Arcus Biosciences, Inc 10-Q for FY2023 Q2
Arcus Biosciences, Inc. (RCUS)
About this 10-Q
Arcus Biosciences, Inc filed this 10-Q on August 7, 2023, covering the quarter ended June 30, 2023 (FY2023 Q2).
Headline figures
Quarter ended June 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $29M
- up 7.4% from $27M a year earlier
- Net loss
- $75M
- compared with a net loss of $67M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from _____________to _______________
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
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(Address of principal executive offices) |
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Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Titles of Each Class |
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Name of Each Exchange on which Registered |
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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.
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).
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.
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Emerging growth company |
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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 August 2, 2023, the registrant had
ARCUS BIOSCIENCES, INC.
TABLE OF CONTENTS
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PART I. |
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Item 1. |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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PART II. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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RISK FACTOR SUMMARY
The following is a summary of the key risks and uncertainties that make an investment in our securities speculative and risky. This does not contain all of the information that may be important to you, and you should read this summary together with the more detailed description risks related to an investment in our securities set forth in this report under "Part II. Item 1A. Risk Factors".
Risks Related to our Limited Operating History, Financial Position and Capital Requirements
Risks Related to the Discovery and Development of our Investigational Products
Risks Related to Reliance on Third Parties, Manufacturing and Commercialization
i
Risks Related to In-Licenses, Strategic Arrangements and Intellectual Property
Risks Related to our Business Operations and Industry
ii
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
ARCUS BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
(unaudited)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2023 |
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2022 |
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2022 |
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Revenues: |
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License and development service revenue |
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Other collaboration revenue |
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Total revenues |
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Operating expenses: |
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Research and development |
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General and administrative |
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Total operating expenses |
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Loss from operations |
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Non-operating income (expense): |
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Interest and other income, net |
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Effective interest on liability for sale of future royalties |
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- |
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Total non-operating income, net |
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Loss before income taxes |
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Income tax expense |
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Net loss |
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$ |
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$ |
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Net loss per share: |
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Basic and diluted |
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$ |
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$ |
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Shares used to compute net loss per share: |
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Basic and diluted |
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See accompanying notes.
1
ARCUS BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In millions)
(unaudited)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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Net loss |
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$ |
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Other comprehensive income (loss) |
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- |
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Comprehensive loss |
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$ |
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See accompanying notes.
2
ARCUS BIOSCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
(unaudited)
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June 30, |
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December 31, |
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2022 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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Marketable securities |
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Receivable from collaboration partners ($ |
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Prepaid expenses and other current assets |
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Total current assets |
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Long-term marketable securities |
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Property and equipment, net |
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Other noncurrent assets ($ |
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Total assets |
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$ |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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Deferred revenue ($ |
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Other current liabilities |
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Total current liabilities |
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Deferred revenue, noncurrent ($ |
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Other noncurrent liabilities |
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Stockholders’ equity: |
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Preferred stock, $ |
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- |
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Common stock and additional paid-in capital: $ |
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Accumulated deficit |
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Accumulated other comprehensive loss |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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See accompanying notes.
3
ARCUS BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In millions)
(unaudited)
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Number of shares of common stock |
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Common stock and additional paid-in capital |
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Accumulated deficit |
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Accumulated |
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Total |
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Balance at December 31, 2021 |
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$ |
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$ |
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$ |
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$ |
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Issuance of common stock in connection with our equity award programs |
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- |
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Stock-based compensation |
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- |
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- |
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- |
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Other comprehensive loss |
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- |
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- |
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- |
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Net loss |
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- |
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- |
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- |
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Balance at March 31, 2022 |
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Issuance of common stock in connection with our equity award programs |
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- |
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Stock-based compensation |
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- |
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- |
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- |
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Other comprehensive loss |
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- |
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- |
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- |
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Net loss |
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- |
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- |
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Balance at June 30, 2022 |
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$ |
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$ |
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$ |
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$ |
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Balance at December 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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Issuance of common stock in connection with our equity award programs |
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- |
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- |
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Stock-based compensation |
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- |
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- |
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- |
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Other comprehensive gain |
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- |
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- |
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- |
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Net loss |
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- |
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- |
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- |
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Balance at March 31, 2023 |
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Issuance of common stock and rights to purchase additional shares in accordance with the Second Stock Purchase Agreement Amendment (see Note 3, Related party - Gilead Sciences, Inc.) |
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- |
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Issuance of common stock in connection with our equity award programs |
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- |
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Stock-based compensation |
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- |
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- |
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- |
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Net loss |
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Balance at June 30, 2023 |
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$ |
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$ |
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$ |
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$ |
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See accompanying notes.
4
ARCUS BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(unaudited)
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Six Months Ended |
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June 30, |
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2023 |
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2022 |
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Cash flows from operating activities |
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Net loss |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Stock-based compensation expense |
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Depreciation and amortization |
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Noncash lease expense |
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Amortization of premiums (discounts) on marketable securities |
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Other items, net |
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Changes in operating assets and liabilities: |
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Receivable from collaboration partners ($ |
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Other assets (($ |
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Accounts payable |
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Deferred revenue (($ |
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Other liabilities |
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- |
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Net cash provided by (used in) operating activities |
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Cash flows from investing activities |
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Purchases of marketable securities |
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Proceeds from maturities of marketable securities |
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Proceeds from sales of marketable securities |
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Purchases of property and equipment |
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( |
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Purchases of in-process research and development |
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- |
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Net cash provided by (used in) investing activities |
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Cash flows from financing activities |
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Proceeds from issuance of common stock to a related party |
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- |
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Proceeds from issuance of common stock pursuant to equity award plans |
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Proceeds from sale of future royalties |
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- |
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Net cash provided by financing activities |
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Net increase in cash, cash equivalents and restricted cash |
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Cash, cash equivalents and restricted cash at beginning of period |
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Cash, cash equivalents and restricted cash at end of period |
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$ |
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$ |
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Non-cash investing and financing activities: |
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Unpaid portion of property and equipment purchases included in accounts payable and accrued liabilities |
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$ |
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$ |
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See accompanying notes.
5
ARCUS BIOSCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Organization, liquidity, and capital resources
Organization
Arcus Biosciences, Inc. (referred to as "Arcus," "we," "our," "us," or the "Company") is a clinical-stage, biopharmaceutical company focused on creating best-in-class therapies. Using our robust and highly efficient drug discovery capability, we have created a significant portfolio of investigational products which are in clinical development, with our most advanced molecule, an anti-TIGIT antibody, now in four Phase 3 registrational studies targeting lung and gastrointestinal cancers. Our deep portfolio of novel small molecules and enabling antibodies allows us to create highly differentiated therapies, which we are developing to treat multiple large indications.
We operate and manage our business as
Liquidity and Capital Resources
As of June 30, 2023, we had cash, cash equivalents and marketable securities of $
Note 2. Summary of significant accounting policies
Basis of Presentation
These interim financial statements should be read in conjunction with the audited Consolidated Financial Statements and the related notes thereto for the year ended December 31, 2022 included in our Annual Report on Form 10-K filed with the SEC on February 28, 2023. There have been no significant changes to our accounting policies as described in Note 2, Summary of significant accounting policies, in the notes to Consolidated Financial Statements in Item 8 of Part II of the Form 10-K.
These interim financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and include all adjustments consisting of normal recurring adjustments that management believes are necessary for a fair presentation of the periods presented. The Condensed Consolidated Balance Sheet as of December 31, 2022 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.
Operating results for the six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023 or for any future period.
Use of Estimates
The preparation of the 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 and related disclosures. We base our estimates on historical experience and on various market-specific and other relevant assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates are assessed and updated each period to reflect current information. Actual results may differ materially from those estimates.
Recent Accounting Pronouncements
There have been no new accounting pronouncements issued or adopted during the period with a significant impact to our financial statements.
Note 3. Related party - Gilead Sciences, Inc.
In 2020, we and Gilead Sciences, Inc. (Gilead) entered into an Option, License and Collaboration Agreement (the Gilead Collaboration Agreement), Common Stock Purchase Agreement (the Stock Purchase Agreement), and Investor Rights Agreement (Investor Rights Agreement). In 2021, we amended the Gilead Collaboration Agreement (the First Gilead Collaboration Agreement Amendment) and the Stock Purchase Agreement (the First Stock Purchase Agreement Amendment), and in 2022 we amended the Investor Rights Agreement (Amended Investor Rights Agreement). In the second quarter 2023, we expanded our collaboration to include research-stage inflammation programs (the Second Gilead Collaboration Agreement Amendment) and further amended the Stock Purchase Agreement (the Second Stock Purchase Agreement Amendment). We refer to these agreements collectively as the Gilead Agreements.
6
Stock Purchase Agreement and Investor Rights Agreement
In 2020, under the Stock Purchase Agreement, Gilead purchased
In 2021, under the First Stock Purchase Agreement Amendment, Gilead purchased
On June 27, 2023, under the Second Stock Purchase Agreement Amendment, Gilead purchased
Gilead has the right, at its option until July 2025, to purchase up to a maximum of
Under the Investor Rights Agreement, Gilead has the right, which they have exercised, to designate two members of our Board of Directors. This agreement also included a three-year standstill and a two-year lockup, provided Gilead with registration rights commencing at the end of the lockup period and provides Gilead with pro rata participation rights in certain future financings. In October 2022, we registered Gilead’s shares and entered into the Amended Investor Rights Agreement, primarily to extend the
As of June 30, 2023, Gilead held approximately
Collaboration Agreements
In 2020, we entered into the Gilead Collaboration Agreement, which gave Gilead an exclusive license to develop and commercialize zimberelimab (the anti PD-1 program) in certain markets and time-limited options to acquire exclusive licenses to develop and commercialize any of our then-current and future clinical programs arising during the
In 2021, we entered into the First Gilead Collaboration Agreement Amendment pursuant to which Gilead exercised its option to
Gilead's option, on a program-by-program basis, will expire after a prescribed period following the achievement of a clinical development milestone in such program and our delivery to Gilead of the requisite data package. Gilead may exercise its option to any program at any time prior to expiration of the option and will pay Arcus an option fee of $
For each program that Gilead opts in to, both companies will co-develop and equally share global development costs, subject to certain opt-out rights that we have, and caps on our spending and related subsequent adjustments. For each program, provided we have not exercised our opt-out rights, we have the option to co-promote in the United States with equal sharing of related profits and losses. Gilead has the right to exclusively commercialize outside of the U.S., subject to the rights of our existing partners in any territories and will pay us tiered royalties as a percentage of revenues ranging from the high teens to the low twenties.
Under the First Gilead Collaboration Agreement Amendment, Gilead also has option rights to
7
On May 12, 2023, we entered into the Second Gilead Collaboration Agreement Amendment pursuant to which we expanded our collaboration to provide Gilead with options to license up to four jointly selected research-stage programs that target inflammatory diseases for which we will lead discovery and early development activities. We will receive an upfront payment of $
As of June 30, 2023, Gilead has licenses to domvanalimab, AB308, etrumadenant, quemliclustat and zimberelimab.
For the three months ended June 30, 2023 and 2022, we recognized revenue under the Gilead Agreements of $
For a more detailed discussion on revenues recognized under the Gilead Agreements see Note 5, Revenues.
Note 4. License and collaborations
We enter into licensing agreements, strategic collaborations and other similar arrangements with third parties for the development and commercialization of certain investigational products. These arrangements may be collaborative and involve two or more parties who are active participants in the operating activities of the collaboration and are exposed to significant risks and rewards depending on the commercial success of the activities. These arrangements may include: non-refundable upfront payments; payments for options to acquire certain rights; potential development and regulatory milestone payments and/or sales-based milestone payments; royalty payments; revenue or profit-sharing arrangements; expense reimbursements; and cost-sharing arrangements.
Operating expenses for costs incurred pursuant to these arrangements are reported in their respective expense line items in the Condensed Consolidated Statements of Operations, net of any payments due to or reimbursements due from our collaboration partners, with such reimbursements being recognized at the time the party becomes obligated to pay.
Our significant arrangements are discussed below.
Gilead Collaboration
See Note 3, Related party - Gilead Sciences, Inc.
AstraZeneca Collaboration
In 2020, we entered into a collaboration with AstraZeneca to evaluate domvanalimab, our investigational anti-TIGIT antibody, in combination with AstraZeneca’s durvalumab in a registrational Phase 3 clinical trial in patients with unresectable Stage 3 non-small cell lung cancer (NSCLC), known as the PACIFIC-8 trial. Under the collaboration, each company will retain existing rights to their respective molecules and any future commercial economics. AstraZeneca will conduct the trial, and each company will supply their respective investigational product to support the trial. Under the terms of the agreement, we will reimburse AstraZeneca for its share of the trial costs upon the achievement of certain milestones or under certain circumstances if the agreement is terminated early. The portion of the costs that we consider to be unavoidable are accrued in advance of the achievement of the milestone.
For the three months ended June 30, 2023 and 2022, we recognized as R&D expense $
The PACIFIC-8 trial forms part of the Arcus and Gilead joint development program for domvanalimab and our portion of the trial costs are shared with Gilead. At June 30, 2023 and December 31, 2022, we have recognized a receivable due from Gilead for these shared costs of $
8
Taiho License
In 2017, we entered into an agreement with Taiho Pharmaceutical Co., Ltd (Taiho) under which we granted Taiho exclusive options to programs arising over a
For each option that Taiho exercises, they will be obligated to make a payment of $
As of June 30, 2023, Taiho has licenses for the Taiho Territory to (i) etrumadenant (the adenosine receptor antagonist program); (ii) zimberelimab (the anti PD-1 program); and (iii) domvanalimab and AB308 (collectively, the anti-TIGIT program).
