itos-10q_20210331.htm

 

 

 

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, 2021

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.)

139 Main Street

Cambridge, MA

 

02142

(Address of principal executive offices)

 

(Zip Code)

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

 

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common stock, $0.001 par value per share

 

ITOS

 

Nasdaq Global Market

 

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

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

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

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

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

As of May 6, 2021, the registrant had 35,103,999 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 will not be able to commercialize our current product candidates and any future product candidates if our preclinical studies do not produce successful results or our clinical trials do not demonstrate the safety and efficacy of our current or future product candidates. vz

 

 

As an organization, we have never conducted pivotal clinical trials, and we may be unable to do so for any product candidates we may develop.

 

Positive results from early preclinical studies of our product candidates are not necessarily predictive of the results of later preclinical studies and any future clinical trials of our product candidates. If we cannot replicate the positive results from our earlier preclinical studies of our product candidates in our later preclinical studies and future clinical trials, we may be unable to successfully develop, obtain regulatory for and commercialize our product candidates.

 

We may not be able to file INDs or IND amendments to commence additional clinical trials on the timelines we expect, and even if we are able to, the FDA or a comparable foreign regulatory 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.

 

We rely on third parties to conduct our clinical trials and perform some of our research and preclinical studies. If these third parties do not satisfactorily carry out their contractual duties or fail to meet expected deadlines, our development programs may be delayed or subject to increased costs, each of which may have an adverse effect on our business and prospects.

 

Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability. We have never generated any revenue from product sales and may never be profitable.

 

If the current public health pandemic related to coronavirus (COVID-19) continues to worsen, our operations, business and financial results may be adversely impacted.

 

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 successfully commercialize our products may be adversely affected.

 

Even if our development efforts are successful, we may not obtain regulatory approval for any of our current product candidates or any future product candidates in the United States or other jurisdictions, which would prevent us from commercializing our current product candidates and any future product candidates. Even if we obtain regulatory approval for our current product candidates and any future product candidates, any such approval may be subject to limitations, including with respect to the approved indications or patient populations, which could impair our ability to successfully commercialize our current product candidates or any future product candidates.

 

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 successfully implement our business strategy.

 

We may be unable to adequately protect our information systems from cyberattacks, which could result in the disclosure of confidential or proprietary information, including personal data, damage our reputation, and subject us to significant financial and legal exposure.

i


 

 

We are an emerging growth company and a smaller reporting company, and the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies may make our common stock less attractive to investors.

 

The trading price of our common stock may be volatile. We may be at an increased risk of securities class action litigation.

The summary risk factors described above should be read together with the text of the full risk factors below, in the section entitled “Risk Factors” and the other information set forth in this Quarterly Report on 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 in full 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.

 

ii


 

 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

2

 

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity/Deficit

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

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

Item 4.

Controls and Procedures

28

PART II.

OTHER INFORMATION

29

Item 1.

Legal Proceedings

29

Item 1A.

Risk Factors

29

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

78

Item 3.

Defaults Upon Senior Securities

78

Item 4.

Mine Safety Disclosures

78

Item 5.

Other Information

78

Item 6.

Exhibits

79

Signatures

80

 

 

 

iii


 

 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

iTeos Therapeutics, Inc. and subsidiaries

Condensed consolidated balance sheets

(unaudited)

 

(in thousands, except share amounts)

 

March 31,

2021

 

 

December 31,

2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

321,385

 

 

$

336,326

 

Grants receivable

 

 

1,241

 

 

 

133

 

Research and development tax credits receivable

 

 

 

 

 

192

 

Prepaid expenses and other current assets

 

 

2,293

 

 

 

2,893

 

Total current assets

 

 

324,919

 

 

 

339,544

 

Property and equipment, net

 

 

1,350

 

 

 

1,352

 

Research and development tax credits receivable

 

 

3,153

 

 

 

3,286

 

Restricted cash

 

 

138

 

 

 

128

 

Right of use asset

 

 

3,046

 

 

-

 

Other assets

 

 

283

 

 

 

248

 

Total assets

 

$

332,889

 

 

$

344,558

 

Liabilities, redeemable convertible preferred stock and stockholders’

   equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,300

 

 

$

3,026

 

Accrued expenses and other current liabilities

 

 

5,314

 

 

 

7,486

 

Deferred income

 

 

666

 

 

 

4,486

 

Lease liability

 

 

550

 

 

