10-Q 1 itos-20220331.htm 10-Q 10-Q
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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, 2022

OR

 

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: 001-39401

 

 

iTeos Therapeutics, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

84-3365066

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer
Identification No.)

321 Arsenal St

Watertown, MA

 

02472

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (339) 217 0161

 

 

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, $0.001 par value per share

 

ITOS

 

Nasdaq Global Market

 

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

As of May 6, 2022, the registrant had 35,540,704 shares of common stock, $0.001 par value per share, outstanding.

 


 

Special note regarding forward-looking statements

 

This Quarterly Report on Form 10-Q, including the section entitled “Management’s discussion and analysis of financial condition and results of operations” contains express or implied forward-looking statements. These statements relate to future events or future operational or financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

the timing, progress and success of our clinical trials of EOS-448 and inupadenant 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 filings or approvals for EOS-448 and inupadenant 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 EOS-448 and inupadenant 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 advance our programs on indicated timelines, including our plans to advance inupadenant into
randomized controlled trials in combination;
the costs of development of our product candidates or clinical development programs;
the period of time over which our existing capital resources will be sufficient to fund our operating expenses and capital expenditures, and the degree to which such resources will enable us to fund our planned development of EOS-448 and inupadenant and any other product candidates we may identify and pursue;
the potential attributes and clinical benefits of the use of EOS-448 and inupadenant or any other product candidate, if approved;
our ability to successfully establish or maintain collaborations or strategic relationships for our product candidates;
the expected benefits of collaborations, including potential milestones and royalty payments from GSK
pursuant to the GSK Collaboration Agreement (as defined herein);
the rate and degree of market acceptance of EOS-448 and inupadenant or any other product candidates we may identify and pursue;
our ability to obtain orphan drug or Breakthrough Therapy designation or other accelerated approval for any of our product candidates or any other product candidates that we may identify and pursue;
our ability to manufacture EOS-448 and inupadenant or any other product candidate in conformity with the Food and Drug Administration’s requirements and to scale up manufacturing of our product candidates to commercial scale, if approved;
our ability to compete with companies currently producing or engaged in the clinical development of treatments for the disease indications that we pursue or treatment modalities that we develop;
our reliance on third parties to conduct our clinical trials;
our reliance on third-party contract manufacture organizations (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 EOS-448 and inupadenant or any other product candidates we may identify and pursue;

i


 

our estimates of our expenses, ongoing losses, future revenue, capital requirements and our need for or ability to obtain additional financing;
our expectations regarding the time during which we will be an emerging growth company under the Jumpstart Our Business Startups Act, or JOBS Act;
our future financial performance;
the effect of the COVID-19 pandemic, including mitigation efforts and economic effects, on any of the foregoing or other aspects of our business operations, including but not limited to our preclinical studies and future preclinical and clinical trials;
the impact of laws and regulations applicable to our industry; and
developments and projections relating to our competitors or our industry.

 

In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain such identifying terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties, and other factors, which are, in some cases, beyond our control and which could materially affect our results and financial condition. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under the section titled “Risk factors” and in our Annual Report on Form 10-K for the year ended December 31, 2021, and in any subsequent filings with the Securities and Exchange Commission (“SEC”). If one or more of these risks or uncertainties occur, or if underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed with the SEC and exhibits to this Quarterly Report on Form 10-Q, completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements. Statements regarding our cash runway do not indicate when we may access the capital markets.

 

While we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q.

 

ii


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

2

 

Condensed Consolidated Statements of Stockholders’ Equity

3

 

Condensed Consolidated Statements of Cash Flows

4

 

Notes to Unaudited Condensed Consolidated Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28

Item 4.

Controls and Procedures

28

PART II.

OTHER INFORMATION

30

Item 1.

Legal Proceedings

30

Item 1A.

Risk Factors

30

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

64

Item 3.

Defaults Upon Senior Securities

64

Item 4.

Mine Safety Disclosures

64

Item 5.

Other Information

64

Item 6.

