Arcus Biosciences (RCUS) 10-Q 2022 Q3 Quarterly report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________to _______________

Commission File Number: 001-38419

Arcus Biosciences, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware	47-3898435
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
3928 Point Eden Way Hayward, California 94545
(Address of principal executive offices)

Registrant’s telephone number, including area code: (510) 694-6200

Securities registered pursuant to Section 12(b) of the Act:

Titles of Each Class	Trading Symbol(s)	Name of Each Exchange on which Registered
Common Stock, Par Value $0.0001 Per Share	RCUS	The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 28, 2022, the registrant had 72,407,706 shares of common stock, $0.0001 par value per share, outstanding.

ARCUS BIOSCIENCES, INC.

TABLE OF CONTENTS

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss	2
	Condensed Consolidated Statements of Stockholders’ Equity	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59
Item 3.	Defaults Upon Senior Securities	59
Item 4.	Mine Safety Disclosures	59
Item 5.	Other Information	59
Item 6.	Exhibits	60
SIGNATURES		61

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

ARCUS BIOSCIENCES, INC.

Condensed Consolidated Balance Sheets

(unaudited)

(In thousands, except share and per share amounts)

	September 30,			December 31,
	2022			2021
ASSETS
Current assets:
Cash and cash equivalents	$	217,647		$	147,914
Short-term investments		831,135			351,394
Receivable from collaboration partners ($26,521 and $744,535 from a related party)		27,286			744,595
Accrued interest receivable		3,423			2,227
Prepaid expenses and other current assets		21,625			15,620
Total current assets		1,101,116			1,261,750
Long-term investments		143,138			181,990
Property and equipment, net		33,892			32,455
Right-of-use assets		102,073			104,968
Restricted cash		3,005			3,005
Other long-term assets ($1,856 and $0 from a related party)		10,598			7,730
Total assets	$	1,393,822		$	1,591,898
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	10,546		$	10,261
Accrued research and development		39,827			29,587
Other accrued liabilities		20,528			24,181
Deferred revenue, current ($103,291 and $96,981 to a related party)		103,291			102,003
Other current liabilities		2,984			52
Total current liabilities		177,176			166,084
Deferred revenue, noncurrent ($382,584 and $462,217 to a related party)		382,584			462,217
Operating lease liabilities, noncurrent		119,195			116,887
Other long-term liabilities		16,166			5,260
Total liabilities		695,121			750,448
Commitments (Note 11)
Stockholders’ equity:
Preferred stock, $0.0001 par value, 10,000,000 shares authorized; no shares issued and outstanding.		-			-
Common stock, $0.0001 par value, 400,000,000 shares authorized; 72,352,380 and 70,781,736 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively. Shares outstanding includes zero and 9,946 shares issued but subject to vesting as of September 30, 2022 and December 31, 2021, respectively.		7			7
Additional paid-in capital		1,183,393			1,118,058
Accumulated deficit		(474,898	)		(275,354	)
Accumulated other comprehensive loss		(9,801	)		(1,261	)
Total stockholders’ equity		698,701			841,450
Total liabilities and stockholders’ equity	$	1,393,822		$	1,591,898

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ARCUS BIOSCIENCES, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

(unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Revenues:
License and development service revenue ($23,742, $0, $48,374 and $0 from a related party)	$	23,742		$	-		$	48,374		$	-
Other collaboration revenue ($8,317, $7,711, $24,949 and $23,133 from a related party)		9,839			9,461			29,971			28,383
Total revenues		33,581			9,461			78,345			28,383
Operating expenses:
Research and development (($26,560), ($756), ($92,667) and ($6,856) from a related party)		76,684			71,254			207,800			206,412
General and administrative (($493), $0, ($690) and $0 from a related party)		26,294			16,343			76,104			48,990
Total operating expenses		102,978			87,597			283,904			255,402
Loss from operations		(69,397	)		(78,136	)		(205,559	)		(227,019	)
Non-operating income (expense):
Interest and other income, net		5,013			161			8,456			481
Effective interest on liability for sale of future royalties		(535	)		-			(1,437	)		-
Total non-operating income, net		4,478			161			7,019			481
Net loss before income taxes		(64,919	)		(77,975	)		(198,540	)		(226,538	)
Income tax expense		-			-			(1,004	)		-
Net loss		(64,919	)		(77,975	)		(199,544	)		(226,538	)
Other comprehensive loss		(2,557	)		(46	)		(8,540	)		(136	)
Comprehensive loss	$	(67,476	)	$	(78,021	)	$	(208,084	)	$	(226,674	)
Net loss per share, basic and diluted	$	(0.90	)	$	(1.11	)	$	(2.78	)	$	(3.28	)
Weighted-average number of shares used to    compute basic and diluted net loss per share		72,236,283			70,110,138			71,752,246			68,990,290

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ARCUS BIOSCIENCES, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share amounts)

(unaudited)

	Common stock				Additional Paid-In		Accumulated			Accumulated Other Comprehensive			Total Stockholders’
	Shares		Amount		Capital		Deficit			Income (Loss)			Equity
Balance at December 31, 2020		63,691,901	$	6	$	830,438	$	(328,184	)	$	44		$	502,304
Issuance of common stock and rights to purchase additional shares in accordance with Amended and Restated Gilead Purchase Agreement, net of $55 offering costs		5,650,000		1		220,295		-			-			220,296
Issuance of common stock upon exercise of stock options and vesting of restricted stock		200,828		-		1,885		-			-			1,885
Vesting of early exercised stock options		54,039		-		183		-			-			183
Stock-based compensation		-		-		12,761		-			-			12,761
Other comprehensive loss		-		-		-		-			(46	)		(46	)
Net loss		-		-		-		(72,593	)		-			(72,593	)
Balance at March 31, 2021		69,596,768	$	7	$	1,065,562	$	(400,777	)	$	(2	)	$	664,790
Issuance of common stock upon exercise of stock options and vesting of restricted stock		269,369		-		843		-			-			843
Vesting of early exercised stock options		36,245		-		175		-			-			175
Issuance of common stock under Employee Stock Purchase Plan		140,408		-		1,394		-			-			1,394
Stock-based compensation		-		-		13,367		-			-			13,367
Other comprehensive loss		-		-		-		-			(44	)		(44	)
Net loss		-		-		-		(75,970	)		-			(75,970	)
Balance at June 30, 2021		70,042,790	$	7	$	1,081,341	$	(476,747	)	$	(46	)	$	604,555
Issuance of common stock upon exercise of stock options and vesting of restricted stock		125,182		-		1,318		-			-			1,318
Vesting of early exercised stock options		34,476		-		170		-			-			170
Stock-based compensation		-		-		14,585		-			-			14,585
Other comprehensive loss		-		-		-		-			(46	)		(46	)
Net income		-		-		-		(77,975	)		-			(77,975	)
Balance at September 30, 2021		70,202,448	$	7	$	1,097,414	$	(554,722	)	$	(92	)	$	542,607
Balance at December 31, 2021		70,771,790		7		1,118,058		(275,354	)		(1,261	)		841,450
Issuance of common stock upon exercise of stock options and vesting of restricted stock		840,577		-		9,928		-			-			9,928
Vesting of early exercised stock options		9,946		-		52		-			-			52
Stock-based compensation		-		-		16,541		-			-			16,541
Other comprehensive loss		-		-		-		-			(3,399	)		(3,399	)
Net loss		-		-		-		(67,993	)		-			(67,993	)
Balance at March 31, 2022		71,622,313	$	7	$	1,144,579	$	(343,347	)	$	(4,660	)	$	796,579
Issuance of common stock upon exercise of stock options and vesting of restricted stock		320,603		-		2,050		-			-			2,050
Issuance of common stock under Employee Stock Purchase Plan		142,557		-		2,296		-			-			2,296
Stock-based compensation		-		-		15,677		-			-			15,677
Other comprehensive loss		-		-		-		-			(2,584	)		(2,584	)
Net loss		-		-		-		(66,632	)		-			(66,632	)
Balance at June 30, 2022		72,085,473	$	7	$	1,164,602	$	(409,979	)	$	(7,244	)	$	747,386
Issuance of common stock upon exercise of stock options and vesting of restricted stock		266,907		-		2,531		-			-			2,531
Stock-based compensation		-		-		16,260		-			-			16,260
Other comprehensive loss		-		-		-		-			(2,557	)		(2,557	)
Net loss		-		-		-		(64,919	)		-			(64,919	)
Balance at September 30, 2022		72,352,380	$	7	$	1,183,393	$	(474,898	)	$	(9,801	)	$	698,701

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ARCUS BIOSCIENCES, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)

	Nine Months Ended
	September 30,
	2022			2021
Cash flow from operating activities
Net loss	$	(199,544	)	$	(226,538	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		48,478			40,713
Depreciation and amortization		4,522			2,583
Noncash lease expense		6,049			1,701
Amortization of premiums on investments		2,012			2,804
Acquired in-process research and development		1,250			-
Effective interest on liability for sale of future royalties		1,437			-
Changes in operating assets and liabilities:
Receivable from collaboration partners ($718,014 and $326 from a related party)		715,809			178
Prepaid expenses and other current assets		(2,152	)		(5,290	)
Other long-term assets (($1,856) and $0 to a related party)		(1,636	)		750
Accounts payable		(54	)		(5,424	)
Accrued research and development		13,240			19,163
Other accrued liabilities		(4,130	)		5,082
Deferred revenue (($73,323) and ($23,133) to a related party)		(78,345	)		(28,383	)
Operating lease liabilities		(2,911	)		(1,405	)
Other long-term liabilities		3,714			(2	)
Net cash provided by (used in) operating activities		507,739			(194,068	)
Cash flow from investing activities
Purchases of short-term and long-term investments		(1,085,392	)		(584,850	)
Proceeds from maturities of short-term and long-term investments		490,860			572,140
Sales of short-term and long-term investments		143,091			7,500
Purchases of property and equipment		(5,620	)		(17,572	)
Purchases of in-process research and development		(5,500	)		-
Collaboration reimbursements of in-process research and development from a related party		2,750			-
Net cash used in investing activities		(459,811	)		(22,782	)
Cash flow from financing activities
Proceeds from issuance of common stock ($0 and $220,235 from a related party)		-			220,235
Proceeds from sale of future royalties		5,000			-
Proceeds from issuance of common stock pursuant to equity award plans		16,805			5,440
Repurchase of unvested shares of stock		-			(6	)
Net cash provided by financing activities		21,805			225,669
Net increase in cash, cash equivalents and restricted cash		69,733			8,819
Cash, cash equivalents and restricted cash at beginning of period		150,919			173,618
Cash, cash equivalents and restricted cash at end of period	$	220,652		$	182,437
Supplemental disclosure of cash flow information
Income taxes paid	$	2,743		$	-
Non-cash investing and financing activities:
Unpaid portion of property and equipment purchases included in accounts payable and accrued liabilities	$	1,335		$	4,605
Unpaid portion of other assets included in accrued research and development	$	-		$	3,000
Vesting of early exercised stock options and restricted stock	$	52		$	529

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ARCUS BIOSCIENCES, INC.

Notes to Condensed Consolidated Financial Statements

Note 1. Organization

Description of Business

Arcus Biosciences, Inc. (the Company) is a clinical-stage, global biopharmaceutical company focused on developing differentiated molecules and combination therapies for people with cancer. Using its robust and highly efficient drug discovery capability, the Company has now advanced six investigational products into clinical development, with its most advanced molecule, an anti-TIGIT antibody, now in four Phase 3 registrational studies. The Company’s deep portfolio of novel small molecules and enabling antibodies allows it to create highly differentiated combination therapies, which the Company is developing to treat prevalent cancers including lung, colorectal, prostate and pancreatic cancers. The Company expects its clinical-stage portfolio to continue to expand and to include molecules targeting both immuno-oncology and cancer cell-intrinsic pathways. The Company’s goal is to create, develop and commercialize highly differentiated combination cancer therapies that have a meaningful impact on patients. The Company currently has six investigational products in clinical development: domvanalimab (previously referred to as AB154), etrumadenant (previously referred to as AB928), quemliclustat (previously referred to as AB680), zimberelimab (previously referred to as AB122), AB308 and AB521.

In 2020, the Company entered into an Option, License and Collaboration Agreement (Gilead Collaboration Agreement) with Gilead Sciences, Inc. (Gilead), whereby Gilead obtained an exclusive license to zimberelimab and time-limited exclusive options to all of the Company's then-current and future programs during the 10-year collaboration term. In December 2021, Gilead obtained exclusive licenses to an additional four of the Company's investigational products: domvanalimab, etrumadenant, quemliclustat and AB308. For each program to which Gilead exercised or exercises its option, the parties will co-develop globally and, provided that the Company has not exercised its opt-out rights, if any, co-commercialize the program in the U.S., and Gilead will have the right to commercialize the program outside of the United States, subject to the rights of our existing partners in certain territories.

Liquidity and Capital Resources

As of September 30, 2022, the Company had cash, cash equivalents and marketable securities of $1,191.9 million, which the Company believes will be sufficient to fund its planned operations for a period of at least twelve months following the date of filing of this report.

Note 2. Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and pursuant to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the Company’s opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the results of operations and cash flows for the periods presented have been included.

Operating results for the nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or for any future period. The balance sheet as of December 31, 2021 has been derived from audited consolidated financial statements at that date but does not include all of the information required by U.S. GAAP for complete financial statements.

The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC on February 23, 2022. There have been no significant changes to the Company’s significant accounting policies described in Note 2, Summary of Significant Accounting Policies, in Notes to Consolidated Financial Statements in Item 8 of Part II of the Form 10-K.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Arcus Biosciences, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

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Use of Estimates

The preparation of the Company’s condensed 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 related disclosures of contingent assets and liabilities. Estimates used include the determination of the standalone selling price of performance obligations and the timing of revenue recognition, the value of stock-based awards and other issuances, accruals for research and development (R&D) costs, useful lives of long-lived assets, uncertain tax positions, and valuation allowance for deferred tax assets. Actual results could differ materially from the Company’s estimates.

Cash Equivalents and Investments

Cash equivalents include 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 up to 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 income (loss). Realized gains and losses are included in interest and other income, net in the condensed consolidated statements of operations and comprehensive income or loss. The basis on which the cost of a security that is sold or an amount that is reclassified out of accumulated other comprehensive income or loss into earnings is determined using the specific identification method.

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

Restricted cash at September 30, 2022 and 2021 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 condensed consolidated balance sheets to the total shown in the condensed consolidated statements of cash flows (in thousands):

	September 30,
	2022		2021
Cash and cash equivalents	$	217,647	$	179,432
Restricted cash		3,005		3,005
Cash, cash equivalents and restricted cash	$	220,652	$	182,437

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, corporate notes, and certificates of deposit. The Company's investment policy limits interest-bearing security investments to certain types of instruments issued by institutions with investment-grade credit ratings, and it places restrictions on maturities and concentration by asset class and issuer. 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 credit worthy and in highly rated investments.

Leases and Rent Expense

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 and related tenant improvement allowances receivable are included in operating lease right-of-use assets, prepaid expenses and other current assets, other current liabilities, and operating lease liabilities, noncurrent in our condensed consolidated balance sheets at September 30, 2022 and December 31, 2021. 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 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 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.

Note 3. Fair Value Measurements

Financial assets and liabilities are recorded at fair value. The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market

6

participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value.

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 Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments 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 at fair value. The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers within the hierarchy as of September 30, 2022 or December 31, 2021. The following tables set forth the Company’s financial instruments (excluding restricted cash) that were measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):

	September 30, 2022
	Total		Level 1 (Quoted Prices in Active Markets For Identical Assets)		Level 2 (Significant Other Observable Remaining Inputs)		Level 3 (Significant Other Unobservable Remaining Inputs)
Assets
Money market funds	$	136,260	$	136,260	$	-	$	-
U.S. treasury securities		351,348		-		351,348		-
Corporate securities and commercial paper		680,628		-		680,628		-
Certificates of deposit		4,339		-		4,339		-
U.S. government agency obligations		19,345		-		19,345		-
Total assets measured at fair value	$	1,191,920	$	136,260	$	1,055,660	$	-
Liabilities
Liability for sale of future royalties	$	11,697	$	-	$	-	$	11,697
Total liabilities measured at fair value	$	11,697	$	-	$	-	$	11,697

	December 31, 2021
	Total		Level 1 (Quoted Prices in Active Markets For Identical Assets)		Level 2 (Significant Other Observable Remaining Inputs)		Level 3 (Significant Other Unobservable Remaining Inputs)
Assets
Money market funds	$	147,914	$	147,914	$	-	$	-
U.S. treasury securities		112,170		-		112,170		-
Corporate securities and commercial paper		421,214		-		421,214		-
Total assets measured at fair value	$	681,298	$	147,914	$	533,384	$	-
Liabilities
Liability for sale of future royalties	$	5,260	$	-	$	-	$	5,260
Total liabilities measured at fair value	$	5,260	$	-	$	-	$	5,260

As of September 30, 2022 and December 31, 2021, the fair value of the liability for sale of future royalties recorded on the balance sheet in other long-term liabilities is based on the Company's current estimates of future contingent milestones and royalties expected to be paid to BVF Partners L.P. (BVF) over the term of the parties' funding agreement (the BVF Agreement). These estimates are considered Level 3 fair value inputs. See Note 6 for further discussion of the liability and related estimates.

The Company's investments are classified as follows (with contractual maturities):

	September 30, 2022		December 31, 2021
Cash and cash equivalents	$	217,647	$	147,914
Short-term investments (due within one year)		831,135		351,394
Long-term investments (due between one and three years)		143,138		181,990
Total cash, cash equivalents and investments in marketable securities	$	1,191,920	$	681,298

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All the Company's investments in marketable securities are classified as available-for-sale. At September 30, 2022 and December 31, 2021, the balance in the Company’s accumulated other comprehensive income (loss) related to the Company’s available-for-sale marketable securities. There were $0.3 million in net losses recognized on the sale of available-for-sale marketable securities for each of the three and nine months ended September 30, 2022, respectively, and none recognized for the three and nine months ended September 30, 2021, respectively. As a result, the Company reclassified immaterial amounts out of accumulated other comprehensive income for the three and nine months ended September 30, 2022, and no amounts for the three and nine months ended September 30, 2021. The Company has not recognized any allowances for credit losses and no credit-related losses have been recognized for any of the periods presented, given the nature of the Company's receivables and investment portfolio. The Company does not intend to sell its securities with unrealized loss positions and has concluded it will not be required to sell the securities before recovery of the amortized cost for the investment at maturity.

The fair value and amortized cost of investments in marketable securities by major security type as of September 30, 2022 and December 31, 2021 are presented in the tables that follow (in thousands):

	Amortized Cost		Unrealized Gain		Unrealized Loss			Fair Value
As of September 30, 2022:
Money market funds	$	136,260	$	-	$	-		$	136,260
U.S. treasury securities		354,866		9		(3,527	)		351,348
Corporate securities and commercial paper		686,741		15		(6,128	)		680,628
Certificates of deposit		4,337		2		-			4,339
U.S. government agency obligations		19,517		-		(172	)		19,345
Total	$	1,201,721	$	26	$	(9,827	)	$	1,191,920

	Amortized Cost		Unrealized Gain		Unrealized Loss			Fair Value
As of December 31, 2021:
Money market funds	$	147,914	$	-	$	-		$	147,914
U.S. treasury securities		112,473		1		(304	)		112,170
Corporate securities and commercial paper		422,172		3		(961	)		421,214
Total	$	682,559	$	4	$	(1,265	)	$	681,298

Note 4. Other Accrued Liabilities

Other accrued liabilities consisted of the following (in thousands):

	As of September 30, 2022		As of December 31, 2021
Accrued personnel expenses	$	17,997	$	16,648
Professional fees		457		4,938
Income taxes payable		18		1,815
Other		2,056		780
Total	$	20,528	$	24,181

Note 5. Leases

The Company leases its corporate headquarters, which includes approximately 151,000 square feet of executive offices, research and development, and business operations, in Hayward, California. This includes approximately 14,500 square feet of leased space that commenced in April 2022, with related tenant improvement allowances totaling approximately $5.8 million. The Company also leases approximately 109,000 square feet of space in Brisbane, California. Both leases are non-cancelable, extend through 2031 and are subject to options by the Company to extend the lease terms.