 

 

Total current liabilities

 

 

11,830

 

 

 

14,998

 

Grants repayable

 

 

5,642

 

 

 

5,883

 

Other noncurrent liabilities

 

 

305

 

 

 

480

 

Lease liability, net of current portion

 

 

2,503

 

 

-

 

Total liabilities

 

 

20,280

 

 

 

21,361

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized;

   zero shares issued or outstanding at March 31, 2021 and

   December 31, 2020

 

 

 

 

 

 

Common stock, $0.001 par value, 150,000,000 shares authorized;

   35,100,999 and 35,044,758 shares issued and outstanding at

   March 31, 2021 and December 31, 2020, respectively

 

 

35

 

 

 

35

 

Additional paid-in capital

 

 

399,694

 

 

 

396,443

 

Accumulated other comprehensive income

 

 

312

 

 

 

617

 

Accumulated deficit

 

 

(87,432

)

 

 

(73,898

)

Total stockholders’ equity

 

 

312,609

 

 

 

323,197

 

Total liabilities, redeemable convertible preferred stock and

   stockholders’ equity

 

$

332,889

 

 

$

344,558

 

 

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)

 

2021

 

 

2020

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development expenses

 

$

11,643

 

 

$

5,825

 

General and administrative expenses

 

 

7,046

 

 

 

2,418

 

Total operating expenses

 

 

18,689

 

 

 

8,243

 

Loss from operations

 

 

(18,689

)

 

 

(8,243

)

Other income and expenses:

 

 

 

 

 

 

 

 

Grant income

 

 

4,915

 

 

 

1,589

 

Fair value adjustment for preferred stock tranche rights

   liability

 

 

 

 

 

1,265

 

Research and development tax credits

 

 

 

 

 

184

 

Other income (expense), net

 

 

240

 

 

 

(42

)

Net loss

 

 

(13,534

)

 

 

(5,247

)

Cumulative dividends on Series A preferred stock

 

 

 

 

 

(107

)

Accretion of redeemable convertible preferred stock to

   redemption value

 

 

 

 

 

(1,195

)

Net loss attributable to common stockholders

 

$

(13,534

)

 

$

(6,549

)

Basic and diluted net loss per common share

 

$

(0.39

)

 

$

(25.53

)

Weighted-average common shares outstanding—basic and

   diluted

 

 

35,086,662

 

 

 

256,548

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(13,534

)

 

$

(5,247

)

Foreign currency translation adjustments

 

 

(305

)

 

 

(317

)

Comprehensive loss

 

$

(13,839

)

 

$

(5,564

)

 

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

 

 

 

2


 

 

iTeos Therapeutics, Inc. and subsidiaries

Condensed consolidated statements of redeemable convertible preferred stock and stockholders’ equity (deficit)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Total

 

 

 

Series A

 

 

Series B

 

 

 

 

 

Additional

 

 

other

 

 

 

 

 

 

stockholders’

 

In thousands except share amounts

 

preferred stock

 

 

preferred stock

 

 

Common stock

 

 

paid-in

 

 

comprehensive

 

 

Accumulated

 

 

equity

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

capital

 

 

loss

 

 

deficit

 

 

(deficit)

 

Balance at December 31, 2019

 

 

6,167,726

 

 

$

5,353

 

 

 

20,942,781

 

 

$

46,404

 

 

 

256,548

 

 

$

1

 

 

$

 

 

$

(224

)

 

$

(35,865

)

 

 

(36,088

)

Issuance of Series B-2 Preferred Stock, net of

   issuance costs of $332

 

 

 

 

 

 

 

 

44,453,477

 

 

 

125,026

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Settlement of preferred stock tranche right

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,135

 

 

 

 

 

 

 

 

 

4,135

 

Accretion of Series B and B-2 preferred stock

   to redemption value

 

 

 

 

 

 

 

 

 

 

 

1,195

 

 

 

 

 

 

 

 

 

(1,195

)

 

 

 

 

 

 

 

 

(1,195

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

186

 

 

 

 

 

 

 

 

 

186

 

Currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(317

)

 

 

 

 

 

(317

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,247

)

 

 

(5,247

)

Balance at March 31, 2020

 

 

6,167,726

 

 

 

5,353

 

 

 

65,396,258

 

 

 

172,625

 

 

 

256,548

 

 

 

1

 

 

 

3,126

 

 

 

(541

)

 

 

