The following table summarizes the revenues for the three and nine months ended September 30, 2020 and 2019 received as a result of the Company’s collaboration agreements with Gilead Sciences, Inc. (Gilead) and Taiho Pharmaceutical Co., Ltd. (Taiho):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
License revenue	$	55,096	$	-	$	55,096	$	-
Collaboration revenue		9,434		1,750		12,934		5,250
Collaboration and license revenue	$	64,530	$	1,750	$	68,030	$	5,250

The following table summarizes details of revenues for the three and nine months ended September 30, 2020 and 2019 by collaboration and by category of revenue:

			Three Months Ended September 30,				Nine Months Ended September 30,
Revenues recognized:	Over time	Point in time	2020		2019		2020		2019
Gilead license to zimberelimab		*	$	55,096	$	-	$	55,096	$	-
Gilead access rights related to the Company's research and development pipeline	*			7,684		-		7,684		-
Taiho collaboration agreement	*			1,750		1,750		5,250		5,250
Total collaboration and license revenue			$	64,530	$	1,750	$	68,030	$	5,250

In addition to revenues, the Company recognized $0.5 million as a reduction to R&D expense for the three months ended September 30, 2020 due to the development services performed during the period for zimberelimab. The Company recognized the following revenue as a result of changes in the deferred revenue balance during the period below (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
Revenue recognized in the period from:	2020		2019		2020		2019
Amounts included in deferred revenue at the beginning of the period	$	1,750	$	1,750	$	5,250	$	5,250
Performance obligations satisfied in previous period		-		-		-		-

The Company received $175 million in upfront payments from Gilead in connection with the Option, License and Collaboration Agreement and identified $100 million in unconstrained consideration to be received in 2022. In addition, the Company received $200 million from Gilead in connection with the Stock Purchase Agreement, of which approximately $109.4 million represented the fair value of stock purchased at the transaction closing date in July 2020 with the remaining premium of $90.6 million allocated to the transaction price. The Company determined the present value of the unconstrained variable consideration to be $99.1 million at the contract closing date. These payments were allocated to the performance obligations identified as follows:

	September 30, 2020
Allocation of transaction price
Upfront cash consideration	$	175,000
Payment for access rights related to the Company's research and development pipeline		99,126
Premium from Stock Purchase Agreement		90,600
Total transaction price allocated to revenue	$	364,726

Allocation to performance obligations
Zimberelimab license	$	55,096
Etrumadenant option		126,657
Domvanalimab option		36,640
Access rights related to the Company's research and development pipeline		136,653
Development and commercialization services for zimberelimab		9,680
Total	$	364,726

On May 27, 2020, the Company entered into an Option, License and Collaboration Agreement (Gilead Collaboration Agreement), Common Stock Purchase Agreement (the Stock Purchase Agreement), and Investor Rights Agreement, (collectively, the Gilead Agreements), each with Gilead Sciences, Inc. (Gilead). The transaction closed on July 13, 2020 following expiration of the antitrust waiting period. Upon closing, Gilead made an upfront payment of $175 million pursuant to the Gilead Collaboration Agreement, and made an equity investment of approximately $200 million in the Company by purchasing 5,963,029 shares of Arcus common stock at a per share price of $33.54 pursuant to the Stock Purchase Agreement, and the Company appointed Gilead’s designee, Merdad Parsey, M.D., Ph.D., to the Company’s Board of Directors pursuant to the Investor Rights Agreement.

Pursuant to the terms of the Gilead Collaboration Agreement, Gilead has an exclusive license to develop and commercialize zimberelimab (formerly referred to as AB122) in certain markets and obtained exclusive options to acquire an exclusive license to develop and commercialize all of the Company’s current and future clinical programs during the 10-year collaboration term, contingent upon Gilead’s payment of up to $400.0 million and, for those programs that enter clinical development prior to the end of the collaboration term, for up to an additional three years thereafter. Gilead may exercise its option, on a program-by-program basis, upon payment of an option fee that ranges from $200 million to $275 million per program for the Company’s current clinical programs, and $150 million per program for all other programs should Gilead elect to exercise its options.

