IO BIOTECH, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes included in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in Part I, Item 1A. "Risk Factors" of our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 , filed with theSEC onMarch 31, 2022 , our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. You should carefully read the section entitled "Risk Factors" in our Annual Report on Form 10-K to gain an understanding of the important factors that could cause actual results to differ materially from our forward- looking statements. Please also see the section entitled "Cautionary Note Regarding Forward-Looking Statements."
Overview
We are a clinical-stage biopharmaceutical company developing novel,
immune-modulating cancer therapies based on our T-win technology platform. Our
product candidates are designed to induce the immune system to simultaneously
target and disrupt multiple pathways that regulate tumor-induced
immunosuppression. We believe this represents a paradigm shift in the management
of cancer and that our product candidates have the potential to become
cornerstones of the treatment regimens of multiple solid tumors. Our lead
product candidate, IO102-IO103, is designed to target the immunosuppressive
mechanisms mediated by key immunosuppressive proteins such as Indoleamine
2,3-dioxygenase (IDO) and programmed death ligand (PD-L1). In a single-arm Phase
1/2 clinical trial of 30 patients with metastatic melanoma with the primary
objective to investigate safety and tolerability, secondary objective to
investigate immunogenicity and tertiary objective to investigate clinical
efficacy, IO102-IO103, in combination with nivolumab, demonstrated an ability to
induce meaningful tumor regression and establish durable antitumor response
while achieving a manageable tolerability profile for patients. The clinical
efficacy endpoints in this trial include objective response (OR), progression
free survival (PFS) and overall survival (OS). In this trial, we have observed a
confirmed overall response rate (ORR) of 73% and a complete response rate (CRR)
of 47%. Based on the results from this trial, IO102-IO103, in combination with
pembrolizumab was granted BTD by the FDA for treatment of
unresectable/metastatic melanoma and we are currently recruiting for a
potentially registrational Phase 3 trial for IO102-IO103 in combination with
pembrolizumab. During the last three months, we have made significant progress
with the activation of clinical sites participating in our global Phase 3
combination trial of IOB102-IO103 with pembrolizumab as a potential first-line
treatment in advanced melanoma. We ended October with 55 sites actively
enrolling in study, compared to 19 actively enrolling sites at the end of July.
We believe that the pace of site activation is a leading indicator of patient
enrollment. We will provide an update on the anticipated timing of the interim
data once we have sufficient information.
Our T-win platform is a novel approach to cancer immunotherapy designed to
activate pre-existing T cells to target immunosuppressive mechanisms. Our T-win
product candidates are designed to employ a dual mechanism of action: (1) direct
killing of immunosuppressive cells, including both tumor cells and genetically
stable cells in the tumor microenvironment (TME), that express IDO and PD-L1 and
(2) modulation of the TME into a more pro-inflammatory, anti-tumor environment.
Our T-win technology is built upon our team's deep understanding of both TME and
a tumor's ability to evade surveillance and destruction by the immune system.
Our approach is in contrast to previous methods that have sought to either block
singular immunosuppressive pathways or to direct the immune system against
specific identified antigens expressed by tumor cells.
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We are developing a pipeline of product candidates that leverage our T-win
technology platform to address targets within the TME. In addition to melanoma,
we plan to evaluate IO102-IO103 in multiple solid tumor indications to
potentially expand the market opportunity for IO102-IO103. We are also focusing
on additional targets that play key roles in immunosuppression and that are
expressed in a broad range of solid tumors. Our pipeline of product candidates
is summarized in the table below.
[[Image Removed: img133105241_0.jpg]]
(1)
In combination with pembrolizumab
(2)
Expected to be developed in combination with third party drugs or biologics
(3)
NSCLC = non-small cell lung cancer, UBC = urothelial bladder cancer, SCCHN = squamous cell carcinoma of the head and neck
Our lead product candidate, IO102-IO103, combines our two fully-owned, novel immunotherapeutics, IO102 and IO103, which are designed to target IDO+ and PD-L1+ target cells, respectively. IDO and PD-L1 are often dysregulated and over-expressed in a wide range of solid tumors, and result in the inhibition of the body's natural pro-inflammatory anti-tumor response within the TME. IO102-IO103 is designed to employ our novel dual mechanism of action approach. This is in contrast to previous approaches which have sought to block singular immunosuppressive pathways or to direct the immune system against specific identified antigens expressed by tumor cells. By combining IO102 and IO103 in a single treatment regimen, we also aim to provide a synergistic effect on tumors. OnDecember 14, 2020 , the FDA granted us BTD for IO102-IO103 in combination with pembrolizumab for the treatment of patients with unresectable or metastatic melanoma based on data from the Phase 1/2 clinical trial, MM1636. BTD enables us to solicit more frequent and intensive guidance from the FDA as to how to conduct an efficient development program for IO102-IO103. The MM1636 trial is an investigator-initiated, single-arm Phase 1/2 trial of 30 anti PD-1/PD-L1 naïve patients with metastatic melanoma receiving IO102-IO103 and nivolumab, an anti-PD-1 monoclonal antibody. In this trial, investigators initially observed an ORR of 80% (24 out of 30 patients); however, two of 24 patients in which a response was observed progressed before subsequent radiological confirmation, which resulted in a confirmed