In October 2022, the Company entered into an agreement to sublease approximately 31,000 unfinished square feet of its Brisbane office to another company. The lease includes a tenant improvement allowance to be paid by the Company of $9.4 million. The Company will receive sublease income of approximately $3.0 million per year under the terms of the agreement. This non-cancelable sublease is expected to commence in 2023 and extends through 2028, with the sublessee having options to extend the lease term and to lease additional space within the building.

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The following table summarizes supplemental cash flow disclosures and non-cash financing activities related to our operating leases (in thousands):

	Nine Months Ended September 30,
	2022		2021
Cash paid for amounts included in measurement of lease liabilities	$	7,805	$	3,074
Cash received from tenant improvement allowances	$	8,381	$	792
Right-of-use assets obtained in exchange for new operating lease liabilities	$	3,029	$	24,473
Recognition of tenant improvement allowance receivable included in other current liabilities	$	5,791	$	10,598

Note 6. Liability for Sale of Future Royalties

In October 2021, the Company and BVF entered into the BVF Agreement, under which BVF will fund the discovery and development of compounds for the treatment of inflammatory diseases (the Program) by providing the Company with a total of $15.0 million in three non-refundable payments. The Company received $5.0 million from BVF in the fourth quarter of 2021, $5.0 million in the first quarter of 2022, and the final $5.0 million payment in the fourth quarter of 2022. Under the BVF Agreement, the Company is obligated to perform research and development activities for the Program, to make contingent payments upon the achievement of certain clinical and regulatory milestones of up to $72.5 million or $160.0 million depending on whether the program is solely developed by the Company or as part of the Company's collaboration with Gilead, which under the Gilead Collaboration Agreement has an option to the Program. If commercialized, the Company is also obligated to pay mid- to high-single digit royalties based on net sales of products generated by the Program. Under the BVF Agreement, BVF also has the option to provide an additional $10.0 million in funding for the Program in exchange for an increase in the royalty rate.

The Company accounts for the BVF Agreement as a liability primarily because it has significant continuing involvement in generating the cash flows due to BVF. If the Program achieves certain development and regulatory milestones and commercial sales, the Company will recognize the milestone payments and royalties paid to BVF as a decrease to the accumulated liability with a corresponding reduction in cash.

The carrying amount of the liability for sale of future royalties is based on management's estimate of the future contingent milestones and royalties to be paid to BVF over the life of the arrangement as discounted using an imputed rate of interest. The excess of future estimated contingent milestone and royalty payments over the $15.0 million of allocated proceeds is recognized as non-cash interest expense using the effective interest method, which is reported in the condensed consolidated statements of operations as non-operating expense. As of September 30, 2022, the imputed effective rate of interest on the unamortized portion of the liability was approximately 20.6% and the liability was $11.7 million and is reported in other long-term liabilities on the condensed consolidated balance sheets.

The Company periodically reassesses the amount and timing of expected payments. To the extent such payments are greater or less than the Company's initial estimates or the timing of such payments is materially different than those estimates, the Company will adjust the liability and the effective interest rate using a retrospective method, catch-up method, or prospective method, subject to an accounting policy election applied on a consistent basis. As of September 30, 2022, there have been no changes to the estimated effective interest rate.

There are a number of factors that could materially affect the amount and timing of contingent milestone and royalty payments, most of which are not within the Company's control. The liability is recognized at fair value using significant unobservable inputs (Level 3 fair value inputs). These inputs are derived using internal management estimates, based in part on external data when available, and reflect management’s judgements and forecasts updated on a quarterly basis. The significant unobservable inputs include the forecasted revenues, the probability and timing of clinical and regulatory milestones, the expected term of the royalty stream, the royalty rate and the overall probability of success. A significant change in these unobservable inputs could result in a material increase or decrease to the fair value of the liability. To date there have not been any material changes resulting from changes in these unobservable inputs.

Changes to the liability for sale of future royalties were as follows for the nine months ended September 30, 2022 (in thousands):
 

	2022
Beginning balance, January 1	$	5,260
Cash received from BVF		5,000
Interest accretion		1,437
Ending balance, September 30	$	11,697

The Company incurred $0.5 million and $1.4 million in non-cash interest expense for the three and nine months ended September 30, 2022, respectively.

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Note 7. License and Collaboration Agreements

The following table summarizes the revenues recognized from the Company’s collaboration agreements with Gilead and Taiho Pharmaceutical Co., Ltd. (Taiho) (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
License and development services revenue	$	23,742	$	-	$	48,374	$	-
Other collaboration revenue		9,839		9,461		29,971		28,383
Total collaboration and license revenues	$	33,581	$	9,461	$	78,345	$	28,383

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

			Three Months Ended September 30,				Nine Months Ended September 30,
Revenues recognized:	Over time	Point in time	2022		2021		2022		2021
License and development services for all Gilead programs	*		$	23,742	$	-	$	48,374	$	-
Gilead access rights related to the Company's research and development pipeline	*			8,317		7,711		24,949		23,133
Taiho access rights	*			1,522		1,750		5,022		5,250
Total collaboration and license revenues			$	33,581	$	9,461	$	78,345	$	28,383

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Amounts included in deferred revenue at the beginning of the period	$	33,581	$	9,461	$	78,345	$	28,383

Gilead Sciences, Inc.

Summary

In May 2020, the Company and Gilead entered into the Gilead Collaboration Agreement, Common Stock Purchase Agreement (the Stock Purchase Agreement), and Investor Rights Agreement, (collectively, the Gilead Agreements). Upon closing in July 2020, Gilead made an upfront payment of $175.0 million pursuant to the Gilead Collaboration Agreement and purchased 5,963,029 shares of Arcus common stock for approximately $200.0 million by paying $33.54 per share pursuant to the Stock Purchase Agreement.

In November 2021, the Company and Gilead entered into an amendment to the Gilead Collaboration Agreement (the Amended Gilead Collaboration Agreement), under which Gilead exercised its options to three programs for a total payment of $725.0 million that was received in January 2022. In connection with Gilead’s exercise of its options to these programs, the parties agreed to (i) slightly reduce the royalties for these programs, such that Gilead will pay the Company tiered royalties as a percentage of revenues ranging from the mid-teens to the low twenties and (ii) remove the $100.0 million option continuation payment that was otherwise due on the second anniversary of the Gilead Collaboration Agreement.

In October 2022, the Company and Gilead entered into an amendment to the Investor Rights Agreement (the Amended Investor Rights Agreement), that primarily extended the two-year lockup period to three-years.

As of September 30, 2022, Gilead had obtained licenses to domvanalimab and AB308 (collectively, the anti-TIGIT program), etrumadenant and quemliclustat (collectively, the adenosine pathway programs), and zimberelimab.

Under the terms of the Amended Gilead Collaboration Agreement, Gilead obtained exclusive licenses to zimberelimab, domvanalimab, AB308, etrumadenant, and quemliclustat, and time-limited exclusive options to all of the Company’s current and future clinical programs during the 10-year collaboration term 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's opt-in rights to future programs are contingent upon option continuation payments of up to $300.0 million, consisting of a $100.0 million payment due on each of the fourth, sixth, and eighth anniversaries of the 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 the Company's 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 the Company an option fee of

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$150.0 million per program. Gilead has exercised its option to all of the clinical programs in existence at the date of the 2020 agreement, and the Company may not exercise its opt-out rights for any of these programs. With respect to domvanalimab, the Company is also eligible to receive up to $500.0 million in potential U.S. regulatory approval milestones.

Under the Amended Gilead Collaboration Agreement, Gilead also has option rights to two research programs for which the Company 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 the Company's completion of certain IND-enabling activities for an option payment of $60.0 million or (ii) following the achievement of a clinical development milestone for an option payment of $150.0 million. These research programs were not determined to be performance obligations at contract inception, due to the very early stages of the programs and the amounts of the option payments.

The Company’s assessment of the transaction price of the Amended Gilead Collaboration Agreement included an analysis of amounts it expected to receive, which at contract inception consisted of the upfront cash payment of $725.0 million, as well as amounts totaling $165.1 million deferred from the original Gilead transaction, which excluded the $100.0 million option continuation payment that would otherwise have been due on the second anniversary of the Gilead Collaboration Agreement. The Company considers the entire $890.1 million to be the allocable transaction price as of the amendment closing date, due to the Company's history of timely payments from Gilead and receipt of the full $725.0 million in January 2022 per the terms of the amendment.

The Company determined that the Amended Gilead Collaboration Agreement represented a contract modification under the application of ASC 606. At the amendment closing date, the Company allocated the transaction price to the new and remaining performance obligations identified as follows:

			Amount
Allocation of transaction price
Deferred revenues as of 12/21/2021			$	165,086
Option payment for Domvanalimab				275,000
Option payment for Etrumadenant				250,000
Option payment for Quemliclustat				200,000
Total transaction price allocated to performance obligations			$	890,086
Allocation to performance obligations	Distinct	Combined	Amount
Domvanalimab license	*		$	328,838
Etrumadenant license and R&D activities		*		218,722
Quemliclustat license and R&D activities		*		175,618
Domvanalimab R&D activities	*			34,528
Zimberelimab R&D and commercial activities	*			11,243
Access rights related to the Company's research and development pipeline	*			84,076
Material rights to option continuation periods	*			37,061
Total			$	890,086

After Gilead’s exercise of its option to a program, the two companies will co-develop and equally share global development costs for such joint development program, subject to opt-out rights of the Company applicable to certain programs, 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 (if applicable), 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 (i) the mid-teens to the low twenties for the anti-TIGIT and the adenosine pathway programs, (ii) high single digits to low double digits for research programs if Gilead exercises its option rights at the IND stage, and (iii) the high teens to the low twenties for all other programs.

Under the Stock Purchase Agreement, Gilead has the option to purchase additional shares from the Company, up to a maximum of 35% of the Company’s then-outstanding voting common stock, over a five-year period from closing of the initial transaction, 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 Amended Investor Rights Agreement also includes a three-year standstill and a three-year lockup, 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.

In the year ended December 31, 2020, Gilead made an equity investment of approximately $200.0 million in the Company by purchasing 5,963,029 shares of the Company's common stock at $33.54 per share pursuant to the Stock Purchase Agreement. Of the $200.0 million equity investment, approximately $90.6 million was determined to be a premium on the purchase of common stock and allocated to the

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performance obligations created by the Gilead Collaboration Agreement. Gilead made an additional equity investment in the Company of approximately $56.7 million, net of offering costs, by purchasing 2,200,000 shares of the Company's common stock at $27.50 per share in the May 2020 public offering. In January 2021, the Company 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 the Company 5,650,000 shares of the Company's common stock at a purchase price of $39.00 per share, for a total of $220.3 million, net of offering costs. All other terms of the original Common Stock Purchase Agreement, including Gilead's option to purchase additional shares from the Company, up to a maximum ownership of 35% of its then-outstanding common stock, remain unchanged.

Pursuant to the Investor Rights Agreement, the Company appointed Gilead's two designees to the Company’s Board of Directors. Based on the value of the Company’s common stock at the contract closing, the right to purchase additional shares had no value. See Note 12 for further discussion of the agreements with Gilead.

The Company evaluated the agreements with Gilead under ASC Topic 808, Collaborative Arrangements (ASC 808) and ASC Topic 606, Revenue from Contracts with Customers (ASC 606) and determined that the licenses to zimberelimab and domvanalimab, and access rights related to the Company's research and development pipeline, were within the scope of ASC 606 because Gilead meets the definition of a customer with respect to those performance obligations.

The Company had $485.9 million and $559.2 million of deferred revenue remaining on its condensed consolidated balance sheets related to this collaboration at September 30, 2022 and December 31, 2021, respectively, allocated between current and noncurrent based on the expected timing of future recognition. During the three and nine months ended September 30, 2022, the Company recorded revenues of $32.1 million and $73.3 million, respectively, from this collaboration. Total revenues recognized during these periods include cumulative catch-up revenue of $8.9 million and $13.1 million, respectively, due to changes in total estimated effort to be incurred in the future to satisfy the performance obligations, primarily related to revised clinical trial assumptions for zimberelimab R&D and commercial activities. This cumulative catch-up reduced net loss per share in the three and nine months ended September 30, 2022, by $0.12 and $0.18, respectively. During the three and nine months ended September 30, 2021, the Company recorded revenues of $7.7 million and $23.1 million, respectively.

The Company accounted for each performance obligation as follows:

Zimberelimab license

Under the Gilead Collaboration Agreement, 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 amount associated with this distinct performance obligation in license revenue on the date the transaction closed in July 2020.

Domvanalimab option and license

Gilead obtained the right in the Gilead Collaboration Agreement to exercise an option for exclusive rights to the Company’s anti-TIGIT monoclonal antibody program, including domvanalimab and AB308, in exchange for an option payment of $275.0 million. Prior to the closing of the Amended Gilead Collaboration Agreement, the Company had $36.7 million of deferred revenue on its consolidated balance sheets related to this performance obligation.

Under the Amended Gilead Collaboration Agreement, Gilead obtained an exclusive license to domvanalimab in December 2021. The standalone selling price of this license was determined using a discounted cash flow method. The Company further evaluated the delivery of the license, noting that the program was in later stages of development and it met the criteria for being distinct from the R&D activities required under the Gilead Collaboration Agreement (as amended). 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 activities for such later-stage, Phase 3 intellectual property, primarily involved validating the drug’s efficacy; and (ii) the ongoing R&D activities do not significantly modify or customize the drug compound such that the intellectual property is not significantly different at the end of the arrangement as a result of the R&D activities. As the license had been made available in the fourth quarter of 2021, the Company recognized the full $328.8 million of transaction price allocated to this performance obligation as license revenue in December 2021.

Etrumadenant option, license and R&D activities

Gilead obtained the right in the Gilead Collaboration Agreement to exercise an option for exclusive rights to the Company’s adenosine receptor program, etrumadenant, in exchange for an option payment of $250.0 million. Prior to the closing of the Amended Gilead Collaboration Agreement, the Company had $127.0 million of deferred revenue on its condensed consolidated balance sheets related to this performance obligation.

Under the Amended Gilead Collaboration Agreement, Gilead obtained an exclusive license to etrumadenant in December 2021. The standalone selling price of this license was determined using a discounted cash flow method. The Company further evaluated the delivery of the license, noting that it was combined with the R&D activities required under the agreements due to the early stage of the technology and the highly specialized nature of the Company's know-how. Accordingly, transaction price allocated to this license is recognized as revenue as the related R&D activities are performed. The Company determined that it retains obligations to perform further R&D

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activities for Gilead related to etrumadenant. The standalone selling price of this obligation was determined using an expected cost-plus margin approach. The Company will recognize the amounts allocated to the combined license and R&D activities as the performance obligation is satisfied, calculated as an estimated percentage of completion based on management's estimated total effort to perform the related R&D activities for the program.

Due to the combined nature of the performance obligation, the Company determined that the revenue from the license would be recognized at the same rate and using the same input-driven methodology as the revenue from the R&D activities. The Company determined that its performance of the R&D activities commenced January 1, 2022. The Company recognized $2.3 million and $20.5 million in license and development services revenue associated with these obligations for the three and nine months ended September 30, 2022, respectively. At September 30, 2022, the Company had $198.2 million of deferred revenue remaining on its condensed consolidated balance sheets related to this performance obligation, allocated between current and noncurrent based on the expected timing of future recognition.

Quemliclustat option, license and R&D activities

Gilead obtained the right in the Gilead Collaboration Agreement to exercise an option for exclusive rights to the Company's CD73 program, quemliclustat, in exchange for an option payment of $200.0 million. Prior to the closing of the Amended Gilead Collaboration Agreement, the Company had no deferred revenue on its consolidated balance sheets related to this performance obligation. The Company determined that it retains obligations to perform further R&D activities for Gilead related to quemliclustat. The standalone selling price of this obligation was determined using an expected cost-plus margin approach. The Company will recognize the amounts allocated to these R&D activities as the performance obligation is satisfied, calculated as an estimated percentage of completion based on management's estimated total effort to perform the related R&D activities for the program.

Effective on the December 2021 closing of the Amended Gilead Collaboration Agreement, Gilead obtained an exclusive license to quemliclustat. The standalone selling price of this license was determined using a discounted cash flow method. The Company further evaluated the delivery of the license, noting that it was combined with the R&D activities required under the agreements due to the expertise and the highly specialized nature of the Company's know-how. Accordingly, transaction price allocated to this license is recognized as revenue as the related R&D activities are performed.

Due to the combined nature of the performance obligation, the Company determined that the revenue from the license would be recognized at the same rate and using the same input-driven methodology as the revenue from the R&D activities. The Company determined that its performance of the R&D activities commenced January 1, 2022. The Company recognized $12.7 million and $16.4 million in license and development services revenue associated with these obligations for the three and nine months ended September 30, 2022, respectively. At September 30, 2022, the Company had $159.2 million of deferred revenue remaining on its condensed consolidated balance sheets related to this performance obligation, allocated between current and noncurrent based on the expected timing of future recognition.

R&D activities for domvanalimab

The Company determined that it retains separate obligations to perform further R&D activities for Gilead related to domvanalimab. The standalone selling price of this obligation was determined using an expected cost-plus margin approach. The Company will recognize the amounts allocated to these R&D activities as the performance obligation is satisfied, calculated as an estimated percentage of completion based on management's estimated total effort to perform the related R&D activities for the program. The Company determined that its performance of the R&D activities commenced as of January 1, 2022. The Company recognized $0.2 million and $2.4 million in license and development services revenue associated with these obligations in the three and nine months ended September 30, 2022, respectively. At September 30, 2022, the Company had $32.2 million of deferred revenue remaining on its condensed consolidated balance sheets related to this performance obligation, allocated between current and noncurrent based on the expected timing of future recognition.

R&D and commercialization activities for zimberelimab monotherapy

The Company determined that it retained an obligation to perform further R&D and commercialization activities for Gilead related to zimberelimab monotherapy. Prior to the closing of the Amended Gilead Collaboration Agreement, the Company had $9.7 million of deferred revenue on its consolidated balance sheets, related to the two performance obligations. The standalone selling price of this obligation was determined using an expected cost-plus margin approach, and revenue allocated to these R&D activities would be recognized as the performance obligation was satisfied, calculated as an estimated percentage of completion based on management's estimated total effort to perform the related R&D activities for the program.

The Company determined that its performance of the R&D activities had commenced in 2021. The Company recognized $8.5 million and $9.1 million in license and development services revenue associated with these obligations in the three and nine months ended September 30, 2022, respectively. At September 30, 2022, the Company had $1.0 million of deferred revenue remaining on its condensed consolidated balance sheets related to this performance obligation, allocated between current and noncurrent based on the expected timing of future recognition.

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Access rights related to the Company’s research and development pipeline and material rights to option continuation periods

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 $300.0 million, consisting of three $100.0 million option continuation payments 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 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 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 option continuation 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. Prior to the closing of the Amended Gilead Collaboration Agreement, the Company had $91.7 million deferred revenue on its condensed consolidated balance sheets related to this performance obligation.

