate amount of costs for our development, potential commercialization, and internal research and development programs.

As of December 31, 2023, we had $866 million of cash, cash equivalents and marketable securities.

Together with the $320 million we received from Gilead for their equity investment in January, 2024, our cash, cash equivalents and marketable securities were $1.2 billion, which we believe will be sufficient to fund our planned operations into 2027.

As of December 31, 2024, we had $992 million of cash, cash equivalents and marketable securities, which together with the proceeds from our equity financing in February 2025, we believe will be sufficient to fund our planned level of operations for the foreseeable future and provide funding to our initial pivotal read-outs for domvanalimab, quemliclustat and casdatifan, including STAR-221, PRISM-1 and PEAK-1.

Components of Operating Results

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License and Development Services Revenue

Our license and development services revenue consists of amounts recognized from the portions of the nonrefundable upfront and milestone payments received from Gilead and Taiho and allocated to performance obligations for licenses or Research and Development ("R&D") activities performed by us as we develop our investigational products under the terms of our collaboration agreements.

Our license and development services revenue consists of amounts recognized from the portions of the nonrefundable upfront payments received from Gilead and Taiho and allocated to performance obligations for licenses or R&D activities performed by us as we develop our investigational products under the terms of our collaboration agreements.

License and development services revenues are recognized based upon the timing of the delivery of a license or service if delivery is complete, or based on estimates of each performance obligation's percentage of completion at the period end if it is still in process.

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Other Collaboration Revenue

Other collaboration revenue consists primarily of amounts recognized from the portions of the nonrefundable upfront payments received from Gilead and Taiho and allocated to performance obligations relating to access to our investigational pipeline recognized over the period of access.

Other collaboration revenue consists primarily of amounts recognized from the portions of the nonrefundable upfront payments received from Gilead and Taiho and allocated to performance obligations relating to their access to our investigational pipeline or our obligation to perform certain discovery and early development activities.

Revenue related to

access rights is recognized over the period of access, and revenue related to discovery and early development activities is recognized as the performance obligation is satisfied.

Operating Expenses

Research and Development Expenses

Our research and development expenses consist of costs incurred in connection with the research and development of our pipeline programs.

Our R&D expenses consist of costs incurred in connection with the R&D of our pipeline programs.

These expenses include preclinical and clinical expenses, payroll and personnel expenses, including stock-based compensation for our employees in R&D, laboratory supplies, product licenses, consulting costs, contract research, and depreciation.

Shared facility expenses are allocated to functional groups proportionally based on usage.

Under certain collaboration agreements we agree to share research and development expenses with our partners.

Under certain collaboration agreements we agree to share R&D expenses with our partners.

Such cost sharing arrangements may result in receiving reimbursement from our partners or require that we reimburse our partners for qualified expenses.

We expense both internal and external research and development costs as they are incurred.

We record advance payments for services that will be used or rendered for future research and development activities as prepaid expenses and recognize them as an expense as the related services are performed.

We recognize reimbursement for shared costs incurred by us and reimbursed by our partners as a reduction in research and development expense.

We do not allocate all our costs by investigational product, as a significant amount of research and development expenses include internal costs, such as payroll and other personnel expenses, and certain external costs that are not recorded at the investigational product level.

In particular, with respect to internal costs, several of our departments support multiple research and development programs, and we do not allocate those costs by investigational product.

The level of our future research and development investment will depend on a number of factors and uncertainties, including the breadth of the joint development program agreed to with Gilead for the optioned programs, the outcome of our efforts, and the amount of cost reimbursements or milestone payments we receive from our collaborators.

We expect our research and development expenses to increase substantially during the next few years as we pursue joint development programs with Gilead and advance these programs towards regulatory approval.

We expense both internal and external R&D costs as they are incurred.

We record advance payments for services that will be used or rendered for future R&D activities as prepaid expenses and recognize them as an expense as the related services are performed.

We recognize reimbursement for shared costs incurred by us and reimbursed by our partners as a reduction in R&D expense as the underlying costs are incurred.

We do not allocate all our costs by investigational product, as a significant amount of R&D expenses include internal costs, such as payroll and other personnel expenses, and certain external costs that are not recorded at the investigational product level.

In particular, with respect to internal costs, several of our departments support multiple R&D programs, and we do not allocate those costs by investigational product.

The level of our future R&D investment will depend on a number of factors and uncertainties, including the breadth of the joint development program agreed to with Gilead for the optioned programs, the outcome of our efforts, and the amount of cost reimbursements or milestone payments we receive from our collaborators.

