Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes and other financial information appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, 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 the “Risk factors” section of this Annual Report on Form 10-K, 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.
Overview
We are a clinical-stage biopharmaceutical company pioneering the discovery and development of a new generation of immuno-oncology therapeutics for people living with cancer. By leveraging our deep understanding of tumor biology and immunosuppressive pathways, we design novel product candidates with optimized pharmacologic properties to improve clinical outcomes by restoring the immune response against cancer.
We are focused on advancing our innovative pipeline of monoclonal antibodies (mAbs) and small molecules for the treatment of cancer, especially solid tumors. Our immuno-oncology programs target three different key cancer resistance mechanisms: the TIGIT/CD226 pathway, which we are targeting with an antibody to TIGIT (T cell immunoreceptor with lg and ITIM domains); the adenosine pathway, where we are using a small molecule to inhibit ENT1 (equilibrative nucleoside transporter 1); and a macrophage mediated tumor promotion mechanism, where we are antagonizing TREM2 (Triggering Receptor Expressed on Myeloid Cells 2), a critical receptor key to driving the tumor promoting functions of tumor resident macrophages.
Our lead clinical-stage antibody product candidate, belrestotug, is an antagonist of TIGIT, an immune checkpoint with multiple mechanisms of action. Belrestotug was selected for its target affinity with TIGIT, potency, and potential to engage the Fc gamma receptor (FcγR), a key regulator of immune response which triggers a multi-faceted mechanism of action that improves antitumor efficacy. This multi-faceted mechanism includes the activation of dendritic cells, natural killer cells, T lymphocytes, and macrophages, and the promotion of the release of cytotoxic granules and antibody-dependent cellular cytotoxicity (ADCC) activity. In 2020, we initiated an open-label Phase 1/2a clinical trial of belrestotug in adult cancer patients with advanced solid tumors. In April 2021, we reported preliminary safety, pharmacokinetic, engagement and pharmacodynamic data, indicating target engagement and early evidence of clinical activity as a single agent.
On June 11, 2021, our wholly-owned subsidiary, iTeos Belgium S.A., and GSK executed the GSK Collaboration Agreement, which became effective on July 26, 2021. Pursuant to the GSK Collaboration Agreement, we granted GSK a license under certain of our intellectual property rights to develop, manufacture, and commercialize products comprised of or containing belrestotug, which license is exclusive in all countries outside of the United States and co-exclusive, with iTeos, in the United States. GSK and iTeos intend to develop belrestotug in combination, including with other oncology assets of GSK, and iTeos and GSK will jointly own the intellectual property created under the GSK Collaboration Agreement that covers such combinations.
In partnership with GSK, we are enrolling patients in multiple clinical trials:
GALAXIES Lung-301 : global randomized, double-blind Phase 3 registrational study assessing the doublet of GSK's anti-PD-1 with belrestotug versus placebo and pembrolizumab in patients with first-line PD-L1 high NSCLC. In July 2024, we announced the dosing of the first patient in the trial, triggering $35 million in development milestone payments from GSK.
GALAXIES Lung-201 : global randomized, open label Phase 2 platform study assessing dostarlimab with belrestotug and in combination with GSK's nelistotug. In September 2024, we announced that we observed a clinically meaningful objective response rate across each dostarlimab with belrestotug dosing cohort in the GALAXIES Lung-201 study and a safety profile that was broadly consistent with the known safety profile of combination therapy with checkpoint inhibitors.
GALAXIES H&N-202 : global, randomized, open label Phase 2 platform study assessing dostarlimab with belrestotug and other novel immuno-oncology combinations, including nelistotug, in patients with first-line PD-L1 positive advanced / metastatic HNSCC.
TIG-006 HNSCC : randomized, open label Phase 1/2 study assessing dostarlimab with belrestotug in first-line PD-L1 positive advanced / metastatic HNSCC. In May 2024, we announced completion of enrollment in the first portion of the Phase 2 expansion part of the trial. We and GSK agreed to not continue beyond stage 1 recruitment in these open-label cohorts in order to focus on the randomized, controlled GALAXIES H&N-202 platform study.
We and GSK continue to explore two novel triplets in selected advanced solid tumors both in Phase 1b trials: belrestotug with dostarlimab and GSK’s nelistotug, and belrestotug with dostarlimab and GSK'562, GSK's anti-PVRIG.
Our second clinical program is EOS-984, a potentially first-in-class small molecule focused on a new mechanism in the adenosine pathway by targeting ENT1, a dominant transporter of extracellular adenosine, expressed on intratumoral T cells, which allows adenosine entry into the cell, disturbing T cell metabolism, expansion, effector function, and survival. EOS-984 has the potential to fully reverse adenosine immune suppression and restore T cell proliferation and activity in the tumor microenvironment, as a monotherapy and in combination with other standards of care. We are evaluating EOS-984 in a Phase 1 trial in advanced malignancies. We completed enrolling patients in the monotherapy dose escalation portion and are treating patients in the EOS-984 and pembrolizumab combination portion of the study.