Upon Gilead’s exercise of its option to a program, the two companies will co-develop and equally share global development costs, subject to certain opt-out rights of the Company, and expense caps on the Company’s spending and related subsequent adjustments. For each optioned program, provided the Company has not exercised its opt-out rights, the Company has an option to co-promote in the United States with equal sharing of related profits and losses. Gilead has the right to exclusively commercialize any optioned programs outside of the U.S., subject to the rights of the Company’s existing partners to any territories, and Gilead will pay to the Company tiered royalties as a percentage of revenues ranging from the high teens to the low twenties. Gilead will further provide

ongoing research and development support in the form of research and development pipeline access rights payments of up to $400 million over the collaboration term.

Pursuant to the Stock Purchase Agreement and the Investor Rights Agreement, Gilead has the right, at its option, to purchase additional shares from the Company, up to a maximum of 35% of the Company’s then-outstanding voting common stock, from time to time over the next five years, at a purchase price equal to the greater of a 20% premium to market (based on a trailing five-day average closing price) at the time Gilead exercises such option, and the $33.54 initial purchase price. Based on the value of the Company’s common stock at the contract closing, the right to purchase additional shares had no value. The Investor Rights Agreement also includes a three-year standstill and a two-year lockup and provides Gilead with registration rights commencing at the end of the lockup period, pro rata participation rights in certain future financings and the right to designate two individuals to be appointed to the Company’s Board of Directors.

The Company’s assessment of the transaction price included an analysis of amounts it expected to receive, which at contract inception consisted of the upfront cash payment of $175.0 million due upon contract closing in July 2020, the present value of the $100.0 million payment related to the research and development access rights due in 2022, and the $90.6 million premium resulting from Gilead’s purchase of common stock. All payments to date have been made by Gilead as they became due and payable so given this successful collection history, the Company considers the entire $364.7 million outlined above to be the initial transaction price.

The Company evaluated the Gilead Agreements under ASC 606 and determined that the performance obligations at the contract inception consisted of the following:

Effective on closing, Gilead obtained an exclusive license to zimberelimab. The standalone selling price of this license was determined using a discounted cash flow method. The Company recognized the full revenues associated with this performance obligation on the date the transaction closed.

Gilead has the right to exercise an option for exclusive rights to etrumadenant, the Company’s adenosine receptor program, in exchange for an option payment of $250.0 million, that expires after a proscribed period following the Company’s achievement of certain development milestones. The Company calculated the standalone selling price of this program using a discounted cash flow method and concluded that it exceeded the price of the option, creating a material right and a distinct performance obligation. The Company will recognize revenue allocated to the material right either upon the option’s exercise or expiration.

Gilead has the right to exercise an option for exclusive rights to domvanalimab, the Company’s anti-TIGIT monoclonal antibody, in exchange for an option payment of $275.0 million, that expires after a proscribed period following the Company’s achievement of certain development milestones. The Company calculated the standalone selling price of this program using a discounted cash flow method and concluded that it exceeded the price of the option, creating a material right and a distinct performance obligation. The Company will recognize revenue allocated to the material right either upon the option’s exercise or expiration.

Gilead receives exclusive access to the Company’s current programs as well as the future programs for a period of ten years, contingent upon Gilead’s payment of $400.0 million, with the first payment of $100.0 million in 2022, and an additional $100 million payment due at Gilead’s option on each of the fourth, sixth, and eighth anniversaries of the agreement. The standalone selling price of this ongoing research and development pipeline access was determined using an expected cost-plus margin approach. The Company evaluated its rights and obligations in the Gilead Collaboration Agreement and determined that Gilead is contractually obligated to make the $100.0 million payment due in 2022 resulting in a minimum term of four years for this performance obligation. As a result, the amount was included in the transaction price. The Company determined that the revenue allocated to the performance obligation should be recognized over the four-year period. The Company further determined that Gilead is not obligated to pay the remaining $300.0 million due over the remainder of the term. Failure to pay the non-obligatory payments will result in Gilead’s loss of certain rights to access and obtain licenses to the programs arising from the Company’s research and development pipeline.

