Arcus Biosciences(RCUS) - 2025 Q2 - Quarterly Report

Risk Factor Summary Risk Factor Summary This section provides a high-level overview of the key risks and uncertainties for Arcus Biosciences, covering financial, development, collaboration, intellectual property, and operational risks - The company has a history of operating losses, has never generated revenue from product sales, and anticipates continued significant losses, potentially requiring additional funding[12] - Significant risks exist in the drug development process, including potential failure to obtain regulatory approval, delays in clinical trials, and the possibility of serious adverse events or undesirable side effects from investigational products[12] - The company is heavily dependent on its collaboration with Gilead Sciences for the research, development, and commercialization of its products, and the success of this collaboration is critical[12] - Arcus faces risks related to intellectual property, including the ability to obtain and maintain sufficient protection for its products and the potential for costly infringement lawsuits[16] - The company faces substantial competition and is vulnerable to failures or security breaches of its internal and third-party IT systems[16] PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for the three and six months ended June 30, 2025, including the Statement of Operations, Balance Sheet, and Cash Flow Statement Condensed Consolidated Statements of Operations For Q2 2025, Arcus reported total revenues of $160 million, a substantial increase from Q2 2024, leading to a net income of $0 million compared to a net loss of $93 million in the prior-year period Consolidated Statements of Operations Highlights (in millions, except per share data) | Metric | Q2 2025 | Q2 2024 | 6 Months 2025 | 6 Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $160 | $39 | $188 | $184 | | License and development services | $152 | $28 | $172 | $163 | | Other collaboration revenue | $8 | $11 | $16 | $21 | | Total Operating Expenses | $168 | $145 | $318 | $306 | | Research and development | $139 | $115 | $261 | $224 | | General and administrative | $29 | $30 | $57 | $62 | | Net Income (Loss) | $0 | $(93) | $(112) | $(97) | | Diluted EPS | $0.00 | $(1.02) | $(1.09) | $(1.09) | Condensed Consolidated Balance Sheets As of June 30, 2025, total assets were $1,075 million, with cash, cash equivalents, and marketable securities totaling $927 million, and total stockholders' equity increasing to $549 million Key Balance Sheet Items (in millions) | Metric | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $248 | $150 | | Marketable securities (Current & Long-term) | $679 | $842 | | Total Assets | $1,075 | $1,150 | | Total current liabilities | $210 | $226 | | Long-term debt | $97 | $48 | | Total Liabilities | $526 | $665 | | Total Stockholders' Equity | $549 | $485 | Condensed Consolidated Statements of Cash Flows For the first six months of 2025, net cash used in operating activities was $265 million, while investing activities provided $169 million and financing activities provided $194 million, resulting in a net increase in cash of $98 million Cash Flow Summary for Six Months Ended June 30 (in millions) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(265) | $(96) | | Net cash provided by (used in) investing activities | $169 | $(106) | | Net cash provided by financing activities | $194 | $231 | | Net increase in cash, cash equivalents and restricted cash | $98 | $29 | Notes to Condensed Consolidated Financial Statements The notes detail significant accounting policies and events, including a $143 million cumulative revenue catch-up from a Gilead collaboration modification and details on financing activities - As of June 30, 2025, the company had $927 million in cash, cash equivalents, and marketable securities, which management believes is sufficient to fund planned operations for at least the next twelve months[34] - In June 2025, Gilead terminated its rights to the etrumadenant program, treated as a contract modification, leading to a cumulative catch-up to revenue of $143 million during Q2 2025[81] - In Q1 2025, the company sold 13.6 million shares of common stock in an underwritten offering for gross proceeds of approximately $150 million[116] - The company drew an additional $50 million in Q2 2025 under its loan agreement with Hercules, bringing the total long-term debt balance to $97 million[111] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results, clinical portfolio, and strategic updates, highlighting a $143 million revenue catch-up, increased R&D expenses, positive casdatifan data, and sufficient capital for future operations Overview and Clinical Portfolio Arcus is a clinical-stage biopharmaceutical company focused on cancer therapies, with its most advanced molecule, an anti-TIGIT antibody, in multiple Phase 3 studies, and a key collaboration with Gilead - The company's most advanced molecule is an anti-TIGIT antibody in multiple Phase 3 registrational studies for lung and GI cancers[131] - In Q2 2025, Gilead returned its license to the adenosine receptor antagonist program (etrumadenant), and the HIF-2α program (casdatifan) is no longer subject to Gilead's option[132] Significant Developments Key recent developments include initial positive data for the casdatifan program, Orphan Drug Designation for quemliclustat, and the strategic decision to pause future development of etrumadenant - Initial data from the ARC-20 study of casdatifan plus cabozantinib showed a 