(41,112

)

 

 

(38,526

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Series A

 

 

Series B

 

 

 

 

 

Additional

 

 

other

 

 

 

 

 

 

Total

 

In thousands except share amounts

 

preferred stock

 

 

preferred stock

 

 

Common stock

 

 

paid-in

 

 

comprehensive

 

 

Accumulated

 

 

stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

capital

 

 

income (loss)

 

 

deficit

 

 

equity

 

Balance at December 31, 2020

 

 

 

 

$

 

 

 

 

 

$

 

 

 

35,044,758

 

 

$

35

 

 

$

396,443

 

 

$

617

 

 

$

(73,898

)

 

$

323,197

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,584

 

 

 

 

 

 

 

 

 

2,584

 

Common stock issued upon exercises of options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

56,241

 

 

 

 

 

 

667

 

 

 

 

 

 

 

 

 

667

 

Currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(305

)

 

 

 

 

 

(305

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,534

)

 

 

(13,534

)

Balance at March 31,  2021

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

35,100,999

 

 

 

35

 

 

 

399,694

 

 

 

312

 

 

 

(87,432

)

 

 

312,609

 

 

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)

 

2021

 

 

2020

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(13,534

)

 

$

(5,247

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

126

 

 

 

121

 

Stock-based compensation

 

 

2,584

 

 

 

186

 

Change in operating lease right-of-use assets

 

 

6

 

 

 

 

Fair value adjustment for preferred stock tranche rights liability

 

 

 

 

 

(1,265

)

Deferred rent

 

 

 

 

 

(12

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Grants receivable

 

 

(1,149

)

 

 

5,070

 

Research and development tax credits receivable

 

 

191

 

 

 

(184

)

Prepaid expenses and other current assets

 

 

493

 

 

 

(440

)

Accounts payable

 

 

2,348

 

 

 

3,349

 

Accrued expenses and other liabilities

 

 

(2,115

)

 

 

(973

)

Deferred income

 

 

(3,740

)

 

 

(84

)

Net cash (used in) provided by operating activities

 

 

(14,790

)

 

 

521

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(88

)

 

 

(27

)

Purchase of other assets

 

 

(3

)

 

 

(10

)

Net cash used in investing activities

 

 

(91

)

 

 

(37

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of Series B-2 Preferred Stock

 

 

 

 

 

125,358

 

Payment of issuance costs on Series B-2 Preferred Stock

 

 

 

 

 

(332

)

Proceeds from issuance of common stock upon exercise of options

 

 

667

 

 

 

 

Proceeds from grants repayable

 

 

 

 

 

2,713

 

Net cash provided by financing activities

 

 

667

 

 

 

127,739

 

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

 

 

(717

)

 

 

(360

)

Net (decrease) increase in cash, cash equivalents and restricted cash

 

 

(14,931

)

 

 

127,863

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

336,454

 

 

 

19,990

 

Cash, cash equivalents and restricted cash at end of period

 

$

321,523

 

 

$

147,853

 

Non-cash investing and financing activities

 

 

 

 

 

 

 

 

Accretion of Series B and B-2 Preferred Stock to redemption value

 

 

 

 

$

1,195

 

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

 

$

3,206

 

 

 

 

Supplemental disclosure of cash flows

 

 

 

 

 

 

 

 

Cash paid for taxes

 

 

 

 

$

2

 

 

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 and corporate reorganization

iTeos Therapeutics, Inc. (iTeos Inc. or the Company), a Delaware corporation headquartered in Cambridge, Massachusetts (incorporated on October 4, 2019), is the successor to iTeos Belgium SA (iTeos Belgium) a company organized under the laws of Belgium in 2011 and headquartered in Charleroi, Belgium. The Company is a clinical stage biopharmaceutical company pioneering the discovery and development of a new generation of highly differentiated immuno-oncology therapeutics for patients. The Company leverages its deep understanding of the tumor microenvironment and cancer immunology and immunosuppressive pathways to design novel product candidates with the potential to fully restore the immune response against cancer. The Company’s innovative pipeline includes two clinical-stage programs targeting novel, validated immuno-oncology pathways designed with optimized pharmacologic properties for improved clinical outcomes.. The Company’s initial antibody product candidate, EOS-448, is a high affinity, potent, anti-TIGIT antibody with a functional Fc domain, designed to enhance the anti-tumor response through a multifaceted immune modulatory mechanism. An open-label Phase 1/2a clinical trial of EOS-448 is ongoing in adult cancer patients with advanced solid tumors. The Company is also advancing inupadenant, a next-generation adenosine A2A receptor antagonist tailored to overcome cancer immunosuppression. iTeos is conducting an open-label multi-arm Phase 1/2a clinical trial of inupadenant in adult cancer patients with advanced solid tumors. The Company also has a preclinical pipeline targeting additional mechanisms.