The Company recognized $8.3 million and $24.9 million in other collaboration revenues associated with these obligations in the three and nine months ended September 30, 2022, respectively. The Company recognized $7.7 million and $23.1 million in other collaboration revenues associated with these obligations in the three months and nine months ended September 30, 2021, respectively. At September 30, 2022, the Company had $95.3 million in deferred revenue on its consolidated balance sheets related to this performance obligation, classified as current based on the expected timing of future recognition.

Cost-sharing reimbursements

The Company's research and development obligations under the Gilead Collaboration Agreement includes a 50/50 share of the joint development costs associated with optioned programs pursuant to an approved R&D plan and budget. Payments received from Gilead for their share of costs incurred will be recognized as a reduction of R&D expense or G&A expense depending on the type of reimbursable expense. Payments made to Gilead for the Company's share of costs incurred will be recognized as an increase to those expenses depending on the type of reimbursable cost. The Company recognized net reductions of operating expenses totaling $27.1 million and $93.4 million during the three and nine months ended September 30, 2022, respectively, as a result of this cost-sharing provision. The Company recognized net reductions of operating expenses totaling $0.8 million and $6.9 million during the three and nine months ended September 30, 2021, respectively, as a result of this cost-sharing provision.

Capitalized costs to obtain contract

The Company incurred $7.3 million in costs to obtain the contract in 2020, 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 which were recognized as offering costs. The Company allocated the remaining costs between the various performance obligations, to be recognized when the underlying revenue is recognized. The Company incurred an additional $4.5 million in fees to a third party as part of entering into the Amended Gilead Collaboration Agreement in 2021. These fees were combined with the $3.8 million of capitalized fees that remained from the original agreement at the date of closing, and the total $8.3 million was allocated among the performance obligations identified under the Amended Gilead Collaboration Agreement and deferred or recognized accordingly.

The Company recognized $0.2 million and $0.6 million in expense related to these capitalized costs during the three and nine months ended September 30, 2022, respectively. The Company recognized $0.1 million and $0.3 million in expense related to these capitalized costs during the three months and nine months ended September 30, 2021, respectively. As of September 30, 2022, the Company had $4.3 million in capitalized costs to obtain the contract, of which $0.9 million was recorded in prepaid expenses and other current assets and $3.4 million was recorded in other long-term assets.

Taiho Pharmaceutical Co., Ltd

In September 2017, the Company and Taiho entered into an option and license agreement (the Taiho Agreement) under which Taiho obtained exclusive options to Arcus programs that arose over a five-year period which ended September 2022 (the Option Period). Consistent with the terms of the Taiho Agreement, Taiho retains an option to certain programs developed during the Option Period. If Taiho timely exercises its option, Taiho obtains exclusive development and commercialization rights to investigational products from such Arcus Program for Japan and certain other territories in Asia (excluding China) (the Taiho Territory). In consideration for the exclusive options and other rights contained in the Taiho Agreement, Taiho paid non-refundable, non-creditable cash payments to the Company totaling $35.0 million.

For each option that Taiho elects to exercise, it 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. Upon exercise Taiho is solely responsible for continued development and commercialization in the Taiho Territory. 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,

14

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 determined that the identified performance obligations for the Taiho Agreement, which include 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 was recognized in other collaboration revenues using this input method over the estimated performance period of five years which ended in September 2022.

In November 2021, Taiho exercised its option under the Taiho Agreement to the Company's anti-TIGIT program, including domvanalimab and AB308, in exchange for a $15.0 million option exercise fee. In November 2019, Taiho exercised its option to the Company's anti-PD-1 antibody program, including zimberelimab, for a fee of $8.0 million. For each of these exercises, the Company identified one performance obligation which was the delivery of the license, which was recognized by the Company as license revenue during the years ended December 31, 2021 and 2019, respectively. Upon the option exercises, Taiho gained sole responsibility for the development and commercialization of the licensed products within the Taiho Territory. As of September 30, 2022, no clinical or regulatory milestones had been achieved under the Taiho Agreement. As of September 30, 2022, no sales milestone or royalty revenue has been recognized.

As of September 30, 2022, Taiho has exercised its option to the Company's adenosine receptor antagonist program (including etrumadenant), its anti-PD-1 program (including zimberelimab), and its anti-TIGIT program (including domvanalimab and AB308) for option payments totaling $26.0 million. The Taiho Agreement will remain in effect until the expiry of all royalty terms for the licensed products.

As of September 30, 2022 and December 31, 2021, the Company had zero and $5.0 million, respectively, in deferred revenue on its condensed 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 which the Company obtained an exclusive license to develop, use, manufacture, and commercialize products including an anti-PD-1 antibody worldwide except for Greater China.

From the inception of the WuXi PD-1 Agreement through September 30, 2022, the Company has made upfront and milestone payments of $41.0 million and incurred sub-license fees of $11.3 million. 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 three and nine months ended September 30, 2022, the Company incurred no milestone expense under the WuXi PD-1 Agreement. During the three and nine months ended September 30, 2021, the Company incurred zero and $10.0 million, respectively, in development milestone expense under the WuXi PD-1 Agreement. 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 CD39 Agreement) with WuXi Biologics 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. The WuXi CD39 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. From the inception of the WuXi CD39 Agreement through September 30, 2022, the Company has paid a $1.5 million development milestone and $0.5 million in upfront payments, both of which were recorded in research and development expense, as the products are still in research stage. The Company incurred zero and $1.5 million in development milestone expense under the WuXi CD39 Agreement during the three and nine months ended September 30, 2022, respectively. The Company incurred no development milestone expense under the WuXi CD39 Agreement during the three and nine months ended September 30, 2021.

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Abmuno License Agreement

In December 2016, the Company entered into a license agreement (the Abmuno Agreement) with Abmuno Therapeutics LLC (Abmuno) in which the Company obtained a worldwide exclusive license to develop, use, manufacture, and commercialize products that include an anti-TIGIT antibody, including domvanalimab. From the inception of the Abmuno Agreement through September 30, 2022, the Company has made upfront and milestone payments totaling $14.6 million as of September 30, 2022, which were recorded in research and development expense, as the products are still in research stage. The Abmuno Agreement also provides for additional clinical, regulatory and commercialization milestone remaining payments of up to $93.0 million as of September 30, 2022.

The Company incurred no development milestone expense for the three and nine months ended September 30, 2022. The Company incurred zero and $5.0 million in development milestone expense for the three and nine months ended September 30, 2021, respectively.

AstraZeneca Agreement

In October 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 NSCLC, which study the parties refer to as PACIFIC-8. 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, the Company will reimburse AstraZeneca for its share of the trial costs upon achievement of certain milestones. If the agreement is terminated early, in certain circumstances, the Company is obligated to reimburse AstraZeneca for a portion of the trial costs incurred. This portion of the clinical trial costs that is considered unavoidable is accrued as research and development expenses in advance of the achievement of milestones. From the inception of the agreement through September 30, 2022, the Company has incurred gross expense of $3.7 million which is recorded on the condensed consolidated balance sheet in other long-term liabilities.

This PACIFIC-8 trial forms part of the Arcus and Gilead joint development program for domvanalimab and Arcus’s portion of the trial costs will be shared with Gilead. At September 30, 2022 the Company had recognized a receivable of $1.9 million from Gilead related to the reimbursement of these costs, which is recorded on the condensed consolidated balance sheet in other noncurrent assets.

For the three months and nine months ended September 30, 2022, the Company incurred expenses pursuant to the AstraZeneca Agreement of $1.1 million and $2.7 million, respectively, before expected recoveries from its cost-sharing agreement with Gilead. For the three and nine months ended September 30, 2021, the Company incurred expenses pursuant to the AstraZeneca Agreement of $0.3 million and $0.6 million, respectively, before expected recoveries from its cost-sharing agreement with Gilead.

Note 8. Stock-Based Compensation

The Company grants awards under its 2018 Equity Incentive Plan and the 2020 Inducement Plan. Total stock-based compensation expense was recognized in the condensed consolidated statements of operations and comprehensive loss as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Research and development	$	8,094	$	7,949	$	24,313	$	21,087
General and administrative		8,166		6,636		24,165		19,626
Total stock-based compensation	$	16,260	$	14,585	$	48,478	$	40,713

Note 9. Income Taxes

The provision or benefit from income taxes for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into consideration in the relevant period. Each quarter, the Company updates the estimate of the annual effective tax rate, and if the estimated tax rate changes, the Company records a cumulative adjustment to the provision.

The Company did not record a provision for income taxes for the three months ended September 30, 2022 and 2021. The Company’s provision for income taxes was $1.0 million and zero for the nine months ended September 30, 2022 and 2021, respectively, with an effective tax rate of -0.5% and 0%, respectively. The effective tax rate differs from the U.S. statutory tax rate primarily due to the valuation allowances on the Company’s deferred tax assets and state income taxes.

The income tax provision includes the effects of the mandatory capitalization and amortization of research and development expenses starting in 2022, as required by the 2017 Tax Cuts and Jobs Act.

As of September 30, 2022 and December 31, 2021, the Company has provided a valuation allowance against U.S. federal and state deferred tax assets. Management continues to evaluate the realizability of deferred tax assets and the related valuation allowance. If management's assessment of the deferred tax assets or the corresponding valuation allowance were to change, the Company would record the related adjustment to income during the period in which management makes the determination. The Company recognizes interest and penalties associated with uncertain tax benefits as part of the income tax provision. To date, the Company has not recognized

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any interest and penalties in its condensed consolidated statements of operations, nor has it accrued for or made payments for interest and penalties.

On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 ("The Inflation Act") into law. The Inflation Act contains tax measures, including a corporate alternative minimum tax of 15% on some large corporations and an excise tax on stock buy-backs. The various provisions of the Inflation Act do not have a material impact on the Company's condensed consolidated financial statements.

The Company is subject to taxation in the U.S. and various foreign jurisdictions. The tax years subsequent to 2015 remain open and subject to examination by federal, state, and foreign taxing authorities in which the Company is subject to tax.

Note 10. Net Loss per Share

Basic net loss per share is calculated based on the weighted-average number of shares of the Company’s common stock during the period. Diluted net loss per share is calculated based on the weighted-average number of shares of the Company’s common stock and other dilutive securities outstanding during the period. Potentially dilutive securities are excluded from the calculation if their inclusion would have been antidilutive.

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Numerator:
Net loss	$	(64,919	)	$	(77,975	)	$	(199,544	)	$	(226,538	)
Denominator:
Weighted-average common shares outstanding		72,236,283			71,286,685			71,752,246			70,296,187
Less: weighted-average common shares subject to vesting		-			(1,176,547	)		-			(1,305,897	)
Weighted-average common shares used to compute basic and diluted net loss per share		72,236,283			70,110,138			71,752,246			68,990,290
Net loss per share: basic and diluted	$	(0.90	)	$	(1.11	)	$	(2.78	)	$	(3.28	)

The following outstanding potentially dilutive securities were excluded from the computation of diluted net loss per share because including them would have been antidilutive:

	As of September 30,
	2022		2021
Common stock options issued and outstanding		12,221,549		12,625,226
Restricted stock units issued		1,420,753		1,361,008
Employee Stock Purchase Plan shares		130,149		166,461
Unvested early exercised common stock options		-		39,142
Total		13,772,451		14,191,837

The Company also excluded the effect of Gilead’s right to purchase additional shares of the Company’s common stock from its calculation as these rights had no intrinsic value at September 30, 2022.

Note 11. Commitments

Standby Letters of Credit

The Company has standby letters of credit up to an aggregate of $3.0 million provided as collateral for its leases. The letters of credit are secured by $3.0 million in deposits classified as restricted cash on the Company’s condensed consolidated balance sheets. At September 30, 2022 the standby letters of credit were not drawn down.

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Note 12. Related parties

Relationship and transactions with Gilead

As of September 30, 2022, Gilead held approximately 19.1% of the Company’s outstanding common stock. These holdings resulted from a combination of Gilead’s participation in the May 2020 public offering as well as purchases of stock under the stock purchase agreement. In the May 2020 public offering, Gilead purchased 2,200,000 shares of common stock for an amount of $56.7 million, net of offering costs. Under the stock purchase agreement (as amended and restated), Gilead purchased 5,963,029 and 5,650,000 shares in July 2020 and February 2021, respectively, for a total investment of $327.8 million, net of offering costs and amounts allocated to the performance obligations created by the Gilead Collaboration 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 five years from the closing of the initial transaction. Pursuant to the Investor Rights Agreement, the Company appointed Gilead's two designees to the Company’s Board of Directors. See Note 7 for further discussion of the agreements with Gilead.

At September 30, 2022, the Company had a $26.5 million cost sharing receivable recorded on the condensed consolidated balance sheets under receivable from collaboration partners, to be invoiced the following quarter. At September 30, 2022, the Company had a $1.9 million long-term cost-share receivable recorded in other long-term assets on the balance sheet, to be invoiced upon the achievement of milestones under the AstraZeneca agreement in future years. The Company also had $103.3 million in deferred revenue, current and $382.6 million in deferred revenue, noncurrent recorded on its condensed consolidated balance sheets at September 30, 2022.

For the three and nine months ended September 30, 2022, the Company recognized $32.1 million and $73.3 million, respectively, in revenue under the Gilead Collaboration Agreement. For these periods, the Company also recognized net reductions in operating expenses totaling $27.1 million and $93.4 million, respectively. For the three and nine months ended September 30, 2021 the Company recognized $7.7 million and $23.1 million, respectively, in revenue under the Gilead Collaboration Agreement. For these periods, the Company also recognized net reductions in operating expenses totaling $0.8 million and $6.9 million, respectively.

The Company received a $175.0 million upfront payment from Gilead upon closing of the Gilead Collaboration Agreement in July 2020. In addition, in July 2020 the Company received $200.0 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 with the remaining premium of $90.6 million allocated to the transaction price. In February 2021, the Company received $220.4 million from Gilead in connection with the purchase by Gilead of 5,650,000 shares of the Company’s common stock at a per share price of $39.00 pursuant to the amended and restated Stock Purchase Agreement. In January 2022, the Company received $725.0 million in option exercise payments from Gilead.

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Item 2. 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 our unaudited condensed consolidated financial statements and notes thereto in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and notes thereto for the year ended December 31, 2021, included in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (SEC) on February 23, 2022. This discussion and other parts of this report contain forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, expectations, and intentions. Further, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. Our actual results could differ materially from those discussed in these forward-looking and other statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this report entitled “Risk Factors.”

Overview

We are a clinical-stage, global biopharmaceutical company focused on developing differentiated molecules and combination therapies for people with cancer. Using our robust and highly efficient drug discovery capability, we have now advanced six investigational products into clinical development, with our most advanced molecule, an anti-TIGIT antibody, now in four Phase 3 registrational studies, with others in planning. Our deep portfolio of novel small molecules and enabling antibodies allows us to create highly differentiated combination therapies, which we are developing to treat prevalent cancers including lung, colorectal, prostate and pancreatic cancers. We expect our clinical-stage portfolio to continue to expand and to include molecules targeting both immuno-oncology and cancer cell-intrinsic pathways. Our goal is to create, develop and commercialize highly differentiated combination cancer therapies that have a meaningful impact on patients.

In May 2020, we entered into an Option, License and Collaboration Agreement (Gilead Collaboration Agreement) with Gilead Sciences, Inc. (Gilead), whereby Gilead obtained an exclusive license to zimberelimab and time-limited exclusive options to all of our then-current and future programs during the 10-year collaboration term. In December 2021, Gilead obtained rights to an additional four of our investigational products: domvanalimab, etrumadenant, quemliclustat and AB308, for which we subsequently received a total of $725.0 million in option exercise payments. For each program to which Gilead exercised or exercises 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 in certain territories. In 2017, we entered into an Option and License Agreement (Taiho Agreement) with Taiho Pharmaceutical Co., Ltd. (Taiho) pursuant to which Taiho was granted time-limited options to exclusively license the development and commercialization rights to each of our programs that arose over a five-year period, which ended in September 2022, for Japan and certain other territories in Asia (excluding China). Taiho has exercised its option rights to our adenosine receptor antagonist program (including etrumadenant), our anti-PD-1 program (including zimberelimab), and our anti-TIGIT program (including domvanalimab and AB308), and retains option rights to the other programs that arose during the five-year period.

In connection with our entry into the Gilead Collaboration Agreement in 2020, we also entered into a Common Stock Purchase Agreement pursuant to which Gilead has the right, at its option from time to time over five years from closing of the initial transaction, to purchase up to a maximum ownership of 35% of our then-outstanding voting common stock, and an Investor Rights Agreement that, as amended, provides for a three-year standstill, three-year lockup and the right to designate two individuals to be appointed to our Board of Directors. Gilead currently owns approximately 19.1% of our outstanding common stock.

We currently have six investigational products in clinical development:

•

Domvanalimab (previously referred to as AB154), our Fc-silent anti-TIGIT monoclonal antibody, is being evaluated in multiple studies. ARC-7 is a randomized, 150-patient Phase 2 trial in first-line metastatic PD-L1≥50% non-small cell lung cancer (NSCLC) in which we are studying domvanalimab in combination with zimberelimab and with or without etrumadenant vs. zimberelimab monotherapy. In 2021, we initiated ARC-10, our first registrational trial, which is now evaluating domvanalimab in combination with zimberelimab vs. a currently approved standard-of-care, pembrolizumab, in the same setting as ARC-7. Furthermore, in January 2022, AstraZeneca initiated PACIFIC-8, a registrational study, which is evaluating domvanalimab plus durvalumab after chemoradiation therapy in Stage 3 NSCLC. In the third quarter of 2022, Gilead initiated STAR-121, a registrational Phase 3 study to evaluate domvanalimab and zimberelimab plus chemotherapy versus pembrolizumab plus chemotherapy in 1L NSCLC PD-L1 all-comers. We have also initiated STAR-221, a registrational Phase 3 study to evaluate domvanalimab plus zimberelimab and chemotherapy versus nivolumab plus chemotherapy in first-line locally advanced unresectable or metastatic gastric, esophageal and gastro-esophageal junction adenocarcinomas.

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•

AB308, our Fc-enabled anti-TIGIT monoclonal antibody, is being evaluated in a Phase 1/1b study (ARC-12). In 2021, we completed the dose escalation portion of the study and are now enrolling two expansion cohorts to support further development planning for domvanalimab.

•

Etrumadenant (previously referred to as AB928), our small molecule dual A2a/A2b adenosine receptor antagonist, is being evaluated in several randomized or Phase 2 trials across major tumor types, including in our ARC-6, ARC-7, and ARC-9 studies.

•

Quemliclustat (previously referred to as AB680), our small-molecule CD73 inhibitor, is being evaluated in a Phase 1/1b study for the treatment of first-line metastatic pancreatic cancer (ARC-8) as well as late-line metastatic prostate cancer (ARC-6) and metastatic colorectal cancer (ARC-9). In the third quarter of 2022, we began initiating EDGE-Lung, a Phase 2 platform study to evaluate domvanalimab-, quemliclustat-, and zimberelimab-based combinations in NSCLC. We expect to initiate one or more cohorts with quemliclustat-based combinations in gastrointestinal (GI) cancers in the ongoing ARC-21 study, a Phase 2 study evaluating combinations domvanalimab and zimberelimab-based combinations in upper gastric cancers.

•

Zimberelimab (previously 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 registrational trial which is designed to support the approval of zimberelimab in combination with domvanalimab.

•

AB521, our HIF-2α inhibitor, is being evaluated in a healthy volunteer study (ARC-14) to expeditiously characterize the pharmacokinetic and safety profile of AB521 and to identify the starting dose for a Phase 1 study in oncology indications. We plan to evaluate AB521 in renal cell carcinoma as well as in other tumor types, and in combination with other molecules, including those targeting the CD73-adenosine axis.

