rcus-20240331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

_____________________________________

FORM 10-Q

_____________________________________

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________to _______________

Commission File Number: 001-38419

_____________________________________

Arcus Biosciences, Inc.

(Exact Name of Registrant as Specified in its Charter)

_____________________________________


Delaware			47-3898435
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

3928 Point Eden Way Hayward, California 94545
(Address of principal executive offices)

Registrant’s telephone number, including area code: (510) 694-6200

_____________________________________

Securities registered pursuant to Section 12(b) of the Act:

Titles of Each Class

Trading Symbol(s)

Name of Each Exchange on which Registered

Common Stock, Par Value $0.0001 Per Share

RCUS

The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of May 1, 2024, the registrant had 90,953,011 shares of common stock, $0.0001 par value per share, outstanding.

ARCUS BIOSCIENCES, INC.

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		Page
	RISK FACTOR SUMMARY	i
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Condensed Consolidated Statements of Operations	1
	Condensed Consolidated Statements of Comprehensive Loss	2
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Stockholders’ Equity	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 3.	Defaults Upon Senior Securities	56
Item 4.	Mine Safety Disclosures	56
Item 5.	Other Information	57
Item 6.	Exhibits	58
SIGNATURES		60

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RISK FACTOR SUMMARY

The following is a summary of the key risks and uncertainties that make an investment in our securities speculative and risky. The below summary does not contain all of the information that may be important to you, and you should read this summary together with the more detailed description of the risks set forth under "Part II. Item 1A. Risk Factors" of the Quarterly Report.

Risks Related to our Limited Operating History, Financial Position and Capital Requirements

•We have a history of operating losses, have never generated any revenue from product sales and anticipate that we will continue to incur significant losses for the foreseeable future. As a result, we may need to obtain additional funding to finance our operations. If we do not receive substantial capital when needed, we may be forced to restrict our operations or delay, reduce or eliminate our product development programs.

Risks Related to the Discovery and Development of our Investigational Products

•Clinical drug development is a lengthy, expensive and uncertain process, if we are unable to develop, obtain regulatory approval for and commercialize our investigational products, or experience significant delays in doing so, our business will be materially harmed.

•The results of preclinical studies and early clinical trials, including interim data from our clinical studies that we announce or publish from time to time, are not always predictive of future results and could materially change due to audit and verification procedures or as more patient data become available.

•Competing treatments, clinical trials of competing investigational products, geopolitical instability and public health epidemics, each of which could result in significant delays and additional costs in our product development activities, or in the failure of such activities.

•Serious adverse events, undesirable side effects or other unexpected properties of our investigational products could lead to the discontinuation of our clinical development programs, refusal by regulatory authorities to approve our investigational products or limitations on the use of our investigational products or revocation of any marketing authorizations.

•If we are not successful in discovering, developing and commercializing investigational products that take advantage of different mechanisms of action to achieve superior outcomes relative to the use of single agents or other combination therapies, our ability to achieve our strategic objectives would be impaired.

•Failure to successfully develop, validate and obtain regulatory clearance or approval for any required companion diagnostics required for our investigational products could harm our product development strategy or prevent us from realizing the full commercial potential of our investigational products.

Risks Related to Reliance on Third Parties, Manufacturing and Commercialization

•If our collaboration with Gilead Sciences, Inc. ("Gilead") is not successful, our business could be adversely affected.

•If the third parties we rely on to conduct our clinical trials and handle manufacture and supply of our investigational products and comparator products do not satisfactorily carry out their contractual duties, supply us with sufficient quantities or fail to meet expected deadlines, our development programs may be delayed or subject to increased costs, each of which may have an adverse effect on our business and prospects.

•Even if we receive marketing approval, we may not be successful in commercializing our investigational products or obtaining coverage and reimbursement approval for a product from a government or other third-party payor, which coverage may be delayed or may not be sufficient to cover our costs.

•Our investigational products may never be approved or commercialized outside the United States ("U.S."), which would limit our ability to realize their full market potential.

Risks Related to In-Licenses, Strategic Arrangements and Intellectual Property

•We are currently party to several in-license agreements under which we acquired rights to use, develop, manufacture and/or commercialize certain of our investigational products. If we breach our obligations

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under these agreements, we may be required to pay damages, lose our rights to these investigational products or both, which would adversely affect our business and prospects.

•If we are unable to obtain and maintain sufficient intellectual property protection for our investigational products, our competitors could develop and commercialize products similar or identical to ours, and our ability to successfully commercialize our products may be adversely affected.

