~~implications, we believe we currently have sufficient drug supply for our ongoing clinical studies and we do not anticipate any disruptions to our drug supply chain.~~

To date, we have obtained active pharmaceutical ingredients ~~(API)~~("API") and drug product for our investigational products from single-source third party contract manufacturers. We are in the process of developing our supply chain for each of our investigational products and intend to put in place framework agreements under which third-party contract manufacturers will generally provide us with necessary quantities of API and drug product on a project-by-project basis based on our development needs. With respect to zimberelimab, we agreed, as part of ~~our license agreement with~~the WuXi ~~Biologics,~~PD-1 Agreement, that WuXi Biologics would be our exclusive manufacturer of zimberelimab drug substance with respect to clinical and commercial supplies until a certain number of years after marketing approval for zimberelimab, subject to certain exceptions.

Even if an investigational product receives regulatory approval, the approval may be significantly limited to specific indications and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling. The FDA may impose restrictions and conditions on product distribution, prescribing, or dispensing in the form of a risk evaluation and mitigation strategy ~~(REMS)~~("REMS"), or otherwise limit the scope of any approval. REMS can include medication guides, communication plans for healthcare professionals, and elements to assure safe use ~~(ETASU)~~("ETASU"). ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patient registries. The requirement for a REMS can materially affect the potential market and profitability of the product. In addition, the FDA may require post marketing clinical trials, sometimes referred to as “Phase 4” clinical trials, designed to further assess a product’s safety and effectiveness, and testing and surveillance programs to monitor the safety of approved products that have been commercialized.

Commercialization of our investigational products may only occur in the EU following approval of a marketing application, which can be obtained through either a centralized or a decentralized procedure:

~~As of February 1, 2021, we had 236~~full-time employees, 92 of whom hold Ph.D. or M.D. degrees or R.N. certifications. Of these employees, 184 were engaged in research and development activities and 52 were engaged in general and administrative activities. None of our employees are represented by labor unions or covered by collective bargaining agreements. We consider our relationship with our employees to be good.

Risks Related to our Limited Operating History, Financial Position and Capital Requirements

~~We are an early-stage immuno-oncology company with a limited operating history.~~

~~If any of our investigational products for which we have or retain~~ sales and marketing responsibilities are approved, we must either develop a sales and marketing organization, which would be expensive and time consuming, or outsource these functions to other third parties. We may be unable to recruit and retain adequate numbers of effective sales and marketing personnel, and if we enter into arrangements with third parties to perform sales, marketing and distribution services our product revenue or capabilities;

The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. Depending on future actions by the U.S. Congress, the U.S. courts, the USPTO and the relevant law-making bodies in other countries, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.

Patent terms may be inadequate to protect our competitive position on our investigational products for an adequate amount of time.

We expect to ~~significantly~~ grow our ~~discovery and clinical development capabilities. To support this growth, we will need to increase the number of employees in clinical~~business operations, ~~biostatistics and data management, quality, regulatory affairs and,~~including, if any of our investigational products receives marketing approval, adding employees in sales ~~marketing~~ and ~~distribution.~~marketing. To manage our anticipated future growth, we must:

•

~~identify, recruit, integrate, maintain and motivate additional qualified personnel;~~

•identify, recruit, integrate, maintain and motivate additional qualified personnel;•

manage our development efforts effectively, including the initiation and conduct of clinical trials for our investigational products, both as monotherapy and in combination with other intra-portfolio investigational products; and

•

~~improve our operational, financial and management controls, reporting systems and procedures.~~

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•manage our development efforts effectively, including the initiation and conduct of clinical trials for our investigational products; and

•improve our operational, financial and management controls, reporting systems and procedures.

Our future financial performance and our ability to develop, manufacture and commercialize our investigational products will depend, in part, on our ability to effectively manage any future growth, and our management may also have to divert financial and other resources, and a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of time, to managing these growth activities.

If we are not able to effectively expand our organization by hiring new employees and expanding our groups of consultants and contractors, we may not be able to successfully implement the tasks necessary to further develop and commercialize our investigational products and, accordingly, may not achieve our research, development and commercialization goals.

Our future success depends on our ability to retain key employees, consultants and advisors and to attract, retain and motivate qualified personnel.

~~Our industry has experienced a high rate of turnover in recent years.~~

Our ability to compete in the highly competitive biopharmaceuticals industry depends upon our ability to attract, retain and motivate highly skilled and experienced personnel with scientific, medical, regulatory, manufacturing and management skills and experience. We conduct our operations in the San Francisco Bay Area, a region that is home to many other biopharmaceutical companies as well as many academic and research institutions, resulting in fierce competition for qualified ~~personnel. We~~personnel and rapidly increasing wages. Our industry also has experienced a high rate of turnover in recent years. While we have expanded a number of our in-office roles to permit remote work arrangements, allowing us to seek talent from outside the San Francisco Bay Area, we still may not be able to attract or retain qualified personnel in the future due to the intense competition for a limited number of qualified personnel among biopharmaceutical companies. Many of the other biopharmaceutical companies against which we compete have greater financial and other resources, different risk profiles and a longer history in the industry than we do. Our competitors may provide higher compensation, more diverse opportunities

and/or better opportunities for career advancement. Any or all of these competing factors may limit our ability to continue to attract and retain high quality personnel, which could negatively affect our ability to successfully develop and commercialize our investigational products and to grow our business and operations as currently contemplated.

We are highly dependent on the services of our founders, Terry Rosen, Ph.D., who serves as our Chief Executive Officer, and Juan Jaen, Ph.D., who serves as our President.

We are highly dependent on the services of our founders, Terry Rosen, Ph.D., who serves as our Chief Executive Officer, and Juan Jaen, Ph.D., who serves as our President. Although we have entered into employment agreements with them, they are not for a specific term and each of them may terminate their employment with us at any time, though we are not aware of any present intention of either of these individuals to leave us.

Drs. Rosen and Jaen have significant experience identifying and developing biopharmaceuticals. We believe that their drug discovery and development experience, and overall biopharmaceutical company management experience, would be difficult to replace. However, the historical results, past performance and/or acquisitions of companies with which they were affiliated do not necessarily predict or guarantee similar results for our company. Further, Drs. Rosen and Jaen have certain other business and personal commitments outside of serving as the Chief Executive Officer and President of Arcus, including serving on the boards of other companies and foundations, which may result in diversion of their focus and attention on our company.

We face substantial competition, which may result in others discovering, developing or commercializing products more quickly or marketing them more successfully than us. If their investigational products are shown to be safer or more effective than ours, then our commercial opportunity will be reduced or eliminated.

We compete in the segments of the pharmaceutical, biotechnology and other related markets that develop immunotherapies for the treatment of cancer, which is highly competitive with rapidly changing standards of care. As such, our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient, or are less expensive than any products that we may develop or that would render any products that we may develop obsolete or non-competitive. Our competitors also may obtain marketing approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market.

~~Some~~

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We are aware of several pharmaceutical companies developing products in the same class as our investigational products, ~~have already been approved or~~some of which are further along in ~~development. With respect to~~development than our dual adenosine receptor antagonist, etrumadenant, we are aware that Incyte has initiated clinical development of a dual adenosine receptor antagonist and we are aware of clinical-stage selective adenosine A_2a~~R antagonists being developed by other companies, including AstraZeneca, Corvus, CStone, iTeos Therapeutics and Novartis, and a clinical-stage selective adenosine A~~_2b~~R antagonist being developed by Palobiofarma. For~~corresponding assets. See “Item 1. Business—Competition” for additional information regarding our small-molecule CD73 inhibitor, AB680, we are aware of several pharmaceutical companies developing antibodies against this target, including Akeso, AstraZeneca, Bristol-Myers Squibb, Corvus, Novartis, Symphogen and Tracon/I-Mab, all of whom have advanced their CD73 antibodies into clinical development. Other pharmaceutical companies, such as Boehringer Ingelheim, Calithera, Eli Lilly, Merck and ORIC, have small-molecule programs against this target, of which only Eli Lilly has advanced its CD73 inhibitor into clinical development. Regarding our anti-PD-1 antibody, zimberelimab, multiple large pharmaceutical companies have already received regulatory approvals for their anti-PD-1/PD-L1 antibodies, including AstraZeneca, Bristol-Myers Squibb, Merck, Pfizer in partnership with Merck KGaA, Regeneron in partnership with Sanofi Genzyme and Roche/Genentech, and there are also many other anti-PD-1 and anti-PD-L1 antibodies in clinical development. With respect to our anti-TIGIT antibody, domvanalimab, we are aware of several pharmaceutical companies developing antibodies against this target, including Agenus, Beigene, Bristol-Myers Squibb, Compugen, Roche/Genentech, Innovent, iTeos Therapeutics, Merck KGaA, Mereo and Seattle Genetics. To our knowledge, there are no approved anti-TIGIT antibodies and the most advanced agent is in Phase 3 development.

competitors.

As more investigational products within a particular class of drugs proceed through clinical development to regulatory review and approval, the amount and type of clinical data that may be required by regulatory authorities may increase or change. Consequently, the results of our clinical trials for investigational products in ~~those~~that class will likely need to show a risk benefit profile that is competitive with or more favorable than those products and investigational products in order to obtain marketing approval or, if approved, a product label that is favorable for

commercialization. If the risk benefit profile is not competitive with those products or investigational products, or if the approval of other agents for an indication or patient population significantly alters the standard of care with which we tested our investigational products, we may have developed a product that is not commercially viable, that we are not able to sell profitably or that is unable to achieve favorable pricing or reimbursement. In such circumstances, our future product revenue and financial condition would be materially and adversely affected.

Many of our competitors, such as large pharmaceutical and biotechnology companies like AstraZeneca, Bristol-Myers Squibb, Merck, Novartis and Roche/Genentech, have longer operating histories and significantly greater financial resources and expertise in research and development, manufacturing, preclinical studies, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and subject enrollment for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

The key competitive factors affecting the success of all of our programs are likely to be their efficacy, safety, convenience, and availability of reimbursement. If we are not successful in developing, commercializing and achieving higher levels of reimbursement than our competitors, we will not be able to compete against them and our business would be materially harmed.

The development and commercialization of zimberelimab may face strong competition from other anti-PD-1 antibodies that have already received marketing approval by larger companies with substantial resources and more experience developing, manufacturing and commercializing biologic compounds.

As discussed above, some companies, such as AstraZeneca, Bristol-Myers Squibb, Merck, Pfizer in partnership with Merck KGaA, Regeneron in partnership with Sanofi Genzyme and Roche/Genentech, have anti-PD-1/PD-L1 antibodies that are approved and on the market, and continue to develop and seek regulatory approval for their respective anti-PD-1/PD-L1 antibodies for additional oncology indications. For example, in June 2020, the U.S. FDA granted accelerated approval to Keytruda^® (pembrolizumab) for the treatment of patients with solid tumors that have high tumor mutational burden. Many other companies are developing anti-PD-1/PD-L1 antibodies for various oncology indications that are further along in development than zimberelimab. This competitive environment could limit our development opportunities for zimberelimab or compromise our ability to successfully enroll our ongoing and future clinical trials with zimberelimab by limiting the availability of clinical trial investigators, sites and/or subjects which could slow, delay or limit the progress of zimberelimab’s development. As a result of these or other problems and risks, we may never receive marketing approval for zimberelimab, may not realize the full commercial potential of zimberelimab as monotherapy or in combination with our other investigational products, may never recoup our financial investment or may never generate significant value or revenue from this asset.

Our internal information technology systems, orand those of our third-party CROs orand other ~~contractors or consultants,~~third parties upon which we rely, are subject to failure, security breaches ~~loss or leakage of data,~~ and other disruptions, which could result in a material disruption of our investigational products’ development programs, ~~compromise~~jeopardize sensitive information, ~~related to our business or~~ prevent us from accessing critical information or result in a loss of our assets, and potentially ~~exposing~~expose us to notification obligations, loss, liability or reputational damage and otherwise adversely ~~affecting~~affect our business.

We are increasingly dependent upon information technology systems, infrastructure and data to operate our business. In the ordinary course of business, we collect, store and transmit confidential information, including but not limited to intellectual property, proprietary business information and personal ~~information. It is critical that we do so in a secure manner to maintain the confidentiality, integrity and availability of such confidential information.~~ information (collectively, "Sensitive Information").

We also have outsourced elements of our operations to third parties, and as a result we manage a number of ~~third party~~third-party contractors and other parties who have access to our ~~confidential~~sensitive information.

Our ability to monitor these third parties’ informationsecurity practices is limited, and these third parties may not have adequate information security measures in place. If the third parties we rely on experience a security incident or other interruption, we could experience adverse consequences. While we may be entitled to damages if these third parties fail to satisfy their privacy- or security-related obligations to us, any award may be insufficient to cover our damages, or we may be unable to recover such an award. In addition, supply chain attacks have increased in frequency and severity, and we cannot guarantee that third parties’ infrastructure in our supply chain or our third-party partners’ supply chains have not been compromised.

Despite the implementation of security measures, given ~~their~~the size and complexity and the increasing amounts of ~~confidential~~sensitive information that they maintain, our internal information technology systems and those of our third-party CROs and other ~~contractors and consultants~~third parties upon which we rely are vulnerable to breakdown or other damage or interruption from service interruptions, system malfunction, natural disasters, terrorism, war and telecommunication and electrical failures, as well as security breaches from inadvertent or intentional actions by our employees, contractors,

consultants, business partners, and/or other third parties, or from ~~cyber-attacks~~cyberattacks by malicious third parties (including the deployment of harmful malware, ransomware, denial-of-service attacks, social engineering and other means to affect service reliability and threaten the confidentiality, integrity and availability of ~~information)~~information and other assets), which may compromise our system infrastructure, or lead to data ~~leakage. We have experienced at least one intrusion into~~leakage, impair key business processes or other critical business operations, delay our ~~computer systems, and, although our investigation indicates that it did not have a material adverse effect on our operations, there can be no assurance of a similar~~development programs, or result in the ~~future.~~loss of assets or other liability. Our reliance on internet technology and the number of our employees who are working remotely has increased the opportunities for cybercriminals to exploit vulnerabilities. We cannot assure you that our data protection efforts and our investment in information technology will prevent ~~other~~ breakdowns, data leakages, breaches in our systems or other cyber incidents that could have a material adverse effect upon our reputation, business, operations or financial condition.

Furthermore, as the ~~cyber-threat~~cyber threat landscape evolves, these attacks are growing in frequency, sophistication and intensity, and becoming increasingly difficult to detect. There can be no assurance that we and our third-party CROs and other ~~contractors and consultants~~third parties upon which we rely will be successful in detecting, preventing or fully recovering systems or data from all breakdowns, service interruptions, attacks or breaches of systems that could adversely affect our business and operations and/or result in the loss or disclosure of critical or sensitive data or other assets, which could result in financial, legal, business or reputational harm to us.

~~To the extent that any disruption or security breach were~~ Ransomware attacks have risen dramatically and we may be forced to ~~result in a loss of, or damage~~pay to unlock our data and information, re-access our systems and resume our ability to conduct business operations. Extortion payments may alleviate the negative impact of a ransomware attack, but we may be unwilling or ~~applications,~~unable to make such payments due to, for example, applicable laws or inappropriate disclosure of confidential or proprietary information, we could incur liability and reputational damage and the further development and commercialization of our drug candidates could be delayed. In addition, theregulations prohibiting such payments. The loss of clinical trial data for our investigational products could ~~result in delays in our marketing approval efforts and~~ significantly increase our costs to recover or reproduce the ~~data. Furthermore,~~data and result in delays in our

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development programs, impair our ability to obtain marketing approval and reduce the commercial opportunity for our investigational products.

We take steps designed to detect, mitigate, and remediate vulnerabilities in our information systems (such as our hardware and/or software, including that of any third parties we rely), but we may not be able to detect and remediate all such vulnerabilities including on a timely basis. Further, we may experience delays in developing and deploying remedial measures and patches designed to address identified vulnerabilities. Vulnerabilities could be exploited and result in a security incident.

Moreover, significant disruptions of our internal information technology systems or security breaches could result in the loss, misappropriation, and/or unauthorized access, use, or disclosure of, or the prevention of access to, confidential information (including trade secrets or other intellectual property, proprietary business information, and personal information), which could result in financial, legal, business, and reputational harm to us. In particular, any such event that leads to unauthorized access, use, or disclosure of personal information, including personal information regarding our clinical trial subjects or employees, could harm our reputation directly, compel us to comply with federal and/or state breach notification laws and foreign law equivalents, subject us to mandatory corrective action, and otherwise subject us to liability under laws and regulations that protect the privacy and security of personal information, which could result in significant legal and financial exposure and reputational damages that could potentially have an adverse effect on our business.

Although we maintain insurance coverage to insure against losses suffered as a result of malicious intrusions and cyberattacks, such coverage may be insufficient to fully compensate us for the loss or there may be disputes with our insurers about the availability of insurance coverage for our claims. Cyber insurance may become increasingly difficult to maintain and we may not be able to maintain coverage at a reasonable cost or in an amount adequate to compensate for any loss or satisfy any liability that may arise. Our contracts may not contain limitations of liability, and even where they do, there can be no assurance that limitations of liability in our contracts are sufficient to protect us from liabilities, damages, or claims related to our data privacy and security obligations.

Our sensitive information could be leaked, disclosed, or revealed as a result of or in connection with our employees’, personnel’s, or the third parties' upon whom we rely use of generative artificial intelligence (AI) technologies. Any sensitive information (including confidential, competitive, proprietary, or personal data) that is inputted into a third-party generative AI platform could be leaked or disclosed to others, including if sensitive information is used to train the third parties’ AI model.

Unfavorable global economic, political and trade conditions could adversely affect our business, financial condition or results of ~~operations.~~

~~Our results~~operations and may exacerbate the effects of ~~operations could be adversely affected by general conditions in~~ the ~~global economy and in the global financial markets and global trade. The current~~risks described herein.

Current global economic conditions are highly volatile due to a number of reasons, including geopolitical instability, such as the ~~COVID-19 pandemic~~ongoing military conflict between Russia and ~~government restrictions on movement, which may lead to~~Ukraine and the recent eruption of war between Israel and Hamas, rising inflation that has increased our operating expenses and disruptions in the capital and credit markets ~~and~~that may reduce our ability to raise additional capital when needed on acceptable terms, if at all. ~~Furthermore, we conduct,~~

Emerging international trade relations and we expect to continue to conduct, portions of our clinical trials outside the United States, and unfavorable economic conditions resulting in the weakening of the U.S. dollar would make those clinical trials more costly to operate. A weak or declining economy couldnew legislation may also ~~strain our suppliers, possibly resulting in supply disruption.~~

~~Adverse trade conditions may further~~adversely impact our ~~operating results~~ operations and/or financial condition by limiting or preventing the activities of third parties that we engage or increasing the cost of our operations. For example, ~~we have an exclusive relationship with~~ WuXi Biologics, located in China, ~~for the manufacture~~is our sole manufacturer of our investigational biologics, including zimberelimab, ~~and domvanalimab and for biologics CMC development and~~domvanalimab. In addition, if tariffs ~~are~~were to be imposed on the investigational products they manufacture for us, such tariffs would have an adverse impact on our operating results and financial condition.

Furthermore, the current inflationary environment related to increased aggregate demand and supply chain constraints has increased our operating expenses and may continue to affect our operating expenses. Economic conditions may also strain our suppliers, possibly resulting in supply disruptions that impact our ongoing clinical trials and other operations. A significant worsening of global economic conditions could materially increase these risks we face.

Any new or prolonged downturn of ~~the foregoing~~global economic conditions could harm our business operations and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business.

Our future growth may depend, in part, on our ability to operate in foreign markets, where we would be subject to additional regulatory burdens and other risks and uncertainties.

Our future profitability may depend, in part, on our ability to commercialize our investigational products in foreign markets for which we may rely on collaboration with third parties. We are not permitted to market or promote any of our investigational products before we receive marketing approval from the applicable regulatory authority in that

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foreign market, and we may never receive such marketing approval for any of our investigational products. To obtain marketing approval in many foreign countries, we must comply with numerous and varying regulatory

requirements of such countries regarding safety and efficacy and governing, among other things, clinical trials and commercial sales, pricing and distribution of our investigational products, and we cannot predict success in these jurisdictions. If we obtain approval of our investigational products and ultimately commercialize our investigational products in foreign markets, we would be subject to additional risks and uncertainties, including:

•

~~our customers’ ability to obtain reimbursement for our investigational products in foreign markets;~~

•our customers’ ability to obtain reimbursement for our investigational products in foreign markets;•

~~our inability to directly control commercial activities because we are relying on third parties;~~

•our inability to directly control commercial activities because we are relying on third parties;•

~~the burden of complying with complex and changing foreign regulatory, tax, accounting and legal requirements;~~

•the burden of complying with complex and changing foreign regulatory, tax, accounting and legal requirements;•

~~different medical practices and customs in foreign countries affecting acceptance in the marketplace;~~

•different medical practices and customs in foreign countries affecting acceptance in the marketplace;•

~~import or export licensing requirements;~~

•import or export licensing requirements;•

~~longer accounts receivable collection times;~~

•longer accounts receivable collection times;•

~~longer lead times for shipping;~~

•longer lead times for shipping;•

~~language barriers for technical training;~~

•language barriers for technical training;•

~~reduced protection of intellectual property rights in some foreign countries;~~

•reduced protection of intellectual property rights in some foreign countries;•

~~the existence of additional potentially relevant third-party intellectual property rights;~~

•the existence of additional potentially relevant third-party intellectual property rights;•

~~foreign currency exchange rate fluctuations; and~~

•foreign currency exchange rate fluctuations; and•

~~the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute.~~

•the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute.

Foreign sales of our investigational products could also be adversely affected by the imposition of governmental controls, political and economic instability, trade restrictions and changes in tariffs.

We or the third parties upon ~~whom~~which we depend may be adversely affected by earthquakes, fires or other natural disasters and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.

Our headquarters and main research facility are located in the San Francisco Bay Area, which in the past has experienced severe earthquakes and fires. In addition, fires and other natural disasters may increase in frequency and severity over time due to climate change. If these earthquakes, fires, other natural disasters, terrorism and similar unforeseen events beyond our control prevented us from using all or a significant portion of our headquarters or research facility, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. We do not have a disaster recovery or business continuity plan in place and may incur substantial expenses as a result of the absence or limited nature of our internal or ~~third party~~third-party service provider disaster recovery and business continuity plans, which, particularly when taken together with our lack of earthquake insurance, could have a material adverse effect on our business. Furthermore, integral parties in our supply chain are operating from single sites, increasing their vulnerability to natural disasters or other sudden, unforeseen and severe adverse events. If such an event were to affect our supply chain, it could have a material adverse effect on our ability to conduct our clinical trials, our development plans and business.

Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

We have incurred substantial losses during our history and our ability to generate profits in the future is uncertain. Unused ~~losses~~net operating loss carryforwards ("NOLs") for the tax year ended December 31, 2017 and prior tax years will carry forward to offset future taxable income, if any, until such unused ~~losses~~NOLs expire. Unused ~~losses~~NOLs generated after December 31, 2017, under current tax law, will not ~~expire and~~expire. Our NOLs may be carried forward ~~indefinitely, but~~indefinitely. In addition, the future deductibility of such ~~net operating losses in tax years beginning after December 31, 2020~~NOLs will be limited to 80% of current year taxable income in any given year. ~~In addition, both~~

Both our current and our future unused losses (and tax credit carryforwards) may be subject to further limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended ~~(IRC)~~(the "IRC"), if we undergo an “ownership change,” generally defined as a greater than 50 percentage point change (by value) in its equity ownership by certain stockholders over a three-year period. We performed an analysis under IRC Section 382 and 383 through October 31, 2020 with respect to our net operating loss and credit carryforwards. We concluded that an ownership change, as defined under IRC Section 382, occurred in ~~the current year and in~~ previous ~~years. While we do not expect~~years but that such ownership ~~changes to~~change did not result in the expiration of our net operating loss ~~and~~or credit carryforwards prior to ~~utilization,~~

utilization. We may incur additional ownership changes in the future in connection with any equity issuance, including any additional issuances to Gilead. If we ~~are subject to an annual limitation on the use~~experience any such ownership

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change, we may be limited in our ability to use our net operating loss and credit carryforwards ~~could reduce our ability to use a portion of our tax attributes to offset future taxable income, which could result in us being~~and be required to make material cash tax payments.

However, our sale of 5,650,000 shares of our common stock to Gilead in February 2021, as well as future equity issuances, may result in an additional ownership change. As a result, our ability to use all of our pre-change net operating loss carryforwards (NOLs) and other pre-change tax attributes (such as research tax credits) to offset our post-change income or taxes may be subject to limitations that could result in increased future tax liability to us.

Similar provisions of state tax law may also apply to limit our use of accumulated state tax attributes. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise ~~limited, including~~limited. For example, while California recently enacted a ~~recent California~~ franchise tax law ~~change limiting~~restoring the usability of California state NOLs to offset taxable income ~~in taxable~~for tax years beginning on ~~or after~~ January 1, 2022, previous law significantly limited the use of California state NOLs for taxable years 2020 and ~~before January 1, 2023, which~~2021. Similar laws in the future could accelerate or permanently increase state taxes owed. Therefore, even if we attain sustained profitability, we may be unable to use all or a material portion of our NOLs and other tax attributes, which could adversely affect our future cash flows.

Changes in tax laws and regulations or exposure to additional tax liabilities could adversely affect our financial results.

The rules dealing with U.S. federal, state and local income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service, or IRS, and the U.S. Treasury Department. We actively monitor legislative and regulatory developments that may affect our tax liability in order to identify and evaluate if such proposals would have a material impact, whether detrimental or beneficial, on our financial results. Changes to tax laws (which changes may have retroactive application) could adversely affect us or holders of our common stock. In recent years, many such changes have been made and changes are likely to continue to occur in the future. For example, beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminates the option to currently deduct research and development expenditures and requires taxpayers to capitalize and amortize U.S. based and non-U.S. based research and development expenditures over five and fifteen years, respectively, pursuant to IRC Section 174. We cannot predict whether, when, in what form, or with what effective dates, tax laws, regulations and rulings may be enacted, promulgated or issued, which could result in an increase in our or our stockholders’ tax liability or require changes in the manner in which we operate in order to minimize or mitigate any adverse effects of changes in tax law.

Risks Related to Our Industry

Product liability lawsuits against us could cause us to incur substantial liabilities and could limit our commercialization of any investigational products that we may develop.

We face an inherent risk of product liability exposure related to the testing of our investigational products in human clinical trials and will face an even greater risk if we commercially sell any products that we may develop. If we cannot successfully defend ourselves against claims that our investigational products or products caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, product liability claims may result in:

•

~~delay or termination of clinical trials;~~

•delay or termination of clinical trials;•

~~decreased demand for any investigational products or products that we may develop;~~

•decreased demand for any investigational products or products that we may develop;•

~~injury to our reputation and significant negative media attention;~~

•injury to our reputation and significant negative media attention;•

~~withdrawal of clinical trial subjects;~~

•withdrawal of clinical trial subjects;•

~~initiation of investigations by regulators;~~

•initiation of investigations by regulators;•

~~significant costs to defend the related litigation and diversion of management’s time and our resources;~~

•significant costs to defend the related litigation and diversion of management’s time and our resources;•

~~substantial monetary awards to study subjects or patients;~~

•substantial monetary awards to study subjects or patients;•

~~product recalls, withdrawals or labeling, marketing or promotional restrictions;~~

•product recalls, withdrawals or labeling, marketing or promotional restrictions;•

~~loss of revenue; and~~

•loss of revenue; and•

~~the inability to commercialize any products that we may develop.~~

•the inability to commercialize any products that we may develop.

Although we maintain product liability insurance coverage, it may not be adequate to cover all liabilities that we may incur. We anticipate that we will need to increase our insurance coverage as our investigational products advance through clinical trials and if we successfully commercialize any products. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.

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Failure to comply with ~~health~~privacy and data protection laws, ~~and~~ regulations, or other obligations could lead to government enforcement actions (which could include civil or criminal penalties), private litigation, and/or adverse publicity and could negatively affect our operating results and business.

We and ~~any potential collaborators~~third parties upon whom we rely may be subject to federal, state, and foreign data protection, ~~laws and regulations (i.e., laws and regulations that address~~ privacy, and ~~data security).~~information security laws, regulations, guidance, industry standards, external and internal privacy and security policies, contractual requirements, and other obligations. In the United States, numerous federal and state laws and regulations, including federal health information privacy laws, state data breach notification laws, state health information privacy laws, and federal and state consumer protection laws (e.g., Section 5 of the FTC Act), that govern the collection, use, disclosure, and protection of health-related and other personal information could apply to our operations or the operations of our collaborators. In addition, we may obtain health information from third parties (including research institutions from which we obtain clinical trial data) that are subject to privacy and security requirements under ~~federal Health Insurance Portability and Accountability Act of 1996 (HIPAA)~~HIPAA as

amended by ~~the Health Information Technology for Economic and Clinical Health Act of 2009 (HITECH).~~HITECH. Depending on the facts and circumstances, we could be subject to significant penalties if we violate HIPAA.

The legislative and regulatory landscape for privacy and data security continues to evolve, and we expect that there will continue to be new proposed laws, regulations and industry standards relating to privacy and data security in the United States, the EU and other jurisdictions. This increased focus on privacy and data security issues may negatively affect our operating results and our business. For example, the California Consumer Privacy Act of 2018, ~~(CCPA), which took effect on January 1,~~as amended by the California Privacy Rights Act of 2020 ~~gives~~(collectively, "CCPA") applies to personal information of consumers, business representatives, and employees who are California residents, ~~expanded rights~~and requires businesses to ~~access~~provide specific disclosures in privacy notices and ~~require deletion~~honor requests of ~~their personal information, opt out~~such individuals to exercise certain privacy rights. In addition, the CCPA provides for administrative noncompliance that may carry fines of ~~certain personal information sharing,~~up to $7,500 per violation and ~~receive detailed information about how their personal information is used. In addition,~~ the CCPA authorizes private lawsuits to recover statutory damages for certain data breaches. ~~While it exempts some data regulated by HIPAA~~Similar laws are being considered in several other states, as well as at the federal and ~~certain clinical trials data, the CCPA may increase our compliance costs~~local levels, and ~~potential liability with respect~~we expect more states to ~~other personal information we collect about California residents. Some observers note that the CCPA could mark the beginning of a trend toward more stringent privacy legislation~~pass similar laws in the ~~U.S., which could increase our potential liability and adversely affect our business.~~

~~International~~future.

Foreign data protection laws also apply to health-related and other personal data obtained outside the United States. InGDPR, and Canada’s Personal Information Protection and Electronic Documents Act ("PIPEDA"), or the European Union, Regulation (EU) 2016/679 (General Data Protection Regulation) took effect in May 2018 and imposes, in some cases, stricter obligations than data protection laws in the United States on the use of health-related and other personal data. Theseapplicable provincial alternatives, impose strict requirements, ~~include~~including the obligation to appoint data protection officers in certain circumstances, rights for individuals to be “forgotten” and to data portability, and the obligation to make public notification of significant data breaches. Under the ~~General Data Protection Regulation,~~GDPR, data protection authorities can ~~also~~ impose ~~administrative~~temporary or definitive bans on data processing and other corrective actions or fines of up to 4% of our total worldwide turnover or up to €20 million ~~(whichever~~under the EU GDPR/17.5 million pounds sterling under the UK GDPR (in either case, whichever is higher)., or private litigation related to processing of personal data brought by classes of data subjects or consumer protection organizations authorized at law to represent their interests. In ~~addition,~~Canada, PIPEDA and various related provincial laws, as well as Canada’s Anti-Spam Legislation ("CASL"), may apply to our operations. We also target customers in Asia and may be subject to new and emerging data privacy regimes, including China’s Personal Information Protection Law ("PIPL").

We may also be subject to new laws governing the ~~General~~privacy of consumer health data. For example, Washington’s My Health My Data ~~Protection Regulation only permits~~Act ("MHMD") broadly defines consumer health data, places restrictions on processing such data (including imposing stringent requirements for consent), provides consumers certain rights with respect to their health data, and creates a private right of action to allow individuals to sue for violations of the law. Other states are considering and may adopt similar laws.

In the ordinary course of business, we may transfer personal data from Europe and other jurisdictions to the United States or other countries. Europe and other jurisdictions have enacted laws requiring data to be localized or limiting the transfer of personal data ~~outside~~to other countries. In particular, the ~~European Economic Area (EEA)~~EEA and the UK have significantly restricted the transfer of personal data to the United States and other to countries ~~that offer a level~~whose privacy laws it generally believes are inadequate. Other jurisdictions may adopt similarly stringent interpretations of their data ~~protection deemed adequate by the European Commission, unless an approved~~localization and cross-border data transfer ~~mechanism is in place. One such mechanism was invalidated by~~laws. Although there are currently various mechanisms that may be used to transfer personal data from the ~~European Court of Justice, adding~~EEA and UK to the ~~complexity of transferring~~United States in compliance with law, such as the EEA standard contractual clauses, the UK’s International Data Transfer Agreement / Addendum, and the EU-U.S. Data Privacy Framework and the UK extension thereto (which allows for transfers to relevant organizations based in the United States who self-certify compliance and participate in the Framework), these mechanisms are subject to legal challenges, and there is no assurance that we can satisfy or rely on these measures to lawfully transfer personal data ~~outside~~to the ~~EEA. The General Data Protection Regulation increases our responsibility and liability in relation~~United States. If there is no lawful manner for us to transfer personal data from the EEA, the UK or other jurisdictions to the United States, or if the requirements for a legally-compliant transfer are too onerous, we could face significant adverse consequences, including the interruption or degradation of our operations, the need to relocate part of or all of our business or data processing activities to other jurisdictions at significant expense, increased exposure to regulatory actions, substantial fines and penalties, the inability to transfer data and work with partners, vendors and other third parties, and injunctions against our processing or transferring of personal data necessary to operate our business. Additionally, companies that ~~we process,~~transfer personal data out of the EEA and ~~we must put in place additional mechanisms~~UK to ~~ensure compliance with~~other jurisdictions, particularly to the ~~new EU~~United States, are subject to increased scrutiny from regulators, individual litigants, and activist groups.

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Some European regulators have ordered certain companies to suspend or permanently cease certain transfers out of Europe for allegedly violating the GDPR’s cross-border data ~~protection rules.~~

~~Failure~~transfer limitations.

We are also bound by other contractual obligations related to data privacy and security, and our efforts to comply with U.S. and international data protection laws and regulations could result in government enforcement actions (which could include civil or criminal penalties), private litigation, and/or adverse publicity and could negatively affect our operating results and business. Moreover,such obligations may not be successful. For example, clinical trial subjects about whom we or our potential collaborators obtain information, as well as the providers who share this information with us, may contractually limit our ability to use and disclose the information. We publish privacy policies, notices and other statements regarding data privacy and security. If these policies, notices or statements are found to be deficient, lacking in transparency, deceptive, unfair, or misrepresentative of our practices, we may be subject to investigation, enforcement actions by regulators or other adverse consequences.

Obligations related to data privacy and security (and consumers’ data privacy expectations) are quickly changing, becoming increasingly stringent, and creating uncertainty. Additionally, these obligations may be subject to differing applications and interpretations, which may be inconsistent or conflict among jurisdictions. Preparing for and complying with these obligations requires us to devote significant resources, which may necessitate changes to our services, information technologies, systems, and practices and to those of any third parties that process personal data on our behalf. In addition, these obligations may require us to change our business model.

Our failure (or that of the third parties upon whom we rely) to comply with U.S. and foreign data protection laws and regulations could result in government enforcement actions (which could include civil or criminal penalties), private litigation, and/or adverse publicity and could negatively affect our operating results and business. Claims that we or the third parties upon whom we rely have violated individuals’ privacy rights, failed to comply with data protection laws, or breached our contractual obligations, even if we are not found liable, could be expensive and time-consuming to defend and could result in adverse publicity that could harm our business.

In particular, plaintiffs have become increasingly more active in bringing privacy-related claims against companies, including class claims and mass arbitration demands. Some of these claims allow for the recovery of statutory damages on a per violation basis; if viable, these claims carry the potential for monumental statutory damages, depending on the volume of data and the number of violations. Any of these events could have a material adverse effect on our reputation, business, or financial condition, including but not limited to: loss of customers; interruptions or stoppages in our business operations (including, as relevant, clinical trials); inability to process personal data or to operate in certain jurisdictions; limited ability to develop or commercialize our products; expenditure of time and resources to defend any claim or inquiry; adverse publicity; or substantial changes to our business model or operations.

Our business operations expose us to broadly applicable fraud and abuse, transparency, government price reporting, and other healthcare laws and regulations. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.

Our operations are subject, either directly or indirectly through our customers and ~~third party~~third-party payors, to various U.S. federal and state health care laws, including fraud and abuse, transparency and other healthcare laws and regulations, and similar laws in other jurisdictions in which we conduct our business. These laws may impact, among other things, our research and proposed sales, marketing and education programs and constrain the business of financial arrangements and relationships with healthcare providers, physicians and other parties through which we market, sell and distribute our products for which we obtain marketing approval. The laws that may affect our ability to operate include, but are not limited to the federal Anti-Kickback Statute; federal civil and criminal false claims laws, such as the ~~False Claims Act (FCA);~~FCA; HIPAA; federal and state consumer protection and unfair competition laws; the federal transparency requirements under the ~~Physician Payments~~ Sunshine Act; state and foreign law equivalents of each of these federal laws; and state and foreign laws that require pharmaceutical companies to implement compliance programs. Many of these laws are discussed in detail inabove under “Item 1. ~~Business” above.~~

Business—Government Regulation—Other U.S. Healthcare Laws and Compliance Requirements”.

The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform. Federal and state enforcement bodies have continued their scrutiny of interactions between

healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Responding to investigations can be time-and resource-consuming and can divert management’s attention from the business. Any such investigation or settlement could increase our costs or otherwise have an adverse effect on our business.

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Ensuring that our business arrangements with third parties comply with applicable healthcare laws and regulations will likely be costly. We have entered into consulting and advisory board arrangements with physicians and other healthcare providers, including some who could influence the use of our investigational products, if approved. Because of the complex and far-reaching nature of these laws, regulatory agencies may view these transactions as prohibited arrangements that must be restructured, or discontinued, or for which we could be subject to other significant civil, criminal and administrative penalties such as fines, disgorgement, imprisonment, exclusion from government funded healthcare programs, such as Medicare and Medicaid, contractual damages, reputational harm, diminished profits and future earnings, additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations, any of which could substantially disrupt our operations. If any of the physicians or other healthcare providers or entities with ~~whom~~which we expect to do business is found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

Changes in healthcare law and implementing regulations, as well as changes in healthcare policy, may impact our business in ways that we cannot currently predict, and may have a significant adverse effect on our business and results of operations.

In the United States and some foreign jurisdictions, there have been, and continue to be, several legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of investigational products, restrict or regulate post-approval activities, and affect the ability to profitably sell investigational products for which marketing approval is obtained. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. For ~~additional detail regarding~~example, on August 16, 2022, President Biden signed into law the IRA, which, among other things, (1) directs the HHS to negotiate the price of certain single-source drugs and biologics covered under Medicare and (2) imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation. The IRA also extends enhanced subsidies for individuals purchasing health ~~care~~insurance coverage in Affordable Care Act marketplaces through plan year 2025 and eliminates the “donut hole” under the Medicare Part D program by significantly lowering the beneficiary maximum out-of-pocket cost and through a newly established manufacturer discount program. These provisions take effect progressively starting in fiscal year 2023, although the Medicare drug price negotiation program is currently subject to legal challenges. The HHS has and will continue to issue and update guidance as these programs are implemented. It is currently unclear how the IRA will be implemented but is likely to have a significant impact on the pharmaceutical industry. We expect that other healthcare reform ~~activities~~measures may be adopted in the future, and that ~~may impact~~any such health reform measures could have an adverse effect on our business ~~see “Business—Government Regulation—Healthcare Reform” above.~~

and/or results of operation.

We are subject to certain U.S. and foreign anti-corruption, anti-money laundering, export control, sanctions, and other trade laws and regulations. We can face serious consequences for violations.