Exhibits

65

Signatures

66

 

 

 

iii


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

iTeos Therapeutics, Inc. and subsidiaries

Condensed consolidated balance sheets

(unaudited)

 

(in thousands, except share amounts)

 

March 31,
2022

 

 

December 31,
2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

823,984

 

 

$

848,537

 

Grants receivable

 

 

4,619

 

 

 

4,022

 

Research and development tax credits receivable

 

 

 

 

 

524

 

Refundable income taxes

 

 

 

 

 

7,544

 

Prepaid expenses and other current assets

 

 

12,057

 

 

 

14,086

 

Total current assets

 

 

840,660

 

 

 

874,713

 

Property and equipment, net

 

 

2,216

 

 

 

2,072

 

Research and development tax credits receivable, net of current portion

 

 

1,599

 

 

 

2,004

 

Restricted cash

 

 

296

 

 

 

298

 

Right of use assets

 

 

5,234

 

 

 

5,329

 

Other assets

 

 

316

 

 

 

296

 

Total assets

 

$

850,321

 

 

$

884,712

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

10,603

 

 

$

5,145

 

Accrued expenses and other current liabilities

 

 

14,052

 

 

 

17,157

 

Income tax payable

 

 

20,107

 

 

 

 

Deferred income

 

 

1,002

 

 

 

827

 

Deferred revenue

 

 

127,703

 

 

 

280,225

 

Lease liabilities

 

 

786

 

 

 

770

 

Total current liabilities

 

 

174,253

 

 

 

304,124

 

Grants repayable

 

 

5,899

 

 

 

6,164

 

Lease liabilities, net of current portion

 

 

4,461

 

 

 

4,571

 

Unrecognized tax benefits

 

 

39,300

 

 

 

17,000

 

Other noncurrent liabilities

 

 

30

 

 

 

33

 

Total liabilities

 

 

223,943

 

 

 

331,892

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.001 par value; 10,000,000 and zero shares
   authorized at March 31, 2022 and December 31, 2021, respectively,
   and
zero shares issued or outstanding

 

 

 

 

 

 

Common stock, $0.001 par value: 150,000,000 shares authorized at
   March 31, 2022 and December 31, 2021 respectively;
35,516,912 
   and
35,466,001 shares issued and outstanding; respectively

 

 

36

 

 

 

35

 

Additional paid-in capital

 

 

417,705

 

 

 

413,180

 

Accumulated other comprehensive loss

 

 

(1,568

)

 

 

(1,018

)

Retained earnings

 

 

210,205

 

 

 

140,623

 

Total stockholders’ equity

 

 

626,378

 

 

 

552,820

 

Total liabilities and stockholders’ equity

 

$

850,321

 

 

$

884,712

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

1


 

iTeos Therapeutics, Inc. and subsidiaries

Condensed consolidated statements of operations and comprehensive income (loss)

(unaudited)

 

 

 

Three Months Ended March 31,

 

(in thousands, except share and per share amounts)

 

2022

 

 

2021

 

Revenue:

 

 

 

 

 

 

License and collaboration revenue

 

$

152,522

 

 

$

 

Total revenue

 

 

152,522

 

 

 

 

Operating expenses:

 

 

 

 

 

 

Research and development expenses

 

 

21,096

 

 

 

11,643

 

General and administrative expenses

 

 

10,615

 

 

 

7,046

 

Total operating expenses

 

 

31,711

 

 

 

18,689

 

Income (loss) from operations

 

 

120,811

 

 

 

(18,689

)

Other income and expenses:

 

 

 

 

 

 

Grant income

 

 

491

 

 

 

4,915

 

Research and development tax credits

 

 

254

 

 

 

 

Other (expense) income, net

 

 

(2,023

)

 

 

240

 

Income (loss) before income taxes

 

 

119,533

 

 

 

(13,534

)

Income tax expense

 

 

(49,951

)

 

 

 

Net income (loss)

 

$

69,582

 

 

$

(13,534

)

Basic net income (loss) per common share

 

$

1.96

 

 

$

(0.39

)

Diluted net income (loss) per common share

 

$

1.82

 

 

$

(0.39

)

Weighted-average common shares outstanding - basic

 

 

35,493,272

 

 

 

35,086,662

 

Weighted-average common shares outstanding - diluted

 

 

38,135,957

 

 

 

35,086,662

 

 

 

 

 

 

 

 

Net income (loss)

 

$

69,582

 

 

$

(13,534

)

Foreign currency translation adjustments

 

 

(550

)

 

 

(305

)

Comprehensive income (loss)

 

$

69,032

 

 

$

(13,839

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

2


 

iTeos Therapeutics, Inc. and subsidiaries

Condensed consolidated statements of stockholders’ equity

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

other

 

 

 

 

 

Total

 

In thousands except share amounts

 

Common stock

 

 

paid-in

 

 

comprehensive

 

 

Accumulated

 

 

stockholders’

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

income

 

 

deficit

 

 

equity

 

Balance at December 31, 2020

 

 

35,044,758

 

 

$

35

 

 

$

396,443

 

 

$

617

 

 

$

(73,898

)

 

$

323,197

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,584

 

 

 

 

 

