Executive Summary / Key Takeaways

• Casdatifan Emerges as Top Priority: Arcus Biosciences is strategically prioritizing casdatifan, its HIF-2α inhibitor, for clear cell renal cell carcinoma (ccRCC), with compelling early efficacy and safety data supporting its best-in-class potential and a rapid path to Phase 3.
• Robust Late-Stage Pipeline with Near-Term Catalysts: The company boasts a rich pipeline, including domvanalimab (Fc-silent anti-TIGIT) and quemliclustat (CD73 inhibitor), both advancing through Phase 3 trials with anticipated readouts in 2026 and rapid enrollment, respectively, offering significant market opportunities.
• Strong Financial Foundation and Strategic Capital Allocation: With $927 million in cash, cash equivalents, and marketable securities as of June 30, 2025, and a runway into mid-2027, Arcus is well-capitalized, supported by strategic partnerships and disciplined resource prioritization.
• Technological Edge in Immuno-Oncology: Arcus's core strength lies in its robust small molecule drug discovery and Fc-silent antibody platforms, enabling the development of differentiated therapies with superior efficacy and improved safety profiles compared to existing standards and competitors.
• Strategic Partnerships Mitigate Risk and Accelerate Development: Collaborations with Gilead, AstraZeneca, and Taiho provide critical funding, shared development costs, and expanded reach, allowing Arcus to pursue multiple large indications efficiently while retaining significant commercial upside.

Arcus Biosciences, Inc. (RCUS) stands at a pivotal juncture in the highly competitive and rapidly evolving immuno-oncology landscape. From its inception in 2015, the Hayward, California-based clinical-stage biopharmaceutical company has focused on creating best-in-class therapies, strategically building its pipeline through a blend of internal discovery and astute in-license agreements. This foundational strategy, particularly its comprehensive collaboration with Gilead Sciences, Inc. (GILD) initiated in 2020, has propelled Arcus into a multi-asset, late-stage clinical development company with a clear line of sight to commercialization.

The company's overarching strategy is to leverage its robust and efficient drug discovery capabilities to develop highly differentiated therapies that address significant unmet needs in large oncology markets. This involves disciplined capital allocation, prioritizing programs with the highest potential, and strategically utilizing partnerships to accelerate development and mitigate financial risk. This approach is critical in an industry where R&D costs are substantial, and regulatory hurdles are high. Arcus's commitment to innovation is evident in its diverse portfolio, which includes novel small molecules and enabling antibodies targeting a range of immuno-oncology and cancer cell-intrinsic pathways.

Technological Differentiation and Innovation

Arcus's competitive edge is deeply rooted in its differentiated technology platforms, particularly its small molecule drug discovery engine and its Fc-silent antibody design. These technological advantages are not merely theoretical; they translate into tangible, and often quantifiable, benefits over existing and competing therapies.

Casdatifan (HIF-2α Inhibitor): A New Standard in RCC
Casdatifan, Arcus's HIF-2α inhibitor for clear cell renal cell carcinoma (ccRCC), exemplifies this technological superiority. The company's in-vitro evaluation suggests casdatifan is significantly more potent than competitors, potentially by an order of magnitude. This translates into a critical pharmacokinetic (PK) and pharmacodynamic (PD) advantage: 20 milligrams of casdatifan achieves the same level of EPO suppression—a key peripheral biomarker for HIF-2α inhibition—as the approved 120-milligram dose of Merck's (MRK) belzutifan. This means that at its proposed Phase 3 dose of 100 milligrams, casdatifan has the potential to achieve a fivefold greater HIF-2α inhibition than belzutifan's approved dose, effectively "hitting the target harder."

This enhanced target engagement is translating into superior clinical outcomes. Initial data from the ARC-20 study's casdatifan plus cabozantinib cohort, presented at ASCO in June 2025, showed a confirmed overall response rate (ORR) of 46% in metastatic kidney cancer patients. This compares favorably to belzutifan monotherapy studies, which have ranged from 18% to 21.9% ORR. Furthermore, ARC-20 data demonstrated a primary progressive disease (PD) rate close to half that of belzutifan, addressing a recognized weakness of the competitor. The median progression-free survival (PFS) for the 50-milligram BID cohort was 9.7 months, meaningfully longer than belzutifan's 5.6 months, with the 50-milligram QD and 100-milligram cohorts not yet reaching median PFS. Pooled data from the 50-milligram BID and QD cohorts showed a median PFS of 13 months, significantly longer than belzutifan. Importantly, casdatifan maintains a relatively benign safety profile, with primary adverse events (AEs) being on-target anemia and hypoxia, and no meaningful overlapping toxicities with cabozantinib, ensuring a manageable treatment experience.

