Arcus Biosciences, Inc. (RCUS) FY 2022 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes included in this Annual Report. This discussion and other parts of this report contain forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, expectations, and intentions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this report titled “Risk Factors.”
Overview
We are a clinical-stage biopharmaceutical company focused on creating best-in-class therapies. Using our robust and highly efficient drug discovery capability, we have created a significant portfolio of investigational products which are in clinical development, with our most advanced molecule, an anti-TIGIT antibody, now in four Phase 3 registrational studies targeting lung and gastrointestinal cancers. Our deep portfolio of novel small molecules and enabling antibodies allows us to create highly differentiated therapies, which we are developing to treat multiple large indications. We expect our clinical-stage portfolio to continue to expand and to include molecules targeting immuno-oncology, cancer cell-intrinsic and immunological pathways. Our vision is to create, develop and commercialize highly differentiated therapies that have a meaningful impact on patients.
Recent Developments
Following is a summary of recent significant developments affecting our business:
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In November 2022, we announced the amended study design of ARC-10. Under the amended study design, we are comparing domvanalimab and zimberelimab to pembrolizumab and the study will no longer include a chemotherapy arm.
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In November 2022, we announced that we had initiated ARC-20, a Phase 1/1b study of HIF-2α inhibitor AB521 in cancer patients.
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In December 2022, we announced positive results from the fourth interim analysis of the ARC-7 study in patients with first-line, metastatic NSCLC with PD-L1 tumor proportion score (TPS) ≥50% without epidermal growth factor receptor or anaplastic lymphoma kinase (EGFR/ALK) mutations. ARC-7 is a Phase 2, multicenter, three-arm, randomized, open-label study evaluating the combinations of Fc-silent anti-TIGIT monoclonal antibody domvanalimab plus anti-PD-1 monoclonal antibody zimberelimab (doublet) and domvanalimab plus zimberelimab and etrumadenant, an adenosine A2a/A2b receptor antagonist (triplet), versus zimberelimab monotherapy.
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In the third quarter of 2022, together with Gilead, we initiated two new registrational Phase 3 trials including STAR-121 and STAR-221. STAR-121 is being operationalized by Gilead and is evaluating domvanalimab plus zimberelimab plus chemotherapy against the standard of care (pembrolizumab) in first line, PD-l all-comers NSCLC. STAR-221, which we are operationalizing, is evaluating domvanalimab plus zimberelimab and chemotherapy versus the standard of care (nivolumab) plus chemotherapy in first-line, locally advanced unresectable or metastatic gastric, esophageal and gastrointestinal junction adenocarcinomas. During the fourth quarter 2022, Taiho opted to participate in both studies.
Strategic Partnerships
Gilead
In 2020, we and Gilead entered into the Gilead Collaboration Agreement, the Stock Purchase Agreement, and Investor Rights Agreement. The Gilead Collaboration Agreement and the Stock Purchase Agreement were amended in 2021, and the Investor Rights Agreement was amended in 2022.
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Under the Gilead Collaboration Agreement, Gilead obtained an exclusive license to zimberelimab and time-limited exclusive options to all of our then-current and future programs during the 10-year collaboration term. In 2021, Gilead obtained rights to an additional four of our investigational products: domvanalimab, etrumadenant, quemliclustat and AB308. For each program to which Gilead exercised or exercises its option, the parties will co-develop globally and co-commercialize the program in the U.S., subject to certain exceptions, and Gilead will have the right to commercialize the program outside of the United States, subject to the rights of our existing partners in certain territories.
Under the Stock Purchase Agreement Gilead has the right, at its option until July 2025, to purchase up to a maximum ownership of 35% of our then-outstanding voting common stock, and the Investor Rights Agreement provides for a three-year standstill, three-year lockup and the right to designate two individuals to be appointed to our Board of Directors. As of December 31, 2022, Gilead held approximately 18.9% of our outstanding common stock.
Taiho
In 2017, we entered into an Option and License Agreement (Taiho Agreement) with Taiho Pharmaceutical Co., Ltd. (Taiho) pursuant to which Taiho was granted time-limited options to exclusively license for Japan and certain other territories in Asia (excluding China) the development and commercialization rights to each of our programs that arose over a five-year period ending in September 2022. As of December 31, 2022, Taiho has licenses to our (i) adenosine receptor antagonist program (including etrumadenant); (ii) anti-PD-1 program (including zimberelimab); and (iii) our anti-TIGIT program (including domvanalimab and AB308).