 

 

 

 

2,584

 

Common stock issued upon exercises of options

 

 

56,241

 

 

 

 

 

 

667

 

 

 

 

 

 

 

 

 

667

 

Currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

(305

)

 

 

 

 

 

(305

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,534

)

 

 

(13,534

)

Balance at March 31, 2021

 

 

35,100,999

 

 

$

35

 

 

$

399,694

 

 

$

312

 

 

$

(87,432

)

 

$

312,609

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

other

 

 

 

 

 

Total

 

In thousands except share amounts

 

Common stock

 

 

paid-in

 

 

comprehensive

 

 

Retained

 

 

stockholders’

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

loss

 

 

earnings

 

 

equity

 

Balance at December 31, 2021

 

 

35,466,001

 

 

$

35

 

 

$

413,180

 

 

$

(1,018

)

 

$

140,623

 

 

$

552,820

 

Stock-based compensation

 

 

 

 

 

 

 

 

4,193

 

 

 

 

 

 

 

 

 

4,193

 

Common stock issued upon exercises of options

 

 

50,911

 

 

 

1

 

 

 

332

 

 

 

 

 

 

 

 

 

333

 

Currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

(550

)

 

 

 

 

 

(550

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

69,582

 

 

 

69,582

 

Balance at March 31, 2022

 

 

35,516,912

 

 

$

36

 

 

$

417,705

 

 

$

(1,568

)

 

$

210,205

 

 

$

626,378

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


 

iTeos Therapeutics, Inc. and subsidiaries

Condensed consolidated statements of cash flows

(unaudited)

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2022

 

 

2021

 

Cash flows from operating activities

 

 

 

 

 

 

Net income (loss)

 

$

69,582

 

 

$

(13,534

)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

180

 

 

 

126

 

Stock-based compensation

 

 

4,193

 

 

 

2,584

 

Change in operating lease right-of-use assets

 

 

2

 

 

 

6

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Grants receivable

 

 

(684

)

 

 

(1,149

)

Research and development tax credits receivable

 

 

889

 

 

 

191

 

Refundable income taxes

 

 

7,544

 

 

 

 

Prepaid expenses and other current assets

 

 

1,810

 

 

 

493

 

Accounts payable

 

 

5,465

 

 

 

2,348

 

Accrued expenses and other liabilities

 

 

(3,062

)

 

 

(2,115

)

Income tax payable

 

 

20,107

 

 

 

 

Deferred income

 

 

194

 

 

 

(3,740

)

Deferred revenue

 

 

(152,522

)

 

 

 

Uncertain tax benefit

 

 

22,300

 

 

 

 

Net cash used in operating activities

 

 

(24,002

)

 

 

(14,790

)

Cash flows from investing activities

 

 

 

 

 

 

Purchase of property and equipment

 

 

(227

)

 

 

(88

)

Purchase of other assets

 

 

(96

)

 

 

(3

)

Net cash used in investing activities

 

 

(323

)

 

 

(91

)

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from issuance of common stock upon exercise of options

 

 

333

 

 

 

667

 

Net cash provided by financing activities

 

 

333

 

 

 

667

 

Effects of exchange rate changes on cash, cash equivalents and restricted cash

 

 

(563

)

 

 

(717

)

Net decrease in cash, cash equivalents and restricted cash

 

 

(24,555

)

 

 

(14,931

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

848,835

 

 

 

336,454

 

Cash, cash equivalents and restricted cash at end of period

 

$

824,280

 

 

$

321,523

 

Non-cash investing and financing activities

 

 

 

 

 

 

Capital expenditure included in accounts payable

 

$

184

 

 

$

 

Operating lease liabilities arising from obtaining right-of-use assets

 

$

199

 

 

$

3,206

 

Supplemental disclosure of cash flows

 

 

 

 

 

 

Cash paid for taxes

 

$

 

 

$

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


 

iTeos Therapeutics, Inc.

Notes to condensed consolidated financial statements

(unaudited)

Note 1. Nature of business and basis of presentation

Description of business

iTeos Therapeutics, Inc. (iTeos Inc. or the Company), a Delaware corporation headquartered in Watertown, Massachusetts (incorporated on October 4, 2019), is the successor to iTeos Belgium SA (iTeos Belgium) a company organized under the laws of Belgium in 2011 and headquartered in Charleroi, Belgium. The Company is a clinical stage biopharmaceutical company pioneering the discovery and development of a new generation of highly differentiated immuno-oncology therapeutics for people living with cancer. The Company leverages its deep understanding of the tumor immunology and immunosuppressive pathways to design novel product candidates with the aim of restoring the immune response against cancer. The Company’s innovative pipeline includes two clinical-stage programs targeting novel, de-risked immuno-oncology pathways. Each of the Company's therapies in development has optimized pharmacologic properties designed to improve clinical outcomes.