For the three and six months ended June 30, 2022 we recognized revenue of $
WuXi Biologics License - anti-PD-1
In 2017, we entered into an agreement with WuXi Biologics Ireland Limited (WuXi Biologics) which, as amended, provides us with exclusive rights to (i) develop, use and manufacture products that include an anti-PD-1 antibody, including zimberelimab, worldwide and (ii) commercialize any such products worldwide, except in Greater China. Under the agreement, as of June 30, 2023 we may incur (i) clinical and regulatory milestone payments, and commercialization milestone payments of up to $
For the three and six months ended June 30, 2023 and 2022, we did not have any transactions nor were any amounts due under this arrangement.
WuXi Biologics License - anti-CD39
In 2020, we entered into an agreement with WuXi Biologics, under which we obtained the exclusive worldwide license to develop and commercialize anti-CD39 antibodies discovered under the agreement. As of June 30, 2023 we may incur additional clinical and regulatory milestone payments of up to $
For the three months ended June 30, 2023 and 2022, we incurred
Abmuno License
In 2016, we entered into an agreement with Abmuno Therapeutics LLC (Abmuno), under which we obtained the exclusive worldwide license to develop, use, manufacture, and commercialize products that include an anti-TIGIT antibody, including domvanalimab. As of June 30, 2023 we may incur additional clinical, regulatory and commercialization milestone payments of up to $
For the three and six months ended June 30, 2023 and 2022, we did not have any transactions nor were any amounts due under this arrangement.
9
Note 5. Revenues
The following table summarizes our revenues by collaboration, category of revenue, and the method of recognition (in millions):
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
Over time |
Point in time |
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Gilead Collaboration |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
License and R&D services |
* |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Access rights |
* |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Taiho Collaboration |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Access rights |
* |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Total revenues |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Revenues from Gilead accounted for
The following table summarizes the revenue recognized as a result of changes in the deferred revenue balance (in millions):
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Revenue recognized from amounts included in deferred revenue at the beginning of the period |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Revenue from the Gilead Collaboration
We had $
Activity for performance obligations under this arrangement for the periods presented herein was as follows:
Inflammation Programs - R&D Services
In May 2023, we entered into the Second Gilead Collaboration Agreement Amendment pursuant to which we expanded our collaboration to provide Gilead with options to license up to four jointly selected research-stage programs that target inflammatory diseases for which we will lead discovery and early development activities (see Note 3, Related party - Gilead Sciences, Inc., for more information). During the three months ended June 30, 2023, we received a total upfront payment of $
Allocation to performance obligations |
|
Distinct |
|
Amount |
|
|
Inflammation target 1 |
|
* |
|
$ |
|
|
Inflammation target 2 |
|
* |
|
|
|
|
Total allocated transaction price |
|
|
|
$ |
|
|
We determined that we have separate performance obligations to perform R&D services for Gilead related to discovery and early development activities for each research program for which they have made an upfront payment. The standalone selling price of these obligations was determined using an expected cost-plus margin approach. We recognize the amounts allocated to these services as the performance obligation is satisfied, calculated as an estimated percentage of completion based on management's estimated total effort for the program. The options to acquire additional licenses or services did not result in additional performance obligations because they did not provide a material right at contract inception, primarily due to the very early stages of the programs.
We recognized revenue of $
10
Etrumadenant - License and R&D Services
Under the First Gilead Collaboration Agreement Amendment, Gilead has an exclusive license and we are also obligated to perform further R&D services for Gilead related to etrumadenant. We determined that the license and R&D services were combined based on an evaluation of the delivery of the license, due to the early stage of the technology and the specialized nature of our know-how. We allocated arrangement consideration of $
We recognized revenue of $
Quemliclustat - License and R&D Services
Under the First Gilead Collaboration Agreement Amendment, Gilead has an exclusive license and we are also obligated to perform further R&D services for Gilead related to quemliclustat. We determined that the license and R&D services were combined based on an evaluation of the delivery of the license, due to the early stage of the technology and the specialized nature of our know-how. We allocated arrangement consideration of $
We recognized revenue of $
Domvanalimab - R&D Services
Under the First Gilead Collaboration Agreement Amendment, we have an obligation to perform further R&D services for Gilead related to domvanalimab. We determined that these services are distinct based on an evaluation of the delivery of the related license, noting that the program was in the later stages of development and license met the criteria for being distinct from the R&D services required. We allocated arrangement consideration of $
We recognized revenue of $
Zimberelimab - R&D and Commercialization Services
Under the First Gilead Collaboration Agreement Amendment, we have an obligation to perform further R&D and commercialization services for Gilead related to zimberelimab, as a monotherapy and in combination with other agents. We determined that these services are distinct based on an evaluation of the delivery of the related license, noting that the program was in the later stages of development and license met the criteria for being distinct from the R&D and commercialization services required. We allocated arrangement consideration of $
We recognized revenue of $
11
Access Rights and Option Continuation Periods
Under the First Gilead Collaboration Agreement Amendment, Gilead has exclusive access to our current programs as well as the future programs for a period of
We use a time-elapsed input method to measure progress toward satisfying this obligation, which is the method we believe most faithfully depicts our performance in transferring the promised services during the time period in which Gilead has access to our R&D pipeline. Accordingly, the revenue allocated to this performance obligation is being recognized using this input method over the minimum
We recognized revenue of $
Capitalized Costs to Obtain Contracts
We incurred certain costs to obtain the Gilead Collaboration Agreement in 2020 and the First Gilead Collaboration Agreement Amendment in 2021, which consisted of consultant and legal fees. We allocated these costs to the various performance obligations, to be recognized as the underlying performance obligations are satisfied and revenue is recognized.
For the three and six months ended June 30, 2023, and 2022, the recognized expense was not significant. At June 30, 2023, we had $
Note 6. Income taxes
The income tax provision or benefit 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, we update the estimate of the annual effective tax rate, and if the estimated tax rate changes, we record a cumulative adjustment to the provision or benefit.
The income tax expense was $
As of June 30, 2023 and December 31, 2022, we have provided a valuation allowance against U.S. federal and state deferred tax assets. We continue to evaluate the realizability of deferred tax assets and the related valuation allowance. If our assessment of the deferred tax assets or the corresponding valuation allowance were to change, we would record the related adjustment to income during the period in which we make the determination.
We recognize interest and penalties associated with uncertain tax benefits as part of the income tax provision. To date, we have not recognized any interest and penalties, nor have we accrued for or made payments for interest and penalties.
We have not been audited by the Internal Revenue Service, or any state or foreign tax authority. We are subject to taxation in the United States and in Australia. Due to net operating loss and research credit carryforwards, all of our tax years, from 2015 to 2022, remain open to U.S. federal and California state tax examinations. In addition, our fiscal years from 2018 to 2022 are open to examination in Australia.
12
Note 7. Net loss per share
The following table summarizes potentially dilutive securities excluded from the computation of diluted net loss per share calculations because they would have been antidilutive (in millions):
|
|
|
|
|||||
|
|
June 30, 2023 |
|
|
June 30, 2022 |
|
||
Common stock options issued and outstanding |
|
|
|
|
|
|
||
Restricted stock units issued |
|
|
|
|
|
|
||
Employee Stock Purchase Plan shares |
|
|
|
|
|
|
||
Total potential dilutive securities |
|
|
|
|
|
|
||
We have also excluded the effect of Gilead’s right to purchase additional shares of our common stock from the calculation as these rights had no intrinsic value at either June 30, 2023 or 2022.
Note 8. Stock-based compensation
The following table reflects the components of stock-based compensation expense recognized in our Condensed Consolidated Statements of Operations (in millions):
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Research and development |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total stock-based compensation |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Note 9. Cash, cash equivalents and marketable securities
The following table summarizes amortized cost, gross unrealized gains and losses and the fair value of our cash, cash equivalents and marketable securities, all of which are considered available for sale, by type of securities:
Types of securities as of June 30, 2023 |
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
||||
Money market funds |
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
||
U.S. treasury securities |
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
|
||
Corporate securities and commercial paper |
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
|
||
U.S. government agency securities |
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
|
||
Certificate of deposit |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Total cash, cash equivalents and marketable securities |
|
$ |
|
|
$ |
- |
|
|
$ |
( |
) |
|
$ |
|
||
Types of securities as of December 31, 2022 |
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
||||
Money market funds |
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
||
U.S. treasury securities |
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
|
||
Corporate securities and commercial paper |
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
|
||
U.S. government agency securities |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Certificate of deposit |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Total cash, cash equivalents and marketable securities |
|
$ |
|
|
$ |
- |
|
|
$ |
( |
) |
|
$ |
|
||
The following table summarizes the fair values of our cash, cash equivalents and marketable securities by location in the Condensed Consolidated Balance Sheets and contractual maturity:
Location in Condensed Consolidated Balance Sheets |
|
Contractual Maturity |
|
June 30, 2023 |
|
|
December 31, 2022 |
|
||
Cash and cash equivalents |
|
- |
|
$ |
|
|
$ |
|
||
Marketable securities |
|
Within one year |
|
|
|
|
|
|
||
Long-term marketable securities |
|
Between one and three years |
|
|
|
|
|
|
||
Total cash, cash equivalents and marketable securities |
|
|
|
$ |
|
|
$ |
|
||
13
Realized gains or losses recognized on the sale of available-for-sale marketable securities were not material for the three and six months ended June 30, 2023 and 2022. Realized gains and losses are included in Interest and other income, net, in the Condensed Consolidated Statements of Operations. The cost of a security sold is determined using the specific-identification method.
We limit the credit risk associated with our investments by placing them with banks and institutions we believe are highly credit worthy and investing in highly rated investments. We held a total of
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 millions):
|
|
June 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
(included in Other noncurrent assets) |
|
|
|
|
|
|
||
Total cash, cash equivalents and restricted cash |
|
$ |
|
|
$ |
|
||
Note 10. Condensed consolidated balance sheet components
Prepaid and Other Current Assets
Prepaid and other current assets consisted of the following (in millions):
|
|
June 30, 2023 |
|
|
December 31, 2022 |
|
||
Prepaids and other assets |
|
$ |
|
|
$ |
|
||
Accrued interest receivable |
|
|
|
|
|
|
||
Total prepaid and other current assets |
|
$ |
|
|
$ |
|
||
Other Current Liabilities
Other current liabilities consisted of the following (in millions):
|
|
June 30, 2023 |
|
|
December 31, 2022 |
|
||
Accrued research and development |
|
$ |
|
|
$ |
|
||
Accrued personnel expenses |
|
|
|
|
|
|
||
Income taxes payable |
|
|
|
|
|
- |
|
|
Other |
|
|
|
|
|
|
||
Total other current liabilities |
|
$ |
|
|
$ |
|
||
Note 11. Leases
The following table summarizes our cash and non-cash information related to our operating leases (in millions):
|
|
Six Months Ended June 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Cash paid for amounts included in measurement of lease liabilities |
|
$ |
|
|
$ |
|
||
Cash received from tenant improvement allowances |
|
$ |
|
|
$ |
|
||
Right-of-use assets obtained in exchange for new operating lease liabilities |
|
$ |
- |
|
|
$ |
|
|
Recognition of tenant improvement allowance receivable included in Other current liabilities |
|
$ |
|
|
$ |
|
||
As of June 30, 2023 and December 31, 2022, we have provided deposits for letters of credit totaling $
14
Note 12. Stockholders' Equity
On June 27, 2023, under the Second Stock Purchase Agreement, Gilead purchased
Note 13. Fair value measurements
We determine the fair value of financial and non-financial assets and liabilities using the fair value hierarchy, which establishes three levels of inputs that may be used to measure fair value, as follows:
Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
The following tables summarize the types of assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy (in millions):
Fair value measurement as of June 30, 2023 |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
||
U.S. treasury securities |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Corporate securities and commercial paper |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
U.S. government agency obligations |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Certificate of deposit |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Total assets measured at fair value |
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liability for sale of future royalties |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
||
Total liabilities measured at fair value |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
||
Fair value measurement as of December 31, 2022 |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
||
U.S. treasury securities |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Corporate securities and commercial paper |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
U.S. government agency securities |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Certificate of deposit |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Total assets measured at fair value |
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liability for sale of future royalties |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
||
Total liabilities measured at fair value |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
||
Liability for Sale of Future Royalties
In 2021, we entered into an agreement with BVF Partners L.P. (BVF), under which BVF funded the discovery and development of compounds for the treatment of inflammatory diseases (the BVF Program) for $
15
We account for the BVF Agreement as a liability primarily because we have significant continuing involvement in generating the cash flows due to BVF. The liability is recorded at fair value by using probability-adjusted discounted cash flows and is revalued each reporting period until the related contingencies have been resolved. The fair value measurement is based on significant unobservable inputs that are reviewed quarterly by management and include, as applicable, estimated probabilities and the timing of achieving specified development, regulatory and commercial milestones as well as estimated annual sales. Significant changes that increase or decrease the probabilities of achieving the related development, regulatory and commercial events or that shorten or lengthen the time required to achieve such events or that increase or decrease estimated annual sales would result in corresponding increases or decreases in the fair values of the obligations, as applicable. Changes in the fair value of this liability related to interest accretion are recognized in Non-operating income (expense) in the Consolidated Statements of Operations.