•We may become involved in lawsuits alleging that we have infringed the intellectual property rights of third parties or to protect or enforce our patents or other intellectual property, which litigation could affect our ability to develop or commercialize our investigational products.

•Changes in patent law in the U.S. and other jurisdictions could diminish the value of patents in general, thereby impairing our ability to protect our investigational products.

•If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.

Risks Related to our Business Operations and Industry

•We expect to expand our business operations and, as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

•We face substantial competition, which may result in others discovering, developing or commercializing products more quickly or marketing them more successfully than us. If their investigational products are shown to be safer or more effective than ours, then our commercial opportunity will be reduced or eliminated. Any investigational products for which we intend to seek approval as biologic products may face competition sooner than anticipated.

•Our internal information technology systems, and those of the third parties upon which we rely, are subject to failure, security breaches and other disruptions, which could result in a material disruption of our investigational products’ development programs, jeopardize sensitive information, or prevent us from accessing critical information or result in a loss of our assets, and potentially expose us to notification obligations, loss, liability or reputational damage and otherwise adversely affect our business.

•Failure to comply with privacy and data protection laws, regulations or other obligations could lead to government enforcement actions (which could include civil or criminal penalties), private litigation, and/or adverse publicity and could negatively affect our operating results and business.

•Changes in healthcare law and implementing regulations, as well as changes in healthcare policy, may impact our business in ways that we cannot currently predict, and may have a significant adverse effect on our business and results of operations.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

ARCUS BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share amounts)

(unaudited)


	Three Months Ended March 31,
		2024		2023
Revenues:
License and development services revenue (Includes $131 and $17 from a related party)		$	135	$	17
Other collaboration revenue (Includes $10 and $8 from a related party)		10		8
Total revenues		145		25

Operating expenses:
Research and development (Net of recoveries of $16 and $33 from a related party)		109		81
General and administrative		32		30
Impairment of long-lived assets (see Note 11, Leases)		20		—
Total operating expenses		161		111

Loss from operations		(16)		(86)

Non-operating income (expense):
Interest and other income, net		13		9
Effective interest on liability for sale of future royalties		(1)		(1)
Total non-operating income, net		12		8

Loss before income taxes		(4)		(78)

Income tax expense		—		(2)

Net loss		$	(4)	$	(80)

Net loss per share:
Basic and diluted		$	(0.05)	$	(1.09)

Shares used to compute net loss per share:
Basic and diluted		86.2		73.0

See accompanying notes.

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ARCUS BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In millions)

(unaudited)


	Three Months Ended March 31,
		2024		2023
Net loss		$	(4)	$	(80)

Other comprehensive income (loss)		(1)		3

Comprehensive loss		$	(5)	$	(77)

See accompanying notes.

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ARCUS BIOSCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except per share amounts)

(unaudited)


	March 31, 2024		December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	185	$	127
Marketable securities	810		632
Receivable from collaboration partners ($21 and $20 from a related party)	35		38
Prepaid expenses and other current assets	34		34
Total current assets	1,064		831

Long-term marketable securities	100		107
Property and equipment, net	51		51
Other noncurrent assets ($— and $6 from a related party)	78		106
Total assets	$	1,293	$	1,095

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	16	$	17
Deferred revenue ($112 and $84 to a related party)	124		91
Other current liabilities	64		76
Total current liabilities	204		184

Deferred revenue, noncurrent ($209 and $291 to a related party)	242		307
Other noncurrent liabilities	140		142

Commitments

Stockholders’ equity:
Common stock and additional paid-in capital: $0.0001 par value per share; 400.0 shares authorized; 90.9 shares in 2024 and 75.5 shares in 2023 issued and outstanding	1,561		1,311
Accumulated deficit	(853)		(849)
Accumulated other comprehensive loss	(1)		—
Total stockholders’ equity	707		462
Total liabilities and stockholders’ equity	$	1,293	$	1,095

See accompanying notes.