Other Licenses, Collaborations, and R&D Arrangements
We in-licensed rights to zimberelimab and CD39 from WuXi Biologics Ireland Limited (WuXi Biologics), and in-licensed rights to domvanalimab from Abmuno Therapeutics LLC (Abmuno). We also have a clinical collaboration agreement with AstraZeneca for the PACIFIC-8 trial evaluating domvanalimab and durvalumab in Stage 3 NSCLC, and BVF Partners L.P. (BVF) to support the discovery and development of compounds for the treatment of inflammatory diseases.
Financial Overview
Since commencing operations in 2015, we have devoted substantially all of our efforts and financial resources to building our research and development capabilities, advancing our investigational product pipeline, and establishing our corporate infrastructure.
We expect to incur substantial expenditures in the foreseeable future as we expand our pipeline and advance our investigational products through clinical development, the regulatory approval process and, if approved, commercial launch activities. For example, in the near term we expect to incur substantial expenses relating to our ongoing and planned clinical trials, the development and validation of our manufacturing processes, and other preclinical, research and discovery development activities. These expenditures will be partially offset by reimbursements for shared expenses from our collaborations, primarily the Gilead collaboration, for certain expenses incurred on their optioned programs. At this time, we cannot reasonably estimate the nature, timing or aggregate amount of costs for our development, potential commercialization, and internal research and development programs.
We have no internal manufacturing facilities, and thus all of our manufacturing activities are contracted to third parties. We also utilize third-party clinical research organizations to manage and execute various aspects of our clinical development and trials.
To date, we have financed our operations primarily from the sale of our equity securities and revenue through research, collaboration and license agreements with our strategic partners including Gilead. We will need substantial additional funding to support our continuing operations and pursue our development strategy. Until such time that we can generate significant revenue from sales of our investigational products, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, including existing or potential collaborations with other companies or other strategic transactions. Adequate funding may not be available to us on acceptable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back, or discontinue the development and commercialization of our investigational products or delay our efforts to expand our product pipeline.
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As of December 31, 2022, we had $1.14 billion of cash, cash equivalents and marketable securities, which we believe will be sufficient to fund our planned operations into 2026. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.
Components of Operating Results
Revenues
We have not generated any revenue from product sales and do not expect to generate any revenue from product sales for the foreseeable future. All revenue recognized to date has been through research, collaboration and license arrangements with strategic partners.
License and Development Services Revenue
Our license and development services revenue consists of amounts recognized from the portions of the nonrefundable upfront and milestone payments received from Gilead and Taiho and allocated to performance obligations for licenses or R&D activities performed by us as we develop our investigational products under the terms of our collaboration agreements. License and development services revenues are recognized based upon the timing of the delivery of a license or service if delivery is complete, or based on estimates of each performance obligation's percentage of completion at the period end if it is still in process. We calculate percentage of completion as a ratio of effort incurred to date on each performance obligation to the total estimated effort to be incurred to satisfy that performance obligation.
Other Collaboration Revenue
Other collaboration revenue consists of amounts recognized from the portions of the nonrefundable upfront payments received from Gilead and Taiho and allocated to performance obligations relating to the customer's access to our investigational pipeline over the collaboration period. Other collaboration revenues are recognized throughout the collaboration period.
Operating Expenses
Research and Development Expenses
Our research and development expenses consist of expenses incurred in connection with the research and development of our pipeline programs. These expenses include preclinical and clinical expenses, payroll and personnel expenses, including stock-based compensation for our employees, laboratory supplies, product licenses, consulting costs, contract research, and depreciation. Shared facility expenses are allocated to functional groups proportionally based on usage. Under certain collaboration agreements we agree to share research and development expenses with our partners. Such cost sharing arrangements may result in receiving reimbursement from our partners or require that we reimburse our partners for qualified expenses. We expense both internal and external research and development costs as they are incurred. We record advance payments for services that will be used or rendered for future research and development activities as prepaid expenses and recognize them as an expense as the related services are performed. We recognize reimbursement for shared costs incurred by us and reimbursed by our partners as a reduction in research and development expense.