We are also developing EOS-215, a potential best-in-class monoclonal antibody which antagonizes triggering receptor expressed on myeloid cells 2 (TREM2). TREM2 macrophages in tumors promote tumor growth and survival. The antibody is designed to block ligand binding and alter tumor resident macrophage function resulting in anti-tumor effects. EOS-215 has been shown preclinically to have a meaningful impact on macrophage function, promoting multiple anti-tumor mechanisms including T cell activation. The therapeutic candidate's multiple mechanisms of action have been shown to translate to activity in highly immune resistant models and has completed IND-enabling studies.
In December 2024, we presented clinical, translational, and preclinical data from our adenosine A2AR antagonist program, inupadenant, also known as EOS-850, including interim data from the dose escalation portion of A2A-005, the Phase 2 trial assessing inupadenant and platinum-doublet chemotherapy in post-immunotherapy metastatic non-small cell lung cancer. While the initial signal for inupadenant’s recommended Phase 2 dose in the A2A-005 trial compared to chemotherapy alone was encouraging and supported its differentiated, insurmountable profile, we as well as our scientific and clinical advisory boards believed it did not meet sufficient level of clinical activity to warrant further investment.
Since our inception in August 2011, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, conducting discovery and research activities, filing patent applications, identifying potential product candidates, undertaking preclinical studies and clinical trials and establishing arrangements with third parties for the manufacture of initial quantities of our product candidates and component materials. To date, we have financed our operations primarily through license and collaboration revenue generated through the GSK Collaboration Agreement and through our Initial Public Offering ("IPO"). Through December 31, 2024, we had raised an aggregate of $210.6 million of net proceeds from the IPO, $177.1 million from the sale of preferred stock, received an up-front payment of $625.0 million with respect to the GSK Collaboration Agreement, and received net proceeds of $119.7 million from the registered direct offering executed in the quarter ended June 30, 2024. As of December 31, 2024, our principal sources of liquidity were cash and cash equivalents, which totaled $142.1 million, and available-for-sale securities, which totaled $512.9 million.
We expect to continue to incur significant expenses in connection with ongoing development activities, particularly if and as we:
continue preclinical studies and clinical trials and initiate new clinical trials for our product candidates;
pursue regulatory approvals for our product candidates;
advance the development of our product candidate pipeline;
continue research activities as we seek to discover and develop additional product candidates;
obtain, maintain, expand and protect our intellectual property portfolio;
hire additional research and development, clinical and commercial personnel;
scale up our clinical and regulatory capabilities; and
add operational, financial and management information systems and personnel, including personnel to support our research and development programs, any future commercialization efforts and our transition to operating as a public company.
We are also party to other collaboration and license agreements in addition to the GSK Collaboration Agreement pursuant to which we may be required to make future royalty and milestone payments. In January 2017, we entered into a collaboration agreement with Adimab, LLC ("Adimab"), pursuant to which we paid $1.0 million in 2018 to exercise an option to acquire certain licenses from Adimab. One of the antibodies licensed under this agreement is what we now refer to as belrestotug. In February 2021, we entered into an amendment to this 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, we may be required to pay development, regulatory and commercial milestone payments totaling up to an aggregate of $45.8 million for the first three products and additional milestone payments up to $14.5 million for each additional product. In 2022, we made a payment of $2.0 million due to reaching an additional milestone (dosing of first patient for Phase 2 clinical trial). In the fourth quarter of 2023, we obtained an exclusive licensing option from Adimab and incurred a $1.0 million option fee. We also paid a $3.0 million milestone payment in connection with the dosing of the first patient in a Phase 3 trial, which occurred in July 2024. We will also pay Adimab low to mid single-digit percentage royalties on a country-by-country and product-by-product basis on worldwide net sales of licensed products. Through December 31, 2024, we have paid a total of $9.4 million to Adimab relating to milestones, option and other fees pursuant the Adimab Agreement.
We are also party to a biologics master services agreement (the "WuXi Agreement") with WuXi Biologics Hong Kong Limited ("WuXi"), pursuant to which we will pay WuXi, at our election, either a low single-digit percentage royalty on global net sales of manufactured products or a one-time milestone payment in the low tens of millions.
On December 10, 2019, we 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, we sponsor a clinical trial in which both our compound and MSD’s compound are dosed in combination. We conduct the research at our own cost and MSD contributes its compound towards the study at no cost to us. We 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. We began receiving compounds from MSD on April 1, 2020 and we began the research study in the third quarter of 2020.
Components of our results of operations
Revenue
To date, our revenues have been derived from the upfront payment associated with the GSK Collaboration Agreement and a milestone payment achieved through this agreement.
For all collaboration agreements, no development or commercial milestones were included in the transaction price at inception, as all milestone amounts were fully constrained. As part of our evaluation of the constraint, we considered numerous factors, including that receipt of the milestones is outside our control and contingent upon success in future clinical trials and the licensee’s efforts. Any consideration related to sales-based milestones will be recognized when the related sales occur as they were determined to relate predominantly to the license granted to GSK and therefore have also been excluded from the transaction price. We are applying the royalty exception for sales-based royalties and will not recognize revenue until the subsequent sale of product occurs.
