Executive Summary / Key Takeaways

• Casdatifan as the Core Growth Driver: Arcus Biosciences has unequivocally prioritized casdatifan, its HIF-2α inhibitor, aiming for rapid market entry in renal cell carcinoma (RCC) with a differentiated profile, including a lower primary progression rate and higher overall response rate compared to its main competitor.
• Robust Late-Stage Pipeline: The company is advancing multiple Phase 3 programs, including domvanalimab/zimberelimab in gastric and lung cancers, and quemliclustat in pancreatic cancer, with several pivotal data readouts anticipated in the near term.
• Strong Financial Foundation and Strategic Alliances: A substantial cash position of $841 million as of September 30, 2025, bolstered by a recent $250 million public offering and ongoing collaborations with Gilead , Taiho , and AstraZeneca , provides a runway into mid-2027, enabling aggressive pipeline execution.
• Technological Differentiation: Arcus's small molecule drug discovery capability yields assets like Fc-silent anti-TIGIT antibodies and potent HIF-2α inhibitors, designed for superior efficacy and favorable safety profiles, positioning them as potential best-in-class therapies.
• Navigating Competitive Dynamics: Arcus strategically targets large oncology markets with high unmet needs, seeking first-to-market advantages and differentiated combinations to compete against established players and TKI-based regimens.

Arcus Biosciences: A New Chapter of Oncology Innovation

Arcus Biosciences, Inc. is a clinical-stage biopharmaceutical company dedicated to developing best-in-class therapies for cancer. Since its incorporation in 2015, Arcus has strategically built a robust drug discovery engine and a significant portfolio of investigational products, primarily focused on immuno-oncology. The company's overarching strategy centers on creating highly differentiated molecules and combination therapies, leveraging its internal capabilities alongside powerful strategic collaborations. This approach positions Arcus as a specialized innovator in a highly competitive industry, aiming to address substantial unmet needs in large oncology markets such as lung, gastric, pancreatic, and renal cell carcinoma.

The biopharmaceutical industry is characterized by intense competition, rapidly evolving standards of care, and significant R&D investment. Amidst these dynamics, the increasing integration of advanced technologies like AI in drug discovery is reshaping the landscape, potentially accelerating development timelines and enhancing the efficiency of identifying novel therapeutic candidates. Arcus's foundational strength lies in its deep portfolio of novel small molecules and enabling antibodies, which are designed to offer distinct advantages over existing treatments.

Technological Edge: Driving Differentiation in Cancer Treatment

Arcus Biosciences' investment thesis is deeply rooted in its ability to develop technologically differentiated assets. The company's core strength lies in its robust and highly efficient small molecule drug discovery capability, which has yielded a pipeline of investigational products with distinct mechanisms of action.

Casdatifan: A Best-in-Class HIF-2α Inhibitor

Casdatifan (AB521), Arcus's HIF-2α inhibitor, is a prime example of its technological prowess and is currently the company's "number one priority." This small molecule is designed to overcome limitations observed in existing therapies, particularly Merck's approved HIF-2α inhibitor, belzutifan (Welireg). Casdatifan demonstrates a superior pharmacokinetic (PK) and pharmacodynamic (PD) profile. Specifically, casdatifan achieves the same level of EPO suppression—a peripheral biomarker for HIF-2α inhibition—at a 20 mg dose, which is one-fifth of its proposed 100 mg go-forward dose. This implies that casdatifan has the potential to achieve a meaningfully greater HIF-2α inhibition in the tumor compared to belzutifan. Furthermore, casdatifan exhibits linear dose-proportional PK up to 150 mg, allowing for higher effective target engagement.

These technological advantages translate into tangible clinical benefits. In the ARC-20 study, casdatifan demonstrated a lower rate of primary progressive disease (19% in the 100 mg cohort) compared to belzutifan's 34% in the LITESPARK-005 trial. It also showed a higher overall response rate (ORR) of 31% in Arcus's testing, versus 19% to 23% for Welireg in Merck's studies. The median progression-free survival (PFS) for casdatifan was 12.2 months, significantly longer than the 5.6 to 7.3 months reported for Welireg. For the dose planned for Phase 3, a 12-month PFS of 60% was observed. Importantly, despite hitting the target harder, casdatifan maintains a manageable safety profile, appearing similar to belzutifan, with anemia and hypoxia as expected on-target toxicities. For investors, this technological differentiation suggests a potential for superior efficacy and a more favorable risk-benefit profile, which could drive significant market share in the multi-billion dollar RCC market.