U.S. and foreign anti-corruption, anti-money laundering, export control, sanctions, and other trade laws and regulations (collectively, ~~Trade Laws)~~"Trade Laws") prohibit, among other things, companies and their employees, agents, clinical research organizations, legal counsel, accountants, consultants, contractors, and other partners from authorizing, promising, offering, providing, soliciting, or receiving directly or indirectly, corrupt or improper payments or anything else of value to or from recipients in the public or private sector. Violations of Trade Laws can result in substantial criminal fines and civil penalties, imprisonment, the loss of trade privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm, and other consequences. We have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities, and other organizations. We also expect our non-U.S. activities to increase over time. We expect to rely on third parties for research, preclinical studies, and clinical trials and/or to obtain necessary permits, licenses, patent registrations, and other marketing approvals. We can be held liable for the corrupt or other illegal activities of our personnel, agents, or partners, even if we do not explicitly authorize or have prior knowledge of such activities.

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If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.

We, and the third parties with ~~whom~~which we share our facilities, are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Each of our operations involve the use of hazardous and flammable materials, including chemicals and biological and radioactive materials. Each of our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. We could be held liable for

any resulting damages in the event of contamination or injury resulting from the use of hazardous materials by us or the third parties with ~~whom~~which we share our facilities, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.

Although we maintain workers’ compensation insurance to cover us for costs and expenses, we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials.

In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research and development. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

Risks Related to Owning our Common Stock

The stock price of our common stock has been and may continue to be volatile or may decline regardless of our operating performance.

The market price of our common stock has fluctuated and may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

•

~~overall performance of the equity markets;~~

•overall performance of the equity markets;•

~~our operating performance and the performance of other similar companies;~~

•our operating performance and the performance of other similar companies;•

~~results from our ongoing clinical trials and future clinical trials with our current and future investigational products or of our competitors;~~

•results from our ongoing clinical trials and future clinical trials with our current and future investigational products or of our competitors;•

changes in our projected operating results that we provide to the public, our failure to meet these projections or changes in recommendations by securities analysts that elect to follow our common stock;

•changes in our projected operating results that we provide to the public, our failure to meet these projections or changes in recommendations by securities analysts that elect to follow our common stock;•

regulatory, trade or legal developments in the United States and other countries, including changes in tariffs or other trade restrictions and the changes in the structure of healthcare payment systems;

•regulatory, trade or legal developments in the United States and other countries, including changes in tariffs or other trade restrictions and the changes in the structure of healthcare payment systems;•

~~the level of expenses related to future investigational products or clinical development programs;~~

•the level of expenses related to future investigational products or clinical development programs;•

~~our failure to achieve product development goals in the timeframe we announce;~~

•our failure to achieve product development goals in the timeframe we announce;•

~~announcements of acquisitions, strategic alliances or significant agreements by us or by our competitors;~~

•announcements of acquisitions, strategic alliances or significant agreements by us or by our competitors;•

~~recruitment or departure of key personnel;~~

•recruitment or departure of key personnel;•

~~the economy as a whole and market conditions in our industry;~~

•the economy as a whole and market conditions in our industry;•

~~trading activity by a limited number of stockholders who together beneficially own a majority of our outstanding common stock;~~

•trading activity by a limited number of stockholders who together beneficially own a majority of our outstanding common stock;•

~~the size of our market float; and~~

•the size of our market float; and•

~~any other factors discussed in this report.~~

•any other factors discussed in this report.

In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many immuno-oncology companies. Stock prices of many immuno-oncology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have filed securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and adversely affect our business.

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The amount of our future losses is uncertain and our quarterly operating results may fluctuate significantly or may fall below the expectations of investors or securities analysts, each of which may cause our stock price to fluctuate or decline.

Our quarterly and annual operating results may fluctuate significantly in the future due to a variety of factors, many of which are outside of our control and may be difficult to predict, including the following:

•

the timing and success or failure of clinical trials for our investigational products or competing investigational products, or any other change in the competitive landscape of our industry, including consolidation among our competitors or partners;

•the timing and success or failure of clinical trials for our investigational products or competing investigational products, or any other change in the competitive landscape of our industry, including consolidation among our competitors or partners;•

our progress towards the achievement of any product development goals or milestones we announce, including any delays or failures which lead to the suspension or termination of any clinical trial or development program;

•our progress towards the achievement of any product development goals or milestones we announce, including any delays or failures which lead to the suspension or termination of any clinical trial or development program;•

~~the timing and cost of, and level of investment in, research and development activities relating to our investigational products, which may change from time to time;~~

•the timing and cost of, and level of investment in, research and development activities relating to our investigational products, which may change from time to time;•

~~option fees received by us in connection with option exercises by Taiho and/or Gilead pursuant to their respective option agreements;~~

•option fees received by us in connection with option exercises by Gilead and/or Taiho pursuant to their respective option agreements and/or payments received by us from Gilead or Taiho in connection with the achievement of certain development and/or regulatory milestones;•

~~amounts payable by us in connection with the achievement of development, regulatory and commercial milestones under our in-license and other strategic agreements;~~

•amounts payable by us in connection with the achievement of development, regulatory and commercial milestones under our in-license and other strategic agreements;•

~~our ability to attract, hire and retain qualified personnel;~~

•our ability to attract, hire and retain qualified personnel;•

~~expenditures that we will or may incur to develop additional investigational products;~~

•expenditures that we will or may incur to develop additional investigational products;•

~~our ability to obtain marketing approval for our investigational products, and the timing and scope of any such approvals we may receive;~~

•our ability to obtain marketing approval for our investigational products, and the timing and scope of any such approvals we may receive;•

~~the changing and volatile U.S. and global economic environments; and~~

•the changing and volatile U.S. and global economic environments; and•

~~future accounting pronouncements or changes in our accounting policies.~~

•future accounting pronouncements or changes in our accounting policies.

The cumulative effects of these factors could result in large fluctuations and unpredictability in our quarterly and annual operating results. As a result, comparing our operating results on a period-to-period basis may not be meaningful. This variability and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or investors for any period. If our revenue or operating results fall below the expectations of analysts or investors or below any forecasts we may provide to the market, or if the forecasts we provide to the market are below the expectations of analysts or investors, the price of our common stock could decline substantially. Such a stock price decline could occur even when we have met any previously publicly stated guidance we may provide.

The concentration of our stock ownership will likely limit our stockholders’ ability to influence corporate matters, including the ability to influence the outcome of director elections and other matters requiring stockholder approval.

Based upon shares outstanding as of ~~February 12, 2021,~~January 31, 2024, our executive officers, directors and the holders of more than 5% of our outstanding common stock, in the aggregate, beneficially owned approximately ~~36.4%~~52.0% of our common stock. In particular, as of January 31, 2024, Gilead ~~also~~ owns approximately ~~19.5%~~33.1% of our outstanding common stock (and has the right to acquire additional shares of our common stock from us to enable it to own up to 35% of our outstanding common stock), and we have appointed its ~~two~~three designees to our board of directors pursuant to the terms of ~~our investor rights agreement.~~the Investor Rights Agreement. As a result, these stockholders, acting together, will have significant influence over all matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions. Corporate actions might be taken even if other stockholders oppose them. This concentration of ownership might also have the effect of delaying or preventing a change of control of our company that other stockholders may view as beneficial.

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Delaware law and provisions in our amended and restated certificate of incorporation and amended and restated bylaws could make a merger, tender offer or proxy contest difficult, thereby depressing the trading price of our common stock.

Our status as a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change of control would be beneficial to our existing stockholders. In addition, our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that may make the acquisition of our company more difficult, including the following:

•

~~a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors;~~

•a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors;•

the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;

•the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;•

the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;

•the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;•

~~a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;~~

•a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;•

the requirement that a special meeting of stockholders may be called only by a majority vote of our entire board of directors, the chairman of our board of directors or our chief executive officer, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;

•the requirement that a special meeting of stockholders may be called only by a majority vote of our entire board of directors, the chairman of our board of directors or our chief executive officer, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;•

~~the requirement for the affirmative vote of holders of at least 66~~²⁄₃% of the voting power of all of the then-outstanding shares of the voting stock, voting together as a single class, to amend the provisions of our amended and restated certificate of incorporation relating to the management of our business or our amended and restated bylaws, which may inhibit the ability of an acquirer to effect such amendments to facilitate an unsolicited takeover attempt; and

•the requirement for the affirmative vote of holders of at least 66 2⁄3% of the voting power of all of the then-outstanding shares of the voting stock, voting together as a single class, to amend the provisions of our amended and restated certificate of incorporation relating to the management of our business or our amended and restated bylaws, which may inhibit the ability of an acquirer to effect such amendments to facilitate an unsolicited takeover attempt; and•

advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.

•advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.

In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time. A Delaware corporation may opt out of this provision by express provision in its original certificate of incorporation or by amendment to its certificate of incorporation or bylaws approved by its stockholders. However, we have not opted out of this provision.

These and other provisions in our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by our then-current board of directors, including delay or impede a merger, tender offer or proxy contest involving our company. The existence of these provisions could negatively affect the price of our common stock and limit opportunities for our stockholders to realize value in a corporate transaction.

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated certificate of incorporation and our bylaws provide that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General

Corporation Law, our certificate of incorporation or our bylaws or any action asserting a claim against us that is governed by the internal affairs doctrine. In addition, to prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our bylaws provide that the federal district courts of the United States will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities ~~Act of 1933, as amended.~~Act. These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum

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that it finds favorable for disputes with us or our directors, officers or other employees and may discourage these types of lawsuits. While the Delaware courts have determined that these types of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions. In such instance, we would expect to vigorously assert the validity and enforceability of these provisions, which may require significant additional costs associated with resolving such action in other jurisdictions, and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions.

General Risk Factors

Sales of substantial amounts of our ~~outstanding~~ shares may cause the price of our common stock to decline.

The price of our common stock could decline if there are substantial sales of our common stock, ~~particularly~~including any sales by us, our directors, executive officers, ~~and~~ significant stockholders or the sales agents under the equity distribution agreement, or if there is a large number of shares of our common stock available for sale and the market perceives that sales will occur. Certain of our stockholders have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or our stockholders, subject to market standoff and lockup agreements. We have also registered shares of common stock that we have issued and may issue under our employee equity incentive plans. These shares can be sold freely in the public market upon issuance, subject to vesting conditions and, in the case of our affiliates, volume limitations under Rule 144 under the Securities ~~Act of 1933, as amended.~~

Act.

If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could result in sanctions or other penalties that would harm our business.

We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of the New York Stock Exchange. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal controls over financial reporting.

Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. Our internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected. Accordingly, we cannot assure you that we will not in the future identify one or more material weaknesses in our internal control over financial reporting, which may have a negative impact on our ability to timely and accurately produce financial statements, may result in a material misstatement of our ~~consolidated financial statements~~Consolidated Financial Statements or may negatively impact the confidence level of our stockholders and other market participants with respect to our reported financial information.

Ensuring that we have adequate internal controls over financial reporting is a costly and time-consuming effort that needs to be re-evaluated frequently. Recent trends in remote work arrangements have led to changes in work patterns that can make it more difficult to properly perform our controls and may create risks that result in deficiencies in the design of our controls. To the extent necessary, implementing any changes to our internal controls may distract our officers and employees, entail substantial costs to modify our existing processes and take significant time to complete. These changes may not, however, be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and harm our business.

Item 1B. Unresolved Staff Comments

None.

Item 1C. Cybersecurity

Risk management and strategy

We have implemented and maintain a cybersecurity program that includes various processes designed to identify, assess and manage material risks from cybersecurity threats to our critical computer networks, third party hosted services, communications systems, hardware and software, and our critical data, including clinical trial and candidate data, intellectual property, and confidential information that is proprietary, strategic or competitive in nature (“Information Systems and Data”).

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Our information security function, led by our Vice President of Information Technology (“VP of IT”), helps to identify, assess and manage the Company’s cybersecurity threats and risks. This function helps to identify and assess risks from cybersecurity threats by monitoring and evaluating our threat environment using various methods including, for example deploying automated tools in certain environments, subscribing to and analyzing reports and services that identify certain cybersecurity threats, conducting scans of certain aspects of the Company’s threat environment, evaluating certain threats that are reported to us, conducting internal and external audits and internal threat assessment of certain environments, engaging third parties to conduct threat assessments, and conducting vulnerability assessments.

We have engaged third-party providers to periodically assess certain of our internal controls and procedures for information security. We have also taken certain measures to mitigate cybersecurity risks, including, for example, cybersecurity awareness training for employees and management, periodic testing through simulated “phishing” campaigns (and require remedial training based on results) and the adoption of an incident response plan, vulnerability management policy and business recovery plan.

Furthermore, our information security function works with a security committee (the “Security Committee") to prioritize our risk management processes, mitigate cybersecurity threats that are more likely to lead to a material impact to our business and evaluate material risks from cybersecurity threats against our overall business objectives. We use third-party service providers to perform a variety of functions throughout our business, such as CROs and contract manufacturing organizations (CMOs). Under our information security function, we perform risk and security assessments for certain of our vendors that involves a review of the vendor’s written security program. Depending on the nature of the services provided, and the sensitivity of the Information Systems and Data at issue, and the identity or experience of the provider, our vendor management process may involve different levels of assessment designed to help identify cybersecurity risks associated with a provider and we may impose contractual obligations related to cybersecurity on the vendor.

For a description of the risks from cybersecurity threats that may materially affect the Company and how they may do so, please see “Risk Factors” in Part I, Item 1A herein.

Governance

Our board of directors considers cybersecurity risk management as part of its general oversight function. The board of directors’ audit committee is responsible for overseeing our cybersecurity risk management processes, including oversight and mitigation of risks from cybersecurity threats.

Our Security Committee is comprised of key management stakeholders and experts, including our General Counsel, Chief Accounting Officer and Vice President of Ethics and Compliance and is chaired by our VP of IT, who has over 20 years of experience in strategic and operational IT/cybersecurity leadership and has received multiple cybersecurity certificates including (ISC)2, Cloud Security Alliance, Cisco Security and Microsoft Security Professional. The Security Committee is responsible for helping to integrate cybersecurity risk considerations into the Company’s overall risk management strategy and communicating key priorities to relevant personnel, helping prepare for cybersecurity incidents, approving cybersecurity processes, and reviewing security assessments and other security-related reports.

The audit committee receives periodic reports from our VP of IT concerning the Company’s significant cybersecurity threats and risk and the processes the Company has implemented to address them. Under our incident response plan, certain incidents would also be reported to the board.

Item 2. Properties

As of December 31, ~~2020,~~2023, our corporate headquarters, which includes executive offices and research and development and business operations, consist of approximately ~~136,293~~151,000 square feet of leased office and laboratory space in an office park in Hayward, California. We also lease approximately ~~109,237~~109,000 square feet of office space in Brisbane, ~~California in a lease expected to commence in 2021.~~California. The lease terms for ~~these~~both facilities expire ~~from 2025 to~~in 2031, subject to options for us to extend the lease term. We intend to add new facilities or expand existing facilities as we add employees and enter new locations, and we believe that suitable additional or substitute space will be available as needed to accommodate any such expansionsubleased approximately 31,000 square feet of our ~~operations.~~

Brisbane office to a third party, which commenced in October 2023. This sublease extends through 2028, with the sublessee having options to extend the lease term.

Item 3. Legal Proceedings

We are not currently a party to any material legal proceedings. From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. Regardless of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity, reputational harm and other factors.

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Item 4. Mine Safety Disclosures

None.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information and ~~Holders of Record~~

Stockholders

Our common stock trades on the New York Stock Exchange under the symbol “RCUS.”

As of ~~January 31, 2021,~~February 9, 2024, we had 8037 stockholders of record as reported by our transfer agent. This does not include beneficial owners whose shares are held in street name.

Dividend Policy

We have never declared or paid cash dividends on our ~~capital~~ stock. We intend to retain all available funds and any future earnings, if any, to fund the development and expansion of our business and we do not anticipate paying any cash dividends in the foreseeable future. Any future determination to declare dividends will be made at the discretion of our board of directors.

Performance Graph

The following graph compares the cumulative stockholders returns ~~from March 15, 2018 (first day of trading of our common stock),~~for the past five years through December 31, ~~2020~~2023 for (i) our common stock, (ii) the Standard & Poor ("S&P&P") Biotechnology Index and (iii) S&P 500 Index, assuming $100 invested on ~~March 15,~~December 31, 2018, and reinvestment of dividends if paid. The stockholder return shown on the graph below is not necessarily indicative of future performance, and we do not make or endorse any predictions as to future stockholder returns. This graph shall not be deemed “soliciting material” or be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

$100 investment in stock or index
Ticker
3/15/2018

12/31/2018

12/31/2019

12/31/2020

Arcus Biosciences, Inc.
RCUS
$
100

$
63

$
59

$
153

S&P Biotechnology Index
^SPSIBI
$
100

$
77

$
101

$
150

S&P 500 Index
S&P 500
$
100

$
91

$
118

$
137

1721


$100 investment in stock or index	Ticker	12/31/2018		12/31/2019		12/31/2020		12/31/2021		12/31/2022		12/31/2023
Arcus Biosciences, Inc.	RCUS	$	100	$	94	$	241	$	376	$	192	$	182
S&P Biotechnology Index	SPSIBI	$	100	$	132	$	196	$	156	$	116	$	125
S&P 500 Index	S&P 500	$	100	$	131	$	156	$	200	$	164	$	207

Issuer Purchases of Equity Securities

~~The following table summarizes repurchases of our common stock during the fourth quarter of fiscal 2020:~~

Period

Total Number
of Shares
Purchased

Average
Price Paid
Per Share

Total Number
of Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs

Maximum
Number of
Shares that
May Yet be
Repurchased
Under the
Plans or
Programs

October 1, 2020 to October 31, 2020

769

4.59

-

-

November 1, 2020 to November 30, 2020

79

2.57

-

-

December 1, 2020 to December 31, 2020

18,270

4.02

-

-

Total

19,118

-

-

None.

All of the shares repurchased, as reflected in the table above, were repurchases of unvested shares of our common stock that had been issued upon early exercise of stock options. Upon termination of employment of a person holding unvested shares, we are entitled to repurchase the unvested shares.

Item 6. ~~Selected Financial Data~~

~~The following selected financial data should be read in conjunction with Item 7, “Management’s Discussion and Analysis~~Reserved

Table of ~~Financial Condition and Results of Operations” and Item 8, “Financial Statements and Supplemental Data” of this Annual Report on Form 10-K.~~

Year Ended December 31,

(in thousands, except share and per share data)

2020

2019

2018

2017

2016

Consolidated Statements of Operations Data:

Revenues:

License revenue

$
55,096

$
8,000

$
3,000

$
-

$
-

Collaboration revenue

22,421

7,000

5,353

1,413

-

Total license and collaboration revenue ⁽¹⁾

77,517

15,000

8,353

1,413

-

Operating expenses:

Research and development

159,348

78,481

49,646

47,218

14,247

General and administrative

42,404

25,228

13,566

7,636

3,935

Total operating expenses

201,752

103,709

63,212

54,854

18,182

Loss from operations

(124,235
)

(88,709
)

(54,859
)

(53,441
)

(18,182
)
Total non-operating income, net

1,377

3,999

5,265

359

212

Net loss

$
(122,858
)

$
(84,710
)

$
(49,594
)

$
(53,082
)

$
(17,970
)
Net loss per share, basic and diluted⁽²⁾

$
(2.24
)

$
(1.93
)

$
(1.43
)

$
(29.03
)

$
(20.80
)
Weighted-average number of shares used to
compute basic and diluted net loss per common share

54,787,118

43,825,991

34,618,237

1,828,262

863,983

Contents

~~(1)~~

~~Includes $70.5 million of revenue related to Gilead transaction in 2020. Please see Note 7 of our consolidated financial statements for further information on our licensing agreements.~~

~~(2)~~

~~See Note 10 to our consolidated financial statements for an explanation of the calculation of our basic and diluted net loss per share.~~

As of December 31,

(in thousands)

2020

2019

2018

2017

2016

Consolidated Balance Sheet Data:

Cash and investments in marketable securities

$
735,086

$
188,270

$
259,725

$
175,703

$
98,896

Working capital ⁽¹⁾

614,146

169,999

242,013

164,143

94,145

Total assets

772,292

203,110

274,925

190,486

109,702

Convertible preferred stock

-

-

-

226,196

119,454

Accumulated deficit

(328,184
)

(205,326
)

(122,828
)

(73,234
)

(20,152
)
Total stockholders’ equity

502,304

163,842

234,942

(72,328
)

(19,994
)

~~(1)~~

~~We define working capital as current assets less current liabilities. See our consolidated financial statements for further details regarding our current assets and current liabilities.~~

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with ~~“Item 6. Selected Financial Data” and~~ our financial statements and related notes included ~~elsewhere~~ in this Annual Report. This discussion and other parts of this ~~report~~Annual Report contain forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, expectations, and intentions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this ~~report~~Annual Report titled “Risk Factors.”

Overview

We are a clinical-stage biopharmaceutical company focused on creating best-in-class ~~cancer~~ therapies. ~~Our initial focus has been on well-characterized biological pathways with significant scientific data supporting their importance. We have built a~~Using our robust and highly efficient drug discovery capability, we have created a significant portfolio of investigational products which are in clinical development, with our most advanced molecule, an anti-TIGIT antibody, now in multiple Phase 3 registrational studies targeting lung and gastrointestinal cancers. Our deep portfolio of novel small molecules and enabling antibodies allows us to create highly differentiated ~~small molecules,~~therapies, which we ~~have the ability~~are developing to ~~develop in combinations with~~treat multiple large indications. We expect our ~~monoclonal antibodies through rationally designed, indication-specific clinical trial designs.~~clinical-stage portfolio to continue to expand and to include molecules targeting immuno-oncology, cancer cell-intrinsic and immunological pathways. Our vision is to create, develop and commercialize highly differentiated therapies that have a meaningful impact on patients.

Significant Developments

The following is a summary of significant developments affecting our business since the filing of our Annual Report on Form 10-K for the year ended December 31, 2022:

Corporate Developments

•In January 2024, we amended the Stock Purchase Agreement with Gilead, pursuant to which Gilead made an equity investment of $320 million through the purchase of our common stock at $21.00 per share (the "2024 Gilead Financing").

•In January 2024, concurrent with the 2024 Gilead Financing, we amended the Investor Rights Agreement to, among other things, increase the number of individuals that Gilead may designate to be appointed to our board of directors to three.

•In May 2023, we amended the Gilead Collaboration Agreement to expand our collaboration with Gilead. Pursuant to this expansion, we will initiate up to four jointly selected research-stage programs against targets that are applicable to inflammatory diseases. For each research program jointly selected under this expansion, prior to the first anniversary of the amendment, Gilead receives an option to license such research program at two separate, prespecified time points. If Gilead exercises its option at the earlier time point for the first two research programs jointly selected, we would be eligible to receive up to $420 million in option and milestone payments as well as tiered royalties for each optioned program. For any other research program jointly selected under this expansion, if Gilead exercises its option, the parties would have rights to co-develop and share global development costs and to co-commercialize and share profits in the United States for optioned programs.

TIGIT Program

•In January 2024, we announced that we and Gilead have reprioritized the joint domvanalimab development program (the "2024 Reprioritization"). This reprioritization is intended to allow us to focus on domvanalimab-containing regimen research in settings with high unmet need where it may have significant impact, such as our Phase 3 studies STAR-121 (lung cancer) and STAR-221 (gastrointestinal cancer), which are both all-comer studies and are expected to be fully enrolled by year-end. The companies also plan to initiate STAR-131, a new registrational Phase 3 lung cancer study that includes the domvanalimab plus zimberelimab regimen.

•In January 2024, as part of the 2024 Reprioritization, we announced that we are discontinuing further enrollment in the Phase 3 ARC-10 study evaluating domvanalimab plus zimberelimab compared to pembrolizumab monotherapy in first-line locally advanced or metastatic PD-L1-high NSCLC.

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•In November 2023, we presented preliminary data from Arm A1 of the Phase 2 EDGE-Gastric study, evaluating domvanalimab plus zimberelimab and chemotherapy in patients with previously untreated, locally advanced unresectable or metastatic upper gastrointestinal cancers. These data were from the cohort that includes a similar patient population and dosing regimen as the ongoing Phase 3 study, STAR-221. As of September 4, 2023, the data cut-off for the analysis:

◦Domvanalimab plus zimberelimab and chemotherapy showed encouraging ORR of 80% (cORR of 73%) in patients with PD-L1-high tumors (TAP ≥5%), 46% (all confirmed) in patients with PD-L1-low tumors (TAP <5%) and 59% (cORR of 56%) for patients overall.

◦Six-month landmark PFS was 93% for patients with PD-L1-high tumors (TAP ≥5%), 68% for patients with PD-L1-low tumors (TAP <5%) and 77% for patients overall. Mature PFS has not been reached and data are expected in the second half of 2024.

◦Domvanalimab plus zimberelimab and chemotherapy was well tolerated, with a similar safety profile to what has been reported for anti-PD1 plus chemotherapy in this setting.

•In June 2023, we provided results from an interim analysis from ARC-7, our Phase 2 study in first-line metastatic PD-L1≥50% NSCLC. As of February 7, 2023, the data cut-off for the analysis, both domvanalimab-containing study arms demonstrated sustained, clinically meaningful improvements in PFS compared to zimberelimab monotherapy, with a 33% reduction in risk of disease progression or death for the doublet and 28% for the triplet.

Adenosine Program

•In January 2024, we announced overall survival data from ARC-8, our Phase 1b study in metastatic pancreatic cancer. In the announcement we disclosed that, as of June 19, 2023 (the data cutoff for the analysis), the median overall survival was 15.7 months for all patients treated with 100 mg quemliclustat-based regimens. Further, we announced that, in a post-hoc analysis of the data, patients treated with quemliclustat-based regimens showed a 37% reduction in risk of death and a 5.9-month improvement in median overall survival when compared to a Synthetic Control Arm of patients treated with chemotherapy alone.

•In January 2024, as part of the 2024 Reprioritization, we announced our plans for a Phase 3 study in first-line pancreatic cancer evaluating the investigational small molecule CD73 inhibitor quemliclustat that will be conducted and funded by Arcus.

HIF-2⍺ Program

•In December 2023, we announced that we entered into a clinical trial collaboration with Exelixis for STELLAR-009, a Phase 1b/2 trial evaluating zanzalintinib, Exelixis’ next-generation TKI, in combination ~~cancer therapies.~~

~~We currently have four investigational products~~with casdatifan, our small molecule inhibitor of the transcription factor HIF-2⍺, in ~~clinical development.~~ patients with ccRCC. Exelixis is sponsoring STELLAR-009, and we are co-funding the study and providing casdatifan for use in the trial. Patient enrollment for STELLAR-009 opened before the end of 2023.

Strategic Partnerships

Gilead Sciences, Inc.

In 2020, we and Gilead entered into ~~an Option, License and~~the Gilead Collaboration Agreement. Under the Gilead Collaboration Agreement, ~~(Gilead Collaboration Agreement) with Gilead Sciences, Inc. (Gilead), whereby~~ Gilead obtained ~~rights~~an exclusive license to zimberelimab and a time-limited exclusive ~~option~~options to all of our ~~current~~then-current and future programs during the 10-year collaboration term. In 2021, Gilead obtained rights to an additional four of our investigational products: domvanalimab, etrumadenant, quemliclustat and AB308. For each program to which Gilead exercised or exercises ~~their~~its option, the parties will co-develop globally and co-commercialize the program in the U.S., subject to certain exceptions, and Gilead will have the right to commercialize the program outside of the United States, subject to the rights of our existing partners toin certain territories. Furthermore, we and Gilead agreed to collaborate on two oncology research programs, for which we will lead discovery and early development activities.

In 2023, we amended the Gilead Collaboration Agreement to further expand the collaboration to provide Gilead with options to license up to four jointly selected research-stage programs that target inflammatory diseases for which we will lead discovery and early development activities.

In 2024, we further amended the Gilead Collaboration Agreement to provide that (i) Gilead is required to pay the $100 million option continuation payment due on the fourth anniversary of the Gilead Collaboration Agreement, and (ii) we would fund certain activities, including the Phase 3 study that we plan to initiate to evaluate quemliclustat in pancreatic cancer.

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Concurrent with the Gilead Collaboration Agreement in 2020, we also entered into the Stock Purchase Agreement and Investor Rights Agreement. Under the Stock Purchase Agreement, Gilead has the right, at its option until July 2025, to purchase up to a maximum ownership of 35% of our then-outstanding voting common stock. Under the Investor Rights Agreement, as amended, Gilead has the right to designate three individuals to be appointed to our board of directors. As of January 31, 2024, after including shares purchased in January 2024 under the Stock Purchase Agreement, Gilead held approximately 33.1% of our outstanding common stock.

Taiho Pharmaceutical Co., LTD.

In 2017, we entered into ~~an Option and License~~the Taiho Agreement ~~(Taiho Agreement) with Taiho Pharmaceutical Co., Ltd. (Taiho)~~ pursuant to which Taiho ~~has a~~was granted time-limited ~~option~~options to exclusively license for the Taiho Territory the development and commercialization rights to each of our programs ~~for Japan and certain other territories~~that arose over a five-year period ending in ~~Asia (excluding China). To date,~~September 2022. As of December 31, 2023, Taiho has ~~exercised their option rights~~licenses to ~~our~~(i) etrumadenant (the adenosine receptor antagonist ~~program (including etrumadenant)~~program); (ii) zimberelimab (the anti-PD-1 program); and ~~our~~(iii) domvanalimab and AB308 (collectively, the anti-TIGIT program).

Other Licenses, Collaborations, and Research and Development Arrangements

We in-licensed rights to anti-PD-1 ~~program (including zimberelimab).~~

~~Domvanalimab (formerly referred~~and CD39 antibodies from WuXi Biologics, and in-licensed rights to ~~as AB154), our anti-TIGIT monoclonal antibody, is being evaluated in combination~~domvanalimab from Abmuno. We also have a clinical collaboration agreement with ~~zimberelimab with or without etrumadenant vs. zimberelimab monotherapy in ARC-7, our randomized Phase 2 trial in first-line metastatic PD-L1~~≥~~50% non-small cell lung cancer. In February 2021, we initiated ARC-10, our first registrational~~AstraZeneca for the PACIFIC-8 trial evaluating domvanalimab and durvalumab in ~~combination~~Stage 3 NSCLC; Exelixis for the STELLAR-009 trial evaluating casdatifan and zanzalintinib in patients with ~~zimberelimab~~ccRCC. We are also party to an agreement with BVF Partners L.P. ("BVF") to support the discovery and ~~zimberelimab monotherapy vs. chemotherapy in this same setting.~~

~~Etrumadenant (formerly referred to as AB928), our small molecule dual A~~_2a/A_2badenosine receptor antagonist, is being evaluated by us in several randomized or Phase 2 trials across major tumor types, including in our ARC-4, ARC-6, ARC-7, and ARC-9 studies, as well as in two randomized Phase 1b/2 trials being conducted by Genentech (the Morpheus trials).

~~AB680, our small-molecule CD73 inhibitor, is being evaluated in a Phase 1/1b study~~development of compounds for the treatment of ~~first-line metastatic pancreatic cancer (ARC-8) as well as late-line metastatic prostate cancer (ARC-6).~~

Zimberelimab (formerly referred to as AB122), our anti-PD-1 monoclonal antibody, is the cornerstone of our combination strategy. We are currently evaluating zimberelimab, either alone or in combination with other agents across several tumor types, including non-small cell lung cancer in ARC-7, our Phase 2 trial, and ARC-10, our recently initiated registrational trial which is designed to support the approval of zimberelimab.

~~COVID-19 Pandemic~~

The degree to which COVID-19 impacts our business operations, research and development programs and financial condition will depend on future developments, including the ultimate duration and/or severity of the outbreak, the impact of any resurgences and new strains that emerge, actions by government authorities to contain the spread of the virus, the timing, availability and effectiveness of any vaccines, and when and to what extent normal economic and operating conditions can resume. Our management continues to actively monitor this health crisis and its effects on our operations, key vendors and workforce.

We conduct our clinical trials in the U.S. and internationally in geographic regions that are impacted by COVID-19 to varying degrees. While we have seen relatively robust enrollment across our ongoing Arcus-sponsored studies,

inflammatory diseases.

we expect to see volatility as local governments respond to resurgences and the emergence of new strains, each of which may result in the prolonged reinstitution, extension or enhancement of shelter-in-place measures. The American Cancer Society has also reported that the pandemic has led to declines in screening, diagnosis and treatment for cancer patients, which will impact the enrollment of patients in clinical trials targeting early stage cancers and retention of patients overall in our trials. Patient safety remains our paramount concern and we continue to collaborate with our existing and with new investigational sites to implement measures to minimize disruptions to patients and ensure continued access to treatment, in accordance with health authority guidance. We are unable to predict the full impact of this pandemic on our clinical programs.

With respect to manufacturing and supply, we believe we currently have sufficient drug supply for our ongoing clinical studies. Our third-party contract manufacturers continue to operate at or near normal levels and, at this time and subject to further COVID-19 implications, we do not anticipate any disruptions to our drug supply chain.

Our discovery programs were impacted by the suspension in our laboratory-based operations from mid-March to late June. Despite the return of our laboratory-based personnel back into our facilities, our laboratories are operating at reduced capacity due to employee safety measures, such as social distancing requirements and shift work. This has delayed the advancement of one of two preclinical programs that we had expected would enter the clinic in the first quarter of 2021. We expect a clinical trial for the first of these programs, AB308, our FcR-enabled anti-TIGIT antibody, to begin shortly; however, the pandemic has delayed the second of these programs until the second half of 2021.

The full impact of the COVID-19 outbreak remains highly uncertain and subject to change. In connection with our resumption of laboratory operations, we instituted regular COVID-19 testing services in order to minimize the risk to our employees. These additional operating costs, along with the absence of any furlough or measures to reduce personnel costs despite reduced laboratory capacity, will have a negative impact on our operations and financial condition. We do not expect the forward impact will be material due to adjustments in operations that we have made. However, there are many uncertainties around the COVID pandemic and future developments, which are unpredictable, may result in a material, negative impact to our operations and financial condition.

Financial Overview

Since commencing operations in 2015, we have devoted substantially all of our efforts and financial resources to building our research and development capabilities, advancing our investigational product pipeline, and establishing our corporate infrastructure.

To date, we have ~~derived all~~financed our operations primarily from the sale of our ~~revenue from non-refundable~~equity securities and payments we received under ~~the option~~our research, collaboration and license agreements with our strategic partners, including Gilead. We expect to incur substantial expenditures in the foreseeable future for the development and potential commercialization of our investigational products and ongoing internal research and development programs. At this time, we ~~entered~~cannot reasonably estimate the nature, timing or aggregate amount of costs for our development, potential commercialization, and internal research and development programs.

As of December 31, 2023, we had $866 million of cash, cash equivalents and marketable securities. Together with the $320 million we received from Gilead for their equity investment in January, 2024, our cash, cash equivalents and marketable securities were $1.2 billion, which we believe will be sufficient to fund our planned operations into ~~with Taiho Pharmaceutical Co., Ltd. (the Taiho Agreement) and Gilead Sciences, Inc. (the Gilead Agreements).~~ 2027.

Components of Operating Results

Revenues

We have not generated any revenue from product sales and we have never had a profitable fiscal year. We have incurred net losses since the commencement of our operations. As of December 31, 2020, we had an accumulated deficit of $328.2 million. We incurred a net loss of $122.9 million during the year ended December 31, 2020. We do not expect to generate any revenue from product sales ~~unless and until we obtain regulatory marketing approval and commercially launch a product candidate. We cannot assure you that we will ever generate significant revenue or profits.~~

Through December 31, 2020, we have financed our operations primarily through net proceeds of approximately $677 million from equity offerings and proceeds of approximately $421 million from our collaboration agreements. As of December 31, 2020, we had $735.1 million of cash, cash equivalents and investments. In February 2021 we raised an additional $220.4 million from the sale to Gilead of 5,650,000 shares of our common stock. We believe our cash, cash equivalents and investments will be sufficient to fund our planned operations through 2023. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.

~~We expect to incur substantial expenditures in~~for the foreseeable ~~future as we expand our pipeline and advance our investigational products~~future. All revenue recognized to date has been through clinical development, the regulatory approval process and, if approved, commercial launch activities. Specifically, in the near term we expect to incur substantial expenses relating to our ongoing and planned clinical trials, the development and validation of our manufacturing processes, and other preclinical, research, ~~and discovery development activities.~~

We have no internal manufacturing facilities, and thus all of our manufacturing activities are contracted to third parties. We currently utilize third-party clinical research organizations to manage and execute various aspects of our clinical development and trials.

We will need substantial additional funding to support our continuing operations and pursue our development strategy. Until such time that we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, including existing or potential collaborations with other companies or other strategic transactions. Adequate funding may not be available to us on acceptable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back, or discontinue the development and commercialization of our product candidates or delay our efforts to expand our product pipeline.

~~Gilead Collaboration~~

On May 27, 2020, we entered into the Gilead Collaboration Agreement, a Common Stock Purchase Agreement (the Stock Purchase Agreement), and an Investor Rights Agreement, (collectively, the Gilead Agreements), each with Gilead. The transaction closed on July 13, 2020 following expiration of the antitrust waiting period. Upon closing, Gilead made an upfront payment of $175 million pursuant to the Gilead Collaboration Agreement, Gilead made an equity investment of approximately $200 million in us by purchasing 5,963,029 shares of our common stock at a per share price of $33.54 pursuant to the Stock Purchase Agreement. Gilead made an additional equity investment in us of approximately $56.7 million, net of offering costs, by purchasing 2,200,000 shares of our common stock at a per share price of $27.50 in our May 2020 Public Offering. We also appointed Gilead’s designees, Merdad Parsey, M.D., Ph.D. and Michael Quigley, Ph.D., to our Board of Directors pursuant to the Investor Rights Agreement.

Pursuant to the terms of the Gilead Collaboration Agreement, Gilead has an exclusive license to develop and commercialize zimberelimab in certain markets and obtained exclusive options to acquire an exclusive license to develop and commercialize all of our current and future clinical programs during the 10-year collaboration term, contingent upon Gilead’s payment of $400 million, with the first payment of $100 million in 2022 and an additional $100 million payment due at Gilead’s option on each of the fourth, sixth, and eighth anniversaries of the agreement. For those programs that enter clinical development prior to the end of the collaboration term, Gilead’s option rights will extend for up to an additional three years thereafter. Gilead may exercise its option, on a program-by-program basis, upon payment of an option fee that ranges from $200 million to $275 million per program for our clinical programs in existence at the date of the agreement, and $150 million per program for all other programs that enter clinical development thereafter. If Gilead exercises its option with respect to our TIGIT program, we are also eligible to receive up to $500 million in potential U.S. regulatory approval milestones with respect to domvanalimab.

Upon Gilead’s exercise of its option to a program, the two companies will co-develop and equally share global development costs, subject to certain of our opt-out rights, and expense caps on our spending and related subsequent adjustments. For each optioned program, provided we have not exercised our opt-out rights, we have an option to co-promote in the United States with equal sharing of related profits and losses. Gilead has the right to exclusively commercialize any optioned programs outside of the U.S., subject to the rights of our existing partners to any territories, and Gilead will pay to us tiered royalties as a percentage of revenues ranging from the high teens to the low twenties.

Pursuant to the Stock Purchase Agreement and the Investor Rights Agreement, Gilead has the right, at its option, to purchase additional shares from us, up to a maximum ownership of 35% of our then-outstanding voting common stock, from time to time over the next five years, at a purchase price equal to the greater of a 20% premium to market (based on a trailing five-day average closing price) at the time Gilead exercises such option, and the $33.54 initial purchase price. The Investor Rights Agreement also includes a three-year standstill and a two-year lockup and provides Gilead with registration rights commencing at the end of the lockup period, pro rata participation rights in certain future financings and the right to designate two individuals to be appointed to our Board of Directors.

On January 31, 2021, we and Gilead entered into an Amended and Restated Common Stock Purchase Agreement, which amended and restated in its entirety the Common Stock Purchase Agreement, pursuant to which Gilead purchased from us 5,650,000 shares of our common stock at a purchase price of $39.00 per share. All other terms of the original Common Stock Purchase Agreement, including Gilead’s option to purchase additional shares from us, up to a maximum ownership of 35% of our then-outstanding common stock, remain unchanged.

~~AstraZeneca Agreement~~

On October 29, 2020 we announced a collaboration with AstraZeneca to evaluate domvanalimab, our investigational anti-TIGIT antibody, in combination with AstraZeneca’s Imfinzi (durvalumab) in a registrational Phase 3 clinical trial in patients with unresectable Stage III non-small cell lung cancer (NSCLC). Under the terms of the agreement, each company will retain existing rights to their respective molecules and any future commercial economics. AstraZeneca will conduct the trial, and each company will supply its respective anti-cancer agent to support the trial. Pursuant to the terms of the agreement, the parties will share costs for the trial.