The Company’s lead antibody product candidate, EOS-448, also known as GSK4428859A, is an antagonist of TIGIT, or T-cell immunoreceptor with lg and ITIM domains, an immune checkpoint with multiple mechanisms of action.

On June 11, 2021, the Company's wholly owned subsidiary, iTeos Belgium S.A., and GlaxoSmithKline Intellectual Property (No. 4) Limited, or GSK, executed a Collaboration and License Agreement, or the GSK Collaboration Agreement, which became effective on July 26, 2021. Pursuant to the GSK Collaboration Agreement, the Company agreed to grant GSK a license under certain of its intellectual property rights to develop, manufacture, and commercialize products comprised of or containing EOS-448, which license is exclusive in all countries outside of the United States and co-exclusive, with iTeos, in the United States. GSK and iTeos intend to develop EOS-448 in combination, including with other oncology assets of GSK, and iTeos and GSK will jointly own the intellectual property created under the GSK Collaboration Agreement that covers such combinations.

The Company is also advancing inupadenant, a next-generation adenosine A2A receptor antagonist tailored to overcome the specific adenosine-mediated immunosuppression found in tumor microenvironment, into proof-of concept trials in several indications following encouraging single-agent activity in Phase 1.

The Company continues to progress research programs focused on additional targets that complement its TIGIT and A2AR programs or address additional immunosuppressive pathways. In September 2021, the Company nominated a product candidate in the adenosine pathway for Investigational New Drug, or IND, enabling studies.

Liquidity and capital resources

Since inception, the Company’s activities have consisted primarily of performing research and development to advance its product candidates. For the first time since inception, the Company has earned income during 2021, which equaled net income of $214.5 million for the year ended December 31, 2021. The Company also had net income of $69.6 million for the three months ended March 31, 2022. As of March 31, 2022, the Company had retained earnings of $210.2 million. As of May 12, 2022, the issuance date of the condensed consolidated financial statements for the period ended March 31, 2022, the Company expects that its cash and cash equivalents would be sufficient to fund its operating expenses, capital expenditure requirements and debt service payments through at least 12 months.

The Company may seek additional funding in order to reach its development and commercialization objectives. The Company may not be able to obtain funding on acceptable terms, or at all, and the Company may not be able to enter into collaborations or other arrangements. The terms of any funding may adversely affect the holdings or the rights of the Company’s stockholders. If the Company is unable to obtain funding, the Company could be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect its business prospects.

The Company’s future results of operations involve a number of risks and uncertainties. Factors that could affect the Company’s future operating results and cause actual results to vary materially from expectations include, but are not limited to, uncertainty regarding results of clinical trials and reaching milestones, uncertainty of regulatory approval of the Company’s current or future product candidates, uncertainty of market acceptance of the Company’s product candidates, if approved, competition from substitute products and larger companies, securing and protecting proprietary technology, strategic relationships and dependence on key individuals and sole source suppliers. Product candidates currently under development 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 capital,

5


 

adequate personnel and infrastructure and extensive compliance-reporting capabilities and may not ultimately lead to a marketing approval and commercialization of a product.

The Company’s product candidates require approvals from the U.S. Food and Drug Administration ("FDA") and comparable foreign regulatory agencies prior to commercial sales in their respective jurisdictions. There can be no assurance that any product candidates will receive the necessary approvals. If the Company was denied approval, approval was delayed or the Company was unable to maintain approval for any product candidate, it could have a materially adverse impact on the Company. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales. The Company will need to generate significant revenue to achieve sustained profitability, and it may never do so.

COVID-19

With the ongoing concern related to the COVID-19 pandemic during 2021 and in the first three months of 2022, the Company has maintained its business continuity plans to address and mitigate the impact of the COVID-19 pandemic on its business. In March 2020, to protect the health of our employees and their families and communities, we restricted access to our offices to personnel who performed critical activities that must be completed on-site, limited the number of such personnel that could be present at our facilities at any one time, and requested that most of our employees work remotely. In May 2020, as certain states eased restrictions, we established new protocols to better allow our full laboratory staff access to our facilities. These protocols included several shifts working over a seven-day-week protocol. With increased availability of vaccines and public health guidelines evolving to reflect their availability, we have shifted to a hybrid model for all our employees. We will continue to monitor and make adjustments in response to the public health environment, together with local, state and federal guidance regarding workplace protective measures. The Company expects to continue incurring additional costs to ensure it adheres to the best-practice safe hygiene guidelines issued by recognized health experts such as the U.S. Centers for Disease Control and Prevention ("CDC"), the European Center for Disease Prevention and Control ("ECDC") and the World Health Organization ("WHO"), and to provide a safe working environment to its onsite employees.