COVID-19 Pandemic

We continue to address and mitigate the impact of the ongoing COVID-19 pandemic on our employees and our business. While we are not experiencing financial impacts at this time, given the changes in global macroeconomic conditions, the overall disruption of global healthcare systems, potential limitations to the efficacy of vaccines for COVID-19, the evolution of multiple variants of the virus and other risks and uncertainties associated with the pandemic, our business, financial condition, results of operations and growth prospects could be materially adversely affected. We continue to closely monitor the COVID-19 situation as we evolve our business continuity plans and response strategy.

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 in most of our ongoing Arcus-sponsored studies, depending on the evolving impacts of the ongoing COVID-19 pandemic, disruptions caused by the COVID-19 pandemic may impact our ability to initiate, supply, enroll, conduct or complete our ongoing or planned clinical trials.

With respect to manufacturing and supply, our third-party contract manufacturers continue to operate at or near normal levels. However, global shipping has been severely challenged by the evolving pandemic, leading to delays in our receipt of materials and supplies, including standard-of-care drugs used in the conduct of our clinical trials. We actively manage the inventory for each of our investigational products and our overall supply chain needs in order to prevent or minimize the impact of any disruptions to our clinical programs. For additional information about risks and uncertainties related to the COVID-19 pandemic that may impact our business, financial condition and operations, see the section titled “Risk Factors” under Part II, Item 1A in this Quarterly Report on Form 10-Q.

Components of Operating Results

Revenues

We have not generated any revenue from product sales and do not expect to generate any revenue from product sales for the foreseeable future. All revenue recognized to date has been through research, collaboration and license arrangements with strategic partners.

License and Development Services Revenue

Our license and development services revenue consists of amounts recognized from the portions of the nonrefundable upfront and milestone payments received from Gilead and Taiho and allocated to performance obligations for licenses or R&D activities performed by us as we develop our investigational products under the terms of our collaboration 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.

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Other Collaboration Revenue

Other collaboration revenue consists of amounts recognized from the portions of the nonrefundable upfront payments received from Gilead and Taiho and allocated to performance obligations relating to the customer's access to our investigational pipeline over the collaboration period. Other collaboration revenues are recognized throughout the collaboration period.

Operating Expenses

Research and Development Expenses

Our research and development expenses consist of expenses incurred in connection with the research and development of our pipeline programs. These expenses include pre-clinical and clinical expenses, payroll and personnel expenses, including stock-based compensation for our employees, 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 require 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 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 as we pursue joint development programs with Gilead for our five optioned molecules and advance these programs towards regulatory approval. We also expect to advance new programs into the clinic. 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 our manufacturing processes for the investigational products in each program. As a result, we expect our preclinical, clinical, and contract manufacturing expenses to increase significantly relative to what we have incurred to date.

In addition, under our license agreements with WuXi Biologics and Abmuno, and our co-development, collaboration, and research and development arrangements with AstraZeneca, BVF and Strata, we may be required to pay additional clinical and regulatory milestone payments based on the development progress of our investigational products. We may also be required to pay royalties to these parties 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 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 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 anticipate that our general and administrative 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.

Non-Operating Income, net

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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Critical Accounting Judgments and Estimates

Our condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of these 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, 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 condensed consolidated financial statements, we believe that the following critical accounting 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 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 to determine the amount and timing of revenue to recognize: (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. We then allocate the total transaction price to each performance obligation in proportion to their standalone selling prices (i.e., on a relative standalone selling price basis). 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 7, License and Collaboration Agreements to our condensed consolidated financial statements in Part I, Item 1, 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. The estimation of the standalone selling price may include such estimates as 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, and we measure the services delivered to 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 evaluated to determine if it is constrained and, therefore, excluded from the transaction price.

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 10% change in the total estimated effort required to satisfy the combined license and R&D activities performance obligations related to the agreement with Gilead would have changed the related revenue recognized during the current quarter by as much as $6.5 million. For changes in estimates during the three and nine months ended September 30, 2022, see Results of Operations below. Such 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 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, 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 with a corresponding change in the transaction price allocated to the remaining performance obligations in the Gilead Collaboration Agreement.

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Results of Operations

Three Months Ended September 30, 2022 and 2021

The following table summarizes our results of operations for the three months ended September 30, 2022 and 2021 (in thousands):

	Three Months Ended September 30,						Change
	2022			2021			$		%
Revenues:
License and development service revenue	$	23,742		$	-		$	23,742	*
Other collaboration revenue		9,839			9,461			378		4	%
Total revenues		33,581			9,461			24,120	*
Operating expenses:
Research and development		76,684			71,254			5,430		8	%
General and administrative		26,294			16,343			9,951		61	%
Total operating expenses		102,978			87,597			15,381		18	%
Loss from operations		(69,397	)		(78,136	)		8,739		-11	%
Non-operating income, net		4,478			161			4,317	*
Net loss	$	(64,919	)	$	(77,975	)	$	13,056		-17	%

* Not meaningful

Revenues

Revenues increased $24.1 million, from $9.5 million for the three months ended September 30, 2021 to $33.6 million for the three months ended September 30, 2022. In the three months ended September 30, 2022, we recognized $23.7 million in license and development service revenues for all programs optioned by Gilead. License and development service revenues included $8.9 million in revenues due to changes in the total estimated effort to be incurred in the future to satisfy the performance obligations, primarily driven by zimberelimab. We further recognized $8.3 million in other collaboration revenues related to Gilead’s ongoing rights to access our intellectual property in accordance with the Gilead Collaboration Agreement, as well as the final $1.5 million of other collaboration revenues under the Taiho Agreement. In the three months ended September 30, 2021, we recognized $7.7 million in collaboration revenues in accordance with the Gilead Collaboration Agreement, as well as $1.8 million under the Taiho Agreement. See Note 7 to our condensed consolidated financial statements in Part I, Item 1 for further discussion of the amount and timing of revenues recognized from our collaboration agreements.

Research and Development Expenses

Research and development expenses increased $5.4 million, or 8%, from $71.3 million for the three months ended September 30, 2021 to $76.7 million for the three months ended September 30, 2022. Our expanding clinical and development activities for domvanalimab and zimberelimab in combination studies drove increases of $14.7 million in manufacturing costs, as well as $6.7 million in clinical costs. Our growing headcount and our 2022 stock awards drove an $8.5 million increase in employee compensation costs, including approximately $0.2 million of increased non-cash stock-based compensation. The year over year increase in costs incurred to support our programs described above was partially offset by cost-sharing reimbursements, which increased to $26.6 million from $0.8 million in the same quarter in the prior year as we incurred qualified expenses on the four programs optioned by Gilead. Reimbursements in the same quarter in the prior year were based upon our expenditures on a single program.

General and Administrative Expenses

General and administrative expenses increased $10.0 million, or 61%, from $16.3 million for the three months ended September 30, 2021 to $26.3 million for the three months ended September 30, 2022. The increase in general and administrative expenses was driven by the increased complexity of supporting our expanding clinical pipeline and partnership obligations. Our growing headcount as well as our 2022 stock awards drove a $3.7 million increase in employee compensation costs, including approximately $1.6 million in increased non-cash stock-based compensation. We incurred an approximately $3.0 million increase in office facilities expense due to our expanding headcount and office space. We also incurred an increase of $1.6 million in consulting expenses incurred in corporate development activities.

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Non-Operating Income, Net

Non-operating income, net increased $4.3 million, from $0.2 million for the three months ended September 30, 2021 to $4.5 million for the three months ended September 30, 2022. The increase in interest income from our portfolio of investments in marketable fixed-income securities compared to the same quarter in the prior year was partially offset by an increase in non-cash interest expense incurred on our liability for sale of future royalties to BVF.

Nine Months Ended September 30, 2022 and 2021

The following table summarizes our results of operations for the nine months ended September 30, 2022 and 2021 (in thousands):

	Nine Months Ended September 30,						Change
	2022			2021			$			%
Revenues:
License and development service revenue	$	48,374		$	-		$	48,374		*
Other collaboration revenue		29,971			28,383			1,588			6	%
Total revenues		78,345			28,383			49,962			176	%
Operating expenses:
Research and development		207,800			206,412			1,388			1	%
General and administrative		76,104			48,990			27,114			55	%
Total operating expenses		283,904			255,402			28,502			11	%
Loss from operations		(205,559	)		(227,019	)		21,460			-9	%
Non-operating income, net		7,019			481			6,538		*
Loss before income taxes		(198,540	)		(226,538	)		27,998			-12	%
Income tax expense		(1,004	)		-			(1,004	)	*
Net loss	$	(199,544	)	$	(226,538	)	$	26,994			-12	%

* Not meaningful

Revenues

Revenues increased $49.9 million, from $28.4 million for the nine months ended September 30, 2021 to $78.3 million for the nine months ended September 30, 2022. In the nine months ended September 30, 2022, we recognized $48.4 million in license and development service revenues for all programs optioned by Gilead. License and development service revenues included $13.1 million in revenues due to changes in the total estimated effort to be incurred in the future to satisfy the performance obligations, primarily driven by zimberelimab. We further recognized $24.9 million in other collaboration revenues related to Gilead’s ongoing rights to access our intellectual property in accordance with the Gilead Collaboration Agreement, as well as the final $5.0 million of other collaboration revenues under the Taiho Agreement. In the nine months ended September 30, 2021, we recognized $23.1 million in collaboration revenues in accordance with the Gilead Collaboration Agreement, as well as $5.3 million under the Taiho Agreement. See Note 7 to our condensed consolidated financial statements in Part I, Item 1 for further discussion of the amount and timing of revenues recognized from our collaboration agreements.

Research and Development Expenses

Research and development expenses increased $1.4 million after reimbursements, or 1%, from $206.4 million for the nine months ended September 30, 2021 to $207.8 million for the nine months ended September 30, 2022. Our expanding clinical and development activities for domvanalimab and zimberelimab in combination studies drove increases of $36.0 million in manufacturing costs and $28.4 million in clinical costs. We incurred additional increases of $3.9 million in office facilities expense due to our expanding headcount and office space, and $3.3 million for consulting services compared to the same period in the prior year. Our growing headcount and our 2022 stock awards drove a $27.6 million increase in employee compensation costs, including approximately $3.2 million of increased non-cash stock-based compensation. The year over year increase in costs incurred to support our programs described below was offset by cost-sharing reimbursements, which increased to $92.7 million from $6.9 million in the same period in the prior year as we incurred qualified expenses on the four programs optioned by Gilead. Reimbursements in the same period in the prior year were based upon our expenditures on a single program. There was also a $13.5 million decrease in scientific licenses expense. In the nine months ended September 30, 2022 we paid a $1.5 million milestone fee to WuXi for CD39, compared to $15.0 million in milestones in the same period in the prior year.

General and Administrative Expenses

General and administrative expenses increased $27.1 million, or 55%, from $49.0 million for the nine months ended September 30, 2021 to $76.1 million for the nine months ended September 30, 2022. The increase in general and administrative expenses was driven by the increased complexity of supporting our expanding clinical pipeline and partnership obligations. We incurred an approximately

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$10.6 million increase in office facilities expense due to our expanding headcount and office space. Our growing headcount as well as our 2022 stock awards drove a $10.5 million increase in employee compensation costs, including approximately $4.6 million in increased non-cash stock-based compensation. We also incurred an increase of $3.8 million in consulting expenses for corporate development activities.

Non-Operating Income, Net

Non-operating income, net increased $6.5 million, from $0.5 million for the nine months ended September 30, 2021 to $7.0 million for the nine months ended September 30, 2022. The increase in interest income from our portfolio of investments in marketable fixed-income securities compared to the same quarter in the prior year was partially offset by an increase in non-cash interest expense incurred on our liability for sale of future royalties to BVF.

Income Tax Expense

Income tax expense was $1.0 million for the nine months ended September 30, 2022, compared to none in the same period the prior year. The increase in income tax expense was due to the completion of a U.S. state nexus study for the 2021 tax year.

Liquidity and Capital Resources

Sources of Liquidity

To date, we have financed our operations primarily from the sale of our equity securities and revenue through 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 product candidates and ongoing internal research and development programs. At this time, we cannot reasonably estimate the nature, timing or aggregate amount of costs for our development, potential commercialization, and internal research and development programs.

As of September 30, 2022, we had $1,191.9 million of cash, cash equivalents, and investments in marketable securities, compared to $681.3 million as of December 31, 2021. The increase in cash from the prior year end is primarily due to the receipt of $725.0 million in option exercise payments from Gilead in January 2022. Our cash and investments are held in a variety of interest-bearing instruments, including money market funds, U.S. government treasury obligations, investments in corporate securities and certificates of deposit.

Based on our existing business plan, we believe that our existing cash, cash equivalents, and investments will be sufficient to fund our planned level of operations into 2026.

Our cash flow and financing requirements are determined by analyses of operating and capital spending budgets. It is challenging to predict the nature, timing and estimated long-range costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our investigational products. This is made more challenging by events outside of our control, such as the recent COVID-19 pandemic. Accordingly, our operating plan may change, including as a result of factors currently unknown to us, and we may need to seek additional funds sooner than planned. Such financing may result in dilution to stockholders, imposition of debt covenants and repayment obligations, or other restrictions that may adversely affect our business. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.

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

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Summary Condensed 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):

	Nine Months Ended September 30,
Net cash (used in) provided by:	2022			2021
Operating activities	$	507,739		$	(194,068	)
Investing activities		(459,811	)		(22,782	)
Financing activities		21,805			225,669
Net increase in cash, cash equivalents and restricted cash	$	69,733		$	8,819

Cash Provided by (Used in) Operating Activities

Net cash provided by operating activities was $507.7 million for the nine months ended September 30, 2022 compared to $194.1 million used in operating activities for the same period in the prior year. The change in cash flow from operating activities is primarily due to Gilead's exercise of its options to three programs, resulting in the receipt of $725.0 million from Gilead in January 2022 and the increase in cost-sharing reimbursements to $93.4 million in the nine months ended September 30, 2022. These receipts were partially offset by our net loss of $199.5 million, as well as year-over-year changes in non-cash items, including an increase of $7.8 million in non-cash stock-based compensation, and changes in our asset and liability balances due to the timing of payments to or from our vendors and collaborators.

Cash Used in Investing Activities

Cash used in investing activities was $459.8 million for the nine months ended September 30, 2022 compared to $22.8 million for the same period in the prior year. The change in cash flow from investing activities was primarily due to higher net purchases of short-term and long-term securities as we invested a portion of the $725.0 million received from Gilead in January 2022 in fixed income marketable securities.

Cash Provided by Financing Activities

Cash provided by financing activities was $21.8 million for the nine months ended September 30, 2022 compared to $225.7 million in the same period in the prior year. The decrease in cash flow from financing activities was primarily due to the $220.4 million received from Gilead in February 2021 pursuant to the terms of the Amended and Restated Stock Purchase Agreement which did not recur in the nine months ended September 30, 2022. The overall decrease is partially offset by increased funds received for issuance of common stock pursuant to equity award plans and $5.0 million received under the BVF agreement.

Contractual Obligations and Commitments

There have been no material changes to our contractual obligations outside the ordinary course of business during the nine months ended September 30, 2022, as compared to those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.

Off-Balance Sheet Arrangements

We have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The market risk inherent in our financial instruments and in our financial position represents the potential loss arising from adverse changes in interest rates, exchange rates, or general market and economic conditions. Our market risks have not changed materially from those discussed in our Annual Report on Form 10-K filed with the SEC on February 23, 2022. We do not believe that inflation, interest rate changes, exchange rate fluctuations, or general market and economic conditions had a significant impact on our results of operations for any periods presented herein.

Item 4. 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) 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, 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.

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. 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.

Item 1A. Risk Factors.

You should consider carefully the following risk factors, together with all the other information in this report, including our condensed consolidated financial statements and notes thereto, and in our other public filings with the SEC, including our Annual Report on Form 10-K filed with the SEC on February 23, 2022. The occurrence of any of the following risks could harm our business, financial condition, results of operations and/or growth prospects or cause our actual results to differ materially from those contained in forward-looking statements we have made in this report and those we may make from time to time. You should consider all of the risk factors described when evaluating our business.

Risk Factor Summary

•

The impact of the COVID-19 pandemic and related risks could have a material adverse impact on our research and development programs and financial condition.

•

We are a pre-commercial company with a limited operating history. We have incurred annual net losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future. We have never generated any revenue from product sales and may never be profitable.

•

We may need to obtain additional funding to finance our operations and complete the development and any commercialization of our investigational products. If we do not receive substantial opt-in, milestone or royalty payments from our existing collaboration agreements, or are unable to raise additional capital when needed, we may be forced to restrict our operations or delay, reduce or eliminate our product development programs.

•

If we are unable to develop, obtain regulatory approval for and commercialize our investigational products, or experience significant delays in doing so, our business will be materially harmed.

•

Clinical drug development is a lengthy, expensive and uncertain process. The results of preclinical studies and early clinical trials are not always predictive of future results. Any investigational product that we advance into clinical trials may not achieve favorable results in later clinical trials, if any, or receive marketing approval.

•

Enrollment and retention of subjects in clinical trials is expensive and time consuming, can be made more difficult or rendered impossible by competing treatments, clinical trials of competing investigational products, and public health epidemics, each of which could result in significant delays and additional costs in our product development activities, or in the failure of such activities.

•

Serious adverse events, undesirable side effects or other unexpected properties of our investigational products may be identified during development or after approval, which could lead to the discontinuation of our clinical development programs, refusal by regulatory authorities to approve our investigational products or limitations on the use of our investigational products or, if discovered following marketing approval, revocation of marketing authorizations or subsequent limitations on the use of our investigational products.

•

A key element of our strategy is the development of intra-portfolio combinations. If we are not successful in discovering, developing and commercializing investigational products that take advantage of different mechanisms of action to achieve superior outcomes relative to the use of single agents or other combination therapies, our ability to achieve our strategic objectives would be impaired.

•

Certain of our investigational products may require companion diagnostics in certain indications. Failure to successfully develop, validate and obtain regulatory clearance or approval for such tests could harm our product development strategy or prevent us from realizing the full commercial potential of our investigational products.

•

We have conducted, and continue to conduct, portions of our clinical trials outside the United States, and the FDA may not accept data from trials conducted in foreign locations.

•

We expect to depend on our collaboration with Gilead for the research, development, manufacture and commercialization of our investigational products. If this collaboration is not successful, our business could be adversely affected.

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•

We rely on third parties to conduct our clinical trials, to manufacture and supply us with sufficient quantities of our investigational products, and to perform some of our research and preclinical studies. If these third parties do not satisfactorily carry out their contractual duties or fail to meet expected deadlines, our development programs may be delayed or subject to increased costs, each of which may have an adverse effect on our business and prospects.

•

Even if our investigational products are approved by the FDA, they may never be approved or commercialized outside the United States, which would limit our ability to realize their full market potential.

•

We are currently party to several in-license agreements under which we acquired rights to use, develop, manufacture and/or commercialize certain of our investigational products. If we breach our obligations under these agreements, we may be required to pay damages, lose our rights to these investigational products or both, which would adversely affect our business and prospects.

•

Our operating activities may be restricted by certain covenants in our license and other strategic agreements, which could limit our development and commercial opportunities.

•

If we are unable to obtain and maintain sufficient intellectual property protection for our investigational products, or if the scope of the intellectual property protection is not sufficiently broad, our competitors could develop and commercialize products similar or identical to ours, and our ability to successfully commercialize our products may be adversely affected.

•

We may need to obtain additional licenses of third-party technology that may not be available to us or are available only on commercially unreasonable terms, and which may cause us to operate our business in a more costly or otherwise adverse manner that was not anticipated.

•

We may become involved in lawsuits alleging that we have infringed the intellectual property rights of third parties or to protect or enforce our patents or other intellectual property, which litigation could be expensive, time consuming and adversely affect our ability to develop or commercialize our investigational products.

•

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.

•

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.

•

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

•

Failure to comply with health and data protection laws and regulations 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.