Domvanalimab: The Fc-Silent Anti-TIGIT Advantage

Domvanalimab, Arcus's Fc-silent anti-TIGIT antibody, represents another key technological differentiator. Unlike Fc-enabled anti-TIGIT antibodies, domvanalimab's Fc-silent design is associated with a potentially improved safety profile, particularly when combined with chemotherapy. Clinical data from the ARC-10 study showed immune-mediated adverse events (AEs) for domvanalimab plus zimberelimab (anti-PD-1) were similar to zimberelimab monotherapy (23.7% vs. 20% respectively). This contrasts sharply with Fc-enabled anti-TIGIT antibodies, which have reported meaningfully higher immune-mediated AEs and treatment discontinuations, often cited as causes for trial failures. This safety advantage is critical for combination therapies, allowing patients to remain on treatment longer and potentially enhancing overall efficacy.

Adenosine Pathway Modulators: Quemliclustat and Etrumadenant

Arcus's work in the adenosine pathway, with quemliclustat (CD73 inhibitor) and etrumadenant (A2a/A2b receptor antagonist), highlights its focus on novel mechanisms to enhance immunotherapy. Data from the MORPHEUS-PDAC study (etrumadenant + atezolizumab + chemotherapy) demonstrated a PFS hazard ratio of 0.48 and an OS hazard ratio of 0.67, with a median OS of 16.5 months, representing a 4.4-month absolute improvement over chemotherapy alone in first-line pancreatic cancer. Similarly, the ARC-8 study for quemliclustat plus chemotherapy showed a median OS of 15.7 months, significantly surpassing historical benchmarks of 9-11 months. These results underscore the potential of adenosine modulation to robustly prolong survival, particularly when combined with immunogenic chemotherapy. The "so what" for investors is the potential to transform outcomes in difficult-to-treat cancers like pancreatic cancer, where current options are limited.

Emerging Technologies and R&D Initiatives

Arcus continues to invest in its "robust discovery engine," with next-generation programs in inflammation and immunology expected to yield new IND candidates. AB801, a highly selective AXL inhibitor, has completed healthy volunteer dosing with promising PK and safety profiles, aiming to test the AXL hypothesis in indications like STK11-mutant non-small cell lung cancer. This continuous innovation pipeline ensures long-term growth potential and further strengthens Arcus's competitive moat.

Strategic Execution and Pipeline Momentum

Arcus Biosciences is executing an aggressive yet disciplined strategy to advance its late-stage pipeline. The company's approach is to focus on massive market opportunities with high unmet needs, leveraging its technological differentiators and strategic partnerships.

Casdatifan: The Flagship Program's Trajectory

Casdatifan is Arcus's "number one priority," with a clear goal to bring it to market swiftly. The Phase 3 PEAK-1 trial will evaluate casdatifan plus cabozantinib (cabo) versus cabo monotherapy in IO-experienced clear cell RCC patients. This combination is strategically chosen as cabo is the most widely used TKI in this setting, and casdatifan's benign safety profile is expected to avoid overlapping toxicities, allowing patients to remain on therapy longer. The total market opportunity for IO-naive and IO-experienced RCC settings combined is estimated at $5 billion.

Arcus is also collaborating with AstraZeneca on the eVOLVE-RCC02 study, evaluating casdatifan plus volrustomig (an anti-PD-1/CTLA-4 bispecific antibody) as a TKI-free combination in first-line metastatic ccRCC. This collaboration enables cost-efficient development in an earlier line setting, aiming to displace TKIs that come with debilitating side effects. New cohorts in the ARC-20 study are exploring casdatifan in TKI-free regimens, including combinations with zimberelimab and monotherapy in favorable-risk and prior IO/no TKI patients, demonstrating a long-term vision to expand casdatifan's footprint across the RCC treatment paradigm.