On October 4, 2019, the Company completed a corporate reorganization in which iTeos Inc., iTeos Belgium, and the stockholders of iTeos Belgium entered into an Equity Contribution and Exchange Agreement (Share Exchange), pursuant to which all outstanding shares of preferred stock, common stock and profit certificates of iTeos Belgium were exchanged on a one-for-one basis for newly issued shares of iTeos Inc. iTeos Inc. was a newly-formed holding company, and as a result of the Share Exchange, iTeos Belgium became a wholly owned subsidiary of iTeos Inc. iTeos Therapeutics U.S. Inc. (iTeos U.S.) included the Company’s U.S. operations and was located in Cambridge, Massachusetts. iTeos U.S., which was a wholly owned subsidiary of iTeos Belgium prior to the Share Exchange, continued to be a wholly owned subsidiary of iTeos Belgium throughout 2019. On February 28, 2020, iTeos Inc. purchased iTeos U.S. from iTeos Belgium and then the entities effectively merged.

The Share Exchange was accounted for in accordance with the Financial Accounting Standards Board (FASB) Accounting Standard Codification (ASC) 805-50, Business Combinations—Related Issues. The Company evaluated the guidance in ASC 805-50 with respect to the transaction between entities under common control and concluded that since all shareholders of iTeos Inc. and iTeos Belgium have nearly identical ownership percentages and interests before and after the transaction, the Share Exchange lacks economic substance and represents a transaction between entities with common ownership and should be accounted for in a manner consistent with common control transactions and did not result in a change in control at the ultimate parent or the controlling shareholder level.

Reverse Stock Split and Initial Public Offering

On July 20, 2020, the Company effected a 1-for-3.3115 reverse stock split of the Company’s common stock and adjusted the ratio at which the Company’s preferred stock is convertible into common stock, as well as the number of shares under the 2019 Stock Option and Grant Plan and the Amended and Restated Certificate of Incorporation of iTeos Therapeutics, Inc., as well as the share amounts of stock grants under the plan and the number of options and exercise prices of options under the plan. All shares of common stock, stock options exercisable for shares of common stock, and per share information presented in the accompanying consolidated financial statements and notes thereto have been adjusted, where applicable, to reflect the reverse stock split on a retroactive basis for all periods presented. There was no change in the par value of the Company’s common stock.

On July 28, 2020, the Company completed its initial public offering (IPO), in which the Company issued and sold 10,586,316 shares of its common stock, for aggregate gross proceeds of $201.1 million and its shares started trading on The Nasdaq Global Select Market under the ticker symbol “ITOS.” The Company received approximately $184.0 million in net proceeds after deducting underwriting discounts and commissions and other estimated offering expenses payable by the Company. Upon closing of the IPO, all of the Company's outstanding shares of convertible preferred stock automatically converted into 22,460,076 shares of common stock.

5


 

On August 5, 2020, the underwriters purchased an additional 1,505,359 shares of common stock pursuant to their option to purchase additional shares for net proceeds of $26.6 million after deducting underwriting discounts and commissions.

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 is still in the development phase and has not been marketing any developed products to-date. Since inception, the Company has incurred recurring losses, including a net loss of $13.5 million for the three months ended March 31, 2021. As of March 31, 2021, the Company had an accumulated deficit of $87.4 million. The Company expects to continue to generate operating losses in the foreseeable future. As of May 13, 2021, the issuance date of the condensed consolidated financial statements for the three months ended March 31, 2021, the Company expected that its cash and cash equivalents would be sufficient to fund its operating expenses, capital expenditure requirements and debt service payments through at least 12 months from the issuance date of the condensed consolidated financial statements.

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 additional 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. There can be no assurance that any product candidates will receive the necessary approvals. If the Company was denied approval, approval was delayed or the Company was unable to maintain approval for any product candidate, it could have a materially adverse impact on the Company.  Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.  The Company will need to generate significant revenue to achieve profitability, and it may never do so.

