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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended June 30, 2022

OR

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 ☒ No ☐

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 ☒ No

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.

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

As of July 29, 2022, the registrant had 72,159,962 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 

 


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements

1

 

Condensed Consolidated Balance Sheets (unaudited)

1

 

Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited)

2

 

Condensed Consolidated Statements of Stockholders’ Equity (unaudited)

3

 

Condensed Consolidated Statements of Cash Flows (unaudited)

4

 

Notes to Condensed Consolidated Financial Statements (unaudited)

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

Item 4.

Controls and Procedures

27

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

28

Item 1A.

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

59

Item 3.

Defaults Upon Senior Securities

59

Item 4.

Mine Safety Disclosures

59

Item 5.

Other Information

59

Item 6.

Exhibits

60

SIGNATURES

61

 

 

 

 

 

i


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

ARCUS BIOSCIENCES, INC.

Condensed Consolidated Balance Sheets

(unaudited)

(In thousands, except share and per share amounts)

 

 

 

June 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

272,629

 

 

$

147,914

 

Short-term investments

 

 

900,147

 

 

 

351,394

 

Receivable from collaboration partners ($35,720 and $744,535 from a related party)

 

 

35,831

 

 

 

744,595

 

Accrued interest receivable

 

 

3,196

 

 

 

2,227

 

Prepaid expenses and other current assets

 

 

15,672

 

 

 

15,620

 

Total current assets

 

 

1,227,475

 

 

 

1,261,750

 

Long-term investments

 

 

98,329

 

 

 

181,990

 

Property and equipment, net

 

 

33,416

 

 

 

32,455

 

Right-of-use assets

 

 

104,025

 

 

 

104,968

 

Restricted cash

 

 

3,005

 

 

 

3,005

 

Other long-term assets ($1,322 and $0 from a related party)

 

 

10,523

 

 

 

7,730

 

Total assets

 

$

1,476,773

 

 

$

1,591,898

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

21,984

 

 

$

10,261

 

Accrued research and development

 

 

35,019

 

 

 

29,587

 

Other accrued liabilities

 

 

14,438

 

 

 

24,181

 

Deferred revenue, current ($88,595 and $96,981 to a related party)

 

 

90,117

 

 

 

102,003

 

Other current liabilities

 

 

2,466

 

 

 

52

 

Total current liabilities

 

 

164,024

 

 

 

166,084

 

Deferred revenue, noncurrent ($429,339 and $462,217 to a related party)

 

 

429,339

 

 

 

462,217

 

Operating lease liabilities, noncurrent

 

 

121,343

 

 

 

116,887

 

Other long-term liabilities

 

 

14,681

 

 

 

5,260

 

Total liabilities

 

 

729,387

 

 

 

750,448

 

Commitments (Note 11)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.0001 par value, 10,000,000 shares authorized as of June 30, 2022 and December 31, 2021; no shares issued and outstanding as of June 30, 2022 and December 31, 2021

 

 

-

 

 

 

-

 

Common stock, $0.0001 par value, 400,000,000 shares authorized as of June 30, 2022 and December 31, 2021; 72,085,473 and 70,781,736 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively. Shares outstanding includes zero and 9,946 shares issued but subject to vesting as of June 30, 2022 and December 31, 2021, respectively.

 

 

7

 

 

 

7

 

Additional paid-in capital

 

 

1,164,602

 

 

 

1,118,058

 

Accumulated deficit

 

 

(409,979

)

 

 

(275,354

)

Accumulated other comprehensive loss

 

 

(7,244

)

 

 

(1,261

)

Total stockholders’ equity

 

 

747,386

 

 

 

841,450

 

Total liabilities and stockholders’ equity

 

$

1,476,773

 

 

$

1,591,898

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

1


 

ARCUS BIOSCIENCES, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(unaudited)

(In thousands, except share and per share amounts)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

License and development service revenue ($16,693, $0, $24,632 and $0 from a related party)

 

$

16,693

 

 

$

-

 

 

$

24,632

 