In conjunction with the license, the Company determined there existed a separate obligation to perform further development and commercialization services for Gilead. The standalone selling price of this obligation was determined using an expected cost-plus margin approach. This obligation includes a 50/50 share of the costs associated with all future development and commercialization of zimberelimab. The portion of the transaction price allocated to this performance obligation has been allocated in accordance with the total costs forecast for the development and commercialization of zimberelimab. The Company will recognize the amounts allocated to development services throughout the initial 4 year period of the contract. The Company will defer the portion allocated to

commercialization services until future periods when the actual costs are incurred. Any payments received from or payments made to Gilead for the 50/50 cost share will be recognized as a reduction or an increase to R&D expense, respectively.

Gilead was also granted option rights to programs not yet in development. These programs were not determined to be performance obligations at contract inception, as there are no identified programs, revenues, or costs to compare against the option price.

The Company incurred $7.3 million in expenses to obtain the contract, which consisted of consultant and legal fees that were directly connected to the successful completion of the Gilead Collaboration Agreement, the Stock Purchase Agreement and the Investor Rights Agreement. The Company determined that $1.9 million of these expenses were related to the Stock Purchase Agreement and recorded them as offering costs. The Company allocated the remaining expenses between the various performance obligations, to be recognized when the underlying revenue is recognized. The portion allocated to the delivery of zimberelimab was recognized immediately, and the portion allocated to the remaining performance obligations will be recognized over the initial noncancelable four-year term of the Gilead Collaboration Agreement. During the three and nine months ended September 30, 2020, the Company recognized $1.1 million in expense from the amortization of these assets. At September 30, 2020, the Company had $4.3 million in prepaid expenses from costs to obtain the Gilead Agreements, of which $2.9 million was recorded in prepaid expenses and other current assets and $1.4 million was recorded in other long-term assets. The Company also recognized $9.2 million in contract liabilities for future development and promotion costs which Gilead prepaid, of which $1.9 million and $7.3 million represented the short and long-term portions of the liability, recorded in other current liabilities and other non-current liabilities on the condensed consolidated balance sheets, respectively.

In September 2017, the Company and Taiho entered into an option and license agreement (the Taiho Agreement) to collaborate on the potential development and commercialization of certain investigational products from the Company’s portfolio in Japan and certain other territories in Asia (excluding China) (the Taiho Territory). The Taiho Agreement provides Taiho with exclusive options in the Taiho Territory, over a five-year period (the Option Period), to obtain an exclusive development and commercialization license to clinical stage investigational products from the Company’s programs (each, an Arcus Program).

In consideration for the exclusive options and other rights contained in the Taiho Agreement, Taiho agreed to make non-refundable, non-creditable cash payments to the Company totaling $35.0 million, of which the Company received $25.0 million during 2017. An additional $5.0 million was received in 2018 and the remaining $5.0 million was received in 2019.

In the event that the Company has not initiated IND enabling studies for at least five Arcus Programs prior to the expiration of the Option Period, Taiho may elect to extend the Option Period, up to a maximum of seven years, subject to an extension fee. For each option that Taiho elects to exercise, Taiho will be obligated to make an option exercise payment of between $3.0 million to $15.0 million, depending on the development stage of the applicable Arcus Program for which the option is exercised. In addition, the Taiho Agreement provides that the Company is eligible to receive additional clinical and regulatory milestones totaling up to $130.0 million per Arcus Program, and it will be eligible to receive contingent payments of up to $145.0 million per Arcus Program associated with the achievement of specified levels of Taiho net sales in the Taiho Territory.

In addition, the Company will receive royalties ranging from high single-digits to mid-teens on net sales of licensed products in the Taiho Territory. Royalties will be payable on a licensed product-by-licensed product and country-by-country basis during the period of time commencing on the first commercial sale of a licensed product in a country and ending upon the later of: (a) ten (10) years from the date of first commercial sale of such licensed product in such country; and (b) expiration of the last-to-expire valid claim of the Company’s patents covering the manufacture, use or sale or exploitation of such licensed product in such country (the Royalty Term).