•

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.

Risks Related to the Impact of COVID-19

The impact of the COVID-19 pandemic and related risks could have a material adverse impact on our research and development programs and financial condition.

The degree to which COVID-19 impacts our business operations, research and development programs and financial condition remains highly uncertain and dependent on future developments, including the ultimate duration and/or severity of the pandemic, the impact of any resurgences and new variants that emerge, actions by government authorities to contain the spread of the virus, the availability, and adoption and effectiveness of vaccines and boosters. We conduct our clinical trials in the U.S. and internationally in geographic regions that are impacted by COVID-19 to varying degrees, and disruptions caused by the COVID-19 pandemic, including the reinstitution of shelter-in-place measures, may impact our ability to initiate, supply, enroll, conduct or complete our ongoing or planned clinical trials. Furthermore, regulatory authorities and ethics committees may divert resources, prolonging the time for review of new studies and any protocol or other amendments for ongoing studies. Global shipping has also been challenged by the evolving pandemic and has led to delays in our receipt of materials and supplies, including our investigational product and other standard-of-care drugs used in the conduct of our clinical trials. We are unable to predict the ultimate impact of this pandemic on our programs.

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The impact of the COVID-19 pandemic, including governmental and other actions to combat it such as the imposition of shelter-in-place and other public health orders, may exacerbate the effects of the risks described below.

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

We are a pre-commercial immuno-oncology company with a limited operating history. We have never generated any revenue from product sales and anticipate that we will continue to incur significant losses for the foreseeable future.

We are a pre-commercial immuno-oncology company with a limited operating history that may make it difficult to evaluate the success of our business to date and to assess our future viability. All of our investigational products are in development, and none have been approved for commercial sale nor have we ever generated any revenue from product sales. In 2021, we recognized our first annual net income since commencing operations as a result of option payments totaling $725.0 million due to us from Gilead following its exercise of options to three of our programs. For the nine months ended September 30, 2022 and the year ended December 31, 2021 we had net losses of $199.5 million and net income of $52.8 million, respectively. As of September 30, 2022, we had an accumulated deficit of $474.9 million. We expect that it will be several years, if ever, before we have an investigational product ready for commercialization. Despite net income in 2021 of $52.8 million, we expect to incur substantial and increasing levels of operating losses over the next several years and for the foreseeable future as we advance our investigational products. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital.

To become and remain profitable on a sustained basis, we must develop and eventually commercialize a product with significant market potential. This will require us to be successful in a range of challenging activities, including completing preclinical studies and clinical trials of our investigational products, obtaining marketing approval for these investigational products, manufacturing, marketing and selling those products for which we may obtain marketing approval and satisfying any post-marketing requirements. We may never succeed in these activities and, even if we succeed in commercializing one or more of our investigational products, we may never generate revenues that are significant or large enough to achieve sustained profitability. In addition, as a young business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown challenges. If we do achieve profitability from product sales, we may not be able to sustain or increase profitability on a quarterly or annual basis and we will continue to incur substantial research and development and other expenditures to develop and market additional investigational products. Our failure to become and remain profitable on a sustained basis would decrease the value of the company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our company could also cause our stockholders to lose all or part of their investment.

We may need to obtain additional funding to finance our operations and complete the development and any commercialization of our investigational products. If we do not receive substantial opt-in, milestone or royalty payments from our existing collaboration agreements, or are unable to raise additional capital when needed, we may be forced to restrict our operations or delay, reduce or eliminate our product development programs.

The development of biopharmaceutical investigational products is capital intensive. Since our inception, we have used substantial amounts of cash to fund our operations and expect our expenses to increase substantially during the next few years as our investigational products enter and advance into and through large late-stage or registrational clinical trials and we expand our clinical, regulatory, quality and manufacturing capabilities. In addition, if we obtain marketing approval for any of our investigational products, we expect to incur significant commercialization expenses related to marketing, sales, manufacturing and distribution.

As of September 30, 2022, we had $1,191.9 million of cash, cash equivalents and investments. While we believe that our cash position will be sufficient to fund our anticipated level of operations into 2026, 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;

•

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 number of programs Gilead exercises its option to obtain an exclusive license 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 optioned programs;

•

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

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•

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.

We cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our investigational products. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts. In addition, if we are able to raise additional capital, raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or investigational products.

Risks Related to the Discovery and Development of our Investigational Products

If we are unable to develop, obtain regulatory approval for and commercialize our investigational products, or experience significant delays in doing so, our business will be materially harmed.

We have no products approved for sale and we only initiated our first registrational trial in 2021. We may subsequently learn of certain information or data that the FDA may request, which may necessitate conducting additional preclinical studies or generating additional information at significant cost in terms of both time and expense, including under a clinical hold imposed on an investigational new drug application (IND). For example, the FDA recently published guidance on "Project Optimus", an initiative to reform dose selection in oncology drug development. If the FDA does not believe we have sufficiently demonstrated that the selected doses for our investigational products maximize not only the efficacy of the investigational product, but the safety and tolerability as well, our ability to initiate new studies may be delayed. Even if we conducted the additional studies or generated the additional information requested, the FDA could disagree that we have satisfied their requirements, all of which will cause significant delays and expense to our programs.

To support the advancement of our clinical programs, we need to expand our clinical operations, quality and regulatory capabilities. In part because of our limited infrastructure, experience conducting clinical trials as a company and regulatory interactions, we cannot be certain that our clinical trials will be completed on time, that our planned clinical trials will be initiated on time, if at all, that our planned development programs would be acceptable to the FDA or other comparable foreign regulatory authorities, or that, if approval is obtained, such investigational products can be successfully commercialized.

Our ability to generate product revenue, which we do not expect will occur for many years, if ever, will depend heavily on our ability to successfully complete the above activities and any other activities required for the successful development and eventual commercialization of one or more of our investigational products. The success of our investigational products will further depend on factors such as:

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the success of our collaboration with Gilead;

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successful completion of preclinical studies;

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permission to proceed under regulatory applications for our planned clinical trials or future clinical trials;

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successful enrollment in, and completion of, clinical trials;

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receipt of marketing approvals from applicable regulatory authorities;

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establishing manufacturing capabilities or arrangements with third-party manufacturers for clinical supply and, if and when approved, for commercial supply;

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establishing sales, marketing and distribution capabilities and launching commercial sales of our products, if and when approved, whether alone or in combination with others;

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acceptance of our products, if and when approved, by patients, the medical community and third-party payors;

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effectively competing with other therapies;

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developing and implementing marketing and reimbursement strategies;

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obtaining and maintaining third-party coverage and adequate reimbursement;

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obtaining and maintaining patent, trade secret and other intellectual property protection and regulatory exclusivity for our investigational products;

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the ability to obtain clearance or approval of companion diagnostic tests, if required, on a timely basis, or at all; and

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maintaining a continued acceptable safety profile of any product following approval.

If we do not achieve one or more of these factors in a timely manner, we could experience significant delays or an inability to successfully commercialize our investigational products, which would materially harm our business.

Clinical drug development is a lengthy, expensive and uncertain process.

The research and development of drugs and biological products is an extremely risky industry. Only a small percentage of investigational products that enter the development process ever receive marketing approval. Before obtaining marketing approval from regulatory authorities for the sale of any investigational product, we must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of our investigational products in humans. Clinical testing is expensive, can take many years to complete and its outcome is uncertain.

The results of preclinical studies and early clinical trials are not always predictive of future results.

The results of preclinical and early clinical trials of our investigational products and other products with the same mechanism of action may not be predictive of the results of later-stage clinical trials. Clinical trial failure may result from a multitude of factors including flaws in study design, dose selection, placebo effect, patient enrollment criteria and failure to demonstrate favorable safety or efficacy traits. As such, failure in clinical trials can occur at any stage of testing. A number of companies in the biopharmaceutical industry have suffered setbacks in the advancement of clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. Based upon negative or inconclusive results, we may decide, or regulators may require us, to conduct additional clinical trials or preclinical studies. In addition, data obtained from clinical trials are susceptible to varying interpretations, and regulators may not interpret our data as favorably as we do, which may further delay, limit or prevent marketing approval. In particular, results from uncontrolled trials, meaning trials in which there is no control group such as a placebo group, are inherently difficult to interpret. Clinical trials evaluating two or more investigational products in combination that have not yet been approved can compound these difficulties. As a key element of our strategy is the development of intra-portfolio combinations, our early clinical trials may test more than one investigational product in uncontrolled studies, such as our Phase 1/1b clinical trial for AB308 which is evaluating AB308 in combination with zimberelimab. Furthermore, 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.

Any investigational product that we advance into clinical trials may not achieve favorable results in later clinical trials, if any, or receive marketing approval.

We currently have six investigational products in clinical development and their risk of failure is high. We are unable to predict if these investigational products or any of our future investigational products that advance into clinical trials will prove safe or effective in humans or will obtain marketing approval. If we are unable to complete preclinical or clinical trials of current or future investigational products, due to safety concerns, or if the results of these trials are not satisfactory to convince regulatory authorities of their safety or efficacy, we will not be able to obtain marketing approval for commercialization. For example, since a key element of our strategy is the development of intra-portfolio combinations, regulatory authorities may disagree that we have sufficiently demonstrated the contribution of each investigational product or other agent in our combination trials and require further studies. Even if we are able to obtain marketing approvals for any of our investigational products, those approvals may be for indications that are not as broad as desired or may contain other limitations that would adversely affect our ability to generate revenue from sales of those products. Moreover, if we are not able to differentiate our product against other approved products within the same class of drugs, or if any of the other circumstances described above occur, our business would be materially harmed and our ability to generate revenue from that class of drugs would be severely impaired.

Enrollment and retention of subjects in clinical trials is expensive and time consuming, can be made more difficult or rendered impossible by competing treatments, clinical trials of competing investigational products, and public health epidemics, each of which could result in significant delays and additional costs in our product development activities, or in the failure of such activities.

We may encounter delays in enrolling, or be unable to enroll and maintain, a sufficient number of subjects to complete any of our clinical trials. Patient enrollment and retention in clinical trials is a significant factor in the timing of clinical trials and depends on many factors,

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including the size of the patient population required for analysis of the trial’s primary endpoints, the nature of the trial protocol, our ability to recruit clinical trial investigators with the appropriate competencies and experience, the existing body of safety and efficacy data with respect to the investigational product, the number and nature of competing products or investigational products and ongoing clinical trials of competing investigational products for the same indication, the proximity of subjects to clinical trial sites, the eligibility criteria for the clinical trial and our ability to obtain and maintain subject consents.

For example, enrollment of oncology subjects in our clinical trials evaluating zimberelimab may be hampered by nivolumab from Bristol-Myers Squibb and pembrolizumab from Merck, both of which are approved and on the market. Subjects may opt to be treated with an approved product rather than our anti-PD-1 antibody investigational product. In addition, Roche/Genentech, Merck and Beigene have initiated numerous Phase 3 trials with their respective anti-TIGIT antibodies, which could reduce the number of clinical sites and subjects available for our registrational program for domvanalimab (our anti-TIGIT antibody), including ARC-10 and STAR-121, each Phase 3 trials in lung cancer and STAR-221, our Phase 3 trial in gastrointestinal cancers.

Public health outbreaks, such as the COVID-19 pandemic, will also have an adverse impact our clinical trial operations. Regulatory authorities and ethics committees may divert resources, prolonging the time for review of new studies and any protocol or other amendments for ongoing studies. Investigational sites have intermittently diverted resources in order to respond to the ongoing health crisis, causing delays and limiting their ability to initiate new studies. The limited resources at investigational sites further hinders their ability to screen and enroll subjects, conduct and report all patient assessments and collect all patients samples, thereby impacting our ability to assess the activity of our investigational products in a timely manner. Furthermore, supply chain challenges during the COVID-19 pandemic has made it more difficult to procure standard-of-care chemotherapy drugs utilized in our trials and timely ship materials to investigational sites, which has and may continue to delay or limit their screening and enrollment of patients.

In addition, recruiting and retaining subjects in our clinical trials may be adversely impacted by negative results that we report in our other clinical trials using the same investigational products or by negative results reported by others using investigational products with the same mechanism of action as our investigational products. Delays in patient enrollment may result in increased costs or may affect the timing or outcome of the planned clinical trials, which could prevent completion of these trials and adversely affect our ability to advance the development of our investigational products. Failures in planned subject enrollment or retention may result in increased costs or program delays and could render further development impossible.

If we do not achieve our product development goals in the time frames we announce and expect, the commercialization of our investigational products may be delayed, our share price may decline and our commercial prospects may be adversely affected.

Drug development is inherently risky and uncertain. The actual timing of our development milestones can vary significantly compared to our estimates, in some cases for reasons beyond our control, for any number of reasons, including:

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delays in completing IND-enabling preclinical studies or developing manufacturing processes and associated analytical methods that meet cGMP requirements;

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the FDA placing a clinical trial on hold;

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subjects failing to enroll or remain in our trial at the rate we expect;

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subjects choosing an alternative treatment or other investigational products, or participating in competing clinical trials;

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lack of adequate funding to continue our clinical trials;

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subjects experiencing severe or unexpected drug-related adverse effects;

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any interruptions or delays in the supply of our investigational products for our clinical trials;

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a facility manufacturing any of our investigational products or any of their components being ordered by the FDA or comparable foreign regulatory authorities to temporarily or permanently shut down due to violations of good manufacturing practice (cGMP) regulations or other applicable requirements, or infections or cross-contaminations of investigational products in the manufacturing process;

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any changes to our manufacturing process or product specifications that may be necessary or desired;

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any failure or delay in reaching an agreement with contract research organizations (CROs) and clinical trial sites;

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third-party clinical investigators losing the licenses or permits necessary to perform our clinical trials, not performing our clinical trials on our anticipated schedule or consistent with the clinical trial protocol, good clinical practices (GCP) or regulatory requirements or other third parties not performing data collection or analysis in a timely or accurate manner;

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third-party contractors becoming debarred or suspended or otherwise penalized by the FDA or other comparable foreign regulatory authorities for violations of applicable regulatory requirements, in which case we may need to find a substitute

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contractor, and we may not be able to use some or all of the data produced by such contractors in support of our marketing applications;

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one or more Institutional Review Boards (IRBs) refusing to approve, suspending or terminating the trial at an investigational site, precluding enrollment of additional subjects, or withdrawing its approval of the trial;

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changes in regulatory requirements and policies, which may require us to amend clinical trial protocols to comply with these changes and resubmit our clinical trial protocols to IRBs for reexamination; or

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health crises and other epidemics, such as the COVID-19 pandemic, which has led to mandatory quarantines that has restricted the ability of trial sites to initiate new trials, screen patients for enrollment or treat enrolled patients, and has diverted clinical trial site resources away from the conduct of our clinical trials.

These and other factors may also lead to the suspension or termination of clinical trials, and ultimately the denial of regulatory approval of an investigational product. Any delays in achieving our development goals may allow our competitors to bring products to market before we do and adversely affect our commercial prospects and cause our stock price to decline.

Preliminary and interim data from our clinical studies that we announce or publish from time to time are subject to audit and verification procedures that could result in material changes in the final data and may change as more patient data become available.

From time to time, we publish preliminary or interim data from our clinical studies. Preliminary data remain subject to audit confirmation and verification procedures that may result in the final data being materially different from the preliminary data we previously published. Interim data are also subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. As a result, preliminary and interim data should be viewed with caution until the final data are available. Material adverse changes in the final data could significantly harm our business prospects.

Serious adverse events, undesirable side effects or other unexpected properties of our investigational products may be identified during development or after approval, which could lead to the discontinuation of our clinical development programs, refusal by regulatory authorities to approve our investigational products or limitations on the use of our investigational products or, if discovered following marketing approval, revocation of marketing authorizations or subsequent limitations on the use of our investigational products.

To date, we have only tested our clinical-stage investigational products in a relatively small number of oncology subjects. As we continue our development of these investigational products and initiate clinical trials of our additional investigational products, serious adverse events, undesirable side effects or unexpected characteristics may emerge causing us to abandon these investigational products or limit their development to more narrow uses or subpopulations in which the serious adverse events, undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Even if our investigational products initially show promise in these early clinical trials, the side effects of drugs are frequently only detectable after they are tested in large, Phase 3 clinical trials or, in some cases, after they are made available to patients on a commercial scale after approval. Sometimes, it can be difficult to determine if the serious adverse or unexpected side effects were caused by the investigational product or another factor, especially in oncology subjects who may suffer from other medical conditions and be taking other medications. If serious adverse or unexpected side effects are identified during development and are determined to be attributed to our investigational product, we may be required to develop a Risk Evaluation and Mitigation Strategy (REMS) to mitigate those serious safety risks, which could impose significant distribution and use restrictions on our products.

Drug-related side effects could also affect subject recruitment or the ability of enrolled subjects to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business prospects significantly.

In addition, if one or more of our investigational products receives marketing approval, and we or others later identify undesirable side effects caused by such products, a number of potentially significant negative consequences could result, including:

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regulatory authorities may withdraw approvals of such product;

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regulatory authorities may require additional warnings on the label;

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we may be required to create a medication guide outlining the risks of such side effects for distribution to patients;

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regulatory authorities may impose subsequent limitations on the use of the product;

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we could be sued and held liable for harm caused to patients; and

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our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of the particular investigational product, if approved, and could significantly harm our business, results of operations and prospects.

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Adverse findings from clinical trials conducted by third parties investigating the same investigational products as us in different territories could adversely affect our development program.

Lack of efficacy, adverse events, undesirable side effects or other adverse findings may emerge in clinical trials conducted by third parties investigating the same investigational products as us in different territories. For example, we and Guangzhou Gloria Biosciences, Co. (Gloria Biosciences, formerly known as Harbin Gloria Pharmaceuticals Co. Ltd.) each licensed our rights to the same anti-PD-1 antibody (which we refer to as zimberelimab) from WuXi Biologics (Cayman) Inc. (WuXi Biologics). Gloria Biosciences refers to this antibody as GLS-010 and is conducting clinical trials with GLS-010 in China. We have no control over their clinical trials or development program, and adverse findings from the results or their conduct of clinical trials could adversely affect our development of zimberelimab or even the viability of zimberelimab as an investigational product. We may be required to report Gloria Biosciences’ adverse events or unexpected side effects to the FDA or comparable foreign regulatory authorities, which could, among other things, order us to cease further development of zimberelimab. We may face similar risks from any independent development conducted with our investigational products by Gilead and Taiho, following any exercise of their respective options to our programs.

A key element of our strategy is the development of intra-portfolio combinations. If we are not successful in discovering, developing and commercializing investigational products that take advantage of different mechanisms of action to achieve superior outcomes relative to the use of single agents or other combination therapies, our ability to achieve our strategic objectives would be impaired.

A key element of our strategy is to build a broad portfolio of investigational products that will allow for the development of intra-portfolio combinations. We believe that by developing or licensing these investigational products, we can control the combinations we pursue and, if and when approved, maximize the commercial potential of these combinations. However, these combinations have not been tested before and may fail to demonstrate synergistic activity against immunological targets, may fail to achieve superior outcomes relative to the use of single agents or other combination therapies, may exacerbate adverse events associated with one of the investigational products when used as monotherapy, or may fail to demonstrate sufficient safety or efficacy traits in clinical trials to enable us to complete those clinical trials or obtain marketing approval for the combination therapy. In addition, our early clinical trials may test more than one investigational product in uncontrolled studies, and it may be difficult to interpret the results of those uncontrolled trials or evaluate the contribution of each investigational agent in such combination.

We expect that our anti-PD-1 antibody, zimberelimab, will form the backbone of many of our intra-portfolio combinations. In the event that zimberelimab were to fail to demonstrate sufficient safety and efficacy, we would need to identify alternatives for accessing an anti-PD-1 antibody. In the event we are unable to do so or are unable to do so on commercially reasonable terms, our business and prospects would be materially harmed.

