Arcus Biosciences, Inc. — FY 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This filing reports full-year results, not standalone fourth-quarter results. Unless otherwise noted, financial amounts are in millions of dollars.
Business context
Arcus is a clinical-stage biopharmaceutical company with no approved products and no product-sales revenue. Its oncology pipeline includes seven clinical programs. Its most advanced program, anti-TIGIT antibody domvanalimab, was in Phase 3 studies; the company also develops zimberelimab, quemliclustat, etrumadenant, casdatifan, AB598 and AB801. Collaboration revenue is principally from Gilead, which holds licenses to several programs and shares development costs for opted-in programs, subject to contractual terms and exceptions.
Financial results and liquidity
| Metric | FY 2023 | FY 2022 |
|---|---|---|
| Total revenue | $117 | $112 |
| Research and development expense | $340 | $288 |
| General and administrative expense | $117 | $104 |
| Total operating expenses | $457 | $392 |
| Operating loss | $(340) | $(280) |
| Net loss | $(307) | $(267) |
| Basic and diluted loss per share | $(4.15) | $(3.71) |
| Net cash used in operating activities | $(306) | $438 provided |
Revenue increased 4%, while R&D expense rose 18% and G&A expense rose 13%; the net loss widened by $40. Revenue included no product sales. Gilead accounted for 96% of total revenue in both 2023 and 2022. The filing does not present a meaningful product gross margin; the company remains loss-making and has no commercial product sales.
At December 31, 2023, cash, cash equivalents and marketable securities totaled $866 ($127 cash and equivalents; $739 marketable securities), down from $1.138 billion at year-end 2022. Management said the balance, together with Gilead’s $320 equity investment received in January 2024, provides $1.2 billion and is expected to fund planned operations into 2027. This is management’s estimate, not a guarantee. Operating cash use was $306; 2022 operating cash inflow included a $725 Gilead collaboration payment received in January 2022. 2023 investing activities provided $194, principally from net marketable-security proceeds, and financing provided $33.
Year-end total assets were $1.095 billion, total liabilities approximately $633 million, and stockholders’ equity $462 million. Deferred revenue was $398 million. The filing reports a $19 million liability for sale of future royalties and $121 million in operating lease liabilities; it does not present a conventional borrowing balance in the supplied financial statements. Future milestone and royalty obligations under licenses are contingent on specified events. Lease payments total $149 million undiscounted, of which $17 million is scheduled for 2024.
Material changes, outlook and notable items
- R&D expense rose with expanded late-stage development, including clinical-trial and standard-of-care drug costs. Partner reimbursements reduced reported R&D expense by $162 in 2023, compared with $161 in 2022.
- In January 2024, Gilead purchased 15.2 million shares at $21 per share for $320 gross proceeds. Arcus reported 75.5 million shares outstanding at year-end 2023 and 90,864,829 as of February 14, 2024.
- Also in January 2024, Arcus and Gilead reprioritized domvanalimab development: enrollment in Phase 3 ARC-10 was discontinued; STAR-121 and STAR-221 were prioritized, with the companies expecting both to be fully enrolled by year-end 2024; and they planned to initiate Phase 3 STAR-131. Arcus also planned and agreed to fund a Phase 3 quemliclustat study in first-line pancreatic cancer. These are post-year-end developments.
- November 2023 EDGE-Gastric interim results included overall objective response rate of 59% (confirmed 56%) and six-month landmark PFS of 77% for the reported cohort. Mature PFS had not been reached; the company expected data in the second half of 2024. These are interim, non-final clinical findings, not proof of efficacy in a registrational trial.
- In January 2024, Arcus reported ARC-8 interim median overall survival of 15.7 months for patients receiving 100 mg quemliclustat-based regimens. A post-hoc comparison with a synthetic chemotherapy control suggested a 37% lower risk of death and 5.9-month median-survival improvement. The comparison was not described as a randomized controlled comparison and warrants particular scrutiny.
- Gilead’s 2024 $100 continuation payment was agreed to in January 2024. Taiho became entitled to a $28 milestone payment for STAR-221 in 2023; further $26 million STAR-121 milestones were triggered in early 2024. Timing and recognition of such payments can affect reported revenue and cash flow.
- Key risks include clinical-trial failure or delay, dependence on Gilead and other partners, reliance on third-party manufacturers, and concentration of supply: WuXi Biologics in China is the exclusive manufacturer of zimberelimab drug substance. Arcus also flags competition, reimbursement and regulatory uncertainty, cybersecurity and data-privacy exposure, and intellectual-property challenges, including Genentech patents concerning anti-PD-1/PD-L1 plus anti-TIGIT combinations.
Investor verification priorities
- Review the underlying trial designs, patient counts, follow-up, safety findings and data maturity for EDGE-Gastric, ARC-8 and ARC-7; distinguish interim or post-hoc analyses from randomized confirmatory evidence.
- Track enrollment, timelines, spending and results for STAR-121 and STAR-221, the planned STAR-131 and pancreatic-cancer Phase 3 study, and the consequences of stopping ARC-10.
- Assess the assumptions behind management’s runway estimate into 2027, including expected clinical spending, cost-sharing terms, milestone receipts and the effects of the January 2024 financing.
- Check the Gilead and Taiho agreements’ cost-sharing, opt-out, continuation-payment, milestone and commercialization terms, and quantify revenue concentration and Gilead’s ownership and governance influence.
- Monitor manufacturing redundancy and supply risk, particularly reliance on WuXi Biologics, and the status of relevant patent proceedings and potential licensing needs.
Audit and controls: Ernst & Young issued an unqualified opinion on the financial statements and internal control over financial reporting; management also concluded controls were effective. The auditor identified revenue accounting under the Gilead agreements as a critical audit matter because estimates of clinical-development effort affect the timing and amount of revenue recognition.