ORR of 73%. In addition, 47% of patients achieved a CR, or complete elimination of their tumors based on RECIST 1.1 definitions. While a total of five patients (17%) experienced a high-grade adverse event (grade 3-5), based on the 17% discontinuation rate of treatment with both nivolumab and IO102-IO103, data from this trial suggests a manageable tolerability profile for patients. In addition, we have observed treatment-induced infiltration of CD3/CD8 T cells into the tumor site in responding patients and detected IO102+IO103-specific T cells in tumors after treatment in correlative biomarker data where this was analyzed. Consistent with the earlier reported data, with an additional 12 months of patient follow-up, results from a newOctober 2022 data cut for the MM1636 Phase 1/2 study with IO102-IO103 in combination with nivolumab for metastatic melanoma continue to be encouraging. As of that data cut-off, 30 PD-1 naïve patients were enrolled with a median follow-up time of 31.7 months. Median overall survival was reached at 46.8 months post first trial treatment, median progression free survival was 22.5 months, and 50% of patients (15/30) achieved a CR, or complete disappearance of their tumors. The ORR for the study was 73.3% as previously reported. Patientswho were PD-1 refractory and enrolled in cohort B in this study had no response to therapy, which we believe shows that our vaccine works best in front-line metastatic melanoma patients, as we expected in this setting. We are currently recruiting for a Phase 3 potentially registrational trial for IO102-IO103, the IOB-013/KN-D18 trial, in combination with pembrolizumab in PD-1 naïve metastatic melanoma patients. While the MM1636 trial investigates IO102-IO103 in combination with nivolumab, we have made the commercial decision to investigate IO102-IO103 in combination with pembrolizumab in the Phase 3 trial. Nivolumab and pembrolizumab are both IgG4 subclass antibodies that target the PD-1 receptor. In a comparative data analysis 15 -------------------------------------------------------------------------------- by Moser (Annals of Oncology 2020), researchers found no difference between the effectiveness of frontline pembrolizumab and nivolumab in patients with advanced melanoma. The Phase 3 trial will include a concurrent evaluation of the initial participants to allow for an assessment of safety, or safety run in. The pembrolizumab for this trial is being supplied by Merck pursuant to a Clinical Trial Collaboration and Supply Agreement that we entered into inSeptember 2021 . We plan to broaden the development of IO102-IO103 to several other solid tumor indications. We are conducting a Phase 2 basket trial, the IOB-022 trial, which will enable us to investigate multiple first-line solid tumor indications in anti PD-1/PD-L1 treatment naïve patients with metastatic disease. Our planned basket trial will investigate the safety and efficacy of IO102-IO103 in combination with pembrolizumab in NSCLC with PD-L1 TPS ?50%, SCCHN with CPS ? 20, and UBC with CPS ? 10. We have initiated this Phase 2 basket trial in solid tumors as ofApril 2022 , and expect to receive preliminary data in one indication by the end of this year, with additional data expected in 2023. In addition to first-line cancer indications, we also plan to investigate IO102-IO103 when used before or after curatively intended surgery as a neo-adjuvant/adjuvant therapy. As with our targeted first-line cancer indications, we plan to conduct a Phase 2 basket trial, the IOB-032 trial, which will enable us to investigate multiple solid tumor indications in anti PD-1/PD-L1 naïve settings focused initially on melanoma and SCCHN. We expect to initiate this trial in the second half of 2023. Our development of IO102-IO103 is based on our prior separate development of IO102 and IO103. IO102 is our fully-owned novel product candidate containing a single IDO-derived peptide sequence designed to engage and activate IDO-specific human T cells. IDO small molecule inhibitors have shown clinical potential in combination with PD-1 antibodies in early clinical trials, but have not been able to demonstrate the same level of efficacy in later-stage clinical trials. Our Phase 1 non-randomized trial of IO101, our first-generation IDO therapy, in NSCLC resulted in proof of concept for our approach, with 47% of patients displaying clinical benefit and an OS of 26 months in the treatment arm compared to 8 months in the group receiving standard of care. There were no grade 3 or higher adverse events (AEs). IO102 is currently being tested in a randomized Phase 1/2 trial in combination with pembrolizumab standard-of-care in first-line treatment of patients with metastatic NSCLC. IO103 is our fully-owned, novel product candidate containing a single PD-L1-derived peptide designed to engage and activate PD-L1 specific human T cells. Continued clinical development of IO102 and IO103 will be focused on their use in our dual- and multi-antigen approaches. IO112 is our fully-owned, novel product candidate containing a single Arginase 1-derived peptide designed to engage and activate Arginase 1-specific human T cells. IO112 is designed to target T cells that recognize epitopes derived from Arginase 1, which is an immunoregulatory enzyme highly expressed in difficult-to-treat tumors associated with high levels of MDSCs including colorectal, breast, prostate and pancreatic and ovarian cancers. Arginase overexpression is a well-documented tumor escape mechanism. We plan to file an IND for IO112 in 2023 and, subject to receiving IND clearance from the FDA, thereafter moving into a clinical trial in combination with IO102 and IO103. In addition to IO102, IO103 and IO112, we are evaluating additional potential product candidates that we believe have potential for use in solid tumors. All our compounds in preclinical development are designed to target well-documented immunosuppressive molecules that are known to be overexpressed in the TME across a wide range of tumors. These targets provide additional opportunities across multiple cancer indications. We were established inDecember 2014 as a spin-off ofNational Center for Cancer Immune Therapy