S-1 1 d892230ds1.htm S-1 S-1
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As filed with Securities and Exchange Commission on June 24, 2020

Registration No. 333–            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

iTeos Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware   2836   84-3365066
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

iTeos Therapeutics, Inc. 139 Main Street

Cambridge, MA 02142 (339) 217 0162 (Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Michel Detheux, Ph.D. Chief Executive Officer iTeos Therapeutics, Inc. 139 Main Street

Cambridge, MA 02142 (339) 271 0161 (Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies to:

 

Mitchell S. Bloom, Esq.
Danielle Lauzon, Esq.
Goodwin Procter LLP
100 Northern Avenue
Boston, Massachusetts 02210
(617) 570-1000
 

Divakar Gupta

Richard Segal

Brent B. Siler

Madison A. Jones

Cooley LLP

55 Hudson Yards

New York, New York 10001

(212) 479-6000

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the following box.  

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 7(a)(2)(B) of the Securities Act.  

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of
Securities to be Registered
  Proposed Maximum
Aggregate Offering
Price(1)(2)
  Amount of
Registration
Fee

Common stock, $0.001 par value per share

  $100,000,000   $12,980

 

 

(1)   Estimated solely for the purpose of computing the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended.
(2)   Includes the offering price of shares that the underwriters may purchase pursuant to an option to purchase additional shares.

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant files a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the Securities and Exchange Commission declares our registration statement effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

 

Subject to completion, dated June 24, 2020

Preliminary prospectus

                 Shares

 

LOGO

Common stock

This is an initial public offering of shares of common stock by iTeos Therapeutics, Inc. We are offering                  shares of our common stock. The initial public offering price is expected to be between $             and $             per share.

Prior to this offering, there has been no public market for our shares. We have applied to list our common stock on The Nasdaq Global Market under the symbol “ITOS.”

We are an “emerging growth company” and a “smaller reporting company” under the federal securities laws and, as such, we have elected to comply with certain reduced public company reporting requirements for this prospectus and for future filings.

 

     
      Per share      Total  

Initial public offering price

   $                        $                    

Underwriting discounts and commissions(1)

   $        $    

Proceeds to iTeos Therapeutics, Inc., before expenses

   $        $    
(1)   See “Underwriting” for a description of compensation payable to the underwriters.

We have granted the underwriters an option for a period of up to 30 days to purchase up to                  additional shares of our common stock.

Investing in our common stock involves a high degree of risk. Before buying any shares, you should read carefully the discussion of the material risks of investing in our common stock under the heading “Risk factors” starting on page 14 of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities that may be offered under this prospectus, nor have any of these organizations determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares of common stock to purchasers on or about             , 2020.

 

J.P. Morgan   SVB Leerink    Piper Sandler
  Wedbush PacGrow   

            , 2020


Table of Contents

Table of contents

 

     Page  

Prospectus summary

     2  

Risk factors

     14  

Special note regarding forward-looking statements

     80  

Use of proceeds

     83  

Dividend policy

     85  

Corporate reorganization

     86  

Capitalization

     87  

Dilution

     89  

Selected consolidated financial data

     92  

Management’s discussion and analysis of financial condition and results of operation

     94  

Business

     113  

Management

     167  

Executive compensation

     176  

Non-employee director compensation

     186  

Certain relationships and related person transactions

     188  

Principal stockholders

     192  

Description of capital stock

     195  

Shares eligible for future sale

     201  

Material U.S. federal income tax considerations for non-U.S. holders

     203  

Underwriting

     207  

Legal matters

     215  

Experts

     215  

Where you can find more information

     215  

Index to financial statements

     F-1  

Neither we nor the underwriters have authorized anyone to provide you with information different from, or in addition to, that contained in this prospectus, any amendment or supplement to this prospectus and any related free writing prospectus prepared by or on behalf of us or to which we have referred you. We and the underwriters take no responsibility for, and can provide no assurances as to the reliability of, any information that others may give you. This prospectus is not an offer to sell, nor is it seeking an offer to buy, these securities in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus or in any free writing prospectus is only accurate as of its date, regardless of its time of delivery or the time of any sale of our common stock. Our business, financial condition, results of operations and future prospects may have changed since that date. No action is being taken in any jurisdiction outside the United States to permit a public offering of our common stock or possession or distribution of this prospectus in that jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions as to this offering and the distribution of this prospectus applicable to that jurisdiction.

