UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from _____________to _______________
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
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Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
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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.
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).
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.
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Emerging growth company |
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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
As of April 29, 2022, the registrant had
Table of Contents
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PART I. |
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Item 1. |
1 |
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1 |
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Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) |
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Condensed Consolidated Statements of Stockholders’ Equity (unaudited) |
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4 |
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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. |
25 |
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Item 4. |
25 |
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PART II. |
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Item 1. |
27 |
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Item 1A. |
27 |
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Item 2. |
58 |
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Item 3. |
58 |
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Item 4. |
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Item 5. |
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Item 6. |
59 |
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60 |
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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)
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March 31, |
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December 31, |
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2022 |
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2021 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Short-term investments |
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Receivable from collaboration partners ($ |
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Accrued interest receivable |
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Prepaid expenses and other current assets |
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Total current assets |
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Long-term investments |
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Property and equipment, net |
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Right-of-use assets |
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Restricted cash |
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Other long-term assets ($ |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued research and development |
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Other accrued liabilities |
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Deferred revenue, current ($ |
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Other current liabilities |
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- |
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Total current liabilities |
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Deferred revenue, noncurrent ($ |
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Operating lease liabilities, noncurrent |
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Other long-term liabilities |
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Total liabilities |
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Stockholders’ equity: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Accumulated other comprehensive loss |
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( |
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( |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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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)
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Three Months Ended |
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March 31, |
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2022 |
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2021 |
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Revenues: |
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Other collaboration revenue ($ |
$ |
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$ |
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License and development service revenue ($ |
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- |
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Total revenues |
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Operating expenses: |
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Research and development (($ |
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General and administrative (($ |
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Total operating expenses |
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Loss from operations |
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Non-operating income (expense): |
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Interest and other income, net |
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Effective interest on liability for sale of future royalties |
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( |
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- |
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Total non-operating income, net |
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Net loss before income taxes |
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Income tax expense |
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- |
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Net loss |
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( |
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( |
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Other comprehensive loss |
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( |
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( |
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Comprehensive loss |
$ |
( |
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$ |
( |
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Net loss per share, basic and diluted |
$ |
( |
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$ |
( |
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Weighted-average number of shares used to |
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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)
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Common stock |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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Shares |
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Amount |
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Capital |
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Deficit |
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Income (Loss) |
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Equity |
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Balance at December 31, 2020 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Issuance of common stock and rights to purchase additional shares |
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- |
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- |
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Issuance of common stock upon exercise of stock options |
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- |
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- |
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- |
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Vesting of early exercised stock options |
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- |
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- |
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- |
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Stock-based compensation |
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- |
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- |
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- |
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- |
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Other comprehensive loss |
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- |
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- |
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- |
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- |
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( |
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( |
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Net loss |
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- |
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- |
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- |
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( |
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- |
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( |
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Balance at March 31, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Balance at December 31, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Issuance of common stock upon exercise of stock options |
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- |
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- |
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- |
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Vesting of early exercised stock options |
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- |
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- |
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- |
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Stock-based compensation |
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- |
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- |
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- |