Research and development expenses
Research and development expenses consist primarily of costs incurred for the development of our product candidates, which include:
costs to obtain licenses to intellectual property and related future payments should certain success, development and regulatory milestones be achieved;
employee-related expenses, including salaries, benefits and stock-based compensation expense;
expenses incurred under agreements with contract research organizations ("CROs"), contract manufacturing organizations ("CMOs"), and independent contractors that conduct research and development, preclinical and clinical activities on our behalf;
costs of purchasing lab supplies and non-capital equipment used in our preclinical activities and in manufacturing clinical study materials through CMOs;
consulting and professional fees related to research and development activities; and
facility costs, depreciation, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance, and other supplies.
We expense research and development costs as incurred. We recognize costs for certain development activities, such as preclinical studies and clinical trials, based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors, such as patient enrollment or clinical site activations for services received and efforts expended.
Research and development activities are central to our business model. We expect research and development costs to increase significantly for the foreseeable future as our current development programs progress and new programs are added.
Because of the numerous risks and uncertainties associated with product development, we cannot determine with certainty the duration and completion costs of the current or future preclinical studies and clinical trials or if, when, or to what extent we will generate revenues from the commercialization and sale of any product candidates that receive regulatory approval. We may never succeed in achieving regulatory approval for 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, but not limited to:
successful enrollment in, and completion of, clinical trials;
receipt of marketing approvals from applicable regulatory authorities;
successful completion of preclinical studies and IND-enabling studies;
establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
obtaining and maintaining patent and trade secret protection and non-patent exclusivity;
launching commercial sales of the product, if and when approved, whether alone or in collaboration with others;
acceptance of a product, if and when approved, by patients, the medical community and third-party payors;
effectively competing with other therapies and treatment options;
a continued acceptable safety profile following approval;
enforcing and defending intellectual property and proprietary rights and claims; and
achieving desirable medicinal properties for the intended indications.
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 comparable foreign 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.
The following table summarizes our principal product development programs, including allocated research and development expenses allocated to each clinical product candidate:
Year ended
December 31,
(in thousands)
Allocated research and development expenses by
program:
Belrestotug
Inupadenant
EOS-984
EOS-215
Other R&D activities expense
Unallocated research and development expenses
Payroll and employee costs
Stock-based compensation
Other unallocated research and development
Total research and development expense
The presentation above has been further disaggregated compared to the historical presentation. This disaggregation was made to better align the breakdown of costs included above to the presentation of segment expenses now presented in Note 14, Segments, in the consolidated financial statements. The presentation of segment expenses was brought on by our adoption of ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures . The prior period figures have been recast to reflect the new presentation. Minor adjustments have also been made to the prior period program costs to align with the expense presentation required under the adoption of ASU 2023-07.
General and administrative expenses
General and administrative expenses consist primarily of employee-related expenses, including salaries, benefits and stock-based compensation, for personnel in executive, finance, business development, facility operations and administrative functions. Other significant costs include facility costs not otherwise included in research and development expenses, legal fees relating to patent and corporate matters and fees for accounting, tax and consulting services.
Grant income
We have agreements with granting agencies whereby we receive funding under grants that partially or fully reimburse us for eligible research and development expenditures. Certain grant agreements require us to repay the funding depending on whether we decide to pursue commercial development or out-licensing of any drug candidate that is produced from the research program. The repayment provision includes a portion that is fixed (corresponding to 30% of the grant), payable in annual installments, which is effective unless we decide not to pursue commercial development or out licensing of the drug candidate. The repayment provision also includes a potential obligation to pay a royalty that is contingent upon achieving sales of a product developed through the program. The maximum amount payable to the granting agency under each grant, including the fixed repayments, the royalty on revenue and the interest thereon, is twice the amount of funding received.
Research and development tax credits
Our wholly-owned subsidiary iTeos Belgium S.A., as a Belgian biotechnology company, qualifies for a cash-based tax credit on research and development expenses. The credit is calculated based on a percentage of eligible research and development expenses defined by the Belgian government for each fiscal year (15.5% for 2024 and 20.5% for 2023) and then applying the effective tax rate to that result. The research and development tax credits are refundable to us if we are unable to use the credits to offset income taxes for the five subsequent tax years. We record a receivable and other income as the qualified expenses are incurred, as we are reasonably assured that the credit will be received, based upon our history of filing for the tax credits. Research and development tax
credits receivable where we expect to receive refunds more than one year after the balance sheet date are classified as noncurrent in the consolidated balance sheet.
Interest income
Interest income consists of interest earned on our available-for-sale securities, money market funds, and bank sweep accounts.
Other income, net
Other income, net includes income and expenses that do not fall within other categories of the statement of operations and comprehensive loss. Items included are bank fees and gain or loss on foreign currency transactions.