COVID-19

In December 2019, a novel strain of coronavirus (COVID-19) emerged in Wuhan, Hubei Province, China. As of March 31, 2021, COVID-19 has spread to Europe, the United States and many other countries, and has been declared a pandemic by the World Health Organization. Efforts to contain the spread of COVID-19 have intensified.  The United States, including the Commonwealth of Massachusetts where our headquarters are located, as well as countries throughout Europe and Asia have implemented severe travel restrictions, social distancing requirements and stay-at-home orders, among other restrictions, which, in some cases, have had the effect of delaying the commencement of non-COVID-19-related clinical trials. As a result, the COVID-19 pandemic has caused significant disruptions to the U.S., regional and global economies and has contributed to significant volatility and negative pressure in financial markets.

The Company has been carefully monitoring the COVID-19 pandemic and its potential impact on the Company’s business and has taken important steps to help ensure the safety of employees and their families and to reduce the spread of COVID-19 in the Cambridge and Belgian communities. The Company has established a work-from-home policy for all employees, other than those performing or supporting business-critical operations, such as certain members of our laboratory and facilities staff. For those employees, the Company has implemented stringent safety measures designed to comply with applicable federal, state and local guidelines instituted in response to the COVID-19 pandemic. The Company has also maintained efficient communication with the Company’s partners and clinical sites as the COVID-19 situation has progressed. The Company has taken these precautionary steps while maintaining business continuity so that it can continue to progress with its programs.

6


 

While the COVID-19 pandemic did not significantly impact the Company’s business or results of operations during the three months ended March 31, 2021, the length and extent of the pandemic, its consequences, containment efforts and the impact of available vaccines will determine the future impact on the Company’s operations and financial condition.

 

Basis of presentation

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

The unaudited interim condensed consolidated financial statements of the Company included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from this report, as is permitted by such rules and regulations. Accordingly, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements as of and for the years ended December 31, 2020 and 2019, 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 

Principles of consolidation

The accompanying condensed consolidated financial statements include the Company’s accounts and those of its wholly owned subsidiaries. All intercompany accounts, transactions and balances have been eliminated.

Use of estimates

The preparation of the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and expenses, as well as the related disclosures of contingent assets and liabilities. Estimates are used to determine the fair value of the preferred stock tranche rights liability, the fair value of common stock and stock-based awards and other issuances, accruals for research and development costs, useful lives of long-lived assets, probability of repayment for grants repayable, and uncertain tax positions. Actual results could differ materially from the Company’s estimates.

The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including expenses, research and development costs and employee-related amounts, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international markets. The Company has considered the impact of COVID-19 on estimates within its financial statements and there may be changes to those estimates in future periods. As of the date of issuance of these unaudited condensed consolidated financial statements, the Company has not experienced material business disruptions or incurred impairment losses in the carrying value of its assets as a result of the pandemic and is not aware of any specific related event or circumstance that would require it to update its estimates.

 

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents consist of standard checking accounts, money market accounts, and a sweep account that consists of money market funds with highly liquid investments with maturities of three months or less.  Restricted cash represents collateral provided for letters of credit issued as security deposits in connection with the Company’s leases of its corporate facilities.

7


 

Deferred offering costs

The Company capitalizes incremental legal, professional accounting and other third-party fees that are directly associated with in-process preferred stock or common stock financings as other non-current assets until such financings are consummated. After consummation of the equity financing, these costs are recorded as a reduction to the carrying value of convertible preferred stock or additional paid-in-capital generated as a result of the offering. Should a planned equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the condensed consolidated statement of operations and comprehensive loss. After consummation of the IPO, which closed on July 28, 2020, these costs were all recorded in stockholders’ equity as a reduction of additional paid-in capital generated as a result of the offering.  

Collaborative Arrangements

The Company analyzes its collaboration arrangements to assess whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities and are, therefore within the scope of ASC Topic 808, Collaborative Arrangements. This assessment is performed throughout the life of the arrangement and takes into consideration changes in the responsibilities of all parties to the arrangement.

 

 

Recently adopted accounting standards updates

 

On January 1, 2021, the Company adopted Accounting Standard Update, or ASU No. 2016-02 (Topic 842), Leases, or ASC 842. Under the standard, the Company accounts for leases using a right-of-use, or ROU, model, which recognizes that, at the date of commencement, a lessee has a financial obligation to make lease payments to the lessor for the right to use the underlying asset during the lease term. On the date of adoption, the Company recognized a $0.9 million of right-to-use assets and lease liabilities in the consolidated balance sheet.