The extent to which the ongoing COVID-19 pandemic impacts the Company’s business, its corporate development objectives, results of operations and financial condition, and the value of and market for its common stock, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, the severity of COVID-19, the identification of additional variants of COVID-19, the availability and utilization of vaccines and treatments for COVID-19, or the effectiveness of actions taken globally to contain and address COVID-19, such as travel restrictions, quarantines, social distancing and business closure requirements, but particularly in the geographies where the Company, its third party manufacturers, contract research organizations ("CROs") or current and planned clinical trial sites operate. Disruptions to the global economy, disruption of global healthcare systems, and other significant impacts of the COVID-19 pandemic could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.

Basis of presentation

The accompanying condensed consolidated financial statements and accompanying notes have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP").

The unaudited interim condensed consolidated financial statements of the Company included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from this report, as is permitted by such rules and regulations. Accordingly, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements as of and for the years ended December 31, 2021 and 2020, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K (File No. 001-39401). The results for any interim period are not necessarily indicative of results for any future period.

In the opinion of management, the information furnished reflects all adjustments, all of which are of a normal and recurring nature, necessary for a fair presentation of the results 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.

 

6


 

Note 2. Summary of significant accounting policies

The Company’s significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2021, and notes thereto, which are included in the Company’s Annual Report on Form 10-K that was filed with the Securities and Exchange Commission on March 23, 2022. Since the date of those financial statements, there have been no material changes to significant accounting policies.

Note 3. Fair value measurements

The following tables set forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy as of March 31, 2022 and December 31, 2021:

 

 

 

March 31, 2022

 

(in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents (money market funds)

 

$

792,477

 

 

$

 

 

$

 

 

$

792,477

 

Totals

 

$

792,477

 

 

$

 

 

$

 

 

$

792,477

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2021

 

(in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents (money market funds)

 

$

797,448

 

 

$

 

 

$

 

 

$

797,448

 

Totals

 

$

797,448

 

 

$

 

 

$

 

 

$

797,448

 

 

Cash equivalents consist of money market funds, which are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in an active market.

 

The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers within the hierarchy during the three month periods ended March 31, 2022 and 2021.

 

There were no Level 3 measurements used during the three months ended March 31, 2022 and 2021.

 

Note 4. Supplemental balance sheet information

Property and equipment

Property and equipment, net consisted of the following:

 

(in thousands)

 

March 31,
2022

 

 

December 31,
2021

 

Scientific equipment

 

$

2,960

 

 

$

2,970

 

Furniture & office equipment

 

 

1,163

 

 

 

1,002

 

Leasehold improvements

 

 

1,165

 

 

 

1,071

 

Total

 

 

5,288

 

 

 

5,043

 

Accumulated depreciation and amortization

 

 

(3,072

)

 

 

(2,971

)

Property & equipment, net

 

$

2,216

 

 

$

2,072

 

 

Depreciation and amortization expense was $0.2 and $0.1 million for the three months ended March 31, 2022 and 2021, respectively.

7


 

Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consisted of the following:

 

(in thousands)

 

March 31,
2022

 

 

December 31,
2021

 

Accrued clinical trial costs

 

$

11,041

 

 

$

12,991

 

Accrued personnel costs

 

 

2,692

 

 

 

3,884

 

Accrued professional fees

 

 

57

 

 

 

25

 

Accrued other

 

 

262

 

 

 

257

 

Total accrued expenses and other current liabilities

 

$

14,052

 

 

$

17,157

 

 

Note 5. License and collaboration agreements

Adimab

In January 2017, the Company entered into a collaboration agreement (as amended, the "Adimab Agreement") with Adimab, LLC ("Adimab"). Adimab has developed an antibody discovery and optimization technology platform. This collaboration enables the Company’s research and development efforts on discovery and optimization of new antibodies against immuno-oncology targets the Company may identify.

Under the terms of the Adimab Agreement, Adimab has granted the Company a worldwide, non-exclusive research license for a one-year research term period and evaluation period for up to 18 months per research program. The Company is required to use commercially reasonable efforts to perform its research activities under the Adimab Agreement and, if the Company exercises its right to obtain a development and commercialization license, the Company is required to use commercially reasonable efforts to pursue development and commercialization of a product directed to the applicable target. Under the terms of the Adimab Agreement, the Company granted Adimab a worldwide, non-exclusive license under all of its patents and know-how that are reasonably necessary or useful for Adimab to perform its research activities under the Adimab Agreement.

