Arcus Biosciences, Inc. (RCUS) Earnings

Management highlights

- Lead Program (Castatafan) Development Progress * Castatafan, a next-generation HIF-2-alpha inhibitor for clear cell renal cell carcinoma (ccRCC), remains the company's top priority, with a projected peak sales opportunity of $5 billion to $10 billion. * The Phase III registrational Peak 1 trial (Castatafan + cabozantinib for second-line ccRCC) remains on track to complete enrollment by the end of 2026. * Following the recent failure of Merck's LightSpark 012 trial, Castatafan has no direct competition in the frontline ccRCC space. The frontline Phase III registrational trial PEEP20 (Castatafan + ipilimumab + nivolumab) remains on track to initiate by the end of 2026, after successful regulatory meetings with the FDA. * Three new clinical collaborations were announced in Q2 2026: with BMS (combination with BMS' anti-PD-L1 VEGF bispecific Pumidac in first-line ccRCC), with Summit Therapeutics (combination with Summit's anti-PDX1 VEGF bispecific Ivo in first-line ccRCC as part of the ARC20 platform study), and with Aveo (combination with Aveo's tivozanib in belzutifan-experienced advanced ccRCC, supporting a late-line registrational strategy). ARCIS retains full commercial rights to Castatafan outside of Japan and select Asian territories held by partner TAIO. * A comprehensive data readout of over 200 patients across first, second, and late-line ccRCC cohorts from the ARC20 platform study will be presented at an October 2026 investor event prior to ESMO. - Pipeline and Research Highlights * A translational research study on Castatafan HIF-2-alpha biology was published in *Nature* in July 2026, demonstrating that deep, sustained suppression of erythropoietin (EPO) correlates with higher response rates and longer progression-free survival (PFS) in ccRCC patients. Unlike competitor belzutifan, Castatafan does not show an inverse correlation between number of prior TKI therapies and efficacy in analyses of a 120-patient late-line monotherapy cohort. * The company's wholly owned immunology portfolio, developed in-house by the same team that created Castatafan, includes multiple programs targeting high-unmet need indications, with INDs expected through the end of 2027: AB102, an oral MRGPRX2 antagonist for chronic spontaneous urticaria and atopic dermatitis, will initiate first-in-human healthy volunteer dosing this month, with PK data expected in Q4 2026 and a proof-of-concept study in CSU expected mid-2027. An oral selective TNF receptor 1 inhibitor for rheumatoid arthritis, psoriasis, and inflammatory bowel disease is on track to enter the clinic in early 2027. Additional early-stage programs targeting CCR6, CD89, STAT6, and CD40 ligand are advancing toward the clinic. * The Phase III PRISM-1 trial of Quimley-Klustad plus chemotherapy for first-line pancreatic cancer remains on track to read out in the first half of 2027, with a projected multibillion-dollar commercial opportunity if successful.

Guidance

- Full year 2026 GAAP revenue is projected to be $65 million to $75 million, down from prior expectations due to reduced activity under the Gilead collaboration following the wind down of the DOMP and LMED programs. - Overall R&D spending is expected to meaningfully decrease in 2026 and 2027 relative to 2025, driven by the wind down of the DOMP Phase III trials, reduced spending on Quimley, and broader spend management. - By 2027, more than 80% of portfolio spending will be allocated to Castatafan development. - The company expects to end 2026 with approximately $600 million in cash and investments, which provides operational runway into at least the second half of 2028. - All key clinical milestones (Peak 1 enrollment completion, PEEP20 trial initiation, October 2026 ARC20 data readout, PRISM-1 readout in H1 2027) remain on track with no changes to projected timelines.

Segment performance

ARCIS reports GAAP revenue of $41 million for Q2 2026, with full year 2026 GAAP revenue guidance of $65 million to $75 million, driven primarily by collaboration agreements. R&D expenses for Q2 2026 were $113 million net of reimbursements. G&A expenses were $24 million for the quarter, with total non-cash stock-based compensation of $15 million. As of June 30, 2026, cash and investments totaled $775 million, down from $876 million at the end of Q1 2026. Revenue contribution from collaboration agreements accounts for nearly 100% of current GAAP revenue, with no product revenue yet generated as all lead programs remain in clinical development. Over 80% of portfolio spending is projected to be directed toward Castatafan development by 2027.