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- |
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Other comprehensive loss |
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- |
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- |
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- |
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- |
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( |
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( |
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Net loss |
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- |
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- |
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- |
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( |
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- |
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( |
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Balance at March 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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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)
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Three Months Ended |
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March 31, |
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2022 |
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2021 |
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Cash flow from operating activities |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Stock-based compensation expense |
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Depreciation and amortization |
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Noncash lease expense |
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Amortization of premiums on investments |
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Acquired in-process research and development |
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- |
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Effective interest on liability for sale of future royalties |
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- |
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Changes in operating assets and liabilities: |
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Receivable from collaboration partners ($ |
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( |
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Prepaid expenses and other current assets |
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( |
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( |
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Other long-term assets (($ |
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( |
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Accounts payable |
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Accrued research and development |
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Other accrued liabilities |
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( |
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( |
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Deferred revenue (($ |
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( |
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( |
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Operating lease liabilities |
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( |
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Other long-term liabilities |
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( |
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Net cash provided by (used in) operating activities |
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( |
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Cash flow from investing activities |
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Purchases of short-term and long-term investments |
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( |
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( |
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Proceeds from maturities of short-term and long-term investments |
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Sales of short-term and long-term investments |
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Purchases of property and equipment |
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( |
) |
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( |
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Net cash provided by (used in) investing activities |
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( |
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Cash flow from financing activities |
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Proceeds from issuance of common stock ($ |
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- |
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Proceeds from sale of future royalties |
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- |
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Proceeds from issuance of common stock pursuant to equity award plans |
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Net cash provided by financing activities |
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Net increase in cash and cash equivalents |
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Cash, cash equivalents and restricted cash at beginning of period |
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Cash, cash equivalents and restricted cash at end of period |
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$ |
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$ |
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Non-cash investing and financing activities: |
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Unpaid acquisition of in-process research and development |
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$ |
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$ |
- |
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Unpaid portion of property and equipment purchases included in accounts payable and accrued liabilities |
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$ |
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$ |
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Vesting of early exercised stock options and restricted stock |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
ARCUS BIOSCIENCES, INC.
Notes to Condensed Consolidated Financial Statements
Note 1. Organization
Description of Business
Arcus Biosciences, Inc. (the Company) is a clinical-stage biopharmaceutical company focused on creating best-in-class cancer therapies. Using its robust and highly efficient drug discovery capability, the Company has now advanced six investigational products into clinical development, with its most advanced molecule, an anti-TIGIT antibody, now in two Phase 3 registrational studies. The Company’s deep portfolio of novel small molecules and enabling antibodies allows it to create highly differentiated combination therapies, which the Company is developing to treat multiple large tumor types including lung, colorectal, prostate and pancreatic cancers. The Company expects its clinical-stage portfolio to continue to expand and to include molecules targeting both immuno-oncology and cancer cell-intrinsic pathways. The Company’s vision is to create, develop and commercialize highly differentiated combination cancer therapies that have a meaningful impact on patients. The Company currently has
In 2020, the Company entered into an Option, License and Collaboration Agreement (Gilead Collaboration Agreement) with Gilead Sciences, Inc. (Gilead), whereby Gilead obtained an exclusive license to zimberelimab and time-limited exclusive options to all of the Company's then-current and future programs during the 10-year collaboration term. In December 2021, Gilead obtained rights to an additional
Liquidity and Capital Resources
As of March 31, 2022, the Company had cash and investments of $
Note 2. Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and pursuant to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the Company’s opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the results of operations and cash flows for the periods presented have been included.
Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or for any future period. The balance sheet as of December 31, 2021 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.
The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC on February 23, 2022. There have been no significant changes to the Company’s significant accounting policies described in Note 2, Summary of Significant Accounting Policies, in Notes to Consolidated Financial Statements in Item 8 of Part II of the Form 10-K.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Arcus Biosciences, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
5
Use of Estimates
The preparation of the Company’s 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, as well as related disclosures of contingent assets and liabilities. Estimates were used to determine the standalone selling price of performance obligations and the timing of revenue recognition, the value of stock-based awards and other issuances, accruals for research and development costs, useful lives of long-lived assets, and uncertain tax positions. Actual results could differ materially from the Company’s estimates.
Cash Equivalents and Investments
Cash equivalents include marketable securities having an original maturity of three months or less at the time of purchase. Short-term investments have maturities of greater than three months and up to twelve months at the time of purchase. Long-term investments have maturities greater than 12 months at the time of purchase. Collectively, cash equivalents, short-term and long-term investments are considered available-for-sale and are recorded at fair value. Unrealized gains and losses are recorded in accumulated other comprehensive income (loss). Realized gains and losses are included in interest and other income, net in the condensed consolidated statements of operations and comprehensive income or loss. The basis on which the cost of a security that is sold or an amount that is reclassified out of accumulated other comprehensive income or loss into earnings is determined using the specific identification method.