Domvanalimab and Zimberelimab: Targeting GI and Lung Cancers

The domvanalimab/zimberelimab (dom/zim) program is advancing rapidly, particularly in gastric and lung cancers. The Phase 3 STAR-221 study in first-line gastric cancer is expected to read out in 2026, positioning Arcus for a "significant first-to-market advantage" in a market estimated at over $3 billion worldwide. Recent data from the Phase 2 EDGE-Gastric study, evaluating the same regimen, showed a median overall survival (mOS) of 26.7 months, reinforcing confidence in STAR-221. The STAR-121 study in first-line non-small cell lung cancer and the planned STAR-131 study in perioperative lung cancer further expand the reach of this Fc-silent anti-TIGIT combination into large, high-need populations.

Quemliclustat: A New Hope for Pancreatic Cancer

Quemliclustat, Arcus's CD73 inhibitor, is progressing towards a pivotal role in pancreatic cancer. The Phase 3 PRISM-1 trial, combining quemliclustat with gemcitabine/nab-paclitaxel in first-line metastatic pancreatic ductal adenocarcinoma, achieved full enrollment by the end of 2025, significantly ahead of schedule. This rapid enrollment underscores the immense unmet need in pancreatic cancer, a disease with dismal outcomes. Taiho Pharmaceutical (TYHOF) exercised its option for casdatifan in October 2025, further validating Arcus's pipeline.

Strategic Prioritization: The Etrumadenant Decision

In a move reflecting disciplined capital allocation, Arcus decided to pause further development of etrumadenant, its adenosine receptor antagonist, in the first quarter of 2025, leading to Gilead's (GILD) termination of its license rights in June 2025. This decision allows Arcus to reallocate resources to its highest-priority late-stage assets and emerging research programs, optimizing its financial runway.

Competitive Positioning: Differentiating in a Crowded Landscape

Arcus Biosciences operates in a highly competitive oncology market dominated by large pharmaceutical companies like Merck (MRK), AstraZeneca (AZN), Bristol-Myers Squibb (BMY), and Roche (RHHBY). Arcus's strategy is to carve out significant market share by focusing on best-in-class molecules and differentiated combination therapies.

In the HIF-2α inhibitor space, Arcus directly competes with Merck's belzutifan. While Merck has a first-mover advantage with belzutifan's approval in third-line ccRCC, Arcus's casdatifan aims to differentiate through superior efficacy metrics, such as a lower primary progression rate (19% vs. 34% for belzutifan) and higher ORR (31% vs. 19-23%). Furthermore, Arcus's strategy to combine casdatifan with preferred TKIs like cabo, which clinicians find easier to manage than lenvatinib (belzutifan's TKI partner), provides a tolerability edge. The eVOLVE-RCC02 study with AstraZeneca's volrustomig also positions casdatifan for a TKI-free first-line option, a significant differentiator in a market dominated by TKI-based regimens (65% in first-line and 75% in second-line RCC).

For anti-TIGIT antibodies, Arcus's domvanalimab stands out as the only Fc-silent molecule in late-stage development. This technological distinction offers a more favorable safety profile, particularly in combination with chemotherapy, compared to Fc-enabled counterparts. This is a critical advantage in a field where immune-mediated adverse events have been a challenge for competitors. Arcus's collaborations with AstraZeneca and Taiho also provide access to broader development and commercialization capabilities, mitigating the scale advantage of larger competitors.

While Arcus, as a clinical-stage company, currently lags its larger competitors in terms of commercialized product revenue and established market share, its focused R&D and strategic partnerships allow it to compete effectively in specific innovation areas. The company's emphasis on molecular quality and mechanism-specific targeting, particularly in adenosine pathway modulation, aims to address limitations in broader immune therapies offered by rivals.

Financial Performance and Liquidity: Fueling the Pipeline

Arcus Biosciences' financial performance reflects its stage as a clinical-stage biopharmaceutical company heavily investing in R&D. For the three months ended September 30, 2025, total revenues were $26 million, a 46% decrease from $48 million in the prior year, primarily due to lower development service revenues from the Gilead Collaboration and a prior year license revenue from Taiho. For the nine months ended September 30, 2025, total revenues were $214 million, an 8% decrease from $232 million in 2024. Notably, revenues from Gilead constituted 100% of total revenues for both periods. A significant event in Q2 2025 was a $143 million cumulative revenue catch-up related to the termination of etrumadenant rights by Gilead, which partially offset the overall revenue decline.