During the second quarter of 2023, new preclinical information from our BVF Program led to revised assumptions which decreased the estimated probabilities of success and delayed the projected timing of achieving specified development, regulatory and commercial milestones and commercial sales. These changes in estimate are accounted for prospectively and resulted in a decrease in the imputed effective interest rate on the unamortized portion of the liability to
|
|
Six Months Ended June 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Beginning balance |
|
$ |
|
|
$ |
|
||
Cash received |
|
|
- |
|
|
|
|
|
Interest accretion |
|
|
|
|
|
|
||
Ending balance |
|
$ |
|
|
$ |
|
||
16
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 related notes in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our audited Consolidated Financial Statements and related notes thereto for the year ended December 31, 2022, included in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (SEC) on February 28, 2023. 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 titled “Risk Factors.”
Overview
We are a clinical-stage biopharmaceutical company focused on creating best-in-class therapies. Using our robust and highly efficient drug discovery capability, we have created a significant portfolio of investigational products which are in clinical development, with our most advanced molecule, an anti-TIGIT antibody, now in four Phase 3 registrational studies targeting lung and gastrointestinal cancers. Our deep portfolio of novel small molecules and enabling antibodies allows us to create highly differentiated therapies, which we are developing to treat multiple large indications. We expect our clinical-stage portfolio to continue to expand and to include molecules targeting immuno-oncology, cancer cell-intrinsic and immunological pathways. Our vision is to create, develop and commercialize highly differentiated therapies that have a meaningful impact on patients.
Our Clinical Product Portfolio
We are currently developing multiple investigational products in clinical studies, including new combination approaches that target TIGIT, PD-1, the adenosine axis (CD73 and dual A2a/A2b receptor) and HIF-2a. We have entered into an Option, License and Collaboration Agreement (as amended, the Gilead Collaboration Agreement) with Gilead Sciences, Inc. (Gilead) to strategically advance our portfolio through a collaborative relationship. The Gilead Collaboration Agreement provides Gilead with an exclusive license to our anti-PD-1 program (including zimberelimab) and time-limited exclusive option rights to our clinical programs, which they have exercised for our anti-TIGIT program (including domvanalimab), adenosine receptor antagonist program (including etrumadenant) and CD73 program (including quemliclustat). For all such optioned programs, we are co-developing investigational products with Gilead.
17
The following chart summarizes our clinical pipeline:
atezo: atezolizumab; bev: bevacizumab; carbo/pem: carboplatin/pemetrexed; doce: docetaxel; dom: domvanalimab; enza: enzalutamide; etruma: etrumadenant; gem/nab-pac: gemcitabine/nab-paclitaxel; nivo: nivolumab; pembro: pembrolizumab; PLD: pegylated liposomal doxorubicin; quemli: quemliclustat; rego: regorafenib; SOC: standard of care; zim: zimberelimab
*+/- biologic, e.g. bevacizumab or biosimilar, will be included for all patients in whom it is not contraindicated
18
Recent Developments
The following is a summary of recent significant developments affecting our business:
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.
Other Collaboration Revenue
Other collaboration revenue consists primarily of amounts recognized from the portions of the nonrefundable upfront payments received from Gilead and Taiho and allocated to performance obligations relating to access to our investigational pipeline recognized over the period of access.
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 preclinical 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
19
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 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 increase our late-stage manufacturing activities. 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 arrangements with WuXi Biologics, Abmuno, AstraZeneca and BVF, we may incur additional clinical and regulatory milestone payments based on the development progress of our investigational products. We may also be required to pay royalties in the event of a successful product launch and our receipt of commercial revenues. Therefore, we are unable to predict the timing or the final cost to complete our clinical programs or validation of our manufacturing and supply processes and delays may occur due to numerous factors. Factors that could cause or contribute to delays or additional costs include, but are not limited to, those discussed in “Item 1A. Risk Factors.”
General and Administrative Expenses
General and administrative 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 do not receive significant reimbursements of these costs through our collaboration with Gilead.
We anticipate that our general and administrative expenses will increase during the next few years as we support our growing research and development activities, including due to staff expansion, 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.
Results of Operations
The following table summarizes our results of operations (in millions):
|
|
Three Months Ended June 30, |
|
|
Change |
|
|
Six Months Ended |
|
|
Change |
|
||||||||||||
|
|
2023 |
|
|
2022 |
|
|
|
|
|
2023 |
|
|
2022 |
|
|
|
|
||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
License and development service revenue |
|
$ |
19 |
|
|
$ |
17 |
|
|
|
12 |
% |
|
$ |
36 |
|
|
$ |
25 |
|
|
|
44 |
% |
Other collaboration revenue |
|
|
10 |
|
|
|
10 |
|
|
|
0 |
% |
|
|
18 |
|
|
|
20 |
|
|
|
(10 |
)% |
Total revenues |
|
|
29 |
|
|
|
27 |
|
|
|
7 |
% |
|
|
54 |
|
|
|
45 |
|
|
|
20 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Research and development |
|
|
84 |
|
|
|
70 |
|
|
|
20 |
% |
|
|
165 |
|
|
|
131 |
|
|
|
26 |
% |
General and administrative |
|
|
28 |
|
|
|
26 |
|
|
|
8 |
% |
|
|
58 |
|
|
|
50 |
|
|
|
16 |
% |
Total operating expenses |
|
|
112 |
|
|
|
96 |
|
|
|
17 |
% |
|
|
223 |
|
|
|
181 |
|
|
|
23 |
% |
Loss from operations |
|
|
(83 |
) |
|
|
(69 |
) |
|
|
20 |
% |
|
|
(169 |
) |
|
|
(136 |
) |
|
|
24 |
% |
Non-operating income, net |
|
|
9 |
|
|
|
2 |
|
|
* |
|
|
|
17 |
|
|
|
2 |
|
|
* |
|
||
Loss before income taxes |
|
|
(74 |
) |
|
|
(67 |
) |
|
|
10 |
% |
|
|
(152 |
) |
|
|
(134 |
) |
|
|
13 |
% |
Income tax expense |
|
|
(1 |
) |
|
|
- |
|
|
* |
|
|
|
(3 |
) |
|
|
(1 |
) |
|
* |
|
||
Net loss |
|
$ |
(75 |
) |
|
$ |
(67 |
) |
|
|
12 |
% |
|
$ |
(155 |
) |
|
$ |
(135 |
) |
|
|
15 |
% |
* Not meaningful
20
Total Revenues
The increase in Total revenues for the three months ended June 30, 2023 was primarily driven by increased revenues from license and development services due to the progress in research and development activities for our programs, primarily quemliclustat, partially offset by a decrease in revenue for etrumadenant.
The increase in Total revenues for the six months ended June 30, 2023 was primarily driven by increased revenues from license and development services due to the progress in the research and development activities for our programs, primarily quemliclustat, partially offset by a decrease in Other collaboration revenues associated with the end of the option period under the Taiho Agreement in September 2022.
See Note 5, Revenues to our Condensed Consolidated Financial Statements in Part I, Item 1 for further discussion of the amount and timing of revenues recognized from our license and collaboration agreements.
Research and Development Expenses
The increase of 20% or $14 million in Research and development expenses for the three months ended June 30, 2023 was primarily driven by $19 million in higher costs incurred to support our expanded clinical and development activities partially offset by $5 million in higher reimbursements for shared expenses from our collaborations, primarily the Gilead collaboration. The net increase was primarily driven by: $10 million in net clinical costs due to our expanding clinical and development activities as we enrolled more patients in our existing and new studies; $6 million increase in net employee compensation costs due to our growing headcount, including $2 million in increased non-cash stock-based compensation; partially offset by $5 million decrease in net drug manufacturing costs due to less manufacturing activity for domvanalimab.
The increase of 26% or $34 million in Research and development expenses for the six months ended June 30, 2023 was primarily driven by $50 million in higher costs incurred to support our expanded clinical and development activities partially offset by $16 million in higher reimbursements for shared expenses from our collaborations, primarily the Gilead collaboration. The net increase was primarily driven by $18 million in net clinical costs due to our expanding clinical and development activities as we enrolled more patients in our existing and new studies and $16 million increase in net employee compensation costs due to our growing headcount, including $2 million in increased non-cash stock-based compensation.
For the three months ended June 30, 2023 and 2022, we recognized reimbursements for shared expenses from our collaborations of $44 million and $39 million, respectively. For the six months ended June 30, 2023 and 2022, we recognized reimbursements for shared expenses from our collaborations of $86 million and $70 million, respectively. Reimbursements are driven primarily by the Gilead collaboration.
General and Administrative Expenses
The increase of 8% or $2 million in General and administrative expenses for the three months ended June 30, 2023 was primarily driven by the increased complexity of supporting our expanding clinical pipeline and partnership obligations. Our growing headcount and our 2023 stock awards drove a $2 million increase in employee compensation costs, including $1 million in increased non-cash stock-based compensation.
The increase of 16% or $8 million in General and administrative expenses for the six months ended June 30, 2023 was primarily driven by the increased complexity of supporting our expanding clinical pipeline and partnership obligations. Our growing headcount and our 2023 stock awards drove a $7 million increase in employee compensation costs, including $3 million in increased non-cash stock-based compensation.
Non-Operating Income, net
The increase of $7 million and $15 million in Non-operating income, net for the three and six months ended June 30, 2023, respectively, was primarily due to higher interest income resulting from increased investment yields as compared to the prior year.
Income Tax Expense
The increase of $1 million and $2 million in Income tax expense for the three and six months ended June 30, 2023, respectively was primarily due to an increase in taxable income compared to the prior year.
Liquidity and Capital Resources
Sources of Liquidity
To date, we have financed our operations primarily from the sale of our equity securities and payments received under our research, collaboration and license agreements with our strategic partners including Gilead. We expect to incur substantial expenditures in the foreseeable future for the development and potential commercialization of our investigational products and ongoing internal research and development programs. At this time, we cannot reasonably estimate the nature, timing or aggregate amount of costs for our development, potential commercialization, and internal research and development programs.
21
As of June 30, 2023, we had $1.0 billion of cash, cash equivalents, and marketable securities, compared to $1.1 billion as of December 31, 2022. The decrease in cash from the prior year end is primarily due to the use of cash in our research and development activities. 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 marketable securities 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. 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 “Part II, Item 1A. Risk Factors” for additional risks associated with our substantial capital requirements.
Cash Flows
The following table summarizes our cash flow activities for each of the periods presented below (in millions):
|
|
Six Months Ended June 30, |
|
|||||
Net cash provided by (used in): |
|
2023 |
|
|
2022 |
|
||
Operating activities |
|
$ |
(155 |
) |
|
$ |
589 |
|
Investing activities |
|
$ |
155 |
|
|
$ |
(483 |
) |
Financing activities |
|
$ |
24 |
|
|
$ |
19 |
|
Operating Activities
Net cash used in operating activities was $155 million for the six months ended June 30, 2023 as compared to net cash provided by operating activities of $589 million for the same period in the prior year. The change in operating cash flows is primarily due to $725 million received from Gilead in January 2022 under the Gilead Collaboration Agreement.
Investing Activities
Cash provided by investing activities for the six months ended June 30, 2023 was primarily due to net proceeds from marketable securities of $163 million.
Cash used in investing activities for the six months ended June 30, 2022 was primarily due to net purchases of marketable securities of $473 million as we invested a portion of the $725 million received from Gilead in January 2022 under the Gilead Collaboration Agreement.
Financing Activities
Cash provided by financing activities for the six months ended June 30, 2023 was due to net proceeds of $20 million for shares purchased by Gilead in accordance with the Second Stock Purchase Agreement Amendment and proceeds of $4 million for stock issued under our equity award plans.
Cash provided by financing activities for the six months ended June 30, 2022 was due to net proceeds of $14 million for stock issued under our equity award plans and $5 million received under the BVF agreement.
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 Condensed 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 Condensed 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.
There have been no material changes to our critical accounting policies and estimates, from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.
22
Contractual Obligations and Commitments
There have been no material changes to our contractual obligations outside the ordinary course of business during the three months ended June 30, 2023, as compared to those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.
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 changes in interest rates and foreign currency exchange rates. Our market risks have not changed materially from those discussed in our Annual Report on Form 10-K filed with the SEC on February 28, 2023.
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 June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
23
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 28, 2023. 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.
Risks Related to our Limited Operating History, Financial Position and Capital Requirements
We have a history of operating losses, 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. Our revenues to date have been primarily from upfront and milestone payments, research and development support and clinical materials reimbursement from our strategic partners. For the six months ended June 30, 2023 and the year ended December 31, 2022 we had net losses of $155 million and $267 million, respectively. As of June 30, 2023, we had an accumulated deficit of $697 million. We expect that it will be several years, if ever, before we have an investigational product ready for commercialization. While we may receive income from year to year under the Gilead Agreement and Taiho Agreement, we generally 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, 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 June 30, 2023, we had $1.0 billion of cash, cash equivalents and marketable securities. 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:
24
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 obtain regulatory approval for our investigational products, or experience significant delays in doing so, our business will be materially harmed.