atHerlev University Hospital inDenmark . We have assembled a seasoned management team and Board with extensive experience in developing novel oncology therapies, including advancing product candidates from preclinical research through to clinical development and ultimately to regulatory approval. Our team is led by our founder and Chief Executive Officer,Mai-Britt Zocca , Ph.D.,who has close to 20 years of experience as a biotech executive.Eva Ehrnrooth , MD, Ph.D., our Chief Medical Officer, is a clinical oncologist and has more than 20 years of experience in oncology and drug development.Mads Hald Andersen , Ph.D., our scientific founder and advisor, is a Professor and director at theNational Center for Cancer Immune Therapy ,Herlev University Hospital and an internationally recognized immunology researcher.Muhammad Al-Hajj , Ph.D., our Chief Scientific Officer, is a well-respected scientific leader with a proven-track record in the field of immuno-oncology and expertise in translational medicine and biomarker discovery. Our Board has deep expertise in the fields of immuno-oncology, business and finance. Our ability to generate revenue from product sales sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates. Our operations to date have been financed primarily by aggregate net proceeds of$288.7 million from the issuance of convertible preference shares, convertible notes, ordinary shares and, most recently, our IPO. OnNovember 9, 2021 , we completed an IPO of our common stock and issued and sold 8,222,500 shares of common stock at a public offering price of$14.00 per share, including 1,072,500 shares of common stock sold pursuant to the underwriters' exercise of their option to purchase additional shares of common stock, resulting in net proceeds of$103.3 million after deducting underwriting discounts and commissions and estimated offering expenses. Since inception, we have had significant operating losses. Our net loss was$51.4 million for the nine months endedSeptember 30, 2022 and$67.9 million and$12.0 million for the years endedDecember 31, 2021 and 2020, respectively. As ofSeptember 30, 2022 , we had an accumulated deficit of$157.7 million and$151.2 million in cash and cash equivalents. 16 -------------------------------------------------------------------------------- Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our accounts payable and accrued expenses. We expect to continue to incur net losses for the foreseeable future, and we expect our research and development expenses, general and administrative expenses, and capital expenditures will continue to increase. In particular, we expect our expenses to increase as we continue our development of, and seek regulatory approvals for, our product candidates, as well as hire additional personnel, pay fees to outside consultants, lawyers and accountants, and incur other increased costs associated with being a public company. In addition, if and when we seek and obtain regulatory approval to commercialize any product candidate, we will also incur increased expenses in connection with commercialization and marketing of any such product. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities. Based upon our current operating plan, we believe that our existing cash and cash equivalents of$151.2 million as ofSeptember 30, 2022 , will be sufficient to continue funding our development activities into mid-2024. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. To finance our operations beyond that point we will need to raise additional capital, which cannot be assured. To date, we have not had any products approved for sale and, therefore, have not generated any product revenue. We do not expect to generate any revenues from product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates. If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. As a result, until such time, if ever, that we can generate substantial product revenue, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including collaborations, licenses or similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed or on favorable terms, if at all. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies, including our research and development activities. If we are unable to raise capital, we will need to delay, reduce or terminate planned activities to reduce costs.
Coronavirus Pandemic
InMarch 2020 , theWorld Health Organization declared the COVID-19 outbreak a pandemic. In order to mitigate the spread of COVID-19, governments have imposed unprecedented restrictions on business operations, travel and gatherings, resulting in a global economic downturn and other adverse economic and societal impacts. The COVID-19 pandemic has also overwhelmed or otherwise led to changes in the operations of many healthcare facilities, including clinical trial sites. As a result of the ongoing COVID-19 pandemic and continuing resource constraints on CROs, us, prospective clinical trial sites and others, we are currently experiencing longer than expected lead times in clinical trial site activation and patient enrollment in our clinical trials. We cannot predict the scope and severity of any further disruptions as a result of COVID-19 and continuing resource constraints or their impacts on CROs, us, clinical trial sites and others. Continuing resource constraints or business disruptions for us or any of the third parties with whom we engage, including the collaborators, contract organizations, third-party manufacturers, suppliers, clinical trial sites, regulators and other third parties with whom we conduct business could materially and negatively impact our ability to conduct our business in the manner and on the timelines presently planned. We are unable to determine the extent of the impact of the pandemic on our clinical trials, operations and financial condition going forward. These developments are highly uncertain and unpredictable, and may materially adversely affect our financial position and results of operations.
Components of Operating Results
Operating Expenses
Our operating expenses since inception have consisted primarily of research and development expenses and general and administrative costs.
