Company: RCUS
Filing Date: 2025-05-06
Form Type: 10-Q
Source: 0001724521-25-000063
Chunk: 249

Company: Arcus Biosciences, Inc.
Filing Date: 2025-05-06
Form: 10-Q
Item: Part I, Item 8
Chunk 249
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 $21 Liability for sale of future royaltiesIn 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 million in non-refundable payments which they paid in 2021 and 2022. In return, we were obligated to: perform R&D activities in the BVF Program; make contingent payments upon the achievement of certain clinical and regulatory milestones; and pay mid- to high-single digit royalties on any net product sales generated by this program. We account for the BVF agreement as a liability primarily because at the time the agreement was entered into we had significant continuing involvement in generating the cash flows due to BVF. During the first quarter 2025, new preclinical information led to the decision to discontinue the BVF Program which decreased the likelihood of achieving regulatory and commercial success. These changes in assumptions are accounted for prospectively, resulting in the amortization of the net carrying amount of the liability to the initial carrying amount of $15 million using an imputed effective interest rate of negative 6.1%, on the unamortized portion of the liability, which will be applied until there is a change in future cash flow expectations or the debt is legally extinguished. The imputed effective interest for periods shown prior to first quarter 2025 was 10.1%. Changes in this liability related to interest accretion are recognized in Non-operating income (expense) in the Condensed Consolidated Statements of Operations. The liability for sale of future royalties is reflected at the unamortized carrying amount and thus is no longer considered to be at fair value commencing the first quarter 2025, with the estimated fair value being immaterial.

19

The liability is reported in Other noncurrent liabilities in the Condensed Consolidated Balance Sheets and changes were as follows (in millions):Three Months Ended March 31,20252024Beginning balance$21 $19 Interest accretion— 1 Ending balance$21 $20 Long-term debtAs of March 31, 2025, the estimated fair value of our long-term debt approximated the carrying amount. The fair value of the long-term debt was estimated for disclosure purposes only and was determined based on other inputs that are observable, and thus categorized as Level 2 in the fair value hierarchy.

Note 15. Business segment

We operate and manage