10-Q 1 itos-20240331.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, 2024

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 0162

 

 

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 3, 2024, the registrant had 36,122,922 shares of common stock, $0.001 par value per share, outstanding.

 


 

Summary of the material risks associated with our business

Our business is subject to numerous risks and uncertainties that you should be aware of before making an investment decision, including those highlighted in the section entitled “Risk Factors”. These risks include, but are not limited to, the following:

We must complete successful preclinical studies and clinical trials to demonstrate the safety, quality and efficacy of the product candidates before we can begin the commercialization process.
Challenges enrolling patients in our clinical trials may delay or prevent clinical trials of our product candidates. Patient enrollment requires initiation of clinical trial sites; accordingly, delays in initiation of sites exacerbate enrollment challenges.
We anticipate that our future product candidates will be used in combination with third-party drugs or biologics, some of which are still in development, and we have limited or no control over the supply, regulatory status, or regulatory approval of such drugs or biologics.
Interim “top-line” and preliminary results from our clinical trials that we announce or publish from time to time may change as more patient data become available, and audit and verification procedures are required to validate the quality, reliability and integrity of our data and could result in material changes in the final data.
We may not be able to file investigational new drug (IND) applications or IND amendments to commence additional clinical trials on the timelines indicated, and, even if we are able to file, the Federal Drug Administration, or FDA, or a comparable foreign regulatory authority may not permit us to proceed.
We face significant competition from other biopharmaceutical and biotechnology companies, academic institutions, government agencies, and other research organizations, which may result in others discovering, developing, or commercializing products more quickly or marketing them more successfully than us. If their product candidates are shown to be safer or more effective than ours, our commercial opportunity may be reduced or eliminated.
Negative developments in the field of immuno-oncology or in the field of TIGIT (as defined herein) or adenosine pathway therapeutics could damage public perception of our product candidates or negatively affect our business.
If we are unable to successfully commercialize any product candidate for which we receive regulatory approval, or experience significant delays in doing so, our business will be materially harmed.
The regulatory approval processes of the FDA and comparable foreign regulatory authorities are lengthy, time consuming and inherently unpredictable. If we experience delays in obtaining, required regulatory approvals, our ability to generate revenue may be materially impaired.
We rely on third parties to conduct our clinical trials and perform some of our research and preclinical studies. Failure by these third parties to satisfactorily carry out their contractual duties in compliance with the applicable regulatory requirements or to meet expected deadlines may adversely impact our development programs, business and prospects.
We may not realize the benefits of our collaborations, alliances or licensing arrangements, including our collaboration with GSK (as defined herein) for the global development of belrestotug (also known as EOS-448).
We rely on third parties to manufacture our product candidates, and we expect to continue to rely on third parties for the clinical as well as any future commercial supply of our product candidates and other future product candidates. The development of our current and future product candidates, and the commercialization of any approved products, could be stopped, delayed or made less profitable if any such third party fails to provide us with sufficient clinical or commercial quantities of such product candidates or products, fails to do so at acceptable quality levels or prices or fails to achieve or maintain satisfactory regulatory compliance.
Our limited operating history may make it difficult for you to evaluate our business and assess our future viability.
We will require additional financing to achieve our goals, and failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development or commercialization efforts.

i


 

If we are unable to obtain and maintain sufficient intellectual property protection for our current product candidates or any future product candidates, or if the scope of the intellectual property protection is not sufficiently broad, our competitors could develop and commercialize products similar or identical to ours, and our ability to commercialize successfully our products may be adversely affected.
We are highly dependent on our key personnel, and if we are not successful in attracting and retaining highly qualified personnel, we may not be able to implement successfully our business strategy.
Information system failures or unauthorized or inappropriate use of or access to our information systems risk disclosure of confidential or proprietary information, including personal data, and could damage our reputation, and subject us to significant financial and legal exposure.
 

The above summary risk factors should be read together with the full risk factors under in the heading “Risk factors” and the other information in this Quarterly Report on Form 10-Q, including our condensed consolidated financial statements and the related notes, as well as in other documents that we file with the Securities and Exchange Commission ("SEC"). The risks summarized above or described below are not the only risks that we face. Additional risks and uncertainties not precisely known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition, results of operations and future growth prospects.