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement. Leases with a term greater than one year are recognized on the balance sheet as ROU assets and short-term and long-term lease liabilities, as applicable. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. The Company typically only includes an initial lease term in its assessment of a lease arrangement. It also considers termination options and factors those into the determination of lease payments. Options to renew a lease are not included in the assessment unless there is reasonable certainty that the Company will renew.

Operating lease liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected remaining lease term. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rate, which reflects the fixed rate at which it could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

The Company is required to pay fees for operating expenses in addition to monthly base rent for certain operating leases (non-lease components). The Company has not elected the practical expedient which allows non-lease components to be combined with lease components for all asset classes. Variable non-lease components are not included within the lease right-of-use asset and lease liability on the consolidated balance sheet, and instead are reflected as expense in the period they are paid.

The Company’s real estate operating leases provide for scheduled annual rent increases throughout the lease terms. The Company recognizes the effects of the scheduled rent increases on a straight-line basis over the full terms of such leases.

8


 

Note 3. Fair value measurements

The following tables set forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy as of March 31, 2021 and December 31, 2020:

 

 

 

March 31, 2021

 

(in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents (money market funds)

 

$

306,446

 

 

$

 

 

$

 

 

$

306,446

 

Totals

 

$

306,446

 

 

$

 

 

$

 

 

$

306,446

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

 

(in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents (money market funds)

 

$

314,636

 

 

$

 

 

$

 

 

$

314,636

 

Totals

 

$

314,636

 

 

$

 

 

$

 

 

$

314,636

 

 

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

 

The fair value of the Series B Preferred Stock tranche rights liability was estimated using a probability-weighted present value of the benefit of investment with the following significant unobservable inputs (Level 3):

 

 

 

Valuation Dates

 

 

 

March 23, 2020

(Tranche 3

settlement)

 

Implied equity value (in millions)

 

$

208.2

 

Probability of success of reaching necessary

   milestone:

 

 

 

 

Tranche 2 milestone

 

N/A

 

Tranche 3 milestone (by March 31, 2020)

 

 

90

%

Expected industry return over period during which

   milestones are expected to be achieved

 

 

13.0

%

Risk-free interest rate

 

 

1.1

%

 

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 the reporting period. There were no transfers within the hierarchy during the three month periods ended March 31, 2021 and 2020.

 

The following table presents changes during the three months ended March 31, 2021 and 2020 in Level 3 liabilities measured at fair value on a recurring basis:

 

(in thousands)

 

Preferred

Stock

Tranche

Rights

Liability

 

 

 

 

 

 

Balances at January 1, 2020

 

$

5,400

 

Change in estimated fair value

 

 

(1,265

)

Settlement of tranche right

 

 

(4,135

)

Balances at March 31, 2020

 

$

 

 

The preferred stock tranche rights liability was settled on March 24, 2020 and no liability exists thereafter.

 

The above fair value measurements are sensitive to changes in the underlying unobservable inputs. A change in those inputs could result in a significantly higher or lower fair value measurement.

 

 

9


 

 

Note 4. Supplemental balance sheet information

Property and equipment

Property and equipment, net consisted of the following:

 

(in thousands)

 

March 31,

2021

 

 

December 31,

2020

 

Scientific equipment

 

$

2,548

 

 

$

2,617

 

Furniture & office equipment

 

 

641

 

 

 

542

 

Leasehold improvements

 

 

822

 

 

 

855

 

Total

 

 

4,011

 

 

 

4,014

 

Accumulated depreciation and amortization

 

 

(2,661

)

 

 

(2,662

)

Property & equipment, net

 

$

1,350

 

 

$

1,352

 

 

Depreciation and amortization expense was $0.1 million for the three months ended March 31, 2021 and 2020, respectively.  

Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consisted of the following:

 

(in thousands)

 

March 31,

2021

 

 

December 31,

2020

 

Accrued clinical trial costs

 

$

3,566

 

 

$

4,012

 

Accrued personnel costs

 

 

1,671

 

 

 

3,208

 

Accrued professional fees

 

 

40

 

 

 

37

 

Accrued other

 

 

37

 

 

 

229

 

Total accrued expenses and other current liabilities

 

$

5,314

 

 

$

7,486

 

 

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.