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ARCUS BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In millions)

(unaudited)


	Number of shares of common stock	Common stock and additional paid-in capital		Accumulated deficit		Accumulated other comprehensive loss		Total stockholders’ equity
Balance at December 31, 2022	72.9	$	1,206	$	(542)	$	(7)	$	657










Issuance of common stock in connection with our equity award programs	0.2	1		—		—		1
Stock-based compensation	—	19		—		—		19
Other comprehensive income	—	—		—		3		3
Net loss	—	—		(80)		—		(80)
Balance at March 31, 2023	73.1	$	1,226	$	(622)	$	(4)	$	600

Balance at December 31, 2023	75.5	$	1,311	$	(849)	$	—	$	462










Issuance of common stock (see Note 3, Related party - Gilead Sciences, Inc. and Note 12, Stockholders' Equity)	15.2	228		—		—		228
Issuance of common stock in connection with our equity award programs	0.2	2		—		—		2
Stock-based compensation	—	20		—		—		20
Other comprehensive loss	—	—		—		(1)		(1)
Net loss	—	—		(4)		—		(4)
Balance at March 31, 2024	90.9	$	1,561	$	(853)	$	(1)	$	707

See accompanying notes.

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ARCUS BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(unaudited)


	Three Months Ended March 31,
	2024		2023
Cash flow from operating activities
Net loss	$	(4)	$	(80)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense	20		19
Depreciation and amortization	3		2
Noncash lease expense	2		2
Impairment of long-lived assets	20		—
Amortization of discounts on marketable securities	(6)		(4)
Other items, net	—		1
Changes in operating assets and liabilities:
Receivable from collaboration partners (($1) and $6 from a related party)	13		6
Other assets ($6 and ($1) from a related party)	5		(8)
Accounts payable	(1)		10
Deferred revenue (($54) and ($25) to a related party)	(42)		(25)
Other liabilities	(12)		(21)
Net cash used in operating activities	(2)		(98)

Cash flow from investing activities
Purchases of marketable securities	(387)		(154)
Proceeds from maturities of marketable securities	222		284
Proceeds from sales of marketable securities	—		2
Purchases of property and equipment	(4)		(3)
Net cash provided by (used in) investing activities	(169)		129

Cash flow from financing activities
Proceeds from issuance of common stock ($228 and $— from a related party)	228		—
Proceeds from issuance of common stock pursuant to equity award plans	1		1
Net cash provided by financing activities	229		1
Net increase in cash, cash equivalents and restricted cash	58		32
Cash, cash equivalents and restricted cash at beginning of period	130		209
Cash, cash equivalents and restricted cash at end of period	$	188	$	241

Non-cash investing and financing activities:
Unpaid portion of property and equipment purchases included in Accounts payable and Other current liabilities	$	1	$	4

See accompanying notes.

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ARCUS BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1. Organization, liquidity and capital resources

Organization

Arcus Biosciences, Inc. (referred to as "Arcus," "we," "our," "us," or the "Company") is 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.

We operate and manage our business as one reportable and operating segment, which is the business of developing and commercializing highly differentiated therapies that have a meaningful impact on patients.

Liquidity and Capital Resources

As of March 31, 2024, we had cash, cash equivalents and marketable securities of $1.1 billion, which we believe will be sufficient to fund our planned operations for a period of at least twelve months following the date of filing of this report.

Note 2. Summary of significant accounting policies

Basis of Presentation

These interim financial statements should be read in conjunction with the audited Consolidated Financial Statements and the related notes thereto for the year ended December 31, 2023 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on February 21, 2024. There have been no significant changes to our accounting policies as described in Note 2, Summary of significant accounting policies, in the notes to the Consolidated Financial Statements in Item 8 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2023.

These interim financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and include all normal and recurring adjustments that management believes are necessary for a fair presentation of the periods presented. The Condensed Consolidated Balance Sheet as of December 31, 2023 has been derived from audited consolidated financial statements at that date but does not include all of the information required by U.S. GAAP for complete financial statements.

Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 or for any future period.

Use of Estimates

The preparation of the Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. We base our estimates on historical experience and on various market-specific and other relevant assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates are assessed and updated each period to reflect current information. Actual results may differ materially from those estimates.

Recent Accounting Pronouncements

There have been no new accounting pronouncements issued or adopted during the period with a significant impact to our financial statements.

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Note 3. Related party - Gilead Sciences, Inc.

In 2020, we and Gilead entered into an Option, License and Collaboration Agreement (the "Gilead Collaboration Agreement"), Common Stock Purchase Agreement (the "Stock Purchase Agreement"), and Investor Rights Agreement (the "Investor Rights Agreement"). In 2021, we amended the Gilead Collaboration Agreement (the "First Gilead Collaboration Agreement Amendment") and the Stock Purchase Agreement (the "First Stock Purchase Agreement Amendment"). In 2022, we amended the Investor Rights Agreement (the "First Investor Rights Agreement Amendment"). In 2023, we further amended the Gilead Collaboration Agreement (the "Second Gilead Collaboration Agreement Amendment") and the Stock Purchase Agreement (the "Second Stock Purchase Agreement Amendment"). In January 2024, we further amended the Gilead Collaboration Agreement (the "Third Gilead Collaboration Agreement Amendment"), amended and restated our stock purchase agreements (the "Third Stock Purchase Agreement Amendment") and amended and restated our investor rights agreement (the "Second Investor Rights Agreement Amendment"). We refer to these agreements collectively as the Gilead Agreements.