We have no products approved for sale and our investigational products must be approved by the Food and Drug Administration (FDA) in the United States and similar regulatory authorities outside the United States, such as the EMA, prior to commercialization. The process of obtaining marketing approvals, both in the United States and abroad, is expensive and takes many years, if approval is obtained at all, and can vary substantially based upon a variety of factors. Securing marketing approval requires the submission of extensive preclinical and clinical data and supporting information to regulatory authorities for each therapeutic indication to establish the investigational product’s safety and efficacy. Securing marketing approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the regulatory authorities, among other requirements. Our investigational products may not be effective, may be only moderately effective, may not have an acceptable durability of response, may not have an acceptable risk-benefit profile or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude us from obtaining marketing approval or limit their commercial use. 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.
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. Regulatory authorities may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent marketing approval of an investigational product. Changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application, may also cause delays in or prevent the approval of an application. 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.
25
If we experience delays in obtaining approval or if we fail to obtain approval of our investigational products, the commercial prospects for our investigational products may be harmed and our ability to generate revenues will be materially impaired.
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. This difficulty is compounded in clinical trials such as ours, in which two or more investigational products that have not yet been approved are being evaluated. Accordingly, the preliminary data from clinical trials of certain of our investigational products may not be predictive of future clinical trial results for these or other investigational products when studied in a randomized environment or larger patient populations.
Most of our clinical trials are open-label studies and may be susceptible to bias.
Most of our clinical trials, including our Phase 3 trials, are open-label studies in which both the patient and investigator know whether the patient is receiving the investigational products or either an existing approved drug or placebo. Open-label clinical trials are susceptible to bias that may exaggerate any therapeutic effect or overestimate the risk associated with the investigational product. Patients may perceive their symptoms to have improved merely due to their awareness of receiving an experimental treatment. Investigators may interpret the information of the treated group more favorably given their awareness of the treatment regimen or may attribute safety risks to the investigational product.
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 and cost of clinical trials and depends on many factors, 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 upper gastrointestinal tract cancer.
Public health outbreaks, such as COVID-19, may 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. For example, our investigational sites may intermittently divert resources in order to respond to an ongoing health crisis, which could cause delays and limit their ability to initiate new studies. The limited resources at investigational sites would further hinder 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.
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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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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, topline results that we report may differ from future results of the same studies 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.
As we continue to develop our investigational products and initiate clinical trials of 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 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:
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.
Adverse findings from clinical trials conducted by third parties investigating the same investigational products as us in different territories or different investigational products directed to the same target as one of our programs 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 or different investigational products directed to the same target as one of our programs. For example, we and Gloria Biosciences, 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
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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.
Further, we have no control over the clinical trials or development program of third parties developing investigational products directed to the same target as one of our programs. Adverse findings or results from any of their clinical trials could adversely affect the commercial prospects of our investigational products and cause our stock price to fluctuate or decline.
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.
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.
Development of combination therapies may present more or different challenges than development of single agent therapies.
Many of our investigational products are being pursued in combination with one or more additional products or investigational products. The development of combination therapies may be more complex than the development of single agent therapies and generally requires that sponsors demonstrate the contribution of each investigational product to the claimed effect and the safety and efficacy of the combination as a whole. This requirement may make the design and conduct of clinical trials more complex, requiring more clinical trial subjects. We also may not be able to meet the FDA’s current or future approval standards required for combination therapies or combination products, if we decided to administer or package a combination therapy as a single drug product. For example, under the "combination rule", the FDA may not file or approve a fixed-dose combination product unless each component of a proposed drug product is shown to make a contribution to the claimed effects and the dosage of each component (amount, frequency, duration) is safe and effective for the intended population. To satisfy these requirements, the FDA typically requires a clinical factorial study, designed to assess the effects attributable to each drug in the combination product. This is particularly true when the ingredients are directed at the same sign or symptom of the disease or condition. The FDA has accepted a variety of approaches to satisfy the combination rule but the FDA has stated that factorial studies may be unethical (e.g., omitting a drug known to improve survival) or impractical (there may be too many components to conduct a factorial study, meaning the trial cannot be conducted). The FDA has also stated that it may be possible to use other types of clinical and nonclinical data and mechanistic information available to demonstrate the contributions of the individual active ingredients to the effect of the combination. Moreover, the applicable requirements for approval of a combination therapy may differ from country to country.
In the event that one of our investigational products were to fail to demonstrate sufficient safety and efficacy or establish its contribution to the claimed effects of a combination therapies, we would need to identify alternatives. For example, we expect that our anti-PD-1 antibody, zimberelimab, will form the backbone of many of the combination therapies we are pursuing. If we are unable to demonstrate the contribution of zimberelimab to the claimed effects of a combination therapy, we would need to identify an anti-PD-1 antibody for use in such combination therapy. 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.
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 ARC-7 trial and our Phase 3 ARC-10 trial, which are each being conducted in patients with PD-L1≥50% NSCLC, 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
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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. Even if we adhere to guidance or advice given by the FDA or comparable foreign regulatory authorities, such adherence does not guarantee that the FDA will agree with our trial designs or data interpretations or prevent the FDA from changing the requirements for the approval of any investigational product.
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 which 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.
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.
Our strategy for fully developing and commercializing our investigational products is dependent upon maintaining our current arrangements with Gilead and our other strategic partners. Our ability to leverage these arrangements to produce commercial success will depend, among other things, on our collaborators' cooperation and ability to successfully meet their responsibilities with regards to a clinical program. We cannot predict the success of any collaboration that we enter into. Our partnership with Gilead poses a number of risks including, but not limited to, the following:
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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 controlling how clinical trials should be conducted and are applicable to all of our investigational products in clinical development. The FDA and comparable foreign 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 trials before approving our marketing applications.
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 and continue to suffer from personnel constraints resulting from COVID-19 and other economic factors which may impact their ability to perform their contractual obligations. 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.
Supply by third parties of the investigational products, standard-of-care drugs or comparator agents used in our clinical trials may become limited or interrupted which could delay, prevent or impair our development efforts.
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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 and supply of our investigational products for preclinical and clinical testing, as well as for commercial manufacture if any of our investigational products are approved. If any of these third-parties fail to perform these activities for us, nonclinical or clinical development of our investigational products could be delayed, which could have an adverse effect on our business, financial condition, results of operations, and/or growth prospects. Further, we currently have limited manufacturing arrangements for our investigational products 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 drug substance. Our reliance on limited manufacturing arrangements increases the risk that we will not have and may not be able to obtain sufficient quantities of our investigational products for use in our clinical trials, which could delay, prevent or impair our development efforts.
Any supply chain challenges may affect our ability to supply clinical sites with our investigational products and any standard-of-care drugs and comparator agents that we use in our clinical trials. These supply chain challenges can include longer lead times for the manufacturers of our investigational products to obtain raw materials, longer timeframes to procure or lack of supply for standard-of-care drugs or comparator agents used in our clinical trials, and transit delays at each point in the manufacturing, supply or distribution chain. For example, carboplatin and 5-flourouracil are used in certain of our clinical trials as the standard-of-care chemotherapy agent. However, certain of the countries where we conduct these clinical trials are experiencing a shortage in the supply of carboplatin. These supply chain challenges may delay, prevent or impair our development efforts, or result in increased costs for our clinical trials.
Our manufacturing partners are subject to extensive regulation. In the event any of our manufacturers fail to comply with such regulations or perform its obligations, our business may be adversely affected could negatively and we may need to delay or halt the development of our investigational products.
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 an 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.
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, 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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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.
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 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:
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.
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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 investigational products, 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.
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. For example, the approval of zimberelimab for the treatment of recurrent or refractory classical Hodgkin’s Lymphoma in China by Gloria Biosciences does not improve the chances of FDA approval for any BLA that we may submit for zimberelimab in the United States in any indication. 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 and domvanalimab 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
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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 are compliant with our obligations under these agreements. 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.
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 collaborations or other strategic partnerships on commercially acceptable terms, we may be unable to successfully develop and commercialize the affected investigational products.
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.
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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-exercise fee. 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 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:
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 by one or more negative covenants or otherwise. For example, we may be restricted 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 and may be prevented from or limited in forming additional strategic collaborations. 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.
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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:
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 at a reasonable cost or in a timely manner. Even if we successfully file and prosecute a patent application, we may not be able to maintain and/or enforce the issued patent. We may determine that filing or maintaining such a patent or any action to enforce a patent may be too high or not in the best interest of our company or our stockholders. 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.
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 than 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.
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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 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, two of which were recently statutorily disclaimed. These patents are, or have been, the subject of post-grant proceedings at the United States Patent and Trademark Office “USPTO” and other global patent offices. 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 in combination with zimberelimab in a territory with standing intellectual property rights prior to expiration of the BMS or 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 which 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.
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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 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 outside of the U.S.
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, which 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.
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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 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, third parties with which 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 which 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.
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Risks Related to our Business Operations
We expect to expand our business operations and, as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.
We expect to grow our business operations, including, if any of our investigational products receives marketing approval, adding employees in sales and marketing. To manage our anticipated future growth, we must:
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. 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.
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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.
We are aware of several pharmaceutical companies developing products in the same class as our investigational products, some of which are further along in development than our corresponding assets. For additional information regarding our competitors, see “Item 1. Business—Competition” in our Annual Report on Form 10-K filed with the SEC on February 28, 2023.
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.
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, 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. 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.
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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 a number of reasons, including the existence of COVID-19 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.
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. 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 has increased our operating expenses and may continue to affect our operating expenses. Economic conditions may also strain our suppliers, possibly resulting in supply disruptions that impact our ongoing clinical trials and other operations. A significant worsening of global economic conditions could materially increase these risks we face.
Any new or prolonged downturn of global economic conditions 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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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 which we depend may be adversely affected by earthquakes, fires or other natural disasters and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.
Our headquarters and main research facility are located in the San Francisco Bay Area, which in the past has experienced severe earthquakes and fires. In addition, fires and other natural disasters may increase in frequency and severity over time due to climate change. If these earthquakes, fires, other natural disasters, terrorism and similar unforeseen events beyond our control prevented us from using all or a significant portion of our headquarters or research facility, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. We do not have a disaster recovery or business continuity plan in place and may incur substantial expenses as a result of the absence or limited nature of our internal or third-party service provider disaster recovery and business continuity plans, which, particularly when taken together with our lack of earthquake insurance, could have a material adverse effect on our business. Furthermore, integral parties in our supply chain are operating from single sites, increasing their vulnerability to natural disasters or other sudden, unforeseen and severe adverse events. If such an event were to affect our supply chain, it could have a material adverse effect on our ability to conduct our clinical trials, our development plans and business.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
We have incurred substantial losses during our history and our ability to generate profits in the future is uncertain. Unused 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. Our NOLs may be carried forward indefinitely. In addition, the future deductibility of such NOLs will be limited to 80% of current year taxable income in any given year.
Both our current and our future unused losses (and tax credit carryforwards) may be subject to further limitation under Sections 382 and 383 of the Internal Revenue Code (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 but that such ownership change did not result in the expiration of our net operating loss or credit carryforwards prior to utilization. We may incur additional ownership changes in the future in connection with any equity issuance, including any additional issuances to Gilead. If we experience any such ownership change, we may be limited in our ability to use our net operating loss and credit carryforwards and be required to make material cash tax payments.
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.
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Changes in tax laws and regulations or exposure to additional tax liabilities could adversely affect our financial results.
The rules dealing with U.S. federal, state and local income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service, or IRS, and the U.S. Treasury Department. Changes to tax laws (which changes may have retroactive application) could adversely affect us or holders of our common stock. In recent years, many such changes have been made and changes are likely to continue to occur in the future. For example, beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminates the option to currently deduct research and development expenditures and requires taxpayers to capitalize and amortize U.S. based and non-U.S. based research and development expenditures over five and fifteen years, respectively, pursuant to IRC Section 174. We cannot predict whether, when, in what form, or with what effective dates, tax laws, regulations and rulings may be enacted, promulgated or issued, which could result in an increase in our or our stockholders’ tax liability or require changes in the manner in which we operate in order to minimize or mitigate any adverse effects of changes in tax law.
Risks Related to Our Industry
Product liability lawsuits against us could cause us to incur substantial liabilities and could limit our commercialization of any investigational products that we may develop.
We face an inherent risk of product liability exposure related to the testing of our investigational products in human clinical trials and will face an even greater risk if we commercially sell any products that we may develop. If we cannot successfully defend ourselves against claims that our investigational products or products caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, product liability claims may result in:
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.
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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 and was amended by the California Privacy Rights Act of 2020 effective on January 1, 2023, gives California residents expanded rights to access, correct and require deletion of their personal information, limit disclosure of sensitive 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.
Foreign 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 foreign data protection laws and regulations could result in government enforcement actions (which could include civil or criminal penalties), private litigation, and/or adverse publicity and could negatively affect our operating results and business. 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 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 filed with the SEC on February 28, 2023.
The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform. Federal and state enforcement bodies have continued their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Responding to investigations can be time-and resource-consuming and can divert management’s attention from the business. Any such investigation or settlement could increase our costs or otherwise have an adverse effect on our business.
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Ensuring that our business arrangements with third parties comply with applicable healthcare laws and regulations will likely be costly. We have entered into consulting and advisory board arrangements with physicians and other healthcare providers, including some who could influence the use of our investigational products, if approved. Because of the complex and far-reaching nature of these laws, regulatory agencies may view these transactions as prohibited arrangements that must be restructured, or discontinued, or for which we could be subject to other significant civil, criminal and administrative penalties such as fines, disgorgement, imprisonment, exclusion from government funded healthcare programs, such as Medicare and Medicaid, contractual damages, reputational harm, diminished profits and future earnings, additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations, any of which could substantially disrupt our operations. If any of the physicians or other healthcare providers or entities with which we expect to do business is found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.