Income taxes
We are subject to income taxes in the U.S. and Belgium. Belgium has a statutory tax rate different from the U.S. Accordingly, our effective tax rates will vary depending on the relative proportion of foreign to U.S. income, the utilization of foreign tax credits and changes in tax laws. Deferred tax assets are reduced through the establishment of a valuation allowance, if, based upon available evidence, it is determined that it is more likely than not that the deferred tax assets will not be realized. Income tax expense results from foreign minimum income tax and profit on a legal entity basis. For the first time since inception, we recognized income in 2021. Due to the revenue earned, we recognized income tax expense in 2021. As of December 31, 2024, we had foreign net operating loss carryforwards of $61.9 million with no expiration. As of December 31, 2024, we had no federal U.S. net operating loss carryforwards and had $35.9 million of state net operating loss carryforwards. These net operating losses, along with temporary differences related primarily to capitalized research and development, or R&D expenses for tax purposes in Belgium and stock-based compensation in the U.S., resulted in a net deferred tax asset of $97.3 million. We have concluded that it is more likely than not that we will not realize the benefits of the deferred tax asset, and accordingly, established a full valuation allowance as of December 31, 2024. In addition, the Company recorded a $46.7 million liability as of December 31, 2024, related to an uncertain tax position regarding the Company’s allocation of revenue between Belgium and the U.S.
Results of operations
Comparison of the years ended December 31, 2024 and 2023
The following table summarizes our results of operations for the years ended December 31, 2024 and 2023, together with the dollar change in those items:
Year ended
December 31,
Change
(in thousands)
Revenue:
License and collaboration revenue
Total Revenue
Operating expenses:
Research and development expenses
General and administrative expenses
Total operating expenses
Loss from operations
Other income and expense:
Grant income
Research and development tax credits
Interest income
Other income, net
Loss before income taxes
Income tax expense
Net loss
License and collaboration revenue
Refer to Note 5, License and collaboration agreements, of the consolidated financial statements.
License and collaboration revenue equaled $35.0 million for the year ended December 31, 2024, relating to the achievement of the milestone payment in connection with the first dose in the Phase 3 GAL-301 study. License and collaboration revenue equaled $12.6 million for the year ended December 31, 2023, relating to the recognition of revenue for the last portion of the GSK upfront payment. The increase in 2024 was due to the first milestone achieved in connection with the GSK agreement, whereas in 2023 the last of the revenue relating to the upfront payment was recognized, and no milestones were achieved during that year.
Research and development expenses
Research and development expenses increased by $32.1 million to $145.4 million for the year ended December 31, 2024, from $113.3 million for the year ended December 31, 2023. This increase reflects an increase of $18.0 million in clinical expenses, an increase of $7.0 million of payroll and related costs, a $2.8 million increase in stock-based compensation, a $1.8 million increase in facilities related and other costs, a $1.8 million increase in milestones paid, and an increase of $0.8 million in professional and consulting fees. The primary driver of the increase was the increased clinical activities relating to the Belrestotug program, as the Phase 3 study for GAL-301 launched and ramped up during the year, as well as increased activities in our other programs.
General and administrative expenses
General and administrative expenses decreased by $1.3 million to $49.1 million for the year ended December 31, 2024 from $50.4 million for the year ended December 31, 2023. The decrease was primarily attributable to a decrease of $1.9 of various insurance and other costs and a $0.4 million decrease in recruiting costs. These decreases were partially offset by a $0.6 million increase in payroll and related costs, a $0.3 million increase in professional fees, and a $0.1 million increase in stock-based compensation.
Grant income
Refer to Note 6, Government grant funding and potential repayment commitments under recoverable cash advance grants (RCAs), of the consolidated financial statements.
Grant income decreased by $0.2 million to $2.5 million for the year ended December 31, 2024 from $2.7 million for the year ended December 31, 2023. The majority of the grant income in 2024 again related to the non-RCA grants which were first initiated in late 2022.
Research and development tax credits
Research and development tax credits decreased by $0.8 million for the year ended December 31, 2024, driven by a decrease in the eligible spend compared to the previous year and a decrease to the crediting rate from 20.5% in 2023 to 15.5% in 2024.
Interest income
Refer to Note 3 , Fair value and investments , of the consolidated financial statements.
Interest income decreased by $1.0 million in 2024 compared to 2023, driven by the reduction of rates observed during the year. The majority of the Company's holdings consist of US Treasury and Government-backed securities. As such, the multiple rate cuts enacted by the Federal Reserve had a downward impact on our yields for newly purchased securities and for returns generated by money market funds. The decreased interest rate impact was partially offset by an increase in our invested funds due to the gross proceeds received from the registered direct offering ("RDO") with RA Capital and Boxer Capital in the second quarter of 2024.
Other income, net
The main driver of the decrease of $1.0 million of other income in 2024 compared to 2023 was the existence of one-time miscellaneous income items which occurred in 2023 and did not recur in 2024. Foreign exchange impact remained largely flat for the year-ended 2024 compared to 2023. A decrease in realized gains in 2024 compared to 2023 resulting from less related activity in the current year, was offset by an increase of unrealized gains in 2024 compared to 2023 due to the strengthening of the US Dollar to the Euro observed in late 2024.