Through and including                             ,     (25 days after the date of this prospectus), all dealers that buy, sell or trade our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

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About this prospectus

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

Unless otherwise indicated or the context otherwise requires, all references in this prospectus to the terms “iTeos” “the company,” “we,” “us” and “our” refer to (i) iTeos Belgium SA and its wholly owned subsidiary iTeos Therapeutics US, Inc. prior to the completion of our corporate reorganization and (ii) iTeos Therapeutics, Inc. and its subsidiary iTeos Belgium SA after the completion of our corporate reorganization.

We own or have applied for rights to various trademarks, service marks and trade names that we use in connection with the operation of our business. This prospectus may also contain trademarks, service marks and trade names of third parties, which are the property of their respective owners. Our use or display of third parties’ trademarks, service marks, trade names or products in this prospectus is not intended to, and does not imply a relationship with, or endorsement or sponsorship by us. Solely for convenience, the trademarks, service marks and trade names referred to in this prospectus may appear without the ®, TM or SM symbols, but the omission of such references is not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable owner of these trademarks, service marks and trade names.

 

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Prospectus summary

This summary highlights information contained in greater detail elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should carefully read this entire prospectus, including our consolidated financial statements and the related notes thereto included elsewhere in this prospectus. You should also consider, among other things, the information set forth under the sections titled “Risk factors,” “Special note regarding forward-looking statements,” and “Management’s discussion and analysis of financial condition and results of operations,” in each case appearing elsewhere in this prospectus. Unless the context otherwise requires, we use the terms “iTeos,” “the Company,” “we,” “us,” “our” and similar designations in this prospectus to refer to iTeos Therapeutics, Inc. and, where appropriate, its subsidiary.

Overview

We are a clinical-stage biopharmaceutical company pioneering the discovery and development of a new generation of highly differentiated immuno-oncology therapeutics for patients. We leverage our deep understanding of the tumor microenvironment and immunosuppressive pathways to design novel product candidates with an aim to improve the clinical benefit of oncology therapies. Our innovative pipeline includes two clinical-stage programs targeting novel, validated immuno-oncology pathways designed to build on prior learnings in the field to have differentiated pharmacological and clinical profiles. Our most advanced product candidate, EOS-850, is designed as a highly selective small molecule antagonist of the adenosine A2a receptor, or A2AR, in the adenosine triphosphate, or ATP, adenosine pathway, a key driver of immunosuppression in the tumor microenvironment across a broad range of tumors. We are investigating EOS-850 in an open-label Phase 1/2a clinical trial in adult patients with advanced solid tumors and we have observed encouraging preliminary single-agent activity in the dose escalation portion of the trial. We expect to report initial data from monotherapy and combination therapy expansion cohorts in the first half of 2021. Our lead antibody product candidate, EOS-448, is an antagonist of TIGIT, or T-cell immunoreceptor with Ig and ITIM domains, a checkpoint that has a role in both inhibitory and stimulatory pathways in the immune system. EOS-448 was also designed to engage the Fc gamma receptor, or FcgR, to promote antibody-dependent cellular cytotoxicity, or ADCC, activity, including the elimination of tumor-infiltrating regulatory T cells, or Tregs. We have recently initiated an open-label Phase 1/2a clinical trial of EOS-448 in adult patients with advanced solid tumors and expect to report initial data in the first half of 2021. We retain worldwide rights to develop and commercialize all of our product candidates.

In recent years, the treatment of cancer has been reshaped by the promise of immuno-oncology therapies, particularly checkpoint inhibitors, or CPIs. Cancer cells have evolved the ability to evade recognition by the immune system, including by expressing immune checkpoints that inhibit the immune response. Therapies that target these checkpoint interactions have shown the ability to reactivate the immune response against tumors and have become a foundation of immuno-oncology regimens. While these therapies have provided significant therapeutic benefit in a number of indications, they have been shown clinically to have limited efficacy in a majority of patients with cancer. Furthermore, in patients where CPIs are initially efficacious, the long-term benefit has been shown to be limited as the majority of these patients eventually become resistant or refractory to therapy. In the United States, approximately 44% of patients are eligible for CPIs, and 20% to 30% of those patients actually respond to such treatment.

We are dedicated to understanding immune resistance pathways with the goal of generating novel product candidates that restore the immune response against cancer. Our drug discovery efforts are driven by our

 

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extensive knowledge in immuno-metabolism, characterization of immunosuppressive mechanisms in the tumor microenvironment, pharmacology and translational medicine. Our two clinical-stage product candidates, EOS-850 and EOS-448, each target a key mechanism that inhibits an effective antitumor immune response: the ATP-adenosine pathway and a novel checkpoint TIGIT, respectively. We believe that both product candidates have the potential to further increase patient responses to standard cancer therapies, including immunotherapy. We are integrating a biomarker-rich strategy into our clinical programs to maximize this potential through choosing synergistic combination agents and identifying patients most likely to benefit from our product candidates. We are also using our deep understanding of the critical immune resistance pathways to identify new targets and generate additional differentiated programs for underexploited pathways validated by a strong scientific rationale.