Consistent with the terms of the recently completed Gilead Agreements, Gilead maintains an option to co-develop and co-commercialize domvanalimab. If Gilead exercises its option to domvanalimab, the trial from this AstraZeneca collaboration is expected to form part of the Arcus and Gilead joint development program and Arcus’s portion of the trial costs would be shared with Gilead.

~~Other Licenses and Collaborations~~

We in-licensed rights to zimberelimab from WuXi Biologics, and in-licensed rights to products that include an anti-TIGIT antibody, including domvanalimab, from Abmuno Therapeutics LLC (Abmuno). We also have a co-development and collaboration agreement with Strata Oncology, Inc. (Strata).

~~Components of Operating Results~~

~~Collaboration and License Revenue~~

~~Our~~ collaboration and license arrangements with strategic partners.

License and Development Services Revenue

Our license and development services revenue consists of ~~revenue~~amounts recognized from the portions of the nonrefundable upfront and ~~periodic~~milestone payments received from Gilead and Taiho and ~~Gilead,~~allocated to performance obligations for ~~research~~licenses or Research and ~~development services~~Development ("R&D") activities performed by us toas we develop our investigational products under the terms of our collaboration ~~agreements,~~agreements. License and development services revenues are recognized based upon the timing of the delivery of a license or service if delivery is complete, or based on estimates of each performance obligation's percentage of completion at the period end if it is still in process. We calculate percentage of completion as a ratio of effort incurred to date on each performance obligation to the total estimated effort to be incurred to satisfy that performance obligation.

Other Collaboration Revenue

Other collaboration revenue consists primarily of amounts recognized from ~~any option exercise payments.~~

the portions of the nonrefundable upfront payments received from Gilead and Taiho and allocated to performance obligations relating to access to our investigational pipeline recognized over the period of access.

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Operating Expenses

Research and Development Expenses

Our research and development expenses consist of ~~expenses~~costs incurred in connection with the research and development of our pipeline programs. These expenses include ~~pre-clinical~~preclinical and clinical expenses, payroll and personnel expenses, including stock-based compensation for our employees in R&D, laboratory supplies, product licenses, consulting costs, contract research, and depreciation. Shared facility expenses are allocated to functional groups proportionally based on usage. Under certain collaboration agreements we agree to share research and development expenses with our partners. Such cost sharing arrangements may result in receiving reimbursement from our partners or torequire that we reimburse our partners for qualified expenses. We expense both internal and external research and development costs as they are incurred. We record advance payments for services that will be used or rendered for future research and development activities as prepaid expenses and recognize them as an expense as the related services are performed.

We recognize reimbursement for shared costs incurred by us and reimbursed by our partners as a reduction in research and development expense.

We do not allocate all our costs by investigational product, as a significant amount of research and development expenses include internal costs, such as payroll and other personnel expenses, and certain external costs that are not recorded at the investigational product level. In particular, with respect to internal costs, several of our departments support multiple research and development programs, and we do not allocate those costs by investigational product.

The level of our future research and development investment will depend on a number of factors and uncertainties, including the breadth of the joint development program agreed to with Gilead for the optioned programs, the outcome of our efforts, and the amount of cost reimbursements or milestone payments we receive from our collaborators. We expect our research and development expenses to increase substantially during the next few years ~~due to our Gilead collaboration and~~ as we ~~seek to complete existing clinical trials~~pursue joint development programs with Gilead and advance ~~our~~these programs ~~into later-stage clinical trials, pursue~~towards regulatory ~~approval for our investigational products, and~~approval. We also expect to advance ~~other~~new programs into the clinic. ~~Later-stage~~All of this will require significant growth in our development capabilities and infrastructure. In addition, our joint development programs with Gilead for the optioned molecules are anticipated to include a significant number of later-stage clinical trials, which typically include a larger number of subjects, are of a longer duration and include more geographic regions. As we advance our clinical-stage programs and prepare to seek regulatory approval, we will also need to ~~conduct certain validation activities with respect to~~increase our late-stage manufacturing processes for the investigational products in each program. Moreover, in order to maximize the potential of our collaboration with Gilead, we believe it will be important to grow our discovery capabilities and pipeline.activities. As a result, we expect our preclinical, clinical, and contract manufacturing expenses to increase significantly relative to what we have incurred to date. The level of our future research and development investment will depend on a number of factors and uncertainties, including clinical outcomes from our ongoing clinical trials, whether our collaborators opt into any of our programs, the amount of opt-in and milestone payments we receive from our collaborators, and the breadth of any joint development program agreed to with Gilead for programs they opt into.

In addition, under our ~~license~~

~~agreements~~arrangements with WuXi Biologics, Abmuno, AstraZeneca and ~~Abmuno, and our co-development and collaboration agreements with Strata, and AstraZeneca,~~BVF, we may ~~be required to pay~~incur additional clinical and regulatory milestone payments based on the development progress of our investigational products. We may also be required to pay royalties in the event of a successful product launch and our receipt of commercial revenues. Therefore, we are unable to predict the timing or the final cost to complete our clinical programs or validation of our manufacturing and supply processes and delays may occur due to numerous factors. Factors that could cause or contribute to delays or additional costs include, but are not limited to, those discussed in “Item 1A. Risk Factors.”

General and Administrative Expenses

General and ~~administrative~~Administrative ("G&A") expenses consist principally of personnel-related costs including payroll and stock-based compensation for personnel in executive, finance, human resources, information technology, business and corporate development, and other administrative functions. Shared facility expenses are allocated to functional groups proportionally based on usage. Our ~~general and administrative~~G&A expenses also include professional fees for legal, consulting, and accounting services, rent and other facilities costs, fixed asset depreciation, and other general operating expenses not otherwise classified as research and development expenses.

We do not receive significant reimbursements of these costs through our collaboration with Gilead.

We anticipate that our ~~general and administrative~~G&A expenses will increase ~~substantially~~ during the next few years as we support our growing research and development activities, including due to staff expansion, ~~additional occupancy costs,~~ and other costs associated with increased infrastructure needs.

~~Other~~

Non-Operating Income, net

~~Other non-operating~~

Non-operating income, net consists primarily of interest earned on our investments in fixed-income marketable securities and non-cash interest expense incurred under the effective interest method on our liability for sale of future royalties to BVF.

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Results of Operations

The following table summarizes our results of operations (in millions):


	Year Ended December 31, 2023		Change		Year Ended December 31, 2022		Change		Year Ended December 31, 2021
Revenues:
License and development service revenue	$	80	8	%	$	74	(79)	%	$	345
Other collaboration revenue	37		(3)	%	38		—	%	38
Total revenues	117		4	%	112		(71)	%	383
Operating expenses:
Research and development	340		18	%	288		12	%	257
General and administrative	117		13	%	104		44	%	72
Total operating expenses	457		17	%	392		19	%	329
Income (loss) from operations	(340)		21	%	(280)		*		54
Non-operating income, net	39		179	%	14		*		1
Income (loss) before income taxes	(301)		13	%	(266)		*		55
Income tax expense	(6)		500	%	(1)		(50)	%	(2)
Net income (loss)	$	(307)	15	%	$	(267)	*		$	53

*Not meaningful

Total Revenues

The increase in Total revenues for 2023 as ~~well~~compared to 2022 was primarily driven by increased revenues from license and development services due to the progress in the research and development activities under our Taiho collaboration R&D services and our inflammation programs which commenced in 2023, partially offset by a decrease in revenue recognized for Taiho access rights which expired in 2022.

The decrease in Total revenues for 2022 as ~~activity related~~compared to 2021 was primarily driven by higher revenues in 2021 due to Gilead's exercise of its options, partially offset by increased revenues from R&D services in 2022.

See Note 5, Revenues to our Consolidated Financial Statements, in Part II, Item 8 for further discussion of the amount and timing of revenues recognized from our license and collaboration agreements.

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Research and Development Expenses

We group all of our R&D activities and the related expenditures into categories as described below:

Included as of December 31, 2023

Category

Description

Program Level Expenses

Key Clinical
Trials

Late-stage development programs

R&D expenses incurred related to a Phase 3 clinical program. This includes all unallocated program-level expense not directly attributable to a specific clinical trial once a molecule enters into one or more Phase 3 clinical trial.

domvanalimab
zimberelimab

ARC-10
PACIFIC-8
STAR-121
STAR-221

Early-stage development and preclinical programs

R&D expenses incurred for activities ranging from early-stage development and preclinical to Phase 2 clinical trials. This includes all unallocated program-level expense not directly attributable to a specific clinical trial unless the related program has entered into one or more Phase 3 clinical trials.

quemliclustat
etrumadenant
casdatifan
AB598
AB801

ARC-7
ARC-8
ARC-9
ARC-20
ARC-25
ARC-26
EDGE-Lung VELOCITY-Lung
EDGE-Gastric

Compensation and personnel costs

Internal costs, such as salaries, non-cash stock-based compensation, and other personnel expenses for our R&D employees that are not allocated to specific programs or trials.

—

Other costs

Facilities, depreciation, and other external costs that are not recorded at the investigational product level.

—

Partnership reimbursements

Reimbursements from our collaboration partners for shared costs incurred by us and recognized as a reduction in R&D expense.

—

The following table summarizes our R&D expenses by category (in millions):


Category	Year Ended December 31, 2023		Change		Year Ended December 31, 2022		Change		Year Ended December 31, 2021
Late-stage development programs	$	168	35	%	$	124	130	%	$	54
Early-stage development and preclinical programs	128		(12)	%	145		46	%	99
Compensation and personnel costs	154		18	%	130		44	%	90
Other costs	52		4	%	50		28	%	39
Partnership reimbursements	(162)		1	%	(161)		*		(25)
Total research and development	$	340	18	%	$	288	12	%	$	257

*Not meaningful

The increase in R&D expenses for 2023 as compared to 2022 was primarily driven by higher costs to support our expanding late-stage development program activities, including standard-of-care therapeutic purchases, partially offset by lower clinical manufacturing costs due to the timing of activities. Our growing headcount drove an increase in compensation and personnel costs, including a $2 million increase in non-cash stock-based compensation. The overall increase was partially offset by reduced spend in our early-stage development and preclinical program activities due to fewer Phase 2 studies and higher clinical manufacturing costs in 2022 to support expanding study activities.

The increase in R&D expenses for 2022 as compared to 2021 was primarily driven by higher costs to support our expanding late-stage development program activities, including clinical trial costs, manufacturing costs and standard-of-care therapeutic purchases, and early-stage development and preclinical program activities. Our growing headcount drove an increase in compensation and personnel costs, including a $4 million increase in non-cash stock-based compensation. The overall increase was partially offset by higher reimbursements for shared expenses from our collaborators, primarily the Gilead collaboration which was expanded in December 2021.

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General and Administrative Expenses

The increase in G&A expenses for 2023 as compared to 2022 was primarily driven by the increased complexity of supporting our expanding clinical pipeline and partnership obligations. Our growing headcount and our 2023 stock awards drove a $9 million increase in employee compensation costs, including $6 million in increased non-cash stock-based compensation.

The increase in G&A expenses for 2022 as compared to 2021 was primarily driven by the increased complexity of supporting our expanding clinical pipeline and partnership obligations. Our growing headcount and our 2022 stock awards drove a $15 million increase in employee compensation costs, including $6 million in increased non-cash stock-based compensation. We also incurred a $13 million increase in office facilities expense due to the expansion of our office space to support our growing headcount.

Non-Operating Income, net

The increase in Non-operating income, net for 2023 as compared to 2022 was primarily due to higher interest income resulting from increased investment yields as compared to the prior year.

The increase in Non-operating income, net for 2022 as compared to 2021 was primarily due to a larger portfolio of marketable fixed-income securities and higher interest income resulting from increased investment yields as compared to the prior year.

Income Tax Expense

The increase in Income tax expense for 2023 as compared to 2022 was primarily due to an increase in taxable income compared to the prior year.

The decrease in Income tax expense for 2022 as compared to 2021 was due primarily to lower pretax income.

The 2023 and 2022 Income tax expense considers the impact of the capitalization of R&D expenses for income tax purposes due to changes in U.S. legislation. The capitalization of R&D expenses may materially impact income tax expense in future years.

Liquidity and Capital Resources

Our cash and investments are held in a variety of interest-bearing instruments, including money market funds, U.S. government treasury and agency obligations, investments in corporate securities and certificates of deposit. Based on our existing business plan, we believe that our cash, cash equivalents, and marketable securities as of December 31, 2023, together with the $320 million we received from Gilead for their equity ~~method~~ investment ~~in PACT Pharma, Inc (PACT Pharma).~~ on January 29, 2024, will be sufficient to fund our planned level of operations into 2027.

Sources of Liquidity

To date, ~~gains~~we have ~~consisted of gains on dilution~~financed our operations primarily from the sale of our ~~investment in PACT Pharma, typically occurring upon PACT Pharma’s new issuances~~equity securities and upfront or milestone payments from our research, collaboration and license agreements with our strategic partners including Gilead. We will need substantial additional funding to support our continuing operations and pursue our development strategy. Until such time that we can generate significant revenue from sales of our investigational products, if ever, we expect to finance our operations through the sale of equity, ~~securities. Losses associated~~debt financings or other capital sources, including existing or potential collaborations with other companies or other strategic transactions. See “Item 1A. Risk Factors” for a discussion of the ~~investment consist~~factors that could impact our liquidity.

Under the Stock Purchase Agreement, Gilead has the right, at its option, to purchase additional shares from us, up to a maximum ownership of 35% of our then-outstanding voting common stock, from time to time until July 2025. In June 2023, we amended and restated the Stock Purchase Agreement and sold 1.0 million shares of our common stock to Gilead at a purchase price of $19.26 per share for total gross proceeds of ~~PACT Pharma’s~~$20 million. In January 2024, we further amended and restated the Stock Purchase Agreement and sold 15.2 million shares of our common stock to Gilead at a purchase price of $21.00 per share for total gross proceeds of $320 million.

In 2023, we entered into an equity distribution agreement pursuant to which we may, from time to time, sell shares of our common stock having an aggregate offering price of up to $200 million. During the year ended December 31, 2023, we issued and sold under this agreement 0.2 million shares of our common stock for total net ~~losses.~~

proceeds of $5 million.

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Material Cash Requirements

We expect to incur substantial expenditures in the foreseeable future as we expand our pipeline and advance our investigational products through clinical development, the regulatory approval process and, if approved, commercial launch activities. For example, in the near term we expect to incur substantial expenses relating to our ongoing and planned clinical trials, the development and validation of our manufacturing processes, and other preclinical, research and discovery development activities. These expenditures will be partially offset by reimbursements for shared expenses from our collaborations, primarily the Gilead collaboration, for certain expenses incurred on their optioned programs.

See “Contractual Obligations and Commitments” for more information regarding our cash requirements from known contractual commitments.

Cash Flows

The following table summarizes our cash flow activities for each of the periods presented below (in millions):


	Year Ended December 31,
Net cash provided by (used in):	2023		2022		2021
Operating activities	$	(306)	$	438	$	(256)
Investing activities	194		(413)		(4)
Financing activities	33		33		237

Operating Activities

Net cash used in operating activities for 2023 was $306 million as compared to net cash provided by operating activities of $438 million for the same period in the prior year. The change in operating cash flows is primarily due to $725 million received from Gilead in January 2022 under the Gilead Collaboration Agreement.

Net cash provided by operating activities for 2022 was $438 million as compared to net cash used in operating activities of $256 million for the prior year. The change in operating cash flows is primarily due to the $725 million received from Gilead in January 2022 under the Gilead Collaboration Agreement, partially offset by increased expenses incurred to support our expanded clinical development activities.

Investing Activities

Cash provided by investing activities for 2023 was primarily due to net proceeds from marketable securities of $218 million, partially offset by purchases of property and equipment of $24 million.

Cash used in investing activities for 2022 was primarily due to net purchases of marketable securities of $404 million as we invested a portion of the $725 million received from Gilead in January 2022 under the Gilead Collaboration Agreement.

Cash used in investing activities for 2021 was primarily due to purchases of property and equipment of $26 million, partially offset by net proceeds from marketable securities of $22 million.

Financing Activities

Cash provided by financing activities for 2023 was due to net proceeds of $25 million from issuance of our common stock, primarily due to stock purchases by Gilead, and proceeds of $8 million for stock issued under our equity award plans.

Cash provided by financing activities for 2022 was primarily due to net proceeds of $23 million for stock issued under our equity award plans and $10 million received under the BVF agreement.

Cash provided by financing activities for 2021 was primarily due to proceeds of $220 million from Gilead for stock issued under the Stock Purchase Agreement.

Contractual Obligations and Commitments

We have cash requirements to pay third parties under various contractual obligations as discussed below.

We are obligated to make payments for operating leases. See Note 13 to our Consolidated Financial Statements in Item 8 for further discussion.

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We are contractually obligated to pay additional amounts that in the aggregate are significant, upon the achievement of various development, regulatory and commercial milestones for agreements we have entered into with third parties. These payments are contingent upon the occurrence of various future events, substantially all of which have a high degree of uncertainty of occurring, and any resulting cash requirements are managed through our operational budgeting processes. See Note 4 to our Consolidated Financial Statements in Item 8 for further discussion.

We have a liability for sale of future royalties which consists of the current balance of estimated contingent milestone and royalty payments under the BVF agreement. See Note 15 to our Consolidated Financial Statements in Item 8 for further discussion.

We enter into contracts in the normal course of business with third parties for clinical trial management and execution, non-clinical studies and testing, manufacturing, and other services and products for operating purposes. These contracts are generally cancellable on 30 days’ notice, and therefore we believe that our non-cancelable obligations under these agreements are not material.

See Liquidity and Capital Resources — Material Cash Requirements above for further discussion of our cash requirements.

Critical Accounting ~~Policies, Significant~~ Judgments and ~~Use of~~ Estimates

Our ~~consolidated financial statements~~Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles ~~(GAAP)~~("U.S. GAAP"). The preparation of these ~~consolidated financial statements~~Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the ~~consolidated financial statements,~~Consolidated Financial Statements, as well as the reported revenue and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s significant judgments and estimates.

While our significant accounting policies are described in the notes to our ~~consolidated financial statements,~~Consolidated Financial Statements, we believe that the following critical accounting ~~policies~~estimates are most important to understanding and evaluating our reported financial results.

Revenue Recognition

At the inception of an arrangement, we evaluate if a counterparty to a contract is a customer, if the arrangement is within the scope of revenue from contracts with customers guidance, and the term of the contract. We recognize revenue when ~~our~~a customer obtains control of promised goods or services in a contract for an amount that reflects the consideration we expect to receive in exchange for those goods or services. For contracts with customers, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy each performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. As part of the accounting for contracts with customers, we ~~must~~ develop assumptions that require judgment to determine the standalone selling price of each performance obligation identified in the contract. In addition, variable consideration such as milestone payments are evaluated to determine if they are constrained and, therefore, excluded from the transaction price. We then allocate the total transaction price to each performance obligation based on ~~the~~their relative estimated standalone selling ~~prices of each performance obligation.~~prices. We then recognize as

revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

For the recognition of revenue relating to the Gilead Agreements, as disclosed in Note 5, Revenues, to our Consolidated Financial Statements in Part II, Item 8, we allocated the total transaction price to each performance obligation on a relative standalone selling price basis and determined whether revenue should be recognized at a point in time or over time as services are performed. The estimation of the standalone selling price ~~may include such~~included estimates asfor forecasted revenues or costs, development timelines, discount rates, and probabilities of technical and regulatory success. We evaluate each performance obligation to determine if it can be satisfied at a point in time or over time as services are performed, and we measure the services delivered to ~~the customer,~~Gilead, which we periodically review based on the progress of the related program. The effect of any change made to an estimated input component and, therefore revenue or expense recognized, would be recorded as a change in estimate. In addition, variable consideration (e.g., milestone payments) ~~must be~~is evaluated to determine if it is constrained and, therefore, excluded from the transaction price.

~~Research~~

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Revenue related to certain performance obligations that are satisfied over time could be materially impacted as a result of changes in the total estimated effort required to satisfy those obligations. A hypothetical 10% change in the total estimated effort required to satisfy the combined license and ~~Development Expenses~~

We expense research and development costs as incurred. We estimate preclinical and clinical study and research expenses based on services performed, pursuant to contracts with third-party research organizations that conduct and manage preclinical and clinical studies and research services on our behalf. We estimate these expenses based on communications with internal personnel and external service providers asR&D activities performance obligations related to the progress or stage of completion of services and the contracted fees to be paid for such services. If the actual timing of the performance of services or the level of effort varies from the original estimates, we will adjust the accrual accordingly. Payments associatedagreement with ~~licensing agreements to acquire exclusive licenses to develop, use, manufacture and commercialize products that~~Gilead would have ~~not reached technological feasibility and do not have alternative future use are expensed as incurred. Payments made to third parties under these arrangements in advance of the performance of~~changed the related ~~services are recorded as prepaid expenses until the services are rendered.~~

~~Stock-Based Compensation Expense~~

~~We account for stock-based compensation arrangements in accordance with ASC 718,~~ ~~Stock Compensation. Prior to January 1, 2019, we accounted for equity instruments issued to non-employees in accordance with ASC 505-50~~ ~~Equity Based Payments to Non-Employees~~. Based on this guidance, we recorded awards at their fair value on the measurement date subject to periodic adjustments as the underlying equity instruments vest. We expensed the fair value of options granted to consultants when vested. On January 1, 2019, we adopted ASU ~~No. 2018-07 (Topic 718), Compensation – Stock Compensation,~~ ~~which expanded the scope of Topic 718 to include share-based payment transactions with non-employees.~~

Stock-based awards granted include stock options and restricted stock units (RSUs). Accounting standards require the recognition of compensation expense, using a fair value-based method, for costs related to all stock-based payments. Our determination of the fair value of stock options with time-based vesting on the date of grant utilizes the Black-Scholes option-pricing model, and is impacted by our common stock price as well as other variables including, but not limited to, expected term that options will remain outstanding, expected common stock price volatility over the term of the option awards, risk-free interest rates and expected dividends. Compensation expense associated with restricted stock units is based on the fair value of common stock on the date of grant.

~~Leases~~

Subsequent to the adoption of the new leasing standard effective as of January 1, 2020, we recognize a lease asset for its right to use the underlying asset and a lease liability for the corresponding lease obligation. We determine whether an arrangement is or contains a lease at contract inception. We recognize operating lease right-of-use assets and liabilities at the lease commencement date based on the present value of lease payments over the lease term. In determining the net present value of lease payments, we use an incremental borrowing rate based on the information available at the lease commencement date. The incremental borrowing rate represents the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease. We consider a lease term to be the noncancelable period that it has the right to use the underlying asset, including any periods where it is reasonably assured we will exercise the option to extend the contract. Periods covered by an option to extend are included in the lease term if the lessor controls the exercise of that option.

~~Income Taxes~~

~~We provide for income taxes under the asset and liability method. Current income tax expense or benefit represents the amount of income taxes expected to be payable or refundable for~~revenue recognized during the current ~~year. We determine deferred~~

income tax assets and liabilities based on differences between the financial statement reporting and tax bases of assets and liabilities and net operating loss and credit carryforwards, and measure them using the enacted tax rates and laws that will be in effect when such items are expected to reverse. We reduce deferred income tax,year by as ~~necessary, by a valuation allowance when management determines it is more likely than not that some or all of the tax benefits will not be realized.~~

~~Results of Operations~~

~~Comparison of the Years Ended December 31, 2020 and 2019~~

~~The following table summarizes our results of operations for the periods indicated (in thousands):~~

Year Ended
December 31,

$
Change

%
Change

2020

2019

Revenues:

License revenue

$
55,096

$
8,000

$
47,096

*

Collaboration revenue

22,421

7,000

15,421

220
%
Total collaboration and license revenue

77,517

15,000

62,517

417
%
Operating expenses:

Research and development

159,348

78,481

80,867

103
%
General and administrative

42,404

25,228

17,176

68
%
Total operating expenses

201,752

103,709

98,043

95
%
Loss from operations

(124,235
)

(88,709
)

(35,526
)

40
%
Non-operating income, net

1,377

3,999

(2,622
)

-66
%
Net loss

$
(122,858
)

$
(84,710
)

$
(38,148
)

45
%

*	~~Not meaningful~~

~~Collaboration and License Revenue~~

~~Collaboration and license revenue increased $62.5 million, from $15.0 million for~~much as $8 million. For the year ended December 31, ~~2019~~2023, we recognized $4 million in cumulative catch-up revenues from such changes in estimates. See Results of Operations above for further discussion. These changes in estimate could have a material impact on the revenue recognized in a future period.

For performance obligations that are distinct and determined to ~~$77.5~~be transferred or satisfied at a point in time, the estimated standalone selling price will affect the amount of revenue recognized upon satisfaction of the related performance obligation such as the transfer of control of a license. For the domvanalimab license with Gilead, transfer of the license and satisfaction of the related performance obligation occurred in 2021. The estimated standalone selling price of the domvanalimab license utilized assumptions of discounted cash flows which require judgment. A 10% change in the total estimated cash flows used in determining the estimated standalone selling price of the domvanalimab license would have resulted in a change in the amount of revenue recognized in 2021 of approximately $20 million ~~for~~with a corresponding change in the ~~year ended December 31, 2020. The increase in collaboration and license revenue was primarily due~~transaction price allocated to the ~~recognition of $55.1 million~~remaining performance obligations in ~~revenue from the zimberelimab license granted to Gilead and $15.4 million related to Gilead’s ongoing rights to access our intellectual property in accordance with~~ the Gilead Collaboration ~~Agreement, partially offset by the recognition in 2019 of $8.0 million in revenue from~~ ~~Taiho’s exercise of its option for our~~ ~~anti-PD-1 antibody program, including zimberelimab~~.

~~Research and Development Expenses~~

Research and development expenses increased $80.8 million, or 103%, from $78.5 million for the year ended December 31, 2019 to $159.3 million for the year ended December 31, 2020. The increase in research and development expenses was primarily due to an increase of $27.8 million in manufacturing costs required to supply our clinical studies, an increase of $24.2 million in clinical costs for our ongoing clinical studies, and an increase of $20.1 million in employee compensation costs primarily due to additional headcount, approximately $7.1 million of which consists of non-cash stock-based compensation. Expenses related to sublicense fees and milestone payments also increased $7.4 million, from $11.2 million for the year ended December 31, 2019 to $18.6 million for the year ended December 31, 2020, largely as a result of sublicense fees paid to WuXi. We incurred a $1.5 million additional increase on telecommunications and remote work infrastructure due to shelter-in-place orders amid the COVID pandemic, partially offset by a decrease of $1.3 million in lab supplies and equipment due to decreased lab activities for the same reason.

~~General and Administrative Expenses~~

General and administrative expenses increased $17.2 million, or 68%, from $25.2 million for the year ended December 31, 2019 to $42.4 million for the year ended December 31, 2020. The increase in general and administrative expenses was due primarily to $7.6 million in employee compensation costs primarily due to

additional headcount, approximately $5.8 million of which consists of non-cash stock-based compensation. We also incurred increased expense of $3.8 million in consulting expenses incurred in corporate development activities and $3.8 million in legal and accounting expenses incurred to support our expanding operations and ongoing compliance with public company requirements. ~~We further incurred a $1.5 million additional increase on telecommunications and remote work infrastructure due to shelter-in-place orders amid the COVID pandemic.~~

~~Non-Operating Income, Net~~

Non-operating income, net decreased $2.6 million or 66%, from $4.0 million for the year ended December 31, 2019 to $1.4 million for the year ended December 31, 2020. The decrease was primarily due to lower interest income resulting from lower investment yields on our portfolio of marketable fixed-income securities during the year ended December 31, 2020 as compared to the same period in the prior year.

~~Comparison of the Years Ended December 31, 2019 and 2018~~

~~The following table summarizes our results of operations for the periods indicated (in thousands):~~

Year Ended
December 31,

$
Change

%
Change

2019

2018

Revenues:

License revenue

$
8,000

$
3,000

$
5,000

167
%
Collaboration revenue

7,000

5,353

1,647

31
%
Total collaboration and license revenue

15,000

8,353

6,647

80
%
Research and development

78,481

49,646

28,835

58
%
General and administrative

25,228

13,566

11,662

86
%
Total operating expenses

103,709

63,212

40,497

64
%
Loss from operations

(88,709
)

(54,859
)

(33,850
)

62
%
Non-operating income, net

3,999

5,265

(1,266
)

-24
%
Net loss

$
(84,710
)

$
(49,594
)

$
(35,116
)

71
%

As described in Note 2 of the accompanying consolidated financial statements, in January 1, 2019, we adopted ASC 606. ASC 606 supersedes the guidance in ASC 605, Revenue Recognition. We adopted ASC 606 on a modified retrospective basis under which we recognized the $2.2 million cumulative effect of adoption as a reduction to opening accumulated deficit. We recorded revenue for the year ended December 31, 2018 under ASC 605, while we recorded revenue for year ended December 31, 2019 under ASC 606. Had we recognized revenue for the year ended December 31, 2019 using ASC 605, revenue would have been $14.7 million as compared to the $15.0 million recorded under ASC 606.

~~Collaboration and License Revenue~~

Collaboration and license revenue increased $6.6 million or 80%, from $8.4 million for the year ended December 31, 2018 to $15.0 million for the year ended December 31, 2019. The increase in collaboration and license revenue was due to an additional $1.6 million of revenue recognized resulting from a higher initial transaction price for the Taiho Agreement that we remeasured upon adoption of ASC 606 during 2019 and $8.0 million recognized following Taiho’s exercise of its option for our anti-PD-1 antibody program, including zimberelimab, partially offset by $3.0 million recognized in 2018 from Taiho’s exercise of its option for our adenosine receptor antagonist program, including etrumadenant.

~~Research and Development Expenses~~

~~Research and development expenses increased $28.9 million, or 58%, from $49.6 million for the year ended December 31, 2018 to $78.5 million for the year ended December 31, 2019.~~ The increase in expenses included an increase of $14.3 million in clinical study costs and an increase of $1.3 million in clinical consulting costs related to all four of our programs in clinical development. Also contributing to the increase in 2019 was the achievement of certain development milestones which resulted in expenses of $8.7 million pursuant to the terms of our WuXi Agreement and $2.5 million pursuant to the terms of our Strata Agreement, compared to a $2.0 million

product licensing expense pursuant to our Abmuno Agreement that was recorded in the prior year. Additional expenses in 2019 included an increase of $5.2 million in employee compensation, an increase of $2.0 million in stock-based compensation and an increase of $0.7 million in facilities and office expenses, primarily driven by growth in our headcount. ~~Those increases were partially offset by a decrease of $4.2 million in~~ ~~manufacturing costs primarily due to the completion of certain manufacturing activities for domvanalimab in 2018.~~

~~General and Administrative Expenses~~

~~General and administrative expenses increased $11.6 million, or 86%, from $13.6 million for the year ended December 31, 2018 to $25.2 million for the year ended December 31, 2019.~~ The increase in expenses was primarily due to an increase of $4.0 million in employee compensation, an increase of $3.2 million in stock-based compensation and an increase of $2.0 million in facilities and office expenses, primarily due to growth in headcount. General and administrative expenses further increased due to increases of $1.3 million in consulting and $0.7 million in legal and accounting fees, supporting the expansion of our research and development activities and on-going public company regulatory compliance costs.

~~Non-Operating Income, Net~~

Non-operating income, net decreased $1.3 million or 24%, from $5.3 million for the year ended December 31, 2018 to $4.0 million for the year ended December 31, 2019. The decrease was primarily due to a gain on deemed sale recorded in conjunction with PACT Pharma’s Series B convertible preferred financing in 2018 without a similar gain in 2019.

~~Liquidity and Capital Resources~~

To date, we have financed our operations primarily through net proceeds of approximately $677 million from equity offerings and proceeds of approximately $421 million from our collaboration agreements. As of December 31, 2020, we had $735.1 million of cash, cash equivalents and investments in marketable securities. In February 2021 we raised an additional $220.4 million from the sale to Gilead of 5,650,000 shares of our common stock. Our cash and investments are held in a variety of interest-bearing instruments, including money market funds, and investments in corporate notes, other debt securities, commercial papers and government agency obligations.

~~Based on our existing business plan, we believe that our existing cash, cash equivalents and investments will be sufficient to fund our anticipated level of operations through 2023.~~

~~We may require additional capital to complete the development and any commercialization of our investigational products. Our future capital requirements will depend on many factors, including:~~

•

~~the scope, rate of progress and costs of clinical trials for our investigational products as well as drug discovery, preclinical development activities, and laboratory testing;~~

Agreement.

•

~~the number and scope of clinical programs we decide to pursue;~~

•

~~the scope and costs of manufacturing development and commercial manufacturing activities;~~

•

the timing and amount of expense related to our current and future clinical programs, subject to the rights of our existing partners, and the costs associated with our share of the global development plan for such programs;

•

~~the timing and amount of milestone payments we receive under the Taiho Agreement and Gilead Collaboration Agreement, and option fees under the Gilead Collaboration Agreement;~~

•

~~the extent to which we acquire or in-license other investigational products and technologies;~~

•

~~the cost, timing and outcome of regulatory review of our investigational products;~~

•

~~the cost and timing of establishing sales and marketing capabilities, if any of our investigational products receive marketing approval;~~

•

~~the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;~~

•

~~our ability to establish and maintain collaborations on favorable terms, if at all;~~

•

~~our efforts to enhance operational systems and our ability to attract, hire and retain qualified personnel, including personnel to support the development of our investigational products;~~

•

~~the costs associated with being a public company; and~~

•

~~the cost associated with commercializing our investigational products, if they receive marketing approval.~~

If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Any future debt financing into which we enter may impose upon us additional covenants that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, repurchase our common stock, make certain investments and engage in certain merger, consolidation or asset sale transactions. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders. If we are unable to raise additional funds when needed, we may be required to delay, reduce, or terminate some or all of our development programs and clinical trials. We may also be required to sell or license to others rights to our investigational products in certain territories or indications that we would prefer to develop and commercialize ourselves.

~~See “Risk Factors” for additional risks associated with our substantial capital requirements.~~

~~Summary Consolidated Statement of Cash Flows~~

~~The following table sets forth the primary sources and uses of cash, cash equivalents and restricted cash for each of the periods presented below (in thousands):~~

Year Ended December 31,

2020

2019

2018

Net cash provided by (used in):

Operating activities

$
111,170

$
(73,462
)

$
(42,996
)
Investing activities

(434,367
)

59,212

(113,440
)
Financing activities

438,675

1,123

129,074

Net increase (decrease) in cash, cash equivalents
and restricted cash

$
115,478

$
(13,127
)

$
(27,362
)

~~Cash Provided by (Used in) Operating Activities~~

Net cash provided by operating activities for the year ended December 31, 2020 increased by $184.7 million to $111.2 million provided by operating activities as compared to $73.5 million cash used in operating activities for the prior year. The increase in cash provided is primarily due to $265.6 million in cash received at the close of the Gilead Collaboration Agreement in July 2020. The overall increase in net cash provided is partially offset by the $38.1 million increase in our net loss to $122.9 million and changes in non-cash items, including $12.8 million of increased expense from stock-based compensation, and changes in our asset and liability balances due to the timing of payments to or from our vendors and collaborators.

Net cash used in operating activities for the year ended December 31, 2019 increased by $30.5 million to $73.5 million as compared to $43.0 million for the prior year. The increase in cash used is primarily due to the $35.1 million increase in our net loss to $84.7 million. The change in our net loss is primarily a result of our expanded clinical development activities and general and administrative costs incurred to support our operations. The overall increase in cash used is partially offset by year-over-year changes in non-cash items, including increased expense from stock-based compensation. Additional increase in cash used resulted from changes in our asset and liability balances due to the timing of payments to or from our vendors and collaborators.

~~Cash Provided by (Used in) Investing Activities~~

Cash used in investing activities was $434.4 million for the year ended December 31, 2020 compared to $59.2 million cash provided in the prior year. The change in cash flow was primarily due to net purchases of our investments in fixed-income marketable securities, as we invested proceeds received from our May 2020 Public Offering, the Gilead Collaboration Agreement, and the Stock Purchase Agreement.

Cash provided by investing activities was $59.2 million for the year ended December 31, 2019 compared to $113.4 million cash used in the prior year. The change in cash flow was primarily due to year-over-year changes in the timing of purchases and maturities of our investments in fixed-income marketable securities.

~~Cash Provided by Financing Activities~~

Cash provided by financing activities was $438.7 million for the year ended December 31, 2020 compared to $1.1 million in the prior year. The increase in cash provided is primarily due to $326.2 million in net cash received from our May 2020 Public Offering, $107.5 million in net cash received under the Stock Purchase Agreement with Gilead, and funds received during the year for issuance of common stock pursuant to equity award plans.

Cash provided by financing activities was $1.1 million for the year ended December 31, 2019 compared to $129.1 million in the prior year. The decrease in cash provided is primarily due to a decrease in funds received in 2019 for issuance of common stock as compared to net proceeds received from our IPO in March 2018.

~~Contractual Obligations and Commitments~~

~~The following table summarizes our non-cancelable contractual obligations as of December 31, 2020 (in thousands):~~

Payments due by period

Total

Less than
1 year

1 to 3
years

3 to 5
years

After 5
years

Operating lease obligations

$
112,565

$
4,041

$
20,970

$
24,125

$
63,429

As of December 31, 2020, we had obligations consisting of operating leases for our operating facilities for approximately 245,530 square feet. Under the terms of the agreements, we have lease obligations consisting of $112.6 million in undiscounted minimum lease payments through 2031.

We enter into contracts in the normal course of business with third parties for clinical trial management and execution, non-clinical studies and testing, manufacturing, and other services and products for operating purposes. These contracts are generally cancelable on 30 days’ notice, and therefore we believe that our non-cancelable obligations under these agreements are not material.

~~We have not included contingent milestone or royalty payments or other contractual payment obligations in the table to the extent the timing and amount of such obligations are unknown or uncertain.~~

~~Off-Balance Sheet Arrangements~~

~~Since our inception, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.~~

Recent Accounting Pronouncements

See “Recent Accounting Pronouncements” in Note 2 ~~“Summary of Significant Accounting Policies” in the Notes~~ to our Consolidated Financial Statements in Item 8 for a discussion of recently adopted accounting ~~pronouncements and accounting pronouncements not yet adopted, and their expected impact on our financial position and results of operations.~~

pronouncements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

~~The~~

We are exposed to market ~~risk inherent in our financial instruments and in our financial position represents the potential loss arising~~risks that may result from ~~adverse~~ changes in interest rates orand foreign currency exchange rates.

Interest Rate Risk

As of December 31, ~~2020,~~2023 and 2022, we had cash, cash equivalents and ~~investments~~marketable securities of ~~$735.1~~$866 million, ~~consisting~~and $1.1 billion, respectively. This consisted of interest-bearing money market accounts and investments in corporate notes and U.S. government securities, ~~for~~ which ~~the fair market value would be affected by changes in the general level of United States~~create an exposure to interest ~~rates. However, due to the short-term maturities and the low-~~

~~risk profile of our investments, an immediate 10% change~~rate risk. A hypothetical 100 basis point increase in interest rates as of December 31, 2023 and 2022 would not have resulted in a material effect on the fair market value of our cash, cash equivalents and ~~investments.~~

marketable securities. In addition, wea hypothetical 100 basis point decrease in interest rates as of December 31, 2023 and 2022 would not result in a material effect on income in the respective ensuing year.

Foreign Currency Exchange Risk

We do not have any foreign currency forward or cross currency swap contracts. We are ~~also~~ exposed to foreign currency exchange rate risk inherent in our contracts with research institutions, ~~contract research organizations,~~CROs, and contract manufacturing organizations as certain services are performed by them outside the United ~~States. We made payments~~States and billed in other currencies. A hypothetical 20% adverse movement in foreign currency exchange rates compared with the U.S. dollar relative to exchange rates as of December 31, 2023 and 2022, respectively would not result in material impact to our financial position or income in the ~~aggregate amount~~respective ensuing year.

Table of $5.3 million AUD to our Australian vendors during the year ended December 31, 2020. We are subject to exposure due to fluctuations in foreign exchange rates in connection with these agreements and with our cash balance denominated in Australian dollars.

