IO Biotech, Inc. [IOBT] Filings

10-Q 1 iobt-20230331.htm 10-Q 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to __________________

Commission File Number: 001-41008

IO Biotech, Inc.

(Exact Name of Registrant as Specified in its Charter)


Delaware	87-0909276
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
Ole Maaløes Vej 3 DK-2200 Copenhagen N Denmark	NA
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: +45 7070 2980

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading
Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

IOBT

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐

As of May 8, 2023, the registrant had 28,815,267 shares of common stock, $0.001 par value per share, outstanding.

Table of Contents


		Page
PART I.	FINANCIAL INFORMATION	1
Item 1.	Interim Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss	2
	Condensed Consolidated Statements of Stockholders’ Equity	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25
PART II.	OTHER INFORMATION	26
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	28
Signatures		29

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. All statements other than statements of historical fact contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “should,” “would,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties and assumptions described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2022. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Some of the key factors that could cause actual results to differ from our expectations include:

•

the timing, progress and the success of our clinical trials of IO102-IO103, IO112, and any other product candidates, including statements regarding the timing of initiation and completion of studies or trials and related preparatory work, the period during which the results of the trials will become available and our research and development programs;

•

whether the results of our trials will be sufficient to support domestic or foreign regulatory approvals for IO102-IO103, IO112 or any other product candidates we may develop;

•

regulatory actions with respect to our product candidates or our competitors’ products and product candidates;

•

our ability to obtain, including on an expedited basis, and maintain regulatory approval of IO102-IO103, IO112 or any other product candidates we may develop;

•

the outcomes of our preclinical studies;

•

our ability to enroll patients in our clinical trials at the pace that we project;

•

our ability to establish and conduct our clinical programs on our expected timelines;

•

the costs of development of any of our product candidates or clinical development programs;

•

our expectation about the period of time over which our existing capital resources will be sufficient to fund our operating expenses and capital expenditures;

•

the potential attributes and clinical benefits of the use of IO102-IO103, IO112 or any other product candidate, if approved;

•

our ability to successfully commercialize IO102-IO103, IO112 or any other product candidates we may identify and pursue, if approved;

•

our ability to successfully establish or maintain collaborations or strategic relationships for our product candidates;

•

the rate and degree of market acceptance of IO102-IO103, IO112 or any other product candidates we may identify and pursue;

•

our ability to obtain orphan drug designation, Breakthrough Therapy Designation (BTD), accelerated or other approval for any of our product candidates we may identify;

•

our expectations regarding government and third-party payor coverage and reimbursement;

•

our ability to manufacture, including through contract manufacturing organizations (CMOs), IO102-IO103, IO112 or any other product candidate in conformity with the Food and Drug Administration's (FDA’s) requirements and the requirements of other applicable regulatory authorities;

•

our ability to successfully build a sales force and commercial infrastructure;

•

our ability to compete with companies currently producing or engaged in the clinical development of treatments for the disease indications that we pursue and treatment modalities that we develop;

•

our reliance on third parties to conduct our clinical trials;

•

our reliance on third-party CMOs to manufacture and supply our product candidates for us;

•

our ability to retain and recruit key personnel;

•

our ability to obtain and maintain intellectual property protection for IO102-IO103, IO112 or any other product candidates we may identify and pursue;

•

our estimates of our expenses, ongoing losses, future revenue, capital requirements and our needs for or ability to obtain additional financing;

•

our expectations regarding the time during which we will be an emerging growth company (EGC) under the Jumpstart Our Business Startups Act (JOBS Act);

•

our financial performance;

•

the effect of the COVID-19 pandemic, including mitigation efforts and economic effects, on any of the foregoing or any other aspects of our business operations;

•

the impact of laws and regulations, including legislative developments; and

•

developments and projections relating to our competitors or our industry.

These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022 and Part II, Item 1A - “Risk Factors” and for the reasons described elsewhere in this Quarterly Report on Form 10-Q. Any forward-looking statement in this Quarterly Report on Form 10-Q reflects our current view with respect to future events and is subject to these and other risks, uncertainties, and assumptions relating to our operations, results of operations, industry, and future growth. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

This Quarterly Report on Form 10-Q also contains estimates, projections, and other information concerning our industry, our business, and the markets for certain drugs, including data regarding the estimated size of those markets, their projected growth rates, and the incidence of certain medical conditions. Information that is based on estimates, forecasts, projections, or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained these industry, business, market, and other data from reports, research surveys, studies, and similar data prepared by third parties, industry, medical and general publications, government data, and similar sources. In some cases, we do not expressly refer to the sources from which these data are derived.