Research and Development
Our research and development expenses consist primarily of costs incurred for the development of our product candidates and our drug discovery efforts, which include:
•
personnel costs, which include salaries, benefits and equity-based compensation expense;
•
expenses incurred under agreements with outside consultants and advisors, including their fees and related travel expenses;
•
expenses incurred under agreements with third parties, including contract
research organizations (CROs) that conduct research, preclinical activities and
clinical trials on our behalf as well as contract manufacturing organizations,
(CMOs)
17
--------------------------------------------------------------------------------that manufacture our product candidates for use in our preclinical and clinical trials and perform chemistry, manufacturing and control activities (CMC);
•
laboratory and vendor expenses related to the execution of preclinical studies and planned and ongoing clinical trials;
•
expenses related to research conducted by institutions, universities and hospitals as part of collaborations;
•
filing and maintenance of patents and intellectual property rights, including payment to third parties for assignment of patent rights and licensing fees and milestone payments incurred under product license agreements where no alternative future use exists;
•
laboratory supplies and equipment used for internal research and development activities; and
•
facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.
We expense all research and development costs in the periods in which they are incurred. Costs for certain research and development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and third-party service providers.
From time to time, we obtain grants from public and private funds for our research and development projects. The grant income for a given period is recognized as a cost reimbursement and is typically based on the time and the costs that we have spent on the specific project during that period.
We have historically met the requirements to receive a tax credit inDenmark of up to 5.5 millionDanish Kroner per year for losses resulting from research and development costs of up to 25 millionDanish Kroner per year. The tax credit is presented as a reduction to research and development expense in the statements of operations. We use our personnel and infrastructure resources across multiple research and development programs directed toward identifying and developing product candidates. We generally have not tracked our research and development expenses on a program-by-program basis. Substantially all of our direct research and development expenses in the nine months endedSeptember 30, 2022 and 2021 were on IO102-IO103 and consisted primarily of external costs, such as consultants, third-party contract organizations that conduct research and development activities on our behalf, costs related to production of preclinical and clinical materials, including fees paid to contract manufacturers, and laboratory and vendor expenses related to the execution of our ongoing and planned preclinical studies and clinical trials. We expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in research and development activities related to developing our product candidates, including investments in conducting clinical trials, manufacturing and otherwise advancing our programs. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain. Because of the numerous risks and uncertainties associated with product development and the current stage of development of our product candidates and programs, we cannot reasonably estimate or know the nature, timing and estimated costs necessary to complete the remainder of the development of our product candidates or programs. We are also unable to predict if, when, or to what extent we will obtain approval and generate revenues from the commercialization and sale of our product candidates. The duration, costs and timing of preclinical studies and clinical trials and development of our product candidates will depend on a variety of factors, including:
•
successful completion of preclinical studies and of clinical trials for IO102-IO103, IO112, and our other current product candidates and any future product candidates;
•
successful enrollment and completion of our Phase 3 clinical trial for IO102-IO103, Phase 2 IO102-IO103 basket trials, and any clinical trials for future product candidates;
•
data from our clinical programs that support an acceptable risk-benefit profile of our product candidates in the intended patient populations;
•
acceptance by the FDA, regulatory authorities in
•
expansion and maintenance of a workforce of experienced scientists and others to continue to develop our product candidates;
•
successful application for and receipt of marketing approvals from applicable regulatory authorities;
•
obtainment and maintenance of intellectual property protection and regulatory exclusivity for our product candidates;
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arrangements with third-party manufacturers for, or establishment of, commercial manufacturing capabilities;
•
establishment of sales, marketing and distribution capabilities and successful launch of commercial sales of our products, if and when approved, whether alone or in collaboration with others;
•
acceptance of our products, if and when approved, by patients, the medical community and third-party payors;
•
effective competition with other therapies;
•
obtainment and maintenance of coverage, adequate pricing and adequate reimbursement from third-party payors, including government payors;
•
maintenance, enforcement, defense and protection of our rights in our intellectual property portfolio;
•
avoidance of infringement, misappropriation or other violations with respect to others' intellectual property or proprietary rights; and
•
maintenance of a continued acceptable safety profile of our products following receipt of any marketing approvals.
We may never succeed in achieving regulatory approval for any of our product candidates. We may obtain unexpected results from our preclinical studies and clinical trials. We may elect to discontinue, delay or modify clinical trials of some product candidates or focus on others. A change in the outcome of any of these factors could mean a significant change in the costs and timing associated with the development of our current and future preclinical and clinical product candidates. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development, or if we experience significant delays in execution of or enrollment in any of our preclinical studies or clinical trials, we could be required to expend significant additional financial resources and time on the completion of preclinical and clinical development. Research and development activities account for a significant portion of our operating expenses. We expect our research and development expenses to increase for the foreseeable future as we continue to implement our business strategy, which includes advancing IO102-IO103 through clinical development and other product candidates further into clinical development, expanding our research and development efforts, including hiring additional personnel to support our research and development efforts, and seeking regulatory approvals for our product candidates that successfully complete clinical trials. In addition, product candidates in later stages of clinical development generally incur higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. As a result, we expect our research and development expenses to increase as our product candidates advance into later stages of clinical development. However, we do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development.