Changes in healthcare law and implementing regulations, as well as changes in healthcare policy, may impact our business in ways that we cannot currently predict, and may have a significant adverse effect on our business and results of operations.
In the United States and some foreign jurisdictions, there have been, and continue to be, several legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of investigational products, restrict or regulate post-approval activities, and affect the ability to profitably sell investigational products for which marketing approval is obtained. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. For 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 and through a newly established manufacturer discount program. These provisions will take effect progressively starting in fiscal year 2023, although the Medicare drug price negotiation program is currently subject to legal challenges. The United States Department of Health and Human Services has and will continue to issue and update guidance as these programs are implemented. It is currently unclear how the IRA will be implemented but is likely to have a significant impact on the pharmaceutical industry. We expect that other healthcare reform measures may be adopted in the future, and that any such health reform measures could have an adverse effect on our business and/or results of operation.
We are subject to certain U.S. and foreign anti-corruption, anti-money laundering, export control, sanctions, and other trade laws and regulations. We can face serious consequences for violations.
U.S. and foreign anti-corruption, anti-money laundering, export control, sanctions, and other trade laws and regulations (collectively, Trade Laws) 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 which we share our facilities, are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Each of our operations involve the use of hazardous and flammable materials, including chemicals and biological and radioactive materials. Each of our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. We could be held liable for any resulting damages in the event of contamination or injury resulting from the use of hazardous materials by us or the third parties with which we share our facilities, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.
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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:
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.
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:
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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 June 30, 2023, our executive officers, directors and the holders of more than 5% of our outstanding common stock, in the aggregate, beneficially owned approximately 47.9% of our common stock. In particular, Gilead owns approximately 19.9% of our outstanding common stock (and has the right to acquire additional shares of our common stock from us to enable it to own up to 35% of our outstanding common stock), and we have appointed its two designees to our board of directors pursuant to the terms of the Investor Rights Agreement. As a result, these stockholders, acting together, will have significant influence over all matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions. Corporate actions might be taken even if other stockholders oppose them. This concentration of ownership might also have the effect of delaying or preventing a change of control of our company that other stockholders may view as beneficial.
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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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. 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. Recent trends in remote work arrangements have led to changes in work patterns that can make it more difficult to properly perform our controls and may create risks that result in deficiencies in the design of our controls. To the extent necessary, implementing any changes to our internal controls may distract our officers and employees, entail substantial costs to modify our existing processes and take significant time to complete. These changes may not, however, be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and harm our business.
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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.
52
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 |
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Incorporated by Reference |
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Number |
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Exhibit Description |
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Form |
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File No. |
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Exhibit |
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Filing Date |
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3.1 |
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10-Q |
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001-38419 |
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3.1 |
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May 9, 2018 |
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3.2 |
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8-K |
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001-38419 |
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3.1 |
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May 26, 2020 |
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10.1*A |
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10.2 |
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Non-Employee Director Compensation Program (Effective June 15, 2023). |
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8-K |
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001-38419 |
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10.1 |
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June 16, 2023 |
10.3A |
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SC 13D/A |
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005-90423 |
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99.1 |
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July 6, 2023 |
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31.1* |
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31.2* |
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32.1† |
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32.2† |
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101.INS |
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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 |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
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Cover Page Interactive Data File (formatted as inline XBRL and contained in exhibit 101) |
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* 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.
53
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.
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ARCUS BIOSCIENCES, INC. |
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Date: |
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August 7, 2023 |
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By: |
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/s/ Terry Rosen |
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Terry Rosen, Ph.D. |
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Chief Executive Officer (Principal Executive Officer) |
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Date: |
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August 7, 2023 |
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By: |
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/s/ Alexander Azoy |
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Alexander Azoy |
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Chief Accounting Officer (Principal Accounting Officer) |
54
Exhibit 10.1
[***] CERTAIN INFORMATION HAS BEEN OMITTED BECAUSE IT IS BOTH NOT MATERIAL AND WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED
AMENDMENT NO. 2 TO
OPTION, LICENSE AND COLLABORATION AGREEMENT
This Amendment No. 2 (this “Amendment No. 2”) to the Option, License and Collaboration Agreement, dated as of May 27, 2020, as amended as of November 17, 2021 (collectively, the “Agreement”), is entered into as of May 12, 2023 (the “Amendment No. 2 Execution Date”), by and between Gilead Sciences, Inc. (“Gilead”), and Arcus Biosciences, Inc. (“Arcus”). Capitalized terms used and not otherwise defined herein shall have the meanings given such terms in the Agreement to the extent defined therein.
Whereas, Gilead and Arcus entered into the Agreement, pursuant to which, among other things, Gilead has an Option to collaborate with and license intellectual property from Arcus with respect to each Arcus Program and an option to collaborate with and license intellectual property from Arcus with respect to each Target Program;
Whereas, the Parties agree to collaborate on certain New Target Programs (as defined below) with respect to two (2) initial Targets in the Inflammation Therapeutic Area (as defined below), and the Parties will collaborate to identify and may add up to two (2) additional Targets, the first of which would be applicable to Molecules and products in the Inflammation Therapeutic Area, and the second of which would be applicable to Molecules and products in the Inflammation Therapeutic Area or the Oncology Therapeutic Area (as defined below) subject to the terms and conditions of the Agreement (as modified by this Amendment No. 2); and
Whereas, in connection with this collaboration, the Parties desire to modify certain of Gilead’s option rights and financial obligations under the Agreement with respect to programs directed to the selected New Targets (as defined below).
Now, Therefore, in consideration of the mutual promises and assurances contained in the Agreement and this Amendment No. 2, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:
“Development Candidate Criteria” means, collectively, with respect to each New Target, the criteria that will inform [***] whether a lead Arcus Molecule in the applicable New Target Program will be [***], which criteria are set forth in the New Target R&D Plan for the New Target Program for such New Target. As of the Amendment No. 2 Execution Date, the Development Candidate Criteria for each of the Initial New Targets are as set forth on Exhibit A to this Amendment No. 2.
“Indication” means, with respect to each Royalty D Program, a distinct disease or condition that an Optioned Product in such Royalty D Program (a) that is the subject of one or more Clinical Trial(s) is intended to treat or prevent in such Clinical Trial(s), or (b) can be used to treat or prevent, which use is the subject of separate Regulatory Approvals for a distinct labeling supported by data
1
from at least one Phase 3 Clinical Trial not previously submitted to the applicable Regulatory Authority. For clarity, (i) subpopulations of patients with a primary disease or condition separate from each other, however stratified, shall not be deemed to be separate “Indications” for the purposes of this Agreement, including stratification by particular combinations of symptoms associated with the primary disease or condition, family history, clinical history, phenotype, age (e.g. adult and pediatric) or other stratification (including any and all variants, sub-divisions or sub-classifications), and (ii) (A) different stages or progression (including precursor condition), (B) different prior treatment courses or responses to prior treatment, or (C) different lines of treatment, [***].
“Inflammation Therapeutic Area” means the diagnosis, prevention, palliation, control or treatment of inflammatory or autoimmune diseases, disorders or conditions in humans and animals.
“JRC” means (a) with respect to a New Target Program for a New Target in the Inflammation Therapeutic Area, the joint research committee to be established by the Parties promptly after the Amendment No. 2 Execution Date, and (b) with respect to a New Target Program for a New Target in the Oncology Therapeutic Area, the joint research committee established by the Parties under this Agreement prior to the Amendment No. 2 Execution Date, in each case (a) and (b), with such responsibilities as may be specifically assigned to such committee under this Agreement or allocated to it by the Parties’ written agreement.
“Major EU Market” means each of the following countries: [***].
“New Target” means, subject to Section 3.1(c)(iv), each Initial New Target or Additional New Target.
“New Target Option Exercise Period” means (a) with respect to a New Target Program for an Initial New Target, (i) in the event of Non-Extension, the Initial Option Exercise Period for such New Target Program, and (ii) in the event of New Target Option Extension, one (1) continuous period commencing on the first date of the Initial Option Exercise Period for such New Target Program and ending on the last date of the Extended Option Exercise Period for such New Target Program, and (b) with respect to a New Target Program for an Additional New Target, the Initial Option Exercise Period for such New Target Program.
“New Target Program” means, with respect to each New Target, any program, [***], with respect to such New Target, including any Arcus Molecules Directed To such New Target, any Related Arcus Molecules with respect to such Arcus Molecules, and any Arcus Products containing such Arcus Molecules or such Related Arcus Molecules, Controlled by Arcus or any of its Affiliates that exists as of the Amendment No. 2 Execution Date or thereafter comes into existence at any time prior to the end of the Collaboration Term, other than an Optioned Program or Excluded Arcus Program, [***].
“New Target R&D Plan” means, with respect to each New Target Program, the plan for the Arcus R&D Activities with respect to such New Target Program [***]. For purposes of this Agreement, the Development Candidate Criteria for a given New Target as set forth on Exhibit A to this Amendment No. 2, and the TCT Criteria for such New Target as set forth on Exhibit B to this Amendment No. 2, shall hereby be deemed to be incorporated into the New Target R&D Plan for the New Target Program for such New Target, as such Development Candidate Criteria or TCT Criteria, as applicable, may be amended from time to time pursuant to Section 3.1(c)(ii)(C).
2
“New Target Subject Matter Expert” means, with respect to an Optioned GLP Initial New Target Program, (a) for Development matters, including Manufacturing in support thereof, for such Optioned GLP Initial New Target Program, with respect to Arcus, its [***] (or his or her designee) and, with respect to Gilead, its [***] (or his or her designee), and (b) for Commercialization matters, including Manufacturing in support thereof, for such Optioned GLP Initial New Target Program, with respect to Arcus, its [***] (or his or her designee) and, with respect to Gilead, its [***] (or his or her designee). Each Party may change its respective New Target Subject Matter Expert upon written notice to the other Party with another representative of equivalent seniority, knowledge and expertise.
“Non-Extension” means, with respect to a New Target Program for an Initial New Target, the situation where Gilead does not deliver an Initial Option Exercise Notice, and does not deliver a New Target Option Extension Notice, for such New Target Program prior to the expiration of the Initial Option Exercise Period for such New Target Program.
“Oncology Therapeutic Area” means the diagnosis, prevention, palliation, control or treatment of diseases, disorders or conditions in the oncology field in humans and animals.
“Phase 3 Clinical Trial” means a Clinical Trial of an Optioned Product on a sufficient number of subjects that is designed to establish that a pharmaceutical product is safe and efficacious for use in a particular Indication, and to determine warnings, precautions, and adverse reactions that are associated with such pharmaceutical product in the dosage range to be prescribed, which Clinical Trial is intended to support Regulatory Approval of such product, as described in 21 C.F.R. 312.21(c) (as amended or any replacement thereof), or a similar clinical study prescribed by the Regulatory Authorities in a foreign country.
“Therapeutic Area” means each of the Inflammation Therapeutic Area and Oncology Therapeutic Area.
(a) The definition of “Royalty A Programs” is hereby deleted in its entirety and replaced with the following:
““Royalty A Program” means each of: (i) the PD-1 Program; (ii) all New Target Programs on which Gilead both (x) elects New Target Option Extension and (y) exercises the New Target Option during the applicable Extended Option Exercise Period (i.e., after the Initial Option Exercise Period portion of the applicable Option Exercise Period); (iii) all Optioned GLP Initial New Target Programs on which Arcus has exercised the Profit Share Option; and (iv) all other Optioned Programs, except for, in the case of this clause (iv), (A) the 2021 Optioned Programs, (B) the Optioned Target Programs for which Gilead exercises its option prior to the expiration of the applicable Selected Target Option Exercise Window, (C) the Optioned GLP Initial New Target Programs on which Arcus has not exercised the Profit Share Option and (D) the Optioned New Target Programs for an Additional New Target on which Gilead exercises the New Target Option during the applicable Initial Option Exercise Period.”
3
(b) The definition of “Royalty C Programs” is hereby deleted in its entirety and replaced with the following:
““Royalty C Program” means each of (i) all Optioned Target Programs for which Gilead exercises its option prior to expiration of the applicable Selected Target Option Exercise Window, and (ii) all Optioned New Target Programs for an Additional New Target on which Gilead exercises the New Target Option during the applicable Initial Option Exercise Period.”
(c) Section 8.3(b)(vii)(A) of the Agreement is hereby deleted in its entirety and replaced with the following:
“(A) With respect to an Arcus Program other than an Acquired Arcus Program that constitutes an Arcus Program upon acquisition, except as otherwise specified in clause (B) below, the Clinical Trial(s) sponsored by Arcus and approved by the JSC as the Triggering Clinical Trial for such Arcus Molecule, which Clinical Trial(s) shall be consistent with the TCT Criteria. The “TCT Criteria” for an Arcus Program (whether such Arcus Program is a New Target Program or not) for a New Target or Replaced Target (x) in the Inflammation Therapeutic Area are as set forth on Exhibit B to Amendment No. 2 or (y) not in the Inflammation Therapeutic Area are as set forth in Schedule 8.3(b)(vii);”
(d) The following is hereby added to the Agreement as a new Section 8.3(b)(ix):
““Triggering Clinical Trial” means, for an Optioned Molecule in an Optioned GLP Initial New Target Program for an Initial New Target, the Clinical Trial(s) for such Optioned Molecule that are consistent with the TCT Criteria for the applicable Initial New Target as set forth in Section 8.3(b)(vii)(A). [***].”
