Arcus Biosciences, Inc. — FY 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. Fourth-quarter figures below are unaudited. The company is a clinical-stage biopharmaceutical developer with no approved products or product-sale revenue; its collaboration revenue came from the Taiho agreement.
Financial performance and position
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Collaboration and license revenue | $8.4 million | $1.4 million |
| Research and development expense | $49.6 million | $47.2 million |
| General and administrative expense | $13.6 million | $7.6 million |
| Total operating expenses | $63.2 million | $54.9 million |
| Operating loss | $54.9 million | $53.4 million |
| Net loss | $49.6 million | $53.1 million |
| Net loss per share, basic and diluted | $1.43 | $29.03 |
| Cash used in operating activities | $43.0 million | $25.1 million |
Fourth-quarter 2018 revenue was $1.6 million, operating expenses were $15.0 million, net loss was $12.3 million and loss per share was $0.28. In Q4 2017, the corresponding figures were $1.3 million, $14.6 million, $13.2 million and $5.98. Per-share comparisons are affected by the 2018 IPO, preferred-stock conversion and reverse stock split.
At year-end, cash and investments totaled $259.7 million, including $71.1 million in cash and cash equivalents, $185.5 million in short-term investments and $3.2 million in long-term investments. Working capital was $242.0 million. No borrowings are shown on the balance sheet; total liabilities were $40.0 million, including deferred revenue and lease-related liabilities. The company reported no product gross margin, and operating margins are not meaningful for its pre-commercial business.
Changes versus prior period
- Annual revenue increased $6.9 million, primarily reflecting Taiho-funded research revenue and a $3.0 million option exercise payment for the adenosine receptor program.
- Operating expenses rose $8.4 million. R&D increased modestly as clinical, manufacturing and staffing costs grew, partly offset by lower license expense than in 2017. G&A rose 78%, including higher public-company, staffing, stock-compensation and facility costs.
- Net loss narrowed by $3.5 million, helped by higher interest income and a $1.2 million gain related to dilution of the company’s PACT Pharma investment. Operating cash use nevertheless increased by $17.9 million.
- The March 2018 IPO generated approximately $124.7 million in net proceeds; preferred shares converted to common stock. Cash and investments rose to $259.7 million from $175.7 million at year-end 2017.
Outlook, development and key risks
- Management expected initial dose-escalation data from AB928 combination trials around mid-2019. Planned activities included expansion cohorts, AB680 combination trials, further AB122 data, and AB154 monotherapy and combination data. These are forward-looking plans, not reported outcomes.
- Management said available cash, cash equivalents and short-term investments were expected to fund planned operations for at least 12 months after the report date; it also estimated funding for AB928 and AB122 clinical development, including expansion studies, into 2021, but not through regulatory approval. Additional capital will be needed, and the estimates depend on assumptions.
- The pipeline comprised four clinical-stage candidates: AB928 (adenosine-receptor antagonist), AB680 (CD73 inhibitor), AB122 (anti-PD-1 antibody) and AB154 (anti-TIGIT antibody). All remained investigational and early-stage; clinical efficacy and safety were unproven.
- Key risks include clinical failure or delays, combination-trial interpretability, patient enrollment, dependence on third-party manufacturers and CROs, limited or single-source supply, competition, financing and potential dilution, and intellectual-property uncertainty. The filing said the company had no issued patents relating to its candidates as of the filing date.
- Taiho exercised its option to the adenosine-receptor program in 2018 and assumed development and commercialization responsibility in its territories. The agreement provides up to $35 million in initial non-refundable payments, program-specific potential milestones and royalties; only some payments were received by year-end.
- Steven Chan, the principal financial and accounting officer, notified the company in February 2019 that he planned to leave in April; a successor had accepted an offer, and Chan was to consult through July.
- The company reported effective disclosure controls. Its auditor gave an unqualified opinion on the financial statements; the auditor did not opine on internal control over financial reporting.
Investor facts to verify
- Whether AB928, AB680, AB122 and AB154 trials met the disclosed enrollment, safety, data and timing expectations.
- Cash burn, investment balances and financing needs against the stated development runway, including effects of trial scope and manufacturing costs.
- Amounts and timing of remaining Taiho payments, option exercises, milestones and royalties, and any changes to collaboration terms.
- Progress in building patent protection and any material intellectual-property challenges, including the disclosed BMS anti-PD-1 patent risk.
- Whether the finance leadership transition and planned internal-control testing affected reporting or operations.