 

 

Special note regarding forward-looking statements

 

This Quarterly Report on Form 10-Q, including the section entitled “"Risk factors" and "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, 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 our product candidates;
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 our product candidates;
the outcomes of our preclinical studies;
our ability to enroll patients in our clinical trials at the pace that we project;
the costs of development of our product candidates or clinical development programs;
our expectations regarding the anticipated development of our pipeline of candidates;
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 our product candidates;
the potential attributes and clinical benefits of our product candidates;
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 our product candidates;
our ability to obtain orphan drug or Breakthrough Therapy designation or other accelerated approval for any of our product candidates;

ii


 

our ability to manufacture our product candidates in conformity with the FDA 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 our product candidates;
our estimates of our expenses, ongoing losses, future revenue, cash runway, 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 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 negatives 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 from current expectations include, among other things, those listed under the section titled “Risk factors” in this Quarterly Report on Form 10-Q and in any subsequent filings with the SEC. If one 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 as 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 undertake no obligation to do 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.

 

iii


 

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 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

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29

Item 4.

Controls and Procedures

29

PART II.

OTHER INFORMATION

31

Item 1.

Legal Proceedings

31

Item 1A.

Risk Factors

31

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

 

 

 

iv


 

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,
2024

 

 

December 31,
2023

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

146,648

 

 

$

251,177

 

Short-term investments (amortized cost of $302,914)

 

 

302,496

 

 

 

280,739

 

Grants receivable

 

 

130

 

 

 

Research and development tax credits receivable

 

 

732

 

 

 

135

 

Refundable income taxes

 

 

5,058

 

 

 

6,365

 

     Prepaid expenses and other currents assets

 

 

25,322

 

 

 

12,236

 

Total current assets

 

 

480,386

 

 

 

550,652

 

Property and equipment, net

 

 

5,264

 

 

 

4,696

 

Long-term investments (amortized cost of $132,987)

 

 

132,587

 

 

 

100,539

 

Research and development tax credits receivable, net of current portion

 

 

4,615

 

 

 

4,508

 

Restricted cash

 

 

271

 

 

 

274

 

Right of use assets

 

 

5,804

 

 

 

6,036

 

Other assets

 

 

842

 

 

 

883

 

Total assets

 

$

629,769

 

 

$

667,588

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

5,530

 

 

$

11,293

 

Accrued expenses and other current liabilities

 

 

16,659

 

 

 

7,058

 

Accrued personnel expenses

 

 

4,864

 

 

 

8,562

 

Payable for investments

 

 

6,065

 

 

 

9,787

 

Deferred income

 

 

1,178

 

 

 

2,063

 

Lease liabilities

 

 

1,262

 

 

 

1,251

 

Total current liabilities

 

 

35,558

 

 

 

40,014

 

Grants repayable, net of current portion

 

 

6,469

 

 

 

6,609

 

Lease liabilities, net of current portion

 

 

4,562

 

 

 

4,807

 

Unrecognized tax benefits

 

 

41,980

 

 

 

40,930

 

Total liabilities

 

 

88,569

 

 

 

92,360

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.001 par value: 150,000,000 shares authorized at
   March 31, 2024 and December 31, 2023;
35,843,756
   and
35,838,080 shares issued and outstanding, respectively

 

 

36

 

 

 

36

 

Additional paid-in capital

 

 

471,084

 

 

 

463,799

 

Accumulated other comprehensive loss

 

 

(16,337

)

 

 

(13,240

)

Retained earnings

 

 

86,417

 

 

 

124,633

 

Total stockholders’ equity

 

 

541,200

 

 

 

575,228

 

Total liabilities and stockholders’ equity

 

$

629,769

 

 

$

667,588

 

 

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 loss

(unaudited)

 

 

 

Three Months Ended March 31,

 

(in thousands, except share and per share amounts)

 

2024

 

 

2023

 

Revenue:

 

 

 

 

 

 

License and collaboration revenue

 

$

 

 

$

12,595

 

Total revenue

 

 

 

 

 

12,595

 

Operating expenses:

 

 

 

 

 

 

Research and development expenses

 

 

34,529

 

 

 

25,598

 

General and administrative expenses

 

 

12,703

 

 

 

11,927

 

Total operating expenses

 

 

47,232

 

 

 

37,525

 

Loss from operations

 

 

(47,232

)

 

 

(24,930

)

Other income and expenses:

 

 

 

 

 

 

Grant income

 

 

949

 

 

 

735

 

Research and development tax credits

 

 

802

 

 

 

343

 

Interest income

 

 

7,386

 

 

 

7,851

 

Other income, net

 

 

2,093

 

 

 

1,649

 

Loss before income taxes

 

 

(36,002

)

 

 

(14,352

)

Income tax expense

 

 

(2,214

)

 

 

(1,199

)

Net loss

 

$

(38,216

)

 

$

(15,551

)

Basic net loss per common share

 

$

(1.07

)

 

$

(0.44

)

Diluted net loss per common share

 