We do not allocate our costs by investigational product, as a significant amount of research and development expenses include internal costs, such as payroll and other personnel expenses, and certain external costs that are not recorded at the investigational product level. In particular, with respect to internal costs, several of our departments support multiple research and development programs, and we do not allocate those costs by investigational product.
The level of our future research and development investment will depend on a number of factors and uncertainties, including the breadth of the joint development program agreed to with Gilead for the optioned programs, the outcome of our efforts, and the amount of cost reimbursements or milestone payments we receive from our collaborators. We expect our research and development expenses to increase substantially during the next few years as we pursue joint development programs with Gilead for our five optioned molecules and advance these programs towards regulatory approval. We also expect to advance new programs into the clinic. All of this will require significant growth in our development capabilities and infrastructure. In addition, our joint development programs with Gilead for the optioned molecules are anticipated to include a significant number of later-stage clinical trials, which typically include a larger number of subjects, are of a longer duration and include more geographic regions. As
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we advance our clinical-stage programs and prepare to seek regulatory approval, we will also need to increase our late-stage manufacturing activities. As a result, we expect our preclinical, clinical, and contract manufacturing expenses to increase significantly relative to what we have incurred to date.
In addition, under our arrangements with WuXi Biologics, Abmuno, AstraZeneca and BVF, we may incur additional clinical and regulatory milestone payments based on the development progress of our investigational products. We may also be required to pay royalties in the event of a successful product launch and our receipt of commercial revenues. Therefore, we are unable to predict the timing or the final cost to complete our clinical programs or validation of our manufacturing and supply processes and delays may occur due to numerous factors. Factors that could cause or contribute to delays or additional costs include, but are not limited to, those discussed in “Item 1A. Risk Factors.”
General and Administrative Expenses
General and administrative expenses consist principally of personnel-related costs including payroll and stock-based compensation for personnel in executive, finance, human resources, information technology, business and corporate development, and other administrative functions. Shared facility expenses are allocated to functional groups proportionally based on usage. Our general and administrative expenses also include professional fees for legal, consulting, and accounting services, rent and other facilities costs, fixed asset depreciation, and other general operating expenses not otherwise classified as research and development expenses. We do not receive significant reimbursements of these costs through our collaboration with Gilead.
We anticipate that our general and administrative expenses will increase during the next few years as we support our growing research and development activities, including due to staff expansion, and other costs associated with increased infrastructure needs.
Non-Operating Income, net
Non-operating income, net consists primarily of interest earned on our investments in fixed-income marketable securities and non-cash interest expense incurred under the effective interest method on our liability for sale of future royalties to BVF.
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Results of Operations
The following table summarizes our results of operations (in millions):
| Year Ended December 31, 2022 | Change | Year Ended December 31, 2021 | Change | Year Ended December 31, 2020 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenues: | |||||||||||||||||||
| License and development service revenue | $ | 74 | (79 | )% | $ | 345 | * | $ | 55 | ||||||||||
| Other collaboration revenue | 38 | - | 38 | 65 | % | 23 | |||||||||||||
| Total revenues | 112 | (71 | )% | 383 | * | 78 | |||||||||||||
| Operating expenses: | |||||||||||||||||||
| Research and development | 288 | 12 | % | 257 | 62 | % | 159 | ||||||||||||
| General and administrative | 104 | 44 | % | 72 | 67 | % | 43 | ||||||||||||
| Total operating expenses | 392 | 19 | % | 329 | 63 | % | 202 | ||||||||||||
| Income (loss) from operations | (280 | ) | * | 54 | (144 | )% | (124 | ) | |||||||||||
| Non-operating income, net | 14 | * | 1 | - | 1 | ||||||||||||||
| Income (loss) before income taxes | (266 | ) | * | 55 | (145 | )% | (123 | ) | |||||||||||
| Income tax expense | (1 | ) | (50 | )% | (2 | ) | * | - | |||||||||||
| Net income (loss) | $ | (267 | ) | * | $ | 53 | (143 | )% | $ | (123 | ) |
* Not meaningful
Total Revenues
The decrease in Total revenues for 2022 as compared to 2021 was primarily driven by higher revenues in 2021 due to Gilead's exercise of its options, partially offset by increased revenues from R&D services in 2022 including $4 million in revenue recognized due to changes in the total estimated percentage of completion based on management's estimated total effort for the program to be incurred in the future to satisfy the performance obligations, primarily related to revised clinical trial assumptions for R&D and commercial activities.