General and Administrative Expenses
Our general and administrative expenses consist primarily of personnel costs, depreciation expense and other expenses for outside professional services, including legal fees relating to patent and corporate matters, human resources, audit and accounting services and facility-related fees not otherwise included in research and development expenses. Personnel costs consist of salaries, benefits and equity-based compensation expense, for our personnel in executive, finance and accounting, business operations and other administrative functions. We expect our general and administrative expenses to increase over the next several years to support our continued research and development activities, manufacturing activities, increased costs of expanding our operations and operating as a public company. These increases will likely include increases related to the hiring of additional personnel, fees to outside consultants, lawyers and accountants, and increased costs associated with being a public company such as expenses related to services associated with maintaining compliance with Nasdaq listing rules andSEC requirements, director and officer insurance premiums and investor relations costs.
Other Income (Expense), Net
Our other income (expense), net is comprised of:
•
Foreign exchange: Our functional currency is the Euro. Transactions denominated in currencies other than the Euro result in exchange gains and losses that are recorded in our statements of operations.
•
Fair value adjustments on convertible notes: We have elected to account for our convertible notes at fair value, with corresponding adjustments to fair value accounted for as gains and losses in our statements of operations.
•
Interest expense: We incur interest expense on account balances with banks and vendors.
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--------------------------------------------------------------------------------Results of Operations
Comparison of the three months ended
The following sets forth our results of operations:
For the Three Months
Ended September 30, Change
2022 2021 Amount Percent
(in thousands)
Operating expenses
Research and development $ 10,022 $ 4,128 $ 5,894 142.8 %
General and administrative 5,843 2,914 2,929 100.5 %
Total operating expenses 15,865 7,042 8,823 125.3 %
Loss from operations (15,865 ) (7,042 ) (8,823 ) 125.3 %
Other income (expense), net 292 2,580
(2,288 ) (88.7 )%
Net loss before income tax expense
Research and Development Expenses
Research and development expenses were comprised of:
For the Three Months
Ended September 30, Change
2022 2021 Amount Percent
(in thousands)
Preclinical studies and clinical
trial-related activities $ 3,821 $ 909 $ 2,912 320.4 %
Chemistry, manufacturing and control 1,105 1,116 (11 ) (1.0 )%
Personnel 4,251 1,495 2,756 184.3 %
Consultants and other costs 845 608 237 39.0 %
Total research and development expenses
5,894 142.8 % Research and development expenses were$10.0 million for the three months endedSeptember 30, 2022 , compared to$4.1 million for the three months endedSeptember 30, 2021 . The increase of$5.9 million was primarily related to an increase in preclinical studies and clinical trial-related activities for our IO102-IO103 product candidate, including the continued execution of our Phase 3 clinical trial, of$2.9 million and an increase in personnel costs of$2.8 million primarily related to an increase in headcount and related recruiting costs.
General and Administrative Expenses
General and administrative expenses were comprised of:
For the Three Months
Ended September 30, Change
2022 2021 Amount Percent
(in thousands)
Personnel $ 1,932 $ 1,289 $ 643 49.9 %
Professional services 920 733 187 25.5 %
Consultants and other costs 2,991 892
2,099 235.3 %
Total general and administrative expenses
General and administrative expenses were$5.8 million for the three months endedSeptember 30, 2022 , compared to$2.9 million for the three months endedSeptember 30, 2021 . The increase of$2.9 million was primarily related to an increase in personnel costs of$0.6 million primarily related to an increase in headcount and related recruiting costs, an increase in professional services of$0.2 million related to corporate legal fees and audit and tax fees and an increase in consultants and other costs of$2.1 million primarily related to$1.9 million in insurance premiums. 20 --------------------------------------------------------------------------------
Other Income (Expense), Net
Other income (expense), net was comprised of:
For the Three Months
Ended September 30, Change
2022 2021 Amount Percent
(in thousands)
Net foreign exchange (loss) gain $ (87 ) $ 17 $ (104 ) (611.8 )%
Interest income 457 - 457 100.0 %
Interest expense (78 ) (67 ) (11 ) 16.4 %
Fair value adjustments on preferred stock
tranche obligations - 2,630 (2,630 ) (100.0 )%
Other income (expense), net $ 292 $ 2,580 $ (2,288 ) (88.7 )%
Other income, net was $0.3 million for the three months ended September 30,
2022 , compared to $2.6 million for the three months ended September 30, 2021 .
The decrease of $2.3 million was primarily due to the decrease in the fair value
adjustments on the Company's preferred stock tranche obligations.