Income tax expense
Year ended December 31,
(in thousands)
Loss before income taxes
Income tax expense
Effective tax rate
Our effective tax rate decreased from (3.3)% to (11.7)% in the year ended December 31, 2024 as compared to the year ended December 31, 2023. The 2024 effective tax rate differed from the federal and foreign statutory rates of 21% and 25%, respectively, primarily due to the impact of U.S. taxes on foreign earnings, uncertain tax positions and the change in valuation allowance. The Company recorded an additional $5.8 million liability during the year ended December 31, 2024 relating to an uncertain tax position regarding the Company’s allocation of revenue from the GSK Collaboration Agreement between Belgium and the U.S. The 2023 effective tax rate was lower than the federal and foreign statutory rates of 21% and 25%, respectively, primarily due to the consolidated pretax net loss generated in 2023, the income tax generated on interest income on cash equivalents and short-term investments, which could not be offset by operating expenses. In addition, the Company maintained its full valuation allowance on the net deferred tax assets as of December 31, 2023.
See Note 9, Income Taxes , to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for further details.
Liquidity and capital resources
In June, 2021, the Company's wholly-owned subsidiary, iTeos Belgium S.A., and GSK executed the GSK Collaboration Agreement, pursuant to which we agreed to grant GSK a license under certain of our intellectual property rights to develop, manufacture, and commercialize products comprised of or containing our antibody product, belrestotug. Under the GSK Collaboration Agreement, GSK made an upfront payment of $625.0 million on August 5, 2021.
To date, we have funded our operations primarily with proceeds from the IPO, the sales of preferred stock, grants and licenses and the upfront payment from the GSK Collaboration Agreement. As of December 31, 2024, we had $142.1 million in cash and cash equivalents and $512.9 million in available-for-sale securities. We have also recorded a milestone payment in the amount of $35.0 million relating to the revenue recognized for the initiation of the GALAXIES-301 Phase 3 clinical trial. In addition, on May 10, 2023, we entered into a Sales Agreement (the "Sales Agreement") with Cowen and Company LLC ("Cowen") to offer and sell shares of our common stock having an aggregate offering price of up to $125,000,000, from time to time, through an at-the-market offering program. Under the Sales Agreement, Cowen will be entitled to compensation up to 3.0% of the gross proceeds of any shares of common stock sold under the Sales Agreement. To date we have not made any sales pursuant to the at-the-market offering program. Furthermore, to date we have not generated any revenue from product sales and do not expect to generate revenue from the sales of products for the foreseeable future.
In the quarter ended June 30, 2024, we entered into a Securities Purchase Agreement ("SPA") with RA Capital and Boxer Capital, LLC ("Boxer Capital"), pursuant to which the Company sold to RA Capital a pre-funded warrant to purchase up to an aggregate of 5,714,285 shares of our common stock, and to Boxer Capital 1,142,857 shares of our common stock (together, the "Securities"). The aggregate consideration for the pre-funded warrant sold to RA Capital was $100.0 million, or $17.499 per share of common stock underlying the pre-funded warrant, which, together with the exercise price per share of underlying common stock, was equal to $17.50 per share of common stock, and the aggregate consideration for the shares of common stock sold to Boxer Capital was $20.0 million, or $17.50 per share. In aggregate, the total proceeds from the sale of the Securities to the Investors is $120.0 million, partially offset by $0.4 million of costs incurred to execute the offering.
In addition, in the event that we receive revenue from products or services related to the intellectual property developed arising from our recoverable cash advance agreement with the Walloon Region, we must pay to the Walloon Region a 0.33% royalty on revenue related to the inupadenant grant and a 0.15% royalty on revenue on the belrestotug grant (increased from 0.12% effectively December 2021). The maximum amount payable to the Walloon Region under each grant, including the fixed annual repayments, the royalty on revenue, and the interest thereon, is twice the amount of grant received. The Company paid the amount that had been accrued for in prior periods, and therefore there was no accrual recorded as of December 31, 2024, for the upfront payment received pursuant to the GSK Collaboration Agreement.
The following is a summary of our contractual obligations as of December 31, 2024:
Contractual Obligation
Total
Less than
1 year
More than
1 year and
less than 3
More than
3 years and
less than 5
More than
5 years
(In thousands)
Operating lease obligation (1)
Grants repayable (2)
Totals
In May 2023, the Company entered into an amendment to again increase the office and laboratory space by an additional 453 square meters for a total of 2,684 square meters. In July 2023, we entered into an agreement to access 859 square meters of laboratory space in Gosselies, Belgium for the purpose of building out future laboratory space. We began to occupy this space beginning in March 2024.
We have entered into two arrangements with the Walloon Region of Belgium, whereby the Walloon Region would provide us with up to $25.7 million for our belrestotug ($4.8 million) and inupadenant ($20.9 million) research and development programs. As of December 31, 2024, we had received all available funds under these grants. We must repay 30% of the amount received under the grants in annual installments from 2023 to 2042 unless we decide to abandon our intellectual property rights in the drug candidate, apply for a waiver from the Walloon Region justifying our decision based upon the failure of the program, and return the intellectual property to the Walloon Region. Of the total repayable balance, $0.4 million was the current portion and $5.8 million was the non-current portion as of December 31, 2024. The current portion is recorded to accrued expenses and other liabilities.