The increase in Total revenues for 2021 as compared to 2020 was primarily driven by Gilead's exercise of its options and consisted of increases of $290 million in license and development services revenues and $15 million in collaboration revenues.
See Note 5, Revenues to our Consolidated Financial Statements, in Part II, Item 8 for further discussion of the amount and timing of revenues recognized from our collaboration agreements.
Research and Development Expenses
The increase of 12%, or $31 million, in Research and development expenses for 2022 as compared to 2021 was driven by $167 million in higher costs incurred to support our expanded clinical and development activities partially offset by $136 million in higher reimbursements for shared expenses from our collaborations, primarily the Gilead collaboration which was expanded in December 2021. Our expanding clinical and development activities as we enrolled more patients in our existing and new studies including domvanalimab and zimberelimab combination studies drove increases of $10 million in net manufacturing costs and $9 million in net clinical costs. Our growing headcount drove a $13 million increase in net employee compensation costs. The overall increase was partially offset by a $7 million decrease in net scientific licenses expense.
The increase of 62%, or $98 million, in Research and development expenses for 2021 as compared to 2020 was driven by $119 million in higher costs incurred to support our expanded clinical and development activities partially offset by $21 million in higher reimbursements for shared expenses from our collaborations, primarily the Gilead
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collaboration which was expanded in December 2021. Our growing headcount and our 2021 stock awards drove a $42 million increase in net employee compensation costs. Net costs for our ongoing clinical studies and related manufacturing increased $33 million and $6 million, respectively, as a result of the increased number of clinical-stage programs and trials compared to the prior year. We incurred increases of $10 million in office facilities and technology expense, $7 million in consulting services, and $5 million in lab supplies and equipment, as we expanded our development efforts. The overall increase was partially offset by a $7 million decrease in net scientific licenses expense.
For 2022 and 2021, we recognized gross reimbursements of $161 million and $25 million, respectively, for shared expenses from our collaborations, primarily the Gilead collaboration which was expanded in December 2021.
General and Administrative Expenses
The increase in General and administrative expenses for 2022 as compared to 2021 was primarily driven by the increased complexity of supporting our expanding clinical pipeline and partnership obligations. Our growing headcount and our 2022 stock awards drove a $15 million increase in employee compensation costs, including $6 million in increased non-cash stock-based compensation. We also incurred a $13 million increase in office facilities expense due to the expansion of our office space to support our higher headcount.
The increase in General and administrative expenses for 2021 as compared to 2020 was primarily driven by the increased complexity of supporting our expanding clinical pipeline and partnership obligations, as well as costs associated with being a public company. Our growing headcount and our 2021 stock awards drove a $24 million increase in employee compensation costs, including $16 million in increased non-cash stock-based compensation. We also incurred a $4 million increase in office facilities expense due to our expanding office space to support our higher headcount and an increase of $2 million in consulting expenses due to corporate development activities.
Non-operating Income, Net
The increase in Non-operating income, net for 2022 as compared to 2021 was primarily due to a larger portfolio of marketable fixed-income securities and higher interest income resulting from increased investment yields as compared to the prior year.
Non-operating income, net was flat for 2021 as compared to 2020.
Income Tax Expense
The decrease in Income tax expense for 2022 as compared to 2021 was due primarily to lower pretax income. The 2022 income tax expense considers the impact of the capitalization of R&D expenses for income tax purposes due to changes in U.S. legislation. The capitalization of R&D expenses may materially impact income tax expense in future years.
The increase in Income tax expense for 2021 as compared to 2020 was due to an increase in pretax income, primarily resulting from Gilead's exercise of its options to our programs.
Liquidity and Capital Resources
Sources of Liquidity
To date, we have financed our operations primarily from the sale of our equity securities and payments received under our research, collaboration and license agreements with our strategic partners, including Gilead. We expect to incur substantial expenditures in the foreseeable future for the development and potential commercialization of our investigational products and ongoing internal research and development programs. At this time, we cannot reasonably estimate the nature, timing or aggregate amount of costs for our development, potential commercialization, and internal research and development programs.