Domvanalimab (Fc-silent Anti-TIGIT): Safety and Efficacy in Combination
Domvanalimab, Arcus's Fc-silent anti-TIGIT antibody, represents another key technological differentiator. The Fc-silent design is crucial, as it has been shown to offer a differentiated safety profile compared to Fc-enabled anti-TIGIT antibodies. Studies with Fc-enabled antibodies have consistently reported "immune mediated adverse events and treatment interruptions and discontinuations... meaningfully higher than the anti-PD1 or PD-L1 alone arm," often cited as a cause of trial failures. In contrast, domvanalimab, particularly in combination with zimberelimab (anti-PD-1), has demonstrated similar efficacy to AstraZeneca's (AZN) Fc-silent bispecific antibody in Phase 2 studies in both lung and GI cancers, but with AE rates in line with anti-PD-1 therapy alone. This superior tolerability is critical for combination therapies, especially with chemotherapy, where Fc-enabled antibodies have exacerbated immune-related AEs.

Adenosine Pathway Modulators (Quemliclustat & Etrumadenant): Enhancing Chemotherapy
Arcus's work on the adenosine pathway, through quemliclustat (CD73 inhibitor) and etrumadenant (A2a/A2b antagonist), highlights its ability to develop molecules that enhance the immune-activating benefits of chemotherapy. Clinical data from ARC-8 (quemliclustat + chemo in pancreatic cancer) showed a median overall survival (OS) of 15.7 months, significantly surpassing historical benchmarks of 9-11 months for gem/nap-paclitaxel. A matched synthetic control analysis further demonstrated a statistically significant OS improvement with a hazard ratio of 0.63. Similarly, the MORPHEUS-PDAC study (etrumadenant + atezo + chemo in pancreatic cancer) yielded a PFS hazard ratio of 0.48 and an OS hazard ratio of 0.67, with a median OS of 16.5 months. These results underscore the profound impact of mitigating adenosine's immunosuppressive action, particularly when combined with immunogenic chemotherapy, by allowing the immune system to respond more effectively to cancer cell death.

AB801 (AXL Inhibitor): Precision Targeting
Arcus's early-stage AB801, a highly selective AXL inhibitor, represents its ongoing commitment to precision targeting. This molecule is designed to be a "surgically effective" AXL inhibitor, differentiating it from multi-kinase inhibitors like zanzalintinib or cabozantinib, which inhibit AXL with decreased potency. By focusing on high selectivity, AB801 aims to precisely test the AXL hypothesis in specific indications like STK11-mutant non-small cell lung cancer, potentially offering a cleaner therapeutic profile and targeted efficacy.

The "so what" for investors is clear: Arcus's technological differentiators are designed to create best-in-class therapies that offer superior efficacy and/or safety profiles. This directly contributes to a strong competitive moat, potentially enabling higher market penetration, better pricing power, and ultimately, enhanced financial performance and long-term growth in large oncology markets.

Competitive Landscape and Strategic Positioning

Arcus operates as a challenger in the oncology market, strategically carving out niches through innovative combinations and differentiated mechanisms of action. While it lacks the commercial scale and diversified revenue streams of pharmaceutical giants, its focused approach and strategic partnerships allow it to compete effectively against industry leaders like AstraZeneca, Merck, Bristol-Myers Squibb (BMY), and Roche (RHHBY).

In the HIF-2α inhibitor space, Arcus's casdatifan is positioned to directly challenge Merck's belzutifan. While Merck's Lightspark XI study evaluates belzutifan plus lenvatinib, Arcus's PEAK-1 combines casdatifan with cabozantinib, a more widely used and often preferred TKI due to its perceived better tolerability. Arcus's strategy also includes developing TKI-free regimens for casdatifan, such as the collaboration with AstraZeneca for casdatifan plus volrustomig (an anti-PD-1/CTLA-4 bispecific) in first-line ccRCC. This TKI-free approach aims to address the debilitating side effects of TKIs, a significant differentiator that could displace traditional TKI therapy in earlier lines of treatment and capture a substantial portion of the $5 billion combined market opportunity for IO-naive and IO-experienced ccRCC.