(e) Solely with respect to an Arcus Program (whether such Arcus Program is a New Target Program or not) for a New Target or Replaced Target in the Inflammation Therapeutic Area or with respect to an Optioned GLP Initial New Target Program, the definition of “Qualifying Data Package” is hereby deleted in its entirety and replaced with the following:
““Qualifying Data Package” means, with respect to an Arcus Program (whether such Arcus Program is a New Target Program or not) for a New Target or Replaced Target in the Inflammation Therapeutic Area or with respect to an Optioned GLP Initial New Target Program, a downloadable copy of each item set forth on Exhibit C to this Amendment No. 2, delivered via a Data Room.”
“(a) Arcus shall be solely responsible, in its discretion and at its sole cost and expense, for conducting all (i) Pre-Program Activities and (ii) Development activities with respect to Arcus Programs, including, in each case ((i) and (ii)) (as applicable), all applicable pre-clinical and non-clinical research activities, regulatory activities (including filing INDs) and clinical activities (collectively, the “Arcus R&D Activities”), except to the extent otherwise agreed by the Parties in writing, set forth in this Agreement or as set forth in Section 3.1(b) and Section 3.1(c). For purposes of this Agreement, each New Target Program for an Initial New Target for which Gilead has delivered the New Target Option Extension Notice prior to the expiration of the applicable Initial Option Exercise Period
4
shall be deemed an Arcus Program from and after the date [***], and shall thereafter be subject to all of the terms and conditions of the Agreement applicable to Arcus Programs.”
“(c) New Target Activities.
(i) New Targets.
(A) The two (2) initial New Targets in the Inflammation Therapeutic Area mutually agreed by the Parties as of the Amendment No. 2 Execution Date are [***] and [***] (each, an “Initial New Target”).
(B) Notwithstanding Section 2.5(b)(i)(B), [***] following the Amendment No. 2 Execution Date, the Parties will collaborate to identify up to two (2) additional Targets and the Therapeutic Area for each such additional Target, in each case as may be mutually agreed by the Parties in writing (each, an “Additional New Target”); [***].
(ii) New Target R&D Plans.
5
(iii) New Target Activities. Notwithstanding anything to the contrary in this Agreement (including Section 2.5(b)(i)(B)), Arcus shall use commercially reasonable efforts to conduct Arcus R&D Activities with respect to each New Target Program from prompt initiation of research activities and establishment of such New Target Program through [***]. The Parties agree that the conduct of the Arcus R&D Activities for each New Target Program shall be overseen by the JRC, except in the event of New Target Option Extension for a New Target Program for an Initial New Target, after which the conduct of the Arcus R&D Activities for such New Target Program shall be overseen by the JDC.
(iv) Replacement of New Targets.
(A) For each New Target Program, promptly upon [***], Arcus shall deliver to Gilead a written notice including instructions and credentials with which Gilead may access a Data Room containing all data and information arising from all Pre-Program Activities, including [***], performed with respect to such New Target Program up to the date of such completion (such information package, an “Assessment Data Package”). For each New Target Program, during the period of time commencing on the date on which Gilead receives a complete Assessment Data Package for such New Target Program and ending [***] days thereafter (“Data Package Evaluation Period”), Gilead shall have a one-time right to replace, at no cost, the applicable New Target (such right, a “Replacement Right” for such New Target), which shall be deemed exercised when (1) Gilead provides a written notice to Arcus prior to expiration of the Data Package Evaluation Period [***].
(B) [***].
(C) Effective as of the Parties’ written mutual agreement upon the prospective replacement Target, the Parties shall promptly confer, through the JRC, and discuss in good faith the New Target R&D Plan (including the Development Candidate Criteria and, if such prospective replacement Target is in the Inflammation Therapeutic Area, TCT Criteria) for the prospective New Target Program for such prospective replacement Target. If the Parties mutually agree upon the New Target R&D Plan for such prospective replacement Target in writing, effective upon such mutual agreement, (1) the replaced Target (“Replaced Target”) will no longer be deemed a New Target under this Agreement, (2) the New Target Program for such Replaced Target will become an Excluded Arcus Program pursuant to Section 8.3(b)(ii)(A), (3) such prospective replacement Target will be deemed as (I) an Initial New Target if such Replaced Target was an Initial New Target or (II) an Additional New Target if such Replaced Target was an Additional New Target, and (4) Gilead shall have no further
6
Replacement Right under this Section 3.1(c)(iv) with respect to such replacement New Target. [***].
(D) For each New Target Program, if an Initial Data Package and [***] are delivered to Gilead pursuant to Section 3.1(c)(v) prior to delivery of an Assessment Data Package for such New Target Program, Gilead’s Replacement Right for the applicable New Target shall expire concurrently with the expiration of the Initial Option Exercise Period for such New Target Program.
(v) Delivery of New Target Data Packages. With respect to each New Target Program, following [***], Arcus shall promptly deliver to Gilead (A) a written notice including instructions and credentials with which Gilead may access a Data Room containing the [***] to the extent then existing with respect to such New Target Program (such information package, an “Initial Data Package”), and (B) [***]. In the event of New Target Option Extension with respect to a New Target Program for an Initial New Target, Arcus shall deliver the Qualifying Data Package with respect to such New Target Program in accordance with Section 3.3(d) or 8.3(b)(vi).
(vi) New Target R&D Plan Amendment in the Event of New Target Option Extension. Upon Arcus’ receipt of the New Target Option Extension Notice for a New Target Program for an Initial New Target, the Parties shall promptly confer, through the JDC, discuss any changes to the [***]. For clarity, the foregoing clause (y) is not intended, and shall not be construed, to limit or otherwise affect anything set forth in Section 3.3(c).
(vii) Material Transfer. If and to the extent requested by Gilead, Arcus shall provide to Gilead an amount of chemical or biological materials that have been, are being, or are proposed to be studied by Arcus with respect to any New Target for pre-clinical and non-clinical studies to be performed by Gilead in Gilead’s sole discretion. Any such material transfer shall be made pursuant to the terms of Section 3.5(d) of this Agreement.
(viii) CMO Selection. [***].
(ix) Initiation of [***] Studies. With respect to each New Target Program in the Inflammation Therapeutic Area, Arcus shall use good faith efforts to initiate [***] studies for the first Arcus Molecule in such New Target Program within [***] (or such other period as may be mutually agreed by the Parties) following the delivery by Gilead of the New Target Option Extension Notice for such New Target Program.”
“(a) For each New Target Program, prior to the expiration of the applicable New Target Option Exercise Period, Arcus shall keep Gilead reasonably informed, via the JRC or JDC, as applicable, regarding the progress and results of Arcus R&D Activities for such New Target Program by providing quarterly reports in reasonable detail of progress and results versus goals (as such goals are set forth in the applicable New Target R&D Plan) and, at
7
Gilead’s reasonable request (made no more frequently than [***]) copies of any then-available information, results and materials with respect to such Arcus R&D Activities or New Target Program.”
“(i) In addition to the information shared pursuant to Section 3.3(a) and 3.3(b), as soon as Arcus in good faith believes a Clinical Trial for an Arcus Product would constitute the Triggering Clinical Trial with respect to the applicable Arcus Program, and no later than [***] days before the Initiation of such Clinical Trial, Arcus shall notify the JDC, JSC and Gilead. If Gilead in good faith believes a Clinical Trial to be conducted by Arcus would constitute the Triggering Clinical Trial with respect to the applicable Arcus Program, then Gilead shall have the right to notify the JDC, JSC and Arcus. Upon such notice by Arcus or Gilead pursuant to the foregoing two sentences, [***]. No later than [***] days before the Initiation of such Clinical Trial, Arcus shall [***] (such information with respect to a given Arcus Program, a “TCT Determination Package”) and (B) provide the JDC, JSC and Gilead with instructions and credentials with which each JDC member, JSC member and other Gilead designated employees may access the TCT Determination Package for such Arcus Program.”
“(a) New Target Option Rights. For each New Target Program, subject to Section 8.3(d), Arcus hereby grants to Gilead an exclusive option to obtain the exclusive licenses and other rights described in Section 8.4 with respect to each New Target Program (each, a “New Target Option”).”
“(b) New Target Option Exercise.
(i) With respect to each New Target Program, during the period commencing on the date of the Parties’ mutual agreement upon the applicable New Target (for clarity, which date shall be the Amendment No. 2 Execution Date for the Initial New Targets) and ending on the latest of (A) [***] days after the date on which Arcus has delivered to Gilead a complete Initial Data Package and [***], (B) if applicable, [***] Business Days after a determination pursuant to [***] that an Initial Data Package for such New Target Program has been delivered, and (C) if applicable, [***] Business Days after a determination pursuant to [***] (such period, “Initial Option Exercise Period”), Gilead shall have the right to, in its sole discretion, (x) exercise the applicable New Target Option by providing Arcus written notice thereof (“Initial Option Exercise Notice”), and (y) solely with respect to any New Target Program for an Initial New Target, elect to extend the Initial Option Exercise Period for such New Target Program to end on [***] days after the date on which Arcus has delivered to Gilead a complete Qualifying Data Package with respect to such New Target Program and (2) if applicable, [***] Business Days after a determination pursuant to [***] that a Qualifying Data Package for such New Target
8
Program has been delivered (such period commencing on the expiration of the Initial Option Exercise Period and ending upon the expiration of the extended Initial Option Exercise Period, “Extended Option Exercise Period”) by providing Arcus written notice thereof (“New Target Option Extension Notice”), in each case ((x) and (y)), prior to the expiration of such Initial Option Exercise Period. If Gilead provides Arcus a New Target Option Extension Notice for a New Target Program for an Initial New Target prior to the expiration of the applicable Initial Option Exercise Period, then, during the applicable Extended Option Exercise Period, Gilead shall have the right to exercise the applicable New Target Option by providing Arcus written notice thereof prior to the expiration of such Extended Option Exercise Period (such notice or the Initial Option Exercise Notice, a “New Target Option Exercise Notice”).
(ii) (A) If the Parties mutually agree in writing upon a replacement New Target in accordance with Section 3.1(c)(iv), effective as of such mutual agreement, all Arcus Molecules in the New Target Program for the applicable Replaced Target shall become Excluded Arcus Molecules and such New Target Program shall become an Excluded Arcus Program, (B) in the event of Non-Extension for a New Target Program for an Initial New Target, effective as of the expiration of the applicable Initial Option Exercise Period, all Arcus Molecules in such New Target Program shall become Excluded Arcus Molecules and such New Target Program shall become an Excluded Arcus Program, and (C) in the event of New Target Option Extension with respect to a New Target Program for an Initial New Target, if Gilead does not exercise the New Target Option for such New Target Program during the applicable Extended Option Exercise Period, then effective immediately after the end of such Extended Option Exercise Period, all Arcus Molecules in such New Target Program shall become Excluded Arcus Molecules and such New Target Program shall become an Excluded Arcus Program; provided that, in each case ((A), (B) and (C)), (x) any Acquired Arcus Program acquired after the date on which such New Target Program becomes an Excluded Arcus Program pursuant to the foregoing (including any Acquired Arcus Program comprising Molecules Directed To the same New Target for such New Target Program) shall be deemed a distinct Arcus Program from such New Target Program, and Gilead shall have an Option with respect thereto pursuant to Section 8.3(a), and (y) if such New Target Program comprises any [***] and the JDC determines [***], then [***]. In the event Gilead does not deliver an Initial Option Exercise Notice for a New Target Program for an Additional New Target prior to the expiration of the Initial Option Exercise Period for such New Target Program, effective as of the expiration of the applicable Initial Option Exercise Period, such New Target Program shall cease to be a New Target Program and shall be deemed an Arcus Program from and after the date on which at least one (1) Molecule included in such New Target Program becomes the subject of an IND filed with a Regulatory Authority in any jurisdiction, and shall thereafter be subject to all of the terms and conditions of the Agreement applicable to Arcus Programs, including Gilead’s right to exercise the Option with respect to such New Target Program pursuant to Section 8.3; provided that, for clarity, [***].
(iii) If Gilead exercises the New Target Option for a New Target Program during the applicable New Target Option Exercise Period, (A) the option closing process set forth in Sections 8.3(c), (d) and (e) applicable to an Arcus Program shall apply to such New Target Program, mutatis mutandis, and (B) from and after the Option Exercise Closing (or, if there is more than one (1) closing for such New Target Program, the Initial Option Closing), such New Target Program shall be deemed an Optioned Program (each, an “Optioned New Target Program”) and shall thereafter be subject to all of the terms and conditions of this Agreement applicable to Optioned New Target Programs.
9
(iv) During the New Target Option Exercise Period for each New Target Program, Gilead may reasonably request information with respect to such New Target Program that is not otherwise included in the Initial Data Package, Qualifying Data Package or [***], as applicable (including in connection with Gilead’s review of the Arcus Option Schedule of Exceptions for such New Target Program delivered pursuant to Section 8.3(c)(ii)), and to the extent that the information reasonably requested by Gilead is at such time reasonably available, Arcus shall make full, accurate and timely responses to such requests.