~~We do not believe that inflation, interest rate changes, or exchange rate fluctuations had a significant impact on our results of operations for any periods presented herein.~~

Contents

Item 8. Financial Statements and Supplementary Data

ARCUS BIOSCIENCES, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


	Page
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 42)			86 67
Audited Consolidated Financial Statements
~~Consolidated Balance Sheets~~		88
Consolidated Statements of Operations ~~and Comprehensive Loss~~		89 69
Consolidated Statements of ~~Convertible Preferred Stock and~~Comprehensive Income (Loss)	70
Consolidated Balance Sheets	71
Consolidated Statements of Stockholders’ Equity ~~(Deficit~~)			90 72
Consolidated Statements of Cash Flows			91 73
Notes to Consolidated Financial Statements			92 74

Table of Contents

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Arcus Biosciences, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Arcus Biosciences, Inc. (the Company) as of December 31, ~~2020~~2023 and ~~2019,~~2022, the related consolidated statements of operations, ~~and~~ comprehensive ~~loss, convertible preferred stock and~~income (loss), stockholders’ equity, ~~(deficit),~~ and cash flows for each of the three years in the period ended December 31, ~~2020,~~2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, ~~2020~~2023 and ~~2019,~~2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, ~~2020,~~2023, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, ~~2020,~~2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February ~~24, 2021~~21, 2024 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Table of Contents



	~~Revenue recognition~~Accounting for ~~license and collaboration agreement~~agreements with Gilead Sciences, Inc.

Description of the Matter		As described in ~~Note 7~~Notes 3 and 5 to the consolidated financial statements, the Company ~~entered into an~~has ongoing Option, License and Collaboration ~~Agreement, Common Stock Purchase Agreement, and Investor Rights Agreement,~~Agreements with Gilead Sciences, Inc., ~~collectively~~a related party, referred to as ~~“the Gilead~~the “Gilead Agreements”, which resulted in the recognition of ~~$70.5~~$112 million of revenue for the year ended December 31, ~~2020.~~ 2023 and $375 million of deferred revenue at December 31, 2023. Of the revenue recognized under the Gilead Agreements in 2023, $79 million related to amounts recognized as revenue when services are performed, based on the level of effort expended in a given period in relation to the total effort expected to be incurred to satisfy the applicable performance obligation. Management periodically updates its estimates of the amount, and timing, of the total effort expected to be incurred to satisfy such performance obligations, with any changes in estimate potentially changing the amount of revenue previously recognized and/or the amount to be recognized in future periods. Auditing the Company’s ~~revenue recognition~~process for estimating the ~~Gilead Agreements~~amount and timing of effort expected to be incurred to satisfy such performance obligations is complex, ~~and required~~particularly with regard to the significant judgment applied by the Company ~~to apply significant judgements,~~when updating clinical trial assumptions, including the ~~determination~~cost, timing and duration of performance obligations and transaction price, and the estimation of the standalone selling price of each identified performance obligation. The estimates of the standalone selling price for the performance obligations relating to the license of the Zimberelimab compound and the options for two other named compounds reflect management’s assumptions, which may include forecasted revenues, development timelines, discount rates, and probabilities of technical and regulatory success.such trials. Changes to these assumptions can have a material effect on the ~~allocation of the transaction price to the performance obligations as well as the~~ amount and timing of revenue recognized.



How We Addressed the Matter in Our Audit			We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls addressing the risks of material misstatement relating to the ~~accounting~~Company’s process for ~~revenue recognition~~estimating the cost, timing, and duration of ~~license and collaboration agreements with multiple~~the total effort expected to be incurred to satisfy the identified performance ~~obligations.~~obligations pursuant to the Gilead Agreements. For example, we tested management’s controls over the identification of ~~performance obligations, the determination of the~~changes in estimates and significant assumptions ~~described above with respect~~related to the ~~estimation~~cost, timing and duration of ~~the standalone selling price of the performance obligations relating to the license of the Zimberelimab compound~~clinical trial activity and ~~the options for two other named compounds, and the accuracy and completeness of underlying data used in estimating the standalone selling price.~~ development. Our audit procedures included, among others, obtaining and reading ~~the license~~applicable board and ~~collaboration agreement~~committee meeting minutes, inquiring of research and ~~evaluating~~development personnel, including program managers, obtaining third-party confirmations for a sample of clinical trial and development activity, and testing the completeness and accuracy of the ~~performance obligations identified~~data used by management. We also evaluated management’s estimates of the standalone selling price of certain performance obligations. For example, we evaluated the projected discounted cash flow assumptions used by the Company in developing the estimates of standalone selling price by comparing the significant assumptions described above to current industry trends using available information from other similar companies within the same industry and other relevant factors. We also performed a sensitivity analysis to evaluate the impact that changes in ~~the~~ significant assumptions would have on the ~~estimated standalone selling price of performance obligations and the resulting impact on the allocation of transaction price to each performance obligation, as well as~~ revenue recognized during the period. We involved our valuation professionals to assist in the assessment of the estimation methodology and the significant assumptions used in determining the estimated standalone selling price of the performance obligations. 2023.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2016.

~~Redwood City,~~

San Mateo, California

February ~~24, 2021~~

21, 2024

Table of Contents

ARCUS BIOSCIENCES, INC.

~~Consolidated Balance Sheets~~

CONSOLIDATED STATEMENTS OF OPERATIONS

(In ~~thousands,~~millions, except ~~share and~~ per share amounts)

As of December 31,

2020

2019

ASSETS

Current assets:

Cash and cash equivalents

$
173,415

$
57,937

Short-term investments

555,231

130,333

Receivable from collaboration partners ($943 and $0 from a related party)

1,049

132

Accrued interest receivable

649

251

Prepaid expenses and other current assets

5,471

4,052

Total current assets

735,815

192,705

Long-term investments

6,440

-

Property and equipment, net

10,807

9,330

Right-of-use assets

12,781

-

Restricted cash

203

203

Other long-term assets

6,246

872

Total assets

$
772,292

$
203,110

LIABILITIES

Current liabilities:

Accounts payable

$
15,682

$
4,704

Accrued research and development expenses

18,307

4,572

Other accrued liabilities

9,543

4,950

Deferred revenue, current ($67,571 and $0 to a related party)

74,571

7,000

Other current liabilities

3,566

1,480

Total current liabilities

121,669

22,706

Deferred revenue, noncurrent ($117,808 and $0 to a related party)

122,830

12,022

Operating lease liabilities, noncurrent

15,243

-

Deferred rent, non-current

-

3,734

Other long-term liabilities ($9,703 and $0 to a related party)

10,246

806

Total liabilities

269,988

39,268

Commitments (Note 12)

Stockholders’ equity:

Preferred stock, $0.0001 par value, 10,000,000 shares authorized as of December 31, 2020 and 2019; 0 shares issued and outstanding as of December 31, 2020 and 2019

0

0

Common stock, $0.0001 par value, 400,000,000 shares
   authorized as of December 31, 2020 and 2019; 65,114,685
   and 45,925,004 shares issued and outstanding as of December 31, 2020
   and 2019, respectively

6

4

Additional paid-in capital

830,438

369,100

Accumulated deficit

(328,184
)

(205,326
)
Accumulated other comprehensive income

44

64

Total stockholders’ equity

502,304

163,842

Total liabilities and stockholders’ equity

$
772,292

$
203,110


	Year Ended December 31,
	2023		2022		2021
Revenues:
License and development service revenue (Includes $75, $74 and $330 from a related party)	$	80	$	74	$	345
Other collaboration revenue (Includes $37, $33 and $31 from a related party)	37		38		38
Total revenues	117		112		383

Operating expenses:
Research and development (Net of recoveries of $110, $132 and $25 from a related party)	340		288		257
General and administrative (Net of recoveries of $—, $1 and $— from a related party)	117		104		72
Total operating expenses	457		392		329

Income (loss) from operations	(340)		(280)		54

Non-operating income (expense):
Interest and other income, net	41		16		1
Effective interest on liability for sale of future royalties	(2)		(2)		—
Total non-operating income, net	39		14		1

Income (loss) before income taxes	(301)		(266)		55

Income tax expense	(6)		(1)		(2)

Net income (loss)	$	(307)	$	(267)	$	53

Net income (loss) per share:
Basic	$	(4.15)	$	(3.71)	$	0.76
Diluted	$	(4.15)	$	(3.71)	$	0.71

Shares used to compute net income (loss) per share:
Basic	74.0		72.0		69.3
Diluted	74.0		72.0		74.0

~~The~~

See accompanying ~~notes are an integral part~~notes.

Table of ~~these Consolidated Financial Statements~~

Contents

ARCUS BIOSCIENCES, INC.

~~Consolidated Statements~~

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In millions)


	Year Ended December 31,
	2023		2022		2021
Net income (loss)	$	(307)	$	(267)	$	53

Other comprehensive income (loss)	7		(6)		(1)

Comprehensive income (loss)	$	(300)	$	(273)	$	52

See accompanying notes.

Table of ~~Operations~~Contents

ARCUS BIOSCIENCES, INC.

CONSOLIDATED BALANCE SHEETS

December 31, 2023 and ~~Comprehensive Loss~~

2022

(In ~~thousands,~~millions, except ~~share and~~ per share amounts)

Years Ended December 31,

2020

2019

2018

Revenues:

License revenue ($55,096, $0 and $0 from a related party)

$
55,096

$
8,000

$
3,000

Collaboration revenue ($15,421, $0 and $0 from a related party)

22,421

7,000

5,353

Total collaboration and license revenues

77,517

15,000

8,353

Operating expenses:

Research and development (($3,446), $0 and $0 from a related party)

159,348

78,481

49,646

General and administrative

42,404

25,228

13,566

Total operating expenses

201,752

103,709

63,212

Loss from operations

(124,235
)

(88,709
)

(54,859
)
Non-operating income (expense):

Interest and other income, net

1,377

5,201

4,922

Gain on deemed sale from equity method investee

613

-

1,229

Share of loss from equity method investee

(613
)

(1,202
)

(886
)
Total non-operating income, net

1,377

3,999

5,265

Net loss

(122,858
)

(84,710
)

(49,594
)
Other comprehensive income (loss)

(20
)

171

(65
)
Comprehensive loss

$
(122,878
)

$
(84,539
)

$
(49,659
)
Net loss per share, basic and diluted

$
(2.24
)

$
(1.93
)

$
(1.43
)
Weighted-average number of shares used to compute basic and
diluted net loss per share

54,787,118

43,825,991

34,618,237


	December 31,
	2023		2022
ASSETS
Current assets:
Cash and cash equivalents	$	127	$	206
Marketable securities	632		803
Receivable from collaboration partners ($20 and $39 from a related party)	38		39
Prepaid expenses and other current assets	34		19
Total current assets	831		1,067

Long-term marketable securities	107		129
Property and equipment, net	51		35
Other noncurrent assets ($6 and $2 from a related party)	106		114
Total assets	$	1,095	$	1,345

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	17	$	20
Deferred revenue ($84 and $97 to a related party)	91		97
Other current liabilities	76		76
Total current liabilities	184		193

Deferred revenue, noncurrent ($291 and $355 to a related party)	307		355
Other noncurrent liabilities	142		140

Commitments (Note 16)

Stockholders’ equity:
Common stock and additional paid-in capital: $0.0001 par value per share; 400.0 shares authorized; 75.5 shares in 2023 and 72.9 shares in 2022 issued and outstanding	1,311		1,206
Accumulated deficit	(849)		(542)
Accumulated other comprehensive loss	—		(7)
Total stockholders’ equity	462		657
Total liabilities and stockholders’ equity	$	1,095	$	1,345

~~The~~

See accompanying ~~notes are an integral part~~notes.

Table of ~~these Consolidated Financial Statements~~

Contents

ARCUS BIOSCIENCES, INC.

~~Consolidated Statements~~

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Years ended December 31, 2023, 2022 and 2021

(In millions)


	Number of shares of common stock	Common stock and additional paid-in capital		Accumulated deficit		Accumulated other comprehensive loss		Total stockholders’ equity
Balance at December 31, 2020	63.7	$	830	$	(328)	$	—	$	502
Issuance of common stock (see Note 3, Related party - Gilead Sciences, Inc. and Note 14, Stockholders' Equity)	5.7	220		—		—		220
Issuance of common stock in connection with our equity award programs	1.4	13		—		—		13
Stock-based compensation	—	55		—		—		55
Other comprehensive loss	—	—		—		(1)		(1)
Net income	—	—		53		—		53
Balance at December 31, 2021	70.8	1,118		(275)		(1)		842
Issuance of common stock in connection with our equity award programs	2.1	23		—		—		23
Stock-based compensation	—	65		—		—		65
Other comprehensive loss	—	—		—		(6)		(6)
Net loss	—	—		(267)		—		(267)
Balance at December 31, 2022	72.9	1,206		(542)		(7)		657
Issuance of common stock (see Note 3, Related party - Gilead Sciences, Inc. and Note 14, Stockholders' Equity)	1.2	25		—		—		25
Issuance of common stock in connection with our equity award programs	1.4	7		—		—		7
Stock-based compensation	—	73		—		—		73
Other comprehensive gain	—	—		—		7		7
Net loss	—	—		(307)		—		(307)
Balance at December 31, 2023	75.5	$	1,311	$	(849)	$	—	$	462

See accompanying notes.

Table of ~~Convertible Preferred Stock and Stockholders’ Equity (Deficit)~~

~~(In thousands, except share amounts)~~

Contents

Convertible Preferred
Stock

Common stock

Additional
Paid-In

Accumulated

Accumulated
Other
Comprehensive

Total
Stockholders’

Shares

Amount

Shares

Amount

Capital

Deficit

Income (Loss)

Equity(Deficit)

Balance at December 31, 2017

30,459,574

$
226,196

3,278,129

$
-

$
948

$
(73,234
)

$
(42
)

$
(72,328
)
Conversion of preferred stock to
   common stock

(30,459,574
)

(226,196
)

30,459,574

3

226,195

-

-

226,198

Issuance of common stock upon IPO

-

-

9,200,000

1

124,734

-

-

124,735

Issuance of common stock upon exercise
   of stock options

-

-

67,349

-

95

-

-

95

Vesting of early exercised stock options
   and restricted stock

-

-

528,374

-

1,276

-

-

1,276

Issuance of common stock under
   Employee Stock Purchase Plan

-

-

77,397

-

751

-

-

751

Stock-based compensation

-

-

-

-

3,874

-

-

3,874

Other comprehensive loss

-

-

-

-

-

(65
)

(65
)
Net loss

-

-

-

-

-

(49,594
)

-

(49,594
)
Balance at December 31, 2018

-

-

43,610,823

4

357,873

(122,828
)

(107
)

234,942

Cumulative effect adjustment upon
   adoption of ASC 606

-

-

-

-

-

2,212

-

2,212

Issuance of common stock upon exercise
   of stock options

-

-

34,780

-

188

-

-

188

Vesting of early exercised stock options
   and restricted stock

-

-

417,883

-

1,029

-

-

1,029

Issuance of common stock under
   Employee Stock Purchase Plan

-

-

148,709

-

1,029

-

-

1,029

Stock-based compensation

-

-

-

-

8,981

-

-

8,981

Other comprehensive income

-

-

-

-

-

-

171

171

Net loss

-

-

-

-

-

(84,710
)

-

(84,710
)
Balance at December 31, 2019

-

-

44,212,195

4

369,100

(205,326
)

64

163,842

Issuance of common stock in public
   offering, net of $21,629 offering costs
   (2,200,000 shares and $56,738, net of
   $3,762 offering costs, from a related
   party)

-

-

12,650,000

2

326,244

-

-

326,246

Issuance of common stock and rights to
   purchase additional shares in
   accordance with Gilead Stock Purchase
   Agreement, net of $1,931 offering costs

-

-

5,963,029

-

107,468

-

-

107,468

Issuance of common stock upon exercise
   of stock options and vesting of
   restricted stock

405,752

-

3,366

-

-

3,366

Vesting of early exercised stock options

-

-

258,824

-

848

-

-

848

Issuance of common stock under
   Employee Stock Purchase Plan

-

-

202,101

-

1,587

-

-

1,587

Stock-based compensation

-

-

-

-

21,825

-

-

21,825

Other comprehensive loss

-

-

-

-

-

-

(20
)

(20
)
Net loss

-

-

-

-

-

(122,858
)

-

(122,858
)
Balance at December 31, 2020

-

$
-

63,691,901

$
6

$
830,438

$
(328,184
)

$
44

$
502,304

~~The accompanying notes are an integral part of these Consolidated Financial Statements~~

ARCUS BIOSCIENCES, INC.

~~Consolidated Statements~~

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)


	Year Ended December 31,
	2023		2022		2021
Cash flow from operating activities
Net income (loss)	$	(307)	$	(267)	$	53
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Stock-based compensation expense	73		65		55
Depreciation and amortization	8		6		4
Noncash lease expense	8		8		3
Amortization of premiums (discounts) on marketable securities	(19)		—		5
Other items, net	2		3		—
Changes in operating assets and liabilities:
Receivable from collaboration partners ($19, $704 and ($17) from a related party)	15		704		(17)
Other assets (($4), ($2) and $— from a related party)	(14)		2		(3)
Accounts payable	(1)		8		(5)
Deferred revenue (($77), ($107) and ($361) to a related party)	(68)		(112)		(368)
Other liabilities	(3)		21		17
Net cash provided by (used in) operating activities	(306)		438		(256)

Cash flow from investing activities
Purchases of marketable securities	(788)		(1,241)		(719)
Proceeds from maturities of marketable securities	982		694		690
Proceeds from sales of marketable securities	24		143		51
Purchases of property and equipment	(24)		(6)		(26)
Purchases of in-process research and development	—		(6)		—
Collaboration reimbursements of in-process research and development from a related party	—		3		—
Net cash provided by (used in) investing activities	194		(413)		(4)

Cash flow from financing activities
Proceeds from issuance of common stock ($20, $— and $220 from a related party)	25		—		220
Proceeds from issuance of common stock pursuant to equity award plans	8		23		12
Proceeds from sale of future royalties	—		10		5
Net cash provided by financing activities	33		33		237
Net increase (decrease) in cash, cash equivalents and restricted cash	(79)		58		(23)
Cash, cash equivalents and restricted cash at beginning of period	209		151		174
Cash, cash equivalents and restricted cash at end of period	$	130	$	209	$	151

Supplemental disclosure of cash flow information
Income taxes paid	$	5	$	3	$	—

Non-cash investing and financing activities:
Unpaid portion of property and equipment purchases included in Accounts payable and Other current liabilities	$	2	$	3	$	1
Unpaid portion of other assets included in accrued research and development	$	—	$	—	$	1
Vesting of early exercised stock options and restricted stock	$	—	$	—	$	1

See accompanying notes.

Table of ~~Cash Flows~~

~~(In thousands)~~

Contents

Years Ended December 31,

2020

2019

2018

Cash flow from operating activities

Net loss

$
(122,858
)

$
(84,710
)

$
(49,594
)
Adjustments to reconcile net loss to net cash used in operating activities:

Stock-based compensation expense

21,825

8,981

3,874

Depreciation and amortization

3,149

3,578

3,664

Amortization of right-of-use assets

1,042

-

-

Share of loss (gain on deemed sale) from equity method investee, net

-

1,202

(343
)
Amortization of premiums on investments

(46
)

(2,638
)

(1,752
)
Other non-operating income

-

-

(177
)
Changes in operating assets and liabilities:

Receivable from collaboration partners (($943), $0 and $0 from a related party)

(917
)

(132
)

-

Amounts owed by PACT Pharma

-

83

(58
)
Prepaid expenses and other current assets

(838
)

(1,982
)

(1,180
)
Other long-term assets

(5,374
)

(588
)

(80
)
Accounts payable

9,272

1,726

(69
)
Accrued research and development expenses

13,735

1,756

1,623

Other accrued liabilities

4,593

1,743

1,874

Other current liabilities

-

57

43

Deferred revenue ($185,379, $0 and $0 to a related party)

178,379

(2,000
)

(353
)
Operating lease liabilities

(993
)

-

-

Deferred rent

-

(538
)

(468
)
Other long-term liabilities ($9,703, $0 and $0 to a related party)

10,201

-

-

Net cash provided by (used in) operating activities

111,170

(73,462
)

(42,996
)
Cash flow from investing activities

Purchases of short-term and long-term investments

(739,658
)

(247,755
)

(261,552
)
Proceeds from maturities of short-term and long-term investments

307,343

308,892

151,855

Sales of short-term investments

1,003

-

-

Purchases of property and equipment

(3,055
)

(1,925
)

(3,743
)
Net cash provided by (used in) investing activities

(434,367
)

59,212

(113,440
)
Cash flow from financing activities

Proceeds from initial public offering, net of issuance costs

-

-

125,111

Proceeds from issuance of common stock and rights to purchase additional shares ($164,207, $0 and $0 from a related party)

433,776

-

-

Proceeds from issuance of common stock pursuant to equity award plans

4,953

1,217

4,098

Repurchase of unvested shares of stock

(54
)

(94
)

-

Payment of preferred stock issuance costs

-

-

(135
)
Net cash provided by financing activities

438,675

1,123

129,074

Net increase (decrease) in cash, cash equivalents and restricted cash

115,478

(13,127
)

(27,362
)
Cash, cash equivalents and restricted cash at beginning of period

58,140

71,267

98,629

Cash, cash equivalents and restricted cash at end of period

$
173,618

$
58,140

$
71,267

Supplemental disclosures:

Cash paid for amounts included in measurement of lease liabilities

$
2,105

$
-

$
-

Non-cash investing and financing activities:

Right-of-use assets obtained in exchange for new operating lease liabilities

$
8,019

$
-

$
-

Unpaid portion of financing costs included in accounts payable

$
61

$
-

$
-

Unpaid portion of property and equipment purchases included in accounts
payable and accrued liabilities

$
1,583

$
12

136

Vesting of early exercised stock options and restricted stock

$
848

$
1,029

$
1,276

~~The accompanying notes are an integral part of these Consolidated Financial Statements~~

ARCUS BIOSCIENCES, INC.

Notes to Consolidated Financial Statements

Note 1. Organization,

~~Description of Business~~

liquidity and capital resources

Organization

Arcus Biosciences, Inc. ~~(the Company)~~(referred to as “Arcus,” “we,” “our,” “us,” or the “Company”) is a clinical-stage biopharmaceutical company focused on creating best-in-class ~~cancer~~ therapies. ~~The Company’s initial focus has been on well-characterized biological pathways with significant scientific data supporting their importance. Since its inception in 2015, the Company has built a~~Using our robust and highly efficient drug discovery capability, we have created a significant portfolio of investigational products which are in clinical development, with our most advanced molecule, an anti-TIGIT antibody, now in multiple Phase 3 registrational studies targeting lung and gastrointestinal cancers. Our deep portfolio of novel small molecules and enabling antibodies allows us to create highly differentiated ~~small molecules,~~therapies, which we are developing to treat multiple large indications.

We operate and manage our business as one reportable and operating segment, which is the ~~Company is~~business of developing in combination with its in-licensed monoclonal antibodies through rationally designed, indication-specific clinical trial designs. The Company currently has 4 investigational products in clinical development: domvanalimab (formerly referredand commercializing highly differentiated therapies that have a meaningful impact on patients.

Liquidity and Capital Resources

As of December 31, 2023, we had cash, cash equivalents and marketable securities of $866 million. In January 2024, we received $320 million from Gilead for shares purchased pursuant to ~~as AB154), etrumadenant (formerly referred~~the Third Stock Purchase Agreement Amendment (see Note 3. Related party - Gilead Sciences, Inc.). We believe our cash, cash equivalents and marketable securities will be sufficient to ~~as AB928), AB680, and zimberelimab (formerly referred to as AB122).~~

fund our planned operations for a period of at least twelve months following the date of filing of this Annual Report.

Note 2. Summary of ~~Significant Accounting Policies~~

significant accounting policies

Basis of Presentation

The ~~consolidated financial statements and accompanying notes~~Consolidated Financial Statements, which include the accounts of Arcus as well as its wholly owned subsidiary, have been prepared in accordance with ~~generally accepted accounting principles in the United States of America (U.S. GAAP)~~U.S. GAAP and include all adjustments necessary for the fair presentation of the Company’s financial position for the periods presented.

~~Principles of Consolidation~~

~~The accompanying consolidated financial statements are comprised of Arcus Biosciences, Inc. and its wholly-owned subsidiaries.~~ All intercompany ~~balances~~transactions and ~~transactions~~balances have been eliminated in consolidation.

We assess whether we are the primary beneficiary of a Variable Interest Entity ("VIE") at the inception of the arrangement and at each reporting date. This assessment is based on our power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and our obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. We do not have any significant interests in any variable interest entities of which we are the primary beneficiary.

Use of Estimates

The preparation of the ~~Company’s consolidated financial statements~~Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses ~~as well as~~and related ~~disclosure of contingent assets~~disclosures. We base our estimates on historical experience and ~~liabilities. Estimates were used to determine the standalone selling price of performance obligations and the timing of revenue recognition, the value of stock-based awards~~on various market-specific and other ~~issuances, accruals for research and development costs, useful lives of long-lived assets, and uncertain tax positions. Actual results could differ materially from~~relevant assumptions that we believe to be reasonable under the ~~Company’s estimates.~~

~~Risk and Uncertainties~~

~~The Company’s future~~circumstances, the results of ~~operations involve a number of risks and uncertainties. Factors that could affect~~which form the Company’s future operating results and cause actual results to vary materially from expectations include, but are not limited to, uncertainty of clinical trial results and achievement of milestones, uncertainty of regulatory approval of the Company’s potential drug candidates, uncertainty of market acceptance of the Company’s product candidates, competition from substitute products and larger companies, securing and protecting proprietary technology, strategic relationships and dependence on key individuals and sole source suppliers.

The Company’s investigational products require approval from the U.S. Food and Drug Administration (FDA) and comparable foreign regulatory agencies prior to commercial sales in their respective jurisdictions. There can be no assurance that any investigational products will receive the necessary approvals. If the Company does not obtain regulatory approval and does not successfully commercialize any of its investigational products, it would have a materially adverse impact on the Company.

~~Segments~~

The Company operates and manages its business as 1 reportable and operating segment, which is the business of developing and commercializing cancer therapies. The Company’s chief executive officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for ~~purposes~~making judgments about the carrying values of ~~allocating and evaluating financial performance. All long-lived assets are maintained in the United States of America.~~

~~Cash Equivalents and Investments~~

Cash equivalents consist of marketable securities having an original maturity of three months or less at the time of purchase. Short-term investments have maturities of greater than three months and less than twelve months at the time of purchase. Long-term investments have maturities greater than 12 months at the time of purchase. Collectively, cash equivalents, short-term and long-term investments are considered available-for-sale and are recorded at fair value. Unrealized gains and losses are recorded in accumulated other comprehensive loss. Realized gains and losses are included in interest and other income, net in the consolidated statements of operations and comprehensive loss. The basis on which the cost of a security sold or amount reclassified out of accumulated other comprehensive income into earnings is determined using the specific identification method.

~~Reconciliation of Cash, Cash Equivalents, and Restricted Cash as Reported in Consolidated Statements of Cash Flows~~

Restricted cash at December 31, 2020 and 2019 represents cash balances held as security in connection with the Company’s facility lease agreements. The following table provides a reconciliation of cash, cash equivalents, and restricted cash within the consolidated balance sheets to the total shown in the consolidated statements of cash flows (in thousands):

December 31, 2020

December 31, 2019

Cash and cash equivalents

$
173,415

$
57,937

Restricted cash

203

203

Cash, cash equivalents and restricted cash

$
173,618

$
58,140

~~Fair Value Measurements~~

~~Fair value accounting is applied for all financial assets and liabilities, including short-term and long-term investments, and non-financial~~ assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis (at least annually). The carrying amount of the Company’s financial instruments, including receivablenot readily apparent from ~~a related party, accounts payable~~other sources. Estimates are assessed and ~~accrued expenses~~updated each period to reflect current information. Actual results may differ materially from those estimates.

Collaborative Arrangements

We assess whether our licensing and other ~~current liabilities approximate fair value due to their short-term maturities.~~

~~Concentration of Credit Risk~~

Cash equivalents, short-term and long-term investments are financial instruments that potentially subject the Company to concentrations of credit risk. The Company invests in money market funds, treasury bills and notes, government bonds, commercial paper and corporate notes. The Company limits its credit risk associated with cash equivalents, short-term and long-term investments by placing them with banks and institutions it believes are highly credit worthy and in highly rated investments.

~~Property and Equipment~~

Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets, ranging from one to five years. Leasehold improvements are amortized over the shorter of their estimated useful lives or the related lease term. Upon retirement or sale, the cost and related accumulated depreciation are removed from the consolidated balance sheet and the resulting gain or loss is reflected in the consolidated statement of operations and comprehensive loss.

~~Impairment of Long-Lived Assets~~

The Company reviews long-lived assets, including property and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. An impairment charge would be recorded when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. Impairment, if any, is assessed using discounted cash flows or other appropriate measures of fair value. The Company did 0t recognize any impairment charges for the years ended December 31, 2020, 2019 and 2018.

~~Collaborative Arrangements and Contracts with Customers~~

~~The Company assesses whether its collaboration~~ agreements are ~~subject to Accounting Standards Codification (ASC) Topic 808,~~ ~~Collaborative Arrangements~~ ~~(ASC 808)~~collaborative arrangements based on whether they involve joint operating activities

and whether both parties have active participation in the arrangement and are exposed to significant risks and rewards. ~~To the extent~~For arrangements that ~~the arrangement falls within the scope of ASC 808, the Company applies the unit of account guidance under ASC Topic 606,~~ ~~Revenue from Contracts with Customers~~ ~~(ASC 606), to~~we determine are collaborations, we identify each distinct performance ~~obligations,~~obligation, and then determine whether a customer relationship exists for ~~each~~that distinct performance obligation. If ~~the Company determines~~we determine a performance obligation within the collaborative arrangement isto be with a customer, ~~it applies the guidance in ASC 606.~~we apply our revenue accounting policy. If a portion of a distinct bundle of goods or services within anthe collaborative arrangement is not with a customer, ~~then the unit of account is not within the scope of ASC 606, and the~~we apply recognition and measurement ~~of that unit of account shall be~~ based on an analogy to authoritative accounting literature or, if there is no appropriate analogy, a reasonable, rational, and consistently applied accounting policy election. See Note 4, License and collaborations, for more information.

Table of Contents

~~The Company recognizes~~

Revenues

We recognize revenue when ~~its~~a customer obtains control of promised goods or services in a contract for an amount that reflects the consideration ~~the Company expects~~we expect to receive in exchange for those goods or services. For contracts with customers, ~~the Company~~ ~~performs~~we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) ~~the Company satisfies~~we satisfy each performance obligation. ~~The Company~~We only ~~applies~~apply the five-step model to contracts when it is probable that ~~Company~~we will collect the consideration ~~it is~~we are entitled to in exchange for the goods or services ~~it transfers~~we transfer to the customer. As part of the accounting for contracts with customers, ~~the Company must~~we develop assumptions that require judgment to determine the standalone selling price of each performance obligation identified in the contract. ~~The Company~~In addition, variable consideration such as milestone payments are evaluated to determine if they are constrained and, therefore, excluded from the transaction price. We then ~~allocates~~allocate the total transaction price proportionally to each performance obligation based on ~~the~~their estimated standalone selling ~~prices of each performance obligation. The Company~~prices. We then ~~recognizes~~recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

We currently do not have product sales and our revenues are derived from arrangements for the development of our investigational products. Such arrangements may require us to deliver various rights, services and/or goods, including intellectual property rights/licenses, R&D services, manufacturing services and/or commercialization services. The ~~estimation~~underlying terms of these arrangements may generally include consideration to Arcus in the ~~stand-alone selling price may include such estimates as forecasted revenues~~form of one or costs, development timelines, discount rates, and probabilities of technical and regulatory success. The Company evaluates each performance obligation to determine if they can be satisfied at a point in time or over time, and the Company measures the services delivered to the customer, which are periodically reviewed based on the progress of the related program. The effect of any change made to an estimated input component and, therefore revenue or expense recognized, would be recorded as a change in estimate. In addition, variable consideration (e.g. milestone payments) must be evaluated to determine if it is constrained and, therefore, excluded from the transaction price.

~~The Company enters into collaborative arrangements that typically include one of~~ more of the following: (i) nonrefundable, up-front license fees; (ii) milestone payments related to the achievement of developmental, regulatory, or commercial goals; (iii) royalties on net sales of licensed products; (iv) fees attributable to options to intellectual property; and (v) ~~cost-sharing~~profit sharing.

In arrangements involving more than one performance obligation, each performance obligation is evaluated to determine whether it qualifies as distinct based on whether (i) the customer can benefit from the good or ~~research~~service either on its own or together with other resources that are readily available and ~~development (R&D) funding arrangements. When a portion of non‑refundable upfront fees~~(ii) the good or service is separately identifiable from other ~~payments received are~~promises in the contract. The consideration under the arrangement is then allocated to ~~continuing~~each separate distinct performance ~~obligations under~~obligation based on its respective relative stand-alone selling price. The estimated selling price of each deliverable reflects our best estimate of what the ~~terms of~~selling price would be if the deliverable was regularly sold by us on a ~~collaborative arrangement, they are recorded as deferred revenue and~~stand-alone basis or by using an adjusted market assessment approach if selling price on a stand-alone basis is not available. The consideration allocated to each distinct performance obligation is recognized as revenue when (or as) the underlying performance obligation is satisfied. Fees attributable to options are deferred until the option expires or is exercised. The Company classifies contract liabilities as current when it expects to satisfy its performance obligations within one year, and noncurrent when the Company expects to satisfy those performance obligations in greater than one year. When an option is exercised, the performance obligations associated with the option are identified, which will determine the accounting for the transaction price attributable to the option.

~~As part~~control of the accounting for these arrangements, the Company must develop estimates and assumptions that require judgment to determine the underlying stand-alone selling price for each performance obligation which determines how the transaction pricerelated goods is allocated among the performance obligation. To determine the stand-alone selling price, the Company may consider items such as forecasted revenues, development timelines, discount rates, and probabilities of technical and regulatory success. The Company evaluatestransferred or services are performed. We evaluate each performance obligation to determine if it can be satisfied at a point in time or over ~~time. In addition, variable consideration must be evaluated to determine if it is constrained and, therefore, excluded from the transaction price.~~

~~License Fees~~

~~If a license to the Company’s intellectual property is~~time as services are performed. For performance obligations that are determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from non-refundable, upfront fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied ~~over~~

~~time or at a point in time and, if~~ over time ~~the~~we determine an appropriate method of measuring progress for purposes of recognizing revenue. ~~The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of~~

Consideration associated with at-risk substantive performance ~~and related~~milestones is recognized as revenue ~~recognition.~~

~~Milestone Payments and Variable Consideration~~

At the inception of each arrangement that includes milestone payments or variable consideration, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. Ifwhen it is probable that a significant ~~revenue~~ reversal ~~would not occur, the associated value is included in the transaction price. Milestone payments that are not within the control~~ of the ~~Company or the Company’s collaboration partner, such as regulatory approvals, are generally~~cumulative revenue recognized will not considered probable of being achieved until those approvals are received. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect license, collaboration or other revenues and earnings in the period of adjustment.

~~Cost-Sharing or R&D Funding Arrangements~~

Under certain collaborative arrangements, the Company has been reimbursed for a portion of its research and development expenses, including costs of drug supplies. When these R&D services are performed under a reimbursement or cost sharing model with a collaboration partner, the Company records these reimbursements as a reduction of R&D expense in its consolidated statements of operations.

~~Royalties~~

occur.

For arrangements that include sales-based royalties, including milestone payments based on ~~the level of~~ sales thresholds, and for which the license is deemed to be the predominant item to which the royalties relate, ~~the Company recognizes~~we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, ~~the Company has~~we have not recognized any royalty revenue resulting from any of ~~its collaborative~~our arrangements.

The accounting for these arrangements requires us to develop estimates and assumptions that require judgment. These estimates may include items such as forecasted revenues or costs, development timelines, discount rates, and probabilities of technical and regulatory success. Actual results may differ materially from those estimates.

See Note 5, Revenues, for more information.

Research and Development Expenses

~~Research and development~~

R&D costs are expensed as ~~incurred. Research~~incurred and ~~development expenses consist~~ primarily ~~of personnel costs for the Company’s research~~include: salaries, benefits and ~~development employees, costs incurred to~~other staff-related costs; facilities and overhead costs; third-party service ~~providers~~provider costs for ~~the conduct of research,~~ preclinical and clinical ~~studies,~~studies; laboratory supplies and equipment maintenance ~~costs, consulting~~costs; consulting; payments under collaborative and other arrangements including milestone payments, licenses and fees; expense reimbursements to collaboration partners; and other related expenses. ~~Also included are payments under~~Under certain collaborative arrangements, we are reimbursed for a portion of the R&D expenses, including ~~up-front and milestone payments, license and option fees and~~costs of drug supplies. When these R&D expenses are incurred under a reimbursement or cost sharing model with a collaboration partner, we record the related reimbursements as a reduction of R&D expense ~~reimbursements~~in our Consolidated Statements of Operations. Acquired in-process R&D projects with no alternative future use are recorded in R&D expense upon acquisition.

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Net payment or reimbursement of R&D costs is recognized when the obligations are incurred or as we become entitled to the cost recovery. See Note 4, License and collaboration ~~partners, as well as non-personnel costs such as professional fees payable to third parties~~agreements, for ~~preclinical and clinical studies and research services, laboratory supplies and equipment maintenance, product licenses, and other consulting costs.~~

The Company estimates research, preclinical and clinical service organizations, based on services performed, pursuant to contracts with third-party research and development organizations that conduct and manage research, preclinical and clinical activities on its behalf. Most of the Company’s clinical studies are performed by third-party contract research organizations (CROs), and as a result clinical studymore information.

Clinical trial costs are a significant component of ~~research~~R&D expenses. Our clinical studies are primarily performed by third-party CROs. We monitor levels of performance under each significant contract including the extent of patient enrollment and ~~development expenses. The Company~~other activities and accrue costs for clinical studies performed over the service periods specified in the contract. We adjust our estimates, ~~these expenses~~if required, based ~~on discussions with internal management personnel and external service providers as to the progress or stage~~upon our ongoing review of ~~completion of services and the contracted fees to be paid for such services. If the actual timing of the performance of services or~~ the level of effort ~~varies from~~and costs actually incurred by the ~~original estimates,~~CROs. All of our material CRO contracts are terminable by us upon written notice, and we are generally only liable for actual services completed by the ~~Company will adjust the accrual accordingly. Payments~~CRO and certain noncancellable expenses incurred at termination.

General and Administrative Expenses

G&A expenses relate to: finance; human resources; legal and other administrative activities which consist primarily of personnel costs; facilities and overhead costs; legal expenses; and other general and administrative costs. G&A expenses also include cost recoveries associated with ~~licensing agreements to acquire licenses to develop, use, manufacture~~collaborative R&D arrangements.

Stock-Based Compensation

We provide stock-based compensation in the form of various types of equity-based awards, including Restricted Stock Units ("RSUs") and ~~commercialize products that have not reached technological feasibility~~stock options. The fair values of RSUs and ~~do not have alternative future use~~stock options, which are expensed as incurred. Payments made to third parties under these arrangements in advance of the performance of the related services by the third parties are recorded as prepaid expenses until the services are rendered.

~~Leases and Rent Expense~~

~~The Company leases laboratory and office space in an office park in Hayward, California under a non-cancelable operating lease with terms that expire from 2025 to 2029,~~ subject to ~~options for the Company to extend the lease term. The Company also leases space in Brisbane, California under a non-cancelable operating lease that is expected to commence in 2021~~service conditions and ~~extend through 2031. Prior to January 1, 2020, the Company~~vesting, are recognized ~~related rent~~as compensation expense on a straight-line basis over the term of the lease. Incentives granted under the Company’s facilities lease, including allowances for leasehold improvements and rent holidays, were recognized as reductions to rental expense on a straight-line basis over the term of the lease. Deferred rent consisted of the difference between cash payments and the rent expense recognized.

Subsequent to the adoption of the new leasing standard on January 1, 2020, the Company recognizes a lease asset for its right to use the underlying asset and a lease liability for the corresponding lease obligation. The Company determines whether an arrangement is or contains a lease at contract inception. Operating leases are included in operating lease right-of-use assets, other accrued liabilities, and operating lease liabilities, noncurrent in our consolidated balance sheet at December 31, 2020. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the net present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date. The incremental borrowing rate represents the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease. The Company considers a lease term to be the noncancelable period that it has the right to use the underlying asset, including any periods where it is reasonably assured the Company will exercise the option to extend the contract. Periods covered by an option to extend are included in the lease term if the lessor controls the exercise of that option.

The Company elected to not apply the recognition requirements of the new leasing standard to short-term leases with terms of 12 months or less which do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise. For short-term leases, lease payments are recognized as operating expenses on a straight-line basis over the lease term.