In the anti-TIGIT arena, Arcus's domvanalimab, an Fc-silent antibody, stands out against Fc-enabled competitors. The competitive landscape has shifted, with Fc-silent antibodies now dominating the Phase 3 landscape. Arcus, alongside AstraZeneca's bispecific, is at the forefront. The company expects a significant first-to-market advantage for domvanalimab in first-line gastric cancer, a market with a potential worldwide value exceeding $3 billion, as no other Phase 3 anti-TIGIT trials are ongoing in this setting. This strategic focus on Fc-silent technology addresses the higher immune-mediated adverse events seen with Fc-enabled antibodies, particularly in combination with chemotherapy, giving domvanalimab a potential safety and efficacy edge.

Financially, Arcus's profile reflects its clinical-stage status. Its TTM Gross Profit Margin of 100% (as revenue is primarily from collaborations, not cost of goods sold) contrasts sharply with the established profitability of its large-cap competitors: AstraZeneca (75%), Merck (76%), Bristol-Myers Squibb (57%), and Roche (74%). Similarly, Arcus's TTM Operating Profit Margin of -129.01% and Net Profit Margin of -116.79% highlight its significant R&D investment phase, compared to the positive margins of its commercialized rivals (e.g., Merck's Operating Profit Margin of 32% and Net Profit Margin of 27%). This disparity underscores Arcus's reliance on external funding and partnerships to fuel its pipeline.

Arcus's strategic partnerships are crucial for mitigating its smaller scale and R&D dependencies. The collaboration with Gilead provides not only substantial funding but also a 50:50 cost-sharing model for optioned programs, significantly reducing Arcus's financial burden for multiple Phase 3 trials. The AstraZeneca collaboration for PACIFIC-8 and eVOLVE-RCC02 further extends its reach and resource efficiency. These alliances allow Arcus to maintain competitive agility and accelerate development timelines, despite its comparatively lower cash flow generation and higher R&D intensity relative to its larger, more established competitors.

Financial Performance and Liquidity

Arcus Biosciences' financial performance in the most recent periods reflects a company in a high-growth, R&D-intensive phase, strategically leveraging partnerships to fund its ambitious clinical pipeline. For the three months ended June 30, 2025, total revenues surged to $160 million, a substantial increase from $39 million in the same period of 2024. This growth was primarily driven by a $143 million cumulative catch-up from license and development services revenue, resulting from the strategic decision to pause etrumadenant development and Gilead's subsequent termination of its license for the program. For the six months ended June 30, 2025, total revenues were $188 million, up slightly from $184 million in the prior year, with the etrumadenant catch-up partially offset by a prior-year catch-up from a Gilead amendment. Research and Development (R&D) expenses, net of reimbursements, increased to $139 million for the three months ended June 30, 2025, from $115 million in Q2 2024, and to $261 million for the six months ended June 30, 2025, from $224 million in the prior year. This rise was mainly due to increased Chemistry, Manufacturing, and Controls (CMC) costs, expected to remain elevated through Q3 2025, and expanded early-stage development activities, particularly for Phase 2 casdatifan. General and Administrative (G&A) expenses saw a slight decrease, reflecting a reduction in compensation and non-cash stock-based compensation. The company reported a net income of $93 million for Q2 2025 and $97 million for the six months ended June 30, 2025, a significant turnaround from losses in the prior year, largely attributable to the aforementioned revenue catch-up.

As of June 30, 2025, Arcus maintained a robust liquidity position with $927 million in cash, cash equivalents, and marketable securities. This financial strength is projected to fund planned operations into mid-2027, covering initial pivotal readouts for domvanalimab, quemliclustat, and casdatifan. This runway has been bolstered by strategic financing activities, including a $320 million equity investment from Gilead in Q1 2024, a $250 million term loan facility from Hercules Capital (HTGC) (with $100 million drawn by Q2 2025), and a $150 million gross proceeds from an underwritten offering in February 2025. The company's disciplined capital allocation, including the decision to pause etrumadenant development, underscores its commitment to extending its financial longevity and focusing resources on its highest-priority programs.

