Company: RCUS
Filing Date: 2025-10-28
Form Type: 10-Q
Source: 0001724521-25-000116
Chunk: 272

Company: Arcus Biosciences, Inc.
Filing Date: 2025-10-28
Form: 10-Q
Item: Part I, Item 8
Chunk 272
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 I, Item 1 for further discussion.

Critical Accounting Judgments and Estimates 

Our Condensed Consolidated Financial Statements have been prepared in accordance with U.S. 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. 

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