In February 2021, the Company entered into an amendment to the Adimab Agreement (the "Amended Adimab Agreement"). The Amended Adimab Agreement specifies different milestone payments for new products that are derived from research programs beginning after February 22, 2021 (the "New Products"). For New Products, on a per target basis, the Company may be required to pay development, regulatory and commercial milestone payments totaling up to an aggregate of $45.8 million for the first three products and additional milestone payments up to $14.5 million for each additional product.

The Company will pay Adimab low to mid single-digit percentage royalties on a country-by-country and product-by-product basis, on worldwide net product sales of licensed products. Royalties are payable on a licensed product-by-licensed product and country-by-country basis until the later of (i) expiration of the last valid claim of a licensed patent right that covers such licensed product in such country, and (ii) ten years following the first commercial sale of such licensed product in such country.

Through March 31, 2022, the Company has paid a total of $3.4 million to Adimab under the Adimab Agreement. In 2020, the Company made a payment of $1.0 million due to reaching an additional milestone (dosing of first patient for Phase 1 clinical trial). As of the date of these condensed consolidated financial statements, the Company has not pursued any additional targets under the Adimab agreement that could potentially result in such milestone payments.

Adimab controls the filing, prosecution, maintenance and enforcement of the intellectual property that it licenses to the Company under the Adimab Agreement. The Company has the right to enforce such licensed intellectual property against infringement if the infringement is competitive with the Company’s licensed products and Adimab does not pursue enforcement. The Company controls the filing, prosecution, maintenance and enforcement of the intellectual property the Company licenses to Adimab under the Adimab Agreement and all program antibody patents.

The term of the Adimab Agreement will continue until the last to expire royalty term on a product-by-product and country-by-country basis if the Company exercises its option, or in the event no option is exercised, the conclusion of the last-to-expire evaluation term, unless terminated earlier by either party. Each party has the right to terminate the Adimab Agreement due to the other party’s uncured material breach or the Company’s abandonment of the product.

GlaxoSmithKline (GSK)

Summary of Agreement

8


 

On June 11, 2021, the Company’s wholly owned subsidiary, iTeos Belgium S.A., and GSK executed a Collaboration and License Agreement (the "GSK Collaboration Agreement"), pursuant to which the Company agreed to grant GSK a license under certain of the Company’s intellectual property rights to develop, manufacture, and commercialize products comprised of or containing the Company’s antibody product, EOS-448. Under the GSK Collaboration Agreement, GSK agreed to make an upfront nonrefundable payment of $625.0 million to the Company within 10 business days of the date on which the GSK Collaboration Agreement became effective, which occurred on July 26, 2021. Additionally, the Company is eligible to receive up to $1.45 billion in milestone payments, contingent upon the EOS-448 program achieving certain development and commercial milestones. Within the collaboration, GSK and the Company agree to share responsibility and costs for the global development of EOS-448 beyond the Phase 1 study (the "Global Development Plan") and will jointly commercialize and equally split profits in the United States. Outside of the United States, GSK will receive an exclusive license for commercialization, and the Company is eligible to receive tiered double digit royalty payments up to 20% during a customary royalty term.

Collaboration

The Company concluded that the GSK Collaboration Agreement is under the scope of ASC 808 as both parties will actively participate in a joint operating activity and are exposed to significant risks and rewards that depend on the activity’s commercial success. ASC 808 provides that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606 when the collaborative arrangement participant is a customer in the context of a unit of account. In those situations, all of the guidance in ASC 606 should be applied, including recognition, measurement, presentation, and disclosure requirements related to such unit of account. The unit-of-account guidance in ASC 808, which aligns with the guidance in ASC 606 (that is, a distinct good or service) is used when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of ASC 606.

The Company determined that the co-development in Phases 2 and 3 and the co-commercialization efforts of the GSK Collaboration Agreement represent joint operating activities in which both parties are active participants and of which both parties are exposed to significant risks and rewards that are dependent on the success of the activities. Accordingly, the Company is accounting for these activities in accordance with ASC No. 808, Collaborative Arrangements (ASC 808). Additionally, the Company has determined that in the context of these activities, GSK does not represent a customer as contemplated by ASC 606-10-15, Revenue from Contracts with Customers – Scope and Scope Exceptions. As a result, these activities will be accounted for as a component of the related expense in the period incurred.