We expect our R&D expenses to increase substantially during the next few years as we pursue joint development programs with Gilead and advance these programs towards regulatory approval.

We also expect to advance new programs into the clinic.

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Shared facility expenses are allocated to functional groups proportionally based on usage.

Our G&A expenses also include professional fees for legal, consulting, and accounting services, rent and other facilities costs, fixed asset depreciation, and other general operating expenses not otherwise classified as research and development expenses.

We do not receive significant reimbursements of these costs through our collaboration with Gilead.

We anticipate that our G&A expenses will increase during the next few years as we support our growing research and development activities, including due to staff expansion, and other costs associated with increased infrastructure needs.

We anticipate that our G&A expenses will increase during the next few years as we support our growing R&D activities, including due to staff expansion, and other costs associated with increased infrastructure needs.

Impairment of Long-Lived Assets

Impairment charges consist of impairment of right-of-use assets resulting from updated plans in the first quarter 2024 for a portion of our office space.

Non-Operating Income, net

Non-operating income, net consists primarily of interest earned on our investments in fixed-income marketable securities and non-cash interest expense incurred under the effective interest method on our liability for sale of future royalties to BVF.

Non-operating income, net consists primarily of interest earned on our investments in fixed-income marketable securities, interest expense on our loan financing with Hercules, and non-cash interest expense incurred under the effective interest method on our liability for sale of future royalties to BVF.

Results of Operations

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General and administrative 120 3 % 117 13 % 104

Impairment of long-lived assets 20 * — * —

Total operating expenses 588 29 % 457 17 % 392

Income (loss) from operations (340) 21 % (280) * 54

Loss from operations (330) (3) % (340) 21 % (280)

Non-operating income, net 48 23 % 39 179 % 14

Income (loss) before income taxes (301) 13 % (266) * 55

Loss before income taxes (282) (6) % (301) 13 % (266)

Income tax expense (1) (83) % (6) * (1)

Net income (loss) $ (307) 15 % $ (267) * $ 53

Net loss $ (283) (8) % $ (307) 15 % $ (267)

* Not meaningful

Total Revenues

The increase in Total revenues for 2024 as compared to 2023 was primarily driven by increased revenues from license and development services due to a cumulative catch-up to revenue in the first quarter 2024 of $107 million as a result of the Third Gilead Collaboration Agreement Amendment based on the updated transaction price and measure of progress for the partially satisfied performance obligations;

and Taiho's exercise of its option for the license of quemliclustat for the Taiho Territory of $15 million, which was recognized as revenue upon the delivery of the license in the third quarter of 2024.

The increase in Total revenues for 2023 as compared to 2022 was primarily driven by increased revenues from license and development services due to the progress in the research and development activities under our Taiho collaboration R&D services and our inflammation programs which commenced in 2023, partially offset by a decrease in revenue recognized for Taiho access rights which expired in 2022.

The decrease in Total revenues for 2022 as compared to 2021 was primarily driven by higher revenues in 2021 due to Gilead's exercise of its options, partially offset by increased revenues from R&D services in 2022.

See Note 5, Revenues to our Consolidated Financial Statements, in Part II, Item 8 for further discussion of the amount and timing of revenues recognized from our license and collaboration agreements.

See Note 5, Revenues, in Part II, Item 8 for further discussion of the amount and timing of revenues recognized from our license and collaboration agreements.

Research and Development Expenses

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Category Description Program-Level Expenses Key Clinical

Late-stage development programs R&D expenses incurred related to a Phase 3 clinical program.

This includes all unallocated program-level expense not directly attributable to a specific clinical trial once a molecule enters into one or more Phase 3 clinical trial.

zimberelimab ARC-10

Early-stage development and preclinical programs R&D expenses incurred for activities ranging from early-stage development and preclinical to Phase 2 clinical trials.

Late-stage development programs R&D expenses incurred related to a Phase 3 clinical program intended to result in registration of a new product.

This includes all unallocated program-level expense not directly attributable to a specific clinical trial once a molecule enters into one or more Phase 3 clinical trials.

quemliclustat** PACIFIC-8

Early-stage R&D and preclinical programs R&D expenses incurred for activities ranging from early-stage R&D and preclinical to Phase 2 clinical trials.

This includes all unallocated program-level expense not directly attributable to a specific clinical trial unless the related program has entered into one or more Phase 3 clinical trials.

quemliclustat**

EDGE-Lung VELOCITY-Lung

Compensation and personnel costs Internal costs, such as salaries, non-cash stock-based compensation, and other personnel expenses for our R&D employees that are not allocated to specific programs or trials.