~~Stock-Based Compensation~~

~~The Company accounts for stock-based compensation arrangements in accordance with ASC 718,~~ ~~Stock Compensation. Prior to January 1, 2019, equity instruments issued to non-employees were accounted for in accordance with ASC 505-50~~ ~~Equity Based Payments to Non-Employees~~. Based on this guidance, awards were recorded at their fair value on the measurement date subject to periodic adjustments as the underlying equity instruments vest. The fair value of options granted to consultants was expensed when vested. On January 1, 2019, the Company adopted ASU ~~No. 2018-07 (Topic 718), Compensation – Stock Compensation,~~ ~~which expanded the scope of Topic 718 to include share-based payment transactions with non-employees.~~

Stock-based awards granted include stock options and restricted stock units (RSUs). Accounting standards require the recognition of compensation expense, using a fair value-based method, for costs related to all stock-based payments. The Company’s determination of the fair value of stock options with time-based vesting on the date of grant utilizes the Black-Scholes option-pricing model, and is impacted by the Company’s common stock price as well as other variables including, but not limited to, expected term that options will remain outstanding, expected common stock price volatility over the term of the option awards, risk-free interest rates and expected dividends. Compensation expense associated with restricted stock units is based on the fair value of common stock on the date of the grant.

~~The fair value of a stock-based award is recognized over the period during which an optionee is required to provide services in exchange for the option award, known as the requisite~~ service period ~~(usually the vesting period) on a straight-line basis. Stock-based compensation expense is recognized based on the fair value determined on the date~~net of ~~grant and is reduced for~~ forfeitures as they occur.~~Non-employee stock-based~~ See Note 8, Stock-based compensation, ~~expense was not material~~ for ~~all periods presented.~~

Estimating the fair value of equity-settled awards as of the grant date using valuation models, such as the Black-Scholes option pricing model, is affected by assumptions regarding a number of complex variables. Changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized. These inputs are subjective and generally require significant analysis and judgment to develop.

more information.

Income Taxes

~~The Company provides~~

We provide for income taxes under the asset and liability method. Current income tax expense or benefit represents the amount of income taxes expected to be payable or refundable for the current year. Deferred income tax assets and liabilities are determined based on differences between the financial statement reporting and tax bases of assets and liabilities and net operating loss and credit carryforwards, ~~and are~~ measured using the enacted tax rates and laws that will be in effect when such items are expected to reverse. Deferred income tax assets are reduced, as necessary, by a valuation allowance when ~~management determines~~we determine it is more likely than not that some or all of the tax benefits will not be realized.

~~The Company accounts for~~

We recognize the tax benefit from an uncertain tax ~~positions in accordance with ASC 740-10,~~ ~~Accounting for Uncertainty in Income Taxes.~~ ~~The Company assesses~~position only if it is more likely than not that the tax position will be sustained upon examination by tax authorities. We assess all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of the position’s sustainability and is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. As of each balance sheet date, unresolved uncertain tax positions must be reassessed, and ~~the Company~~we will determine whether (i) the factors underlying the sustainability assertion have changed and (ii) the amount of the recognized tax benefit is still appropriate. ~~The recognition and measurement of tax benefits requires significant judgment. Judgments concerning the recognition and measurement of a tax benefit might change as new information becomes available.~~

~~The Company includes~~

We include any penalties and interest expense related to income taxes as a component of other expense and interest income, net, as necessary.

On March 18, 2020, the Families First Coronavirus Response act (FFCR Act), and on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) were each enacted in response to the COVID-19 pandemic. ~~The FFCR Act and the CARES Act contain numerous tax-related provisions relating to refundable payroll tax credits, deferment~~

See Note 6, Income taxes, for more information.

Cash Equivalents

Cash equivalents consist of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. On June 29, 2020 California State Assembly Bill 85 (the Trailer Bill) was enacted which suspends the usemarketable securities having an original maturity of ~~California net operating loss (NOL) deductions and limits the use of certain tax credits, including research and development tax credits, for the 2020, 2021, and 2022 tax years.~~

The FFCR Act, CARES Act and Trailer Bill did 0t have a material impact on the Company’s consolidated financial statements as of December 31, 2020; however, the Company continues to examine the impacts the FFCR Act, CARES Act and Trailer Bill may have on its business, results of operations, financial condition and liquidity.

~~Comprehensive Loss~~

Comprehensive loss includes net loss and net unrealized income and losses on available-for-sale securities, which are presented in a single continuous statement. Other comprehensive income (loss) is also disclosed in the consolidated balance sheets and statements of stockholders’ equity in accumulated other comprehensive income (loss), and is stated net of related tax effects, if any.

~~Net Loss per Share~~

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares and potentially dilutive securities outstanding for the period. The Company excludes the weighted-average shares subject to repurchase from its calculation of weighted average of common shares outstanding. For purposes of the diluted net loss per share calculation, outstanding common stock options are considered to be potentially dilutive securities. Because the Company reported a net loss for the years ended December 31, 2020, 2019 and 2018, and the inclusion of the potentially dilutive securities would be antidilutive, diluted net loss per share is the same as basic net loss per share for all periods.

~~Recently Adopted Accounting Standards~~

~~In December 2019, the FASB issued~~ ~~ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes~~. ASU 2019-12 reduces costs and complexity of applying accounting standards while maintaining the usefulness of the information provided to users of financial statements. While not required to be adopted until 2021 for most calendar year public business entities, early adoption is permitted for any financial statements not yet issued. The Company early adopted this ASU as of January 1, 2020, with an immaterial impact on its financial statements.

~~In November 2018, the FASB issued~~ ~~ASU No. 2018-18 (Topic 808), Collaborative Arrangements. ASU 2018-18 clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606,~~ ~~Revenue from Contracts with Customers~~, ~~(Topic 606)~~ when the collaborative arrangement participant is a customer in the context of a unit of account and precludes recognizing as revenue consideration received from a collaborative arrangement participant if the participant is not a customer. The Company adopted this ASU as of January 1, 2020, with an immaterial impact on its financial statements.

~~In August 2018, the FASB issued~~ ~~ASU No.2018-13 (Topic 820), Fair Value Measurement.~~ ~~ASU 2018-13 modifies the disclosure requirements on fair value measurement in Topic 820. The Company adopted this ASU as of January 1, 2020 with an immaterial impact on its financial statements.~~

~~In August 2018, the FASB issued~~ ~~ASU No.2018-15 (Subtopic 350-40), Intangibles – Goodwill and Other – Internal-Use Software.~~ ASU 2018-15 requires an entity in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to internal-use software. The Company adopted this ASU as of January 1, 2020 with an immaterial impact on its financial statements.

~~In February 2016, the FASB issued ASU~~ ~~No. 2016-02 (Topic 842), Leases~~ ~~(ASU 2016-02).~~ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. The ASU will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. In July 2018, the FASB issued ASU ~~No. 2018-10~~, ~~Codification Improvements to Topic 842, Leases~~ ~~and ASU~~ ~~No. 2018-11, Leases (Topic 842): Targeted Improvements, which offers a practical expedient for transitioning at the adoption date.~~

The Company adopted this standard on January 1, 2020 using the modified retrospective approach and elected the package of practical expedients permitted under transition guidance, which allowed the Company to carry forward its historical assessments of: 1) whether contracts are or contain leases, 2) lease classification and 3) initial direct costs. The Company did not elect the practical expedient allowing the use-of-hindsight which would require the Company to reassess the lease term of its leases based on all facts and circumstances through the effective date and did not elect the practical expedient pertaining to land easements as this is not applicable to the current contract portfolio. The Company elected the post-transition practical expedient to not separate lease components from nonlease components for all existing lease classes. The Company also elected a policy of not recording leases on its consolidated balance sheets when the leases have a term of 12three months or less ~~and the Company is not reasonably certain to elect an option to purchase the leased asset.~~

The adoption of this standard resulted in the recognition of a right-of-use (ROU) asset of $5.8 million and lease liabilities of $10.1 million, comprised of $1.2 million and $8.9 million of current and noncurrent liabilities, respectively. The adoption also resulted in the derecognition of the deferred rent balance of $4.3 million as of January 1, 2020. The adoption of the standard had no impact on the Company’s consolidated statements of operations and comprehensive loss or to its cash flows from or used in operating, financing, or investing activities on its consolidated statements of cash flows. NaN cumulative-effect adjustment within accumulated deficit was required to be recorded as a result of adopting this standard.

~~In June 2016, the~~ ~~FASB issued ASU~~ ~~No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~, which modifies the measurement and recognition of credit losses for most financial assets and certain other instruments. The ASU updates the guidance for measuring and recording of current expected credit losses on financial assets measured at amortized cost by replacing the “incurred loss” model with an “expected loss” model. Accordingly, these financial assets will be presented at the ~~net amount expected to be collected. The ASU also requires that credit losses related to~~time of purchase.

Marketable Securities

We consider our interest-bearing securities investment portfolio as available-for-sale, ~~debt securities be recorded as an allowance through net income rather than reducing the carrying amount under the current, other-than-temporary-impairment model.~~ ~~The Company adopted this standard on January 1, 2020 using the modified retrospective~~

~~approach. The Company adopted this ASU as of January 1, 2020 with an immaterial impact on its financial statements.~~

~~Note 3. Fair Value Measurements~~

~~Financial assets~~ and ~~liabilities~~accordingly, these investments are recorded at fair ~~value. The accounting guidance~~value, with unrealized gains and losses recorded in Accumulated Other Comprehensive Income. See Note 10, Cash, cash equivalents and marketable securities, and Note 15, Fair value measurements, for more information.

Property and Equipment

Property and equipment is recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets, ranging from three to ten years. Leasehold improvements are amortized over the shorter of their estimated useful lives or the related lease term. We review property and equipment for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. See Note 11, Property and equipment, for more information.

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Leases

We determine whether an arrangement is or contains a lease at contract inception. Operating lease right-of-use assets and lease liabilities are recognized at the commencement date based on the present value of the lease payments over the lease term, which is the non-cancelable period stated in the contract adjusted for any options to extend or terminate when it is reasonably certain that we will exercise that option. Right-of-use assets are adjusted for prepaid lease payments, lease incentives and initial direct costs incurred. Operating lease expense for the minimum lease payments is recognized on a straight-line basis over the lease term. When our operating leases do not provide an implicit interest rate, we generally utilize our incremental borrowing rate, based on the information available at the commencement date to determine the lease liability. We do not recognize the right-of-use assets and liabilities for leases with lease terms of one year or less with payments recognized as operating expenses on a straight-line basis over the lease term.

We sublease parts of our facilities to third parties and recognize sublease income on a straight-line basis over the sublease term. We evaluate the underlying assets for impairment at sublease inception.

See Note 13, Leases, for more information.

Fair Value of Financial Instruments

We apply fair value ~~provides a framework~~accounting for ~~measuring~~all financial and non-financial assets and liabilities that are recognized or disclosed at fair value ~~clarifies~~in the ~~definition of~~financial statements on a recurring basis. We define fair value ~~and expands disclosures regarding fair value measurements. Fair value is defined~~ as the price that would be received ~~to sell~~from selling an asset or paid to transfer a liability ~~(an exit price)~~ in an orderly transaction between market participants at the ~~reporting~~measurement date. ~~The accounting guidance establishes a three-tiered hierarchy, which prioritizes~~When determining the ~~inputs used in the valuation methodologies in measuring~~ fair value ~~as follows:~~

~~Level 1—Inputs~~measurements for assets and liabilities which are ~~unadjusted, quoted prices~~required to be recorded at fair value, we consider the principal or most advantageous market in ~~active markets for identical assets~~which we would transact and the market-based risk measurements or ~~liabilities at the measurement date.~~

Level 2—Inputs (other than quoted market prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

~~Level 3—Inputs reflect management’s best estimate of what~~assumptions that market participants would use in pricing the asset or liability, atsuch as risks inherent in valuation techniques, transfer restrictions and credit risks. See Note 15, Fair value measurements, for more information.

Other Significant Accounting Policies

Our other significant accounting policies are described in the ~~measurement date. Consideration is given~~remaining appropriate notes to the ~~risk inherent in~~Consolidated Financial Statements.

Recent Accounting Pronouncements

There have been no new accounting pronouncements issued or adopted during the ~~valuation technique~~year ended December 31, 2023 with a significant impact to our financial statements.

Note 3. Related party - Gilead Sciences, Inc.

In 2020, we and Gilead entered into an Option, License and Collaboration Agreement (the "Gilead Collaboration Agreement"), Common Stock Purchase Agreement (the "Stock Purchase Agreement"), and Investor Rights Agreement (the "Investor Rights Agreement"). In 2021, we amended the Gilead Collaboration Agreement (the "First Gilead Collaboration Agreement Amendment") and the ~~risk inherent in~~Stock Purchase Agreement (the "First Stock Purchase Agreement Amendment"). In 2022, we amended the ~~inputs~~Investor Rights Agreement (the "First Investor Rights Agreement Amendment"). In 2023, we further expanded our collaboration (the "Second Gilead Collaboration Agreement Amendment") and further amended the Stock Purchase Agreement (the "Second Stock Purchase Agreement Amendment"). On January 29, 2024, we further amended the Gilead Collaboration Agreement (the "Third Gilead Collaboration Agreement Amendment"), amended and restated our stock purchase agreements (the "Third Stock Purchase Agreement Amendment") and amended and restated our investor rights agreement (the "Second Investor Rights Agreement Amendment"). We refer to these agreements collectively as the Gilead Agreements.

Stock Purchase Agreement and Investor Rights Agreement

In 2020, under the Stock Purchase Agreement, Gilead purchased 6.0 million shares of our common stock for total gross proceeds of $200 million, of which $91 million was allocated to the ~~model.~~

~~Assets and liabilities measured~~revenue related performance obligations created by the Gilead Collaboration Agreement (See Note 5, Revenues for more information).

In 2021, under the First Stock Purchase Agreement Amendment, Gilead purchased 5.7 million shares of our common stock for total gross proceeds of $220 million.

In 2023, under the Second Stock Purchase Agreement Amendment, Gilead purchased 1.0 million shares of our common stock for total gross proceeds of $20 million.

On January 29, 2024, under the Third Stock Purchase Agreement Amendment, Gilead purchased 15.2 million shares of our common stock for total gross proceeds of $320 million.

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Gilead has the right, at ~~fair value are classified in their entirety based~~its option until July 2025, to purchase up to a maximum of 35% of the Company’s then-outstanding voting common stock, at a purchase price equal to the greater of a 20% premium to market (based on a trailing five-day average closing price at option exercise) or the $33.54 initial purchase price. Based on the ~~lowest level~~value of ~~input that is significant~~our common stock at each contract closing, the right to purchase additional shares had no value.

Under the ~~fair value measurement. The Company’s assessment~~Investor Rights Agreement entered into in 2020, Gilead has the right, which they have exercised, to designate two members of ~~the significance~~our board of directors. This agreement also included a ~~particular input to the fair value measurement in its entirety requires management to make judgments~~three-year standstill and ~~consider factors specific to the asset or liability.~~

~~During the periods presented, the Company has not changed the manner in which it values assets and liabilities that are measured~~a two-year lockup, provided Gilead with registration rights commencing at ~~fair value. The Company recognizes transfers between levels of the fair value hierarchy as of~~ the end of the lockup period and provides Gilead with pro rata participation rights in certain future financings. In October 2022, we registered shares purchased by Gilead under the Stock Purchase Agreement and the First Stock Purchase Agreement Amendment and entered into the First Investor Rights Agreement Amendment, primarily to extend the two-year lockup period to three-years which expired on July 13, 2023. On January 29, 2024, under the Second Investor Rights Agreement Amendment, and in connection with the Third Stock Purchase Agreement Amendment, Gilead received the right, which they have exercised, to designate a third individual to be appointed to our board.

As of December 31, 2023, Gilead held approximately 19.6% of our outstanding common stock arising from purchases in our May 2020 public offering and purchases under the Stock Purchase Agreement and the First and Second Stock Purchase Agreement Amendments. As of January 31, 2024, after including shares purchased by Gilead under the Third Stock Purchase Agreement Amendment, Gilead held approximately 33.1% of our outstanding common stock.

Collaboration Agreements

In 2020, we entered into the Gilead Collaboration Agreement, which gave Gilead an exclusive license to develop and commercialize zimberelimab (the anti PD-1 program) in certain markets and time-limited options to acquire exclusive licenses to develop and commercialize any of our then-current and future clinical programs arising during the 10-year collaboration term, contingent upon $100 million option continuation payments payable on each of the second, fourth, sixth and eighth anniversaries of the agreement. Upon closing of the transaction in July 2020, Gilead made an upfront payment of $175 million.

In 2021, we entered into the First Gilead Collaboration Agreement Amendment pursuant to which Gilead exercised its option to three programs—providing Gilead with exclusive licenses to develop and commercialize domvanalimab and AB308 (collectively, the anti-TIGIT program), etrumadenant (the adenosine receptor antagonist program) and quemliclustat (the CD73 program), in certain markets—for a total payment of $725 million that was received in 2022. The amendment also (i) provided for a slight reduction in the royalties for these three programs, such that Gilead will pay us tiered royalties as a percentage of revenues ranging from the mid-teens to the low twenties; and (ii) removed the $100 million option continuation payment that was otherwise due on the second anniversary of the Gilead Collaboration Agreement.

Gilead's option, on a program-by-program basis, will expire after a prescribed period following the achievement of a clinical development milestone in such program and our delivery to Gilead of the requisite data package. Gilead may exercise its option to any program at any time prior to expiration of the option and will pay Arcus an option fee of $150 million per program. With respect to domvanalimab, we are also eligible to receive up to $500 million in potential U.S. regulatory approval milestones.

For each program that Gilead opts in to, both companies will co-develop and equally share global development costs, subject to certain opt-out rights that we have, caps on our spending and related subsequent adjustments, and certain other exceptions. For each program, provided we have not exercised our opt-out rights, we have the option to co-promote in the United States with equal sharing of related profits and losses. Gilead has the right to exclusively commercialize outside of the U.S., subject to the rights of our existing partners in any territories and will pay us tiered royalties as a percentage of revenues ranging from the high teens to the low twenties.

Under the First Gilead Collaboration Agreement Amendment, Gilead also has option rights to two oncology research programs for which we will lead discovery and early development activities. With respect to these two research programs, Gilead has the right to exercise its option, on a program-by-program basis, either (i) upon our completion of certain IND-enabling activities for an option payment of $60 million or (ii) following the achievement of a clinical development milestone for an option payment of $150 million. These research programs were not determined to be performance obligations at contract inception, due to the very early stages of the programs.

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In May 2023, we entered into the Second Gilead Collaboration Agreement Amendment pursuant to which we expanded our collaboration to provide Gilead with options to license up to four jointly selected research-stage programs that target inflammatory diseases for which we will lead discovery and early development activities. We will receive an upfront payment of $17.5 million for each initiated program and Gilead will have an option to license each program at two separate, prespecified time points. For the first two research programs, Gilead has the right to exercise its option, on a program-by-program basis, either (i) upon our completion of certain IND-enabling activities for an option payment of $45 million or (ii) following the achievement of a clinical development milestone for an option payment of $150 million. If Gilead exercises its option at the earlier time point for the first two programs, we would be eligible to receive up to $375 million in regulatory and commercial milestone payments as well as tiered royalties for each optioned program. For any other program option exercise by Gilead, the parties would have rights to co-develop and share global development costs and to co-commercialize and share profits in the U.S. for that program. We received a total upfront payment of $35 million for an initial two research programs in June 2023. For the other two research programs, Gilead’s options expire unless the programs are selected prior to the first anniversary of the Second Gilead Collaboration Agreement Amendment.

On January 29, 2024, we entered into the Third Gilead Collaboration Agreement Amendment. The Third Gilead Collaboration Agreement Amendment, among other things, (i) requires Gilead to pay the $100 million option continuation payment due on the fourth anniversary of the Gilead Collaboration Agreement, (ii) provides that we will operationalize and fund a Phase 3 study we plan to initiate to evaluate quemliclustat in pancreatic cancer, (iii) provides that we will solely fund our share of PACIFIC-8, subject to Gilead’s right to reinstate PACIFIC-8 as part of the parties’ joint development activities for the TIGIT Program in the first quarter of 2026, and (iv) provides that we will fund certain other activities. All other terms of the existing collaboration agreements, remain unchanged. We are evaluating the impact of this amendment under the accounting rules for contract modifications as a change in scope or price of the original contract. Once we determine that a contract has been modified, the modification may be required to be treated as separate, standalone contract, or combined with the original contract. In addition, some modifications are accounted for on a prospective basis and others on a cumulative catch-up basis.

As of December 31, 2023, Gilead has licenses to domvanalimab, AB308, etrumadenant, quemliclustat and zimberelimab.

For the years ended December 31, 2023, 2022 and 2021; we recognized revenue under the Gilead Agreements of $112 million, $107 million and $361 million, respectively and net reimbursements from Gilead recognized as reductions in R&D expense of $110 million, $132 million and $25 million, respectively. For the year ended December 31, 2022, we recognized reimbursements from Gilead as reductions in G&A expense of $1 million.

For a more detailed discussion on revenues recognized under the Gilead Agreements, see Note 5, Revenues.

Note 4. License and collaborations

We enter into licensing agreements, strategic collaborations and other similar arrangements with third parties for the development and commercialization of certain investigational products. These arrangements may be collaborative and involve two or more parties who are active participants in the operating activities of the collaboration and are exposed to significant risks and rewards depending on the commercial success of the activities. These arrangements may include: non-refundable upfront payments; payments for options to acquire certain rights; potential development and regulatory milestone payments and/or sales-based milestone payments; royalty payments; revenue or profit-sharing arrangements; expense reimbursements; and cost-sharing arrangements. See Note 2, Summary of significant accounting policies, for additional discussion of revenues recognized under these types of arrangements.

Operating expenses for costs incurred pursuant to these arrangements are reported in their respective expense line items in the Consolidated Statements of Operations, net of any payments due to or reimbursements due from our collaboration partners, with such reimbursements being recognized at the time the party becomes obligated to pay. Our significant arrangements are discussed below.

Gilead Collaboration

See Note 3, Related party - Gilead Sciences, Inc.

Taiho Collaboration

In 2017, we entered into an agreement with Taiho under which we granted them exclusive options to programs arising over a five-year period which ended in September 2022 for an upfront payment of $35 million. Upon an option exercise of a program, Taiho would obtain exclusive development and commercialization rights to investigational products under the program for the Taiho Territory.

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For each option that Taiho exercises, they will be obligated to make a payment of $3 million to $15 million, depending on the development stage of the optioned program. Upon exercise, Taiho is solely responsible for continued development and commercialization in the Taiho Territory. In addition, for each optioned program we would be eligible to receive clinical and regulatory milestones of up to $130 million and commercial milestone payments of up to $145 million with the achievement of certain sales thresholds in the Taiho Territory. We will also receive royalties ranging from high single-digits to mid-teens on net sales of licensed products in the Taiho Territory. Royalties will be payable by product and country commencing on the first commercial sale and ending upon the later of: (a) 10 years; and (b) expiration of the last-to-expire valid claim of our patents covering the manufacture, use or sale.

As of December 31, 2023, Taiho has licenses for the Taiho Territory to (i) etrumadenant (the adenosine receptor antagonist program); (ii) zimberelimab (the anti PD-1 program); and (iii) domvanalimab and AB308 (collectively, the anti-TIGIT program).

During 2022, Taiho opted to participate in two global Phase 3 trials of domvanalimab and zimberelimab combinations, STAR-121 and STAR-221, and became obligated to make certain milestone payments contingent upon successfully satisfying the related clinical milestones. During the year ended December 31, 2023, the clinical milestones for domvanalimab and zimberelimab for the STAR-221 study were met and Taiho became obligated to pay us $28 million and in early 2024 the clinical milestones for domvanalimab and zimberelimab for the STAR-121 study were met and Taiho became obligated to pay us $26 million.

For each of the years ended December 31, 2023, 2022 and 2021, we recognized revenue of $5 million, $5 million and $22 million, respectively, under this agreement. For a more detailed discussion on revenues see Note 5, Revenues.

For the year ended December 31, 2023, we recognized net reimbursements from Taiho as a reduction in R&D expense of $8 million.

AstraZeneca Collaboration

In 2020, we entered into a collaboration with AstraZeneca to evaluate domvanalimab, our investigational anti-TIGIT antibody, in combination with AstraZeneca’s durvalumab in a registrational Phase 3 clinical trial in patients with unresectable Stage 3 NSCLC, known as the PACIFIC-8 trial. The terms of the agreement were amended in January 2024. Under the collaboration, as amended, each company will retain existing rights to their respective molecules and any future commercial economics. AstraZeneca will conduct the trial, and each company will supply their respective investigational product to support the trial. We may incur milestones of up to $24 million upon the achievement of certain clinical trial progress milestones or under certain circumstances if the agreement is terminated early and we will reimburse AstraZeneca annually for a portion of the trial costs. The portion of the costs that we consider to be unavoidable are accrued as incurred and milestones that are deemed probable of occurring are accrued in advance of the achievement of the milestone.

For the years ended December 31, 2023, 2022 and 2021 under this arrangement we recognized as R&D expense $6 million, $4 million, and $1 million respectively, before expected recoveries from our cost-sharing agreement with Gilead. At December 31, 2023 and 2022, we have recognized liabilities of $11 million and $5 million, respectively, related to our obligation to AstraZeneca which is recorded in Other noncurrent liabilities.

As of December 31, 2023, the PACIFIC-8 trial formed part of the Arcus and Gilead joint development program for domvanalimab and our portion of the trial costs were shared with Gilead. At December 31, 2023 and 2022, we have recognized receivables due from Gilead for these shared costs of $6 million and $2 million, respectively, which is recorded in Other noncurrent assets. On January 29, 2024, under the Third Gilead Collaboration Agreement Amendment, we agreed to solely fund our share of PACIFIC-8, subject to Gilead’s right to reinstate PACIFIC-8 as part of the parties’ joint development activities for the TIGIT Program in the first quarter of 2026. On the date of this amendment, we will incur $6 million of R&D costs reflecting our additional share of incurred costs to date.

WuXi Biologics License – anti-PD-1

In 2017, we entered into an agreement with WuXi Biologics which, as amended, provides us with exclusive rights to (i) develop, use and manufacture products that include an anti-PD-1 antibody, including zimberelimab, worldwide and (ii) commercialize any such products worldwide, except in Greater China. Under the agreement, as of December 31, 2023 we may incur (i) regulatory milestone payments of up to $50 million for zimberelimab, and commercialization milestone payments of up to $375 million, (ii) tiered royalties that range from the high single-digits to low teens on net sales of the licensed products and (iii) fees related to any sublicenses.

During the year ended December 31, 2021, we incurred milestones of $10 million related to this agreement which were recorded as R&D expense.

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WuXi Biologics License – anti-CD39

In 2020, we entered into an agreement with WuXi Biologics, under which we obtained the exclusive worldwide license to develop and commercialize anti-CD39 antibodies discovered under the agreement. As of December 31, 2023 we may incur additional clinical and regulatory milestone payments of up to $14 million and royalty payments in the low single digits on net sales of the licensed products under this agreement.

During the years ended December 31, 2023 and 2022, we incurred development milestones of $1 million and $2 million, respectively, related to this agreement, which were recognized as R&D expense.

Abmuno License

In 2016, we entered into an agreement with Abmuno, under which we obtained the exclusive worldwide license to develop, use, manufacture, and commercialize products that include an anti-TIGIT antibody, including domvanalimab. Under the agreement, as of December 31, 2023 we may incur additional clinical, regulatory and commercialization milestone payments of up to $88 million.

During the years ended 2022 and 2021, we incurred development milestone expenses of $5 million and $5 million, respectively, related to this agreement, which were recorded as R&D expense.

Exelixis Collaboration

In 2023, we entered into a clinical trial collaboration with Exelixis for STELLAR-009, a Phase 1b/2 trial to evaluate casdatifan, our investigational inhibitor of the transcription factor HIF-2⍺, in combination with Exelixis’s zanzalintinib, a next-generation tyrosine kinase inhibitor, in patients with ccRCC. Under the collaboration, each company will retain existing rights to their respective molecules and any future commercial economics. Exelixis will conduct the STELLAR-009 trial, and each company will supply their respective investigational product to support the trial. We will reimburse Exelixis for a portion of the trial costs. Patient enrollment for STELLAR-009 opened at the end of 2023.

For the year ended December 31, 2023, we recognized R&D expense of $3 million under this arrangement.

Note 5. Revenues

The following table summarizes our revenues by collaboration, category of revenue, and the method of recognition (in millions):


			Year Ended December 31,
	Over time	Point in time	2023		2022		2021
Gilead Collaboration
License to domvanalimab		*	$	—	$	—	$	329
License and R&D services	*		79		74		1
Access rights	*		33		33		31
Taiho Collaboration
License to domvanalimab		*	—		—		15
R&D services	*		5		—		—
Access rights	*		—		5		7
Total revenues			$	117	$	112	$	383

Revenues from Gilead accounted for 96% of Total revenues for both years ended December 31, 2023 and 2022, and 94% of Total revenues for the year ended December 31, 2021.

The following table summarizes the revenue recognized as a result of changes in the deferred revenue balance (in millions):


	Year Ended December 31,
	2023		2022		2021
Revenue recognized from amounts in deferred revenue at the beginning of the period	$	108	$	112	$	202

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We had $398 million and $452 million of deferred revenue remaining on our Consolidated Balance Sheets at December 31, 2023 and December 31, 2022, respectively, allocated between current and noncurrent based on the expected timing of future recognition.

Revenue from the Gilead Collaboration

In 2021, we determined that the First Gilead Collaboration Agreement Amendment represented a contract modification and at the amendment closing date of December 21, 2021, we allocated the transaction price to the new and remaining performance obligations (see Note 3, Related party - Gilead Sciences, Inc., for more information). The following table summarizes the transaction price and the allocation of the transaction price to the performance obligations (in millions):


Transaction price	Amount
Deferred revenues as of December 21, 2021	$	165
Option payment for Domvanalimab	275
Option payment for Etrumadenant	250
Option payment for Quemliclustat	200
Total transaction price	$	890

Allocation to performance obligations

Distinct

Combined

Amount

Domvanalimab - License

329

Domvanalimab - R&D services

Etrumadenant - License and R&D services

219

Quemliclustat - License and R&D services

176

Zimberelimab - R&D and commercial services

Access rights

Option continuation periods

Total allocated transaction price

890

Our assessment of the transaction price for the First Gilead Collaboration Agreement Amendment included an analysis of amounts we expected to receive, which at contract inception consisted of the upfront cash payment of $725 million, as well as amounts totaling $165 million deferred from the original Gilead transaction. This excludes the $100 million option continuation payment that was eliminated in the amendment. We determined the entire $890 million to be the allocable transaction price as of the amendment closing date, due to the history of timely payments by Gilead including the receipt of $725 million in January 2022.

We accounted for each performance obligation as follows:

Domvanalimab – License

Under the Gilead Collaboration Agreement, Gilead obtained an option to the exclusive rights to our anti-TIGIT program, including domvanalimab and AB308, in exchange for an option payment of $275 million, if exercised. Prior to the closing of the First Gilead Collaboration Agreement Amendment, we had $37 million of deferred revenue on our Consolidated Balance Sheet related to this performance obligation.

Effective December 2021, under the First Gilead Collaboration Agreement Amendment, Gilead exercised the option and obtained an exclusive license to domvanalimab. We determined that this license was distinct based on an evaluation of the delivery of the license, noting that the program was in the later stages of development and it met the criteria for being distinct from the R&D services required under the First Gilead Collaboration Agreement Amendment. Specifically, the domvanalimab program was in a Phase 3 clinical trial at the time that Gilead acquired the license and the Company concluded that: (i) the R&D services for such later-stage, Phase 3 IP, primarily involved validating the drug’s efficacy, and (ii) the ongoing R&D services do not significantly modify or customize the drug compound such that the IP is not significantly different at the end of the arrangement as a result of the services. We determined the standalone selling price of this license using a discounted cash flow method.

We recognized as revenue the full $329 million of the allocated transaction price in the year ended December 31, 2021.

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Domvanalimab – R&D Services

Under the First Gilead Collaboration Agreement Amendment, we determined that we retain a separate performance obligation to perform further R&D services for Gilead related to domvanalimab. The standalone selling price of this obligation was determined using an expected cost-plus margin approach. We recognize the amounts allocated to these services as the performance obligation is satisfied, calculated as an estimated percentage of completion based on management's estimated total effort for the program.

We recognized $5 million in both years ended December 31, 2023 and 2022 within License and development services revenue in our Consolidated Statements of Operations. No revenue was recognized in 2021 as the R&D services had not yet commenced. At December 31, 2023 we had $25 million of deferred revenue remaining on our Consolidated Balance Sheet related to this performance obligation.

Etrumadenant – License and R&D Services

Under the Gilead Collaboration Agreement, Gilead obtained an option to the exclusive rights to our adenosine receptor program, etrumadenant, in exchange for an option payment of $250 million, if exercised. Prior to the closing of the First Gilead Collaboration Agreement Amendment, we had $127 million of deferred revenue on our Consolidated Balance Sheet related to this performance obligation.

Effective December 2021, under the First Gilead Collaboration Agreement Amendment, Gilead exercised the option and obtained an exclusive license to etrumadenant and we were also obligated to perform further R&D services for Gilead related to etrumadenant. We determined that the license and R&D services were combined based on an evaluation of the delivery of the license, due to the early stage of the technology and the specialized nature of our know-how. We determined the standalone selling price of the license using a discounted cash flow method and the R&D services using an expected cost-plus margin approach. We recognize the amounts allocated to the combined license and services as the performance obligation is satisfied, calculated as an estimated percentage of completion based on management's estimated total effort for the program.

We recognized $52 million and $34 million in the years ended December 31, 2023 and 2022, respectively, within License and development service revenue in our Consolidated Statements of Operations. No revenue was recognized in 2021 as the R&D services had not yet commenced. At December 31, 2023 we had $133 million of deferred revenue remaining on our Consolidated Balance Sheet related to this performance obligation.

Quemliclustat – License and R&D Services

Under the Gilead Collaboration Agreement, Gilead obtained an option to the exclusive rights to the Company's CD73 program, quemliclustat, in exchange for an option payment of $200 million, if exercised. Prior to the closing of the First Gilead Collaboration Agreement Amendment, we had no deferred revenue on our Consolidated Balance Sheet related to this performance obligation.

Effective December 2022, under the First Gilead Collaboration Agreement Amendment, Gilead exercised the option and obtained an exclusive license to quemliclustat and we were also obligated to perform further R&D services for Gilead related to quemliclustat. We determined that the license and R&D services were combined based on an evaluation of the delivery of the license, due to the early stage of the technology and the specialized nature of our know-how. We determined the standalone selling price of the license using a discounted cash flow method and the R&D services using an expected cost-plus margin approach. We recognize the amounts allocated to the combined license and services as the performance obligation is satisfied, calculated as an estimated percentage of completion based on management's estimated total effort for the program.

We recognized $17 million and $26 million in the years ended December 31, 2023 and 2022, respectively, within License and development service revenue in our Consolidated Statements of Operations. No revenue was recognized in 2021 as the R&D services had not yet commenced. At December 31, 2023 we had $132 million of deferred revenue remaining on our Consolidated Balance Sheet related to this performance obligation.

Zimberelimab – R&D and Commercialization Services

Under the First Gilead Collaboration Agreement Amendment, we determined that we retained separate performance obligations to perform further R&D and commercialization services for Gilead related to zimberelimab, as a monotherapy and in combination with other agents. Prior to the closing of the First Gilead Collaboration Agreement Amendment, we had $10 million of deferred revenue on our Consolidated Balance Sheet, related to these performance obligations. The standalone selling price of these obligations were determined using an expected cost-plus margin approach. We recognize the amounts allocated to these services as the performance obligations are satisfied, calculated as an estimated percentage of completion based on management's estimated total effort for the program.

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We recognized $1 million, $9 million, and $1 million for R&D and commercialization services in the years ended December 31, 2023, 2022, and 2021, respectively, within License and development service revenue in our Consolidated Statements of Operations. At December 31, 2023, the performance obligation was fully satisfied and all revenue has been recognized.

Access Rights and Option Continuation Periods

Under the First Gilead Collaboration Agreement Amendment, Gilead has exclusive access to our current programs as well as the future programs for a period of ten years, contingent upon option continuation payments totaling $300 million, consisting of a $100 million payment on each of the fourth, sixth, and eighth anniversaries of the Gilead Collaboration Agreement.

Prior to the closing of the First Gilead Collaboration Agreement Amendment, we had $92 million of deferred revenue on our Consolidated Balance Sheet related to this performance obligation from the Gilead Collaboration Agreement.

The standalone selling price of this ongoing R&D pipeline access was determined using an expected cost-plus margin approach. We use a time-elapsed input method to measure progress toward satisfying this obligation, which is the method we believe most faithfully depicts the Company’s performance in transferring the promised services during the time period in which Gilead has access to our R&D pipeline. Accordingly, the revenue allocated to this performance obligation is being recognized using this input method over the minimum four-year period. We determined that as of the closing date of December 21, 2021, Gilead is not obligated to pay the remaining $300 million due over the remainder of the term and excluded these payments from the transaction price. Failure to pay the non-obligatory option continuation payments will result in Gilead’s loss of certain rights to access and obtain licenses to the programs arising from our R&D pipeline.

See Note 3. Related party - Gilead Sciences, Inc., for a description of the amendment that occurred on January 29, 2024, which requires Gilead to pay the $100 million option continuation payment due on the fourth anniversary of the Gilead Collaboration Agreement.

We recognized as revenue $33 million associated with this performance obligation in both years ended December 31, 2023 and 2022, and $31 million in the year ended December 31, 2021 within Other collaboration revenue in our Consolidated Statements of Operations. At December 31, 2023, we had $54 million of deferred revenue on our Consolidated Balance Sheet related to this performance obligation.

Inflammation Programs - R&D Services

Allocation to performance obligations

Distinct

Amount

Inflammation target 1 - R&D services

Inflammation target 2 - R&D services

Total allocated transaction price

We determined that we have separate performance obligations to perform R&D services for Gilead related to discovery and early development activities for each research program for which they have made an upfront payment. The standalone selling price of these obligations was determined using an expected cost-plus margin approach. We recognize the amounts allocated to these services as the performance obligation is satisfied, calculated as an estimated percentage of completion based on management's estimated total effort for the program. The options to acquire additional licenses or services did not result in additional performance obligations because they did not provide a material right at contract inception, primarily due to the very early stages of the programs.

We recognized revenue of $4 million for the year ended December 31, 2023, respectively, within Other collaboration revenue in our Consolidated Statements of Operations. At December 31, 2023, we had $31 million of deferred revenue remaining on our Consolidated Balance Sheet related to these performance obligations.

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Revenue from the Taiho Collaboration

Domvanalimab and Zimberelimab - R&D Services

In 2023, under the Taiho collaboration, certain clinical milestones for domvanalimab and zimberelimab were met through the STAR-221 study and Taiho became obligated to pay us $28 million, of which $14 million was paid the in the fourth quarter 2023 and the remaining $14 million is recorded in Receivable from collaboration partners at December 31, 2023 on our Consolidated Balance Sheet. We determined that we have a performance obligation to perform R&D services for Taiho related to the global development activities for the STAR-221 study in support of the Taiho Territory. We allocated the $28 million to this single performance obligation and recognize the amounts allocated to this service as the performance obligation is satisfied, calculated as an estimated percentage of completion based on management's estimated total effort for the programs.

We recognized revenue of $5 million for the year ended December 31, 2023 within License and development service revenue in our Consolidated Statements of Operations. At December 31, 2023, we had $23 million of deferred revenue remaining on our Consolidated Balance Sheet related to this performance obligation, allocated between current and noncurrent based on the expected timing of future recognition.

In early 2024, the clinical milestones for domvanalimab and zimberelimab for the STAR-121 study were met and Taiho became obligated to pay us $26 million. We have not recognized any revenue for this milestone for the year ended December 31, 2023.

Note 6. Income taxes

Income (loss) before income taxes included the following (in millions):


	Year Ended December 31,
	2023		2022		2021
Domestic	$	(301)	$	(267)	$	54
Foreign	—		1		1
Income (loss) before income tax	$	(301)	$	(266)	$	55

The provision for income taxes included the following (in millions):


	Year Ended December 31,
	2023		2022		2021
Current provision:
Federal	$	4	$	—	$	1
State	2		1		1
Total income tax expense	$	6	$	1	$	2

The reconciliation between the federal statutory income tax rate and our effective tax rate was as follows:


	Year Ended December 31,
	2023		2022		2021
Federal statutory income tax rate	21.0	%	21.0	%	21.0	%
State taxes, net of federal benefit	(0.7)	%	(0.1)	%	0.8	%
Equity investment	0.4	%	0.9	%	(4.1)	%
Research and development credits	5.2	%	3.1	%	(11.9)	%
Change in valuation allowance	(26.3)	%	(24.5)	%	(2.6)	%
Stock based compensation	(2.1)	%	0.1	%	(0.8)	%
Non-deductible expenses and other	0.5	%	(0.6)	%	0.9	%
Provision for income taxes	(2.0)	%	(0.1)	%	3.3	%

Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting ~~period.~~purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards.