GSK is responsible for 60% of the costs related to the Global Development Plan. During the three months ended March 31, 2022, the Company expensed approximately $5.2 million of costs related to the cost-sharing provisions of the GSK Collaboration Agreement, of which approximately $0.1 million are reimbursable by GSK and recorded as a reduction to research and development expense during the three months ended March 31, 2022. As of March 31, 2022 and December 31, 2021, $0.1 million and $3.0 million of the reimbursable expenses have not been collected and are included in the prepaid and other current assets in the condensed consolidated balance sheet. The Company and GSK have collectively agreed to spend an aggregate of $900.0 million on the Global Development Plan.

Revenue Recognition

The Company also evaluated the elements of the GSK Collaboration Agreement in accordance with the provisions of ASC 606 and concluded that the contract counterparty, GSK, is a customer. The Company’s arrangement with GSK contains the following material promises under the contract at inception: (i) transfer of the license under certain of the Company’s intellectual property related to EOS-448, (ii) completion of the Phase 1 clinical study related to EOS-448, (iii) transfer of “Know How” under the EOS-448 intellectual property, and (iv) manufacturing until the “Know How” transfer is complete. The Company evaluated the above material promises under ASC 606 and determined that it has one combined performance obligation.

The transaction price totaling $625.0 million was comprised of the upfront license payment. As of March 31, 2022, no development or regulatory milestones have been assessed as probable of being reached and thus have been fully constrained. As part of its evaluation of the constraint, the Company considered numerous factors, including that receipt of the milestones is outside the control of the Company and contingent upon success in future clinical trials and the licensee’s efforts. Any consideration related to sales-based milestones will be recognized when the related sales occur as they were determined to relate predominantly to the license granted to GSK and therefore have also been excluded from the transaction price. The Company is applying the royalty exception for sales-based royalties and will not recognize revenue until the subsequent sale of product occurs.

The transaction price is being recognized as revenue over time as the costs to complete the Phase 1 study, perform interim clinical supply manufacturing, and perform the know-how transfer are incurred. This is expected to be completed by end of 2022. Revenue is recognized using a percent complete method based on costs incurred compared with the total expected costs to be incurred (cost to cost measure of progress). There are no outputs from the performance obligation.

9


 

As a result, an input method was appropriate. A cost to cost measure of progress provides a faithful depiction of the transfer of services to the customer since the predominant inputs to the performance obligation are labor costs, research and development supplies and manufacturing supplies related to the Phase 1 Study, clinical manufacturing and know-how transfer.

During the three months ended March 31, 2022, the Company recognized revenue totaling approximately $152.5 million with respect to the GSK Collaboration Agreement. The revenue is classified as license and collaboration revenue in the accompanying condensed consolidated statements of operations. As of March 31, 2022 and December 31, 2021, there was approximately $127.7 million and $280.2 million of deferred revenue related to the GSK Collaboration Agreement of which all was classified as current deferred revenue in the accompanying condensed consolidated balance sheet based on the performance period of the underlying obligations.

Contract Costs

The Company incurred approximately $6.8 million of capitalizable costs to obtain the contact. The Company utilized the practical expedient in ASC 340 and recognized such costs immediately in 2021 as the Company expected to complete its performance obligations under the GSK Collaboration Agreement in less than 12 months.

Contract Assets and Liabilities

The following table presents changes in the Company’s GSK contract assets and liabilities during the three months ended March 31, 2022:

 

Three Months Ended March 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Balance at
Beginning of
Period

 

 

Additions

 

 

Deductions

 

 

Balance at End
of Period

 

Contract Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

  Deferred Revenue

 

$

280,225

 

 

$

 

 

$

(152,522

)

 

$

127,703

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MSD International GmbH

On December 10, 2019, the Company entered into a Clinical Trial Collaboration and Supply Agreement (the "MSD Agreement") with MSD International GmbH ("MSD"), a subsidiary of Merck & Co., Inc. Under the MSD Agreement, the Company will sponsor a clinical trial in which both the Company’s compound and MSD’s compound will be dosed in combination. The Company will conduct the research at its own cost and MSD will contribute its compound towards the study at no cost to the Company. The parties will equally own the clinical data and inventions from the study, with the exception of inventions relating solely to each party’s compound class. The MSD Agreement will expire upon the delivery of a written report on the results of the study, unless earlier terminated or agreed by the parties.