VELOCITY-Lung

VELOCITY-HNSCC

Compensation and personnel costs Internal costs, such as salaries, non-cash stock-based compensation, and other personnel expenses for our R&D employees.

Other costs Facilities, depreciation, and other external costs that are not recorded at the investigational product level.

Partnership reimbursements Reimbursements from our collaboration partners for shared costs incurred by us and recognized as a reduction in R&D expense.

* Study discontinued or completed

** Quemliclustat moved from early-stage development and preclinical program to a late-stage development program in the third quarter 2024

The following table summarizes our R&D expenses by category (in millions):

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Late-stage development programs $ 252 50 % $ 168 35 % $ 124

Early-stage development and preclinical programs 128 (12) % 145 46 % 99

Early-stage R&D and preclinical programs 132 3 % 128 (12) % 145

Compensation and personnel costs 178 16 % 154 18 % 130

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Total research and development $ 448 32 % $ 340 18 % $ 288

* Not meaningful

The increase in R&D expenses for 2023 as compared to 2022 was primarily driven by higher costs to support our expanding late-stage development program activities, including standard-of-care therapeutic purchases, partially offset by lower clinical manufacturing costs due to the timing of activities.

The increase in R&D expenses for 2024 as compared to 2023 was primarily driven by higher costs to support our expanding late-stage development program activities, driven by higher enrollment in our Phase 3 studies for domvanalimab and the initiation of the quemliclustat Phase 3 trial PRISM-1, and the timing of our manufacturing activities.

Our growing headcount drove an increase in compensation and personnel costs, including a $3 million increase in non-cash stock-based compensation.

The overall increase was partially offset by reduced spend in our early-stage development and preclinical program activities due to fewer Phase 2 studies and higher clinical manufacturing costs in 2022 to support expanding study activities.

The increase in R&D expenses for 2022 as compared to 2021 was primarily driven by higher costs to support our expanding late-stage development program activities, including clinical trial costs, manufacturing costs and standard-of-care therapeutic purchases, and early-stage development and preclinical program activities.

Our partnership reimbursements were flat compared to the prior year despite the increases in gross costs, due to increases in Gilead-led activities and programs fully funded by us.

Our growing headcount drove an increase in compensation and personnel costs, including a $2 million increase in non-cash stock-based compensation.

The overall increase was partially offset by higher reimbursements for shared expenses from our collaborators, primarily the Gilead collaboration which was expanded in December 2021.

The overall increase was partially offset by reduced spend in our early-stage R&D and preclinical program activities due to fewer Phase 2 studies and higher clinical manufacturing costs in 2022 to support expanding study activities.

General and Administrative Expenses

The increase in G&A expenses for 2024 as compared to 2023 was primarily driven by the increased complexity of supporting our expanding clinical pipeline and partnership obligations.

Our growing headcount and our 2023 stock awards drove a $9 million increase in employee compensation costs, including $6 million in increased non-cash stock-based compensation.

Our growing headcount and our stock awards drove an increase in employee compensation costs.

The overall increase in G&A expenses was partially offset by income from subleases of space in our Brisbane office.

The increase in G&A expenses for 2023 as compared to 2022 was primarily driven by the increased complexity of supporting our expanding clinical pipeline and partnership obligations.

Our growing headcount and our 2022 stock awards drove a $15 million increase in employee compensation costs, including $6 million in increased non-cash stock-based compensation.

We also incurred a $13 million increase in office facilities expense due to the expansion of our office space to support our growing headcount.

Our growing headcount and our 2023 stock awards drove an increase in employee compensation costs, including $6 million in increased non-cash stock-based compensation.

Impairment of Long-Lived Assets

The increase in impairment expense for 2024 was due to our sublease of a portion of our office space, resulting in an impairment charge of $20 million, compared to no similar impairment in the prior year.

Non-Operating Income, net

The increase in Non-operating income, net for 2024 as compared to 2023 was primarily due to higher interest income resulting from increased investment yields and higher average portfolio balances as compared to the prior year, driven by $320 million received from Gilead in the first quarter 2024 under the amended Stock Purchase Agreement.

The increase in Non-operating income, net for 2023 as compared to 2022 was primarily due to higher interest income resulting from increased investment yields as compared to the prior year.

The increase in Non-operating income, net for 2022 as compared to 2021 was primarily due to a larger portfolio of marketable fixed-income securities and higher interest income resulting from increased investment yields as compared to the prior year.