The table above does not include potential milestone and success fees, sublicense fees, royalty fees on grants received, licensing maintenance fees and reimbursement of patent maintenance costs that we may be required to pay under agreements we have entered into with certain institutions to license intellectual property. Our agreements to license intellectual property include potential milestone payments that are dependent upon the
development of products using the intellectual property licensed under the agreements and contingent upon the achievement of development or regulatory approval milestones, as well as commercial and success payment milestones. We have not included such potential obligations in the table above because they are contingent upon the occurrence of future events and the timing, likelihood and amount of such potential obligations are not known with certainty.
Under the GSK Collaboration Agreement and as part of the Global Development Plan, the Company and GSK agree to spend an aggregate amount of at least $900 million. GSK is responsible for 60% of the cost, while the Company is responsible for the remaining 40% of the cost related to the Global Development Plan. We have not included such potential expenditures, as the timing of the obligations are not known with certainty.
We enter into contracts in the normal course of business with CROs and clinical sites for the conduct of clinical trials, professional consultants for expert advice and other vendors for clinical supply manufacturing or other services. These contracts are not included in the table above as they provide for termination on notice, and therefore are cancelable contracts and do not include any minimum purchase commitments.
Cash flows
The following table provides information regarding our cash flows for the years ended December 31, 2024 and 2023:
Year ended
December 31,
(in thousands)
Net cash (used in) provided by:
Operating activities
Investing activities
Financing activities
Effects of exchange rate changes on cash, cash
equivalents and restricted cash
Net (decrease) increase in cash, cash equivalents
and restricted cash
Net cash used in operating activities
Net cash used in operating activities was $98.2 million during the year ended December 31, 2024 compared to $103.8 million during the year ended December 31, 2023. The $5.5 million decrease in cash used in comparison to the cash used during 2023 was primarily due to the receipt of the $35.0 million milestone payment in 2024, partially offset by the increase from a $112.6 million net loss in 2023 to a $134.4 million net loss in 2024.
Net cash (used in) provided by investing activities
Net cash used in investing activities was $131.1 million for the year ended December 31, 2024 compared to $72.7 million net cash provided by investing activities in the prior year. In the year ended December 31, 2024, we purchased $520.8 million of investments, partially offset by $391.3 million of proceeds from matured investments, and $1.6 million of purchases of property, equipment, and other assets. The overall increase in cash usage for investing activities was driven by the increased deployment of cash for investing purposes compared to the prior year. This usage was driven by the intent to secure higher yields into the future, when at points in the year it seemed that the Federal Reserve was going to make more interest rate cuts than observed. The increase in investment was also partially due to the $120 million gross increase in cash relating to the RDO, and the investment of a major portion of such funds during the year.
Net cash provided by financing activities
Net cash provided by financing activities was $122.4 million during the year ended December 31, 2024. This was primarily due to the gross proceeds of $120.0 million received from the RDO transaction executed during the year. Total proceeds from stock option exercises of $2.7 million also contributed to this total. These inflows were partially offset by the payment of $0.3 million of offering costs and $0.2 million of grants repayable. Net cash
provided by financing activities was $1.1 million during the year ended December 31, 2023. This was entirely due to the proceeds received from the exercise of stock options during the year.
Effects of exchange rate changes on cash, cash equivalents and restricted cash
The effects of exchange rate changes on cash, cash equivalents and restricted cash for the year ended December 31, 2024 decreased by $1.8 million from the prior year. This decrease was the result of the reduction of returns of capital made to the Belgium entity from its subsidiary in 2024 compared to 2023.
Funding requirements
We expect our expenses to increase in connection with our ongoing activities, particularly as we continue our clinical stage programs for both belrestotug, inupadenant, and EOS-984, and move to larger randomized and registration-directed trials for our programs, initiate new research and preclinical development efforts and seek marketing approval for any product candidates that we successfully develop. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to establishing sales, marketing, distribution and other commercial infrastructure to commercialize such products.
In June, 2021, our wholly-owned subsidiary, iTeos Belgium S.A., and GSK executed the GSK Collaboration Agreement, pursuant to which we agreed to grant GSK a license under certain of our intellectual property rights to develop, manufacture, and commercialize products comprised of or containing our antibody product, belrestotug. Under the GSK Collaboration Agreement, GSK made an upfront payment of $625.0 million on August 5, 2021. Additionally, we are eligible to receive up to $1.45 billion in milestone payments, contingent upon the belrestotug program achieving certain development and commercial milestones.
As of December 31, 2024, we had cash and cash equivalents of $142.1 million and available-for-sale securities of $512.9 million. We believe our existing cash and cash equivalents and available-for-sale securities will enable us to fund our operating expenses and capital expenditure requirements through 2027.
We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with the development and commercialization of belrestotug and inupadenant, and the research, development and commercialization of other potential product candidates, we are unable to estimate the exact amount of our operating capital requirements. Our future capital requirements will depend on many factors, including:
the scope, progress, timing, costs and results of clinical trials of product candidates;
research and preclinical development efforts for any future product candidates that we may develop;
our ability to enter into and the terms and timing of any collaborations, licensing agreements or other arrangements;
the number of future product candidates that we pursue and their development requirements;
the outcome, timing and costs of seeking regulatory approvals;
the costs of commercialization activities for any of our product candidates that receive marketing approval to the extent such costs are not the responsibility of any future collaborators, including the costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities;
subject to receipt of marketing approval, revenue, if any, received from commercial sales of our current and future product candidates;
our headcount growth and associated costs as we expand our research and development and establish a commercial infrastructure;
the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against intellectual property related claims;
the costs of operating as a public company; and
the emergence of competing therapies and other adverse market developments.