Payment terms to Adimab include a one-time upfront technology access fee in the tens of thousands and payments for research support. Adimab is entitled to additional fees of up to a maximum of $0.4 million on a program-by-program basis for the achievement of certain technical milestones, one of which was met and the Company paid $0.2 million in April 2017. Upon the Company’s exercise of an option for an exclusive development and commercialization license, with respect to a target, the Company is required to make a low single digit million-dollar payment to Adimab for each exercised option. In August 2018, the Company paid a $1.0 million nonrefundable fee to exercise an option to acquire certain licenses from Adimab. One of the antibodies licensed under the Adimab Agreement is now what the Company refers to as EOS-448. 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

10


 

$14.5 million for each additional product. 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. 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. To date, the Company has paid a total of $3.4 million to Adimab under the Adimab Agreement.

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.

MSD International GmbH

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

The Company began receiving compounds from MSD on April 1, 2020 and the Company began the research study in the third quarter of 2020.  The terms of the MSD Agreement meet the criteria under ASC Topic 808, Collaborative Arrangements (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.

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 under these grants is $1.2 million.

11


 

Grants which include a potential obligation to repay—RCAs

On July 20, 2017, the Company entered into a recoverable cash advance arrangement whereby the Walloon Region will provide the Company with up to $22.1 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 $4.1 million to be received to fund a research and development program conducted to develop a TIGIT blocking antibody with anti-tumor properties.

Under the terms of both agreements, the Company must decide within 6 months after the end of the research period whether it will further pursue commercial development or out licensing of the drug candidate. The research period for RCA-1 and RCA-2 ends in December and February 2021, respectively, per the current agreements. The Company is currently negotiating an extension of time for RCA-2 with the Walloon Region. The Company must repay 30% of the amount received under the grant by annual installments from 2022 to 2041 (the fixed annual repayments) unless the Company decides not to pursue commercial development or out licensing of the drug candidate, applies for a waiver from the Walloon Region justifying its decision based upon the failure of the program, and returns the intellectual property to the Walloon Region. Because of the requirement to repay 30% of the amounts received under the grant, the Company records the present value of such amounts as grants repayable on the condensed consolidated balance sheets.

In addition, in the event that the Company receives revenue from products or services related to the results of the research, it has to pay to the Walloon Region a 0.33% royalty on revenue resulting from RCA-1 and a 0.12% royalty on revenue resulting from RCA-2. 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, and no grant repayable related to royalties was recorded as of March 31, 2021 or December 31, 2020.

The Company recorded grant income in the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2021 and 2020 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.

The following table reflects activity for grant programs for the three months ended March 31, 2021 and 2020 and end of period balances as of March 31, 2021 and December 31, 2020:

 

 

 

RCA -1

 

 

RCA-2

 

 

Other Grants

 

 

Total

 

(In thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Cash received

 

$

 

 

$

7,693

 

 

$

 

 

 

1,938

 

 

$

 

 

$

 

 

$

 

 

$

9,631

 

Grant income

 

 

855

 

 

 

1,132

 

 

 

435

 

 

 

371

 

 

 

3,625

 

 

 

86

 

 

 

4,915

 

 

 

1,589

 

Grants receivable at the end

   of the period

 

 

 

 

 

 

 

 

540

 

 

 

 

 

 

701

 

 

 

133

 

 

 

1,241

 

 

 

133

 

Grants repayable at the end

   of the period

 

 

4,898

 

 

 

5,102

 

 

 

744

 

 

 

781

 

 

N/A

 

 

 

 

 

 

5,642

 

 

 

5,883

 

 

Note 7. Stockholders’ equity 

On July 20, 2020, the Company effected a 1-for-3.3115 reverse stock split of the Company’s common stock and adjusted the ratio at which the Company’s preferred stock was convertible into common stock, as well as the number of shares under the 2019 Stock Option and Grant Plan and the Amended and Restated Certificate of Incorporation of iTeos Therapeutics, Inc., as well as the share amounts of stock grants under the plan and the number of options and exercise prices of options under the plan. All shares of common stock, stock options exercisable for shares of common stock, and per share information presented in the accompanying consolidated financial statements and notes thereto have been

12


 

adjusted, where applicable, to reflect the reverse stock split on a retroactive basis for all periods presented. There was no change in the par value of the Company’s common stock.