Income Tax Expense

The decrease in Income tax expense for 2024 as compared to 2023 was primarily due to a decrease in taxable income compared to the prior year.

The increase in Income tax expense for 2023 as compared to 2022 was primarily due to an increase in taxable income compared to the prior year.

The decrease in Income tax expense for 2022 as compared to 2021 was due primarily to lower pretax income.

The 2023 and 2022 Income tax expense considers the impact of the capitalization of R&D expenses for income tax purposes due to changes in U.S.

The Income tax expense for each of the years shown considers the impact of the capitalization of R&D expenses for income tax purposes due to changes in U.S.

The capitalization of R&D expenses may materially impact income tax expense in future years.

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government treasury and agency obligations, investments in corporate securities and certificates of deposit.

Based on our existing business plan, we believe that our cash, cash equivalents, and marketable securities as of December 31, 2023, together with the $320 million we received from Gilead for their equity investment on January 29, 2024, will be sufficient to fund our planned level of operations into 2027.

Based on our existing business plan, we believe that our cash, cash equivalents, and marketable securities as of December 31, 2024, which together with the proceeds from our equity financing in February 2025, we believe will be sufficient to fund our planned level of operations for the foreseeable future and provide funding to our initial pivotal read-outs for domvanalimab, quemliclustat and casdatifan including STAR-221, PRISM-1 and PEAK-1.

Sources of Liquidity

To date, we have financed our operations primarily from the sale of our equity securities and upfront or milestone payments from our research, collaboration and license agreements with our strategic partners including Gilead.

To date, we have financed our operations primarily from the sale of our equity securities, upfront or milestone payments from our research, collaboration and license agreements with our strategic partners including Gilead and debt financing.

We will need substantial additional funding to support our continuing operations and pursue our development strategy.

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Under the Stock Purchase Agreement, Gilead has the right, at its option, to purchase additional shares from us, up to a maximum ownership of 35% of our then-outstanding voting common stock, from time to time until July 2025.

In June 2023, we amended and restated the Stock Purchase Agreement and sold 1.0 million shares of our common stock to Gilead at a purchase price of $19.26 per share for total gross proceeds of $20 million.

In January 2024, we further amended and restated the Stock Purchase Agreement and sold 15.2 million shares of our common stock to Gilead at a purchase price of $21.00 per share for total gross proceeds of $320 million.

In the first quarter 2024, we further amended and restated the Stock Purchase Agreement and sold 15.2 million shares of our common stock to Gilead at a purchase price of $21.00 per share for total gross proceeds of $320 million.

Of the $320 million equity investment, $87 million was determined to be a premium on the purchase of common stock and allocated to the performance obligations created by the Third Gilead Collaboration Agreement Amendment.

As of December 31, 2024, Gilead held approximately 32.6% of our outstanding common stock arising from purchases in our 2020 public offering and purchases under the Stock Purchase Agreement and the related amendments.

Gilead acquired an additional 1.4 million shares of our common stock in the February 2025 underwritten offering and subsequently held approximately 29.7% of our common stock as of February 19, 2025.

In 2023, we entered into an equity distribution agreement pursuant to which we may, from time to time, sell shares of our common stock having an aggregate offering price of up to $200 million.

During the year ended December 31, 2023, we issued and sold under this agreement 0.2 million shares of our common stock for total net proceeds of $5 million.

We had no activity during the year ended December 31, 2024, and during the year ended December 31, 2023, we issued and sold under this agreement 0.2 million shares of our common stock for total net proceeds of $5 million.

See Note 15, Stockholders’ equity, in Part II, Item 8 for further discussion.

In the third quarter 2024, we obtained a $250 million term loan facility from Hercules Capital, Inc.

("Hercules").

Under the terms of the term loan facility, $50 million was drawn at closing and an additional $100 million is committed and fully available at Arcus's sole option in minimum increments of $25 million.

A second tranche of $100 million will be available to support strategic initiatives, subject to future approval by Hercules.

See Note 13, Long-term debt, in Part II, Item 8 for further discussion.

In February 2025, we issued through an underwritten offering, 13.6 million shares of our common stock at a price of $11.00 per share, for total gross proceeds of approximately $150 million, before deducting underwriting discounts, commissions and offering expense.

Material Cash Requirements

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See “Contractual Obligations and Commitments” for more information regarding our cash requirements from known contractual commitments.

The following table summarizes our cash flow activities for each of the periods presented below (in millions):

The following table summarizes our cash flow activities (in millions):

Year Ended December 31,

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Operating Activities

Net cash used in operating activities for 2023 was $306 million as compared to net cash provided by operating activities of $438 million for the same period in the prior year.