46% confirmed overall response rate in patients with metastatic cancer, supporting the initiation of two new studies[143] - In July 2025, quemliclustat received Orphan Drug Designation from the FDA for the treatment of pancreatic cancer[138] - The company decided to pause future development of etrumadenant, and in June 2025, Gilead returned its license to the program[139] Results of Operations Total revenues for Q2 2025 were $160 million, a 310% increase from Q2 2024, primarily due to a $143 million cumulative revenue catch-up, while R&D expenses increased 21% to $139 million - The increase in total revenues for Q2 2025 was primarily driven by a $143 million cumulative catch-up from license and development services revenue related to Gilead's return of its license to the etrumadenant program[152] Research and Development Expenses by Category (in millions) | Category | Q2 2025 | Q2 2024 | Change | 6 Months 2025 | 6 Months 2024 | Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Late-stage development programs | $74 | $64 | 16% | $129 | $127 | 2% | | Early-stage R&D and preclinical programs | $38 | $33 | 15% | $80 | $58 | 38% | | Compensation and personnel costs | $45 | $45 | 0% | $94 | $90 | 4% | | Partnership reimbursements | $(33) | $(40) | (18)% | $(71) | $(77) | (8)% | | Total R&D | $139 | $115 | 21% | $261 | $224 | 17% | - Management expects R&D expenses to decline commencing in the fourth quarter of 2025 as costs related to the domvanalimab Phase 3 development program decrease significantly[158] Liquidity and Capital Resources The company ended Q2 2025 with $927 million in cash, cash equivalents, and marketable securities, deemed sufficient to fund operations for at least the next twelve months and through key clinical readouts - The company believes its cash, cash equivalents, and marketable securities as of June 30, 2025, will be sufficient to fund planned operations for at least twelve months and through initial pivotal read-outs for domvanalimab, quemliclustat, and casdatifan[166] - In February 2025, the company raised approximately $150 million in gross proceeds from an underwritten offering of common stock[171] - In Q2 2025, the company drew an additional $50 million from its $250 million term loan facility with Hercules[170] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's market risks, primarily from potential losses due to changes in interest rates and foreign currency exchange rates, have not materially changed from its prior annual report - The company's primary market risks arise from potential changes in interest rates and foreign currency exchange rates, and these risks have not changed materially since the last annual report[186] Item 4. Controls and Procedures As of June 30, 2025, management concluded that the company's disclosure controls and procedures were effective, with no material changes in internal control over financial reporting during the quarter - Based on an evaluation as of the end of the period, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level[189] - There were no changes in the company's internal control over financial reporting during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, internal controls[190] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company reports that it is not currently a party to any material legal proceedings - As of the filing date, the company is not a party to any material legal proceedings[193] Item 1A. Risk Factors This section details significant risks, including limited operating history, financial position, product development uncertainties, reliance on third parties, intellectual property vulnerabilities, and substantial competition - The company has a history of operating losses, an accumulated deficit of $1.2 billion as of June 30, 2025, and expects to incur significant losses for the foreseeable future[195] - Clinical drug development is a lengthy, expensive, and uncertain process, and the company's investigational products may not be effective or may have side effects that preclude marketing approval[200][207] - The business is highly dependent on its collaboration with Gilead; conflicts, termination of the agreement, or failure by Gilead to commercialize products could adversely affect the company[239] - The company relies on third-party manufacturers, including WuXi Biologics in China for its key products zimberelimab and domvanalimab, creating risks related to supply chain, quality control, and geopolitical tensions[247][311] - The company faces substantial competition in the immunotherapy market, and competitors may develop safer, more effective, or less expensive products more quickly[298] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities or use of proceeds for the period - None[366] Item 5. Other Information This section discloses the adoption of Rule 10b5-1 trading arrangements by two of the company's officers during the second quarter of 2025 Rule 10b5-1 Trading Arrangements Adopted in Q2 2025 | Name and Title | Action | Date | Total Shares to be Sold | Expiration Date | | :--- | :--- | :--- | :--- | :--- | | Alex Azoy, Chief Accounting Officer | Adoption | June 6, 2025 | 28,022 | June 4, 2026 | | Jennifer Jarrett, Chief Operating Officer | Adoption | June 30, 2025 | 100,583 | April 10, 2026 | Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the certifications of the Principal Executive Officer and Principal Financial Officer - The report includes a list of filed exhibits, such as officer certifications (31.1, 31.2, 32.1, 32.2) and XBRL data files[372]