 

$

-

 

Other collaboration revenue ($8,316, $7,711, $16,632 and $15,422 from a related party)

 

 

10,066

 

 

 

9,461

 

 

 

20,132

 

 

 

18,922

 

Total revenues

 

 

26,759

 

 

 

9,461

 

 

 

44,764

 

 

 

18,922

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development (($35,808), ($1,176), ($66,107) and ($6,100) from a related party)

 

 

69,905

 

 

 

68,771

 

 

 

131,116

 

 

 

135,158

 

General and administrative (($99), $0, ($197) and $0 from a related party)

 

 

25,836

 

 

 

16,826

 

 

 

49,810

 

 

 

32,647

 

Total operating expenses

 

 

95,741

 

 

 

85,597

 

 

 

180,926

 

 

 

167,805

 

Loss from operations

 

 

(68,982

)

 

 

(76,136

)

 

 

(136,162

)

 

 

(148,883

)

Non-operating income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest and other income, net

 

 

2,861

 

 

 

166

 

 

 

3,443

 

 

 

320

 

Effective interest on liability for sale of future royalties

 

 

(511

)

 

 

-

 

 

 

(902

)

 

 

-

 

Total non-operating income, net

 

 

2,350

 

 

 

166

 

 

 

2,541

 

 

 

320

 

Net loss before income taxes

 

 

(66,632

)

 

 

(75,970

)

 

 

(133,621

)

 

 

(148,563

)

Income tax expense

 

 

-

 

 

 

-

 

 

 

(1,004

)

 

 

-

 

Net loss

 

 

(66,632

)

 

 

(75,970

)

 

 

(134,625

)

 

 

(148,563

)

Other comprehensive loss

 

 

(2,584

)

 

 

(44

)

 

 

(5,983

)

 

 

(90

)

Comprehensive loss

 

$

(69,216

)

 

$

(76,014

)

 

$

(140,608

)

 

$

(148,653

)

Net loss per share, basic and diluted

 

$

(0.93

)

 

$

(1.09

)

 

$

(1.88

)

 

$

(2.17

)

Weighted-average number of shares used to
   compute basic and diluted net loss per share

 

 

71,814,232

 

 

 

69,745,297

 

 

 

71,506,216

 

 

 

68,421,086

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

2


 

ARCUS BIOSCIENCES, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited)

(In thousands, except share amounts)

 

 

 

 

 

 

 

Common stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Accumulated
Other
Comprehensive

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity

 

Balance at December 31, 2020

 

 

63,691,901

 

 

$

6

 

 

$

830,438

 

 

$

(328,184

)

 

$

44

 

 

$

502,304

 

Issuance of common stock and rights to purchase additional
shares in accordance with Amended and Restated Gilead
Purchase Agreement, net of $
55 offering costs

 

 

5,650,000

 

 

 

1

 

 

 

220,295

 

 

 

-

 

 

 

-

 

 

 

220,296

 

Issuance of common stock upon exercise of stock options
and vesting of restricted stock

 

 

200,828

 

 

 

-

 

 

 

1,885

 

 

 

-

 

 

 

-

 

 

 

1,885

 

Vesting of early exercised stock options

 

 

54,039

 

 

 

-

 

 

 

183

 

 

 

-

 

 

 

-

 

 

 

183

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

12,761

 

 

 

-

 

 

 

-

 

 

 

12,761

 

Other comprehensive loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(46

)

 

 

(46

)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(72,593

)

 

 

-

 

 

 

(72,593

)

Balance at March 31, 2021

 

 

69,596,768

 

 

$

7

 

 

$

1,065,562

 

 

$

(400,777

)

 

$

(2

)

 

$

664,790

 

Issuance of common stock upon exercise of stock options
and vesting of restricted stock

 

 

269,369

 

 

 

-

 

 

 

843

 

 

 

-

 

 

 

-

 

 

 

843

 

Vesting of early exercised stock options

 

 

36,245

 

 

 

-

 

 

 

175

 

 