All of our investigational products are targeting mechanisms that other companies are pursuing as either monotherapy or combination products. As such, even if we are successful in developing combination therapies, competition from other investigational products in the same class which are either already approved or further along in development than ours may prevent us from realizing the commercial potential of our combination therapies and prevent us from achieving our strategic objectives.

Our intra-portfolio combination strategy relies on discovering, developing and commercializing highly differentiated small molecules. If we are not able to differentiate our small molecules from other products which are approved or in development, our business prospects would be materially adversely affected.

Our combination therapy strategy relies on discovering and developing differentiated small molecules with ideal pharmacologic properties for the targeted pathway to complement our antibody investigational products, which we believe will form the backbone of our combination therapies. We conduct in our laboratories those activities that we consider to be critical for creating a development candidate with optimal properties. These activities include medicinal chemistry, assay development, assessment of compound potency and selectivity, in vitro and in vivo pharmacokinetic profile evaluation, in vivo pharmacology and exploratory safety evaluation, among others. As such, we have invested heavily in these internal capabilities and over 75% of our current workforce is dedicated to research and development.

In addition, any small molecules we discover and design may, on further study, be shown to have harmful side effects or other characteristics that indicate that they are unlikely to be medicines that will receive marketing approval and achieve market acceptance. If we are unable to identify suitable compounds with ideal pharmacological properties and which are differentiated from other investigational products in development for preclinical and clinical development, our business and prospects would be materially harmed.

Certain of our investigational products may require companion diagnostics in certain indications. Failure to successfully develop, validate and obtain regulatory clearance or approval for such tests could harm our product development strategy or prevent us from realizing the full commercial potential of our investigational products.

Companion diagnostics are subject to regulation by the FDA and comparable foreign regulatory authorities as a medical device and may require separate regulatory authorization prior to commercialization. Certain clinical trials that we are conducting, such as our Phase 2

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ARC-7 trial and our Phase 3 ARC-10 trial, which are each being conducted in patients with PD-L1≥50% non-small cell lung cancer, include the use of a diagnostic test to help identify eligible patients. Our future trials may also use a diagnostic test to help identify eligible patients. In addition, we have significant efforts directed to identifying changes in various cells and proteins to understand their relationship, if any, to the clinical activity observed in our clinical trials and to assess if such cells and/or proteins could be used as predictive biomarkers to select for patients more likely to respond to our investigational products. However, we cannot be certain that we will be able to identify any such biomarkers, that such biomarkers will result in us identifying the appropriate patients for our investigational products or that we or any third-party collaborators will be able to validate any diagnostic tests incorporating any predictive biomarkers we may identify.

We currently do not have any plans to develop diagnostic tests internally. We are therefore dependent on the sustained cooperation and effort of third-party collaborators in developing and, if our investigational products are approved for use only with an approved companion diagnostic test, obtaining approval and commercializing these tests. If these parties are unable to successfully develop companion diagnostics for these investigational products, or experience delays in doing so, the development of our investigational products may be adversely affected and we may not be able to obtain marketing authorization for these investigational products. Furthermore, our ability to market and sell, as well as the commercial success, of any of our investigational products that require a companion diagnostic will be tied to, and dependent upon, the receipt of required regulatory authorization and the continued ability of such third parties to make the companion diagnostic commercially available on reasonable terms in the relevant geographies. Any failure to develop, validate, obtain and maintain marketing authorization and supply for a companion diagnostic we need will harm our business prospects.

The design or our execution of our ongoing and future clinical trials may not support marketing approval.

The design or execution of a clinical trial can determine whether its results will support marketing approval, and flaws in the design or execution of a clinical trial may not become apparent until the clinical trial is well advanced. In some instances, there can be significant variability in safety or efficacy results between different trials with the same investigational product due to numerous factors, including differences in trial protocols, size and type of the patient populations, variable adherence to the dosing regimen or other protocol requirements and the rate of dropout among clinical trial participants. The FDA or comparable foreign regulatory authorities may disagree with our trial designs and our interpretation of data from preclinical studies or clinical trials.

The FDA and comparable foreign regulatory authorities have substantial discretion in the approval process and in determining when or whether marketing approval will be obtained for any of our investigational products. Our investigational products may not be approved even if they achieve their primary endpoints in any Phase 3 clinical trials or registrational trials we or our collaborators conduct. In addition, any of these regulatory authorities may change requirements for the approval of an investigational product even after reviewing and providing comments or advice on a protocol for a pivotal Phase 3 or registrational clinical trial that has the potential to result in FDA or other comparable foreign regulatory authorities’ approval. The FDA’s Oncology Center of Excellence has recently announced several initiatives to disrupt long-standing practices, including Project Optimus and Project FrontRunner. These initiatives, as well as any new initiatives announced by the FDA and other regulatory authorities, may impose additional requirements on our overall product development programs, resulting in longer development timelines and increased cost. Any of these regulatory authorities may also approve an investigational product for fewer or more limited indications than we request or may grant approval contingent on the performance of costly post-marketing clinical trials. Even if the FDA or comparable foreign regulatory authorities approve an investigational product, they may not approve the labeling claims that we believe would be necessary or desirable for the successful commercialization of our investigational products.

We have conducted, and continue to conduct, portions of our clinical trials outside the United States, and the FDA may not accept data from trials conducted in foreign locations.

We have conducted, and we expect to continue to conduct, portions of our clinical trials outside the United States. Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of these data is subject to certain conditions imposed by the FDA. For example, the clinical trial must be well designed and conducted and performed by qualified investigators in accordance with ethical principles. The trial population must also adequately represent the U.S. population, and the data must be applicable to the U.S. population and U.S. medical practice in ways that the FDA deems clinically meaningful. In general, the patient population for any clinical trials conducted outside the United States must be representative of the population for whom we intend to label the product in the United States. In addition, while these clinical trials are subject to the applicable local laws, FDA acceptance of the data will be dependent upon its determination that the trials also complied with all applicable U.S. laws and regulations. We cannot assure you that the FDA will accept data from trials conducted outside the United States. If the FDA does not accept the data from such clinical trials, we would likely need to conduct additional trials, which would be costly and time-consuming and delay or permanently halt our development of our investigational products.

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Risks Related to Reliance on Third Parties, Manufacturing and Commercialization

We expect to depend on our collaboration with Gilead for the research, development, manufacture and commercialization of our investigational products. If this collaboration is not successful, our business could be adversely affected.

In May 2020, we entered into the Gilead Collaboration Agreement whereby Gilead obtained an exclusive license to zimberelimab and time-limited exclusive options to all of our then current and future programs during the 10-year collaboration term. In November 2021, we amended the Gilead Collaboration Agreement, and in connection with such amendment, Gilead exercised its option to three programs to obtain exclusive licenses to domvanalimab, AB308, etrumadenant and quemliclustat, and the parties added a research collaboration. Pursuant to the Gilead Collaboration Agreement, we co-develop the optioned programs with Gilead and equally share global development costs for the joint development programs, subject to opt-out rights applicable to certain programs, and expense caps on our spending and true-up adjustments. For each optioned program, provided we have not exercised our opt-out rights (if applicable), 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 will pay us tiered royalties as a percentage of revenues. In connection with the entry into the Gilead Collaboration Agreement in May 2020, we and Gilead also entered into a common stock purchase agreement and an investor rights agreement. Our agreements with Gilead pose a number of risks including, but not limited to, the following:

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conflicts may arise between us and Gilead, such as conflicts regarding the combinations or indications to pursue or concerning the interpretation of clinical data, the commercial potential of any optioned investigational products, the interpretation of financial provisions or the ownership of intellectual property developed during the collaboration. Any such conflicts could slow or prevent the development or commercialization of our investigational products;

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if our joint development program does not result in the successful development and commercialization of products or if Gilead terminates the collaboration agreement with us, we may not receive any future research funding or milestone or royalty payments under the collaboration. If we do not receive the funding we expect under these agreements, our development of our investigational products could be delayed and we may need additional resources to develop our investigational products;

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we will be heavily dependent on Gilead for its further development and commercialization of the investigational products from the programs that it opts into;

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we may not be successful in this collaboration due to various other factors, including our ability to demonstrate proof of concept in one or more clinical studies so that Gilead will exercise its option to these programs;

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we have appointed two individuals designated by Gilead to our board of directors pursuant to the terms of the investor rights agreement, and Gilead owns approximately 19.1% of our outstanding common stock and will have the right (but not the obligation) to acquire additional shares from us up to an amount resulting in Gilead owning a total of 35% of our outstanding common stock and, as a result, may be able to exert significant influence over our company;

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Gilead could independently develop, or develop with third parties, products that compete directly or indirectly with our investigational products if Gilead believes that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours; and

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because Gilead has an option to all of our programs, it will be difficult for us to enter into new collaborations.

We rely on third parties to conduct our clinical trials and perform some of our research and preclinical studies. If these third parties do not satisfactorily carry out their contractual duties or fail to meet expected deadlines, our development programs may be delayed or subject to increased costs, each of which may have an adverse effect on our business and prospects.

We do not have the ability to conduct all aspects of our preclinical testing or clinical trials ourselves. As a result, we are and expect to remain dependent on third parties to conduct our ongoing clinical trials and any future clinical trials of our investigational products. The timing of the initiation and completion of these trials will therefore be partially controlled by such third parties and may result in delays to our development programs. Specifically, we expect CROs, clinical investigators, and consultants to play a significant role in the conduct of these trials and the subsequent collection and analysis of data. However, we will not be able to control all aspects of their activities. Nevertheless, we are responsible for ensuring that each of our trials is conducted in accordance with the applicable protocol and legal, regulatory and scientific standards, and our reliance on the CROs and other third parties does not relieve us of our regulatory responsibilities. We and our CROs are required to comply with GCP requirements, which are regulations and guidelines enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area, Australian Therapeutic Goods Administration and comparable foreign regulatory authorities for all of our investigational products in clinical development. Regulatory authorities enforce these GCP requirements through periodic inspections of trial sponsors, clinical trial investigators and clinical trial sites. If we or any of our CROs or clinical trial sites fail to comply with applicable GCP requirements, the data generated in our clinical trials may be deemed unreliable, and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical

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trials before approving our marketing applications. In addition, our clinical trials must be conducted with product produced under cGMP regulations. Our failure to comply with these regulations may require us to stop and/or repeat clinical trials, which would delay the marketing approval process.

There is no guarantee that any such CROs, clinical trial investigators or other third parties on which we rely will devote adequate time and resources to our development activities or perform as contractually required. Many of these third parties have suffered from personnel constraints during the COVID-19 pandemic. If any of these third parties fail to meet expected deadlines, adhere to our clinical protocols or meet regulatory requirements, otherwise performs in a substandard manner, or terminates its engagement with us, the timelines for our development programs may be extended or delayed or our development activities may be suspended or terminated. If any of our clinical trial sites terminates for any reason, we may experience the loss of follow-up information on subjects enrolled in such clinical trials unless we are able to transfer those subjects to another qualified clinical trial site, which may be difficult or impossible. In addition, clinical trial investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and may receive cash or equity compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, or the FDA or comparable foreign regulatory authorities concludes that the financial relationship may have affected the interpretation of the trial, the integrity of the data generated at the applicable clinical trial site may be questioned and the utility of the clinical trial itself may be jeopardized, which could result in the delay or rejection of any marketing application we submit by the FDA or any comparable foreign regulatory authority. Any such delay or rejection could prevent us from commercializing our investigational products.

Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals for our investigational products and will not be able to, or may be delayed in our efforts to, successfully commercialize our products.

We contract with third parties for the manufacturing and supply of investigational products for use in preclinical testing and clinical trials, which supply may become limited or interrupted or may not be of satisfactory quality and quantity.

We do not have any manufacturing facilities. We produce in our laboratory relatively small quantities of compounds for evaluation in our research programs. We rely, and expect to continue to rely, on third parties for the manufacture of our investigational products for preclinical and clinical testing, as well as for commercial manufacture if any of our investigational products are approved. We currently have limited manufacturing arrangements and expect that each of our investigational products will only be covered by single source suppliers for the foreseeable future. In particular, we have an exclusive relationship with WuXi Biologics, located in China, for the manufacture of zimberelimab. Our contract manufacturers are subject to import and export rules and restrictions, which may impact their ability to acquire materials used in the manufacturing of our investigational product or export our manufactured investigational products to the countries where our clinical trials are conducted. We closely monitor the inventory for each of our investigational products in order to prevent or minimize the impact of potential disruptions, and have not yet experienced any disruptions in our ability to manufacture our investigational products as a result of the COVID-19 health crisis. However, the pandemic prevented the U.S. Commerce Department from conducting inspections of WuXi Biologics in connection with purchases of hardware that are subject to U.S. export controls. As a result, two subsidiaries of WuXi Biologics were placed on the U.S.'s "Unverified List". One such subsidiary has since been removed from the Unverified List. At this time, we do not anticipate any impact to our manufacturing plans with WuXi Biologics. Furthermore, the pandemic has severely challenged supply chains, increasing the lead time for us and our contract manufacturers to obtain raw materials used in the manufacturing of our investigational products. Our reliance on limited manufacturing and use of a single global distributor increases the risk that we will not have sufficient quantities of our investigational products for use in our clinical trials or, if approved, quantities of product at an acceptable cost or quality, which could delay, prevent or impair our development or commercialization efforts.

Furthermore, all entities involved in the preparation of therapeutics for clinical trials or commercial sale, including our existing contract manufacturers for our investigational products, are subject to extensive regulation. Components of a finished therapeutic product approved for commercial sale or used in clinical trials must be manufactured in accordance with cGMP requirements. These regulations govern manufacturing processes and procedures, including record keeping, and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor control of production processes can lead to the introduction of contaminants, or to inadvertent changes in the properties or stability of our investigational products that may not be detectable in final product testing. We or our contract manufacturers must supply all necessary documentation in support of a New Drug Application (NDA) or Biologics License Application (BLA) on a timely basis and must adhere to the FDA’s Good Laboratory Practice regulations and cGMP regulations enforced by the FDA through its facilities inspection program. Comparable foreign regulatory authorities may require compliance with similar requirements. The facilities and quality systems of our third-party contractor manufacturers must pass a pre-approval inspection for compliance with the applicable regulations as a condition of marketing approval of our investigational products. We do not control the manufacturing process of, and are completely dependent on, our contract manufacturing partners for compliance with cGMP regulations.

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In the event that any of our manufacturers fails to comply with such requirements or to perform its obligations to us in relation to quality, timing or otherwise, or if our supply of components or other materials becomes limited or interrupted for other reasons, we may be forced to manufacture the materials ourselves, for which we currently do not have the capabilities or resources, or enter into an agreement with another third party, which we may not be able to do on commercially reasonable terms, if at all. In particular, any replacement of our manufacturers could require significant effort and expertise because there may be a limited number of qualified replacements. In some cases, the technical skills or technology required to manufacture our investigational products may be unique or proprietary to the original manufacturer and we may have difficulty transferring such skills or technology to another third party and a feasible alternative may not exist. These factors would increase our reliance on such manufacturer or require us to obtain a license from such manufacturer in order to have another third party manufacture our investigational products. If we are required to change manufacturers for any reason, we will be required to verify that the new manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations and guidelines. The delays associated with the verification of a new manufacturer could negatively affect our ability to develop investigational products in a timely manner or within budget. Our or a third party’s failure to execute on our manufacturing requirements, to do so on commercially reasonable terms and comply with cGMP could adversely affect our business in a number of ways, including:

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an inability to initiate or continue clinical trials of our investigational products under development;

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delay in submitting regulatory applications, or receiving marketing approvals, for our investigational products;

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loss of the cooperation of an existing or future collaborator, including option exercises by Gilead or Taiho under the Gilead Collaboration Agreement or Taiho Agreement, respectively;

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subjecting third-party manufacturing facilities or our manufacturing facilities to additional inspections by regulatory authorities;

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requirements to cease development or to recall batches of our investigational products; and

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in the event of approval to market and commercialize our investigational products, an inability to meet commercial demands for our product or any other future investigational products.

We, or our third-party manufacturers, may be unable to successfully produce or scale-up manufacturing of our investigational products in sufficient quality and quantity, which would delay or prevent us and/or our third-party collaborators from conducting clinical trials and developing our investigational products.

We, or our third-party manufacturers, will need to manufacture and supply large quantities of our investigational products to support our clinical development plans. With respect to investigational products from optioned programs, we, or our third-party manufacturers, may need to produce additional quantities to support the scope of our joint clinical development program with Gilead, Gilead’s additional evaluations with its own proprietary products or Taiho’s independent clinical development plans. We are also a party to various collaboration and supply arrangements, such as our clinical trial collaboration with AstraZeneca to evaluate domvanalimab in combination with durvalumab in patients with unresectable Stage 3 non-small cell lung cancer and our clinical trial collaboration with Genentech to evaluate etrumadenant and atezolizumab utilizing the MORPHEUS platform. Furthermore, the COVID-19 pandemic has increased the lead time to obtain raw materials used in the manufacturing of our investigational products. Accordingly, we, or our manufacturing partners, may be unable to successfully increase the manufacturing capacity for any of our investigational products in a timely or cost-effective manner, or at all, to support these collective needs. In addition, quality issues may arise during scale-up activities. If we or our manufacturing partners are unable to successfully produce or scale up the manufacture of our investigational products in sufficient quality and quantity, the development, testing and clinical trials of that investigational product may be delayed or become infeasible, and marketing approval or commercial launch of any resulting product may be delayed or not obtained, which could significantly harm our business.

Changes in methods of investigational product manufacturing or formulation may result in additional costs or delay.

As investigational products progress through preclinical to late stage clinical trials to marketing approval and commercialization, it is common that various aspects of the development program, such as the investigational product’s specifications, manufacturing methods and formulation, are altered along the way in an effort to optimize yield and manufacturing batch size, minimize costs and achieve consistent quality and results. Such changes carry the risk that they will not achieve these intended objectives. Any of these changes could cause our investigational products to perform differently and affect the results of planned clinical trials or other future clinical trials conducted with the altered materials. This could delay completion of clinical trials, require the conduct of bridging clinical trials or the repetition of one or more clinical trials, increase clinical trial costs, delay approval of our investigational products and jeopardize our ability to commercialize our investigational products and generate revenue.

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The manufacture of biologics is complex and our third-party manufacturers may encounter difficulties in production. If any of our third-party manufacturers encounter such difficulties, our ability to provide supply of our investigational products for clinical trials or our products for patients, if approved, could be delayed or prevented.

Manufacturing biologics, especially in large quantities, is often complex and may require the use of innovative technologies to handle living cells. Each lot of an approved biologic must undergo thorough testing for identity, strength, quality, purity and potency. Manufacturing biologics requires facilities specifically designed for and validated for this purpose, and sophisticated quality assurance and quality control procedures are necessary. Slight deviations anywhere in the manufacturing process, including filling, labeling, packaging, storage and shipping and quality control and testing, may result in lot failures, product recalls or spoilage. When changes are made to the manufacturing process, we may be required to provide preclinical and clinical data showing the comparable identity, strength, quality, purity or potency of the products before and after such changes. If microbial, viral or other contaminations are discovered at the facilities of our manufacturer, such facilities may need to be closed for an extended period of time to investigate and remedy the contamination, which could delay clinical trials and adversely harm our business. The use of biologically derived ingredients can also lead to allegations of harm, including infections or allergic reactions, or closure of product facilities due to possible contamination.