The Company began receiving compounds from MSD on April 1, 2020 and the Company began the research study in the third quarter of 2020. The terms of the MSD Agreement meet the criteria under ASC 808, as both parties are active participants in the activity and are exposed to the risks and rewards dependent on the commercial success of the activity. ASC 808 does not provide guidance on how to account for the activities under the collaboration, and the Company determined that neither party met the definition of a customer under ASC 606, Revenue from Contracts with Customers. Accordingly, the Company considered other guidance to determine the accounting for the respective elements of the arrangement. The Company accounted for the collaboration activities by analogy to ASC Topic 845, Nonmonetary Transactions, and recognized nonmonetary income with an offsetting entry to expense for amounts received from MSD within research and development expense in the condensed consolidated statement of operations and comprehensive income (loss).

Note 6. Government grant funding and potential repayment commitments under recoverable cash advance grants (RCAs)

The Company has been awarded grants from the Walloon Region, a federal region of Belgium (the "Walloon Region") and the European Union (the "Granting Agencies") to fund research and development activities. The grants reimburse a percentage (55-100%) of actual qualifying expenditures. The Company periodically submits proof of qualifying expenditures to the Granting Agencies for approval and reimbursement. To date, the Company has received funding under several grants which included no obligation to repay and two grants that include potential obligations to repay ("RCAs").

10


 

As the Granting Agencies do not meet the definition of a customer under Topic 606, qualifying grants receipts are recognized as grant income within other income in the condensed consolidated statement of operations and comprehensive income (loss).

Grants which do not include an obligation to repay

The total amount that the Granting Agencies have agreed to fund in the future if the Company incurs qualifying research and development expenses under these grants is $1.5 million.

Grants which include a potential obligation to repay—RCAs

On July 20, 2017, the Company entered into a recoverable cash advance arrangement whereby the Walloon Region will provide the Company with up to $21.0 million for a research and development program to perform clinical validation of an A2A receptor antagonist drug candidate for immune-oncology (RCA-1).

On December 3, 2019, the Company entered into another recoverable cash advance arrangement with the Walloon Region (RCA-2) for up to $4.8 million to be received to fund a research and development program conducted to develop a TIGIT blocking antibody with anti-tumor properties.

Under the terms of both agreements, the Company must decide within 6 months after the end of the research period whether it will further pursue commercial development or out licensing of the drug candidate. The research period for RCA-1 ended in December 2021. The Company negotiated an extension on the research period for RCA-2 with the Walloon Region. The original research period for RCA-2 ended February 2021, and was extended to March 2022. The Company must repay 30% of the amount received under the grant by annual installments from 2023 to 2042 (the fixed annual repayments) unless the Company decides not to pursue commercial development or out licensing of the drug candidate, applies for a waiver from the Walloon Region justifying its decision based upon the failure of the program, and returns the intellectual property to the Walloon Region. Because of the requirement to repay 30% of the amounts received under the grant, the Company records the present value of such amounts as grants repayable on the condensed consolidated balance sheets.

In addition, in the event that the Company receives revenue from products or services related to the results of the research, it has to pay to the Walloon Region a 0.33% royalty on revenue resulting from RCA-1 and a 0.15% royalty on revenue resulting from RCA-2 (increased from 0.12% effective December 2021). The maximum amount payable to the Walloon Region under each grant, including the fixed annual repayments, the royalty on revenue, and the interest thereon, is twice the amount of funding received.

The Company assessed whether there is an obligation to make a royalty payment based on the probability of successful completion of the research and development and future sales and commercial success of the drug candidate. For the RCA-1, no grant repayable related to royalties was recorded as of March 31, 2022 or December 30, 2021. For the RCA-2, the Company recorded a royalty accrual of $0.9 million as of March 31, 2022 and December 31, 2021, due to the upfront payment from the GSK Collaboration Agreement. The royalty accrual is included in the accrued expenses and other current liabilities in the condensed consolidated balance sheet.

The Company recorded grant income in the condensed consolidated statement of operations and comprehensive income (loss) for the three months ended March 31, 2022 and 2021 for amounts of grants received from the Walloon Region in the period during which the related qualifying expenses were incurred, net of any grants repayable recorded in the condensed consolidated balance sheets.

The Company recorded receivables on the condensed consolidated balance sheets related to amounts the Walloon Region owes the Company based on qualifying expenses incurred by the Company. The Company recorded deferred income in the condensed consolidated balance sheets for amounts received from the Walloon Region in advance of incurring qualifying expenses.

11


 

The following table reflects activity for grant programs for the three months ended March 31, 2022 and 2021 and end of period balances as of March 31, 2022 and December 31, 2021:

 

 

 

RCA -1

 

 

RCA-2

 

 

Other Grants

 

 

Total

 

(In thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

2022

 

 

2021