Our pipeline

The following chart summarizes our clinical product pipeline. We hold worldwide development and commercialization rights to our product candidates.

 

LOGO

EOS-850, our A2AR antagonist for cancer immunotherapy

The ATP-adenosine pathway is recognized as a key pathway that modulates immune responses in pathological conditions. We designed EOS-850 to inhibit the ATP-adenosine pathway by specifically targeting A2AR, which is the primary adenosine receptor on immune cells with a high affinity for adenosine. We also chose to target A2AR because we believe it is a key mediator of immunosuppression in this pathway as opposed to targeting upstream enzymes that are involved in production of adenosine in tumors. A2AR is expressed across a number of solid tumors and hematological malignancies with high unmet medical need making it a target with broad clinical potential. As elevated levels of adenosine in the tumor microenvironment are known to be immunosuppressive, we also designed EOS-850 to remain potent at high adenosine concentrations and maintain continuous target coverage. With this profile, we believe that EOS-850 has the potential for enhanced antitumor activity as compared to other A2AR antagonists currently in clinical development.

 

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In our preclinical studies, we showed that EOS-850 inhibited adenosine pathway-mediated immunosuppression and led to both T cell activation and antitumor activity, when dosed either as monotherapy or in combination with CPIs and chemotherapy. We also showed in preclinical studies that dosing of EOS-850 in combination with a CPI resulted in the rejection of tumors after reintroduction without further treatment, suggesting the potential for a durable immune memory response. In the dose escalation portion of our ongoing Phase 1/2a clinical trial of EOS-850 in 21 heavily pre-treated patients with advanced solid tumors, we observed preliminary evidence of clinical benefit in seven patients who have achieved at least stable disease. Of these seven patients, as of June 10, 2020, two have exhibited confirmed partial responses, one with CPI-refractory metastatic melanoma and one with heavily pretreated metastatic castration-resistant prostate cancer, or CRPC. EOS-850 has been reported to be generally well tolerated, and as of June 10, 2020, with four of 21 patients remaining on-study, we have observed no dose-limiting toxicity or treatment-related serious adverse events in the dose escalation cohort. Based on these results, we plan to continue development of EOS-850 both as a monotherapy, to further evaluate activity we have observed and to identify relevant biomarkers for patient selection, and in combination with pembrolizumab, a CPI approved for use in a variety of cancers, and other standard cancer therapies. We are currently enrolling a monotherapy expansion cohort of up to 24 patients to further evaluate the safety, pharmacodynamics and pharmacokinetics of the recommended Phase 2 dose in a subset of solid tumor indications that we believe are most likely to benefit from single-agent treatment including melanoma, non-small cell lung cancer, or NSCLC, CRPC and endometrial cancer. We expect to report initial data from the expansion cohort of this Phase 1/2a clinical trial in the first half of 2021. We are also analyzing tumor samples from our enrolled patients to help identify biomarkers that could be used to select patients in future clinical trials. These biomarkers include the expression of A2AR and adenosine-producing enzymes within the tumor, the presence of immune cells within the tumor and several tumor gene signatures, including an immune gene signature. We plan to use these data to determine the correlation between expression of these potential predictive markers and clinical response to EOS-850.

We are planning to further assess EOS-850 in combination with pembrolizumab and with chemotherapy beginning in the third quarter of 2020, initially evaluating safety and tolerability of the combination regimens before enrolling expansion cohorts in select indications. We have selected settings where current immunotherapies, such as CPIs, have not had optimal outcomes, such as in (i) CRPC, for which CPIs have had limited benefit, (ii) melanoma patients who are resistant to treatment with anti-PD-1 antibodies, and (iii) the 60% of patients with triple-negative breast cancer, or TNBC, who are not eligible to receive standard-of-care atezolizumab, a CPI, in combination with chemotherapy as a first line treatment for metastatic disease.