Reconciliation of Cash, Cash Equivalents, and Restricted Cash as Reported in Condensed Consolidated Statements of Cash Flows
Restricted cash at March 31, 2022 and 2021 represents cash balances held as security in connection with the Company’s facility lease agreements. The following table provides a reconciliation of cash, cash equivalents, and restricted cash within the condensed consolidated balance sheets to the total shown in the condensed consolidated statements of cash flows (in thousands):
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March 31, |
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2022 |
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2021 |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Cash, cash equivalents and restricted cash |
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$ |
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$ |
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Concentration of Credit Risk
Cash equivalents, short-term and long-term investments are financial instruments that potentially subject the Company to concentrations of credit risk. The Company invests in money market funds, treasury bills and notes, government bonds, commercial paper, corporate notes, and certificates of deposit. The Company limits its credit risk associated with cash equivalents, short-term and long-term investments by placing them with banks and institutions it believes are credit worthy and in highly rated investments.
Leases and Rent Expense
The Company recognizes a lease asset for its right to use the underlying asset and a lease liability for the corresponding lease obligation. The Company determines whether an arrangement is or contains a lease at contract inception. Operating leases and related tenant improvement allowances receivable are included in operating lease right-of-use assets, prepaid expenses and other current assets, and operating lease liabilities, noncurrent in our condensed consolidated balance sheets at March 31, 2022 and December 31, 2021. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the net present value of lease payments, the Company uses its incremental borrowing rate based on information available at the lease commencement date. The incremental borrowing rate represents the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease. The Company considers a lease term to be the noncancelable period that it has the right to use the underlying asset, including any periods where it is reasonably assured the Company will exercise the option to extend the contract. Periods covered by an option to extend are included in the lease term if the lessor controls the exercise of that option.
The Company elected to not apply the recognition requirements of the new leasing standard to short-term leases with terms of 12 months or less which do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise. For short-term leases, lease payments are recognized as operating expenses on a straight-line basis over the lease term.
The following table summarizes supplemental cashflow disclosures related to the Company's operating leases (in thousands):
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Year Ended March 31, |
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2022 |
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2021 |
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Cash paid for amounts included in measurement of lease liabilities |
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$ |
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$ |
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6
Note 3. Fair Value Measurements
Financial assets and liabilities are recorded at fair value. The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value.
Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability.
During the periods presented, the Company has not changed the manner in which it values assets and liabilities that are measured at fair value. The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers within the hierarchy as of March 31, 2022 or December 31, 2021.
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March 31, 2022 |
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Total |
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Level 1 |
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Level 2 |
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Level 3 |
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Money market funds |
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$ |
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$ |
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$ |
- |
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$ |
- |
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U.S. treasury securities |
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- |
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- |
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Corporate securities and commercial paper |
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- |
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|
|
- |
|
||
Certificates of deposit |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total assets measured at fair value |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|||
|
|
December 31, 2021 |
|
|||||||||||||
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
||||
Money market funds |
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
||
U.S. treasury securities |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
||
Corporate securities and commercial paper |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
||
Total assets measured at fair value |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|||
Classified as (with contractual maturities):
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Short-term investments (due within one year) |
|
|
|
|
|
|
||
Long-term investments (due between one and three years) |
|
|
|
|
|
|
||
Total cash, cash equivalents and investments in marketable securities |
|
$ |
|
|
$ |
|
||
7
All the Company's investments in marketable securities are classified as available-for-sale. At March 31, 2022 and December 31, 2021, the balance in the Company’s accumulated other comprehensive income (loss) related to the Company’s available-for-sale marketable securities. There were
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
||||
As of March 31, 2022: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
||
U.S. treasury securities |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Corporate securities and commercial paper |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Certificates of deposit |
|
|
||||||||||||||