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 we have prepared in accordance with U.S. generally accepted accounting principles. We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as critical because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate, and different estimates—which also would have been reasonable—could have been used. On an ongoing basis, we evaluate our estimates and judgments, including those described in greater detail below. We base our estimates on historical experience and other market-specific or other relevant assumptions that we believe to be 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.
While our significant accounting policies are described in more detail in the notes to our financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements.
Revenue Recognition
We generate revenue from our GSK Collaboration Agreement. We recognize revenue in accordance with ASC 606, which applies to all contracts with customers, except for contracts that are within the scope of other standards. Under ASC 606, we recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that we determine are within the scope of ASC 606, we perform the following five steps:
identify the contract(s) with a customer;
identify the performance obligations in the contract;
(iii)
determine the transaction price;
allocate the transaction price to the performance obligations in the contract; and
recognize revenue when (or as) the entity satisfies a performance obligation.
We only apply the five-step model to contracts when it is probable that the entity will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determine those that are performance obligations, and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. We do not include a financing component in our estimated transaction price at contract inception unless we estimate that certain performance obligations will not be satisfied within one year. Additionally, we recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that we otherwise would have recognized is one year or less.
We must develop assumptions that require judgment to determine whether the individual promises should be accounted for as separate performance obligations or as a combined performance obligation, and to determine the stand-alone selling price for each performance obligation identified in the contract. Since the upfront license was bundled with other promises, we utilized judgment to assess the nature of the combined performance obligation and determined that the combined performance obligation is satisfied over time. Revenue is recognized using a percent complete method based on costs incurred compared with the total expected costs to be incurred (cost-to-cost measure of progress). There were no outputs from the performance obligation. As a result, an input method was appropriate. A cost to cost measure of progress provides a faithful depiction of the transfer of services to the customer since the predominant inputs to the performance obligation are labor costs, research and development supplies and manufacturing supplies related to the Phase 1 Study, clinical manufacturing and know-how transfer. In accordance with ASC 606, constrained variable consideration is recognized when it is probable that there will not be a significant reversal of the revenue when the uncertainty associated with the variable consideration is resolved. Revenue relating to constrained variable consideration will be recognized as a
cumulative catch-up in the period in which the uncertainty is resolved if the performance obligation has already been fully satisfied.
Collaborative Arrangements
We analyze our 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. For collaboration arrangements that contain multiple elements, we first determine which elements of the collaboration are deemed to be within the scope of ASC 808. We also determine if there are any elements of the arrangement in which the third party meets the definition of a customer, and would therefore fall under the scope of ASC 606. The elements accounted for under ASC 808 may include reimbursements from and payments to parties due to the activities performed by either party. Any reimbursement from parties involved in a collaboration agreement are recorded as a reduction to research and development expense. Payments made to parties involved in a agreement are recorded as research and development expense. For the elements accounted for under ASC 606, we apply the five-step model described above.
Research and development expenses
As part of the process of preparing our financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed for us and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time, which we periodically confirm with the service providers and make adjustments if necessary. Examples of accrued research and development expenses include fees paid to:
CROs in connection with clinical trials;
CMOs with respect to clinical materials, intermediates, drug substance and drug product;
vendors in connection with research and preclinical development activities; and
vendors related to manufacturing, development and distribution of clinical supplies.
The preceding estimates and judgments materially affect our recognition of revenue. Changes in our estimates of forecasted development costs could impact percentage complete and could have a material effect on revenue recorded in the period in which we determine that change occurs.
Stock-based compensation expense
The fair value of stock options and Employee Stock Purchase Plan awards we grant is estimated using the Black Scholes option pricing model. This option pricing model based on certain subjective assumptions, including (i) the expected stock price volatility, (ii) the expected term of the award, (iii) the risk-free rate of interest, and (iv) expected dividends. The fair value of our common stock utilized in the model is determined based on the quoted market price of our common stock. Expected volatility is estimated considering the Company's own historical volatility, as well as that of identified peer companies. Expected term is estimated using the simplified method per SAB 107. The risk-free rate is estimated using daily treasury curve rates. The Company does not issue dividends.
The fair value of restricted stock units we grant is based on the quoted market price of our common stock on the date of grant.
Government grant funding and potential repayment commitments under recoverable cash advance grants ("RCAs")
We have agreements with granting agencies whereby we receive funding under grants, which partially or fully reimburse us for eligible research and development expenditures. Certain grant agreements require us to repay the funding wherein the repayment provision of the grants is predicated on whether we decide to pursue commercial development or out licensing of the drug candidate that is produced from the results of the research program. The repayment provision includes a portion that is fixed (corresponding to 30% of the grant) which is effective after we decide to pursue commercial development or out licensing of the drug candidate. The
repayment provision also includes a potential obligation to pay a royalty that is contingent upon achieving sales of a product developed through the program. The maximum amount payable to the granting agency under each grant, including the fixed repayments, the royalty on revenue, and the interest thereon, is twice the amount of funding received.