As of December 31, 2022, we had $1.14 billion of cash, cash equivalents and marketable securities, compared to $681 million as of December 31, 2021. The increase in cash from the prior year end is primarily due to the receipt of $725 million in payments from Gilead in January 2022, related to their option exercises in December 2021. Our cash and investments are held in a variety of interest-bearing instruments, including money market funds, U.S. treasury securities, and corporate securities and commercial paper.
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Based on our existing business plan, we believe that our existing cash, cash equivalents, and marketable securities will be sufficient to fund our planned level of operations into 2026.
Our cash flow and financing requirements are determined by analyses of operating and capital spending budgets. It is challenging to predict the nature, timing and estimated long-range costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our investigational products. This is made more challenging by events outside of our control, such as the evolving COVID-19 pandemic. Accordingly, our operating plan may change, including as a result of factors currently unknown to us, and we may need to seek additional funds sooner than planned. Such financing may result in dilution to stockholders, imposition of debt covenants and repayment obligations, or other restrictions that may adversely affect our business. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.
See “Item 1A. Risk Factors” for additional risks associated with our substantial capital requirements.
Cash Flows
The following table summarizes our cash flow activities for each of the periods presented below (in millions):
| Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net cash provided by (used in): | 2022 | 2021 | 2020 | |||||||||
| Operating activities | $ | 438 | $ | (256 | ) | $ | 111 | |||||
| Investing activities | (413 | ) | (4 | ) | (434 | ) | ||||||
| Financing activities | 33 | 237 | 439 |
Operating Activities
Net cash provided by operating activities for 2022 was $438 million as compared to net cash used in operating activities of $256 million for the prior year. The change in operating cash flows is primarily due to the $725 million received from Gilead in January 2022 under the Gilead Collaboration Agreement, partially offset by increased expenses incurred to support our expanded clinical development activities.
Net cash used in operating activities for 2021 was $256 million as compared to net cash provided by operating activities of $111 million for the prior year. The change in operating cash flows is primarily due to the expenses incurred to support our expanded clinical development activities and general and administrative costs incurred to support our operations, partially offset by our net income of $53 million and the timing of payments from Gilead. The increase in expenses incurred for development activities is partially offset by year-over-year changes in non-cash items, including $33 million increased expense from stock-based compensation, and changes in our asset and liability balances due to the timing of payments to or from our vendors and collaborators.
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Investing Activities
Cash used in investing activities for 2022 was primarily due to net purchases of marketable securities of $404 million as we invested a portion of the $725 million received from Gilead in January 2022 under the Gilead Collaboration Agreement.
Cash used in investing activities for 2021 was primarily due to purchases of property and equipment of $26 million, partially offset by net cash proceeds related to our marketable securities of $22 million.
Cash used in investing activities for 2020 was primarily due to net purchases of marketable securities of $431 million as we invested a portion of the proceeds received from our May 2020 public offering and from Gilead for stock issued under the Stock Purchase Agreement.
Financing Activities
Cash provided by financing activities for 2022 was primarily due to net proceeds of $23 million for stock issued under our equity award plans and $10 million received under the BVF agreement.
Cash provided by financing activities for 2021 was primarily due to proceeds of $220 million from Gilead for stock issued under the Stock Purchase Agreement.
Cash provided by financing activities for 2020 was primarily due to net proceeds of $326 million from our May 2020 public offering and $108 million in net proceeds from Gilead for stock issued under the Stock Purchase Agreement.
Contractual Obligations and Commitments
The following table summarizes our current and noncurrent anticipated cash requirements under contractual obligations as of December 31, 2022 (in millions):
| Total | Current | Noncurrent | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Operating lease obligations (1) | $ | 159 | $ | 15 | $ | 144 | |||||
| Liability for sale of future royalties (2) | 17 | - | 17 | ||||||||
| Total (3) | $ | 176 | $ | 15 | $ | 161 |
(1)
Consists of cash payments due to landlord for our leased office and laboratory space. As of December 31, 2022, we had obligations consisting of operating leases for our operating facilities for approximately 260,000 square feet. Under the terms of the agreements, we have lease obligations consisting of $159 million in undiscounted minimum lease payments through 2031. In October 2022, we entered into an agreement to sublease approximately 31,000 unfinished square feet of our Brisbane office to another company through 2028. This sublease includes a tenant improvement allowance to be paid by us of $9 million upon lease commencement and we will receive sublease income of approximately $3 million per year (see Note 13 to our Consolidated Financial Statements in Item 8 for further discussion).