(v) If Gilead exercises the New Target Option with respect to any New Target Program that is also an Acquired Arcus Program, then the Parties shall attach an Existing Arcus Third Party Obligations Schedule with respect to such Acquired Arcus Program in accordance with Section 4.1(c) and Section 8.11.
(vi) With respect to each New Target Program, at any time prior to the expiration of the applicable New Target Option Exercise Period, Gilead shall have the right to deliver to Arcus a written notice indicating that Gilead desires to explore whether to exercise the New Target Option for such New Target Program. Within [***] days after such written notice from Gilead, Arcus shall deliver to Gilead, with respect to such New Target Program, (A) a written notice including instructions and credentials with which Gilead may access a Data Room containing the data and information (existing and available as of the date of Arcus’s notice) with respect to such New Target Program that would be required to be included in (x) an Initial Data Package, if such notice is delivered during the applicable Initial Option Exercise Period, or (y) a Qualifying Data Package, if such notice is delivered during the applicable Extended Option Exercise Period, and (B) [***]. If the data and information delivered by Arcus under the foregoing clause (A) do not constitute an Initial Data Package or a Qualifying Data Package, as applicable, as determined by the JSC in accordance with the terms of this Agreement, then Arcus shall supplement such data and information with data and information required to be included in an Initial Data Package or a Qualifying Data Package, as applicable, promptly upon such data and information becoming available. If the information delivered by Arcus under the foregoing clause (B) does not constitute an [***] as mutually agreed by the Parties or as determined pursuant to Section 15.1(b) or 15.2(a), then Arcus shall supplement such information with information required to be included in an [***] promptly upon such information becoming available. Following receipt of Arcus’s written notice with respect to the applicable Data Room or delivery of the [***], as applicable, Gilead shall have the right to reasonably request additional information with respect to the applicable New Target Program in accordance with Section 8.3(b)(iv).”
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“(B) Escalation Procedure. Either Party may refer such dispute to the applicable New Target Subject Matter Experts for each Party. Following such referral, such New Target Subject Matter Experts shall attempt to reach consensus on such dispute during a period of [***] Business Days thereafter, and any final decision agreed to in writing by the New Target Subject Matter Experts with respect to such dispute shall be binding on the Parties. If such New Target Subject Matter Experts cannot reach consensus on any such dispute within such period, then such dispute shall be decided in accordance with the remainder of this Section 2.5(b)(ii)(B).”
“(D) Notwithstanding anything to the contrary in Section 3.5(c)(iii)(A), for each Gilead Combination containing or involving at least one (1) Optioned Molecule Directed To a New Target or Replaced Target in the Inflammation Therapeutic Area, which Optioned Molecule is not within any Optioned GLP Initial New Target Program, Arcus shall be responsible for [***], and Gilead shall be responsible for [***]. Upon Gilead’s request, the Parties shall promptly work together through the JDC to prepare and submit to [***] for review and approval the initial development plan and budget for a Gilead Combination (“Gilead Combination Plan and Budget”). The Gilead Combination Plan and Budget shall contain all information that is required for an R&D Plan and Budget, mutatis mutandis, with respect the applicable Gilead Combination. Once approved by [***], a Gilead Combination Plan and Budget shall [***].”
“(E) Notwithstanding anything to the contrary in Section 3.5(c)(iii)(B), for each Arcus Combination containing or involving at least one (1) Optioned Molecule Directed To a New Target or Replaced Target in the Inflammation Therapeutic Area, which Optioned Molecule is not within any Optioned GLP Initial New Target Program, Arcus shall be responsible for [***], and Gilead shall be responsible for [***]; provided, further, that the Combination Development Plan for such Arcus Combination shall contain all information that is required for an R&D Plan and Budget, mutatis mutandis, with respect to such Arcus Combination (such Combination Development Plan, “Combination Development Plan and Budget”). Notwithstanding anything to the contrary in this Agreement, for the purposes of estimating and calculating Research and Development Costs for any such Arcus Combination, the applicable Combination Development Plan and Budget that has been approved by [***] shall constitute the R&D Plan and Budget or Global Manufacturing Plan and Budget, as applicable, for the applicable Arcus Combination.”
“For each Gilead Combination containing or involving at least one (1) Optioned Molecule Directed To a New Target or Replaced Target in the Inflammation Therapeutic Area, [***].”
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“(D) Notwithstanding anything to the contrary herein, for each Optioned Combination that is a Combination Product, if such Optioned Combination contains Optioned Molecules that are [***], then the Royalties owed to Arcus with respect to such Combination Product shall be [***].”
“(e) Solely with respect to each Optioned GLP Initial New Target Program, except to the extent set forth in Section 4.12(a), Arcus shall be deemed to have delivered the Opt-Out Notice for such Optioned GLP Initial New Target Program pursuant to Section 4.7(a) upon Arcus’ receipt of applicable New Target Option Exercise Notice; provided, however, that [***].”
“4.11 R&D Activities for Optioned GLP Initial New Target Programs. Notwithstanding anything to the contrary in this Agreement, with respect to each Optioned GLP Initial New Target Program, (a) as between the Parties, [***] and (d) Gilead shall use good faith efforts to initiate [***] studies for the first Optioned Molecule in such Optioned GLP Initial New Target Program within [***] days (or such other period as may be mutually agreed by the Parties) following the Option Exercise Closing (or, if there is more than one (1) closing for the applicable New Target Option, the Initial Option Closing) for such Optioned GLP Initial New Target Program.”
“4.12 Profit Share for Optioned GLP Initial New Target Programs.
(a) For each Optioned GLP Initial New Target Program, during the period (“Profit Share Option Exercise Period”) commencing on the Completion Date of the first Triggering Clinical Trial for the first Optioned Molecule in such Optioned GLP Initial New Target Program to achieve such event and ending [***] days (or such other period of time as may be mutually agreed by the Parties in writing) after the date on which Gilead has delivered to Arcus [***], Arcus shall have the one-time right, subject to its payment of the applicable Profit Share Option Exercise Fee, to elect to share all Operating Profits and all Operating Losses (as applicable) for the Shared Territory for Optioned Products in such Optioned GLP Initial New Target Program (such right, “Profit Share Option”) by written notice to Gilead (“Profit Share Notice”). Effective as of the delivery of the Profit Share Notice for an Optioned GLP Initial New Target Program to Gilead, (A) notwithstanding anything to the contrary in this Agreement (including Section 4.7(e) or 9.10(a)), Arcus shall be deemed to have not delivered any Opt-Out Notice for such Optioned GLP Initial New Target Program pursuant to Section 4.7(a) and shall be responsible for fifty percent (50%) of all Research and Development Costs incurred by or on behalf of Gilead or its Affiliates in conducting such Optioned GLP Initial New Target Program anywhere in the world (provided that, notwithstanding anything to the contrary in Section 3.5(c)(iii), (1) Arcus shall be responsible for [***], and (2) Gilead shall be responsible for [***], and (D) Gilead shall deliver to Arcus, [***], any material updates to [***]; provided that, in the
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case of this clause (D), Gilead shall be deemed to have delivered to Arcus, [***], (x) material updates to [***] through the [***] and (y) material updates to [***] through the [***]. If Arcus fails to timely exercise the Profit Share Option in accordance with this Section 4.12(a), then the Profit Share Option shall expire and be of no further force or effect with respect to the applicable Optioned GLP Initial New Target Program.
(b) Notwithstanding anything to the contrary in this Agreement (including clause (A) in Section 4.12(a)), if Arcus exercises the Profit Share Option for an Optioned GLP Initial New Target Program and any Clinical Trial for an Optioned Molecule or Optioned Product in such Optioned GLP Initial New Target Program, or for a Gilead Combination containing or involving an Optioned Molecule in such Optioned GLP Initial New Target Program, is Initiated during the applicable Profit Share Option Exercise Period (any such Clinical Trial, a “Exercise Period Initiated Clinical Trial”), for each such Exercise Period Initiated Clinical Trial, [***].
(c) For each Optioned GLP Initial New Target Program, if Arcus delivers to Gilead the Profit Share Notice for such Optioned GLP Initial New Target Program during the applicable Profit Share Option Exercise Period in accordance with Section 4.12(a), then, notwithstanding anything to the contrary in Section 4.1(a) or 7.2(a), no later than [***] days after such delivery of the Profit Share Notice, (i) the Parties shall [***], (ii) the JDC or a Working Group thereof designated by the JDC shall prepare and submit to the JSC for review and approval the R&D Plan and Budget for such Optioned GLP Initial New Target Program, including [***] and (iii) the JMC shall prepare and submit to the JSC for review and approval the Global Manufacturing Plan and Budget, including [***]. Upon the JSC’s approval of the R&D Plan and Budget for such Optioned GLP Initial New Target Program as set forth in the foregoing sentence, such R&D Plan and Budget shall supersede [***]. Notwithstanding anything to the contrary in this Agreement, for the purposes of estimating and calculating Research and Development Costs for any Optioned GLP Initial New Target Program, Gilead’s [***].
(d) For clarity, notwithstanding anything to the contrary herein, [***].”
“6.3 Commercialization Activities for Optioned GLP Initial New Target Program. [***].”
“7.4 Manufacturing Activities for Optioned GLP Initial New Target Programs. Notwithstanding anything to the contrary in this Agreement, with respect to each Optioned GLP Initial New Target Program, as between the Parties, Gilead shall have the sole right for, at its sole expense (except in the event of Arcus’ exercise of its Profit Share Option for such Optioned GLP Initial New Target Program), all Manufacturing and supply of Optioned Molecules and Optioned Products in such Optioned GLP Initial New Target Program in or for the Gilead Territory, [***].”
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“9.1 Upfront Consideration.
(a) In partial consideration of the licenses and the other rights granted to Gilead hereunder, Gilead shall pay to Arcus a non-refundable, non-creditable upfront cash payment of One Hundred Seventy-Five Million Dollars ($175,000,000) (the “Upfront Consideration”) no later than [***] Business Days after the Effective Date.
(b) In partial consideration of the licenses and the other rights granted to Gilead with respect to New Target Programs hereunder, Gilead shall pay to Arcus a non-refundable, non-creditable upfront cash payment of (i) Thirty-Five Million Dollars ($35,000,000) no later than [***] days after the Amendment No. 2 Execution Date, and (ii) for each Additional New Target, Seventeen Million and Five Hundred Thousand Dollars ($17,500,000) no later than [***] days after the initiation of Arcus R&D Activities for such Additional New Target as notified by Arcus in accordance with Section 3.1(c)(ii)(D). For clarity, [***].”
(a) Section 9.2(a) of the Agreement is hereby deleted in its entirety and replaced with the following:
“(a) Option Payment for Arcus Programs. (i) For each Optioned Program other than (A) the PD-1 Program, (B) the TIGIT Program, (C) the Adenosine Receptor Program, (D) the CD73 Program, (E) any Target Program and (F) any Optioned New Target Program on which Gilead exercises the New Target Option during the applicable Initial Option Exercise Period, Gilead shall pay to Arcus an amount equal to One Hundred Fifty Million Dollars ($150,000,000), (ii) for the TIGIT Program, if Gilead exercises its Option during the Option Exercise Period for AB154, then Gilead shall pay to Arcus an amount equal to Two Hundred Seventy-Five Million Dollars ($275,000,000), and if Gilead exercises its Option during the Option Exercise Period for AB308, then Gilead shall pay to Arcus an amount equal to One Hundred Fifty Million Dollars ($150,000,000), (iii) for the Adenosine Receptor Program, Gilead shall pay to Arcus an amount equal to Two Hundred Fifty Million Dollars ($250,000,000), and (iv) for the CD73 Program, Gilead shall pay to Arcus an amount equal to Two Hundred Million Dollars ($200,000,000) (each such payment, an “Option Payment”), in each case, within thirty (30) days after the applicable Arcus Program has become an Optioned Program pursuant to Section 8.3.”
(b) The following is hereby added to the Agreement as a new Section 9.2(c):
“(c) Option Payment for New Target Programs. For each New Target Program on which Gilead exercises the New Target Option during the applicable Initial Option Exercise Period, (i) if such New Target Program is with respect to a New Target in the Inflammation Therapeutic Area, Gilead shall pay to Arcus an amount equal to [***] within [***] days after such New Target Program has become an Optioned Program pursuant to Section 8.3 of this Agreement, and (ii) if such New Target Program is with respect to a New Target in the Oncology Therapeutic Area, Gilead shall pay to Arcus an amount equal to [***] within [***] days after such New Target Program has become an Optioned Program pursuant to Section 8.3 of this Agreement.”
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(c) The following is hereby added to the Agreement as a new Section 9.2(d):
“(d) Payment for Profit Share Option. For each Optioned GLP Initial New Target Program on which Arcus exercises the Profit Share Option, Arcus shall pay to Gilead an amount equal to [***] (“Profit Share Option Exercise Fee”) within [***] days after Arcus’ delivery of the applicable Profit Share Notice in accordance with Section 4.12(a).”
(d) The following is hereby added to the Agreement as a new Section 9.2(e):
“(e) Option Extension Payment for New Target Programs for Initial New Targets. Except as set forth in the last sentence of Section 3.1(c)(vi), for each New Target Program for an Initial New Target for which Gilead has delivered a New Target Option Extension Notice, Gilead shall pay to Arcus an amount equal to [***] (“Option Extension Payment”) within [***] days after [***].”