Except where the context otherwise requires, in this Quarterly Report on Form 10-Q, “we,” “us,” “our,” “IO Biotech,” and the “Company” refer to IO Biotech, Inc. and, where appropriate, its consolidated subsidiaries.

Trademarks

We have applied for various trademarks that we use in connection with the operation of our business. This Quarterly Report on Form 10-Q includes trademarks, service marks, and trade names owned by us or other companies. All trademarks, service marks, and trade names included in this Quarterly Report on Form 10-Q are the property of their respective owners. Solely for convenience, the trademarks and trade names in this report may be referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.

iii

PART I—FINANCIAL INFORMATION

Item 1. Interim Financial Statements (Unaudited).

IO BIOTECH, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(unaudited)


	March 31, 2023			December 31, 2022
Assets
Current assets
Cash and cash equivalents	$	128,527		$	142,590
Prepaid expenses and other current assets		3,739			5,629
Total current assets		132,266			148,219
Restricted cash		268			268
Property and equipment, net		842			741
Right of use lease asset		2,592			2,493
Other non-current assets		876			84
Total non-current assets		4,578			3,586
Total assets	$	136,844		$	151,805
Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	4,260		$	4,004
Lease liability - current		559			515
Accrued expenses and other current liabilities		5,538			6,157
Total current liabilities		10,357			10,676
Lease liability - non-current		2,272			2,275
Total non-current liabilities		2,272			2,275
Total liabilities		12,629			12,951
Commitments and contingencies (Note 9)
Stockholders’ equity
Preferred stock, par value of $0.001 per share; 5,000,000 shares authorized, no shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively		—			—
Common stock, par value of $0.001 per share; 300,000,000 shares authorized, 28,815,267 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively		29			29
Additional paid-in capital		328,593			326,705
Accumulated deficit		(194,783	)		(177,739	)
Accumulated other comprehensive loss		(9,624	)		(10,141	)
Total stockholders’ equity		124,215			138,854
Total liabilities and stockholders’ equity	$	136,844		$	151,805

See accompanying notes to the unaudited interim condensed consolidated financial statements.

IO BIOTECH, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

(unaudited)


	For the Three Months Ended March 31,
	2023			2022
Operating expenses
Research and development	$	11,900		$	10,306
General and administrative		6,024			6,704
Total operating expenses		17,924			17,010
Loss from operations		(17,924	)		(17,010	)
Other income (expense)
Currency exchange gain (loss), net		258			(20	)
Interest income		1,028			15
Interest expense		—			(123	)
Total other income (expense), net		1,286			(128	)
Loss before income tax expense		(16,638	)		(17,138	)
Income tax expense		406			66
Net loss		(17,044	)		(17,204	)
Net loss attributable to common shareholders		(17,044	)		(17,204	)
Net loss per common share, basic and diluted	$	(0.59	)	$	(0.60	)
Weighted-average number of shares used in computing net loss per common share, basic and diluted		28,815,267			28,815,267
Other comprehensive loss
Net loss		(17,044	)		(17,204	)
Foreign currency translation		517			(2,647	)
Total comprehensive loss		(16,527	)		(19,851	)

See accompanying notes to the unaudited interim condensed consolidated financial statements.

IO BIOTECH, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share amounts)

(unaudited)


	Common Stock				Additional Paid-In		Accumulated Other Comprehensive			Accumulated			Total Stockholders’
	Shares		Amount		Capital		Loss			Deficit			Equity
Balance, January 1, 2022		28,815,267	$	29	$	319,665	$	(1,489	)	$	(106,281	)	$	211,924
Equity-based compensation		—		—		1,620		—			—			1,620
Foreign currency translation		—		—		—		(2,647	)		—			(2,647	)
Net loss		—		—		—		—			(17,204	)		(17,204	)
Balance, March 31, 2022		28,815,267	$	29	$	321,285	$	(4,136	)	$	(123,485	)	$	193,693

Balance, January 1, 2023		28,815,267	$	29	$	326,705	$	(10,141	)	$	(177,739	)	$	138,854
Equity-based compensation		—		—		1,888		—			—			1,888
Foreign currency translation		—		—		—		517			—			517
Net loss		—		—		—		—			(17,044	)		(17,044	)
Balance, March 31, 2023		28,815,267	$	29	$	328,593	$	(9,624	)	$	(194,783	)	$	124,215

See accompanying notes to the unaudited interim condensed consolidated financial statements.