The change in operating cash flows is primarily due to $725 million received from Gilead in January 2022 under the Gilead Collaboration Agreement.

Net cash provided by operating activities for 2022 was $438 million as compared to net cash used in operating activities of $256 million for the prior year.

The change in operating cash flows is primarily due to the $725 million received from Gilead in January 2022 under the Gilead Collaboration Agreement, partially offset by increased expenses incurred to support our expanded clinical development activities.

Net cash used in operating activities for 2024 was $170 million as compared to net cash used in operating activities of $306 million for the same period in the prior year.

The change in operating cash flows is primarily due to the receipt of the $100 million option continuation payment from Gilead in the third quarter 2024, the $87 million under the Third Gilead Collaboration Agreement Amendment in the first quarter 2024, and the receipt of $45 million in total from Taiho for development milestones and its opt-in on quemliclustat, partially offset by higher R&D expenditures.

Net cash used in operating activities for 2023 was $306 million as compared to net cash provided by operating activities of $438 million for the prior year.

The change in operating cash flows is primarily due to $725 million received from Gilead in 2022 under the Gilead Collaboration Agreement.

Investing Activities

Cash used in investing activities for 2024 was primarily due to net purchases of marketable securities of $78 million as we invested a portion of the cash received from Gilead in the first quarter 2024 under the Third Stock Purchase Agreement Amendment.

Cash provided by investing activities for 2023 was primarily due to net proceeds from marketable securities of $218 million, partially offset by purchases of property and equipment of $24 million.

Cash used in investing activities for 2022 was primarily due to net purchases of marketable securities of $404 million as we invested a portion of the $725 million received from Gilead in January 2022 under the Gilead Collaboration Agreement.

Cash used in investing activities for 2021 was primarily due to purchases of property and equipment of $26 million, partially offset by net proceeds from marketable securities of $22 million.

Financing Activities

Cash used in financing activities for 2024 was due to net proceeds of $228 million from issuance of our common stock to Gilead under the Third Stock Purchase Agreement Amendment, net proceeds of $47 million from our borrowings under the Hercules Agreement, and net proceeds of $2 million for stock issued under our equity award plans.

Cash provided by financing activities for 2023 was due to net proceeds of $25 million from issuance of our common stock, primarily due to stock purchases by Gilead, and proceeds of $8 million for stock issued under our equity award plans.

Cash provided by financing activities for 2022 was primarily due to net proceeds of $23 million for stock issued under our equity award plans and $10 million received under the BVF agreement.

Cash provided by financing activities for 2021 was primarily due to proceeds of $220 million from Gilead for stock issued under the Stock Purchase Agreement.

Contractual Obligations and Commitments

We have cash requirements to pay third parties under various contractual obligations as discussed below.

We are obligated to make principal loan payments, interest payments and an end of term charge under the loan and security agreement with Hercules.

See Note 13, Long-term debt, in Part II, Item 8 for further discussion.

We are obligated to make payments for operating leases.

See Note 13 to our Consolidated Financial Statements in Item 8 for further discussion.

See Note 14, Leases, in Part II, Item 8 for further discussion.

We are contractually obligated to pay additional amounts that in the aggregate are significant, upon the achievement of various development, regulatory and commercial milestones for agreements we have entered into with third parties.

These payments are contingent upon the occurrence of various future events, substantially all of which have a high degree of uncertainty of occurring, and any resulting cash requirements are managed through our operational budgeting processes.

See Note 4 to our Consolidated Financial Statements in Item 8 for further discussion.

See Note 4, License and collaborations, in Part II, Item 8 for further discussion.

We have a liability for sale of future royalties which consists of the current balance of estimated contingent milestone and royalty payments under the BVF agreement.

See Note 15 to our Consolidated Financial Statements in Item 8 for further discussion.

See Note 16, Fair value measurements, in Part II, Item 8 for further discussion.

We enter into contracts in the normal course of business with third parties for clinical trial management and execution, non-clinical studies and testing, manufacturing, and other services and products for operating purposes.

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Our Consolidated Financial Statements have been prepared in accordance with U.S.

generally accepted accounting principles ("U.S.

The preparation of these Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements, as well as the reported revenue and expenses incurred during the reporting periods.

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Actual results may differ from these estimates under different assumptions or conditions.

We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s significant judgments and estimates.