Research and development (R&D) expenses increased to $141 million for Q3 2025 (up 15% year-over-year) and $402 million for the nine months ended September 30, 2025 (up 16% year-over-year). These increases were driven by accelerated enrollment and start-up activities for late-stage programs like PRISM-1 and PEAK-1, as well as Phase 2 activities for casdatifan. However, the company anticipates R&D expenses to "decline meaningfully in 2026 and 2027" as the domvanalimab Phase 3 program matures. General and administrative (G&A) expenses saw a decrease, falling to $27 million for Q3 2025 (down 10% year-over-year) and $84 million for the nine months ended September 30, 2025 (down 9% year-over-year), primarily due to lower compensation costs. The company reported a net loss of $135 million for Q3 2025 and $247 million for the nine months ended September 30, 2025, with a TTM Net Profit Margin of -145.42%.

Despite operating losses, Arcus maintains a strong liquidity position. As of September 30, 2025, the company held $841 million in cash, cash equivalents, and marketable securities. This robust financial standing is a direct result of strategic capital raises, including a $320 million equity investment from Gilead in January 2024 and a recent public offering in October 2025, which is expected to generate gross proceeds of $250 million. Management projects this capital will fund operations into mid-2027, extending through initial pivotal readouts for casdatifan, domvanalimab, and quemliclustat. This financial strength is critical, allowing Arcus to aggressively advance its pipeline without immediate pressure for further dilutive financing, a key "so what" for investors in a capital-intensive industry.

Outlook and Key Risks

Arcus Biosciences anticipates a catalyst-rich period ahead. The company expects full-year 2025 GAAP revenue to be between $75 million and $90 million. R&D expenses are projected to "peak in 2025" before declining in 2026 and 2027, reflecting the transition of several programs from intensive enrollment to data maturation. Year-end 2024 cash and investments are expected to be between $950 million and $985 million, excluding potential opt-in payments and milestones.

Key upcoming catalysts include mature data from all four monotherapy cohorts of ARC-20 for casdatifan in late-line ccRCC later in 2025, followed by initial data from the casdatifan plus cabo combination cohort and TKI-free regimens in early 2026. The Phase 3 STAR-221 trial for domvanalimab in gastric cancer is expected to read out in 2026. The PRISM-1 trial for quemliclustat in pancreatic cancer completed enrollment by the end of 2025, setting the stage for future data.

However, significant risks remain. The success of Arcus's investment thesis hinges on positive clinical trial outcomes and subsequent regulatory approvals, which are inherently uncertain. Delays in trials, unforeseen adverse events, or failure to demonstrate sufficient efficacy could materially harm the business. The company's reliance on collaborations, particularly with Gilead, introduces risks related to partner commitment and strategic alignment. Manufacturing dependencies, especially on single-source suppliers like WuXi Biologics (WXXWY) in China for key assets, expose Arcus to geopolitical tensions and supply chain disruptions. Furthermore, the evolving regulatory landscape, including drug pricing pressures and biosimilar competition, could impact future commercialization and profitability.

Conclusion

Arcus Biosciences stands at a pivotal juncture, transforming from a clinical-stage innovator into a potential commercial entity with a robust late-stage oncology pipeline. The company's core investment thesis is underpinned by its differentiated technological platforms, particularly the best-in-class potential of casdatifan in RCC and the favorable safety profile of its Fc-silent anti-TIGIT antibody, domvanalimab. Strategic partnerships and a strong financial position provide the necessary fuel for aggressive pipeline execution, enabling Arcus to pursue multi-billion dollar market opportunities.

While significant clinical and commercialization risks persist, the upcoming flow of pivotal data readouts for casdatifan, domvanalimab, and quemliclustat represents critical inflection points. Arcus's disciplined capital allocation, coupled with its commitment to developing innovative, differentiated therapies, positions it to potentially emerge as a significant player in the oncology landscape. Investors should closely monitor the clinical trial outcomes and the company's ability to translate its technological advantages into sustained market leadership and financial success.