Stock Purchase and Investor Rights Agreements

In June 2023, under the Second Stock Purchase Agreement Amendment, Gilead purchased 1.0 million shares of our common stock for total gross proceeds of $20 million.

In January 2024, under the Third Stock Purchase Agreement Amendment, Gilead purchased 15.2 million shares of our common stock for total gross proceeds of $320 million, of which $87 million was determined to be a premium on the purchase of common stock and allocated to the performance obligations under the Third Gilead Collaboration Agreement Amendment, see Note 5, Revenues.

Gilead has the right, at its option until July 2025, to purchase up to a maximum of 35% of the Company’s then-outstanding voting common stock, at a purchase price equal to the greater of a 20% premium to market (based on a trailing five-day average closing price at option exercise) or the $33.54 initial purchase price. Based on the value of our common stock at each contract closing, the right to purchase additional shares had no value. Under the Investor Rights Agreement entered into in 2020 and subsequently amended, Gilead has: the right to designate three members of our board of directors; registration rights for shares that it purchases; and pro rata participation rights in certain future financings. Gilead has exercised its rights to appoint all three board members and we have registered all shares purchased to date.

As of March 31, 2024, Gilead held approximately 33.1% of our outstanding common stock arising from purchases in our May 2020 public offering and purchases under the Stock Purchase Agreement and the related amendments.

Collaboration Agreements

In 2020, we entered into the Gilead Collaboration Agreement, which gave Gilead an exclusive license to develop and commercialize zimberelimab (the anti PD-1 program) in certain markets and time-limited options to acquire exclusive licenses to develop and commercialize any of our then-current and future clinical programs arising during the 10-year collaboration term, contingent upon $100 million option continuation payments payable on each of the second, fourth, sixth and eighth anniversaries of the agreement. Upon closing of the transaction in July 2020, Gilead made an upfront payment of $175 million.

In 2021, we entered into the First Gilead Collaboration Agreement Amendment pursuant to which Gilead exercised its option to three programs—providing Gilead with exclusive licenses to develop and commercialize domvanalimab and AB308 (collectively, the anti-TIGIT program), etrumadenant (the adenosine receptor antagonist program) and quemliclustat (the CD73 program), in certain markets—for a total payment of $725 million that was received in 2022. The amendment also (i) provided for a slight reduction in the royalties for these three programs, such that Gilead will pay us tiered royalties as a percentage of revenues ranging from the mid-teens to the low twenties; and (ii) removed the $100 million option continuation payment that was otherwise due on the second anniversary of the Gilead Collaboration Agreement.

Gilead's option, on a program-by-program basis, will expire after a prescribed period following the achievement of a clinical development milestone in such program and our delivery to Gilead of the requisite data package. Gilead may exercise its option to any program at any time prior to expiration of the option and will pay Arcus an option fee of $150 million per program. With respect to domvanalimab, we are also eligible to receive up to $500 million in potential U.S. regulatory approval milestones.

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For each program that Gilead opts in to, both companies will co-develop and equally share global development costs, subject to certain opt-out rights that we have, caps on our spending and related subsequent adjustments, and certain other exceptions. For each program, provided we have not exercised our opt-out rights, we have the option to co-promote in the U.S. with equal sharing of related profits and losses. Gilead has the right to exclusively commercialize outside of the U.S., subject to the rights of our existing partners in any territories and will pay us tiered royalties as a percentage of revenues ranging from the high teens to the low twenties.

Under the First Gilead Collaboration Agreement Amendment, Gilead also has option rights to two oncology research programs for which we will lead discovery and early development activities. With respect to these two research programs, Gilead has the right to exercise its option, on a program-by-program basis, either (i) upon our completion of certain IND-enabling activities for an option payment of $60 million or (ii) following the achievement of a clinical development milestone for an option payment of $150 million. These research programs were not determined to be performance obligations at contract inception, due to the very early stages of the programs.