The Company evaluated the Taiho Agreement under ASC 606 and determined that the current performance obligations consist of (1) the research and development services, in which the Company will use commercially reasonable efforts to initiate IND enabling studies for at least five Arcus Programs, as well as further develop such Arcus Programs during the term of the Agreement, and (2) the obligation to participate on the joint steering committee. These deliverables are non-contingent in nature. The Company determined that the obligation to participate in the joint steering committee does not have stand-alone value to Taiho because the committee’s primary purpose is to monitor and govern the research and development activities and, hence, it is inseparable from the research and development services.

The Company’s assessment of the transaction price included an analysis of amounts it expected to receive, which at contract inception consisted of the upfront cash payment of $20.0 million due upon contract execution in September 2017, a $5.0 million payment due within 30 days of contract execution, an anniversary payment of $5.0 million due in 2018, and a final anniversary payment of $5.0 million due in 2019. All payments were made by Taiho as they became due and payable so given this successful collection history, the Company considers the entire $35.0 million in non-refundable fees to be the initial transaction price.

The Company determined that the combined performance obligation of the research and development services and the obligation to participate on the joint steering committee are satisfied over time. The Company uses a time-elapsed input method to measure progress toward satisfying its performance obligation, which is the method the Company believes most faithfully depicts the

Company’s performance in transferring the promised services during the time period in which Taiho has access to the Company’s research and development activities. Accordingly, the transaction price of $35.0 million is being recognized using this input method over the estimated performance period of five years.

The Company also concluded that, at the inception of the agreement, Taiho’s exclusive options are not considered material rights as the options do not contain a significant and incremental discount. The Company therefore excludes the exclusive options from the initial transaction price and accounts for them as separate contracts. In 2018, Taiho exercised its option to the Company’s adenosine receptor antagonist program, including etrumadenant (formerly referred to as AB928), for a fee of $3.0 million, which was recognized by the Company as revenue during the year ended December 31, 2018 under ASC 605. The adoption of ASC 606 in 2019 had no effect on the revenue recognized for this fee. In 2019, Taiho exercised its option to the Company’s anti-PD-1 antibody program, including zimberelimab (formerly referred to as AB122) for a fee of $8.0 million. The Company identified one performance obligation, the delivery of the license, which was completed in 2019. The transaction price was determined to be the payment of $8.0 million, which was recognized by the Company as licensing revenue during the year ended December 31, 2019 under ASC 606. Upon the option exercises, Taiho gained sole responsibility for the development and commercialization of the licensed products from within the programs in the Taiho Territory.

The Company also determined that the clinical and regulatory milestone payments under the Taiho Agreement are variable consideration under ASC 606 which need to be added to the transaction price when it is probable that a significant revenue reversal will not occur. Based on the nature of the clinical and regulatory milestones, such as the regulatory approvals which are not within the Company’s control, the Company will not consider achievement of such milestones to be probable until the uncertainty associated with the milestones has been resolved. When it is probable that a significant reversal of revenue will not occur, the milestone payment will be added to the transaction price, which will then be allocated to each performance obligation, on a relative standalone selling price basis, for which the Company recognizes revenue. As of September 30, 2020, no clinical or regulatory milestones had been achieved under the Taiho Agreement.

The Company also considers the contingent payments due from Taiho upon the achievement of specified sales volumes to be similar to royalty payments. The Company considers the license to be the predominant item to which the royalties relate. The Company will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). As of September 30, 2020, no sales milestone or royalty revenue has been recognized.

The Taiho Agreement shall remain in effect until expiry of all Royalty Terms for the licensed products, in each case subject to certain exceptions.

The Company entered into a license agreement (the WuXi Agreement) with WuXi Biologics (Cayman) Inc. (WuXi Biologics) in August 2017, as subsequently amended in June 2019 and March 2020, in which the Company obtained an exclusive license to develop, use, manufacture, and commercialize products including an anti-PD-1 antibody worldwide except for Greater China and Thailand. From the inception of the WuXi Agreement through September 30, 2020, the Company has made upfront and milestone payments of $31.0 million and incurred sub-license fees of $11.3 million. These payments were recorded as research and development expense, as the products had not reached technological feasibility and do not have an alternative future use. The WuXi Agreement also provides for additional clinical and regulatory milestone payments, commercialization milestone payments of up to $375.0 million, and tiered royalty payments to be made to WuXi Biologics that range from the high single-digits to low teens of net sales by the Company of licensed products.