$

(1.07

)

 

$

(0.44

)

Weighted-average common shares outstanding - basic

 

 

35,843,116

 

 

 

35,716,037

 

Weighted-average common shares outstanding - diluted

 

 

35,843,116

 

 

 

35,716,037

 

 

 

 

 

 

 

Net loss

 

$

(38,216

)

 

$

(15,551

)

Foreign currency translation adjustments

 

 

(2,265

)

 

 

(2,006

)

Unrealized (loss) gain on available-for-sale securities

 

 

(832

)

 

 

102

 

Comprehensive loss

 

$

(41,313

)

 

$

(17,455

)

 

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

 

 

Retained

 

 

stockholders’

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

loss

 

 

earnings

 

 

equity

 

Balance at December 31, 2022

 

 

35,611,219

 

 

$

36

 

 

$

435,665

 

 

$

(9,644

)

 

$

237,275

 

 

$

663,332

 

Stock-based compensation

 

 

 

 

 

 

 

 

5,807

 

 

 

 

 

 

 

 

 

5,807

 

Common stock issued upon exercises of options

 

 

149,408

 

 

 

 

 

 

578

 

 

 

 

 

 

 

 

 

578

 

Currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

(2,006

)

 

 

 

 

 

(2,006

)

Unrealized gain on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

102

 

 

 

 

 

 

102

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,551

)

 

 

(15,551

)

Balance at March 31, 2023

 

 

35,760,627

 

 

$

36

 

 

$

442,050

 

 

$

(11,548

)

 

$

221,724

 

 

$

652,262

 

 

 

 

 

 

 

 

 

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, 2023

 

 

35,838,080

 

 

 

36

 

 

$

463,799

 

 

$

(13,240

)

 

$

124,633

 

 

$

575,228

 

Stock-based compensation

 

 

 

 

 

 

 

 

7,263

 

 

 

 

 

 

 

 

 

7,263

 

Common stock issued upon exercises of options

 

 

5,676

 

 

 

 

 

 

22

 

 

 

 

 

 

 

 

 

22

 

Currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

(2,265

)

 

 

 

 

 

(2,265

)

Unrealized loss on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

(832

)

 

 

 

 

 

(832

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(38,216

)

 

 

(38,216

)

Balance at March 31, 2024

 

 

35,843,756

 

 

 

36

 

 

$

471,084

 

 

$

(16,337

)

 

$

86,417

 

 

$

541,200

 

 

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)

 

2024

 

 

2023

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(38,216

)

 

$

(15,551

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

304

 

 

 

222

 

Stock-based compensation

 

 

7,263

 

 

 

5,807

 

Non-cash: Net accretion of available-for-sale debt securities

 

 

(2,740

)

 

 

(2,852

)

Change in operating lease right-of-use assets

 

 

(1

)

 

 

2

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Grants receivable

 

 

(130

)

 

 

579

 

Research and development tax credits receivable

 

 

(812

)

 

 

(25

)

Refundable income taxes

 

 

1,326

 

 

 

1,199

 

Prepaid expenses and other current assets

 

 

(252

)

 

 

230

 

Accounts payable

 

 

(5,551

)

 

 

(2,104

)

Accrued expenses and other liabilities

 

 

6,198

 

 

 

(2,325

)

Income tax payable

 

 

 

 

 

Deferred income

 

 

(839

)

 

 

858

 

Deferred revenue

 

 

 

 

 

(12,595

)

Unrecognized tax benefits

 

 

1,050

 

 

 

Net cash used in operating activities

 

 

(32,400

)

 

 

(26,555

)

Cash flows from investing activities

 

 

 

 

 

 

Purchases of investments

 

 

(155,852

)

 

 

(52,575

)

Proceeds from maturities of investments

 

 

87,197

 

 

 

21,000

 

Purchase of property and equipment

 

 

(945

)

 

 

(119

)

Net cash used in investing activities

 

 

(69,600

)

 

 

(31,694

)

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from issuance of common stock upon exercise of options

 

 

22

 

 

 

578

 

Net cash provided by financing activities

 

 

22

 

 

 

578

 

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

 

 

(2,554

)

 

 

(1,771

)

Net decrease in cash, cash equivalents and restricted cash

 

 

(104,532

)

 

 

(59,442

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

251,451

 

 

 

285,038

 

Cash, cash equivalents and restricted cash at end of period

 

$

146,919

 

 

$

225,596

 

Non-cash investing and financing activities

 

 

 

 

 

 

Capital expenditure included in accounts payable

 

$

 

 

$

88

 

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

 

 

163

 

 

 

79

 

