Company: RCUS
Filing Date: 2025-08-06
Form Type: 10-Q
Source: 0001724521-25-000101
Chunk: 345

Company: Arcus Biosciences, Inc.
Filing Date: 2025-08-06
Form: 10-Q
Item: Part I, Item 2
Chunk 345
---
 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. 

While our significant accounting policies are described in the notes to our Condensed Consolidated Financial Statements and our Annual Report on Form 10-K filed with the SEC on February 25, 2025, we believe that the accounting policy discussed below is critical to understanding our historical and future performance, as this policy relates to the more significant areas involving management's significant judgments and estimates.

Revenue Recognition

Standalone selling price

As part of the accounting for contracts with customers, we develop assumptions that require judgment to determine the standalone selling price of each performance obligation identified in the contract. 

In the first quarter 2025, we decided to pause future development of etrumadenant. In June 2025, Gilead terminated its rights to etrumadenant (the adenosine receptor antagonist program). We determined that this was a significant reduction in the scope of the arrangement, which met the definition of a contract modification. We accounted for this contract modification as both a modification of the existing contract and the creation of a new contract. (See Note 5, Revenues, in Part I, Item 1 for further discussion). We determined the standalone selling price of certain performance obligations and allocated the total transaction price to each performance obligation on a relative standalone selling price basis. The estimation of the standalone selling price included estimates for forecasted costs, development timelines, discount rates, and probabilities of technical and regulatory success. 

Under the applicable accounting rules for such contract modifications, we did not adjust the accounting for completed performance obligations that were distinct from the modified goods or services. However, we were required to adjust revenue previously recognized to reflect the effect of the contract modification due to the updated transaction price allocated to the partially satisfied performance obligations and the updated measure of progress as of the modification date. Accordingly, we recognized a cumulative catch-up to revenue of $143 million based on the updated transaction price and measure of progress for the partially satisfied performance obligations. 

A hypothetical 10% change in the updated standalone selling prices or the updated measure of progress as of the modification date related to Third Gilead Collaboration Agreement Amendment would have changed the cumulative catch-up to revenue recognized during the current quarter and year to date period by as much as $3