The Company incurred $10.1 million and $15.1 million in expense under the WuXi Agreement during the three and nine months ended September 30, 2020, which includes a sub-license fee of $10.1 million due in connection with the grant of a sublicense to Gilead for zimberelimab under the Gilead Collaboration Agreement in July 2020, and a $5.0 million development milestone expense.

In December 2016, the Company entered into a license agreement (the Abmuno Agreement) with Abmuno Therapeutics LLC (Abmuno) for a worldwide exclusive license to develop, use, manufacture, and commercialize products that include an anti-TIGIT antibody, including domvanalimab (formerly referred to as AB154). Under the Abmuno Agreement, the Company has made upfront and milestone payments totaling $9.6 million as of September 30, 2020. The Abmuno Agreement also provides for additional clinical, regulatory and commercialization milestone remaining payments of up to $98.0 million as of September 30, 2020.

The Company incurred $3.0 million in development milestone expense during the three and nine months ended September 30, 2020.

In December 2019, the Company and Genentech, through F. Hoffmann-La Roche Ltd (collectively, Genentech) entered into a Master Clinical Collaboration Agreement (the Genentech Agreement) pursuant to which the parties may conduct combination clinical studies involving Genentech’s monoclonal antibody, atezolizumab (TECENTRIQ®) and the Company’s investigational products. Pursuant to the Genentech Agreement, the parties entered into Trial Supplements for the evaluation of etrumadenant (formerly referred to as AB928) and atezolizumab utilizing the MORPHEUS platform in two separate study indications: second and third line metastatic colorectal cancer; and first line metastatic pancreatic cancer. The Company and Genentech will each supply their respective investigational products for use in the collaboration studies and will share a portion of the development costs under specific terms as set forth in the agreement.

For the three and nine months ended September 30, 2020, the Company incurred expenses pursuant to the Genentech Agreement of $0.1 million. Net expenses related to this co-development agreement are recorded within research and development expenses.

On April 30, 2019, the Company and Strata Oncology, Inc. (Strata) entered into a Co-Development and Collaboration Agreement (the Strata Agreement) to pursue a clinical development collaboration utilizing Strata’s precision drug development platform and proprietary biomarkers to evaluate zimberelimab, the Company’s clinical-stage anti-PD-1 antibody, in patients in a tumor-agnostic fashion.

Under the terms of the Strata Agreement, the parties will share a portion of development costs for the clinical collaboration under specified terms. Strata is eligible to receive $2.5 million upon the achievement of a development milestone, as well as regulatory and commercial milestones of up to $125.0 million and up to double-digit royalties on U.S. net sales of zimberelimab in the biomarker-identified indication. From the inception of the Agreement through September 30, 2020, the Company has made a milestone payment of $2.5 million and has incurred expenses of $2.2 million, of which $0.4 million had been reimbursed by Strata as development cost sharing. These amounts were recorded within research and development expense.

As further consideration in connection with the Strata Agreement, the Company issued to Strata 1,257,651 restricted shares of its common stock with an initial measured fair value of $15.0 million, which are subject to vesting based upon the achievement of specified regulatory milestones within certain timelines. Expense relating to the restricted shares subject to these milestones is recognized if it is considered probable that the associated shares will vest. The probability of achievement is assessed at the end of each quarterly period. As of September 30, 2020, the Company determined that none of the restricted shares were probable of vesting and, as a result, no compensation expense related to the restricted shares has been recognized to date.

For the three and nine months ended September 30, 2020, the Company incurred expenses pursuant to the Strata Agreement of $0.3 million and $1.2 million, respectively. Of these expenses, $0.1 million and $0.2 million have been reimbursed by Strata as development cost sharing for the three and nine months ended September 30, 2020, respectively. Net expenses related to this co-development agreement are recorded within research and development expenses.