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Significant components of our deferred tax assets and liabilities were as follows (in millions):


	Year Ended December 31,
	2023		2022
Deferred tax assets:
Federal and state net operating loss carryforwards	$	1	$	24
Research and development credits carryforwards	26		22
Stock-based compensation	21		16
Depreciation and amortization	3		6
Deferred revenue	66		19
Lease liability	26		25
Capitalized research and development costs	109		53
Other	1		7
Total deferred tax assets	253		172
Deferred tax liabilities:
Right-of-use assets	(20)		(22)
Total deferred tax liabilities	(20)		(22)
Less valuation allowance	(233)		(150)
Net deferred tax assets (liabilities)	$	—	$	—

The accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of net deferred tax assets. We considered factors such as our history of operating losses, the nature of our deferred tax assets, and the timing, likelihood and amount, if any, of future taxable income during the periods in which those temporary differences and carryforwards become deductible, including amounts that may arise under the collaboration agreements with Gilead and related program opt-ins. As a result of our evaluation of these factors, including the uncertainty that exists with respect to the option fees and milestone payments, we do not believe that it is more likely than not that the deferred tax assets will be realized. Accordingly, a full valuation allowance has been established and no deferred tax asset is shown in the accompanying Consolidated Balance Sheets. The valuation allowance increased by approximately $83 million for the year ended December 31, 2023 and increased by approximately $67 million for the year ended December 31, 2022.

The United States enacted the Tax Cuts and Jobs Act in December 2017, which requires companies to capitalize all of their R&D costs for U.S. tax purposes, including software development costs, incurred in tax years beginning after December 21,2021. Beginning in 2022, for tax purposes we began capitalizing and amortizing R&D costs over a five-year period for domestic research and a fifteen-year period for international research rather than expensing these costs immediately.

At December 31, 2023, we have federal research tax credits of approximately $24 million that begin to expire in 2039. We also have state NOLs of approximately $21 million that begin to expire in 2035, and state research tax credits of approximately $15 million that have no expiration date, and foreign research tax credits of approximately $3 million that have no expiration date. Use of the U.S. federal and state NOLs and credit carryforwards may be subject to a substantial annual limitation due to the ownership change provisions of U.S. tax law, as defined in IRC Sections 382 and 383, and similar state provisions. The annual limitation may result in the expiration of NOLs and credits before use. We have determined that an ownership change, as defined under IRC Section 382, occurred in previous years. While we do not expect these ownership changes to result in the expiration of net operating loss and credit carryforwards prior to utilization, we are subject to an annual limitation on the use of its tax attributes. The limitation on the use of net operating loss and credit carryforwards could reduce our ability to use a portion of the tax attributes to offset future taxable income.

We have not been audited by the Internal Revenue Service, any state or foreign tax authority. We are subject to taxation in the United States and in Australia. Due to net operating loss and research credit carryforwards, all of our tax years, from 2015 to 2023, remain open to U.S. federal and California state tax examinations. In addition, our fiscal years from 2019 to 2023 are open to examination in Australia.

Uncertain Tax Positions

We follow the provisions of FASB Accounting Standards Codification ("ASC 740-10"), Accounting for Uncertainty in Income Taxes. ASC 740-10 prescribes a comprehensive model for the recognition, measurement,

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presentation and disclosure in financial statements of uncertain tax positions that have been taken or are expected to be taken on a tax return. No liability related to uncertain tax positions is recorded in the Consolidated Financial Statements. The reserve for unrecognized tax benefits was approximately $13 million and $8 million at December 31, 2023, and 2022, respectively.

Due to the full valuation allowance at December 31, 2023 and 2022, current adjustments to the unrecognized tax benefit will have no impact on our effective income tax rate; any adjustments made after the valuation allowance is released will have an impact on the tax rate.

Interest and penalties related to unrecognized tax benefits are included in the provision for income taxes. There were ~~0 transfers within~~no material interest or penalties accrued at December 31, 2023 or 2022.

The following table summarizes the ~~hierarchy~~activity related to our unrecognized tax benefits (in millions):


	Year Ended December 31,
	2023		2022
Beginning balance	$	8	$	5
Additions for tax positions taken in prior year	2		—
Additions for tax positions taken in current year	3		3
Ending balance	$	13	$	8

As of December 31, 2023, the total amount of gross unrecognized tax benefits was $13 million, of which, if recognized, none would impact our effective tax rate. We do not anticipate material changes to our uncertain tax positions through the next 12 months.

Note 7. Net income (loss) per share

The computation of basic net income (loss) per share is based on the weighted-average number of our common shares outstanding during the period. The computation of diluted net income (loss) per share is based on the weighted-average number of our common shares and dilutive potential common shares, which primarily include shares that may be issued under our stock option, restricted stock award, and Employee Stock Purchase Plans ("ESPP") (collectively, "dilutive securities") as determined under the treasury stock method.

The following table sets forth the computation of basic and diluted net income (loss) per share (in millions, except per share data):


	Year Ended December 31,
	2023		2022		2021
Net income (loss) (Numerator):
Net income (loss)	$	(307)	$	(267)	$	53
Weighted-average shares (Denominator):
Outstanding	74.0		72.0		70.3
Less: Subject to vesting	—		—		(1.0)
Weighted-average shares for basic EPS	74.0		72.0		69.3
Effect of dilutive securities	—		—		4.7
Weighted-average shares for diluted EPS	74.0		72.0		74.0

Net income (loss) per share
Basic	$	(4.15)	$	(3.71)	$	0.76
Diluted	$	(4.15)	$	(3.71)	$	0.71

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The following table summarizes potentially dilutive securities excluded from the computation of diluted net income (loss) per share calculations because they would have been antidilutive (in millions):


	At December 31,
	2023	2022	2021
Common stock options issued and outstanding	13.5	12.0	4.5
Restricted stock units issued	1.5	1.3	—
Employee Stock Purchase Plan shares	0.3	0.2	0.1
Total potential dilutive securities	15.3	13.5	4.6

We have also excluded the effect of Gilead's right to purchase additional shares of our common stock from the calculation as these rights had no intrinsic value at December 31, 2023, 2022 or 2021.

Note 8. Stock-based compensation

Stock-based compensation expense

The following table reflects the components of stock-based compensation expense recognized in our Consolidated Statements of Operations (in millions):


	Year Ended December 31,
	2023		2022		2021
Research and development	$	35	$	33	$	29
General and administrative	38		32		26
Total stock-based compensation	$	73	$	65	$	55

As of December 31, 2023, unrecognized compensation costs related to non-vested stock option awards and RSUs totaled $73 million and $35 million, respectively, and is expected to be recognized over a weighted average period of 2.2 years and 2.4 years, respectively.

Stock Plans

We grant awards to employees and nonemployees under a series of equity incentive plans (collectively, the Stock Plans). Awards under our Stock Plans are made with newly issued shares reserved for this purpose.

2020 Stock Plan

In January 2020, we adopted the 2020 Inducement Plan (the "2020 Stock Plan") for the award of stock options and other equity-based awards as an inducement to eligible individuals to enter into employment with us. As of December 31, 2023, there were 3.2 million shares available for grant under this plan.

2015 Stock Plan and 2018 Equity Incentive Plan

In 2015, we adopted the 2015 Stock Plan, which in March 2018, we replaced with the 2018 Equity Incentive Plan (the "2018 Equity Incentive Plan"). Any outstanding awards under the 2015 Stock Plan that subsequently expire, lapse unexercised or are forfeited to us are added to the shares reserved for issuance under the 2018 Equity Incentive Plan. The number of shares reserved for issuance will automatically increase on January 1 of each year by a number equal to or the smaller of (i) 3.6 million shares, (ii) 4% of the shares of common stock outstanding on the last business day of the prior fiscal year, or (iii) an amount as determined by the board of directors. As of December 31, 2023, there were 3.8 million shares available for grant under this plan. On January 1, 2024, the number of shares available for issuance under the 2018 Equity Incentive Plan automatically increased by 3.0 million.

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Employee Stock Purchase Plan

In March 2018, we adopted the 2018 Employee Stock Purchase Plan (the "2018 ESPP"). The 2018 ESPP provides eligible employees with the opportunity to purchase shares of common stock through payroll deductions at a price equal to 85% of the lower of the fair market value per share on the first trading day of the applicable 24-month offering period or on the applicable purchase date. Employees are limited to a maximum purchase limit of 3,000 shares on each purchase date or $25,000 of shares purchased in a calendar year based on the stock price on the first day of the offering period. The 2018 ESPP is intended to constitute an “employee stock purchase plan” under IRC Section 423(b). The 2018 ESPP may be terminated by our board of directors at any time. The number of shares reserved for issuance will automatically increase on January 1 of each year by a number equal to or the smaller of (i) 1.1 million shares, (ii) 1% of the shares of common stock outstanding on the last business day of the prior fiscal year, or (iii) an amount as determined by the board of directors. As of December 31, 2023, there were 2.4 million shares available for purchase under this plan. On January 1, 2024, the number of shares available for purchase under this Plan automatically increased by 0.8 million shares.

Restricted Stock Units

We grant RSUs to our employees and directors under the 2018 Equity Incentive Plan. The RSUs vest annually or quarterly over four years for employees and annually for directors. The following table summarizes information regarding our RSUs for the year ended December 31, 2023:


	Total Restricted Stock Units (in millions)	Weighted Average Grant Date Fair Value Per Share
Nonvested at December 31, 2022	1.3	$	31.09
RSUs granted	1.1	$	21.02
RSUs vested	(0.7)	$	28.93
RSUs forfeited or canceled	(0.2)	$	25.70
Nonvested at December 31, 2023	1.5	$	25.43

The total fair value of shares at vesting date during the years ended December 31, ~~2020~~2023, 2022 and ~~2019.~~2021 was $13 million, $12 million and $12 million, respectively.

Stock Options

The exercise price of stock options is set at the closing price of our common stock on the grant date, and the related number of shares granted is fixed at that point in time. Awards expire 10 years from the date of grant. The following ~~tables set forth~~table summarizes information regarding our stock options for the ~~Company’s financial instruments (excluding restricted cash) that were measured at fair~~year ended December 31, 2023:


	Shares Subject to Outstanding Options (in millions)	Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in millions)
Outstanding at December 31, 2022	12.0	$	21.77
Options granted	2.9	$	21.21
Options exercised	(0.3)	$	10.08
Options forfeited or canceled	(1.1)	$	29.26
Outstanding at December 31, 2023	13.5	$	21.31	7.05	$	39
Options vested and expected to vest as of December 31, 2023	13.5	$	21.31	7.05	$	39
Options exercisable as of December 31, 2023	9.0	$	19.41	6.38	$	38

During the years ended December 31, 2023, 2022 and 2021, the intrinsic value ~~on a recurring basis by level within~~of shares exercised was $3 million, $26 million, and $17 million, respectively.

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Valuation Assumptions for Stock Options and Employee Stock Purchase Plan

We utilize the Black-Scholes pricing model to estimate the fair value ~~hierarchy (in thousands):~~

of stock options and shares issued under our 2018 ESPP. The following table summarizes the key assumptions used to calculate the fair value and the resulting weighted-average grant date fair value of stock options granted:

December 31, 2020

Total

Level 1

Level 2

Level 3

Money market funds

$
146,468

$
146,468

$
-

$
-

U.S. treasury securities

301,112

-

301,112

-

U.S. government agency obligations

25,001

-

25,001

-

Corporate securities and commercial paper

262,505

-

262,505

-

Total assets measured at fair value

$
735,086

$
146,468

$
588,618

$
-


	Year Ended December 31,
Stock Options	2023		2022		2021
Weighted average closing price of our common stock on grant date	$	21.21	$	30.37	$	33.03
Risk-free interest rate	3.6% - 4.6%		2.4% - 4.0%		1.0% - 1.4%
Expected term (in years)	6.02		6.02		6.02
Volatility	77.7% - 79.1%		76.5% - 79.3%		75.3% - 77.6%
Dividend yield	0%		0%		0%
Weighted average fair value of stock options granted	$	14.81	$	20.75	$	22.05

December 31, 2019

Total

Level 1

Level 2

Level 3

Money market funds

$
45,498

$
45,498

$
-

$
-

U.S. treasury securities

74,854

-

74,854

-

Corporate securities and commercial paper

67,918

-

67,918

-

Total assets measured at fair value

$
188,270

$
45,498

$
142,772

$
-


	Year Ended December 31,
ESPP	2023	2022	2021
Risk-free interest rate	4.3% - 5.4%	1.6% - 4.7%	—% - 0.6%
Expected term (in years)	0.5 - 2.0	0.5-2.0	0.5-2.0
Volatility	61.1% - 86.9%	68.9% - 82.5%	61.2% - 95.7%
Dividend yield	0%	0%	0%

~~Classified as (with~~

Weighted average closing price of our common stock on grant date — Our awards are valued based on the closing price of our common stock on the grant date.

Risk-free interest rate — The risk-free rate assumption is based on the U.S. treasury yield in effect at the time of grant for instruments with maturities similar to the expected term of our stock options.

Expected term — We use the “simplified method” for estimating the expected term of options, whereby the expected term equals the arithmetic average of the vesting term and the original contractual ~~maturities):~~

Year Ended December 31,

2020

2019

Cash and cash equivalents

$
173,415

$
57,937

Short-term investments (due within one year)

555,231

130,333

Long-term investments (due between one and two
years)

6,440

-

$
735,086

$
188,270

term of the option (generally 10 years).

Volatility — Our estimate of expected volatility is based on the historical volatility of our common stock price. Prior to 2023, due to our limited operating history and a lack of company specific historical and implied volatility data, our estimate of expected volatility included the historical volatility of a group of similar publicly traded companies. The ~~investments are classified as available-for-sale marketable securities. At~~historical volatility data was computed using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated expected term of the stock-based awards.

Dividend yield — We have not issued any dividends in our history and do not expect to issue dividends over the life of the options.

Note 9. Defined Contribution Plan

We have a 401(k) defined contribution plan for all our employees which allows tax-deferred salary deductions. The Company matches, at its discretion, employee contributions. For the years ended December 31, ~~2020~~2023, 2022, and ~~2019,~~2021, we made contributions of $3 million, $2 million and $1 million, respectively, to the ~~balance~~plan.

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Note 10. Cash, cash equivalents and marketable securities

The following table summarizes the amortized cost, gross unrealized gains and losses and the fair value of our cash, cash equivalents and marketable securities, all of which are considered available for sale, by type of securities (in millions):


Types of securities as of December 31, 2023	Amortized Cost		Unrealized Gain		Unrealized Loss		Fair Value
Money market funds	$	85	$	—	$	—	$	85
U.S. treasury securities	213		1		(1)		213
Corporate securities and commercial paper	471		—		—		471
U.S. government agency securities	90		—		—		90
Certificate of deposit	7		—		—		7
Total cash, cash equivalents and marketable securities	$	866	$	1	$	(1)	$	866


Types of securities as of December 31, 2022	Amortized Cost		Unrealized Gain		Unrealized Loss		Fair Value
Money market funds	$	169	$	—	$	—	$	169
U.S. treasury securities	317		—		(3)		314
Corporate securities and commercial paper	635		—		(4)		631
U.S. government agency securities	20		—		—		20
Certificate of deposit	4		—		—		4
Total cash, cash equivalents and marketable securities	$	1,145	$	—	$	(7)	$	1,138

The following table summarizes the fair values of our cash, cash equivalents and marketable securities by location in the ~~Company’s accumulated other comprehensive loss comprised activity related to the Company’s available-for-sale marketable securities. There were immaterial realized~~Consolidated Balance Sheets and contractual maturity (in millions):


	Contractual Maturity	As of December 31,
Location in Consolidated Balance Sheets		2023		2022
Cash and cash equivalents	—	$	127	$	206
Marketable securities	Within one year	632		803
Long-term marketable securities	Between one and three years	107		129
Total cash, cash equivalents and marketable securities		$	866	$	1,138

Realized gains or losses recognized on the sale of available-for-sale marketable securities ~~during the year ended December 31, 2020 and NaN during~~were not material for the years ended December 31, ~~2019~~2023, 2022 and ~~2018, respectively. As~~2021. Realized gains and losses are included in Interest and other income, net, in the Consolidated Statements of Operations. The cost of a ~~result,~~security sold is determined using the ~~Company did 0t reclassify any amounts out~~specific-identification method.

We limit the credit risk associated with our investments by placing them with banks and institutions we believe are highly credit worthy and investing in highly rated investments. We held a total of ~~accumulated other comprehensive loss for the periods then ended. The Company has a limited number of available-for-sale marketable~~105 and 219 positions in securities which were in unrealized loss positions as of December 31, ~~2020, which the Company does~~2023 and 2022, respectively. We do not intend to sell our securities with unrealized loss positions and ~~has~~have concluded itwe will not be required to sell the securities before recovery of the amortized cost for the investment at maturity. No credit related losses have been recognized for any of the periods presented.

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The ~~fair~~following table provides a reconciliation of cash, cash equivalents, and restricted cash within the Consolidated Balance Sheets to the total shown in the Consolidated Statements of Cash Flows (in millions):


	As of December 31,
	2023		2022
Cash and cash equivalents	$	127	$	206
Restricted cash (included in Other noncurrent assets)	3		3
Total cash, cash equivalents and restricted cash	$	130	$	209

Restricted cash at December 31, 2023 and 2022 represents cash balances held as security in connection with our facility lease agreements.

Note 11. Property and equipment

Property and equipment, net was all located in the United States and consisted of the following (in millions):


	Useful Life (in years)	As of December 31,
		2023		2022
Leasehold improvements	5-10	$	54	$	34
Scientific equipment	5	24		17
Furniture and equipment	3-5	3		3
Construction in progress	—	1		4
Property and equipment, gross		82		58
Less: Accumulated depreciation and amortization		(31)		(23)
Property and equipment, net		$	51	$	35

Note 12. Consolidated balance sheet components

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in millions):


	As of December 31,
	2023		2022
Prepaid expenses and other assets	$	30	$	15
Accrued interest receivable	4		4
Total prepaid expenses and other current assets	$	34	$	19

Other Current Liabilities

Other current liabilities consisted of the following (in millions):


	As of December 31,
	2023		2022
Accrued research and development	$	36	$	45
Accrued personnel expenses	26		25
Current portion of lease liabilities	11		3
Other	3		3
Total other current liabilities	$	76	$	76

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Note 13. Leases

We lease our corporate headquarters, which includes approximately 151,000 square feet of executive offices, R&D, and business operations, in Hayward, California. We also lease approximately 109,000 square feet of office space in Brisbane, California. Both leases: are non-cancelable; extend through 2031; have two options, at our sole discretion, to extend each lease term for a period of eight years; and require monthly lease payments that are subject to annual increases throughout the lease term.

Our sublease of approximately 31,000 square feet of our Brisbane office to another company commenced in October 2023. This sublease included a tenant improvement allowance to be paid by us of $9 million, of which approximately $1 million was outstanding at December 31, 2023. Under the terms of the agreement, we will receive sublease payments of approximately $3 million per year, beginning in 2024. For the year ended December 31, 2023, we recorded gross sublease income of $1 million. Income from the sublease is recognized on a straight-line basis as reduction of rent expense within G&A. This sublease is non-cancelable and extends through 2028, with the sublessee having options to extend the lease term.

At December 31, 2023 and 2022, our lease portfolio had a weighted average remaining term of 8 years and 9 years, respectively, and a weighted average discount rate of 5.2% for both periods.

The following table summarizes information related to our leases, all of which are classified as operating (in millions):


	As of December 31,
Location in Consolidated Balance Sheets	2023		2022
Assets:
Other noncurrent assets - right-of-use assets	$	92	$	100
Liabilities:
Other current liabilities - net current operating lease liabilities	$	11	$	3
Other noncurrent liabilities - noncurrent operating lease liabilities	$	110	$	117

For the years ended December 31, 2023, 2022 and 2021, we incurred lease expense of $18 million, $18 million, and $7 million, respectively. Lease costs include rent expense, which consists primarily of our proportionate share of operating expenses, property taxes, and insurance which we have elected to include in lease costs.

The following table summarizes our cash and non-cash information related to our operating leases (in millions):


	Year Ended December 31,
	2023		2022		2021
Cash paid for amounts included in measurement of lease liabilities	$	15	$	11	$	5
Cash received from tenant improvement allowances	$	9	$	8	$	3
Right-of-use assets obtained in exchange for new operating lease liabilities	$	—	$	3	$	95
Recognition of tenant improvement allowance receivable included in Other current liabilities	$	4	$	6	$	11

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The following table summarizes our future minimum lease payments at December 31, 2023 (in millions):


Year Ending December 31,	Operating Leases
2024	$	17
2025	17
2026	17
2027	18
2028	19
Thereafter	61
Total undiscounted future minimum lease payments	$	149
Less: Imputed interest	(28)
Total present value of lease liabilities	$	121

As of December 31, 2023, we have provided deposits for letters of credit totaling $3 million to secure our obligations under our leases, which are included in Other noncurrent assets on the Consolidated Balance Sheet.

Note 14. Stockholders’ equity

Common Stock

We are authorized to issue up to 400.0 million shares of common stock.

Gilead Stock Purchase Agreement

In 2021, under the First Stock Purchase Agreement, Gilead purchased 5.7 million shares of our common stock at a price of $39.00 per share for total gross proceeds of $220 million.

In 2023, under the Second Stock Purchase Agreement, Gilead purchased 1.0 million shares of our common stock at the closing day purchase price of $19.26 per share for total gross proceeds of $20 million.

On January 29, 2024, under the Third Stock Purchase Agreement Amendment, Gilead purchased 15.2 million shares of our common stock at a price of $21.00 per share for total gross proceeds of $320 million.

At-the Market Facility

In 2023, we entered into an equity distribution agreement pursuant to which we may, from time to time, sell shares of our common stock, par value $0.0001 per share, having an aggregate offering price of up to $200 million. During the year ended December 31, 2023, we issued and ~~amortized cost~~sold under this agreement 0.2 million shares of ~~investments in marketable securities by major security type~~our common stock for total net proceeds of $5 million.

Preferred Stock

We have authorized 10.0 million shares of preferred stock, par value $0.0001. There was no preferred stock outstanding as of December 31, ~~2020~~2023 and ~~2019 are presented in the tables that follow (in thousands):~~

2022.

Amortized
Cost

Unrealized
Gain

Unrealized
Loss

Fair
Value

As of December 31, 2020:

Money market funds

$
146,468

$
-

$
-

$
146,468

U.S. treasury securities

301,075

38

(1
)

301,112

U.S. government agency obligations

24,997

4

-

25,001

Corporate securities and commercial paper

262,502

15

(12
)

262,505

Total

$
735,042

$
57

$
(13
)

$
735,086

Amortized
Cost

Unrealized
Gain

Unrealized
Loss

Fair
Value

As of December 31, 2019:

Money market funds

$
45,498

$
-

$
-

$
45,498

U.S. treasury securities

74,801

12

(1
)

74,812

Corporate securities and commercial paper

67,907

55

(2
)

67,960

Total

$
188,206

$
67

$
(3
)

$
188,270

Note ~~4. Consolidated Balance Sheet Components~~

~~Property~~15. Fair value measurements

We determine the fair value of financial and ~~Equipment~~

~~Property~~non-financial assets and ~~equipment, net consisted~~liabilities using the fair value hierarchy, which establishes three levels of inputs that may be used to measure fair value, as follows:

•Level 1 inputs include unadjusted quoted prices in active markets for identical assets or liabilities;

•Level 2 inputs include observable inputs other than Level 1 inputs, such as quoted prices for similar assets or liabilities; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the ~~following (in thousands):~~

asset or liability; and

As of December 31,

2020

2019

Scientific equipment

$
9,902

$
8,168

Furniture and equipment

1,521

1,165

Capitalized software

225

146

Leasehold improvements

11,111

10,834

Construction in progress

2,336

238

Total

25,095

20,551

Less: Accumulated depreciation and amortization

(14,288
)

(11,221
)
Property and equipment, net

$
10,807

$
9,330

~~Other Accrued Liabilities~~

~~Other accrued liabilities consisted~~•Level 3 inputs include unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the underlying asset or liability. Our Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques and significant management judgment or estimation.

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Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The following tables summarize the types of assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy (in ~~thousands)~~millions):

As of December 31,

2020

2019

Accrued personnel expenses

8,632

$
4,571

Professional fees

295

183

Other

616

196

Total other accrued liabilities

$
9,543

$
4,950


Fair value measurement as of December 31, 2023	Level 1		Level 2		Level 3		Total
Assets
Money market funds	$	85	$	—	$	—	$	85
U.S. treasury securities	—		213		—		213
Corporate securities and commercial paper	—		471		—		471
U.S. government agency obligations	—		90		—		90
Certificate of deposit	—		7		—		7
Total assets measured at fair value	$	85	$	781	$	—	$	866

Liabilities
Liability for sale of future royalties	$	—	$	—	$	19	$	19
Total liabilities measured at fair value	$	—	$	—	$	19	$	19


Fair value measurement as of December 31, 2022	Level 1		Level 2		Level 3		Total
Assets
Money market funds	$	169	$	—	$	—	$	169
U.S. treasury securities	—		314		—		314
Corporate securities and commercial paper	—		631		—		631
U.S. government agency obligations	—		20		—		20
Certificate of deposit	—		4		—		4
Total assets measured at fair value	$	169	$	969	$	—	$	1,138

Liabilities
Liability for sale of future royalties	$	—	$	—	$	17	$	17
Total liabilities measured at fair value	$	—	$	—	$	17	$	17

~~Note 5: Equity Investment~~

Liability for sale of future royalties

In 2021, we entered into an agreement with BVF, under which BVF funded the discovery and development of compounds for the treatment of inflammatory diseases (the "BVF Program") for $15 million in ~~PACT Pharma~~

non-refundable payments which were paid in 2021 and 2022. In return, we are obligated to perform R&D activities in the BVF Program; make contingent payments upon the achievement of certain clinical and regulatory milestones of up to $73 million or $160 million depending on whether the BVP Program is solely developed by us or with Gilead if they opt-in under the Gilead Collaboration Agreement; and pay mid- to high-single digit royalties on any net product sales generated by the BVF Program.

We account for the BVF agreement as a liability primarily because we have significant continuing involvement in generating the cash flows due to BVF. The ~~Company owns approximately 3.6 million shares~~liability is recorded at fair value by using probability-adjusted discounted cash flows and is revalued each reporting period until the related contingencies have been resolved. The fair value measurement is based on significant unobservable inputs that are reviewed quarterly by management and include, as applicable, estimated probabilities and the timing of ~~common stock, 1.0 million shares~~achieving specified development, regulatory and commercial milestones as well as estimated annual sales. Significant changes that increase or decrease the probabilities of ~~Series A preferred stock,~~achieving the related development, regulatory and ~~warrants~~commercial events or that shorten or lengthen the time required to ~~purchase additional stock~~achieve such events or that increase or decrease estimated annual sales would result in corresponding increases or decreases in the fair values of ~~PACT Pharma, Inc. (PACT Pharma), a privately funded, early-stage biopharmaceutical company focused on adoptive cell therapy. This~~the obligations, as applicable. Changes in the fair value of this liability related to interest accretion are recognized in ~~PACT Pharma is~~Non-operating income (expense) in the Consolidated Statements of Operations.

Table of Contents

During the second quarter of 2023, new preclinical information from our BVF Program led to revised assumptions which decreased the estimated probabilities of success and delayed the projected timing of achieving specified development, regulatory and commercial milestones and commercial sales. These changes in estimates are accounted for ~~as an equity method investment,~~prospectively and asresulted in a result the Company records its share of PACT Pharma’s operating results in interest and other income, net, in its condensed consolidated statements of operations and comprehensive income (loss). The investment balance was 0 at December 31, 2020 and December 31, 2019. Since the Company has no obligation to provide cash financing to PACT Pharma, the Company is not required to record losses beyond the carrying amount of the investment.

~~In January and June 2020, PACT Pharma issued shares in its Series C and Series C-1 preferred stock financings. The Company did not participate in these financings. The~~ decrease in the ~~Company’s equity ownership percentage~~imputed effective interest rate on the unamortized portion of the liability to 10.1% commencing with the quarter ended June 30, 2023, compared to 20.6% for the quarters ended March 31, 2023 and ~~an increase in PACT Pharma’s estimated fair value per share resulted in gains~~prior. The impact of this change on ~~dilution totaling $2.0 million during~~ the ~~year ended December 31, 2020. After applying $1.4 million in losses accumulated in prior periods when the equity investment balance was 0, the Company recorded a gain of $0.6 million~~non-cash interest expense for the year ended December 31, ~~2020. There were 0 gains recorded by the Company for the year ended December 31, 2019.~~

The Company’s share of PACT Pharma’s losses for the year ended December 31, 2020 exceeded gains for the same period. The Company recorded $0.6 million and $1.2 million for its share of PACT Pharma’s operating losses for the years ended December 31, 2020 and 2019, respectively. The unrecognized equity method losses in excess of the Company’s investment2023 was ~~$1.3 million as of December 31, 2020.~~

~~For the years ended December 31, 2020 and 2019, the Company determined the fair value of the warrants to be insignificant~~not material when compared to the ~~consolidated financial statements.~~

~~Note 6. Leases~~

prior year periods. The Company leases its corporate headquarters, which includes approximately 136,293 square feet of executive offices and research and development and business operations, in an office park in Hayward, California under a non-cancelable operating lease with terms that expire from 2025 to 2029, subject to options by the Company to extend the lease term. The Company also leases space in Brisbane, California under a non-cancelable operating lease that is expected to commence in 2021 and extend through 2031.

~~In June 2020, the Company entered into a lease amendment for 36,303 square feet of additional space in Hayward, California, that is expected to commence during 2021 for an~~ ~~eight-year~~ term with undiscounted minimum lease payments totaling approximately $10.1 million. The new lease is subject to an option to extend the lease term for eight years. The lease amendment includes an allowance of approximately $1.0 million for tenant improvements. The space was delivered to the Company in August 2020, as a result the Company has recognized a right-of-use asset and a lease liability for ~~the building on its balance sheet at December 31, 2020.~~

~~In December 2020, the Company entered into a lease agreement for 109,237 square feet~~sale of ~~space~~future royalties is reported in ~~Brisbane, California, that is expected to commence~~Other noncurrent liabilities in the second half of 2021 for a term of approximately ten years with undiscounted minimum lease payments totaling approximately $90.3 million. The lease is subject to two options to extend the lease term for a period of eight years each. The lease agreement includes an allowance of approximately $12.6 million for tenant improvements with an option to increase the allowance by $5.5 million. The space was under construction at December 31, 2020Consolidated Balance Sheets and ~~has not been delivered to the Company.~~

At December 31, 2020 the Company’s lease portfolio had a weighted average remaining term of 6.2 years. The leases require monthly lease payments that are subject to annual increases throughout the lease term. The optional period has not been considered in the determination of the right-of-use assets or lease liabilities associated with this lease as the Company did not consider it reasonably certain it would exercise the option.

The Company cannot determine the implicit rate in its leases, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular currency environment. The Company used an incremental borrowing rate of 10% as of the date of adoption for leases that commenced prior to January 1, 2020. The weighted average discount rate for the Company’s lease portfolio at December 31, 2020 was 7.3%.

For the year ended December 31, 2020, the Company incurred $2.7 million of lease costs included in operating expenses in the consolidated statements of income and comprehensive income in relation to its operating lease, a portion of which was variable rent expense and not included within the measurement of the Company’s operating ROU assets and lease liabilities. The variable rent expense consists primarily of the Company’s proportionate share of operating expenses, property taxes, and insurance and is classified as lease expense due to the Company’s election to not separate lease and non-lease components.Short-term lease costs were $0.2 million for the year ended December 31, 2020. At December 31, 2020, the Company’s operating lease right-of-use asset totaled $12.8 million, and the operating lease liability totaled $18.1 million. The short-term portion of the operating lease liability was $2.9 million and is contained within other current liabilities on the balance sheet, with the remaining $15.2 million liability reported on the balance sheet as operating lease liability, noncurrent.

~~Rent expense was $1.6 million for each of the years ended December 31, 2019 and 2018.~~

~~As of December 31, 2020, the Company’s future minimum lease payments~~changes were as follows (in ~~thousands)~~millions):

Year Ended December 31,

2020 ⁽¹⁾

2019 ⁽²⁾

2020

-

2,105

2021

4,041

2,195

2022

3,409

2,265

2023

3,522

2,339

2024

3,640

2,415

2025

3,340

2,072

Thereafter

4,311

-

Total undiscounted future minimum lease payments

22,263

13,391

Less: Imputed interest

(4,153
)

N/A

Total operating lease liabilities

18,110

N/A

Less: Current portion of operating lease liabilities
(included in other current liabilities)

(2,867
)

N/A

Operating lease liabilities, noncurrent

15,243

N/A


	Year Ended December 31
	2023		2022
Beginning balance	$	17	$	5
Cash received	—		10
Interest accretion	2		2
Ending balance	$	19	$	17

~~(1) Presented in accordance with ASC 842.~~

~~(2) Presented in accordance with ASC 840. N/A items not required under ASC 840.~~

Total undiscounted future minimum lease payments do not include approximately $90.3 million related to the Company’s Brisbane lease that has not yet commenced. This lease is expected to commence during 2021 with a lease term

Note 16. Commitments

Standby Letters of ~~approximately 10 years. Total minimum lease payments~~Credit

We have ~~not been reduced by minimum sublease rent income of approximately $0.1 million under a noncancelable sublease.~~

~~The Company has provided deposits for~~standby letters of credit ~~totaling $0.2~~up to an aggregate of $3 million ~~to secure its obligations under its lease, which have been~~provided as collateral for our leases. The letters of credit are secured by $3 million in deposits classified as ~~long-term~~restricted cash and included in Other noncurrent assets on the ~~Company’s consolidated balance sheet as of December 31, 2020.~~

~~Note 7. License and Collaboration Agreements~~

~~The following table summarizes the revenues received as a result of the Company’s collaboration agreements with Gilead Sciences, Inc. (Gilead) and Taiho Pharmaceutical Co., Ltd. (Taiho):~~

Year Ended December 31,

2020

2019

2018

License revenue

$
55,096

$
8,000

$
3,000

Collaboration revenue

22,421

7,000

5,353

Collaboration and license revenue

$
77,517

$
15,000

$
8,353

~~The following table summarizes details of revenues by collaboration and by category of revenue:~~

Year Ended December 31,

Revenues recognized:
Over time
Point in time
2020

2019

2018

Gilead license to zimberelimab

*
$
55,096

$
-

$
-

Gilead access rights related to the
   Company's research and
   development pipeline
*

15,421

-

-

Taiho license to zimberelimab

*

-

8,000

-

Taiho license to etrumadenant

*

-

-

3,000

Taiho collaboration agreement
*

7,000

7,000

5,353

Total collaboration and license
   revenue

$
77,517

$
15,000

$
8,353

~~The Company recognized the following revenue as a result of changes in the deferred revenue balance during the period below (in thousands):~~

Year Ended December 31,

Revenue recognized in the period from:

2020

2019

2018

Amounts included in deferred revenue
at the beginning of the period

$
7,000

$
7,000

$
5,353

Performance obligations satisfied in
previous period

-

-

-

The Company received $175 million in upfront payments from Gilead in connection with the Option, License and Collaboration Agreement and identified $100 million in unconstrained consideration to be received in 2022. In addition, the Company received $200 million from Gilead in connection with the Stock Purchase Agreement, of which approximately $109.4 million represented the fair value of stock purchased at the transaction closing date in July 2020 with the remaining premium of $90.6 million allocated to the transaction price.

~~At the transaction closing date, these payments were allocated to the performance obligations identified as follows:~~

Amount

Allocation of transaction price

Upfront cash consideration

$
175,000

Payment for access rights related to the
   Company's research and development pipeline

100,000

Premium from Stock Purchase Agreement

90,600

Total transaction price allocated to revenue

$
365,600

Allocation to performance obligations

Zimberelimab license

$
55,096

Etrumadenant option

126,960

Domvanalimab option

36,728

Access rights related to the Company's research
   and development pipeline

137,113

Development and commercialization services for
   zimberelimab

9,703

Total

$
365,600

~~Gilead Sciences, Inc.~~

On May 27, 2020, the Company entered into an Option, License and Collaboration Agreement (Gilead Collaboration Agreement), Common Stock Purchase Agreement (the Stock Purchase Agreement), and Investor Rights Agreement, (collectively, the Gilead Agreements), each with Gilead Sciences, Inc. (Gilead). The transaction closed on July 13, 2020 following expiration of the antitrust waiting period. Upon closing, Gilead made an upfront payment of $175 million pursuant to the Gilead Collaboration Agreement, and made an equity investment of approximately $200 million in the Company by purchasing 5,963,029 shares of Arcus common stock at a per share price of $33.54 pursuant to the Stock Purchase Agreement, and the Company appointed Gilead’s designee, Merdad Parsey, M.D., Ph.D. and Michael Quigley, Ph.D., to the Company’s Board of Directors pursuant to the Investor Rights Agreement.

Pursuant to the terms of the Gilead Collaboration Agreement, Gilead has an exclusive license to develop and commercialize zimberelimab in certain markets and obtained exclusive options to acquire an exclusive license to develop and commercialize all of the Company’s current and future clinical programs during the 10-year collaboration term, contingent upon Gilead’s access rights payments of up to $400 million and, for those programs that enter clinical development prior to the end of the collaboration term, for up to an additional three years thereafter. Gilead may exercise its option, on a program-by-program basis, upon payment of an option fee that ranges from $200 million to $275 million per program for the Company’s clinical programs in existence at the date of the agreement, and $150 million per program for all other programs that enter clinical development thereafter should Gilead elect to exercise its options.

Upon Gilead’s exercise of its option to a program, the two companies will co-develop and equally share global development costs, subject to certain opt-out rights of the Company, and expense caps on the Company’s spending and related subsequent adjustments. For each optioned program, provided the Company has not exercised its opt-out rights, the Company has an option to co-promote in the United States with equal sharing of related profits and losses. Gilead has the right to exclusively commercialize any optioned programs outside of the U.S., subject to the rights of the Company’s existing partners to any territories, and Gilead will pay to the Company tiered royalties as a percentage of revenues ranging from the high teens to the low twenties. Gilead will further provide ongoing research and development support in the form of research and development pipeline access rights payments of up to $400 million over the collaboration term.

Pursuant to the Stock Purchase Agreement and the Investor Rights Agreement, Gilead has the right, at its option, to purchase additional shares from the Company, up to a maximum of 35% of the Company’s then-outstanding voting common stock, from time to time over the next five years, at a purchase price equal to the greater of a 20% premium to market (based on a trailing ~~five-day~~ average closing price) at the time Gilead exercises such option, and the $33.54 initial purchase price. Based on the value of the Company’s common stock at the contract closing, the right to purchase additional shares had no value. The Investor Rights Agreement also includes a three-year standstill and a two-year lockup and provides Gilead with registration rights commencing at the end of the lockup period, pro rata participation rights in certain future financings and the right to designate two individuals to be appointed to the Company’s Board of Directors.

The Company’s assessment of the transaction price included an analysis of amounts it expected to receive, which at contract inception consisted of the upfront cash payment of $175.0 million due upon contract closing in July 2020, the $100.0 million payment related to the research and development access rights due in 2022, and the $90.6 million premium resulting from Gilead’s purchase of common stock. All payments to date have been made by Gilead as they became due and payable so given this successful collection history, the Company considers the entire $365.6 million outlined above to be the initial transaction price.

~~The Company evaluated the Gilead Agreements under ASC 606 and determined that the performance obligations at the contract inception consisted of the following:~~

~~Zimberelimab license~~

Effective on closing, Gilead obtained an exclusive license to zimberelimab. The standalone selling price of this license was determined using a discounted cash flow method. The Company recognized the full revenues associated with this performance obligation on the date the transaction closed.