(e) The following is hereby added to the Agreement as a new Section 9.10(e):
“(e) Development Manufacturing Costs for New Target Programs Optioned During Initial Option Exercise Period. Subject to Sections 3.1(c)(viii), 3.5(c)(iii), 4.12, 9.10(b) and 9.12 and any other relevant terms in this Section:
(i) for each Optioned GLP Initial New Target Program, Gilead shall be responsible for [***]; provided that, in the event Arcus exercises the Profit Share Option on such Optioned GLP Initial New Target Program, effective as of the delivery of the applicable Profit Share Notice, Gilead shall be responsible for [***], and Arcus shall be responsible for [***], of [***]; and
(ii) for each Optioned New Target Program for an Additional New Target on which Gilead exercises the New Target Option during the Initial Option Exercise Period, Gilead shall be responsible for [***], and Arcus shall be responsible for [***], of all [***].”
(a) The heading of Section 9.4 is hereby deleted in its entirety and replaced with the following: “Milestones.”
(b) The following is hereby added to the Agreement as a new Section 9.4(d):
“(d) Development Milestone Payments for Royalty D Programs. For each Royalty D Program, Gilead shall pay Arcus, within [***] days after each of the following milestone events is first achieved, the corresponding milestone payment specified below.
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Milestone Payment |
||
Milestone Event |
[***] |
[***] |
[***] |
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[***] |
[***] |
[***] |
[***] |
For clarity, (i) for each Royalty D Program, each milestone payment in this Section 9.4(d) shall be payable only upon the first achievement of such milestone event and no amounts shall be due for subsequent or repeated achievements of such milestone event, whether for the same or a different Optioned Product, and (ii) the maximum milestone payments due by Gilead under this Section 9.4 for a Royalty D Program shall be [***].”
(c) The following is hereby added to the Agreement as a new Section 9.4(e):
“(e) Commercial Sales Milestone Payments for Royalty D Programs. For each Royalty D Program, Gilead shall pay Arcus the following sales milestone payments when the aggregate Net Sales of all Optioned Products in such Royalty D Program across all Indications in the Gilead Territory in a given Calendar Year first reach the dollar values indicated below during the Term. Sales milestone payments under this Section 9.4(e) will be payable by Gilead to Arcus together with the reporting and payment of Royalties to Arcus under Section 9.6 for the Calendar Quarter in which the applicable Net Sales threshold was achieved.
Aggregate Net Sales of Optioned Products in such Royalty D Program in a Given Calendar Year |
Payment |
[***] |
[***] |
For clarity, (i) for each Royalty D Program, each milestone payment in this Section 9.4(e) shall be payable only upon the first achievement of such milestone event and no amounts shall be due for subsequent or repeated achievements of such milestone event, and (ii) the maximum milestone payments due by Gilead under this Section 9.4 for a Royalty D Program shall be [***]”
“With respect to each Royalty D Program, the Parties agree that, subject to the terms of this Agreement (including Sections 9.5(c), (d), (e) and (f)), the following Royalty Rate Table D applies:
Royalty Rate Table D
Aggregate Net Sales of each Optioned Product in a Royalty D Program in the Gilead Royalty Territory in |
Royalty Rate
|
[***] |
[***] |
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“(iii) Consequences of Expiration or Termination of the Collaboration Term.
(A) Initial Disclosure. Within [***] days after expiration or termination of the Collaboration Term, Arcus shall deliver to Gilead, with respect to each Arcus Program, Target Program or New Target Program that is not an Arcus Program, a written notice including instructions and credentials with which Gilead may access a Data Room containing the data and information (existing and available as of the date of Arcus’s notice) with respect to each Arcus Molecule.
(B) Interim Disclosure of Qualifying Data Package(s). With respect to each Arcus Molecule, if the data and information provided pursuant to Section 14.3(b)(iii)(A) do not constitute a Qualifying Data Package (as determined by the JSC, including pursuant to Section 2.5(b)(i)(C) or Section 15.2(b)), then, until [***] months after expiration or termination of the Collaboration Term, Arcus shall deliver to Gilead via the applicable Data Room a Qualifying Data Package (as determined by the JSC, including pursuant to Section 2.5(b)(i)(C) or Section 15.2(b)) promptly upon the required data and information for such Qualifying Data Package becoming available to Arcus; provided that, notwithstanding anything to the contrary in this Agreement:
(x) with respect to each Arcus Molecule Directed To a Selected Target, if the data and information provided pursuant to Section 14.3(b)(iii)(A) do not constitute a Target Program Data Package (as determined by the JSC, including pursuant to Section 2.5(b)(i)(C) or Section 15.2(b)), then, until [***] months after expiration or termination of the Collaboration Term, Arcus shall deliver to Gilead via the applicable Data Room a Target Program Data Package (as determined by the JSC, including pursuant to Section 2.5(b)(i)(C) or Section 15.2(b)) promptly upon the required data and information for such Target Program Data Package becoming available to Arcus, and
(y) with respect to each Arcus Molecule in a New Target Program that is not an Arcus Program, if the data and information provided pursuant to Section 14.3(b)(iii)(A) do not constitute an Initial Data Package (as determined by the JSC, including pursuant to Section 2.5(b)(i)(C) or Section 15.2(b)), then, until [***] months after expiration or termination of the Collaboration Term, Arcus shall deliver to Gilead via the applicable Data Room an Initial Data Package (as determined by the JSC, including pursuant to Section 2.5(b)(i)(C) or Section 15.2(b)) promptly upon the required data and information for such Initial Data Package becoming available to Arcus.
(C) Final Disclosure. With respect to each Arcus Molecule, if Arcus has not delivered a Qualifying Data Package to Gilead pursuant to Section 14.3(b)(iii)(A) or Section 14.3(b)(iii)(B) as of [***] months after expiration or termination of the Collaboration Term, Arcus shall deliver to Gilead via the applicable Data Room all data
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and information with respect to such Arcus Molecule in the possession or Control of Arcus at such time; provided that, notwithstanding anything to the contrary in this Agreement:
(x) with respect to each Arcus Molecule Directed To a Selected Target, if Arcus has not delivered a Target Program Data Package to Gilead pursuant to Section 14.3(b)(iii)(A) or Section 14.3(b)(iii)(B) as of [***] months after expiration or termination of the Collaboration Term, Arcus shall deliver to Gilead via the applicable Data Room all data and information with respect to such Arcus Molecule Directed to a Selected Target in the possession or Control of Arcus at such time, and
(y) with respect to each Arcus Molecule in a New Target Program that is not an Arcus Program, if Arcus has not delivered an Initial Data Package to Gilead pursuant to Section 14.3(b)(iii)(A) or Section 14.3(b)(iii)(B) as of [***] months after expiration or termination of the Collaboration Term, Arcus shall deliver to Gilead via the applicable Data Room all data and information with respect to such Arcus Molecule in the possession or Control of Arcus at such time.
(D) Option Exercise.
(x) With respect to each Arcus Program, the Option Exercise Period (or, in the case of an Arcus Program that is a New Target Program for an Initial New Target, New Target Option Exercise Period) shall be deemed to begin upon the earlier of (1) the date of the JSC’s determination (including pursuant to Section 2.5(b)(i)(C) or Section 15.2(b)) that Arcus has delivered to Gilead a Qualifying Data Package pursuant to Section 14.3(b)(iii)(A) or Section 14.3(b)(iii)(B), and (2) [***] months after expiration or termination of the Collaboration Term, provided that as of such time Arcus has delivered to Gilead of the data and information required pursuant to the first sentence of Section 14.3(b)(iii)(C), and shall end upon (I) if such Arcus Program is not a New Target Program, the earlier to occur of the events set forth in Sections 8.3(b)(ii)(A) and 8.3(b)(ii)(B) (provided that the delivery to Gilead of the data and information required pursuant to the first sentence of Section 14.3(b)(iii)(C) shall be deemed delivery of a Qualifying Data Package for purposes of Section 8.3(b)(ii)(B)), or (II) if such Arcus Program is a New Target Program for an Initial New Target, the expiration of the applicable Extended Option Exercise Period (provided that the delivery to Gilead of the data and information required pursuant to the first sentence of Section 14.3(b)(iii)(C) shall be deemed delivery of a Qualifying Data Package for purposes of Section 3.1(c)(v)). During such Option Exercise Period, Gilead shall have the right to exercise the Option (or, in the case of an Arcus Program that is a New Target Program for an Initial New Target, New Target Option) for the applicable Arcus Program in accordance with ARTICLE VIII.
(y) Notwithstanding anything to the contrary in this Agreement, with respect to each Target Program, the Selected Target Option Exercise Window shall be deemed to begin upon the earlier of (1) the date of the JSC’s determination (including pursuant to Section 2.5(b)(i)(C) or Section 15.2(b)) that Arcus has delivered to Gilead a Target Program Data Package pursuant to Section 14.3(b)(iii)(A) or Section 14.3(b)(iii)(B), and (2) [***] months after expiration or termination of the Collaboration Term, provided that as of such time Arcus has delivered to Gilead of the data and information required pursuant to Section 14.3(b)(iii)(C)(x), and shall end upon the earlier to occur of (x) Gilead’s written exercise notice to Arcus or (y) [***] days after the occurrence of the earlier of (1) or (2) (provided that the delivery to Gilead of the data and information required pursuant to Section 14.3(b)(iii)(C)(x) shall be deemed delivery of a Target Program Data Package for
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purposes of Section 8.3(b)(ix)). During such Selected Target Option Exercise Window, Gilead shall have the right to exercise the option for the applicable Target Program in accordance with ARTICLE VIII and other terms of this Agreement applicable to such option exercise shall survive the expiration or termination of the Collaboration Term for such purpose.
(z) Notwithstanding anything to the contrary in this Agreement, with respect to each New Target Program that is not an Arcus Program, the New Target Option Exercise Period shall be deemed to begin upon the earlier of (1) the date of the JSC’s determination (including pursuant to Section 2.5(b)(i)(C) or Section 15.2(b)) that Arcus has delivered to Gilead an Initial Data Package pursuant to Section 14.3(b)(iii)(A) or Section 14.3(b)(iii)(B), and (2) [***] months after expiration or termination of the Collaboration Term, provided that as of such time Arcus has delivered to Gilead the data and information required pursuant to Section 14.3(b)(iii)(C)(y), and shall end upon the earlier of Gilead’s written exercise notice to Arcus or [***] after the occurrence of the earlier of (1) or (2) (provided that the delivery to Gilead of the data and information required pursuant to Section 14.3(b)(iii)(C)(y) shall be deemed delivery of an Initial Data Package for purposes of Section 3.1(c)(v)(A)). During such New Target Option Exercise Period, Gilead shall have the right to exercise the New Target Option for the applicable New Target Program in accordance with ARTICLE VIII and other terms of this Agreement applicable to such option exercise shall survive the expiration or termination of the Collaboration Term for such purpose.
(E) Exception for Certain Pre-Clinical Programs. Notwithstanding Sections 14.3(b)(iii)(A), 14.3(b)(iii)(B) and 14.3(b)(iii)(C), Arcus shall not be obligated pursuant to this Section 14.3(b) to provide any information or data developed, created or otherwise made from any program that was not an Arcus Program, Target Program or New Target Program as of the expiration or termination of the Collaboration Term. For clarity, with respect to a New Target Program existing as of the effective date of the expiration or termination of the Collaboration Term, until [***] months after such expiration or termination, Arcus shall use commercially reasonable efforts to conduct Arcus R&D Activities with respect to such New Target Program in accordance with Sections 3.1(c)(ii) (other than subsection (B) thereof), 3.1(c)(iii) and 3.1(c)(v) through 3.1(c)(viii) and other applicable terms of this Agreement, which shall survive the expiration or termination of the Collaboration Term for such purpose.”
“(b) Arcus Programs, Target Programs and New Target Programs. In the case of a termination of this Agreement with respect to any Arcus Program, Target Program, New Target Program or Arcus Product, all rights and licenses granted to Gilead under this Agreement with respect to such Arcus Program, Target Program, New Target Program or Arcus Product (including with respect to the Arcus Molecule that is included in such Arcus Product), as applicable, shall terminate.”
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[Signature page follows]
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IN WITNESS WHEREOF, the Parties have executed this Amendment No. 2 in duplicate originals by their duly authorized officers as of the Amendment No. 2 Execution Date.
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ARCUS BIOSCIENCES, INC.
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GILEAD SCIENCES, INC.
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By: |
/s/ Terry Rosen |
By: |
/s/ Andrew Dickinson |
Name: |
Terry Rosen |
Name: |
Andrew Dickinson |
Title: |
CEO |
Title: |
Chief Financial Officer |
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|
[Signature Page to Amendment No. 2 to Option, License and Collaboration Agreement]
Exhibit 31.1
CERTIFICATION 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
I, Terry Rosen, certify that:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 7, 2023 |
By: |
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/s/ Terry Rosen |
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Terry Rosen, Ph.D. |
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|
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Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION 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
I, Robert C. Goeltz II, certify that:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 7, 2023 |
By: |
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/s/ Robert C. Goeltz II |
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Robert C. Goeltz II |
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Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Arcus Biosciences, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: August 7, 2023 |
By: |
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/s/ Terry Rosen |
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Terry Rosen, Ph.D. |
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|
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Chief Executive Officer (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Arcus Biosciences, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: August 7, 2023 |
By: |
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/s/ Robert C. Goeltz II |
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Robert C. Goeltz II |
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Chief Financial Officer (Principal Financial Officer) |