Comparison of the nine months ended
The following sets forth our results of operations:
For the Nine Months
Ended September 30, Change
2022 2021 Amount Percent
(in thousands)
Operating expenses
Research and development $ 32,553 $ 13,712 $ 18,841 137.4 %
General and administrative 18,482 6,127 12,355 201.6 %
Total operating expenses 51,035 19,839 31,196 157.2 %
Loss from operations (51,035 ) (19,839 ) (31,196 ) 157.2 %
Other expense, net (66 ) (26,731 ) 26,665
(99.8 )%
Net loss before income tax expense
Research and Development Expenses
Research and development expenses were comprised of:
For the Nine Months
Ended September 30, Change
2022 2021 Amount Percent
(in thousands)
Preclinical studies and clinical
trial-related activities $ 13,632 $ 5,661 $ 7,971 140.8 %
Chemistry, manufacturing and control 5,729 2,970 2,759 92.9 %
Personnel 11,428 4,141 7,287 176.0 %
Consultants and other costs 1,764 940 824 87.7 %
Total research and development expenses
Research and development expenses were$32.6 million for the nine months endedSeptember 30, 2022 , compared to$13.7 million for the nine months endedSeptember 30, 2021 . The increase of$18.8 million was primarily related to an increase in preclinical studies and clinical trial-related activities for our IO102-IO103 product candidate, including the continued execution of our Phase 3 clinical trial, of$8.0 million , an increase in costs for chemistry, manufacturing and control, activities of$2.8 million , and an increase in personnel costs of$7.3 million primarily related to an increase in headcount and related recruiting costs. 21 --------------------------------------------------------------------------------
General and Administrative Expenses
General and administrative expenses were comprised of:
For the Nine Months
Ended September 30, Change
2022 2021 Amount Percent
(in thousands)
Personnel $ 5,519 $ 1,759 $ 3,760 213.8 %
Professional services 3,584 2,494 1,090 43.7 %
Consultants and other costs 9,379 1,874
7,505 400.5 %
Total general and administrative expenses
General and administrative expenses were$18.5 million for the nine months endedSeptember 30, 2022 , compared to$6.1 million for the nine months endedSeptember 30, 2021 . The increase of$12.4 million was primarily related to an increase in personnel costs of$3.8 million primarily related to an increase in headcount and related recruiting costs as well as an increase in professional services of$1.1 million primarily related to corporate legal fees and audit and tax fees and an increase in consultants and other costs of$7.5 million , primarily related to$2.8 million in insurance premiums and other consultant expense to support the Company's growth. Other Income (Expense), Net
Other income (expense), net was comprised of:
For the Nine Months
Ended September 30, Change
2022 2021 Amount Percent
(in thousands)
Net foreign exchange (loss) gain $ (392 ) $ 309 $ (701 ) (226.9 )%
Interest income 631 - 631 100.0 %
Interest expense (305 ) (210 ) (95 ) 45.2 %
Fair value adjustments on preferred stock
tranche obligations - (26,830 ) 26,830 (100.0 )%
Other income (expense), net $ (66 ) $ (26,731 ) $ 26,665 (99.8 )%
Other expense, net was
Liquidity and Capital Resources
Sources of Liquidity
Our operations to date have been financed primarily by aggregate net proceeds of$288.7 million from the issuance of convertible preference shares, convertible notes, class A ordinary shares and, most recently, our IPO. OnNovember 9 2021 , we completed an IPO of our common stock and issued and sold 8,222,500 shares of common stock at a public offering price of$14.00 per share, including 1,072,500 shares of common stock sold pursuant to the underwriters' exercise of their option to purchase additional shares of common stock, resulting in net proceeds of$103.3 million after deducting underwriting discounts and commissions and estimated offering expenses. Since inception, we have had significant operating losses. Our net loss was$51.4 million for the nine months endedSeptember 30, 2022 and$67.9 million and$12.0 million for the years endedDecember 31, 2021 and 2020, respectively. As ofSeptember 30, 2022 , we had an accumulated deficit of$157.7 million and$151.2 million in cash and cash equivalents. Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent, general and administrative expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses. We currently expect that our cash and cash equivalents of$151.2 million as ofSeptember 30, 2022 , will be sufficient to fund our operating expenses and capital requirements into mid-2024. However, additional funding will be necessary to fund our future clinical and pre-clinical activities and we do not currently have any. If we are unable to obtain funding, we could be forced to delay, reduce or eliminate our research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect our business prospects and our ability to continue operations.
Cash Flows
22
--------------------------------------------------------------------------------The following table summarizes our cash flows for the periods indicated:
For the Nine Months
Ended September 30,
2022 2021
(in thousands)
Net cash used in operating activities $ (47,203 ) $ (21,406 )
Net cash used in investing activities (341 ) (3 )
Net cash provided by financing activities - 65,408
Net (decrease) increase in cash and cash equivalents
Cash used in operating activities of$47.2 million for the nine months endedSeptember 30, 2022 was primarily attributable to our net loss of$51.4 million and a net decrease of$1.9 million in our working capital accounts, partially offset by non-cash items of$6.1 million primarily due to share-based compensation. Cash used in operating activities of$21.4 million for the nine months endedSeptember 30, 2021 was primarily attributable to our net loss of$46.6 million and a net increase of$1.9 million in our working capital accounts, partially offset by non-cash items of$27.0 million primarily due to fair value adjustments on our preferred stock tranche obligations.
Cash used in investing activities of
Net Cash Provided by Financing Activities
We had no cash provided by financing activities for the nine months ended
Cash provided by financing activities for the nine months endedSeptember 30, 2021 was$65.4 million comprised of net proceeds from the sale and issuance of our class C convertible preference shares in January andMarch 2021 .
