Arcus Biosciences, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Arcus is a clinical-stage biopharmaceutical company with no approved products and no product-sales revenue; reported revenue comes from collaborations and licenses.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $29 million | $27 million | $54 million | $45 million |
| Research and development expense | $84 million | $70 million | $165 million | $131 million |
| General and administrative expense | $28 million | $26 million | $58 million | $50 million |
| Operating loss | $83 million | $69 million | $169 million | $136 million |
| Net loss | $75 million | $67 million | $155 million | $135 million |
| Basic and diluted loss per share | $1.04 | $0.93 | $2.13 | $1.88 |
- Revenue increased 7% for the quarter and 20% for the half year. Higher license and development-service revenue, mainly from quemliclustat program progress, drove the increase; lower Taiho-related revenue partly offset the six-month growth.
- Gilead accounted for 100% of revenue in the first half of 2023. Revenue includes collaboration performance obligations and should not be interpreted as product sales.
- R&D expense rose 20% in Q2 and 26% in the first half, reflecting expanded clinical activity and higher personnel costs, partly offset by increased partner reimbursements. Operating losses widened; higher investment income partly cushioned the increase in net loss.
- Cash, cash equivalents and marketable securities totaled $1.010 billion at June 30, 2023, versus $1.138 billion at year-end 2022. Total assets were $1.220 billion; current assets were $986 million and current liabilities $180 million. Stockholders’ equity was $566 million.
- Operating cash use was $155 million in the first half of 2023, compared with $589 million of operating cash provided in 2022, which included Gilead’s $725 million payment received in January 2022. Investing activities provided $155 million in 2023, primarily from net proceeds from marketable securities; financing provided $24 million, including Gilead’s $20 million share purchase.
- No conventional borrowings are shown in the balance sheet. Other noncurrent liabilities include an $18 million fair-value liability related to a sale of future royalties; deferred collaboration revenue totaled $433 million and is not debt.
Developments, outlook and risks
- In May 2023, Arcus expanded its Gilead collaboration to include up to four inflammation research programs. Gilead paid $35 million upfront for two initial programs; $34 million remained deferred at quarter-end. Further option, milestone and royalty payments are possible, subject to program progress and Gilead’s decisions.
- Management said existing cash and investments are expected to fund planned operations into 2026. The filing also cautions that spending needs, collaboration payments and development outcomes are uncertain and that additional capital may be needed sooner than planned.
- Management expects R&D spending to increase substantially as programs advance into later-stage trials and manufacturing activity grows; G&A is also expected to rise with the business. The company has a history of losses and anticipates significant losses for the foreseeable future.
- Arcus reported June 2023 interim ARC-7 results: domvanalimab-containing arms showed clinically meaningful PFS improvements versus zimberelimab alone, with reported 33% and 28% reductions in risk of progression or death. These were interim results and may change with further data and verification.
- Arcus said its latest ARC-6 analysis suggested the etrumadenant-based combination was not expected to show sufficient benefit in castration-resistant prostate cancer to justify further investment. Quemliclustat ARC-8 overall-survival data were described as encouraging relative to historical chemotherapy benchmarks, with presentation planned for a future conference.
- Key risks include clinical-trial failure or delay, competition, reliance on Gilead and third-party manufacturers and trial operators, funding needs, intellectual-property challenges, and cybersecurity and supply-chain disruption. Arcus disclosed a successful social-engineering attack and prior system intrusion attempts, which it said had not materially affected operations. It also identified WuXi Biologics in China as a sole supplier for certain investigational biologics.
- New preclinical information for the BVF-funded program led Arcus to lower estimated success probabilities and delay projected milestones and sales, reducing the liability’s imputed interest rate; the quarter’s noncash interest impact was not material. Arcus reported no material legal proceedings and said disclosure controls were effective.
Investor facts to verify
- Whether clinical and regulatory updates, particularly interim ARC-7 results, are confirmed in later data and translate into successful registrational outcomes.
- How Gilead’s option decisions, shared development costs and reimbursements affect Arcus’s cash runway and program spending.
- Whether the company’s stated runway into 2026 remains achievable as trial, manufacturing and infrastructure costs rise.
- Revenue and cash-flow dependence on collaboration partners, and the timing and collectability of future milestone, option and royalty payments.
- Progress on supply diversification and mitigation of manufacturing, cybersecurity and clinical-trial execution risks.