Unrealized loss on available-for-sale securities

 

 

(832

)

 

 

102

 

Purchases of investments included in payables for investments

 

 

6,065

 

 

 

 

Maturities of investments included in prepaid expenses and other current assets

 

 

13,000

 

 

 

 

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 immuno-oncology therapeutics for people living with cancer. By leveraging its deep understanding of the tumor immunology and immunosuppressive pathways we design novel product candidates with optimized pharmacologic properties to improve clinical outcomes by restoring the immune response against cancer. The Company is focused on advancing its innovative pipeline of monoclonal antibodies (mAbs) and small molecules for the treatment of cancer, especially solid tumors. Our three clinical-stage programs target novel, validated immuno-oncology pathways, including the TIGIT/CD226 pathway with TIGIT (T cell immunoreceptor with lg and ITIM domains) and the adenosine pathway with A2AR (adenosine 2A receptor) and ENT1 (equilibrative nucleoside transporter 1).

The Company’s lead antibody product candidate, belrestotug, also known as EOS-448/GSK4428859A, is an antagonist of TIGIT, an immune checkpoint with multiple mechanisms of action. Belrestotug was selected for its target affinity with TIGIT, potency and potential to engage the Fc gamma receptor (FcγR), a key regulator of immune response which triggers a multi-faceted mechanism of action that improves antitumor efficacy. This multi-faceted mechanism includes the activation of dendritic cells, natural killer cells, and macrophages, and the promotion of cytokine release and antibody-dependent cellular cytotoxicity (ADCC) activity. In 2020, the Company initiated an open-label Phase 1/2a clinical trial of belrestotug in adult cancer patients with advanced solid tumors. In April 2021, the Company reported preliminary safety, pharmacokinetic, engagement and pharmacodynamic data, indicating target engagement and early evidence of clinical activity as a single agent.

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 granted GSK a license under certain of its intellectual property rights to develop, manufacture, and commercialize products comprised of or containing belrestotug, 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 belrestotug 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. In partnership with GSK, the Company is enrolling patients with first line NSCLC in a randomized Phase 2 platform study assessing the doublet of GSK's anti-PD-1 (Jemperli (dostarlimab-gxly)) with belrestotug and in combination with GSK'608, GSK's investigational anti-CD96 antibody, nelistotug. Interim assessment of this study exceeded pre-defined efficacy criteria for clinically relevant activity with clinically meaningful tumor reduction and showed an acceptable safety profile in line with the TIGIT:PD-1 class. In addition, the Company is enrolling patients in a Phase 2 platform study assessing the belrestotug and dostarlimab doublet and a triplet with GSK’s anti-CD96 antibody (GSK’608) with first-line, PD-L1 positive advanced or metastatic head and neck squamous cell carcinoma, or HNSCC, and a Phase 2 expansion trial assessing belrestotug and dostarlimab with first-line, PD-L1 positive advanced or metastatic HNSCC. In the TIG-006 trial assessing the doublet of dostarlimab with belrestotug in patients with first-line HNSCC (Cohorts 2C and 2D), we completed enrollment in the first portion of the Phase 2 expansion part of the trial. We and GSK agreed to not continue beyond stage 1 recruitment in these open-label cohorts in order to focus on the randomized, controlled GALAXIES H&N-202 platform study. The Company and GSK continue to explore two novel triplets in selected advanced solid tumors both in Phase 1b trials: belrestotug with dostarlimab and GSK’s investigational anti-CD96 antibody, and belrestotug with dostarlimab and GSK’s anti-PVRIG antibody (GSK’562).

The Company's next most advanced program is inupadenant, also known as EOS-850, a next-generation A2AR antagonist tailored to overcome the specific adenosine-mediated immunosuppression found in tumor microenvironment. The Company is investigating inupadenant in an open-label multi-arm Phase 1/2a clinical trial in adult cancer patients with advanced solid tumors. In April 2020, the Company reported preliminary safety data and early evidence of clinical activity as a single agent. The single-agent dose-escalation and expansion portions of the Company's Phase 1/2a clinical trial of inupadenant have demonstrated durable monotherapy antitumor activity in some patients with advanced solid tumors and safety consistent with previously reported results. The Company also completed enrollment of patients in the escalation portion (Part 1) of an ongoing two-part Phase 2 trial in post-IO metastatic NSCLC to evaluate the combination of

5


 

inupadenant with platinum-doublet chemotherapy compared to standard platinum-doublet chemotherapy. The Company has also completed enrollment of the Phase 2 monotherapy high biomarker trial in advanced solid tumors.