(2)
Consists of current balance of estimated contingent milestone and royalty payments under the BVF Agreement (see Note 15 to our Consolidated Financial Statements in Item 8 for further discussion).
(3)
We have not included contingent milestone or royalty payments or other contractual payment obligations in the table to the extent the timing and amount of such obligations are unknown or uncertain.
We enter into contracts in the normal course of business with third parties for clinical trial management and execution, non-clinical studies and testing, manufacturing, and other services and products for operating purposes. These contracts are generally cancelable on 30 days’ notice, and therefore we believe that our non-cancelable obligations under these agreements are not material.
See "Liquidity and capital resources" above for further discussion of our cash requirements.
Critical Accounting Judgments and Estimates
Our Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of these 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 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
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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. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s significant judgments and estimates.
While our significant accounting policies are described in the notes to our Consolidated Financial Statements, we believe that the following critical accounting estimates are most important to understanding and evaluating our reported financial results.
Revenue Recognition
At the inception of an arrangement, we evaluate if a counterparty to a contract is a customer, if the arrangement is within the scope of revenue from contracts with customers guidance, and the term of the contract. We recognize revenue when a customer obtains control of promised goods or services in a contract for an amount that reflects the consideration we expect to receive in exchange for those goods or services. For contracts with customers, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy each performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. 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 addition, variable consideration such as milestone payments are evaluated to determine if they are constrained and, therefore, excluded from the transaction price. We then allocate the total transaction price to each performance obligation based on their relative estimated standalone selling prices. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
For the recognition of revenue relating to the Gilead Agreements, as disclosed in Note 5, Revenues, to our Consolidated Financial Statements in Part II, Item 8, we allocated the total transaction price to each performance obligation on a relative standalone selling price basis and determined whether revenue should be recognized at a point in time or over time as services are performed. The estimation of the standalone selling price included estimates for forecasted revenues or costs, development timelines, discount rates, and probabilities of technical and regulatory success. We evaluate each performance obligation to determine if it can be satisfied at a point in time or over time as services are performed, and we measure the services delivered to Gilead, which we periodically review based on the progress of the related program. The effect of any change made to an estimated input component and, therefore revenue or expense recognized, would be recorded as a change in estimate. In addition, variable consideration (e.g., milestone payments) is evaluated to determine if it is constrained and, therefore, excluded from the transaction price.
Revenue related to certain performance obligations that are satisfied over time could be materially impacted as a result of changes in the total estimated effort required to satisfy those obligations. A hypothetical 10% change in the total estimated effort required to satisfy the combined license and R&D activities performance obligations related to the agreement with Gilead would have changed the related revenue recognized during the current year by as much as $7 million. For the year ended December 31, 2022, we recognized $4 million in cumulative catch-up revenues from such changes in estimates. See Results of Operations above for further discussion. These changes in estimate could have a material impact on the revenue recognized in a future period.
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For performance obligations that are distinct and determined to be transferred or satisfied at a point in time, the estimated standalone selling price will affect the amount of revenue recognized upon satisfaction of the related performance obligation such as the transfer of control of a license. For the domvanalimab license with Gilead, transfer of the license and satisfaction of the related performance obligation occurred in 2021. The estimated standalone selling price of the domvanalimab license utilized assumptions of discounted cash flows which require judgment. A 10% change in the total estimated cash flows used in determining the estimated standalone selling price of the domvanalimab license would have resulted in a change in the amount of revenue recognized in 2021 of approximately $20 million with a corresponding change in the transaction price allocated to the remaining performance obligations in the Gilead Collaboration Agreement.
Recent Accounting Pronouncements
See “Recent Accounting Pronouncements” in Note 2 to our Consolidated Financial Statements in Item 8 for a discussion of recently adopted accounting pronouncements.