On July 28, 2020, the Company completed an IPO of 10,586,316 shares of its common stock, for aggregate gross proceeds of $201.1 million and its shares started trading on The Nasdaq Global Select Market under the ticker symbol “ITOS.” The Company received approximately $184.0 million in net proceeds after deducting underwriting discounts and commissions and other estimated offering expenses payable by the Company. Upon closing of the IPO, all of the Company's outstanding shares of convertible preferred stock automatically converted into 22,460,076 shares of common stock.  On August 5, 2020, the underwriters purchased an additional 1,505,359  shares of common stock pursuant to their option to purchase additional shares for net proceeds of $26.6 million after deducting underwriting discounts and commissions.  

On July 28, 2020, in connection with the IPO, the Company filed a restated Certificate of Incorporation, which, among other things, restated the number of shares of all classes of stock that the Company has authority to issue to 160,000,000 shares, of which (i) 150,000,000 shares shall be a class designated as common stock, par value $0.001 per share, and (ii) 10,000,000 shares shall be a class 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

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.  On March 24, 2020, the Board of Directors approved an increase to the total authorized options under the 2019 Stock Option and Grant Plan to 3,464,316. Upon the effectiveness of the 2020 Plan (as defined below), no further issuances will be made under the 2019 Plan.

On July 15, 2020, the Company’s Board of Directors approved an amendment 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, the date immediately prior to the date on which the registration statement for the Company’s IPO became effective. The 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 initially reserved for issuance under the 2020 Plan is 3,809,818 which was cumulatively increased on January 1, 2021 and will be increase each January 1 thereafter by 5% of the number of shares of the Company’s common stock outstanding on the immediately preceding December 31 or such lesser number of shares as determined by the Company’s compensation committee of the board of directors. Accordingly, on January 1, 2021, the number of shares of common stock reserved and available for issuance under the 2020 Plan increased by 1,752,237.  The number of shares of common stock reserved for issuance as of March 31, 2021 under the 2020 Plan was 5,562,055.The 2020 Plan replaced the 2019 Plan, as the Company’s board of directors is not expected to make additional awards under the 2019 Plan following the completion of the IPO. However, the 2019 Plan will continue to govern outstanding equity awards granted thereunder.

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 date immediately prior to the date on which the registration statement for the Company’s IPO was declared effective. The ESPP initially reserved and authorized the issuance of up to a total 317,484 shares of common stock to participating employees. The ESPP provides that the number of shares reserved and available for issuance automatically increased on January 1, 2021 and 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

13


 

lesser number of shares as determined by the Company’s compensation committee. Accordingly, on January 1, 2021, the number of shares of common stock reserved and available for issuance under the 2020 ESPP increased by 350,447.  The number of shares of common stock reserved for issuance as of March 31, 2021 under the 2020 ESPP was 667,931.  As of March 31, 2021, no shares had been issued under the 2020 ESPP.

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)

 

2021

 

 

2020

 

Research and development

 

$

275

 

 

$

50

 

General and administrative

 

 

2,309

 

 

 

136

 

Total stock-based compensation expense

 

$

2,584

 

 

$

186

 

 

The following table summarizes stock option activity for the three months ended March 31, 2021:

 

  

 

Stock Options

 

 

 

Shares

 

 

Weighted

average

exercise

price

 

 

Weighted

average

remaining

contractual

life (in

years)

 

 

Aggregate

intrinsic

value (in

thousands)

 

Outstanding as of December 31, 2020

 

 

4,552,396

 

 

$

9.13

 

 

8.2

 

 

 

 

 

Granted

 

 

529,200

 

 

 

41.05

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(2,415

)

 

 

4.24

 

 

 

 

 

 

 

 

 

Exercised

 

 

(56,241

)

 

 

11.85

 

 

 

 

 

 

 

 

 

Outstanding as of March 31, 2021

 

 

5,022,940

 

 

$

12.46

 

 

 

8.2

 

 

$

109,086

 

Exercisable at March 31, 2021

 

 

891,880

 

 

$

4.39

 

 

 

4.7

 

 

$

26,571

 

 

The weighted-average grant-date fair value of options awarded during the three month periods ended March 31, 2021 and 2020 was approximately $31.98 per share and $2.95 per share, respectively. As of March 31, 2021, there was a total of $38.4 million of unrecognized employee compensation costs related to non-vested stock option awards expected to be recognized over a weighted average period of 3.5 years.

The Company estimates the fair value of stock-based compensation utilizing the Black-Scholes option pric