Funding Requirements
Any product candidates we may develop may never achieve commercialization and we anticipate that we will continue to incur losses for the foreseeable future. We expect that our research and development expenses, general and administrative expenses, and capital expenditures will continue to increase. As a result, until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings or other capital sources, including potentially collaborations, licenses and other similar arrangements. Our primary uses of capital are, and we expect will continue to be, compensation and related expenses; costs related to third-party clinical research, manufacturing and development services; costs relating to the build-out of our headquarters and other offices, our laboratories and our manufacturing facility; license payments or milestone obligations that may arise; laboratory expenses and costs for related supplies; clinical costs; manufacturing costs; legal and other regulatory expenses and general overhead costs. Based upon our current operating plan, we believe that our existing cash and cash equivalents of$151.2 million as ofSeptember 30, 2022 will be sufficient to continue funding our development activities into mid-2024. To finance our operations beyond that point we will need to raise additional capital, which cannot be assured. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. We will continue to require additional financing to advance our current product candidates through clinical development, to develop, acquire or in-license other potential product candidates and to fund operations for the foreseeable future. We will continue to seek funds through equity offerings, debt financings or other capital sources, including potentially collaborations, licenses and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. If we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders' rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. If we are unable to raise capital, we will need to delay, reduce or terminate planned activities to reduce costs. 23 --------------------------------------------------------------------------------
Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:
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the progress, costs and results of our ongoing and planned clinical trials of IO102-IO103, as well as our planned trials for our other product candidates;
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the scope, progress, results and costs of discovery research, preclinical development, laboratory testing and clinical trials for our product candidates, including our ongoing clinical trials of IO102-IO103;
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the impacts of the COVID-19 pandemic;
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the number of, and development requirements for, other product candidates that we pursue;
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the costs, timing and outcome of regulatory review of our product candidates;
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our ability to enter into contract manufacturing arrangements for supply of active pharmaceutical ingredient, or API, and manufacture of our product candidates and the terms of such arrangements;
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our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such arrangements;
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the payment or receipt of milestones and receipt of other collaboration-based revenues, if any;
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the costs and timing of any future commercialization activities, including product manufacturing, sales, marketing and distribution, for any of our product candidates for which we may receive marketing approval;
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the amount and timing of revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval;
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the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property and proprietary rights and defending any intellectual property-related claims;
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the extent to which we acquire or in-license other products, product candidates, technologies or data referencing rights;
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enrollment for our Phase 3 potentially registrational trial, the IOB-013/KN-D18 trial;
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the ability to receive additional non-dilutive funding, including grants from organizations, public institutions and foundations;
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addition of operational, financial and management information systems and personnel, including personnel to support our drug development, any future commercialization efforts and our transition to a public company; and
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the costs of operating as a public company.
Further, our operating plans may change, and we may need additional funds to meet operational needs and capital requirements for clinical trials and other research and development activities. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated product development programs.
Contractual Obligations and Commitments
InMarch 2021 , we entered into a new lease for our office space inCopenhagen, Denmark that expired inJanuary 2025 , terminable upon three months' notice. The lease inCopenhagen, Denmark was amended inSeptember 2022 and expires inDecember 2027 , terminable upon six months' notice. InAugust 2021 , we entered into a new lease for laboratory facilities and office space in Rockwell,Maryland that expires inApril 2027 . InOctober 2021 , we entered into a new lease for office space inNew York, NY that expires inJanuary 2027 . We enter into contracts in the normal course of business with third-party service providers for clinical trials, preclinical research studies and testing, manufacturing and other services and products for operating purposes. These contracts generally provide for termination upon notice of 30 to 90 days, and therefore, we believe that our non-cancelable obligations under these agreements are not material and we cannot reasonably estimate the timing of if and when they will occur. However, in the event of a termination of any contracts with CROs or other institutions and with respect to active patients enrolled in our clinical trials, we may be financially obligated for a period beyond the contractual termination notice periods. We may also enter into additional research, manufacturing, supplier, lease and other agreements in the future, which may require up-front payments and even long-term commitments of cash. 24 --------------------------------------------------------------------------------
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance withU.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management's judgments and estimates.
Going Concern
Our evaluation of our ability to continue as a going concern requires us to evaluate our future sources and uses of cash sufficient to fund our currently expected operations in conducting research and development activities. We evaluate the probability associated with each source and use of cash resources in making our going concern determination. The research and development of pharmaceutical products is inherently subject to uncertainty. We currently expect that our cash and cash equivalents of$151.2 million as ofSeptember 30, 2022 will be sufficient to fund our operating expenses and capital requirements for at least 12 months from the date the financial statements are issued.