The Company began its research and development activities as a spin-off of Ludwig Cancer Research and have built significant expertise in designing novel cancer immunotherapies. The Company's internal research and development team has extensive expertise in tumor immunology, characterization of immunosuppressive mechanisms in the tumor microenvironment, pharmacology and translational medicine. The Company has also built discovery capabilities to develop both small molecules and antibodies with differentiated and optimized product profiles for targets validated by a strong scientific rationale.

The Company continues to progress research programs focused on additional targets that complement its TIGIT and adenosine pathway programs or address additional immunosuppressive pathways. The most recent program to enter the clinic is EOS-984, a potentially first-in-class small molecule focused on a new mechanism in the adenosine pathway by targeting ENT1, a dominant transporter of adenosine on lymphocytes involved in T cell metabolism, expansion, effector function, and survival. The Company's expertise also allows it to integrate a biomarker-rich strategy into its clinical programs to measure the activity of a product candidate in patients, seek to optimize combination agents and identify patients it deems most likely to benefit from treatment.

On December 2, 2020, iTeos Securities Corporation (iTeos SC) was incorporated as a Massachusetts Security Corporation. It is a wholly-owned subsidiary of iTeos Inc. On July 27, 2021, iTeos BE, LLC (iTeos LLC) was incorporated as a Delaware Limited Liability Company. It is a wholly-owned subsidiary of iTeos Belgium.

Liquidity and capital resources

Since inception, the Company’s activities have consisted primarily of performing research and development to advance its product candidates. The Company had a net loss of $38.2 million for the three months ended March 31, 2024. As of March 31, 2024, the Company had retained earnings of $86.4 million. As of May 10, 2024, the issuance date of the condensed consolidated financial statements for the period ended March 31, 2024, the Company expects that its cash and cash equivalents would be sufficient to fund its operating expenses, capital expenditure requirements and debt service payments for 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, 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. Thee Company's product candidates may fail to 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.

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").

6


 

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, 2023 and 2022, 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.

 

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, 2023, and notes thereto, which are included in the Company’s Annual Report on Form 10-K that was filed with the SEC on March 6, 2024. Since the date of those financial statements, there have been no material changes to significant accounting policies.

Accounting standards recently adopted

From time to time, new accounting pronouncements are issued that the Company adopts as of the specified effective date. The Company does not believe that the adoption of any recently issued standards have or may have a material impact on its condensed consolidated financial statements and disclosures.

Note 3. Investment securities and 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, 2024 and December 31, 2023:

 

 

 

March 31, 2024

 

(in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Money market funds

 

$

110,899

 

 

$

 

 

$

 

 

$

110,899

 

U.S. government agency bonds

 

 

 

 

 

147,356

 

 

 

 

 

 

147,356

 

U.S. treasury bonds

 

 

198,525

 

 

 

 

 

 

 

 

 

198,525

 

Corporate debt securities

 

 

 

 

 

95,525

 

 

 

 

 

 

95,525

 

Totals

 

$

309,424

 

 

$

242,881

 

 

$

 

 

$

552,305

 

 

 

 

December 31, 2023

 

(in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Money market funds

 

$

228,406

 

 

$

 

 

$

 

 

$

228,406

 

U.S. government agency bonds

 

 

 

 

 

193,076

 

 

 

 

 

 

193,076

 

U.S. treasury bonds

 

 

103,597

 

 

 

 

 

 

 

 

 

103,597

 

Corporate debt securities

 

 

 

 

 

84,605

 

 

 

 

 

 

84,605

 

Totals

 

$

332,003

 

 

$

277,681

 

 

$

 

 

$

609,684

 

 

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. U.S. treasury securities are also classified as Level 1 because they are valued using quoted prices. U.S. government agency and corporate securities are classified within Level 2 of the fair value hierarchy because they are valued using market-based models that consider inputs such as yield, prices of comparable securities, coupon rate, maturity, and credit quality.

 

During the periods presented, the Company has not changed the manner in which it values assets and liabilities that are measured at fair value. The Company recognizes transfers between levels of the fair value hierarchy as of the end of

7


 

the reporting period. There were no transfers within the hierarchy during the three months ended March 31, 2024 and 2023.