While our significant accounting policies are described in the notes to our Consolidated Financial Statements, we believe that the following critical accounting estimates are most important to understanding and evaluating our reported financial results.

While our significant accounting policies are described in the notes to our Consolidated Financial Statements, we believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management's significant judgments and estimates.

Revenue Recognition

At the inception of an arrangement, we evaluate if a counterparty to a contract is a customer, if the arrangement is within the scope of revenue from contracts with customers guidance, and the term of the contract.

We recognize revenue when a customer obtains control of promised goods or services in a contract for an amount that reflects the consideration we expect to receive in exchange for those goods or services.

For contracts with customers, we perform the following five steps:

(i) identify the contract(s) with a customer;

(ii) identify the performance obligations in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue when (or as) we satisfy each performance obligation.

We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer.

As part of the accounting for contracts with customers, we develop assumptions that require judgment to determine the standalone selling price of each performance obligation identified in the contract.

In addition, variable consideration such as milestone payments are evaluated to determine if they are constrained and, therefore, excluded from the transaction price.

We then allocate the total transaction price to each performance obligation based on their relative estimated standalone selling prices.

We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

For the recognition of revenue relating to the Gilead Agreements, as disclosed in Note 5, Revenues, to our Consolidated Financial Statements in Part II, Item 8, we allocated the total transaction price to each performance obligation on a relative standalone selling price basis and determined whether revenue should be recognized at a point in time or over time as services are performed.

The estimation of the standalone selling price included estimates for forecasted revenues or costs, development timelines, discount rates, and probabilities of technical and regulatory success.

We evaluate each performance obligation to determine if it can be satisfied at a point in time or over time as services are performed, and we measure the services delivered to Gilead, which we periodically review based on the progress of the related program.

The effect of any change made to an estimated input component and, therefore revenue or expense recognized, would be recorded as a change in estimate.

In addition, variable consideration (e.g., milestone payments) is evaluated to determine if it is constrained and, therefore, excluded from the transaction price.

Revenue related to certain performance obligations that are satisfied over time could be materially impacted as a result of changes in the total estimated effort required to satisfy those obligations.

A hypothetical 10% change in the total estimated effort required to satisfy the combined license and R&D activities performance obligations related to the agreement with Gilead would have changed the related revenue recognized during the current year by as much as $8 million.

For the year ended December 31, 2023, we recognized $4 million in cumulative catch-up revenues from such changes in estimates.

See Results of Operations above for further discussion.

These changes in estimate could have a material impact on the revenue recognized in a future period.

For performance obligations that are distinct and determined to be transferred or satisfied at a point in time, the estimated standalone selling price will affect the amount of revenue recognized upon satisfaction of the related performance obligation such as the transfer of control of a license.

For the domvanalimab license with Gilead, transfer of the license and satisfaction of the related performance obligation occurred in 2021.

The estimated standalone selling price of the domvanalimab license utilized assumptions of discounted cash flows which require judgment.

A 10% change in the total estimated cash flows used in determining the estimated standalone selling price of the domvanalimab license would have resulted in a change in the amount of revenue recognized in 2021 of approximately $20 million with a corresponding change in the transaction price allocated to the remaining performance obligations in the Gilead Collaboration Agreement.

In the first quarter 2024, we entered into the Third Gilead Collaboration Agreement Amendment, which we determined was a change in scope and price of the original contract and we accounted for this contract modification as both a modification of the existing contract and the creation of a new contract.

(See Note 5, Revenues, in Part II, Item 8 for further discussion).

We determined the standalone selling price of certain performance obligations and allocated the total transaction price to each performance obligation on a relative standalone selling price basis.

The estimation of the standalone selling price included estimates for forecasted costs, development timelines, discount rates, and probabilities of technical and regulatory success.

Under the applicable accounting rules for such contract modifications, we did not adjust the accounting for completed performance obligations that were distinct from the modified goods or services.

However, we were required to adjust revenue previously recognized to reflect the effect of the contract modification due to the updated transaction price allocated to the partially satisfied performance obligations and the updated measure of progress as of the modification date.

Accordingly, we recognized a cumulative catch-up to revenue of $107 million based on the updated transaction price and measure of progress for the partially satisfied performance obligations.

A hypothetical 10% change in the updated standalone selling prices or the updated measure of progress as of the modification date related to Third Gilead Collaboration Agreement Amendment would have changed the cumulative catch-up to revenue recognized during the current year to date period by as much as $3 million or $32 million, respectively.

Recent Accounting Pronouncements

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What changed 10-K

Item 7. Management’s Discussion and Analysis