In May 2023, we entered into the Second Gilead Collaboration Agreement Amendment pursuant to which we expanded our 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. We will receive an upfront payment of $17.5 million for each initiated program and Gilead will have an option to license each program at two separate, prespecified time points. For the first two research programs, Gilead has the right to exercise its option, on a program-by-program basis, either (i) upon our completion of certain IND-enabling activities for an option payment of $45 million or (ii) following the achievement of a clinical development milestone for an option payment of $150 million. If Gilead exercises its option at the earlier time point for the first two programs, we would be eligible to receive up to $375 million in regulatory and commercial milestone payments as well as tiered royalties for each optioned program. For any other program option exercise by Gilead, the parties would have rights to co-develop and share global development costs and to co-commercialize and share profits in the U.S. for that program. We received a total upfront payment of $35 million for an initial two research programs in June 2023. For the other two research programs, Gilead’s options expire unless the programs are selected prior to May 2024.

In January 2024, we entered into the Third Gilead Collaboration Agreement Amendment. The Third Gilead Collaboration Agreement Amendment, among other things, (i) requires Gilead to pay the $100 million option continuation payment due on the fourth anniversary of the Gilead Collaboration Agreement, (ii) provides that we will operationalize and fund a Phase 3 study we plan to initiate to evaluate quemliclustat in pancreatic cancer subject to Gilead’s right to reinstate the study as part of the parties’ joint development activities upon regulatory approval, (iii) provides that we will solely fund our share of PACIFIC-8, subject to Gilead’s right to reinstate PACIFIC-8 as part of the parties’ joint development activities for the TIGIT Program in the first quarter of 2026, and (iv) provides that we will fund certain other activities. All other terms of the existing collaboration agreements, remain unchanged.

As of March 31, 2024, Gilead has licenses to domvanalimab, AB308, etrumadenant, quemliclustat and zimberelimab.

For the three months ended March 31, 2024 and 2023, we recognized revenue under the Gilead Agreements of $141 million and $25 million, respectively, and net reimbursements from Gilead recognized as reductions in research and development ("R&D") expense of $16 million and $33 million, respectively.

For a more detailed discussion on revenues recognized under the Gilead Agreements, see Note 5, Revenues.

Note 4. License and collaborations

We enter into licensing agreements, strategic collaborations and other similar arrangements with third parties for the development and commercialization of certain investigational products. These arrangements may be collaborative and involve two or more parties who are active participants in the operating activities of the collaboration and are exposed to significant risks and rewards depending on the commercial success of the activities. These arrangements may include: non-refundable upfront payments; payments for options to acquire certain rights; potential development and regulatory milestone payments and/or sales-based milestone payments; royalty payments; revenue or profit-sharing arrangements; expense reimbursements; and cost-sharing arrangements.

Operating expenses for costs incurred pursuant to these arrangements are reported in their respective expense line items in the Condensed Consolidated Statements of Operations, net of any payments due to or reimbursements due from our collaboration partners, with such reimbursements being recognized at the time the party becomes obligated to pay.

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Our significant arrangements are discussed below.

Gilead Collaboration

See Note 3, Related party - Gilead Sciences, Inc.

Taiho Collaboration

In 2017, we entered into an agreement with Taiho Pharmaceutical Co., Ltd (“Taiho”) under which we granted them exclusive options to programs arising over a five-year period which ended in September 2022 for an upfront payment of $35 million. Upon an option exercise of a program, Taiho would obtain exclusive development and commercialization rights to investigational products under the program for the Taiho Territory.

For each option that Taiho exercises, they will be obligated to make a payment of $3 million to $15 million, depending on the development stage of the optioned program. Upon exercise, Taiho is solely responsible for continued development and commercialization in the Taiho Territory. In addition, for each optioned program we would be eligible to receive clinical and regulatory milestones of up to $130 million and commercial milestone payments of up to $145 million with the achievement of certain sales thresholds in the Taiho Territory. We will also receive royalties ranging from high single-digits to mid-teens on net sales of licensed products in the Taiho Territory. Royalties will be payable by product and country commencing on the first commercial sale and ending upon the later of: (a) 10 years; and (b) expiration of the last-to-expire valid claim of our patents covering the manufacture, use or sale.

As of March 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 (the anti-TIGIT program).

During 2022, Taiho opted to participate in two global Phase 3 trials of domvanalimab and zimberelimab combinations, STAR-121 and STAR-221, and became obligated to make certain milestone payments contingent upon successfully satisfying the related clinical milestones. During the quarter ended September 30, 2023, the clinical milestones for domvanalimab and zimberelimab for the STAR-221 study were met and Taiho became obligated to pay us $28 million which was fully received as of March 31, 2024. In January 2024, the clinical milestones for domvanalimab and zimberelimab for the STAR-121 study were met and Taiho became obligated to pay us $26 million of which $16 million has been received as of March 31, 2024 with the remaining $10 million due in the first quarter of 2025.

