Arcus Biosciences, Inc. — Q2 2018 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2018. Arcus is a clinical-stage cancer immunotherapy company with no product sales; its reported revenue came from collaboration and licensing activities.
Financial results and liquidity
Amounts below are in millions of dollars, except per-share data. The filing presents unaudited results.
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Collaboration and license revenue | $1.25 | $0 | $2.50 | $0 |
| Research and development expense | $13.70 | $7.83 | $25.35 | $13.64 |
| General and administrative expense | $3.45 | $1.83 | $6.38 | $3.33 |
| Loss from operations | $(15.90) | $(9.66) | $(29.23) | $(16.96) |
| Net loss | $(13.53) | $(9.55) | $(26.49) | $(16.75) |
| Basic and diluted net loss per share | $(0.32) | $(5.64) | $(1.01) | $(10.66) |
- Cash flow: Six-month operating cash use was $24.1 million, investing cash use was $32.6 million, and financing provided $128.3 million, principally from the March IPO. Cash and cash equivalents increased $71.6 million to $170.0 million.
- Balance sheet at June 30: Cash, cash equivalents and investments totaled $277.5 million, including $265.7 million of cash, cash equivalents and short-term investments. Total assets were $293.9 million; total liabilities were $39.3 million. The filing reports no outstanding debt balance.
- Current assets were $267.4 million versus current liabilities of $16.4 million. Accumulated deficit was $99.7 million. No operating or profit margin is meaningful given the company’s development-stage operations and minimal collaboration revenue.
Changes versus the prior comparable periods
- Q2 revenue rose from zero to $1.25 million, entirely under the Taiho collaboration; first-half revenue was $2.50 million versus zero.
- Q2 R&D expense increased 75% and G&A increased 89%; first-half R&D increased 86% and G&A increased 92%. Management attributed the increases mainly to clinical and manufacturing activity, personnel, licensing milestones, stock compensation, and public-company and facility costs.
- Net loss increased 42% in Q2 and 58% for the first half. Higher interest income and a $1.2 million gain associated with dilution of the PACT Pharma investment partly offset operating losses.
- The March 2018 IPO generated approximately $124.7 million in net proceeds; preferred stock converted into common stock. Share counts and per-share comparisons are affected by the IPO and a 1-for-3.96 reverse stock split.
Outlook, risks and unusual items
- Management stated cash and investments should fund planned operations for at least 12 months after filing. Separately, the risk-factor discussion says existing resources were expected to fund clinical development of AB928 and AB122, including cohort expansion studies, into at least Q4 2020, but not through regulatory approval. The company expects to need substantial additional capital.
- Management expected AB928 combination dose-escalation data in the first half of 2019 and planned to advance AB680 into a clinical trial by the end of 2018. It expected R&D and G&A expenses to rise as trials, manufacturing, staffing and public-company activities expand.
- In July 2018, after quarter-end, Taiho exercised its first option, for the AB928 adenosine receptor antagonist program in Japan and certain other Asian territories; a $3.0 million payment was due in August. The filing also describes potential future Taiho milestones and royalties, which are contingent and not guaranteed.
- Key risks include clinical failure or delays, uncertain safety and efficacy, competition, reliance on third-party clinical and manufacturing providers, regulatory and intellectual-property challenges, and future financing needs. The company reported no material legal proceedings. Its disclosure controls were assessed as effective at a reasonable-assurance level.
Investor facts to verify
- Reconcile the stated cash runway horizons and assess how spending, trial scope and milestone receipts could change them.
- Track trial enrollment, safety and data timing for AB928, AB122 and AB154, and the planned AB680 clinical start.
- Confirm receipt of Taiho’s $3.0 million option payment and monitor further option exercises and collaboration revenue recognition.
- Monitor quarterly cash burn, R&D and manufacturing commitments, and the timing and terms of any additional financing.
- Assess the significance of the PACT Pharma dilution gain and distinguish investment-related income from recurring operating performance.