 

-

 

 

 

-

 

 

 

175

 

Issuance of common stock under Employee Stock Purchase Plan

 

 

140,408

 

 

 

-

 

 

 

1,394

 

 

 

-

 

 

 

-

 

 

 

1,394

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

13,367

 

 

 

-

 

 

 

-

 

 

 

13,367

 

Other comprehensive loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(44

)

 

 

(44

)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(75,970

)

 

 

-

 

 

 

(75,970

)

Balance at June 30, 2021

 

 

70,042,790

 

 

$

7

 

 

$

1,081,341

 

 

$

(476,747

)

 

$

(46

)

 

$

604,555

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2021

 

 

70,771,790

 

 

 

7

 

 

 

1,118,058

 

 

 

(275,354

)

 

 

(1,261

)

 

 

841,450

 

Issuance of common stock upon exercise of stock options
and vesting of restricted stock

 

 

840,577

 

 

 

-

 

 

 

9,928

 

 

 

-

 

 

 

-

 

 

 

9,928

 

Vesting of early exercised stock options

 

 

9,946

 

 

 

-

 

 

 

52

 

 

 

-

 

 

 

-

 

 

 

52

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

16,541

 

 

 

-

 

 

 

-

 

 

 

16,541

 

Other comprehensive loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,399

)

 

 

(3,399

)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(67,993

)

 

 

-

 

 

 

(67,993

)

Balance at March 31, 2022

 

 

71,622,313

 

 

$

7

 

 

$

1,144,579

 

 

$

(343,347

)

 

$

(4,660

)

 

$

796,579

 

Issuance of common stock upon exercise of stock options
and vesting of restricted stock

 

 

320,603

 

 

 

-

 

 

 

2,050

 

 

 

-

 

 

 

-

 

 

 

2,050

 

Issuance of common stock under Employee Stock Purchase Plan

 

 

142,557

 

 

 

-

 

 

 

2,296

 

 

 

-

 

 

 

-

 

 

 

2,296

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

15,677

 

 

 

-

 

 

 

-

 

 

 

15,677

 

Other comprehensive loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,584

)

 

 

(2,584

)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(66,632

)

 

 

-

 

 

 

(66,632

)

Balance at June 30, 2022

 

 

72,085,473

 

 

$

7

 

 

$

1,164,602

 

 

$

(409,979

)

 

$

(7,244

)

 

$

747,386

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


 

ARCUS BIOSCIENCES, INC.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(In thousands)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2022

 

 

2021

 

Cash flow from operating activities

 

 

 

 

 

 

Net loss

 

$

(134,625

)

 

$

(148,563

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Stock-based compensation expense

 

 

32,218

 

 

 

26,128

 

Depreciation and amortization

 

 

2,962

 

 

 

1,620

 

Noncash lease expense

 

 

4,000

 

 

 

1,117

 

Amortization of premiums on investments

 

 

2,380

 

 

 

1,412

 

Acquired in-process research and development

 

 

2,500

 

 

 

-

 

Effective interest on liability for sale of future royalties

 

 

902

 

 

 

-

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Receivable from collaboration partners ($708,815 and ($381) from a related party)

 

 

708,764

 

 

 

(526

)

Prepaid expenses and other current assets

 

 

4,028

 

 

 

(9,086

)

Other long-term assets (($1,322) and $0 to a related party)

 

 

(1,442

)

 

 

471

 

Accounts payable

 

 

12,102

 

 

 

(3,569

)

Accrued research and development

 

 

8,432

 

 

 

10,449

 

Other accrued liabilities

 

 

(10,220

)

 

 

163

 

Deferred revenue (($41,264) and ($15,422) to a related party)

 

 

(44,764

)

 

 

(18,922

)

Operating lease liabilities

 

 

(1,184

)

 

 

(1,003

)

Other long-term liabilities

 

 

2,645

 

 

 

(2

)

Net cash provided by (used in) operating activities

 

 

588,698

 

 

 

(140,311

)

Cash flow from investing activities