Arcus Biosciences, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Financial amounts are in millions of dollars except per-share data. Arcus is a clinical-stage biopharmaceutical company with no approved products and no product-sales revenue; reported revenue comes from collaboration and licensing arrangements.
Financial results and liquidity
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Total revenue | $145 | $25 |
| Research and development expense | $109 | $81 |
| General and administrative expense | $32 | $30 |
| Long-lived asset impairment | $20 | — |
| Operating loss | $(16) | $(86) |
| Net loss | $(4) | $(80) |
| Net loss per share, basic and diluted | $(0.05) | $(1.09) |
| Operating cash flow | $(2) | $(98) |
Revenue was 97% from Gilead in Q1 2024. The quarter’s results include a $107 cumulative catch-up in Gilead collaboration revenue following a January contract amendment; this reduced basic and diluted net loss per share by $1.24. Accordingly, the reported improvement in net loss is not a straightforward indication of recurring operating performance. Product margins are not applicable because Arcus has no product sales.
At March 31, 2024, cash and cash equivalents were $185, current and long-term marketable securities totaled $910, and total cash, cash equivalents and marketable securities were approximately $1.095 billion. Management said this funding was expected to support planned operations into 2027. Current assets were $1.064 billion and current liabilities were $204 million. The balance sheet reports no conventional debt; it includes a $20 million noncurrent liability for the sale of future royalties. Deferred revenue was $366 million.
Cash used in investing activities was $169 million, primarily reflecting net purchases of marketable securities. Financing provided $229 million, including $228 million net proceeds from Gilead’s share purchase. Cash, cash equivalents and restricted cash ended the quarter at $188 million.
Material changes and developments
- Revenue rose to $145 million from $25 million, primarily because of the $107 million Gilead amendment-related catch-up and higher collaboration R&D services, including Taiho milestone-related activity.
- R&D expense increased 35% to $109 million, mainly reflecting greater late-stage and Phase 3 development activity and manufacturing timing. Collaboration reimbursements recorded as reductions to R&D expense were $37 million, compared with $42 million a year earlier.
- Arcus recorded a $20 million impairment charge after assessing office space it expects to sublease.
- In January, Gilead purchased 15.2 million shares at $21 per share for $320 million gross proceeds. Arcus allocated $87 million of the amount as consideration for Gilead collaboration performance obligations; Gilead held approximately 33.1% of outstanding shares at quarter-end and may purchase additional shares up to 35% ownership under its agreement.
- Under the amended Gilead collaboration, Arcus will fund a planned Phase 3 pancreatic cancer study of quemliclustat and its share of PACIFIC-8 costs, subject to Gilead’s specified reinstatement rights. Gilead committed to a $100 million pipeline-access continuation payment due in Q3 2024; the payment was excluded from quarter-end deferred revenue.
- Taiho became obligated to pay $26 million after STAR-121 clinical milestones were met; $16 million had been received by March 31, with the remaining $10 million due in Q1 2025.
Outlook, commentary and risks
Management expects R&D expenses to increase substantially over the next several years as programs advance through later-stage trials, manufacturing activity expands and development capabilities grow. G&A expenses are also expected to increase to support expanding operations. Arcus stated that it will need substantial additional funding over time, although it believes current cash and investments can fund planned operations into 2027. It reported a forecast full-year net operating loss and no Q1 2024 income tax provision.
Key risks include clinical-trial uncertainty and competition, dependence on Gilead and other collaborators, and reliance on third parties for clinical supply and manufacturing. Arcus specifically identified WuXi Biologics in China as the sole manufacturer of zimberelimab and domvanalimab and warned that trade restrictions or geopolitical developments could disrupt supply. Other material uncertainties include regulatory approval and commercialization, intellectual-property disputes, and the possibility that preliminary clinical findings change as data mature. No material legal proceedings were reported. Management concluded disclosure controls were effective at the reasonable-assurance level and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much of Q1’s revenue and earnings improvement reflects the one-time $107 million cumulative catch-up, versus ongoing collaboration performance.
- Whether the $100 million Gilead continuation payment is received in Q3 2024, and how future collaboration revenue and development-cost responsibilities evolve.
- Clinical and regulatory progress, including forthcoming EDGE-Gastric data and the status of the Phase 3 portfolio; early and interim results may not predict later outcomes.
- Progress toward the stated operating runway, given planned increases in development spending and the company’s need for future funding.
- Whether manufacturing, supply-chain, or trade risks affect key clinical programs, particularly the reliance on WuXi Biologics.
- The effects of Gilead’s ownership, additional share-purchase rights and board representation on governance, control and potential shareholder dilution.