IO BIOTECH, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)


	Three Months Ended March 31,
	2023			2022
Cash flows from operating activities
Net loss	$	(17,044	)	$	(17,204	)
Adjustment to reconcile net loss to net cash used in operating activities
Depreciation		47			—
Equity-based compensation		1,888			1,620
Amortization of right of use lease asset		127			220
Foreign currency loss (gain)		(258	)		20
Changes in operating assets and liabilities
Prepaid expenses and other current assets		1,890			(1,137	)
Other non-current assets		(792	)		(9	)
Accounts payable		256			(1,841	)
Lease liability		(185	)		(75	)
Accrued expenses and other current liabilities		(619	)		(2,438	)
Net cash used in operating activities		(14,690	)		(20,844	)
Cash flows from investing activities
Purchase of property and equipment		(148	)		(116	)
Net cash used in investing activities		(148	)		(116	)
Cash flows from financing activities
Net cash provided by financing activities		—			—
Net (decrease) increase in cash, cash equivalents and restricted cash		(14,838	)		(20,960	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		775			(2,667	)
Cash, cash equivalents and restricted cash, beginning of period		142,858			211,799
Cash, cash equivalents and restricted cash, end of period	$	128,795		$	188,172
Components of cash, cash equivalents, and restricted cash
Cash and cash equivalents		128,527			187,904
Restricted cash		268			268
Total cash, cash equivalents and restricted cash	$	128,795		$	188,172

See accompanying notes to the unaudited interim condensed consolidated financial statements.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Description of Business, Organization and Liquidity

Business

IO Biotech, Inc. is a clinical-stage biotechnology company dedicated to the identification and development of disruptive immune therapies for the treatment of cancer. As used in these financial statements, unless the context otherwise requires, references to the “Company”, “we,” “us,” and “our” refer to IO Biotech, Inc. and its subsidiaries. IO Biotech ApS was incorporated in Denmark in December 2014. We are developing novel, immune-modulating cancer vaccines based on our T-win technology platform.

Corporate Reorganization

In November 2021, we completed a corporate reorganization whereby IO Biotech ApS became a wholly-owned subsidiary of the Company. In connection with the corporate reorganization, each issued and outstanding Class A ordinary share ($0.16 par value) was exchanged on a one for one basis into shares of common stock of the Company ($0.001 par value). Each Class B and Class C preference share of IO Biotech ApS was exchanged on a one for one basis into shares of Class B and Class C preferred stock of the Company.

Initial Public Offering (IPO)

In November 2021, we completed our IPO, selling an aggregate of 8,222,500 shares of common stock at a price to the public of $14.00 per share, including 1,072,500 shares of common stock sold pursuant to the underwriters’ exercise of their option to purchase additional shares of common stock. We received net proceeds from the IPO, after deducting underwriting discounts and commissions and other offering costs of approximately $103.3 million.

Immediately prior to the consummation of the IPO, all outstanding shares of our Class A ordinary shares and Class B and Class C convertible preference shares were converted into 20,592,413 shares of common stock. Upon the closing of the IPO on November 9, 2021, a total of 28,815,267 shares of common stock were outstanding. Our common stock began trading on the Nasdaq Global Market on November 5, 2021 under the symbol “IOBT.”

On November 9, 2021, we amended and restated the certificate of incorporation of IO Biotech, Inc. to authorize 300,000,000 shares of common stock and 5,000,000 shares of preferred stock. The shares of preferred stock are currently undesignated.

At-The-Market Equity Program

On February 15, 2023, we filed a new prospectus supplement with the SEC with respect to the offer and sale of shares of our common stock, par value $0.001 per share, with an aggregate offering price of up to $19,500,000, establishing an at-the-market equity program. On February 15, 2023, we also entered into a Sales Agreement by and between the Company and Cowen and Company, LLC for shares with an aggregate offering price of up to $75,000,000 through which we may, from time to time, sell shares to Cowen and Company, LLC. Any shares offered and sold through the at-the-market equity program will be issued pursuant to the Company’s Registration Statement on Form S-3 (File No. 333-269569), which was declared effective on February 10, 2023, the prospectus supplement related to the offering that forms a part of the registration statement, and any applicable prospectus supplements that may form a part of the registration statement in the future. The aggregate market value of shares eligible for sale under the prospectus supplement and under the Sales Agreement will be subject to the limitations of General Instruction I.B.6 of Form S-3, to the extent required under such instruction.