~~Etrumadenant option~~

Gilead has the right to exercise an option for exclusive rights to etrumadenant, the Company’s adenosine receptor program, in exchange for an option payment of $250.0 million, that expires after a proscribed period following the Company’s achievement of certain development milestones. The Company calculated the standalone selling price of this program using a discounted cash flow method and concluded that it exceeded the price of the option, creating a material right and a distinct performance obligation. If the option is exercised, the performance obligations associated with the option will be identified and will determine the accounting for the option’s transaction price. If the option is allowed to lapse after development milestones trigger the start of the opt-in period, the Company will recognize any deferred revenue allocated to the option at the time of the lapse.

Consolidated Balance Sheet. At December 31, ~~2020,~~2023 the ~~Company had $127.0 million~~standby letters of deferred revenue on its consolidated balance sheets related to this performance obligation. The Company has evaluated the program’s status as of the balance sheet date and believes that some or all of the revenue associated with the opt-in will be recognized within the minimum ~~four-year~~ ~~term of the Gilead Collaboration Agreement.~~

~~Domvanalimab option~~

Gilead has the right to exercise an option for exclusive rights to domvanalimab, the Company’s anti-TIGIT monoclonal antibody, in exchange for an option payment of $275.0 million, that expires after a proscribed period following the Company’s achievement of certain development milestones. The Company calculated the standalone selling price of this program using a discounted cash flow method and concluded that it exceeded the price of the option, creating a material right and a distinct performance obligation. If the option is exercised, the performance obligations associated with the option will be identified and will determine the accounting for the option’s transaction price. If the option is allowed to lapse after development milestones trigger the start of the opt-in period, the Company will recognize any deferred revenue allocated to the option at the time of the lapse.

At December 31, 2020, the Company had $36.7 million of deferred revenue on its consolidated balance sheets related to this performance obligation. The Company has evaluated the program’s status and believes that revenue associated with the opt-in will be recognized within one year.

~~Access rights related to the Company’s research and development pipeline~~

~~Gilead receives exclusive access to the Company’s current programs as well as the future programs~~ for a period of ten years, contingent upon Gilead’s payment of $400 million, with the first payment of $100.0 million in 2022, and an additional $100 million payment due at Gilead’s option on each of the fourth, sixth, and eighth anniversaries of the agreement. The standalone selling price of this ongoing research and development pipeline access was determined using an expected cost-plus margin approach. The Company evaluated its rights and obligations in the Gilead Collaboration Agreement and determined that Gilead is contractually obligated to make the $100.0 million payment due in 2022 resulting in a minimum term of four years for this performance obligation. As a result, the amount was included in the transaction price. The Company uses a time-elapsed input method to measure progress toward satisfying this obligation, which is the method the Company believes most faithfully depicts the Company’s performance in transferring the promised services during the time period in which Gilead has access to the Company’s research and development pipeline. Accordingly, the revenue allocated to the performance obligation is being recognized using this input method over the minimum ~~four-year~~ period. The Company further determined that Gilead is not obligated to pay the remaining $300.0 million due over the remainder of the term. Failure to pay the non-obligatory payments will result in Gilead’s loss of certain rights to access and obtain licenses to the programs arising from the Company’s research and development pipeline.

At December 31, 2020 the Company had $121.7 million of deferred revenue on its consolidated balance sheets related to this performance obligation, classified between current and noncurrent based on the amortization of the revenue.

~~Development and commercialization services for zimberelimab~~

In conjunction with the license, the Company determined there existed a separate obligation to perform further development and commercialization services for Gilead. The standalone selling price of this obligation was determined using an expected cost-plus margin approach. This obligation includes a 50/50 share of the costs associated with all future development and commercialization of zimberelimab. The portion of the transaction price

allocated to this performance obligation has been allocated in accordance with the total costs forecast for the development and commercialization of zimberelimab. The Company will recognize the amounts allocated to these services as the performance obligation is satisfied. Any additional payments received from or payments made to Gilead for the 50/50 cost share will be recognized as a reduction or an increase to R&D expense, respectively.

~~Gilead was also granted option rights to programs not yet in development. These programs~~credit were not ~~determined to be performance obligations at contract inception, as there are no identified programs, revenues, or costs to compare against the option price.~~

At December 31, 2020 the Company had $9.7 million of contract liabilities on its consolidated balance sheets related to this performance obligation. The Company has evaluated the program’s status and believes that revenue associated with these services will be recognized over the full term of the contract, beginning in 2021.

~~Prepaid expenses and contract liabilities~~

The Company incurred $7.3 million in expenses to obtain the contract, which consisted of consultant and legal fees that were directly connected to the successful completion of the Gilead Agreements. The Company determined that $1.9 million of these expenses were related to the Stock Purchase Agreement and recorded them as offering costs. The Company allocated the remaining expenses between the various performance obligations, to be recognized when the underlying revenue is recognized. The portion allocated to the delivery of zimberelimab was recognized immediately, and the portion allocated to the remaining performance obligations will be recognized with timing consistent with the associated performance obligation. During the year ended December 31, 2020, the Company recognized $0.2 million in expense from the amortization of these assets. As of December 31, 2020, the Company had $4.2 million in prepaid expenses from costs to obtain the Gilead Agreements, of which $1.0 million was recorded in prepaid expenses and other current assets and $3.2 million was recorded in other long-term assets. The Company also recognized $9.7 million in contract liabilities for future development and commercialization services which Gilead prepaid, recorded in other non-current liabilities on the consolidated balance sheets.

~~Taiho Pharmaceutical Co., Ltd~~

In September 2017, the Company and Taiho entered into an option and license agreement (the Taiho Agreement) to collaborate on the potential development and commercialization of certain investigational products from the Company’s portfolio in Japan and certain other territories in Asia (excluding China) (the Taiho Territory). The Taiho Agreement provides Taiho with exclusive options, over a ~~five-year~~ ~~period (the Option Period), to obtain an exclusive development and commercialization license to clinical stage investigational products from the Company’s programs (each, an Arcus Program).~~

In consideration for the exclusive options and other rights contained in the Taiho Agreement, Taiho agreed to make non-refundable, non-creditable cash payments to the Company totaling $35.0 million, of which the Company received $25.0 million during 2017. An additional $5.0 million was received in 2018 and the remaining $5.0 million was received in 2019.

In the event that the Company has not initiated IND enabling studies for at least 5 Arcus Programs prior to the expiration of the Option Period, Taiho may elect to extend the Option Period, up to a maximum of seven years, subject to an extension fee. For each option that Taiho elects to exercise, they will be obligated to make an option exercise payment of between $3.0 million to $15.0 million, depending on the development stage of the applicable Arcus Program for which the option is exercised. In addition, the Taiho Agreement provides that the Company is eligible to receive additional clinical and regulatory milestones totaling up to $130.0 million per Arcus Program, and it will be eligible to receive contingent payments of up to $145.0 million per Arcus Program associated with the achievement of specified levels of Taiho net sales in the Taiho Territory.

In addition, the Company will receive royalties ranging from high single-digits to mid-teens on net sales of licensed products in the Taiho Territory. Royalties will be payable on a licensed product-by-licensed product and country-by-country basis during the period of time commencing on the first commercial sale of a licensed product in a country and ending upon the later of: (a) ten (10) years from the date of first commercial sale of such licensed product in such country; and (b) expiration of the last-to-expire valid claim of the Company’s patents covering the manufacture, use or sale or exploitation of such licensed product in such country (the Royalty Term).

The Company evaluated the Taiho Agreement under ASC 606 and determined that the current performance obligations consist of (1) the research and development services, in which the Company will use commercially reasonable efforts to initiate IND enabling studies for at least five Arcus Programs, as well as further develop such

Arcus Programs during the term of the Agreement, and (2) the obligation to participate on the joint steering committee. These deliverables are non-contingent in nature. The Company determined that the obligation to participate in the joint steering committee does not have stand-alone value to Taiho because the committee’s primary purpose is to monitor and govern the research and development activities and, hence, it is inseparable from the research and development services.

The Company’s assessment of the transaction price included an analysis of amounts it expected to receive, which at contract inception consisted of the upfront cash payment of $20.0 million due upon contract execution in September 2017, a $5.0 million payment due within 30 days of contract execution, an anniversary payment of $5.0 million due in 2018, and a final anniversary payment of $5.0 million due in 2019. All payments were made by Taiho as they became due and payable so given this successful collection history, the Company considers the entire $35.0 million in non-refundable fees to be the initial transaction price.

The Company determined that the combined performance obligation of the research and development services and the obligation to participate on the joint steering committee are satisfied over time. The Company uses a time-elapsed input method to measure progress toward satisfying its performance obligation, which is the method the Company believes most faithfully depicts the Company’s performance in transferring the promised services during the time period in which Taiho has access to the Company’s research and development activities. Accordingly, the transaction price of $35.0 million is being recognized using this input method over the estimated performance period of five years.

The Company also concluded that, at the inception of the agreement, Taiho’s exclusive options are not considered material rights as the options do not contain a significant and incremental discount. The Company therefore excludes the exclusive options from the initial transaction price and accounts for them as separate contracts. In 2018, Taiho exercised its option to the Company’s adenosine receptor antagonist program, including etrumadenant, for a fee of $3.0 million, which was recognized by the Company as revenue during the year ended December 31, 2018 under Topic 605. The adoption of Topic 606 in 2019 had no effect on the revenue recognized for this fee. In 2019, Taiho exercised its option to the Company’s anti-PD-1 antibody program, including zimberelimab for a fee of $8.0 million. The Company identified one performance obligation comprised of the delivery of the license, which was completed in 2019. The transaction price was determined to be the payment of $8.0 million, which was recognized by the Company as licensing revenue during the year ended December 31, 2019 under Topic 606. Upon the option exercises, Taiho gained sole responsibility for the development and commercialization of the licensed products from within the programs in the Taiho Territory.

The Company also determined that the clinical and regulatory milestone payments under the Taiho Agreement are variable consideration under Topic 606 which need to be added to the transaction price when it is probable that a significant revenue reversal will not occur. Based on the nature of the clinical and regulatory milestones, such as the regulatory approvals which are not within the Company’s control, the Company will not consider achievement of such milestones to be probable until the uncertainty associated with the milestones has been resolved. When it is probable that a significant reversal of revenue will not occur, the milestone payment will be added to the transaction price, which will then be allocated to each performance obligation, on a relative standalone selling price basis, for which the Company recognizes revenue. ~~As of December 31, 2020, 0 clinical or regulatory milestones had been achieved under the Taiho Agreement.~~

~~The Company also considers the contingent payments due from Taiho upon the achievement of specified sales volumes to be similar to royalty payments. The Company considers the~~ license to be the predominant item to which the royalties relate. The Company will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). As of December 31, 2020, 0 sales milestone or royalty revenue has been recognized.

~~The Taiho Agreement shall remain in effect until expiry of all Royalty Terms for the licensed products, in each case subject to certain exceptions.~~

During the years ended December 31, 2020 and 2019, the Company recognized a total of $7.0 million and $15.0 million of revenue, respectively, under the Taiho Agreement in accordance with Topic 606. During the year ended December 31, 2018, the Company recognized a total of $8.3 million in revenue in accordance with Topic 605. Revenues for each of these years consisted of revenue recognized for the option exercised and the non-refundable upfront research and development fees. As of December 31, 2020, the Company recorded deferred revenue, current and deferred revenue, noncurrent of $7.0 million and $5.0 million, respectively, in its consolidated balance sheet. As

~~of December 31, 2019, the Company recorded deferred revenue, current and deferred revenue, noncurrent of $7.0 million and $12.0 million, respectively, in its consolidated balance sheet.~~

~~WuXi Biologics License Agreements~~

The Company entered into a license agreement (the WuXi PD-1 Agreement) with WuXi Biologics in August 2017, as subsequently amended in June 2019, in which it obtained an exclusive license to develop, use, manufacture, and commercialize products including an anti-PD-1 antibody worldwide except for Greater China and Thailand.

During the years ended December 31, 2020 and 2019, the Company made milestone payments of $5.0 million and $7.5 million, respectively, and incurred sub-license fees of $10.1 million and $1.2 million, respectively, under the WuXi PD-1 Agreement. These milestone payments and sub-license fees were recorded as research and development expense, as the products had not reached technological feasibility and did not have alternative future use. During the year ended December 31, 2018, the Company incurred 0 expense for milestone payments and incurred 0 expense for sub-license fees. The WuXi PD-1 Agreement also provides for clinical and regulatory milestone payments, commercialization milestone payments of up to $375.0 million and tiered royalty payments to be made to WuXi Biologics that range from the high single-digits to low teens of net sales by the Company of licensed products.

In December 2020, the Company entered into a separate license agreement (the WuXi CD-39 Agreement) with WuXi to develop anti-CD39 antibodies. Under the agreement, the Company was granted exclusive worldwide rights to anti-CD39 antibodies discovered under the collaboration and will be responsible for the further development and commercialization of those antibodies. Upon signing the agreement, the Company incurred and paid a $0.5 million upfront payment which was recorded in R&D expense, as the products are still in research stage. The WuXi CD-39 Agreement provides for clinical and regulatory milestone payments totaling $16.5 million, and royalty payments in the low single digits of net sales by the Company of licensed products.

~~Abmuno License Agreement~~

In December 2016, the Company entered into a license agreement (the Abmuno Agreement) with Abmuno Therapeutics LLC (Abmuno) in which it obtained a worldwide exclusive license to develop, use, manufacture, and commercialize products that include an anti-TIGIT antibody. During the years ended December 31, 2020 and 2018, the Company made milestone payments of $3.0 million and $2.8 million, respectively. NaN expense was incurred during the year ended December 31, 2019. Milestone payments were recorded as research and development expense, as the products have not reached technological feasibility and do not have alternative future use. The Abmuno Agreement also provides for additional clinical, regulatory and commercialization milestone remaining payments of up to $98.0 million as of December 31, 2020.

~~Genentech Collaboration Agreement~~

In December 2019, the Company and Genentech, through F. Hoffmann-La Roche Ltd (collectively, Genentech) entered into a Master Clinical Collaboration Agreement (the Genentech Agreement) pursuant to which the parties may conduct combination clinical studies involving Genentech’s monoclonal antibody, atezolizumab and the Company’s investigational products. Pursuant to the Genentech Agreement, the parties entered into Trial Supplements for the evaluation of etrumadenant and atezolizumab utilizing the MORPHEUS platform in two separate study indications: second and third line metastatic colorectal cancer and first line metastatic pancreatic cancer.

The Company and Genentech will each supply their respective investigational products for use in the collaboration studies and will share a portion of the development costs under specific terms as set forth in the agreement. For the years ended December 31, 2020 and 2019, the Company incurred $0.5 million and 0 expense, respectively, under the collaboration.

~~Strata Collaboration Agreement~~

On April 30, 2019, the Company and Strata Oncology, Inc. (Strata) entered into a Co-Development and Collaboration Agreement (the Co-Development and Collaboration Agreement) to pursue a clinical development collaboration utilizing Strata’s precision drug development platform and proprietary biomarkers to evaluate zimberelimab, the Company’s clinical-stage anti-PD-1 antibody, in patients in a tumor-agnostic fashion.

Under the terms of the Co-Development and Collaboration Agreement, the parties will share a portion of development costs for the clinical collaboration under specified terms. Strata is eligible to receive $2.5 million upon the achievement of a development milestone, as well as regulatory and commercial milestones of up to $125.0

million and up to double-digit royalties on U.S. net sales of zimberelimab in the biomarker-identified indication. For the years ended December 31, 2020 and 2019, the Company made milestone payments to Strata of 0 and $2.5 million, respectively, which was recorded as a research and development expense. For the year ended December 31, 2020, the Company incurred expenses of $1.7 million, of which $0.3 million had been reimbursed by Strata as development cost sharing. For the year ended December 31, 2019, the Company incurred expenses of $1.0 million, of which $0.2 million had been reimbursed by Strata as development cost sharing. Net expenses related to this co-development agreement were recorded within research and development expenses. As further consideration in connection with the Co-Development and Collaboration Agreement, the Company issued to Strata 1,257,651 restricted shares of its common stock with an initial measured fair value of $15.0 million, which are subject to vesting based upon the achievement of specified regulatory milestones within certain timelines. Expense relating to the restricted shares subject to these milestones is recognized if it is considered probable that the associated shares will vest. The probability of achievement is assessed at the end of each quarterly period. As of December 31, 2020, the Company determined that NaN of the restricted shares were probable of vesting and, as a result, 0 compensation expense related to the restricted shares has been recognized to date.

~~AstraZeneca Agreement~~

On October 29, 2020 the Company announced a collaboration with AstraZeneca to evaluate domvanalimab, the Company’s investigational anti-TIGIT antibody, in combination with AstraZeneca’s Imfinzi (durvalumab) in a registrational Phase 3 clinical trial in patients with unresectable Stage III non-small cell lung cancer (NSCLC). Under the terms of the agreement, each company will retain existing rights to their respective molecules and any future commercial economics. AstraZeneca will conduct the trial, and each company will supply its respective anti-cancer agent to support the trial. Under the terms of the agreement and subject to the parties’ approval of a final budget for the clinical trial, the Company may be obligated to reimburse AstraZeneca for a portion of the costs incurred.

Consistent with the terms of the recently completed Arcus-Gilead partnership, Gilead maintains an option to co-develop and co-commercialize domvanalimab. If Gilead exercises its option to domvanalimab, the trial from this AstraZeneca collaboration is expected to form part of the Arcus and Gilead joint development program and Arcus’s portion of the trial costs would be shared with Gilead.

~~Note 8: Convertible Preferred Stock and Stockholders’ Equity (Deficit)~~

The Company’s Certificate of Incorporation, as amended and restated, authorizes the Company to issue 410,000,000 shares of capital stock consisting of 400,000,000 shares common stock and 10,000,000 shares of preferred stock, both par value of $0.0001.

In June 2020, pursuant to a shelf registration statement on Form S-3 that was filed in May 2020, the Company issued 12,650,000 shares of its common stock at $27.50 per share in an underwritten public offering (the May 2020 Public Offering). The total number of shares sold consisted of 11,000,000 base shares and an additional 1,650,000 shares sold pursuant to the underwriters’ option exercise. Net proceeds from the May 2020 Public Offering were approximately $326.2 million after deducting underwriting discounts, commissions and other offering expenses.

In July 2020, the Company closed the Gilead Collaboration Agreement, Common Stock Purchase Agreement, and the Investor Rights Agreement, each signed with Gilead in May 2020. The transaction closed on July 13, 2020 following expiration of the antitrust waiting period. Upon closing, Gilead made an equity investment of approximately $200 million in the Company by purchasing 5,963,029 shares of Arcus common stock at a per share price of $33.54 pursuant to the Stock Purchase Agreement. Of the $200 million equity investment, approximately $90.6 million was determined to be a premium on the purchase of common stock and allocated to the performance obligations created by the Gilead Collaboration Agreement. See Note 7 and Note 13 for further discussion of the agreements with Gilead. Net proceeds from Gilead’s equity investment were approximately $107.5 million after allocating the premium and deducting direct offering expenses of $1.9 million.

~~As of December 31, 2020 and 2019, the Company had 0 outstanding convertible preferred stock.~~

~~Note 9: Stock Plans and Stock-Based Compensation~~

~~Stock Plans~~

~~The Company grants awards to employees and nonemployees under a series of equity incentive plans, (collectively, the Stock Plans).~~

~~In May 2015, the Company adopted the 2015 Stock Plan, which was amended and restated in November 2015 (as amended from time to time, the 2015 Plan).~~

The terms of the 2015 Plan permitted option holders to exercise stock options before they vest, subject to certain limitations. Such unvested shares are subject to repurchase by the Company at the original exercise price in the event the option holder’s service to the Company is terminated either voluntarily or involuntarily. As a result of early exercises under the 2015 Plan, approximately 165,133 and 455,158 shares had not vested and were subject to repurchase as of December 31, 2020 and 2019, respectively. The Company treats cash received from the exercise of unvested options as a refundable deposit and classifies such amounts as a liability in its consolidated balance sheets. As of December 31, 2020 and 2019, the Company included cash received for the early exercise of unvested options of $0.7 million and $1.7 million, respectively, allocated to other current and long-term liabilities based on the timing of their expected vesting. Amounts included in liabilities are transferred into common stock and additional paid-in capital as the shares vest, which is generally over a period of 48 months.

In March 2018, the Company adopted the 2018 Equity Incentive Plan (2018 Plan), which replaced the 2015 Plan upon completion of the IPO. 3,570,000 shares were reserved under the 2018 Plan plus 709,558 shares remaining available for issuance under the Company’s 2015 Plan and outstanding awards under its 2015 Plan that subsequently expire, lapse unexercised or are forfeited to or repurchased by the Company. In addition, the number of shares reserved for issuance under our 2018 Plan will automatically increase on January 1 of each year beginning January 1, 2019 by a number equal to the smallest of (i) 3,570,000 shares, (ii) 4% of the shares of common stock outstanding on the last business day of the prior fiscal year or (iii) the number of shares determined by our board of directors. As of December 31, 2020, there were 1,106,209 shares available for grant under the 2018 plan.

~~In accordance with the provisions of the 2018 Plan, the number of shares available for issuance under the Plan automatically increased by 2,604,587 shares on January 1, 2021.~~

In January 2020, the Company’s Board of Directors adopted the 2020 Inducement Plan (2020 Plan), pursuant to which it reserved and authorized 3,000,000 shares of the Company’s common stock in order to award non-statutory stock options and other equity-based awards as a material inducement to eligible individuals to enter into employment with the Company. In November 2020, the Company’s Board of Directors authorized an increase of 1,000,000 shares reserved for issuance under the 2020 Plan. As of December 31, 2020 there were 784,975 shares available for grant under the 2020 Plan.

~~The following table, which includes options granted under the Company’s Stock Plans, summarizes option activity:~~

Shares
Subject to
Outstanding
Options

Weighted
Average
Exercise
Price Per
Share

Weighted
Average
Remaining
Contractual
Term
(in years)

Aggregate
Intrinsic
Value
(in thousands)

Outstanding at December 31, 2019

4,738,004

$
9.00

Options granted

5,784,550

$
17.36

Options exercised

(392,523
)

$
8.54

Options forfeited or canceled

(237,334
)

$
10.38

Outstanding at December 31, 2020

9,892,697

$
13.88

8.81

$
122,232

Options vested and expected to vest as of December 31,
2020

9,892,697

$
13.88

8.81

$
122,232

Options exercisable as of December 31, 2020

2,793,050

$
10.28

8.12

$
44,012

During the years ended December 31, 2020, 2019 and 2018, the intrinsic value of shares exercised was $6.8 million, $0.2 million and $0.6 million, respectively, and the fair value of shares vested during the same period was $16.8 million, $7.8 million and $3.0 million, respectively.

~~Restricted Stock Units and Restricted Stock Awards~~

In 2015, in conjunction with the incorporation of the Company, the Company issued a total of 2,777,776 shares of common stock at $0.0004 per share to its two founders, the Chief Executive Officer and the President, under restricted stock agreements. At the date of grant, the shares had an estimated fair value of $0.0004 per share. Under the terms of the restricted stock agreements, shares vested monthly over four years. There were 0 shares granted under restricted stock agreements during the years ended December 31, 2020, 2019, and 2018. The total grant date fair value of shares vested during the same periods was immaterial. All shares were vested as of December 31, 2020.

The Company granted restricted stock units (RSUs) to its employees and directors under the 2018 Plan. The shares subject to the RSUs vest annually or quarterly over four years for employees and annually for directors.

Total Restricted Stock Units

Weighted
Average
Grant Date Fair Value

Nonvested at December 31, 2019

-

$
-

RSUs granted

758,950

27.77

RSUs vested

(6,250
)

17.00

RSUs forfeited or canceled

(14,050
)

29.05

Nonvested at December 31, 2020

738,650

$
27.84

~~During the year ended December 31, 2020, the total grant date fair value of shares granted under RSUs was $21.1 million~~. ~~The total grant date fair value of shares vested during the same period was $0.1 million. There were 0 RSUs granted or vested during the years ended December 31, 2019 or 2018.~~

~~Employee Stock Purchase Plan~~

In March 2018, the Company adopted the 2018 Employee Stock Purchase Plan (2018 ESPP). The 2018 ESPP provides eligible employees with the opportunity to purchase shares of common stock through payroll deductions at a price equal to 85% of the lower of the fair market value per share on the first trading day of the applicable 24-month offering period or the fair market value per share on the applicable purchase date, provided that no more than 3,000 shares of common stock may be purchased by an employee on any purchase date. Also, the value of the shares purchased in any calendar year may not exceed $25,000. The 2018 ESPP is intended to constitute an “employee stock purchase plan” under Section 423(b) of the Internal Revenue Code of 1986, as amended. The 2018 ESPP may be terminated by the Company’s board of directors at any time. A total of 714,000 shares of common stock were initially reserved for issuance under the 2018 ESPP, and the number of shares reserved for issuance under the 2018 ESPP will automatically increase on January 1 of each year beginning on January 1, 2019 by a number of shares equal to the least of (i) 1% of our outstanding shares of common stock on the last day of the prior fiscal year, (ii) 1,071,000 shares or (iii) a number of shares determined by our board of directors.

As of December 31, 2020, there were 1,190,422 shares available for purchase under the 2018 ESPP. In accordance with the provisions of the 2018 ESPP, the number of shares available for purchase under the Plan automatically increased by 651,146 shares on January 1, 2021.

~~Non-employee stock-based compensation~~

As of December 31, 2020, 2019 and 2018, 31,986, 372,774 and 14,918 respectively, of vested stock options and 21,165, 308,596, and 31,388, respectively, of unvested stock options were held by non-employees. The amount of stock-based compensation expense related to non-employees recognized in the consolidated financial statements for the years ended December 31, 2020, 2019 and 2018 was $0.7 million, $0.9 million and $0.3 million, respectively.

~~Stock-based compensation expense~~

The following table summarizes employee and non-employee stock-based compensation expense for the years ended December 31, 2020, 2019 and 2018, and also the allocation within the consolidated statements of operations and comprehensive loss (in thousands):

Year Ended December 31,

2020

2019

2018

Research and development

$
11,195

$
4,152

$
2,255

General and administrative

10,630

4,829

1,619

Total stock-based compensation

$
21,825

$
8,981

$
3,874

As of December 31, 2020, unrecognized employee and nonemployee compensation costs related to non-vested stock option awards and RSUs totaled $88.9 million, and is expected to be recognized over a weighted average period of 2.9 years.

~~Valuation Assumptions~~

Prior to the Company’s IPO, the fair value of the shares of common stock underlying stock-based awards was determined by the board of directors, with input from management. Because there was no public market for the Company’s common stock, the board of directors determined the fair value of the common stock on the grant-date of the stock-based award by considering a number of objective and subjective factors, including enterprise valuations of the Company’s common stock performed by an unrelated third-party specialist, valuations of comparable companies, sales of the Company’s convertible preferred stock to unrelated third parties, operating and financial performance, the lack of liquidity of the Company’s capital stock, and general and industry-specific economic outlook. The board of directors intended all options granted to be exercisable at a price per share not less than the estimated per share fair value of common stock underlying those options on the date of grant.

Following the Company’s IPO, the market traded price of the shares of common stock underlying the stock-based awards is the fair value of our stock as reported on the New York Stock Exchange on the grant date.

Company estimates the fair value of options and ESPP shares utilizing the Black-Scholes option pricing model, which is dependent upon several variables, such as expected term, volatility, risk-free interest rate, and expected dividends. Each of these inputs is subjective and generally requires significant judgment to determine. The following assumptions were used to calculate the fair value of stock-based compensation for the years ended December 31, 2020, 2019, and 2018:

Stock Options

Year Ended December 31,

2020

2019

2018

Risk-free interest rate

0.4% - 0.5%

1.6% - 2.3%

1.2% - 3.1%

Expected term (in years)

6.02

6.02

5.16-9.95

Volatility

76.5% - 78.5%

71.8% - 74.6%

58.7%-75.5%

Dividend yield

0%

0%

0%

drawn down.

ESPP

Year Ended December 31,

2020

2019

2018

Risk-free interest rate

0.1% - 0.2%

1.6% - 2.3%

2.1% - 2.6%

Expected term (in years)

0.5-2.0

0.5-2.0

0.5-2.0

Volatility

66.6% - 136.0%

64.8% - 77.1%

54.3% - 65.5%

Dividend yield

0%

0%

0%

~~Expected Term~~ — The Company has opted to use the “simplified method” for estimating the expected term of options, whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the option (generally 10 years).

~~Expected Volatility~~ — Due to the Company’s limited operating history and a lack of company specific historical and implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. The historical volatility data was computed using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated expected term of the stock-based awards.

~~Risk-Free Interest Rate~~ ~~— The risk-free rate assumption is based on the U.S. treasury yield in effect at the time of grant for instruments with maturities similar to the expected term of the Company’s stock options.~~

~~Expected Dividend~~ ~~— The Company has not issued any dividends in its history and does not expect to issue dividends over the life of the options and therefore has estimated the dividend yield to be 0.~~

~~Note 10. Net Loss per Share~~

~~The following table sets forth the computation of basic and diluted net loss per share (in thousands, except share and per share data):~~

Year Ended December 31,

2020

2019

2018

Numerator:

Net loss

$
(122,858
)

$
(84,710
)

$
(49,594
)
Denominator:

Weighted-average common shares outstanding

56,354,059

45,385,489

36,357,336

Less: weighted-average common shares subject to
repurchase

(1,566,941
)

(1,559,498
)

(1,739,099
)
Weighted-average common shares used to compute
basic and diluted net loss per share

54,787,118

43,825,991

34,618,237

Net loss per share, basic and diluted

$
(2.24
)

$
(1.93
)

$
(1.43
)

The following outstanding potentially dilutive securities were excluded from the computation of diluted net loss per share for the periods presented because including them would have been antidilutive:

At December 31,

2020

2019

2018

Common stock options issued and outstanding

9,892,697

4,738,004

1,458,079

Unvested restricted stock issued as part
of collaboration agreement

1,257,651

1,257,651

-

Unvested early exercised common stock options

165,133

455,158

927,123

Unvested restricted stock units

738,650

-

-

Employee Stock Purchase Plan shares

18,219

-

-

Unvested restricted common stock

-

-

289,352

Total

12,072,350

6,450,813

2,674,554

~~Note 11: Provision for Income Taxes~~

~~The provision for income taxes differs from the amount expected by applying the federal statutory rate to the loss before taxes as follows:~~

Year Ended December 31,

2020

2019

2018

Federal statutory income tax rate

21.00
%

21.00
%

21.00
%
Equity investment

4.15
%

0.00
%

0.00
%
Research and development credits

3.10
%

0.00
%

0.00
%
Change in valuation allowance

(27.35
)%

(19.65
)%

(19.46
)%
Non-deductible expenses and other

(0.90
)%

(1.35
)%

(1.54
)%
Total

0.00
%

0.00
%

0.00
%

~~As of December 31, 2020 and 2019, the components of the Company’s deferred tax assets are as follows (in thousands):~~

Year Ended December 31,

2020

2019

Deferred tax assets:

Federal and state net operating loss carryforwards

$
54,526

$
30,049

Research and development credits carryforwards

11,209

8,077

Depreciation

9,068

6,052

Deferred Revenue

2,407

3,277

Lease liability

3,831

-

Other

5,890

2,965

Total deferred tax assets

86,931

50,420

Deferred tax liabilities:

Right-of-use assets

(2,704
)

-

Total deferred tax liabilities

(2,704
)

-

Less valuation allowance

(84,227
)

(50,420
)
Net deferred tax assets

$
-

$
-

Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards.

The Company’s accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of its net deferred tax assets. The Company considered factors such as its history of operating losses, the nature of the Company’s deferred tax assets, and the timing, likelihood and amount, if any, of future taxable income during the periods in which those temporary differences and carryforwards become deductible, including amounts that may arise under the collaboration agreement with Gilead entered into in 2020. As a result of the Company's evaluation of these factors, including the uncertainty that exists with respect to the option fees and milestone payments, the Company does not believe that it is more likely than not that the deferred tax assets will be realized. Accordingly, a full valuation allowance has been established and no deferred tax asset is shown in the accompanying consolidated balance sheets. The valuation allowance increased by approximately $33.8 million, $19.7 million and $12.2 million, respectively, for the years ended December 31, 2020, 2019 and 2018.

At December 31, 2020, the Company has total net operating loss carryforwards (NOLs) of $253.3 million for federal income tax purposes, of which approximately $47.4 million begin to expire in 2035 and approximately $205.9 million that have no expiration date and federal research tax credits of approximately $9.9 million that begin to expire in 2035. The Company also has state NOLs of approximately $15.9 million that begin to expire in 2035, and state research tax credits of approximately $5.1 million that have no expiration date. Use of the NOLs and credit carryforwards may be subject to a substantial annual limitation due to the ownership change provisions of U.S. tax law, as defined in Section 382 and 383 of the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of NOLs and credits before use. The Company

determined that an ownership change, as defined under IRC Section 382, occurred in the current and previous years. While the Company does not expect these ownership changes to result in the expiration of net operating loss and credit carryforwards prior to utilization, the Company is subject to an annual limitation on the use of its tax attributes. The limitation on the Company's use of net operating loss and credit carryforwards could reduce the Company's ability to use a portion of the tax attributes to offset future taxable income.

The Company has not been audited by the Internal Revenue Service, any state or foreign tax authority. The Company is subject to taxation in the United States and also beginning in 2017, in Australia. Because of the net operating loss and research credit carryforwards, all of the Company’s tax years, from 2015 to 2019, remain open to U.S. federal and California state tax examinations. In addition, the Company’s tax years from 2017 to 2019 are open to examination in Australia. There were 0 interest or penalties accrued at December 31, 2020, 2019 or 2018.

~~Uncertain Tax Positions~~

~~The Company follows the provisions of FASB Accounting Standards Codification (ASC 740-10),~~ ~~Accounting for Uncertainty in Income Taxes~~. ASC 740-10 prescribes a comprehensive model for the recognition, measurement, presentation and disclosure in financial statements of uncertain tax positions that have been taken or expected to be taken on a tax return. NaN liability related to uncertain tax positions is recorded in the consolidated financial statements. The Company’s reserve for unrecognized tax benefits is approximately $3.2 million, $2.2 million and $1.1 million at December 31, 2020, 2019 and 2018, respectively.

Due to the full valuation allowance at December 31, 2020 and 2019, current adjustments to the unrecognized tax benefit will have no impact on the Company’s effective income tax rate; any adjustments made after the valuation allowance is released will have an impact on the tax rate.

~~The following table summarizes the activity related to our unrecognized tax benefits (in thousands):~~

Year Ended December 31,

2020

2019

2018

Beginning balance

$
2,165

$
1,084

$
622

Additions (decreases) for tax positions taken in a prior year

(258
)

(7
)

8

Additions for tax positions taken in current year

1,246

1,088

454

Ending balance

$
3,153

$
2,165

$
1,084

~~The Company does not anticipate material changes to its uncertain tax positions through the next 12 months.~~

~~Note 12: Commitments~~

Purchase Commitments

~~The Company has~~

We have contractual arrangements with ~~research~~CROs and ~~development organizations and suppliers; however, these~~suppliers. These contracts are generally ~~cancelable~~cancellable on 30 days’ notice and the obligations under these contracts arise as the services are ~~largely based on services~~ performed.

Indemnification

As permitted under Delaware law and in accordance with ~~the Company’s~~our bylaws, ~~the Company is~~we are required to indemnify ~~its~~our officers and directors for certain events or occurrences while the officer or director is or was serving in such capacity. ~~The Company is~~We are also party to indemnification agreements with ~~its~~our directors and officers. ~~The Company believes~~We believe the fair value of the indemnification rights and agreements is ~~minimal. Accordingly, the Company has 0t~~minimal and accordingly, we have not recorded any liabilities ~~for these indemnification rights and agreements~~ as of December 31, ~~2020~~2023 and ~~2019.~~

2022.

~~Note 13. Related parties~~

~~Relationship and transactions with Gilead Sciences, Inc. (Gilead)~~

Table of December 31, 2020, Gilead held approximately 13% of the Company’s outstanding common stock. These holdings resulted from Gilead’s investment in the Company of approximately $56.7 million, net of offering costs, by purchasing 2,200,000 shares of common stock at a per share price of $27.50 in the May 2020 Public Offering as well as Gilead’s acquisition of 5,963,029 shares under the Stock Purchase Agreement. Gilead has the right, at its option, to purchase up to a maximum of 35% of the Company’s then-outstanding voting common stock, from time to time over the next five years. Gilead also has the right under the Investor Rights Agreement to designate two individuals to be appointed to the Company’s board of directors. The Company appointed the first Gilead designee, Merdad Parsey, M.D., Ph.D. and Michael Quigley, Ph.D., to its board of directors pursuant to the Investor Rights Agreement. See Note 7 for further discussion of the agreements with Gilead.

At December 31, 2020, the Company had a $0.9 million cost sharing receivable recorded on the consolidated balance sheets under receivable from collaboration partners, to be invoiced the following quarter. The Company also had $185.4 million in deferred revenue at December 31, 2020, of which $117.8 million represented the long-term portion of deferred revenue allocated to performance obligations not expected to be completed within one year of the balance sheet date, which was recorded in deferred revenue, noncurrent on the consolidated balance sheets. The Company also recognized $9.7 million in contract liabilities for future development and commercialization services ~~which Gilead prepaid~~Contents~~, all of which was recorded in other long-term liabilities on the consolidated balance sheets.~~

For the year ended December 31, 2020, the Company recognized $70.5 million in revenue under the Gilead Collaboration Agreement. The Company also recognized a $3.4 million reduction in research and development expense related to its cost-sharing provisions of the agreement.

~~Note 14: Employee Benefit Plan~~

The Company sponsors a 401(k) defined contribution plan for its employees. This plan provides for tax-deferred salary deductions for all employees. Employee contributions are voluntary. Employees may contribute up to 100% of their annual compensation to this plan, as limited by an annual maximum amount as determined by the Internal Revenue Service. The Company may match employee contributions in amounts to be determined at the Company’s sole discretion. The Company made 0 contributions to the plan for the years ended December 31, 2020, 2019 and 2018.

~~Note 15: Selected Unaudited Quarterly Financial Data~~

~~The following table summarizes the Company’s unaudited quarterly financial data for the last two years (in thousands, except share and per share data):~~

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

2020

Total revenues

$
1,750

$
1,750

$
64,530

$
9,487

Total operating expenses

$
30,150

$
47,125

$
62,978

$
61,499

Net income (loss)

$
(27,753
)

$
(45,074
)

$
1,822

$
(51,853
)
Net income (loss) per share — basic

$
(0.63
)

$
(0.93
)

$
0.03

$
(0.82
)
Net income (loss) per share — diluted

$
(0.63
)

$
(0.93
)

$
0.03

$
(0.82
)
Weighted average number of shares, basic

44,282,607

48,556,843

62,599,193

63,527,932

Weighted average number of shares, diluted

44,282,607

48,556,843

65,145,707

63,527,932

2019

Total revenues

$
1,750

$
1,750

$
1,750

$
9,750

Total operating expenses

$
20,523

$
30,910

$
24,999

$
27,277

Net loss

$
(17,670
)

$
(28,090
)

$
(22,352
)

$
(16,598
)
Net loss per share — basic and diluted

$
(0.41
)

$
(0.64
)

$
(0.51
)

$
(0.38
)
Weighted average number of shares, basic
and diluted

43,508,592

43,797,718

43,939,281

44,056,407

~~Note 16: Subsequent Event~~

In February 2021, Gilead increased its ownership in the Company by purchasing 5,650,000 additional shares of the Company’s common stock at a purchase price of $39.00 per share for total proceeds to the Company of $220.4 million. After the transaction, Gilead owned approximately $19.5% of the Company’s outstanding shares of common stock.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934 ~~(Exchange Act)~~("Exchange Act") reports is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within an organization have been detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met.

As of the end of the period covered by this ~~report,~~Annual Report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon, and as of the date of, this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

Management’s Annual Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over our financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f). Our management, with the participation of our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, ~~2020.~~2023. Our assessment was based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control Integrated − Framework (2013).

~~pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;~~

2.1.pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and board of directors; and

3.2.provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and board of directors; and

~~provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.~~

3.provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based on our evaluation under the framework in Internal Control − Integrated Framework, management concluded that our internal control over financial reporting was effective as of December 31, ~~2020.~~

2023.

Our independent registered public accounting firm, Ernst & Young LLP, has audited our Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K and have issued a report on our internal control over financial reporting as of December 31, ~~2020.~~2023. Their report on the audit of internal control over financial reporting appears below.

Table of Contents

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended December 31, ~~2020~~2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Arcus Biosciences, Inc.