Risks & headwinds

- All forward-looking statements about clinical trial results, product efficacy, and regulatory approval are subject to inherent risks and uncertainties, which are detailed in the company's most recent Form 10-Q filing with the SEC. Actual results may differ materially from management's current expectations. - Clinical development of novel oncology and immunology therapies carries high risk of failure, even with positive early data. Competitor belzutifan has already failed to demonstrate statistically significant overall survival benefit in three out of three registrational ccRCC trials, and there is no guarantee Castatafan will meet efficacy or safety endpoints in its own registrational programs. - The company's cash runway projection depends on current planned spending levels; unexpected increases in development costs could reduce runway and require additional financing on unfavorable terms. - While the company retains full rights to Castatafan in most major markets, limited rights held by partner TAIO in Asia restrict revenue opportunity in those regions.

Analyst Q&A

• Q: What defines success for the October 2026 Castatafan data readout, and which datasets should investors prioritize? /

  A: Management's core goal for the readout is to build investor conviction that Castatafan will become the backbone standard of care for ccRCC across all lines, building on the already recognized differentiation from belzutifan. The frontline dataset is most important as it represents the $5 billion+ portion of the total market opportunity where Castatafan currently has no direct competition. Key readouts to watch include: safety and primary progression rate for the frontline triplet (Castatafan + anti-PD-1 + ipilimumab), mature PFS and potential early OS signals for the second-line Castatafan + cabozantinib cohort, and 28-month follow-up OS data for the late-line monotherapy cohort, which will provide read-through for Castatafan's mechanism of action across lines.

• Q: What read-through does Merck's failed LightSpark 012 frontline trial have for Castatafan's frontline development, and why do you expect Castatafan to succeed where belzutifan failed? /

  A: Management attributes belzutifan's failure to its weak and non-durable HIF-2-alpha inhibition, which is confirmed by biomarker data: belzutifan only provides nominal EPO suppression at 12 weeks, while prior TKI treatment actually increases HIF-2-alpha activity, leading to an insufficient overall inhibitory effect. By contrast, Castatafan delivers deep, durable HIF-2-alpha inhibition that is maintained over time, even in patients with prior TKI exposure. The company remains fully confident in its frontline strategy centered on adding Castatafan to the standard of care Ipi-Nevo doublet, and no outcome from LightSpark 012 would change this strategic direction.

• Q: How many prior lenvima-exposed patients are in the second-line ARC20 Castatafan + cabozantinib cohort, and why hasn't the company committed to releasing ORR data for the frontline triplet? /

  A: The distribution of prior lenvima exposure in the 45-patient second-line cohort is representative of typical real-world first-line patient populations, with a substantial number of lenvima-exposed patients. Specific numbers will be shared in October. Management notes there is no hesitancy to release ORR data for the frontline triplet: the triplet enrolled very quickly, and the highest priority readouts for the early dataset are safety and primary progression rate, which directly address the key unmet need of the current Ipi-Nevo standard of care. ORR and time to response data will be shared when available, but responses with IO + Castatafan regimens may develop more slowly than TKI-containing combinations, so early data will be limited, not withheld.

• Q: How does prior lenvima exposure impact expected PFS for the second-line cohort relative to the LightSpark 011 benchmark, and does Castatafan's efficacy actually improve with more prior TKI exposure? /

  A: In the 120-patient late-line monotherapy cohort, unlike belzutifan, Castatafan does not show reduced efficacy in patients with more prior TKI exposure, which management attributes to its more durable HIF-2-alpha inhibition. All patient subgroup data, including analyses by prior treatment type, will be fully disclosed in October. The company will use the well-powered Cobble Point study of cabozantinib in post-treatment ccRCC as a clean benchmark for comparison, alongside direct comparison to the LightSpark 011 belzutifan + lenvatinib data, to illustrate Castatafan's benefit across all patient subgroups.