 

The Company's fixed income securities held as of March 31, 2024 and December 31, 2023 with original maturity dates beyond three months are classified as available-for-sale. The following table presents the amortized cost, fair value, and unrealized gains and losses by major security type, for the fixed income securities held by the Company:

 

 

 

March 31, 2024

 

(in thousands)

 

Amortized cost

 

 

Gross unrealized gains in AOCI

 

 

Gross unrealized losses in AOCI

 

 

Fair value

 

U.S. government agency bonds

 

$

147,614

 

 

$

6

 

 

$

(264

)

 

$

147,356

 

U.S. treasury bonds

 

 

199,034

 

 

 

18

 

 

 

(527

)

 

 

198,525

 

Corporate debt securities

 

 

95,591

 

 

 

17

 

 

 

(83

)

 

 

95,525

 

     Totals

 

$

442,239

 

 

$

41

 

 

$

(874

)

 

$

441,406

 

 

 

 

December 31, 2023

 

(in thousands)

 

Amortized cost

 

 

Gross unrealized gains in AOCI

 

 

Gross unrealized losses in AOCI

 

 

Fair value

 

U.S. government agency bonds

 

$

193,231

 

 

$

90

 

 

$

(245

)

 

$

193,076

 

U.S. treasury bonds

 

 

103,476

 

 

 

156

 

 

 

(35

)

 

 

103,597

 

Corporate debt securities

 

 

84,536

 

 

 

114

 

 

 

(45

)

 

 

84,605

 

     Totals

 

$

381,243

 

 

$

360

 

 

$

(325

)

 

$

381,278

 

 

The $6.3 million difference between the total amortized cost and total fair value as of March 31, 2024 in the table above and the total aggregate value of short-term and long-term investments on the balance sheet is due to two debt securities for which the original maturity at purchase was less than three months, and are therefore classified as cash equivalents on the balance sheet.

The following table presents the amortized cost and fair value of the Company's fixed income securities by maturity grouping. The $6.3 million reconciling difference between the total amortized cost and total fair value for the short-term investments, as noted in the above paragraph, also applies to the below table as of March 31, 2024.

 

 

 

March 31, 2024

 

(in thousands)

 

Amortized cost

 

 

Fair value

 

Due in one year or less

 

$

309,252

 

 

$

308,819

 

Due after one year through five years

 

 

132,987

 

 

 

132,587

 

Due after five years through ten years

 

 

 

 

 

 

Due after ten years

 

 

 

 

 

 

Total

 

$

442,239

 

 

$

441,406

 

 

 

 

December 31, 2023

 

(in thousands)

 

Amortized cost

 

 

Fair value

 

Due in one year or less

 

$

281,035

 

 

$

280,739

 

Due after one year through five years

 

 

100,208

 

 

 

100,539

 

Due after five years through ten years

 

 

 

 

 

 

Due after ten years

 

 

 

 

 

 

Total

 

$

381,243

 

 

$

381,278

 

 

There were no securities with expected credit losses or non-credit related impairment as of March 31, 2024 or December 31, 2023. There were no sales of securities which resulted in a realized loss during the three months ended March 31, 2024. The Company recognized $4.3 million of interest income earned from its available-for-sale debt securities and cash equivalents during the three months ended March 31, 2024. The Company recognized $2.8 million of accretion on its available-for-sale debt securities during the three months ended March 31, 2024. The accretion recognized was recorded to interest income during these periods. The Company recognized $5.0 million of interest income earned from its available-for-sale debt securities and money market funds during the three months ended March 31, 2023. The Company also recognized $2.9 million of accretion on its available-for-sale debt securities, which was recorded to interest income, during the three months ended March 31, 2023.

 

8


 

 

Note 4. Supplemental balance sheet information

Property and equipment

Property and equipment, net consisted of the following:

 

(in thousands)

 

March 31,
2024

 

 

December 31,
2023

 

Scientific equipment

 

$

3,925

 

 

$

3,434

 

Furniture & office equipment

 

 

1,531

 

 

 

1,467

 

Leasehold improvements & assets under construction

 

 

4,382

 

 

 

4,177

 

Total

 

 

9,838

 

 

 

9,078

 

Accumulated depreciation and amortization

 

 

(4,574

)

 

 

(4,382

)

Property & equipment, net

 

$

5,264

 

 

$

4,696

 

 

Depreciation and amortization expense was $0.3 million for the three months ended March 31, 2024, and $0.2 million for the three months ended March 31, 2023, respectively.

Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consisted of the following:

 

(in thousands)

 

March 31,
2024

 

 

December 31,
2023

 

Accrued clinical trial costs

 

$

15,881

 

 

$

6,956

 

Accrued professional and other fees

 

 

778

 

 

 

102

 

Total accrued expenses and other current liabilities

 

$

16,659

 

 

$

7,058

 

 

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, 2024, the Company has paid a total of $6.4 million to Adimab relating to milestones under the Adimab Agreement. The Company made a $1.0 million payment to Adimab in the three months ended March 31, 2024

9


 

relating to the milestone that had been achieved during the fourth quarter of 2023. 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

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, belrestotug. 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 belrestotug 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 belrestotug 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 are accounted for as a component of the related expense in the period incurred in accordance with ASC 730, Research and Development. Additionally, reimbursements received from GSK in connection with the joint operating activities are recognized as a reduction to research and development expense.