Research and Development Costs
We incur substantial expenses associated with clinical trials. Accounting for clinical trials relating to activities performed by CMO's, CRO's and other external vendors requires management to exercise significant estimates in regard to the timing and accounting for these expenses. We estimate costs of research and development activities conducted by service providers, which include, the conduct of sponsored research, pass-through costs, preclinical studies and contract manufacturing activities. The diverse nature of services being provided under CRO and other arrangements, the different compensation arrangements that exist for each type of service and the lack of timely information related to certain clinical activities complicates the estimation of accruals for services rendered by CROs and other vendors in connection with clinical trials. We record the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced and include these costs in the accrued and other current liabilities or prepaid expenses on the balance sheets and within research and development expense on the statements of operations. In estimating the duration of a clinical study, we evaluate the start-up, treatment and wrap-up periods, compensation arrangements and services rendered attributable to each clinical trial. Fluctuations are regularly tested against payment plans and trial completion assumptions. We estimate these costs based on factors such as estimates of the work completed and budget provided and in accordance with agreements established with our collaboration partners and third-party service providers. We make significant judgments and estimates in determining the accrued liabilities and prepaid expense balances in each reporting period. As actual costs become known, we adjust our accrued liabilities or prepaid expenses. We have not experienced any material differences between accrued costs and actual costs incurred since our inception. Our expenses related to clinical trials are based on estimates of patient enrollment and related expenses at clinical investigator sites as well as estimates for the services received and efforts expended pursuant to contracts with multiple research institutions, CMO's and CROs that may be used to conduct and manage clinical trials, chemistry and testing and manufacturing services on our behalf. We generally accrue expenses related to clinical trials based on contracted amounts applied to the level of patient enrollment and activity. If timelines or contracts are modified based upon changes in the clinical trial protocol or scope of work to be performed, we modify our estimates of accrued expenses accordingly on a prospective basis.
Equity-based Compensation
We have issued stock-based compensation awards through the granting of warrants and stock options, which generally vest over a four-year period. We issued 2,306,478 warrants with a weighted average exercise price of$14.74 to certain employees, board members and advisors during the year endedDecember 31, 2021 . These warrants, and all previously issued warrants, were transferred to the 2021 Equity Plan inNovember 2021 . We also issued 675,200 options with an exercise price of$14.00 under our 2021 Equity Plan during the year endedDecember 31, 2021 . We issued 823,503 options with a weighted average exercise price of$6.62 during the nine months endedSeptember 30, 2022 . We account for equity-based compensation in accordance with ASC 718, Compensation-Stock Compensation (ASC 718). In accordance with ASC 718, compensation cost is measured at estimated fair value and is included as compensation expense over the vesting period during which service is provided in exchange for the award. The Company reverses any previously recognized compensation cost associated with forfeited awards in the period of the forfeiture occurs. 25 -------------------------------------------------------------------------------- We use a Black-Scholes option pricing model to determine fair value of our warrants and options. The Black-Scholes option pricing model includes various assumptions, including the fair value of common shares, expected life of warrants and options, the expected volatility and the expected risk-free interest rate. These assumptions reflect our best estimates, but they involve inherent uncertainties based on market conditions generally outside our control. As a result, if other assumptions had been used, equity-based compensation cost could have been materially impacted. Furthermore, if we use different assumptions for future grants, share-based compensation cost could be materially impacted in future periods.
We will continue to use judgment in evaluating the assumptions utilized for our equity-based compensation expense calculations on a prospective basis. In addition to the assumptions used in the Black-Scholes model, the amount of equity-based compensation expense we recognize in our financial statements includes warrant forfeitures as they occurred.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating losses and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted statutory tax rates expected to apply to taxable income in the jurisdictions and years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Based on the level of historical operating results and projections for the taxable income for the future, we have determined that it is more likely than not that our net deferred tax assets will not be realized. Accordingly, we have recorded a full valuation allowance to reduce our net deferred tax assets. We recognize tax benefits from uncertain tax positions only if (based on the technical merits of the position) it is more likely than not that the tax positions will be sustained on examination by the tax authority. The tax benefits recognized in the financial statements from such positions are measured based on the largest amount that is more than 50% likely to be realized upon ultimate settlement. We recognize interest and penalties related to unrecognized tax benefits within the provision for taxes in our statements of operations and comprehensive loss. We operate inDenmark and may be subject to audits from various tax authorities. Management's judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities, liabilities for uncertain tax positions, and any valuation allowance recorded against our net deferred tax assets. We will monitor the extent to which our deferred tax assets may be realized and adjust the valuation allowance accordingly.
Recently Adopted Significant Accounting Policies
Refer to Note 2, "Summary of Significant Accounting Policies," in the
accompanying notes to our financial statements for the nine months ended
Off-balance Sheet Arrangements
During the periods presented, we did not have, nor do we currently have, any
off-balance sheet arrangements as defined under
Emerging Growth Company Status
As an EGC under the JOBS Act, we may delay the adoption of certain accounting standards until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. Other exemptions and reduced reporting requirements under the JOBS Act for EGCs include presentation of only two years of audited financial statements in a registration statement for an IPO, an exemption from the requirement to provide an auditor's report on internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act, an exemption from any requirement that may be adopted by thePublic Company Accounting Oversight Board regarding mandatory audit firm rotation, and less extensive disclosure about our executive compensation arrangements. We may remain classified as an EGC untilDecember 31, 2026 , although if the market value of our common stock that is held by non-affiliates exceeds$700 million as ofJune 30 of any year before that time, or if we have annual gross revenues of$1.07 billion 26
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or more in any fiscal year, we would cease to be an EGC as ofDecember 31 of the applicable year. We also would cease to be an EGC if we issue more than$1.0 billion of non-convertible debt over a three-year period.
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