Outlook and Guidance

Arcus Biosciences anticipates a catalyst-rich period ahead, with a steady flow of data and significant advancements across its late-stage pipeline. Management projects full-year 2025 GAAP revenue to be between $75 million and $90 million. R&D expenses are expected to peak in 2025, driven by the accelerated enrollment of the PRISM-1 trial and the completion of STAR-221, before declining meaningfully in 2026 and 2027 as these Phase 3 programs mature. G&A expenses are forecast to remain stable for the remainder of 2025.

Casdatifan is unequivocally the company's number one priority, with a "steady flow of data" expected over the next couple of years. Initial data from the casdatifan plus cabozantinib cohort of ARC-20, presented at ASCO in June 2025, demonstrated a 46% confirmed ORR and manageable safety, supporting the initiation of the Phase 3 PEAK-1 study. PEAK-1, evaluating casdatifan plus cabozantinib versus cabozantinib in IO-experienced ccRCC, is expected to enroll rapidly due to high investigator enthusiasm and a 2:1 randomization favoring the experimental arm. Further, Arcus is collaborating with AstraZeneca on the eVOLVE-RCC02 study, exploring a TKI-free casdatifan plus volrustomig regimen in first-line ccRCC, reflecting a long-term vision to displace TKIs. More mature ARC-20 monotherapy data is expected later in 2025, with TKI-free regimen data anticipated in 2026.

For domvanalimab, the first Phase 3 readout is expected in 2026 from the STAR-221 study in first-line gastric cancer, which is fully enrolled. Overall survival data from the corresponding Phase 2 EDGE-Gastric study will be shared later in 2025, expected to reinforce confidence in STAR-221. The Phase 3 PRISM-1 trial for quemliclustat in first-line pancreatic cancer is enrolling rapidly and is anticipated to be fully enrolled by the end of 2025, ahead of initial expectations. Additionally, Arcus plans to share more information about its rapidly advancing inflammation and immunology programs later in 2025, with the next INDs likely to emerge from this area.

Risks and Challenges

Despite a compelling pipeline and strong financial position, Arcus Biosciences faces inherent risks common to clinical-stage biopharmaceutical companies. The company has a history of operating losses and has yet to generate revenue from product sales, with significant losses expected to continue until a product achieves commercial success. The regulatory approval process is lengthy, expensive, and uncertain, with no guarantee that any investigational product will receive marketing approval. Preliminary clinical data, while encouraging, are subject to change upon full analysis and additional patient data.

Clinical trial execution carries risks, including challenges in patient enrollment and retention, which can be exacerbated by competing treatments, geopolitical instability, or public health crises. The emergence of serious adverse events or unexpected side effects could lead to program discontinuation or limitations on product use. Arcus's strategy of developing intra-portfolio combinations also presents challenges, as these combinations must demonstrate synergistic activity and acceptable safety/efficacy profiles. Furthermore, reliance on strategic partners like Gilead, which holds a significant ownership stake (29.5% as of June 30, 2025) and board representation, introduces potential conflicts of interest or the risk of collaboration termination. Dependence on third parties for clinical trials and manufacturing, including WuXi Biologics in China for key assets, exposes Arcus to supply chain disruptions, regulatory non-compliance, and geopolitical risks. Changes in healthcare laws, particularly drug pricing regulations, could also adversely impact future revenue potential.

Conclusion

Arcus Biosciences is strategically positioned at the forefront of oncology innovation, driven by a robust, differentiated pipeline and a strong financial foundation. The company's unwavering focus on casdatifan as its top priority, coupled with the promising advancements of domvanalimab and quemliclustat, underscores a clear path toward potential market leadership in several large oncology indications. Its technological prowess, particularly in HIF-2α inhibition and Fc-silent anti-TIGIT antibodies, offers tangible clinical benefits—such as improved efficacy and safety profiles—that differentiate its assets from competitors.

The company's strategic partnerships, especially with Gilead and AstraZeneca, are instrumental in de-risking its ambitious development agenda and extending its cash runway into mid-2027. While the journey from clinical development to commercialization is fraught with regulatory and competitive challenges, Arcus's disciplined capital allocation, rapid trial enrollment, and continuous flow of data catalysts provide a compelling narrative for investors. The successful execution of its late-stage trials and the translation of its technological advantages into approved therapies will be critical in realizing its vision of delivering best-in-class treatments and unlocking substantial long-term value.