In addition, there are risks associated with large scale manufacturing for clinical trials or commercial scale including, among others, cost overruns, potential problems with process scale-up, process reproducibility, stability issues, compliance with good manufacturing practices, lot consistency and timely availability of raw materials. Even if we obtain marketing approval for any of our investigational products, there is no assurance that our manufacturers will be able to manufacture the approved product to specifications acceptable to the FDA or other comparable foreign regulatory authorities, to produce it in sufficient quantities to meet the requirements for the potential commercial launch of the product or to meet potential future demand. If our manufacturers are unable to produce sufficient quantities for clinical trials or for commercialization, our development and commercialization efforts would be impaired, which would have an adverse effect on our business, financial condition, results of operations and growth prospects.

Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.

Because we rely on third parties to research and develop and to manufacture our investigational products, we must share trade secrets with them. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, consulting agreements or other similar agreements with our advisors, employees, third-party contractors and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, including our trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s independent discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have a material adverse effect on our business.

In addition, these agreements typically restrict the ability of our advisors, employees, third-party contractors and consultants to publish data potentially relating to our trade secrets, although our agreements may contain certain limited publication rights. For example, any academic institution that we may collaborate with will likely expect to be granted rights to publish data arising out of such collaboration and any joint research and development programs may require us to share trade secrets under the terms of our research and development or similar agreements. Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through breach of our agreements with third parties, independent development or publication of information by any of our third-party collaborators. A competitor’s discovery of our trade secrets would impair our competitive position and have an adverse impact on our business.

Our employees, clinical trial investigators, CROs, consultants, vendors, collaboration partners and any potential commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading.

We are exposed to the risk of fraud or other misconduct by our employees, clinical trial investigators, CROs, consultants, vendors, collaboration partners and any potential commercial partners. Misconduct by these parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to us that violates: (i) FDA laws and regulations or those of comparable foreign regulatory authorities, including those laws that require the reporting of true, complete and accurate information, (ii) manufacturing standards, (iii) federal and state health and data privacy, security, fraud and abuse, government price reporting, transparency reporting requirements, and other healthcare laws and regulations in the United States and abroad, or (iv) laws that require the true, complete and accurate reporting of financial information or data. Such misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and cause serious harm to our reputation. We have adopted a code of conduct applicable to all of our employees, as well as a disclosure program and other applicable policies and procedures, but it is not

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always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.

Even if we receive marketing approval, we may not be successful in commercializing our investigational products.

We have no sales, marketing or distribution capabilities or experience. If any of our investigational products ultimately obtains regulatory approval, we, whether alone or in collaboration with Gilead for programs that we commercialize together, may not be able to effectively or successfully market the product due to a number of factors, including:

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the imposition by regulatory authorities of significant restrictions on a product’s indicated uses, marketing or distribution;

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the imposition by regulatory authorities of costly and time-consuming post-approval studies, post-market surveillance or additional clinical trials;

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our failure to establish sales and marketing capabilities;

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the failure of our products to achieve the degree of market acceptance by physicians, patients, hospitals, cancer treatment centers, healthcare payors and others in the medical community necessary for commercial success;

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unfavorable pricing regulations or third-party coverage and reimbursement policies;

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inaccuracies in our estimates of the addressable patient population resulting in a smaller market opportunity than we believed.

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 the profitability of these product revenue to us are likely to be lower than if we were to market and sell any medicines that we develop ourselves.

Our or our collaborators’ inability to successfully market and sell any of our investigational products, if approved, could have a material adverse effect on our business and our overall financial condition.

Even if we receive marketing approval for one or more of our investigational products, our commercial success is dependent on obtaining coverage and reimbursement approval for a product from a government or other third-party payor, which coverage may be delayed or may not be sufficient to cover our costs.

Our commercial success is dependent on obtaining coverage and reimbursement approval for a product from a government or other third-party payor, which is a time-consuming and costly process that could require us and any collaborators to provide supporting scientific, clinical and cost effectiveness data for the use of our products to the payor. There may be significant delays in obtaining such coverage and reimbursement for newly approved products, and coverage may be more limited than the purposes for which the product is approved by the FDA or comparable foreign regulatory authorities. Moreover, eligibility for coverage and reimbursement does not imply that a product will be paid for in all cases or at a rate that covers our costs, including research, development, intellectual property, manufacture, sale and distribution expenses. Interim reimbursement levels for new products, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Obtaining reimbursement for our products may be particularly difficult because of the higher prices often associated with branded therapeutics and therapeutics administered under the supervision of a physician. Additionally, our collaborators will be required to obtain coverage and reimbursement for any related companion diagnostics tests they develop separate and apart from the coverage and reimbursement we seek for our product candidates, once approved.

Reimbursement may also impact the demand for, and the price of, any product for which we obtain marketing approval. Assuming we obtain coverage for a given product by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. Patients who are prescribed medications for the treatment of their conditions, and their prescribing physicians, generally rely on third-party payors to reimburse all or part of the costs associated with those medications. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover all or a significant portion of the cost of our products. Therefore, coverage and adequate reimbursement is critical to new product acceptance and we expect to experience pricing pressures in connection with the sale of any of our investigational products due to the trend toward managed healthcare, the increasing influence of health maintenance organizations, and additional legislative changes.

Our ability to obtain coverage and reimbursement approval for any of our investigational products, if approved, could have a material adverse effect on the demand for that investigational product, and on our business and our overall financial condition.

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Even if our investigational products are approved by the FDA, they may never be approved or commercialized outside the United States, which would limit our ability to realize their full market potential.

In order to market any products outside the United States, we or our collaborators must establish and comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Approval procedures vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approvals could result in significant delays, difficulties and costs for us or our collaborators and may require additional preclinical studies or clinical trials which would be costly and time consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our products in those countries. Satisfying these and other regulatory requirements is costly, time consuming, uncertain and subject to unanticipated delays. In addition, our or our collaborators’ failure to obtain regulatory approval in any country may delay or have negative effects on the process for regulatory approval in other countries. We do not have any investigational products approved for sale in any jurisdiction, including international markets, and we do not have experience in obtaining regulatory approval in international markets. If we or our collaborators fail to comply with regulatory requirements in international markets or fail to obtain and maintain required approvals, our ability to realize the full market potential of our products will be harmed.

Any investigational products for which we intend to seek approval as biologic products may face competition sooner than anticipated.

The Biologics Price Competition and Innovation Act of 2009 (BPCIA) created an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed reference biological product. Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until twelve years from the date on which the reference product was first licensed. During this twelve-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of its product. The law is complex and is still being interpreted and implemented by the FDA. As a result, any such processes could have a material adverse effect on the future commercial prospects for our biological products.

Zimberelimab, domvanalimab and AB308 are biological products and we may develop additional biological products in the future. We believe that any of our current and future investigational products approved as a biological product under a BLA should qualify for the twelve-year period of exclusivity. However, there is a risk that this exclusivity could be shortened due to Congressional action or otherwise, or that the FDA will not consider our investigational products to be reference products for competing products, potentially creating the opportunity for biosimilar competition sooner than anticipated. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. Moreover, the extent to which a biosimilar, once approved, could be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products will depend on a number of marketplace and regulatory factors that are still developing.

Risks Related to our In-Licenses and Other Strategic Agreements

We are currently party to several in-license agreements under which we acquired rights to use, develop, manufacture and/or commercialize certain of our investigational products. If we breach our obligations under these agreements, we may be required to pay damages, lose our rights to these investigational products or both, which would adversely affect our business and prospects.

We rely, in part, on license and other strategic agreements, which subject us to various obligations, including diligence obligations with respect to development and commercialization activities, reporting and notification obligations, payment obligations for achievement of certain milestones and royalties on product sales, negative covenants and other material obligations. We may need to devote substantial time and attention to ensuring that we successfully integrate these transactions into our existing operations and are compliant with our obligations under these agreements, which may divert management’s time and attention away from our research and development programs or other day-to-day activities. If we fail to comply with the obligations under our license agreements or use the intellectual property licensed to us in an unauthorized manner, we may be required to pay damages and our licensors may have the right to terminate the license. If our license agreements are terminated, we may not be able to develop, manufacture, market or sell the products covered by our agreements and those being tested or approved in combination with such products. Such an occurrence could materially adversely affect the value of the investigational product being developed under any such agreement and any other investigational products being developed or tested in combination. For example, zimberelimab, which we in-licensed from WuXi Biologics, is intended to be used as the cornerstone of our combination strategy. Domvanalimab, which we in-licensed from Abmuno Therapeutics, is being evaluated in four registrational studies: ARC-10, PACIFIC-8 (in collaboration with AstraZeneca), STAR-121 (being operationalized by Gilead) and STAR-221. In the event we breach our license agreement with WuXi Biologics and/or Abmuno Therapeutics, and our license agreements are terminated, we would be unable to pursue our intra-portfolio combination strategy, or we would have to negotiate a new or reinstated agreement, which may not be available to us on equally favorable terms, or at all.

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In addition, the agreements under which we license intellectual property or technology to or from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under the relevant agreement, either of which could have a material adverse effect on our business, financial condition, results of operations and prospects. Moreover, if disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize the affected investigational products.

If we are unable to successfully obtain rights to required third-party intellectual property rights or maintain the existing intellectual property rights we have, we may have to abandon development of the relevant research program or investigational product and our business, financial condition, results of operations and prospects could suffer.

We may not realize the benefits of any acquisitions, in-license or other collaborations or strategic alliances that we enter into.

We have entered into in-license agreements with multiple licensors and option agreements to enable the development and commercialization of our investigational products worldwide. In the future, we may seek to enter into acquisitions or additional licensing arrangements with third parties to expand our pipeline or that we believe will complement or augment our development and commercialization efforts with respect to our investigational products and any future investigational products that we may develop. These transactions can entail numerous operational and financial risks, including exposure to unknown liabilities, disruption of our business and diversion of our management’s time and attention in order to manage a collaboration or develop acquired products, investigational products or technologies, incurrence of substantial debt or dilutive issuances of equity securities to pay transaction consideration or costs, higher than expected collaboration, acquisition or integration costs, write-downs of assets or goodwill or impairment charges, increased amortization expenses, difficulty and cost in facilitating the collaboration or combining the operations and personnel of any acquired business, impairment of relationships with key suppliers, manufacturers or customers of any acquired business due to changes in management and ownership and the inability to retain key employees of any acquired business. As a result, if we enter into in-license, acquisition or collaboration agreements, or strategic partnerships, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company culture, which could delay our timelines or otherwise adversely affect our business.

We also cannot be certain that, following a strategic transaction or license, we will achieve the revenue or specific net income that justifies such transaction or such other benefits that led us to enter into the arrangement. For example, under the Gilead Collaboration Agreement, for each additional clinical program that Gilead exercises its option to, it will pay an option fee of $150 million per program, and for each research program that Gilead exercises its option to at the IND-enabling stage, it will pay an option fee of $60 million per program. Furthermore, we and Gilead will equally share global co-development costs for the joint development program, as well as profits and losses for the United States, subject to opt-out rights applicable to certain programs, and expense caps on our spending and true-up adjustments. If Gilead does not exercise its option to develop a program, our capital requirements relating to that development program will significantly increase and we may need to seek a new partner in order to develop and commercialize our investigational products from that program. Failure to realize the benefits of any collaborations or strategic alliances may further cause us to curtail the development of an investigational product, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any planned sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to fund and undertake development or commercialization activities on our own, we will need to obtain additional expertise and additional capital, which may not be available to us on acceptable terms or at all. If we fail to enter into collaborations and do not have sufficient funds or expertise to undertake the necessary development and commercialization activities, we may not be able to further develop our investigational products or bring them to market and generate product sales revenue, which would harm our business prospects, financial condition and results of operations.

We may wish to acquire rights to future assets through in-licensing or may attempt to form collaborations in the future with respect to our investigational products, but may not be able to do so, which may cause us to alter or delay our development and commercialization plans.

The development and potential commercialization of our investigational products may require substantial additional capital to fund expenses. Pursuant to the Gilead Collaboration Agreement, Gilead has an exclusive option to acquire an exclusive license to all of our then current and future clinical programs during the 10-year collaboration term. Given the breadth of the collaboration, our ability to form new collaborations in the future will be limited. If Gilead declines to exercise its option to a program, we may need to enter into new collaborations for such programs with companies that have more resources and experience than us. We may not be successful in these efforts because third parties may not view our investigational products as having the requisite potential to demonstrate safety and efficacy. If and when we collaborate with a third party for development and commercialization of an investigational product, we can expect to relinquish some or all of the control over the future success of that investigational product to the third party. Our ability to reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources

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and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the following:

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the design or results of clinical trials;

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the likelihood of approval by the FDA or comparable foreign regulatory authorities;

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the potential market for the investigational product;

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the costs and complexities of manufacturing and delivering such investigational product to patients;

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the potential of competing products;

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the existence of uncertainty with respect to our ownership of technology or other rights, which can exist if there is a challenge to such ownership without regard to the merits of the challenge; and

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industry and market conditions generally.

The collaborator may also consider alternative investigational products or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our investigational product. We may also be restricted under any license agreements from entering into agreements on certain terms or at all with potential collaborators. Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators and changes to the strategies of the combined company. As a result, we may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of such investigational product, reduce or delay one or more of our other development programs, delay the potential commercialization or reduce the scope of any planned sales or marketing activities for such investigational product, or increase our expenditures and undertake development, manufacturing or commercialization activities at our own expense. If we elect to increase our expenditures to fund development, manufacturing or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our investigational products or bring them to market and generate product revenue.

Our operating activities may be restricted by certain covenants in our license and other strategic agreements, which could limit our development and commercial opportunities.

In connection with certain of our acquisitions, in-license or other collaborations or strategic alliances, we may agree to and be bound by negative covenants which may limit our development and commercial opportunities. For example, pursuant to our in-license of anti-PD-1 antibodies from WuXi Biologics, we made certain covenants to not commercialize any anti-PD-1 antibody licensed or obtained by us after the date of the license agreement with WuXi Biologics other than anti-PD-1 antibodies licensed from WuXi Biologics, subject to certain exceptions as set forth in our license agreement with WuXi Biologics. Furthermore, we agreed in our license agreement that WuXi Biologics would be our exclusive manufacturer of anti-PD-1 antibodies licensed thereunder until a certain number of years has elapsed following commercialization of such an anti-PD-1 antibody. These exclusivity provisions may inhibit our development efforts, prevent us from forming strategic collaborations to develop and potentially commercialize any other anti-PD-1 antibody investigational products and may materially harm our business, financial condition, results of operations and prospects.

Risks Related to Intellectual Property

If we are unable to obtain and maintain sufficient intellectual property protection for our investigational products, or if the scope of the intellectual property protection is not sufficiently broad, our competitors could develop and commercialize products similar or identical to ours, and our ability to successfully commercialize our products may be adversely affected.

Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to our investigational products and research programs. We seek to protect our proprietary position by filing patent applications in the United States and abroad related to our novel discoveries and technologies that are important to our business, however, we cannot predict:

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if and when patents may issue based on our patent applications;

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the scope of protection of any patent issuing based on our patent applications;

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whether the claims of any patent issuing based on our patent applications will protect our investigational products and their intended uses or prevent others from commercializing competitive technologies or products;

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whether or not third parties will find ways to invalidate or circumvent our patent rights;

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whether or not others will obtain patents claiming aspects similar to those covered by our patents and patent applications; and/or

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whether we will need to initiate litigation or administrative proceedings to enforce and/or defend our patent rights which will be costly whether we win or lose.

Obtaining and enforcing patents is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications, or maintain and/or enforce patents that may issue based on our patent applications, at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development results before it is too late to obtain patent protection. Although we enter into non-disclosure and confidentiality agreements with parties who have access to patentable aspects of our research and development output, such as our employees, corporate collaborators, outside scientific collaborators, contract research organizations, contract manufacturers, consultants, advisors and other third parties, any of these parties may breach these agreements and disclose such results before a patent application is filed, thereby jeopardizing our ability to seek patent protection.

We also cannot be certain that the claims in our pending patent applications directed to our investigational products and/or technologies will be considered patentable by the U.S. Patent and Trademark Office (USPTO) or by patent offices in foreign countries. One aspect of the determination of patentability of our inventions depends on the scope and content of the “prior art,” information that was or is deemed available to a person of skill in the relevant art prior to the priority date of the claimed invention. There may be prior art of which we are not aware that may affect the patentability of our patent claims or, if issued, affect the validity or enforceability of a patent claim. Even if the patents do issue based on our patent applications, third parties may challenge the validity, enforceability or scope thereof, which may result in such patents being narrowed, invalidated or held unenforceable. Furthermore, even if they are unchallenged, patents in our portfolio may not adequately exclude third parties from practicing relevant technology or prevent others from designing around our claims. If the breadth or strength of our intellectual property position with respect to our investigational products is threatened, it could dissuade companies from collaborating with us to develop and threaten our ability to commercialize our investigational products. In the event of litigation or administrative proceedings, we cannot be certain that the claims in any of our issued patents will be considered valid by courts in the United States or foreign countries.

We may not identify relevant third-party patents or may incorrectly interpret the relevance, scope or expiration of a third-party patent which might adversely affect our ability to develop and market our products.

We cannot guarantee that any of our patent searches or analyses, including the identification of relevant patents, the scope of patent claims or the expiration of relevant patents, are complete or thorough, nor can we be certain that we have identified each and every third-party patent and pending application in the United States and abroad that is relevant to or necessary for the commercialization of our investigational products in any jurisdiction.

The scope of a patent claim is determined by an interpretation of the law, the written disclosure in a patent and the patent’s prosecution history. Our interpretation of the relevance or the scope of a patent or a pending application may be incorrect, which may negatively impact our ability to market our products. We may incorrectly determine that our products are not covered by a third-party patent or may incorrectly predict whether a third party’s pending application will issue with claims of relevant scope. Our determination of the expiration date of any patent in the United States or abroad that we consider relevant may be incorrect, which may negatively impact our ability to develop and market our investigational products. Our failure to identify and correctly interpret relevant patents may negatively impact our ability to develop and market our products.

In the future, we may need to obtain additional licenses of third-party technology that may not be available to us or are available only on commercially unreasonable terms, and which may cause us to operate our business in a more costly or otherwise adverse manner that was not anticipated.

From time to time we may be required to license technology from additional third parties to further develop or commercialize our investigational products. Should we be required to obtain licenses to any third-party technology, including any such patents required to manufacture, use or sell our investigational products, such licenses may not be available to us on commercially reasonable terms, or at all. The inability to obtain any third-party license required to develop or commercialize any of our investigational products could cause us to abandon any related efforts, which could seriously harm our business and operations.

We may become involved in lawsuits alleging that we have infringed the intellectual property rights of third parties or to protect or enforce our patents or other intellectual property, which litigation could be expensive, time consuming and adversely affect our ability to develop or commercialize our investigational products.

The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. There is a substantial amount of intellectual property litigation in the biotechnology and pharmaceutical industries, and we may become party to, or threatened with, litigation or other adversarial proceedings regarding intellectual property rights with respect to our products candidates. Third parties may assert infringement claims against us based on existing or future intellectual property rights. For example, we are aware of

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certain patents owned or licensed by Bristol-Myers Squibb having claims directed broadly to treating cancer with anti-PD-1 antibodies (the BMS Patents), which expire in 2023 and 2024. The BMS Patents have been and may in the future be the subject of litigation. In addition, we are aware of certain patents held by Genentech relating to methods of using an anti-PD-1 or anti-PD-L1 antibody in combination with an anti-TIGIT antibody for the treatment of cancer (the Genentech Patents), which expire in 2034. Merck has challenged the Genentech Patents in proceedings before the USPTO. If the validity of the BMS Patents and Genentech Patents are upheld following all challenges, and if we receive regulatory approval for zimberelimab prior to expiration of the BMS Patents or domvanalimab or AB308 in combination with zimberelimab prior to expiration of the Genentech Patents, then we may need to delay commercialization or we may need to obtain a license, which license may not be available on commercially reasonable terms, or at all. If we were sued for patent infringement, we would need to demonstrate that our investigational products, products or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid or unenforceable, and we may not be able to do this. Proving invalidity may be difficult. For example, in the United States, proving invalidity in court requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. If we are found to infringe a third party’s intellectual property rights, we could be forced, including by court order, to cease developing, manufacturing or commercializing the infringing investigational product or product. Alternatively, we may be required to obtain a license from such third party in order to use the infringing technology and continue developing, manufacturing or marketing the infringing investigational product. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our investigational products or force us to cease some of our business operations, which could materially harm our business.