Opinion on Internal Control Over Financial Reporting

We have audited Arcus Biosciences, Inc.’s internal control over financial reporting as of December 31, ~~2020,~~2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Arcus Biosciences, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2020,~~2023, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the ~~2020~~2023 consolidated financial statements of the Company and our report dated February ~~24, 2021~~21, 2024 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

/s/ Ernst & Young LLP

~~Redwood City,~~

San Mateo, California

February ~~24, 2021~~

21, 2024

Table of Contents

Item 9B. Other Information

Arcus Biosciences, Inc. Severance Benefits Plan

On February 20, 2024, the Compensation Committee of our board of directors (the "Committee") approved and adopted the Arcus Biosciences, Inc. Severance Benefits Plan (the "Plan"), which provides severance benefits to certain of our employees in the event of a qualifying termination of employment.

Under the terms of the Plan, in the event of termination of an eligible employee (other than for cause or due to death or disability), or such eligible employee’s resignation for good reason ("Involuntary Termination"), an eligible employee will be entitled to receive: (a) a cash lump-sum payment equal to the eligible employee's base salary, pro-rated for six or twelve months, based on the eligible employee's benefits tier ("Severance Period") and (b) continued Company-paid coverage under our benefit plans, subject to timely COBRA election, during the Severance Period (or until the expiration of the eligible employee's continuation coverage under COBRA or the eligible employee secures employment with similar benefits). In the event such Involuntary Termination occurs within twelve months of a change in control, (a) the Severance Period will be increased to twelve or twenty-four months, based on the eligible employee's benefits tiers, (b) an eligible employee will also be entitled to receive 100% of their target annual bonus for the year of termination and (c) all of the eligible employee’s then outstanding equity awards will vest. Our named executive officers will participate in the Plan and will have a Severance Period of twelve months or, in the event of an Involuntary Termination within twelve months of a change in control, twenty-four months.

All payments and other benefits under the Plan are subject to the effectiveness of a waiver and release of claims in our favor. Additionally, the benefits provided under the Plan are subject to an eligible employee’s continuing compliance with the terms of any proprietary information and inventions assignment agreement. The benefits provided under the Plan will generally supersede any other change in control or severance benefit plan or agreement previously entered into by us and an eligible employee.

The foregoing description of the Plan is qualified in its entirety by reference to the full text of the Plan, a copy of which is filed as Exhibit 10.4 to this Annual Report on Form 10-K.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

None.

100

Table of Contents

~~None.~~

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this Item will be set forth in our proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of our fiscal year ended December 31, ~~2020~~2023 (our “Proxy Statement”) and is incorporated into this Annual Report on Form 10-K by reference, specifically:

•

Information regarding our directors and any persons nominated to become a director, as well as with respect to some other required board matters, is set forth under Proposal 1 entitled “Election of Directors” and under “Corporate Governance.”

•

~~Information regarding our audit committee and our designated “audit committee financial expert”~~•Information regarding our directors and any persons nominated to become a director, as well as with respect to some other required board matters, is set forth under Proposal 1 entitled “Election of Directors” and under the caption “Corporate Governance.”

•

~~Information regarding Section 16(a) beneficial ownership reporting compliance, if any, will be set forth under the caption “Delinquent Section 16(a) Reports.~~•Information regarding our audit committee and our designated “audit committee financial expert” is set forth under the caption “Corporate Governance.”

•

Information regarding procedures by which stockholders may recommend nominees to our board of directors is set forth under the caption “Nominating and Corporate Governance Committee” under “Corporate Governance.•Information regarding Section 16(a) beneficial ownership reporting compliance, if any, will be set forth under the caption “Delinquent Section 16(a) Reports.”

•Information regarding procedures by which stockholders may recommend nominees to our board of directors is set forth under the caption “Nominating and Corporate Governance Committee” under “Corporate Governance.”•

~~Information regarding our executive officers is set forth under “Executive Officers."~~

•Information regarding our executive officers is set forth under “Executive Officers."

We have adopted a Code of Conduct and Ethics that applies to all directors, officers and employees of the Company, which is available on our website at ~~www.arcusbio.com~~.www.arcusbio.com. If we make any substantive amendments to our Code of Conduct and Ethics or grant any waivers to our directors or executive officers, we will disclose it on our website or in a Current Report on Form 8-K.

Item 11. Executive Compensation

The information required by this Item will be set forth in our Proxy Statement under the captions “Executive Compensation,” “Compensation of Directors” and “Compensation Committee Interlocks and Insider Participation” and is incorporated into this Annual Report on Form 10-K by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item will be set forth in our Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” and is incorporated into this Annual Report on Form 10-K by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this Item will be set forth in our Proxy Statement under the captions “Related Person Transactions” and “Corporate Governance” and is incorporated into this Annual Report on Form 10-K by reference.

Item 14. Principal Accounting Fees and Services

The information required by this Item will be set forth in our Proxy Statement under the Proposal with the caption ~~��Ratification~~“Ratification of Appointment of Independent Registered Public Accounting Firm” and is incorporated into this Annual Report on Form 10-K by reference.

101

Table of Contents

PART IV

Item 15. Exhibits and Financial Statement Schedules

~~(a)~~

~~The following documents are filed as part of this Annual Report on Form 10-K:~~

~~(1)~~(a)The following documents are filed as part of this Annual Report on Form 10-K:

~~Financial Statements~~

(1)Financial Statements

See Index to Consolidated Financial Statements at Item 8 herein.

(2)Financial Statement Schedules

~~Financial Statement Schedules~~

All schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

(3)Exhibits.

~~Exhibits.~~

See Exhibit Index following Item 16 below.

Item 16. Form 10-K Summary

None.

102

Table of Contents

Exhibit Index

Exhibit
Number

Exhibit Description

Incorporated by Reference

Form

File No

Exhibit

Filing Date

    3.1

Amended and Restated Certificate of Incorporation.

10-Q

001-38419

3.1

May 9, 2018

    3.2

Amended and Restated Bylaws.

8-K

001-38419

3.1

May 26, 2020

    4.1

Reference is made to Exhibits 3.1 and 3.2

    4.2

Investor Rights Agreement.

S-1

333-223086

4.1

February 16, 2018

    4.3*

Description of Common Stock.

  10.1^A

Form of Indemnification Agreement between the Registrant and each of its directors and executive officers.

S-1

333-223086

10.1

February 16, 2018

  10.2^A

Arcus Biosciences, Inc. 2015 Stock Plan and forms of agreements thereunder.

S-1/A

333-223086

10.2

March 5, 2018

  10.3^A

Arcus Biosciences, Inc. 2018 Equity Incentive Plan (including form agreements for use before January 1, 2021).

S-1/A

333-223086

10.3

March 5, 2018

  10.4^A

Arcus Biosciences, Inc. 2018 Employee Stock Purchase Plan.

S-1/A

001-38419

10.4

March 5, 2018

  10.5^A

Amended and Restated Letter Agreement, dated February 14, 2018, between the Registrant and Terry Rosen, Ph.D.

S-1

333-223086

10.5

February 16, 2018

  10.6^A

Amended and Restated Letter Agreement, dated February 14, 2018, between the Registrant and Juan Carlos Jaen, Ph.D.

S-1

333-223086

10.6

February 16, 2018

  10.8

Lease, dated September 30, 2015, between the Registrant and Hayward Point Eden I Limited Partnership, as amended on July 22, 2016 and October 12, 2017.

S-1

333-223086

10.8

February 16, 2018

  10.9^B

License Agreement, dated December 8, 2016, between the Registrant and Abmuno Therapeutics LLC.

S-1

333-223086

10.10

February 16, 2018

  10.10^B

License Agreement, dated August 16, 2017, between the Registrant and WuXi Biologics (Cayman) Inc.

S-1

333-223086

10.11

February 16, 2018

  10.11^B

Option and License Agreement, dated September 19, 2017, between the Registrant and Taiho Pharmaceutical Co., Ltd.

S-1

333-223086

10.12

February 16, 2018

  10.12^A

Arcus Biosciences, Inc. Management Cash Incentive Plan.

S-1

333-223086

10.13

February 16, 2018

  10.13^A

Form of Severance and Change in Control Agreement (for use before September 24, 2018).

S-1

333-223086

10.14

February 16, 2018

  10.14^B

Amendment No. 1 to Option and License Agreement, dated September 19, 2017, between Arcus Biosciences, Inc. and Taiho Pharmaceutical Co, Ltd.

10-Q

001-38419

10.1

November 8, 2018

  10.15^A

Form of Severance and Change in Control Agreement (for use from September 24, 2018)

10-Q

001-38419

10.2

November 8, 2018

  10.16^A

Separation and Consulting Agreement by and between the Company and Jennifer Jarrett dated January 3, 2019

10-K

001-38419

10.17

March 5, 2019

Exhibit
Number

Exhibit Description

Incorporated by Reference

Form

File No

Exhibit

Filing Date

3.1

Amended and Restated Certificate of Incorporation.

10-Q

001-38419

3.1

May 9, 2018

3.2

Amended and Restated Bylaws.

8-K

001-38419

3.1

May 26, 2020

4.1

Reference is made to Exhibits 3.1 and 3.2

4.2

Description of Common Stock.

10-K

001-38419

4.3

February 25, 2021

10.1

Compensation Program for Non-Employee Directors

8-K

001-38419

10.1

June 16, 2023

10.2A

Form of Indemnification Agreement between the Registrant and each of its directors and executive officers.

S-1

333-223086

10.1

February 16, 2018

10.3A

Arcus Biosciences, Inc. Management Cash Incentive Plan.

S-1

333-223086

10.13

February 16, 2018

10.4A*

Arcus Biosciences, Inc. Severance Benefits Plan .

10.5A

Amended and Restated Letter Agreement, dated February 14, 2018, between the Registrant and Terry Rosen, Ph.D.

S-1

333-223086

10.5

February 16, 2018

10.6A

Amended and Restated Letter Agreement, dated February 14, 2018, between the Registrant and Juan Carlos Jaen, Ph.D.

S-1

333-223086

10.6

February 16, 2018

10.7A

Offer letter by and between Arcus Biosciences, Inc. and Jennifer Jarrett dated September 10, 2020.

10-Q

001-38419

10.2

November 5, 2020

10.8A

Offer letter by and between Arcus Biosciences, Inc. and Robert C. Goeltz II dated June 30, 2020.

10-Q

001-38419

10.1

November 5, 2020

10.9A

Letter Agreement, dated July 25, 2022, between the Registrant and Dimitry S.A. Nuyten, MD., Ph.D.

10-Q

001-38419

10.3

November 2, 2022

10.10A

Arcus Biosciences, Inc. 2015 Stock Plan and forms of agreements thereunder.

S-1/A

333-223086

10.2

March 5, 2018

10.11A

Arcus Biosciences, Inc. 2018 Equity Incentive Plan (including form agreements for use before January 1, 2021).

S-1/A

333-223086

10.3

March 5, 2018

10.12A

Form of Stock Option Notice and Agreement under 2018 Equity Incentive Plan (for use from January 1, 2021).

10-K

001-38419

10.36

February 25, 2021

10.13A

Form of RSU Notice and Agreement under 2018 Equity Incentive Plan (for use from January 1, 2021).

10-K

001-38419

10.37

February 25, 2021

10.14A

Arcus Biosciences, Inc. 2018 Employee Stock Purchase Plan.

S-1/A

001-38419

10.4

March 5, 2018

10.15A

Arcus Biosciences, Inc. Amended and Restated 2020 Inducement Plan.

10-K

001-38419

10.18

February 23, 2022

10.16A

Form of Stock Option Grant Notice (2020 Inducement Plan).

10-K

001-38419

10.26

March 5, 2020

10.17A

Form of Restricted Stock Unit Grant Notice (2020 Inducement Plan).

10-K

001-38419

10.27

March 5, 2020

  10.17^A

Offer Letter, dated March 16, 2019, between the Company and William Grossman

10-Q

001-38419

10.1

August 6, 2019

  10.18^C

Amendment No. 1 dated June 27, 2019 to the License Agreement dated August 16, 2017 between Arcus Biosciences, Inc. and WuXi Biologics (Cayman) Inc.

10-Q

001-38419

10.2

August 6, 2019

  10.19^A

Offer Letter, dated May 20, 2019, between the Company and Jason Barker

10-Q

001-38419

10.1

November 5, 2019

  10.20^A

Compensation Program for Non-Employee Directors (for use from March 21, 2019 until June 3, 2020).

10-K

001-38419

10.9

March 5, 2020

  10.21^A

Amendment to Separation and Consulting Agreement dated December 4, 2019 by and between the Company and Jennifer Jarrett.

10-K

001-38419

10.24

March 5, 2020

  10.22*^A

Arcus Biosciences, Inc. Amended and Restated 2020 Inducement Plan.

  10.23^A

Arcus Biosciences, Inc. Stock Option Grant Notice (2020 Inducement Plan).

10-K

001-38419

10.26

March 5, 2020

  10.24^A

Arcus Biosciences, Inc. Restricted Stock Unit Grant Notice (2020 Inducement Plan).

10-K

001-38419

10.27

March 5, 2020

  10.25^C

Amendment No. 2 dated March 2, 2020 to the License Agreement dated August 16, 2017 between Arcus Biosciences, Inc. and WuXi Biologics (Cayman) Inc.

10-K

001-38419

10.28

March 5, 2020

  10.26^A

Compensation Program for Non-Employee Directors (for use from June 4, 2020).

8-K

001-38419

10.1

June 5, 2020

  10.27^C

Common Stock Purchase Agreement dated May 27, 2020 between Arcus Biosciences, Inc. and Gilead Sciences, Inc.

8-K

001-38419

99.1

July 13, 2020

  10.28^C

Amended and Restated Common Stock Purchase Agreement dated January 31, 2021 between Arcus Biosciences, Inc. and Gilead Sciences, Inc.

SC 13D/A

005-90423

99.1

February 2, 2021

  10.29^C

Investor Rights Agreement dated May 27, 2020 between Arcus Biosciences, Inc. and Gilead Sciences, Inc.

8-K

001-38419

99.2

July 13, 2020

  10.30^C

Option, License and Collaboration Agreement dated May 27, 2020 between Arcus Biosciences, Inc. and Gilead Sciences, Inc.

10-Q

001-38419

10.1

August 6, 2020

  10.31

Third Amendment dated June 26, 2020 to the Lease agreement dated September 30, 2015 between Arcus Biosciences, Inc. and Hayward Point Eden I Limited Partnership.

10-Q

001-38419

10.4

August 6, 2020

  10.32^A

Offer letter by and between Arcus Biosciences, Inc. and Robert C. Goeltz II dated June 30, 2020.

10-Q

001-38419

10.1

November 5, 2020

  10.33^A

Offer letter by and between Arcus Biosciences, Inc. and Jennifer Jarrett dated September 10, 2020.

10-Q

001-38419

10.2

November 5, 2020

  10.34

Fourth Amendment dated October 16, 2020 to the Lease agreement dated September 30, 2015 between Arcus Biosciences, Inc. and Hayward Point Eden I Limited Partnership.

10-Q

001-38419

10.3

November 5, 2020

  10.35*

Assignment Agreement dated November 10, 2020 by and among Arcus Biosciences, Inc., WuXi Biologics (Cayman) Inc. and WuXi Biologics Ireland Limited to the License Agreement dated August 16, 2017.

103

Table of Contents

10.18

Lease, dated September 30, 2015, between the Registrant and Hayward Point Eden I Limited Partnership, as amended on July 22, 2016 and October 12, 2017.

S-1

333-223086

10.8

February 16, 2018

10.19

Third Amendment dated June 26, 2020 to the Lease agreement dated September 30, 2015 between Arcus Biosciences, Inc. and Hayward Point Eden I Limited Partnership.

10-Q

001-38419

10.4

August 6, 2020

10.20

Fourth Amendment dated October 16, 2020 to the Lease agreement dated September 30, 2015 between Arcus Biosciences, Inc. and Hayward Point Eden I Limited Partnership.

10-Q

001-38419

10.3

November 5, 2020

10.21

Fifth Amendment dated April 1, 2021 to the Lease agreement dated September 30, 2015 between Arcus Biosciences, Inc. and Hayward Point Eden I Limited Partnership.

10-Q

001-38419

10.2

May 5, 2021

10.22B

License Agreement, dated December 8, 2016, between Arcus Biosciences, Inc. and Abmuno Therapeutics LLC.

S-1

333-223086

10.10

February 16, 2018

10.23B

License Agreement, dated August 16, 2017, between Arcus Biosciences, Inc. and WuXi Biologics (Cayman) Inc.

S-1

333-223086

10.11

February 16, 2018

10.24C

Amendment No. 1 dated June 27, 2019 to the License Agreement dated August 16, 2017 between Arcus Biosciences, Inc. and WuXi Biologics (Cayman) Inc.

10-Q

001-38419

10.2

August 6, 2019

10.25C

Amendment No. 2 dated March 2, 2020 to the License Agreement dated August 16, 2017 between Arcus Biosciences, Inc. and WuXi Biologics (Cayman) Inc.

10-K

001-38419

10.28

March 5, 2020

10.26C

Amendment No. 3 dated May 10, 2021 to the License Agreement dated August 16, 2017 between Arcus Biosciences, Inc. and WuXi Biologics (Cayman) Inc.

10-Q

001-38419

10.2

August 5, 2021

10.27C

Amendment No. 4 dated December 30, 2022 to the License Agreement dated August 16, 2017 between Arcus Biosciences, Inc. and WuXi Biologics (Cayman) Inc.

10-K

001-38419

10.28

February 28, 2023

10.28

Assignment Agreement dated November 10, 2020 by and among Arcus Biosciences, Inc., WuXi Biologics (Cayman) Inc. and WuXi Biologics Ireland Limited to the License Agreement dated August 16, 2017.

10-K

001-38419

10.35

February 25, 2021

10.29B

Option and License Agreement, dated September 19, 2017, between Arcus Biosciences, Inc. and Taiho Pharmaceutical Co., Ltd.

S-1

333-223086

10.12

February 16, 2018

10.30B

Amendment No. 1 to Option and License Agreement, dated September 19, 2017, between Arcus Biosciences, Inc. and Taiho Pharmaceutical Co, Ltd.

10-Q

001-38419

10.1

November 8, 2018

10.31C

Memorandum, dated July 27, 2023, between Arcus Biosciences, Inc. and Taiho Pharmaceutical Co., LTD.

10-Q

001-38419

10.1

November 7, 2023

104

Table of Contents

10.32C

Option, License and Collaboration Agreement dated May 27, 2020 between Arcus Biosciences, Inc. and Gilead Sciences, Inc.

10-Q

001-38419

10.1

August 6, 2020

10.33C

Amendment No. 1 to the Option, License and Collaboration Agreement between Arcus Biosciences, Inc. and Gilead Sciences, Inc., dated November 17, 2021

10-K

001-38419

10.34

February 23, 2022

10.34C

Amendment No. 2 to the Option, License and Collaboration Agreement between Arcus Biosciences, Inc. and Gilead Sciences, Inc., dated May 15, 2023.

10-Q

001-38419

10.1

August 7, 2023

10.35C*

Amendment No. 3 to the Option, License and Collaboration Agreement between Arcus Biosciences, Inc. and Gilead Sciences, Inc., dated January 2 9 , 2024.

10.36C

Letter Agreement with Gilead Sciences, Inc., dated July 1, 2022.

10-Q

001-38419

10.2

August 3, 2022

10.37C

Third Amended and Restated Common Stock Purchase Agreement, dated January 2 9 , 2024 between Arcus Biosciences, Inc. and Gilead Sciences, Inc.

SC 13D/A

005-90423

99.1

January 31, 2024

10.38C

Amended and Restated Investor Rights Agreement dated January 2 9 , 2024 between Arcus Biosciences, Inc. and Gilead Sciences, Inc.

SC 13D/A

005-90423

99.2

January 31, 2024

10.39

Equity Distribution Agreement, dated as of February 28, 2023, by and among the Registrant, Goldman Sachs & Co. LLC and SVB Securities LLC.

S-3

333-270132

1.2

February 28, 2023

23.1*

Consent of independent registered public accounting firm.

24.1*

Power of Attorney (included on signature page to this Annual Report).

31.1*

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1†

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2†

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

97.1*

Compensation Clawback Policy .

105

Table of Contents

10.36*

~~Form of Stock Option Notice and Agreement (2018 Equity Incentive Plan) for use from January 1, 2021.~~

10.37*

~~Form of RSU Notice and Agreement (2018 Equity Incentive Plan) for use from January 1, 2021.~~

21.1*

~~List of subsidiaries of the registrant.~~

23.1*

~~Consent of independent registered public accounting firm~~

24.1*

~~Power of Attorney (included on signature page to this Annual Report)~~

31.1*

~~Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~

31.2*

~~Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~

~~32.1†~~

~~Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~

~~32.2†~~

~~Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~

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Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as inline XBRL and contained in exhibit 101)

*Filed herewith.

~~Filed herewith.~~

AIndicates management contract or compensatory plan or arrangement.

~~Indicates management contract or compensatory plan or arrangement.~~

BThe Company has been granted confidential treatment for certain portions of this exhibit. The omitted portions have been filed separately with the SEC.

~~The Company has been granted confidential treatment for certain portions of this exhibit. The omitted portions have been filed separately with the Securities and Exchange Commission.~~

CThis exhibit omits certain information the Company deems immaterial and either of the type that it treats as confidential or would be competitively harmful if disclosed.

C†This certification is deemed not filed for purposes of section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.

~~This exhibit omits information subject to confidential treatment.~~

†	This certification is deemed not filed for purposes of section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.

106

Table of Contents

SIGNATURES

~~SIGNATURES~~

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	ARCUS BIOSCIENCES, INC.

Date: February ~~24, 2021~~ 21, 2024	By:	~~By:~~	/s/ Terry Rosen
			Terry Rosen, Ph.D.
			Chief Executive Officer (Principal Executive Officer and Duly Authorized Officer)

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears below constitutes and appoints Terry Rosen, Ph.D. and ~~Juan Carlos Jaen, Ph.D.,~~Robert C. Goeltz II, and each of them, his or her true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

Name

Title

~~Title~~

Date

/s/ Terry Rosen

Chief Executive Officer and Director

February ~~24, 2021~~

21, 2024

Terry Rosen, Ph.D.

~~(Principal~~ (Principal Executive Officer)

~~/s/ Juan Carlos Jaen~~

~~President and Director~~

~~February 24, 2021~~

~~Juan Carlos Jaen, Ph.D.~~

/s/ Robert C. Goeltz II

Chief Financial Officer

February ~~24, 2021~~

21, 2024

Robert C. Goeltz II

(Principal Financial Officer)

~~(Principal Financial and~~

/s/ Alexander Azoy

Chief Accounting ~~Officer)~~

Officer

February 21, 2024

Alexander Azoy

(Principal Accounting Officer)

/s/ Kathryn Falberg

Director

~~Director~~

February ~~24, 2021~~

21, 2024

Kathryn Falberg

/s/ Linda Higgins

Director

February 21, 2024

Linda Higgins, Ph.D.

~~/s/ Jennifer Jarrett~~

~~Director~~

~~February 24, 2021~~

~~Jennifer Jarrett~~

/s/ Yasunori Kaneko

Director

~~Director~~

February ~~24, 2021~~

21, 2024

Yasunori Kaneko, M.D.

/s/ David Lacey

Director

February 21, 2024

David Lacey, M.D.

/s/ Nicole Lambert

Director

February 21, 2024

Nicole Lambert

/s/ Patrick Machado

Director

~~Director~~

February ~~24, 2021~~

21, 2024

Patrick Machado, J.D.

/s/ Johanna Mercier

Director

February 21, 2024

Johanna Mercier

/s/ Merdad Parsey

Director

February 21, 2024

Merdad Parsey, M.D., Ph.D.

/s/ Andrew Perlman

Director

February 21, 2024

Andrew Perlman, M.D., Ph.D.

/s/ Antoni Ribas

Director

~~Director~~

February ~~24, 2021~~

21, 2024

Antoni Ribas, M.D., Ph.D.

~~/s/ David Lacey~~

~~Director~~

~~February 24, 2021~~

~~David Lacey, M.D.~~

~~/s/ Merdad Parsey~~

~~Director~~

~~February 24, 2021~~

~~Merdad Parsey, M.D., Ph.D.~~

~~/s/ Andrew Perlman~~

~~Director~~

~~February 24, 2021~~

~~Andrew Perlman, M.D., Ph.D.~~

~~/s/ Michael Quigley~~

~~Director~~

~~February 24, 2021~~

~~Michael Quigley, Ph.D.~~

~~128~~

107


Delaware			47-3898435
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
3928 Point Eden Way Hayward, CA 94545 (Address of principal executive offices)

☒
x			ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐
o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to


		Page
~~PART I~~	Information Regarding Forward Looking Statements		i
~~Item 1.~~	Risk Factor Summary	~~Business~~iii	5
PART I
Item ~~1A.~~ 1.	~~Risk Factors~~Business	34 1
Item 1A.	Risk Factors	26
Item 1B.	Unresolved Staff Comments	68 52
Item 2. 1C.	~~Properties~~Cybersecurity	69 52
Item 3. 2.	~~Legal Proceedings~~Properties	69 53
Item 3.	Legal Proceedings	53
Item 4.	Mine Safety Disclosures	69 54

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	70 55
Item 6.	~~Selected Financial Data~~Reserved	71 55
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	73 56
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	83 65
Item 8.	Financial Statements and Supplementary Data	85 66
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	~~118~~ 97
Item 9A.	Controls and Procedures	~~118~~ 97
Item 9B.	Other Information	~~121~~ 100
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	100

PART III
Item 10.	Directors, Executive Officers and Corporate Governance	~~122~~ 101
Item 11.	Executive Compensation	~~122~~ 101
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	~~122~~ 101
Item 13.	Certain Relationships and Related Transactions, and Director Independence	~~122~~ 101
Item ~~14.~~ 14.	Principal Accounting Fees and Services	~~122~~ 101

PART IV
Item ~~15.~~ 15.	Exhibits and Financial Statement Schedules	~~123~~ 102
Item 16	Form 10-K Summary	~~123~~ 102

$100 investment in stock or index	Ticker	3/15/2018		12/31/2018		12/31/2019		12/31/2020
Arcus Biosciences, Inc.	RCUS	$	100	$	63	$	59	$	153
S&P Biotechnology Index	^SPSIBI	$	100	$	77	$	101	$	150
S&P 500 Index	S&P 500	$	100	$	91	$	118	$	137

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet be Repurchased Under the Plans or Programs
October 1, 2020 to October 31, 2020		769		4.59		-		-
November 1, 2020 to November 30, 2020		79		2.57		-		-
December 1, 2020 to December 31, 2020		18,270		4.02		-		-
Total		19,118				-		-

	Year Ended December 31,
(in thousands, except share and per share data)	2020			2019			2018			2017			2016
Consolidated Statements of Operations Data:
Revenues:
License revenue	$	55,096		$	8,000		$	3,000		$	-		$	-
Collaboration revenue		22,421			7,000			5,353			1,413			-
Total license and collaboration revenue ⁽¹⁾		77,517			15,000			8,353			1,413			-
Operating expenses:
Research and development		159,348			78,481			49,646			47,218			14,247
General and administrative		42,404			25,228			13,566			7,636			3,935
Total operating expenses		201,752			103,709			63,212			54,854			18,182
Loss from operations		(124,235	)		(88,709	)		(54,859	)		(53,441	)		(18,182	)
Total non-operating income, net		1,377			3,999			5,265			359			212
Net loss	$	(122,858	)	$	(84,710	)	$	(49,594	)	$	(53,082	)	$	(17,970	)
Net loss per share, basic and diluted⁽²⁾	$	(2.24	)	$	(1.93	)	$	(1.43	)	$	(29.03	)	$	(20.80	)
Weighted-average number of shares used to compute basic and diluted net loss per common share		54,787,118			43,825,991			34,618,237			1,828,262			863,983

	As of December 31,
(in thousands)	2020			2019			2018			2017			2016
Consolidated Balance Sheet Data:
Cash and investments in marketable securities	$	735,086		$	188,270		$	259,725		$	175,703		$	98,896
Working capital ⁽¹⁾		614,146			169,999			242,013			164,143			94,145
Total assets		772,292			203,110			274,925			190,486			109,702
Convertible preferred stock		-			-			-			226,196			119,454
Accumulated deficit		(328,184	)		(205,326	)		(122,828	)		(73,234	)		(20,152	)
Total stockholders’ equity		502,304			163,842			234,942			(72,328	)		(19,994	)

	Year Ended December 31,						$ Change			% Change
	2020			2019
Revenues:
License revenue	$	55,096		$	8,000		$	47,096		*
Collaboration revenue		22,421			7,000			15,421			220	%
Total collaboration and license revenue		77,517			15,000			62,517			417	%
Operating expenses:
Research and development		159,348			78,481			80,867			103	%
General and administrative		42,404			25,228			17,176			68	%
Total operating expenses		201,752			103,709			98,043			95	%
Loss from operations		(124,235	)		(88,709	)		(35,526	)		40	%
Non-operating income, net		1,377			3,999			(2,622	)		-66	%
Net loss	$	(122,858	)	$	(84,710	)	$	(38,148	)		45	%

	Years Ended December 31,
	2020			2019			2018
Revenues:
License revenue ($55,096, $0 and $0 from a related party)	$	55,096		$	8,000		$	3,000
Collaboration revenue ($15,421, $0 and $0 from a related party)		22,421			7,000			5,353
Total collaboration and license revenues		77,517			15,000			8,353
Operating expenses:
Research and development (($3,446), $0 and $0 from a related party)		159,348			78,481			49,646
General and administrative		42,404			25,228			13,566
Total operating expenses		201,752			103,709			63,212
Loss from operations		(124,235	)		(88,709	)		(54,859	)
Non-operating income (expense):
Interest and other income, net		1,377			5,201			4,922
Gain on deemed sale from equity method investee		613			-			1,229
Share of loss from equity method investee		(613	)		(1,202	)		(886	)
Total non-operating income, net		1,377			3,999			5,265
Net loss		(122,858	)		(84,710	)		(49,594	)
Other comprehensive income (loss)		(20	)		171			(65	)
Comprehensive loss	$	(122,878	)	$	(84,539	)	$	(49,659	)
Net loss per share, basic and diluted	$	(2.24	)	$	(1.93	)	$	(1.43	)
Weighted-average number of shares used to compute basic and diluted net loss per share		54,787,118			43,825,991			34,618,237

	Convertible Preferred Stock						Common stock				Additional Paid-In		Accumulated			Accumulated Other Comprehensive			Total Stockholders’
	Shares			Amount			Shares		Amount		Capital		Deficit			Income (Loss)			Equity(Deficit)
Balance at December 31, 2017		30,459,574		$	226,196			3,278,129	$	-	$	948	$	(73,234	)	$	(42	)	$	(72,328	)
Conversion of preferred stock to common stock		(30,459,574	)		(226,196	)		30,459,574		3		226,195		-			-			226,198
Issuance of common stock upon IPO		-			-			9,200,000		1		124,734		-			-			124,735
Issuance of common stock upon exercise of stock options		-			-			67,349		-		95		-			-			95
Vesting of early exercised stock options and restricted stock		-			-			528,374		-		1,276		-			-			1,276
Issuance of common stock under Employee Stock Purchase Plan		-			-			77,397		-		751		-			-			751
Stock-based compensation		-			-			-		-		3,874		-			-			3,874
Other comprehensive loss		-			-			-		-		-					(65	)		(65	)
Net loss		-			-			-		-		-		(49,594	)		-			(49,594	)
Balance at December 31, 2018		-			-			43,610,823		4		357,873		(122,828	)		(107	)		234,942
Cumulative effect adjustment upon adoption of ASC 606		-			-			-		-		-		2,212			-			2,212
Issuance of common stock upon exercise of stock options		-			-			34,780		-		188		-			-			188
Vesting of early exercised stock options and restricted stock		-			-			417,883		-		1,029		-			-			1,029
Issuance of common stock under Employee Stock Purchase Plan		-			-			148,709		-		1,029		-			-			1,029
Stock-based compensation		-			-			-		-		8,981		-			-			8,981
Other comprehensive income		-			-			-		-		-		-			171			171
Net loss		-			-			-		-		-		(84,710	)		-			(84,710	)
Balance at December 31, 2019		-			-			44,212,195		4		369,100		(205,326	)		64			163,842
Issuance of common stock in public offering, net of $21,629 offering costs (2,200,000 shares and $56,738, net of $3,762 offering costs, from a related party)		-			-			12,650,000		2		326,244		-			-			326,246
Issuance of common stock and rights to purchase additional shares in accordance with Gilead Stock Purchase Agreement, net of $1,931 offering costs		-			-			5,963,029		-		107,468		-			-			107,468
Issuance of common stock upon exercise of stock options and vesting of restricted stock								405,752		-		3,366		-			-			3,366
Vesting of early exercised stock options		-			-			258,824		-		848		-			-			848
Issuance of common stock under Employee Stock Purchase Plan		-			-			202,101		-		1,587		-			-			1,587
Stock-based compensation		-			-			-		-		21,825		-			-			21,825
Other comprehensive loss		-			-			-		-		-		-			(20	)		(20	)
Net loss		-			-			-		-		-		(122,858	)		-			(122,858	)
Balance at December 31, 2020		-		$	-			63,691,901	$	6	$	830,438	$	(328,184	)	$	44		$	502,304

	December 31, 2020		December 31, 2019
Cash and cash equivalents	$	173,415	$	57,937
Restricted cash		203		203
Cash, cash equivalents and restricted cash	$	173,618	$	58,140

	Year Ended December 31,
	2020 ⁽¹⁾			2019 ⁽²⁾
2020		-			2,105
2021		4,041			2,195
2022		3,409			2,265
2023		3,522			2,339
2024		3,640			2,415
2025		3,340			2,072
Thereafter		4,311			-
Total undiscounted future minimum lease payments		22,263			13,391
Less: Imputed interest		(4,153	)	N/A
Total operating lease liabilities		18,110		N/A
Less: Current portion of operating lease liabilities (included in other current liabilities)		(2,867	)	N/A
Operating lease liabilities, noncurrent		15,243		N/A

			Year Ended December 31,
Revenues recognized:	Over time	Point in time	2020		2019		2018
Gilead license to zimberelimab		*	$	55,096	$	-	$	-
Gilead access rights related to the Company's research and development pipeline	*			15,421		-		-
Taiho license to zimberelimab		*		-		8,000		-
Taiho license to etrumadenant		*		-		-		3,000
Taiho collaboration agreement	*			7,000		7,000		5,353
Total collaboration and license revenue			$	77,517	$	15,000	$	8,353

	Year Ended December 31,
Revenue recognized in the period from:	2020		2019		2018
Amounts included in deferred revenue at the beginning of the period	$	7,000	$	7,000	$	5,353
Performance obligations satisfied in previous period		-		-		-

	Amount
Allocation of transaction price
Upfront cash consideration	$	175,000
Payment for access rights related to the Company's research and development pipeline		100,000
Premium from Stock Purchase Agreement		90,600
Total transaction price allocated to revenue	$	365,600

Allocation to performance obligations
Zimberelimab license	$	55,096
Etrumadenant option		126,960
Domvanalimab option		36,728
Access rights related to the Company's research and development pipeline		137,113
Development and commercialization services for zimberelimab		9,703
Total	$	365,600

	Shares Subject to Outstanding Options			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2019		4,738,004		$	9.00
Options granted		5,784,550		$	17.36
Options exercised		(392,523	)	$	8.54
Options forfeited or canceled		(237,334	)	$	10.38
Outstanding at December 31, 2020		9,892,697		$	13.88		8.81	$	122,232
Options vested and expected to vest as of December 31, 2020		9,892,697		$	13.88		8.81	$	122,232
Options exercisable as of December 31, 2020		2,793,050		$	10.28		8.12	$	44,012

	Total Restricted Stock Units			Weighted Average Grant Date Fair Value
Nonvested at December 31, 2019		-		$	-
RSUs granted		758,950			27.77
RSUs vested		(6,250	)		17.00
RSUs forfeited or canceled		(14,050	)		29.05
Nonvested at December 31, 2020		738,650		$	27.84

	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
2020
Total revenues	$	1,750		$	1,750		$	64,530		$	9,487
Total operating expenses	$	30,150		$	47,125		$	62,978		$	61,499
Net income (loss)	$	(27,753	)	$	(45,074	)	$	1,822		$	(51,853	)
Net income (loss) per share — basic	$	(0.63	)	$	(0.93	)	$	0.03		$	(0.82	)
Net income (loss) per share — diluted	$	(0.63	)	$	(0.93	)	$	0.03		$	(0.82	)
Weighted average number of shares, basic		44,282,607			48,556,843			62,599,193			63,527,932
Weighted average number of shares, diluted		44,282,607			48,556,843			65,145,707			63,527,932
2019
Total revenues	$	1,750		$	1,750		$	1,750		$	9,750
Total operating expenses	$	20,523		$	30,910		$	24,999		$	27,277
Net loss	$	(17,670	)	$	(28,090	)	$	(22,352	)	$	(16,598	)
Net loss per share — basic and diluted	$	(0.41	)	$	(0.64	)	$	(0.51	)	$	(0.38	)
Weighted average number of shares, basic and diluted		43,508,592			43,797,718			43,939,281			44,056,407


10.17^A	Offer Letter, dated March 16, 2019, between the Company and William Grossman	10-Q	001-38419	10.1	August 6, 2019

10.18^C	Amendment No. 1 dated June 27, 2019 to the License Agreement dated August 16, 2017 between Arcus Biosciences, Inc. and WuXi Biologics (Cayman) Inc.	10-Q	001-38419	10.2	August 6, 2019

10.19^A	Offer Letter, dated May 20, 2019, between the Company and Jason Barker	10-Q	001-38419	10.1	November 5, 2019

10.20^A	Compensation Program for Non-Employee Directors (for use from March 21, 2019 until June 3, 2020).	10-K	001-38419	10.9	March 5, 2020

10.21^A	Amendment to Separation and Consulting Agreement dated December 4, 2019 by and between the Company and Jennifer Jarrett.	10-K	001-38419	10.24	March 5, 2020

10.22*^A	Arcus Biosciences, Inc. Amended and Restated 2020 Inducement Plan.

10.23^A	Arcus Biosciences, Inc. Stock Option Grant Notice (2020 Inducement Plan).	10-K	001-38419	10.26	March 5, 2020

10.24^A	Arcus Biosciences, Inc. Restricted Stock Unit Grant Notice (2020 Inducement Plan).	10-K	001-38419	10.27	March 5, 2020

10.25^C	Amendment No. 2 dated March 2, 2020 to the License Agreement dated August 16, 2017 between Arcus Biosciences, Inc. and WuXi Biologics (Cayman) Inc.	10-K	001-38419	10.28	March 5, 2020

10.26^A	Compensation Program for Non-Employee Directors (for use from June 4, 2020).	8-K	001-38419	10.1	June 5, 2020

10.27^C	Common Stock Purchase Agreement dated May 27, 2020 between Arcus Biosciences, Inc. and Gilead Sciences, Inc.	8-K	001-38419	99.1	July 13, 2020

10.28^C	Amended and Restated Common Stock Purchase Agreement dated January 31, 2021 between Arcus Biosciences, Inc. and Gilead Sciences, Inc.	SC 13D/A	005-90423	99.1	February 2, 2021

10.29^C	Investor Rights Agreement dated May 27, 2020 between Arcus Biosciences, Inc. and Gilead Sciences, Inc.	8-K	001-38419	99.2	July 13, 2020

10.30^C	Option, License and Collaboration Agreement dated May 27, 2020 between Arcus Biosciences, Inc. and Gilead Sciences, Inc.	10-Q	001-38419	10.1	August 6, 2020

10.31	Third Amendment dated June 26, 2020 to the Lease agreement dated September 30, 2015 between Arcus Biosciences, Inc. and Hayward Point Eden I Limited Partnership.	10-Q	001-38419	10.4	August 6, 2020

10.32^A	Offer letter by and between Arcus Biosciences, Inc. and Robert C. Goeltz II dated June 30, 2020.	10-Q	001-38419	10.1	November 5, 2020

10.33^A	Offer letter by and between Arcus Biosciences, Inc. and Jennifer Jarrett dated September 10, 2020.	10-Q	001-38419	10.2	November 5, 2020

10.34	Fourth Amendment dated October 16, 2020 to the Lease agreement dated September 30, 2015 between Arcus Biosciences, Inc. and Hayward Point Eden I Limited Partnership.	10-Q	001-38419	10.3	November 5, 2020

10.35*	Assignment Agreement dated November 10, 2020 by and among Arcus Biosciences, Inc., WuXi Biologics (Cayman) Inc. and WuXi Biologics Ireland Limited to the License Agreement dated August 16, 2017.