Risks and Uncertainties

We are subject to risks common to companies in the biotechnology industry including, but not limited to, new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations and the need to obtain additional financing. Product candidates currently under development will require significant additional research and development efforts, including extensive pre-clinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance reporting capabilities.

Our product candidates are in development. There can be no assurance that our research and development will be successfully completed, that adequate protection for our intellectual property will be obtained, that any products developed will obtain necessary government regulatory approval or that any approved products will be commercially viable. Even if our product development efforts are successful, it is uncertain when, if ever, we will generate significant revenue from product sales. We operate in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies. In addition, we are

dependent upon the services of our employees and consultants.

Liquidity Considerations and Going Concern Basis of Accounting

Since inception, we have devoted substantially all our efforts to business planning, conducting research and development, recruiting management and technical staff, and raising capital. We have financed our operations primarily through the issuance of convertible preference shares, convertible notes and, most recently, our IPO.

Our continued discovery and development of product candidates will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if product development efforts are successful, it is uncertain when, if ever, we will realize significant revenue from product sales.

As of March 31, 2023, we had an accumulated deficit of $194.8 million. We have incurred losses and negative cash flows from operations since inception, including net losses of $17.0 million and $71.5 million for the three months ended March 31, 2023 and the year ended December 31, 2022, respectively. We expect that our operating losses and negative cash flows will continue for the foreseeable future as we continue to develop our product candidates. We currently expect that our cash and cash equivalents of $128.5 million as of March 31, 2023 will be sufficient to fund our operating expenses and capital requirements for at least 12 months from the date the financial statements are issued. On this basis, the condensed consolidated financial statements are prepared on a going concern basis of accounting. However, additional funding will be necessary to fund future discovery research, pre-clinical and clinical activities. We will seek additional funding through public financings, debt financings, collaboration agreements, strategic alliances and licensing arrangements. Although we have been successful in raising capital in the past, there is no assurance that we will be successful in obtaining such additional financing on acceptable terms, or at all, and we may not be able to enter into collaborations or other arrangements. If we are unable to obtain funding, we could be forced to delay, reduce or eliminate our research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect our business prospects, even our ability to continue operations.

Coronavirus Pandemic

Although the World Health Organization has declared that COVID-19 no longer represents a global health emergency, the actual and perceived impact of COVID-19 and any effect on our business cannot be predicted. As a result, there can be no assurance that we will not experience additional negative impacts associated with COVID-19, which could be significant. The COVID-19 pandemic may negatively impact our business, financial condition and results of operations causing interruptions or delays in the Company’s programs and services.

2. Summary of Significant Accounting Policies

There have been no changes to the significant accounting policies as disclosed in Note 2 to the Company’s annual financial statements for the years ended December 31, 2022 and 2021 included in its annual report on Form 10-K filed with the Securities and Exchange Commission (the SEC), other than those described below.

Unaudited Financial Information

The accompanying unaudited interim condensed consolidated financial statements included herein have been prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP), and pursuant to the rules and regulations of the SEC. In the Company’s opinion, the information furnished reflects all adjustments, all of which are of a normal and recurring nature, necessary for a fair presentation of the financial position and results of operations for the reported interim periods. The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year or any other interim period. Unaudited interim financial statements and footnotes should be read in conjunction with the audited financial statements and footnotes included in the Company’s Annual Report filed on Form 10-K for the fiscal year ended December 31, 2022.

Recently Issued Accounting Standards

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires measurement and recognition of expected credit losses for financial assets. In April 2019, the FASB issued clarification to ASU 2016-13 within ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, or ASU 2016-13. The guidance is effective for fiscal years beginning after December 15, 2022. The Company has adopted the standard effective

January 1, 2023. The adoption of the standard has not had a material impact on our financial statements or financial statement disclosures.

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging Contracts in Entity s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current U.S. GAAP. Convertible instruments that continue to be subject to separation models are (i) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (ii) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. ASU 2020-06 will be effective for us beginning after December 15, 2023. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We are currently assessing the impact adoption of ASU 2020-06 will have on our financial statements and disclosures.