GSK is responsible for 60% of the costs related to the Global Development Plan. During the three months ended March 31, 2024, the Company recorded to research and development expense $11.3 million related to the cost-sharing provisions of the GSK Collaboration Agreement. $6.6 million of these costs are payable to GSK, which is recorded in accrued expenses and other current liabilities in the condensed consolidated balance sheet as of March 31, 2024. 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 belrestotug, (ii) completion of the Phase 1 clinical study related to belrestotug,

10


 

(iii) transfer of “Know How” under the belrestotug 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. These promises are considered to be outputs of the Company's ordinary activities and ongoing major operations. As GSK provided the Company consideration in exchange for these promises, GSK meets the definition of a customer under ASC 606-10-20 in the context of the combined performance obligation. These promises are distinct from the co-development and co-commercialization activities in which the Company and GSK jointly participate. Accordingly, the context in which GSK is a customer is limited to the material promises described above.

The transaction price totaling $625.0 million was comprised of the upfront license payment. As of March 31, 2024, 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. The performance obligation was fully completed in the three months ended March 31, 2023. 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. 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.

The Company did not recognize any revenue during the three months ended March 31, 2024, as the entirety of the revenue relating to the GSK Collaboration agreement was recognized in the first quarter of 2023. During the three months ended March 31, 2023, the Company recognized revenue totaling $12.6 million with respect to the GSK Collaboration Agreement. The revenue was classified as license and collaboration revenue in the accompanying condensed consolidated statements of operations. There was no deferred revenue remaining as of March 31, 2024 or December 31, 2023.

Contract Assets and Liabilities

There were no remaining contract assets or liabilities as of the period ended March 31, 2024:

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 sponsors a clinical trial in which both the Company’s compound and MSD’s compound are dosed in combination. The Company conducts the research at its own cost and MSD contributes its compound towards the study at no cost to the Company. The parties 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 loss.

11


 

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").

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 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 is $7.4 million under these grants.

Grants which include an obligation to repay

On July 20, 2017, the Company entered into a recoverable cash advance arrangement whereby the Walloon Region will provide the Company with up to $20.4 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 $4.6 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 had to decide within 6 months after the end of the research period whether it would further pursue commercial development or out licensing of the drug candidate. The research period for RCA-1 ended in December 2021. The Company decided it would pursue commercialization or out licensing of RCA-1. 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, after which the Company decided it would pursue commercialization or out licensing. The Company must repay 30% of the amount received under both grants by annual installments from 2023 to 2042 (the fixed annual repayments), unless the Company had decided not to pursue commercial development or out licensing of the drug candidate, applied for a waiver from the Walloon Region justifying its decision based upon the failure of the program, or returned the intellectual property to the Walloon Region. Because of the requirement to repay 30% of the amounts received under both grants, the Company records the present value of the fixed payments 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, there was no grant repayable related to royalties recorded as of March 31, 2024, or December 31, 2023. For the RCA-2, the Company recorded a royalty accrual of $0.9 million as of March 31, 2024, and $0.8 million as of December 31, 2023, 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 sheets.

The Company recorded grant income in the condensed consolidated statement of operations and comprehensive loss for the three months ended March 31, 2024 and 2023 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.

12


 

The following table reflects activity for grant programs for the three months ended March 31, 2024 and 2023, and end of period balances as of March 31, 2024, and December 31, 2023:

 

 

 

RCA -1

 

 

RCA-2

 

 

Other Grants

 

 

Total

 

(In thousands)

 

2024

 

 

2023

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Cash received

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

2,011

 

 

$

 

 

$

2,011

 

Grant income

 

$

 

 

$

 

 

$

 

 

$

 

 

$

949

 

 

$

735

 

 

$

949

 

 

$

735

 

Grants receivable at the end
   of the period

 

$

 

 

$

 

 

$

 

 

$

 

 

$

130

 

 

$

 

 

$

130

 

 

$

 

Grants repayable at the end
   of the period

 

$

5,381

 

 

$

5,496

 

 

$

1,287

 

 

$

1,317

 

 

$

 

 

$

 

 

$

6,668

 

 

$

6,813

 

 

$0.2 million of the grants repayable was included in accrued expenses and other current liabilities as of March 31, 2024 and December 31, 2023, and the remaining balance was included in grants repayable, net of current portion in the condensed consolidated balance sheet.