Grant funding for research and development received under grant agreements where there is a repayment provision is recognized as other income to the extent there is no present obligation to repay such funding. We record the present value of the liability as a grant repayable in the accompanying consolidated balance sheets. The grant repayable is subsequently recorded at amortized cost.
Income taxes
We are subject to taxes in the U.S. and Belgium. Significant judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We make these estimates and judgments about our future taxable income that are based on assumptions that are consistent with our future plans. Tax laws, regulations and administrative practices may be subject to change due to economic or political conditions including fundamental changes to the tax laws applicable to corporate multinationals. The U.S. and many countries in the European Union are actively considering changes in this regard. As of December 31, 2024 and 2023, we had recorded a full valuation allowance on our net deferred tax assets because we expect that it is more likely than not that our deferred tax assets will not be realized. Should the actual amounts differ from our estimates, the amount of our valuation allowance could be materially impacted.
Furthermore, significant judgment is required in evaluating our tax positions. In the ordinary course of business, there are many transactions and calculations for which the ultimate tax settlement is uncertain. As a result, we recognize the effect of this uncertainty on our tax attributes or taxes payable based on our estimates of the eventual outcome. These effects are recognized when, despite our belief that our tax return positions are supportable, we believe that it is more likely than not that some of those positions may not be fully sustained upon review by tax authorities. We are required to file income tax returns in the U.S. and Belgium, which requires us to interpret the applicable tax laws and regulations in effect in such jurisdictions. Such returns are subject to audit by the various federal, state and foreign taxing authorities, who may disagree with respect to our tax positions. We believe that our consideration is adequate for all open audit years based on our assessment of many factors, including past experience and interpretations of tax law. We review and update our estimates in light of changing facts and circumstances, such as the closing of a tax audit, the lapse of a statute of limitations or a change in estimate. To the extent that the final tax outcome of these matters differs from our expectations, such differences may impact income tax expense in the period in which such determination is made. The eventual impact on our income tax expense depends in part on if we still have a valuation allowance recorded our deferred tax assets in the period that such determination is made.
Recent accounting pronouncements
Refer to Note 2, “Summary of Significant Accounting Policies,” in the accompanying notes to the consolidated financial statements for a discussion of recent accounting pronouncements.
Emerging growth company and smaller reporting company status
The Jumpstart Our Business Startups Act of 2012 permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected not to “opt out” of this provision and, as a result, we will adopt new or revised accounting standards at the time private companies adopt the new or revised accounting standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company. We have, however, elected to early-adopt certain new or revised accounting standards as of dates that may or may not coincide with the effective dates of private companies.
We are also a “smaller reporting company”, meaning that the market value of our stock held by non-affiliates was less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million. If
we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
Item 7A. Quantitative and Qualitati ve Disclosures About Market Risk.
We are exposed to market risk related to changes in interest rates. As of December 31, 2024 and December 31, 2023, we had cash and cash equivalents of $142.1 million and $251.2 million, respectively. We had available-for-sale fixed income securities of $512.9 million and $381.3 million as of December 31, 2024 and December 31, 2023, respectively. Our exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of interest rates in the United States and Belgium. As of December 31, 2024, our cash and cash equivalents was held primarily in savings, money market accounts and money market funds. Our fixed income securities were held primarily in U.S. treasury obligations, U.S. government agency obligations, and investment-grade corporate debt securities. The majority of the fixed income securities will mature within one year from December 31, 2024. There are no securities that will mature in a period greater than two years from December 31, 2024. Because of the short-term nature of the instruments in our portfolio, an immediate 10% change in the interest rate would not have a material impact on the fair market value of our investment portfolio or on our financial position or results of operations.
We are subject to the risk of fluctuations in foreign currency exchange rates as our primary market risk exposure, specifically with respect to the euro. Our functional currency is the U.S. dollar and the functional currency of our wholly-owned subsidiary, iTeos Belgium SA, is the euro. An immediate 5% change in the Euro exchange rate would not have any material effect on our results of operations.
Assets and liabilities of iTeos Belgium SA are translated into U.S. dollars at the exchange rate in effect on the balance sheet date. Income items and expenses are translated at the average exchange rate in effect during the period. Unrealized translation gains and losses are recorded as a cumulative translation adjustment, which is included in the condensed consolidated statements of stockholders’ equity as a component of accumulated other comprehensive loss. Adjustments that arise from exchange rate changes on transactions denominated in a currency other than the local currency are included in other income and expenses, net in the condensed consolidated statements of operations and comprehensive income as incurred.
Item 8. Financial Statement s and Supplementary Data.
The financial statements required to be filed pursuant to this Item 8 are appended to this Annual Report on Form 10-K. An index of those financial statements is found in Item 15, Exhibits, Financial Statement Schedules, of this Annual/ Report on Form 10-K.
