Arcus Biosciences, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Arcus is a clinical-stage cancer therapeutics company with five investigational products in clinical development; it has no approved products and has not generated product sales revenue.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Collaboration revenue | $9.5 million | $1.8 million |
| Research and development expense | $66.4 million | $23.1 million |
| General and administrative expense | $15.8 million | $7.0 million |
| Net loss | $72.6 million | $27.8 million |
| Net loss per share, basic and diluted | $1.08 | $0.63 |
| Cash used in operating activities | $66.3 million | $31.3 million |
- Cash, cash equivalents and marketable investments totaled $884.9 million at March 31, 2021, versus $735.1 million at December 31, 2020. Management said this should fund planned operations at least through 2023, subject to its business plan and development needs.
- Cash and investments increased mainly following Gilead’s February 2021 equity purchase, which generated $220.4 million gross proceeds. Financing cash flow was $222.1 million for the quarter.
- Total assets were $935.1 million and total liabilities were $270.3 million. The filing reports no borrowings or debt balance; deferred revenue was $187.9 million in total.
- Revenue was collaboration-based. Gross margin is not a meaningful disclosed measure for this clinical-stage business.
Changes versus the prior-year quarter
- Revenue rose $7.7 million, including $7.7 million recognized under the Gilead collaboration; Taiho contributed $1.8 million in both periods.
- Operating expenses increased 173%, and net loss widened by $44.8 million. R&D growth reflected expanded clinical and manufacturing activity, higher compensation and $15.0 million of development milestones: $10.0 million to WuXi Biologics and $5.0 million to Abmuno. Gilead cost-sharing reduced R&D expense by $4.9 million.
- G&A increased 126%, largely due to higher employee compensation and stock-based compensation. Total stock-based compensation was $12.8 million, compared with $3.5 million.
- Operating cash use more than doubled, while the increase in cash and investments was supported by Gilead’s equity investment and investment maturities.
Outlook, agreements and risks
- Management expects R&D and G&A expenses to increase substantially as trials advance, the company expands capabilities and programs, and manufacturing and regulatory work grows. Future funding needs depend on trial results, development costs, collaborator decisions and potential milestone or option payments.
- Arcus initiated ARC-10, a registrational trial evaluating domvanalimab plus zimberelimab and zimberelimab alone against chemotherapy in first-line non-small-cell lung cancer. Domvanalimab is also being studied in ARC-7; etrumadenant, AB680, zimberelimab and AB308 are in other clinical studies.
- Gilead has a 10-year option framework covering current and future programs, with program-specific option fees and potential shared development costs. Gilead held approximately 19.5% of Arcus’s outstanding shares at quarter-end and may increase ownership, subject to contractual terms. The $100 million pipeline-access payment due in 2022 is included in the collaboration arrangement; further payments are partly optional.
- COVID-19 continued to pose uncertainty for trial enrollment, retention and laboratory capacity. Arcus reported adequate supply for ongoing studies at the time of filing, but said future disruption and financial effects could not be predicted. Reduced laboratory capacity delayed expected HIF-2α clinical entry to the second half of 2021.
- An April 2021 lease amendment, after quarter-end, extends and expands Hayward leases. It adds approximately $43 million of undiscounted future minimum payments over the expected term, with tenant-improvement allowances and extension options.
- Key risks include clinical failure or delays, competition, reliance on third-party manufacturing and collaborators, future capital needs and potential dilution, intellectual-property disputes, and COVID-related disruption. The company reported no material legal proceedings and effective disclosure controls.
Investor facts to verify
- Clinical-trial enrollment, safety and efficacy updates, especially for registrational ARC-10 and ARC-7.
- Cash burn and runway as development spending rises; management’s runway estimate depends on its planned operating level.
- Gilead option decisions, collaboration payments and cost-sharing obligations, including the effects on Arcus’s retained economics and independence.
- Timing and magnitude of further license or development milestones and manufacturing costs.
- Financial and operational implications of the amended leases and any additional funding or share issuance.