In addition, we may find that competitors are infringing our patents, trademarks, copyrights or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time consuming and divert the time and attention of our management and scientific personnel. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents, in addition to counterclaims asserting that our patents are invalid or unenforceable, or both. In any patent infringement proceeding, there is a risk that a court will decide that a patent of ours is invalid or unenforceable, in whole or in part, and that we do not have the right to stop the other party from using the invention at issue. There is also a risk that, even if the validity of such patents is upheld, the court will construe the patent’s claims narrowly or decide that we do not have the right to stop the other party from using the invention at issue on the grounds that our patent claims do not cover the invention. An adverse outcome in a litigation or proceeding involving our patents could limit our ability to assert our patents against those parties or other competitors, and may curtail or preclude our ability to exclude third parties from making and selling similar or competitive products. Any of these occurrences could adversely affect our competitive business position, business prospects and financial condition. Similarly, if we assert trademark infringement claims, a court may determine that the marks we have asserted are invalid or unenforceable, or that the party against whom we have asserted trademark infringement has superior rights to the marks in question. In this case, we could ultimately be forced to cease use of such trademarks. Even if we establish infringement, the court may decide not to grant an injunction against further infringing activity and instead award only monetary damages, which may or may not be an adequate remedy.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of shares of our common stock. Moreover, we cannot assure you that we will have sufficient financial or other resources to defend or pursue such litigation, which typically last for years before they are concluded. Even if we are successful in these proceedings, we may incur substantial costs and the time and attention of our management and scientific personnel could be diverted in pursuing these proceedings, which could have a material adverse effect on our business and operations. In addition, we may not have sufficient resources to bring these actions to a successful conclusion.

Because of the expense and uncertainty of litigation, we may not be in a position to enforce our intellectual property rights against third parties.

Because of the expense and uncertainty of litigation, we may conclude that even if a third party is infringing our issued patent, any patents that may be issued as a result of our pending or future patent applications or other intellectual property rights, the risk-adjusted cost of bringing and enforcing such a claim or action may be too high or not in the best interest of our company or our stockholders. In such cases, we may decide that the more prudent course of action is to simply monitor the situation or initiate or seek some other non-litigious action or solution.

We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.

We could in the future be subject to claims that we or our employees have inadvertently or otherwise used or disclosed alleged trade secrets or other confidential information of former employers or competitors. Although we try to ensure that our employees and

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consultants do not use the intellectual property, proprietary information, know-how or trade secrets of others in their work for us, we may become subject to claims that we caused an employee to breach the terms of his or her non-competition or non-solicitation agreement, or that we or these individuals have, inadvertently or otherwise, used or disclosed the alleged trade secrets or other proprietary information of a former employer or competitor.

While we may litigate to defend ourselves against these claims, even if we are successful, litigation could result in substantial costs and could be a distraction to management. If our defenses to these claims fail, in addition to requiring us to pay monetary damages, a court could prohibit us from using technologies or features that are essential to our investigational products, if such technologies or features are found to incorporate or be derived from the trade secrets or other proprietary information of the former employers. Moreover, any such litigation or the threat thereof may adversely affect our reputation, our ability to form strategic alliances or sublicense our rights to collaborators, engage with scientific advisors or hire employees or consultants, each of which would have an adverse effect on our business, results of operations and financial condition.

We may not be able to protect our intellectual property rights throughout the world.

Patents are of national or regional effect, and filing, prosecuting and defending patents on all of our investigational products throughout the world would be prohibitively expensive. As such, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Further, the legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to pharmaceuticals or biologics, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. In addition, certain developing countries, including China and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. Further, we file patent applications in Russia and the Eurasian patent office, which is headquartered in Moscow. Sanctions against Russia may make it difficult to file and maintain patents in these countries, and Russia has begun taking actions against "unfriendly" countries, including the U.S., which may adversely affect the scope of and/or our ability to enforce our intellectual property rights. In any of these countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party, which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

Changes in patent law in the United States and other jurisdictions could diminish the value of patents in general, thereby impairing our ability to protect our investigational products.

As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. However, the patent position of biopharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation, resulting in court decisions, including Supreme Court decisions, that have increased uncertainties as to the ability to obtain and enforce patent rights in the future. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries could increase the uncertainties and costs. For example, in September 2011 the Leahy-Smith America Invents Act (the America Invents Act) was signed into law and included a number of significant changes to U.S. patent law as then existed. These include provisions that affect the way patent applications are prosecuted, redefine prior art and provide more efficient and cost-effective avenues for competitors to challenge the validity of patents. These include allowing third-party submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO administered post-grant proceedings, including post-grant review, inter partes review, and derivation proceedings. After March 2013, under the America Invents Act, the United States transitioned to a first inventor to file system in which, assuming that the other statutory requirements are met, the first inventor to file a patent application will be entitled to the patent on an invention regardless of whether a third party was the first to invent the claimed invention. However, the America Invents Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

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.

We may rely on trade secret and proprietary know-how which can be difficult to trace and enforce and, if we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.

In addition to seeking patents for some of our technology and investigational products, we may also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. Elements of our investigational product, including processes for their preparation and manufacture, may involve proprietary know-how, information, or

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technology that is not covered by patents, and thus for these aspects we may consider trade secrets and know-how to be our primary intellectual property. Any disclosure, either intentional or unintentional, by our employees, the employees of third parties with whom we share our facilities or third-party consultants and vendors that we engage to perform research, clinical trials or manufacturing activities, or misappropriation by third parties (such as through a cybersecurity breach) of our trade secrets or proprietary information could enable competitors to duplicate or surpass our technological achievements, thus eroding our competitive position in our market.

Trade secrets and know-how can be difficult to protect. We require our employees to enter into written employment agreements containing provisions of confidentiality and obligations to assign to us any inventions generated in the course of their employment. We and any third parties with whom we share facilities enter into written agreements that include confidentiality and intellectual property obligations to protect each party’s property, potential trade secrets, proprietary know-how, and information. We further seek to protect our potential trade secrets, proprietary know-how, and information in part, by entering into non-disclosure and confidentiality agreements with parties who are given access to them, such as our corporate collaborators, outside scientific collaborators, contract research organizations, contract manufacturers, consultants, advisors and other third parties. With our consultants, contractors, and outside scientific collaborators, these agreements typically include invention assignment obligations. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor or other third party, we would have no right to prevent them from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor or other third party, our competitive position would be harmed.

We may become subject to claims challenging the inventorship or ownership of our patents and other intellectual property.

We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as an inventor or co-inventor. The failure to name the proper inventors on a patent application can result in the patents issuing thereon being unenforceable. Inventorship disputes may arise from conflicting views regarding the contributions of different individuals named as inventors, the effects of foreign laws where foreign nationals are involved in the development of the subject matter of the patent, conflicting obligations of third parties involved in developing our investigational products or as a result of questions regarding co-ownership of potential joint inventions. Litigation may be necessary to resolve these and other claims challenging inventorship and/or ownership. Alternatively, or additionally, we may enter into agreements to clarify the scope of our rights in such intellectual property. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

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

Patent rights are of limited duration. Given the amount of time required for the development, testing and regulatory review of new investigational products, patents protecting such candidates might expire before or shortly after such investigational products are commercialized. Even if patents covering our investigational products are obtained, once the patent life has expired for a product, we may be open to competition from biosimilar or generic products. A patent term extension based on regulatory delay may be available in the United States. However, only a single patent can be extended for each marketing approval, and any patent can be extended only once, for a single product. Moreover, the scope of protection during the period of the patent term extension does not extend to the full scope of the claim, but instead only to the scope of the product as approved. Laws governing analogous patent term extensions in foreign jurisdictions vary widely, as do laws governing the ability to obtain multiple patents from a single patent family. Additionally, we may not receive an extension if we fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. If we are unable to obtain patent term extension or restoration, or the term of any such extension is less than we request, the period during which we will have the right to exclusively market our product will be shortened and our competitors may obtain approval of competing products following our patent expiration, and our revenue could be reduced, possibly materially.

Risks Related to our Business Operations

We expect to expand our research and development capabilities and, as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

In order to maximize the potential of our Gilead Collaboration Agreement, we expect to significantly grow our clinical development capabilities, including increasing the number of employees in clinical operations, biostatistics and data management, quality, and regulatory affairs, as well as expanding our overall infrastructure. If any of our investigational products receives marketing approval, we will also need to add sales, marketing and distribution capabilities. To manage our anticipated future growth, we must:

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

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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

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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 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 and rapidly increasing wages. Our industry also has experienced a high rate of turnover in recent years, which has worsened during the COVID-19 pandemic. 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 of the other products in the same class as our investigational products have already been approved or are further along in development. With respect to our anti-TIGIT antibodies, domvanalimab and AB308, we are aware of several pharmaceutical companies developing antibodies against this target, including Beigene, Biothera, Bristol-Myers Squibb, Compugen, Roche/Genentech, Innovent,

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iTeos/GSK, Junshi/Coherus, Merck, EMD Serono, Mereo and SeaGen. Agenus/Bristol Myers Squibb, AstraZeneca, Innovent, Shanghai Henlius Biotech and Shanghai Huaota Biopharmaceutical are developing TIGIT bispecific antibodies. To our knowledge, there are no approved anti-TIGIT antibodies and the most advanced agents are in Phase 3 development. With respect to our dual adenosine receptor antagonist, etrumadenant, we are aware that Incyte and Merck KGaA have initiated clinical development of dual adenosine receptor antagonists and we are aware of clinical-stage selective adenosine A2aR antagonists being developed by other companies, including AstraZeneca, Corvus, CStone, Dizal Pharma, Exscientia, Innolake Biopharma, iTeos, Novartis and Portage (acquired from Tarus), and clinical-stage selective adenosine A2bR antagonists being developed by Palobiofarma, Portage (acquired from Tarus) and Teon. For our small-molecule CD73 inhibitor, quemliclustat, we are aware of several pharmaceutical companies developing antibodies against this target, including Akeso, AstraZeneca, BioTheus, Bristol-Myers Squibb, Corvus, Incyte, Innate, Innovent, Jacobio, Novartis, Phanes Therapeutics, Shanghai Henlius Biotech, Symphogen/Servier and Tracon/I-Mab, all of whom have advanced their CD73 antibodies into clinical development. Other pharmaceutical companies have small-molecule programs against this target, of which only Antengene and ORIC are believed to be in 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. For our HIF-2α inhibitor, AB521, we are aware that Merck received approval for belzutifan in 2021. Other pharmaceutical companies, including Novartis and NiKang Therapeutics have small-molecule HIF-2α inhibitors in development. Arrowhead Pharmaceuticals has advanced an RNA-based anti-HIF-2α agent into the clinic.

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 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 October 2020, the U.S. FDA approved an expanded label for Keytruda® (pembrolizumab) as monotherapy for the treatment of adult patients with relapsed or refractory classical Hodgkin lymphoma. 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, and those of our third-party CROs and other third parties upon which we rely, are subject to failure, security breaches and other disruptions, which could result in a material disruption of our investigational products’

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development programs, jeopardize sensitive information, prevent us from accessing critical information or result in a loss of our assets, and potentially expose us to notification obligations, loss, liability or reputational damage and otherwise adversely 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. We also have outsourced elements of our operations to third parties, and as a result we manage a number of third-party contractors who have access to our confidential information.

Despite the implementation of security measures, given their size and complexity and the increasing amounts of confidential information that they maintain, our internal information technology systems and those of our third-party CROs and other 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 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 and other assets), which may compromise our system infrastructure, lead to data leakage, impair key business processes or other critical business operations, delay our development programs, or result in the loss of assets or other liability. We have monitoring systems in place and have detected at least one intrusion into our computer systems and attempts to exfiltrate our data. Although our investigation in each case indicates that it did not have a material adverse effect on our operations nor result in any compromise of our information, there can be no assurance of a similar result in the future. The COVID-19 pandemic and our reliance on internet technology and the number of our employees who are working remotely has increased the opportunities for cybercriminals to exploit vulnerabilities. Overall, there has been a significant increase in fraud schemes, including a successful social engineering attack against us through one of our employees. We cannot assure you that our data protection efforts and our investment in information technology will prevent 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 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 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. Ransomware attacks have risen dramatically and we may be forced to pay to unlock our data and information, re-access our systems and resume our ability to conduct business operations. The loss of clinical trial data for our investigational products could significantly increase our costs to recover or reproduce the data and result in delays in our development programs, impair our ability to obtain marketing approval and reduce the commercial opportunity for our investigational products.

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.

Unfavorable global economic, political and trade conditions could adversely affect our business, financial condition or results of operations and may exacerbate the effects of the risks described herein.

Current global economic conditions are highly volatile due to the COVID-19 pandemic and geopolitical instability arising from the ongoing military conflict between Russia and Ukraine and the imposition of sanctions against Russia by the U.S. and EU, which has contributed to rising inflation that has increased our operating expenses and disruptions in the capital and credit markets that may reduce our ability to raise additional capital when needed on acceptable terms, if at all. While we do not have any clinical studies ongoing in Russia, Ukraine or Belarus, we do file patent applications in Russia and the Eurasian patent office, which is headquartered in Moscow. Sanctions may make it difficult to file and maintain patents in these countries, and Russia has begun taking actions against “unfriendly” countries, including the U.S., which may adversely affect the scope of and/or our ability to enforce our intellectual property rights.

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Emerging international trade relations may also adversely impact our 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, WuXi Biologics, located in China, is our sole manufacturer of our investigational biologics, including zimberelimab, domvanalimab and AB308. The U.S. Commerce Department recently added thirty-three entities from China to its "Unverified List", including two subsidiaries of WuXi Biologics (one of which has since been removed from the Unverified List). which may impact WuXi Biologics' ability to purchase certain hardware used in the manufacturing of our antibodies. In addition, if tariffs 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 have 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 of the foregoing could harm our business 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 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:

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

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

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

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

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import or export licensing requirements;

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longer accounts receivable collection times;

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longer lead times for shipping;

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language barriers for technical training;

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reduced protection of intellectual property rights in some foreign countries;

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

•

foreign currency exchange rate fluctuations; and

•

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 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 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

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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 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 NOLs expire. Unused NOLs generated after December 31, 2017, under current tax law will not expire and may be carried forward indefinitely, but the future deductibility of such NOLs will be limited to 80% of current year taxable income in any given year. In addition, both our current and our future unused losses and tax credit carryforwards may be subject to limitation under Sections 382 and 383 of the Internal Revenue Code (IRC) of 1986, as amended, 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 previous years. While we do not expect such ownership changes to result in the expiration of our net operating loss and credit carryforwards prior to utilization, we are subject to an annual limitation on the use of tax attributes. The limitation on 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 required to make material cash tax payments.

In addition, 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 additional ownership changes. As a result, our ability to use all of our pre-change 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. For example, while California recently enacted a franchise tax law restoring the usability of California state NOLs to offset taxable income for tax years beginning on January 1, 2022, previous law significantly limited the use of California state NOLs for taxable years 2020 and 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.

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. Although Congress is considering legislation that would defer the amortization requirement to later years, we have no assurance that the provision will be repealed or otherwise modified. If the requirement is not modified, it may materially reduce our cash flows beginning in 2023.

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:

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delay or termination of clinical trials;

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

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injury to our reputation and significant negative media attention;

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withdrawal of clinical trial subjects;

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initiation of investigations by regulators;

•

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

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substantial monetary awards to study subjects or patients;

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

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loss of revenue; and

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the inability to commercialize any products that we may develop.

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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.

Failure to comply with health and data protection laws and regulations 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 may be subject to federal, state, and foreign data protection laws and regulations (i.e., laws and regulations that address privacy and data security). 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) as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (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, 2020, gives California residents expanded rights to access and require deletion of their personal information, opt out of certain personal information sharing, 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 and certain clinical trials data, the CCPA may increase our compliance costs and potential liability with respect 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 in the U.S., which could increase our potential liability and adversely affect our business.

International data protection laws also apply to health-related and other personal data obtained outside the United States. In 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. These requirements include 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, data protection authorities can also impose administrative fines of up to 4% of our total worldwide turnover or up to €20 million (whichever is higher). In addition, the General Data Protection Regulation only permits the transfer of personal data outside the European Economic Area (EEA) to countries that offer a level of data protection deemed adequate by the European Commission, unless an approved data transfer mechanism is in place. One such mechanism was invalidated by the European Court of Justice, adding to the complexity of transferring personal data outside the EEA. The General Data Protection Regulation increases our responsibility and liability in relation to personal data that we process, and we must put in place additional mechanisms to ensure compliance with the new EU data protection rules.

Failure 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, 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. Claims that we 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.

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 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); 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

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foreign laws that require pharmaceutical companies to implement compliance programs. Many of these laws are discussed in detail in “Item 1. Business—Government Regulation—Other U.S. Healthcare Laws and Compliance Requirements” in our Annual Report on Form 10-K.

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.

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 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 example, on August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (IRA), which, among other things, (1) directs the U.S. Department of Health and Human Services 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 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 through a newly established manufacturer discount program. It is currently unclear how the IRA will be implemented but is likely to have a significant impact on the pharmaceutical industry. For additional detail regarding health care reform activities that may impact our business, see “Item 1. Business—Government Regulation—Healthcare Reform” in our Annual Report on Form 10-K.

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) 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.

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 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

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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 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:

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overall performance of the equity markets;

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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;

•

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;

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

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

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

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recruitment or departure of key personnel;

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

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

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the size of our market float; and

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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;

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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;

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

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

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our ability to attract, hire and retain qualified personnel;

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

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

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

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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 September 30, 2022, our executive officers, directors and the holders of more than 5% of our outstanding common stock, in the aggregate, beneficially owned approximately 53.0% of our common stock. In particular, Gilead owns approximately 19.1% of our outstanding common stock, and we have appointed its two designees to our board of directors pursuant to the terms of our 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.

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:

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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;

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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;

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•

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;

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

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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;

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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.

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. These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum 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 sales by our directors, executive officers and significant stockholders, 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.

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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 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. Remote work arrangements as a result of the COVID-19 pandemic 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 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.

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Item 6. Exhibits.

The documents listed below are incorporated by reference or are filed with this Quarterly Report on Form 10-Q, in each case as indicated therein (numbered in accordance with Item 601 of Regulation S-K).

Exhibit		Incorporated by Reference
Number	Exhibit Description	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
10.1A	Letter Agreement with Gilead Sciences, Inc., dated July 1, 2022	8-K	001-38419	10.2	August 3, 2022
10.2	Amendment No. 1 to Investor Rights Agreement, dated October 11, 2022	8-K	001-38419	10.1	October 11, 2022
10.3*	Letter Agreement, dated July 25, 2022, between the Registrant and Dimitry S.A. Nuyten, MD., Ph.D.
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.
101.INS	XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	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.

† This certification is deemed furnished but 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.

A This exhibit omits certain information the Company deems immaterial and of the type that it treats as confidential.

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SIGNATURES

Pursuant to the requirements 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:	November 2, 2022	By:	/s/ Terry Rosen
			Terry Rosen, Ph.D.
			Chief Executive Officer (Principal Executive Officer)
Date:	November 2, 2022	By:	/s/ Robert C. Goeltz II
			Robert C. Goeltz II
			Chief Financial Officer (Principal Financial and Accounting Officer)

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