Note 7. Stockholders’ equity

The Company's restated Certificate of Incorporation authorizes the Company to issue up to 160,000,000 shares, of which (i) 150,000,000 shares are designated as common stock, par value $0.001 per share, and (ii) 10,000,000 shares are designated as undesignated preferred stock, par value $0.001 per share. Each share of common stock entitles the holders to one vote on all matters submitted to a vote of the Company’s stockholders. Common stockholders are not entitled to receive dividends, unless declared by the board of directors.

Note 8. Stock-based compensation

General

Stock options expire seven to 10 years from the date of grant. Generally, the exercise price of all stock options will be equal to the closing market price on The Nasdaq Global Market of one share of the Company’s common stock on the date of grant, or if no closing price is reported for such date, the closing price on the next immediately preceding date for which a closing price is reported. The stock options generally vest 25% upon the one-year anniversary of the service inception date and then ratably each month over the remaining 36 months. Upon termination of service, any unvested stock options are automatically returned to Company. Vested stock options that are not exercised within the specified period, according to the terms and conditions of the option plan, following the termination as an employee, consultant, or service provider to the Company are surrendered back to the Company. Those stock options are added back to the pool and made available for future grants.

2019 Stock Option and Grant Plan

The Company’s 2019 Stock Option and Grant Plan (the "2019 Plan") provided for the Company to grant stock options and other stock-based awards to employees and non-employees to purchase the Company’s common stock. Total authorized options under the 2019 Stock Option and Grant Plan is 3,464,316. The 2020 Plan (as defined below) replaced the 2019 Plan and no further issuances will be made under the 2019 Plan. However, the 2019 Plan continues to govern outstanding equity awards granted thereunder.

On July 15, 2020, the Company’s board of directors approved an amendment to stock options outstanding under the 2019 Stock Option and Grant Plan to provide for immediate 100% vesting for all outstanding options under the plan upon the consummation of a Sale Event, as defined by the amendment.

2020 Stock Option and Incentive Plan

The 2020 Stock Option and Incentive Plan (the "2020 Plan") was approved by the Company's board of directors on July 15, 2020, and the Company’s stockholders on July 20, 2020 and became effective on July 22, 2020. On April 21, 2022, our board of directors adopted an amendment to the 2020 Plan, the amended and restated 2020 Stock Option and Incentive Plan (the "Amended 2020 Plan") to increase the limit on total annual compensation (equity and cash) to non-employee directors. The Amended 2020 Plan was approved by the Company's stockholders and became effective on June 9, 2022. The Amended 2020 Plan provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock units, restricted stock awards, unrestricted stock awards, cash-based awards and dividend equivalent rights to the Company’s officers, employees, directors and consultants. The number of shares of common stock reserved for issuance as of December 31, 2023 under the Amended 2020 Plan was 9,115,915 and will be increased each January 1 by 5% of the number of shares of the Company’s common stock outstanding on the

13


 

immediately preceding December 31 or such lesser number of shares as determined by the compensation committee of the Company's board of directors. Accordingly, on January 1, 2024, the number of shares of common stock reserved and available for issuance under the Amended 2020 Plan increased by 1,791,904. The number of shares of common stock reserved for issuance as of March 31, 2024 under the Amended 2020 Plan was 10,907,819.

Employee Stock Purchase Plan

The 2020 Employee Stock Purchase Plan (the "2020 ESPP") was approved by the Company's board of directors on July 15, 2020, and the Company’s stockholders on July 20, 2020, and became effective on July 22, 2020. The number of shares of common stock reserved for issuance as of March 31, 2024 under the 2020 ESPP was 612,642. The ESPP provides that the number of shares reserved and available for issuance will automatically increase each January 1 thereafter by the lesser of 634,969 shares of common stock, 1% of the outstanding number of shares of common stock on the immediately preceding December 31, or such lesser number of shares as determined by the Company’s compensation committee. There was no increase to the number of shares of common stock reserved and available for issuance under the 2020 ESPP on January 1, 2024. There were no shares issued under the 2020 ESPP during the three months ended March 31, 2024. The purchase price of the stock is equal to 85% of the lesser of the market value of such shares at either first date of the offering period or the last date of the offering period. The estimated fair value of the purchase options for the offering period that was open during the three months ended March 31, 2024 was $3.89 per share. The assumptions utilized to estimate the fair value are included in the assumption table below.

Stock-Based Compensation Expense

Stock-based compensation expense is classified in the condensed consolidated statements of operations and comprehensive loss as follows:

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2024

 

 

2023

 

Research and development

 

$

1,802

 

 

$

1,148

 

General and administrative