Other than the items noted above, there have been no new accounting pronouncements not yet effective or adopted in the current year that we believe have a significant impact, or potential significant impact, to our unaudited interim condensed consolidated financial statements.

3. Fair Value Measurements

The following table presents information about our financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values (in thousands):


	March 31, 2023
	Total		Level 1		Level 2		Level 3
Assets
Money market funds(1)	$	86,781	$	86,781	$	—	$	—
Total assets measured at fair value	$	86,781	$	86,781	$	—	$	—

	December 31, 2022
	Total		Level 1		Level 2		Level 3
Assets
Money market funds(1)	$	87,971	$	87,971	$	—	$	—
Total assets measured at fair value	$	87,971	$	87,971	$	—	$	—

(1) Money market funds with maturities of 90 days or less at the date of purchase are included within cash and cash equivalents in the accompanying consolidated balance sheets and are recognized at fair value.

As of March 31, 2023 and December 31, 2022, the Company only held Level 1 financial instruments, respectively.

There were no transfers among Level 1, Level 2 or Level 3 categories in the three months ended March 31, 2023 and year ended December 31, 2022.

4. License and Collaboration Agreements

In February 2018, we entered into a clinical collaboration with MSD International GmbH (MSDIG), to evaluate IO102 in combination with KEYTRUDA® (pembrolizumab) in first-line treatment of patients with metastatic non-small cell lung cancer. Under the terms of the collaboration with MSDIG, we will conduct an international Phase 1/2 study to evaluate a combination therapy of IO102 and KEYTRUDA®. We will sponsor the clinical trials and MSDIG will provide KEYTRUDA® to be used in the clinical trials free of charge. We and MSDIG will be responsible for our own internal costs and expenses to support the study and we shall bear all other costs associated with conducting the study, including costs of providing IO102 for use in the study. The rights to the data from the clinical trials will be shared by us and MSDIG and we will maintain global commercial rights to IO102.

In September 2021, we entered into a clinical collaboration with MSD to evaluate IO102-IO103 in combination with KEYTRUDA® versus KEYTRUDA® alone in treatment of patients with metastatic (advanced) melanoma. Under the terms of the collaboration with MSD, we will conduct an international Phase 3 study to evaluate a combination therapy of IO102-IO103 and KEYTRUDA®. We will sponsor the clinical trials and MSD will provide KEYTRUDA® to be used in the clinical trials free of charge. We and MSD will be responsible for our own internal costs and expenses to support the study and we shall bear all other costs

associated with conducting the study, including costs of providing IO102-IO103 for use in the study. The rights to the data from the clinical trials will be shared by us and MSD and we will maintain global commercial rights to IO102-IO103.

In December 2021, we entered into a clinical collaboration with MSD to evaluate IO102-IO103 in combination with KEYTRUDA® in previously untreated patients with three different tumor types— metastatic non-small cell lung cancer (NSCLC), squamous cell carcinoma of the head and neck (SCCHN), and urothelial bladder cancer (UBC). Under the terms of the collaboration with MSD, we will conduct an international Phase 2 study to evaluate a combination therapy of IO102-IO103 and KEYTRUDA®. We will sponsor the clinical trials and MSD will provide KEYTRUDA® to be used in the clinical trials free of charge. We and MSD will be responsible for our own internal costs and expenses to support the study and we shall bear all other costs associated with conducting the study, including costs of providing IO102-IO103 for use in the study. The rights to the data from the clinical trials will be shared by us and MSD and we will maintain global commercial rights to IO102-IO103.

In November 2022, we entered into a clinical collaboration with MSD to evaluate IO102-IO103 in combination with KEYTRUDA® as a neo-adjuvant/adjuvant therapy for patients with metastatic melanoma and SCCHN. Under the terms of the collaboration with MSD, we will conduct an international Phase 2 study to evaluate a combination therapy of IO102-IO103 and KEYTRUDA®. We will sponsor the clinical trials and MSD will provide KEYTRUDA® to be used in the clinical trials free of charge. We and MSD will be responsible for our own internal costs and expenses to support the study and we shall bear all other costs associated with conducting the study, including costs of providing IO102-IO103 for use in the study. The rights to the data from the clinical trials will be shared by us and MSD and we will maintain global commercial rights to IO102-IO103.

5. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following (in thousands):


	March 31, 2023		December 31, 2022
Prepaid contract research and development costs	$	508	$	1,695
Insurance		1,217		1,716
Research and development tax credit receivable		802		792
Value-added tax refund receivable		206		741
Other		1,006		685
Total prepaid expenses and other current assets	$	3,739	$	5,629

6. Property and Equipment, Net

Property and equipment, net consist of the following (in thousands):


	March 31, 2023			December 31, 2022
Laboratory equipment	$	672		$	544
Computer hardware		95			79
Office furniture		237			233
Less: accumulated depreciation		(162	)		(115	)
Total Property and Equipment, net	$	842		$	741

For the three months ended March 31, 2023 and 2022, the Company recognized $0.05 million and $0.0 million, respectively, of depreciation expense in the statements of operations.

7. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (in thousands):


	March 31, 2023		December 31, 2022
Accrued contract research and development costs	$	1,350	$	1,936
Professional fees		975		407
Employee compensation costs		1,260		1,863
Other liabilities		1,953		1,951
Total accrued expenses and other current liabilities	$	5,538	$	6,157

8. Leases

On January 1, 2022, the Company adopted ASC 842 using the modified retrospective transition approach allowed under ASU 2018-11 which releases companies from presenting comparative periods and related disclosures under ASC 842 and requires a cumulative-effect adjustment to the opening balance of accumulated deficit in the period of adoption. The Company had an immaterial cumulative-effect adjustment to the opening balance of accumulated deficit as of January 1, 2022. As of March 31, 2023, the Company is party to four operating leases for laboratory and office space. The Company’s finance leases are immaterial both individually and in the aggregate. The Company elected to apply the short-term lease exception to all leases of one year or less. Further, the Company has applied the guidance in ASC 842 to our corporate office and laboratory leases and has determined that these should be classified as operating leases. Consequently, as a result of the adoption of ASC 842 on January 1, 2022, we recognized an ROU lease asset of approximately $2.3 million with a corresponding lease liability of approximately $2.4 million based on the present value of the minimum rental payments of such leases. In accordance with ASC 842, the beginning balance of the ROU lease asset was reduced by the existing deferred rent liability at inception of approximately $0.1 million. In the consolidated balance sheet as of March 31, 2023, the Company has a ROU asset balance of $2.6 million and a current and non-current lease liability of $0.6 million and $2.3 million, respectively, relating to the ROU lease asset. The balance of both the ROU lease asset and the lease liabilities primarily consists of future payments under the Company’s office and laboratory space leased in New York, NY, Rockville, MD and Copenhagen, Denmark.

The Company is party to an operating lease in Copenhagen, Denmark for office space that commenced in March 2021 with the initial term set to expire in January 2025. Base rent for this initial lease was approximately $0.1 million annually. The Company amended its operating lease in Copenhagen, Denmark on September 1, 2022 with a new term set to expire in December 2027. The base rent for the amended lease is approximately $0.2 million annually. The Company is also party to an operating lease in Copenhagen, Denmark for laboratory space that commenced in January 2023 with the term set to expire in December 2027. The base rent for the lease is approximately $0.04 million annually. The Company is party to an operating lease in New York, New York for office space that commenced in October 2021 with the initial term set to expire in January 2027. Base rent for this lease is approximately $0.2 million annually. The Company is party to an operating lease in Rockville, Maryland for office and laboratory space that commenced in December 2021 with the initial term set to expire in May 2027. Base rent for this lease is approximately $0.3 million annually. Rent expense for the three months ended March 31, 2023 and 2022 was $0.2 million and $0.2 million, respectively.

Quantitative information regarding the Company’s leases for the three months ended March 31, 2023 and 2022 is as follows (in thousands):


	Three Months Ended			Three Months Ended
Lease Cost	March 31, 2023			March 31, 2022
Operating lease cost	$	206		$	174
Operating cash flows paid for amounts included in the measurement of lease liabilities	$	175		$	97
Operating lease liabilities arising from obtaining right‑of‑use assets	$	165		$	2,411
Remaining lease term (years)		4.25		2.8-5.2
Weighted average discount rate		6.5	%		6.5	%

Future lease payments (undiscounted) under noncancelable leases are as follows at March 31, 2023 (in thousands):


Future Lease Payments	Amount
Remainder of 2023	$	538
2024		752
2025		773
2026		795
2027		399
Thereafter		—
Total	$	3,257

The Company’s leases do not provide an implicit rate, therefore the Company used its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company used the incremental borrowing rate on January 1, 2022 for operating leases that commenced prior to that date, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

9. Commitments and Contingencies

Legal Proceedings

From time to time, we may be party to litigation arising in the ordinary course of business. We were not subject to any material legal proceedings during the three months ended March 31, 2023 and year ended December 31, 2022, and, to our knowledge, no material legal proceedings are currently pending or threatened.