For the three months ended March 31, 2024, we recognized revenue of $4 million under this arrangement. For a more detailed discussion on revenues see Note 5, Revenues. For the three months ended March 31, 2024, we recognized net reimbursements from Taiho as a reduction in R&D expense of $3 million.

At March 31, 2024 and December 31, 2023, we had $10 million and $14 million, respectively, recorded in Receivable from collaboration partners on our Condensed Consolidated Balance Sheets.

AstraZeneca Collaboration

In 2020, we entered into a collaboration with AstraZeneca to evaluate domvanalimab, our investigational anti-TIGIT antibody, in combination with AstraZeneca’s durvalumab in a registrational Phase 3 clinical trial in patients with unresectable Stage 3 NSCLC, known as the PACIFIC-8 trial. The terms of this agreement were amended in January 2024. Under the collaboration, as amended, each company will retain existing rights to their respective molecules and any future commercial economics. AstraZeneca will conduct the trial, and each company will supply their respective investigational product to support the trial. We may incur milestones of up to $24 million upon the achievement of certain clinical trial progress milestones or under certain circumstances if the agreement is terminated early and we will reimburse AstraZeneca annually for a portion of the trial costs. The portion of the costs that we consider to be unavoidable are accrued as incurred and milestones that are deemed probable of occurring are accrued in advance of the achievement of the milestone.

For the three months ended March 31, 2024 and 2023, we recognized as R&D expense $3 million and $2 million, respectively under this arrangement. At March 31, 2024, we have recognized a liability of $2 million related to our obligation to AstraZeneca, which are recorded in Other current liabilities. At March 31, 2024 and December 31, 2023, we have recognized liabilities of $12 million and $11 million, respectively, related to our obligation to AstraZeneca which is recorded in Other noncurrent liabilities on our Condensed Consolidated Balance Sheets.

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Prior to January 2024, the PACIFIC-8 trial formed part of the Arcus and Gilead joint development program for domvanalimab and our portion of the trial costs were shared with Gilead. At December 31, 2023, we had recognized amounts due from Gilead for these shared costs of $6 million, recorded in Other noncurrent assets on our Condensed Consolidated Balance Sheet. Under the Third Gilead Collaboration Agreement Amendment, we agreed to solely fund our share of PACIFIC-8, subject to Gilead’s right to reinstate PACIFIC-8 as part of the parties’ joint development activities for the TIGIT Program in the first quarter of 2026. For the three months ended March 31, 2024, we incurred $6 million of R&D expense reflecting our additional share of incurred costs.

WuXi Biologics License - anti-PD-1

In 2017, we entered into an agreement with WuXi Biologics Ireland Limited ("WuXi Biologics") which, as amended, provides us with exclusive rights to (i) develop, use and manufacture products that include an anti-PD-1 antibody, including zimberelimab, worldwide and (ii) commercialize any such products worldwide, except in Greater China. Under the agreement, as of March 31, 2024, we may incur (i) regulatory milestone payments of up to $50 million for zimberelimab, and commercialization milestone payments of up to $375 million, (ii) tiered royalties that range from the high single-digits to low teens on net sales of the licensed products and (iii) fees related to any sublicenses.

For the three months ended March 31, 2024 and 2023, we did not have any milestones or royalties due under this arrangement.

WuXi Biologics License - anti-CD39

In 2020, we entered into an agreement with WuXi Biologics, under which we obtained the exclusive worldwide license to develop and commercialize anti-CD39 antibodies discovered under the agreement. As of March 31, 2024, we may incur additional clinical and regulatory milestone payments of up to $14 million and royalty payments in the low single digits on net sales of the licensed products under this agreement.

For the three months ended March 31, 2023, we incurred development milestones of $1 million related to this arrangement, which were recognized as R&D expense.

Abmuno License

In 2016, we entered into an agreement (the "Abmuno Agreement") with Abmuno Therapeutics LLC ("Abmuno"), under which we obtained the exclusive worldwide license to develop, use, manufacture, and commercialize products that include an anti-TIGIT antibody, including domvanalimab. Under the agreement, as of March 31, 2024 we may incur additional clinical, regulatory and commercialization milestone payments of up to $88 million.

For the three month

SEC Form 10-Q filed by Arcus Biosciences Inc.