Contractual Obligations and Commitments

We enter into contracts in the ordinary course of business with third-party service providers for clinical trials, preclinical research studies and testing, manufacturing and other services and products for operating purposes. These contracts generally provide for termination upon notice of 30 to 90 days, and therefore, we believe that our non-cancelable obligations under these agreements are not material and we cannot reasonably estimate whether they will occur. However, in the event of a termination of any contracts with CROs or other institutions and with respect to active patients enrolled in our clinical trials, we may be financially obligated for a period beyond the contractual termination notice periods. We may also enter into additional research, manufacturing, supplier, lease and other agreements in the future, which may require up-front payments and even long-term commitments of cash.

Indemnification Agreements

We enter into certain types of contracts that contingently requires us to indemnify various parties against claims from third parties. These contracts primarily relate to procurement, service, consultancy or license agreements under which we may be required to indemnify vendors, service providers or licensees for certain claims, including claims that may be brought against them arising from our acts or omissions with respect to our products, technology, intellectual property or services. The Company, as permitted under Delaware law and in accordance with its amended and restated certificate of incorporation and amended and restated bylaws and pursuant to indemnification agreements with certain of its officers and directors, indemnifies its officers and directors for certain events or occurrences, subject to certain limits, which the officer or director is or was serving at the Company’s request in such capacity. The Company intends to extend the indemnification provided to its officers under its amended and restated certificate of incorporation, subject to stockholder approval, in connection with its 2023 Annual Meeting.

From time to time, we may receive indemnification claims under these contracts in the normal course of business. In the event that one or more of these matters were to result in a claim against us, an adverse outcome, including a judgment or settlement, may cause a material adverse effect on our future business, operating results or financial condition. It is not possible to estimate the maximum amount potentially payable under these contracts since we have no history of prior indemnification claims and the unique facts and circumstances involved in each particular claim will be determinative.

10. Stockholders' Equity

Common and Preferred Stock

Upon the closing of our IPO in November 2021, we filed an amended and restated certificate of incorporation, which authorized us to issue 300,000,000 shares of common stock and 5,000,000 shares of preferred stock. The shares of preferred stock are currently undesignated. Common stockholders are entitled to one vote for each share of common stock held at all meetings of stockholders and written actions in lieu of meetings. Common stockholders are entitled to receive dividends, if and when declared by the Company's board of directors (Board). No dividends have been declared or paid by us through March 31, 2023.

As of March 31, 2023 and December 31, 2022, the Company had 28,815,267 common shares outstanding, respectively.

11. Equity-Based Compensation

Employee Equity Plan

In November 2021, our Board adopted, and our stockholders approved, the 2021 Equity Incentive Plan (2021 Equity Plan), which became effective on November 4, 2021. The 2021 Equity Plan provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, awards of restricted stock, restricted stock units and other stock-based awards. The number of shares of our common stock reserved for issuance under the 2021 Equity Plan is equal to 2,465,150, subject to an annual increase, to be added on the first day of each fiscal year, beginning with the fiscal year ending December 31, 2022 and continuing until, and including, the fiscal year ending December 31, 2031, equal to the lesser of (i) 4% of the number of shares of common stock outstanding on the first day of such fiscal year or (ii) such other amount determined by our Board. As of March 31, 2023, we had 1,394,005 options available for future grant under the 2021 Equity Plan.

The following table summarizes our stock options activity for the three months ended March 31, 2023 and year ended December 31, 2022:


	Number of Options			Weighted- average exercise price per share		Weighted- average remaining contractual term (in years)		Aggregate intrinsic value (in thousands)
Outstanding, January 1, 2023		3,920,172		$	10.77		8.1	$	—
Granted		1,608,450		$	2.08		—	$	—
Cancelled or forfeited		(28,496	)	$	7.50

IO Biotech, Inc. [IOBT] Filings
10-Q	[2023-05-11]
10-K	[2023-03-14]
10-Q	[2022-11-09]
10-Q	[2022-08-11]
10-Q	[2022-05-16]
10-K	[2022-03-31]
10-Q	[2021-12-17]
S-1	[2021-10-15]