EOS-448, our FcgR-engaging anti-TIGIT antibody

EOS-448 is an anti-TIGIT human immunoglobulin G1, or IgG1, antibody that we are developing to inhibit the immunosuppressive activity of TIGIT. TIGIT is a cell surface receptor expressed on multiple immune cells, including CD8+ T cells, natural killer, or NK, cells and T regulatory cells, or Tregs, a cell population that inhibits the immune response and, in the context of cancer, promotes tumor growth by inhibiting the activation and proliferation of effector T cells and NK cells. TIGIT has also been shown to be a mediator of resistance to existing CPIs, including anti-PD-1. We have designed EOS-448 to have high affinity for TIGIT and also to actively engage FcgR. We have shown in preclinical studies using a mouse anti-TIGIT antibody that engagement of FcgR was an important mediator of antitumor activity in vivo. Engagement of FcgR by EOS-448 results in activation of a number of immune cells, including NK cells, macrophages and other effector cells, promoting inflammation and their cell killing function. Through engagement of FcgR and activation of ADCC, EOS-448 is designed to deplete Tregs, which are known to express high levels of TIGIT, within the tumor microenvironment. In our preclinical studies, we have also shown that EOS-448 had high binding to TIGIT and, compared to a number of

 

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clinical stage anti-TIGIT antibody equivalents, generated high levels of immune cell activation in an IL-2 promoter-dependent functional assay.

Our preclinical data suggest that EOS-448 has the potential to deliver robust single-agent antitumor activity and could be complementary to and used in combination with other cancer therapies such as CPIs and chemotherapy. Our preclinical data also suggests that EOS-448 is active in combination with EOS-850 and chemotherapy, thus creating the potential for intra-portfolio synergies. TIGIT is also expressed on tumor cells in certain hematological malignancies. Based on the high expression of TIGIT in multiple solid tumors and hematological malignancies, we believe there is significant potential for EOS-448 in clinical applications. We recently began the dose escalation portion of a Phase 1/2a clinical trial of EOS-448 as a monotherapy in patients with solid tumors with the primary goal of assessing its safety and tolerability. The dose escalation portion is expected to be completed in the fourth quarter of 2020, with the data being reported in the first half of 2021, which we anticipate will enable us to start multiple expansion cohorts in select indications with different combinations.

Following the dose escalation, we are planning to evaluate EOS-448 in monotherapy and in combination with an anti-PD-1 antibody and other standard cancer therapies in solid tumors and hematological cancers. We intend to select indications for the investigation of EOS-448 based on biologic rationale that we believe could predict meaningful clinical responses, such as the prevalence of expression of TIGIT, of key ligands and co-receptors, and the infiltration of effector cells and Tregs, as well as the competitive landscape and unmet medical need. We have identified tumors with elevated TIGIT expression, suggesting it could play a critical role in creating and maintaining a highly immunosuppressive tumor microenvironment, such as melanoma, head and neck squamous cell carcinoma, gastric cancer, lung cancer and breast cancer.

Preclinical programs

We have developed significant expertise in tumor immunology and the tumor microenvironment, which we are leveraging to expand our pipeline. We have active research programs focused on additional targets that complement our clinical adenosine and TIGIT programs. We anticipate selecting a development candidate for the adenosine pathway inhibitor to advance into IND-enabling toxicology studies by the first quarter of 2021. We plan to continue to further our knowledge in tumor immunity and the tumor microenvironment and select targets for additional candidates to ensure continuous development of our pipeline.

Our history and team

We began our research and development activities as a spin-off of Ludwig Cancer Research and have built significant expertise in designing novel cancer immunotherapies.

We have assembled a seasoned management team with extensive experience in developing novel oncology therapies, including advancing product candidates from preclinical research through clinical development and ultimately regulatory approval and commercialization. Our team is led by our President, Chief Executive Officer and founder Michel Detheux, Ph.D., who gained extensive experience in research and business development at Ogeda SA. Matt Call, MBA, our Chief Operating Officer, spent over 16 years and held numerous roles including Chief Operating Officer at Endocyte, Inc. Joanne Lager, M.D., our Chief Medical Officer, has 16 years of experience in oncology drug development, most recently as Head of Global Oncology Development at Sanofi. Matthew Gall, our Chief Financial Officer, has over 15 years of experience in healthcare and was most recently the Senior Vice President of Corporate Development and Treasurer at Sarepta Therapeutics, Inc.

 

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We have raised $177.1 million of capital, from a group of leading life sciences investors, including MPM Capital, RA Capital Management, Boxer Capital, Janus Henderson, HBM Partners, RTW Investments and The Invus Group.

Strategy

Our vision is to transform the treatment of patients suffering from cancer by creating a broad portfolio of immuno-oncology therapies focused on novel targets in the tumor microenvironment. The key pillars of our strategy to achieve our vision include:

 

 

Build upon the differentiated profile and encouraging preliminary single-agent activity of our most advanced product candidate, EOS-850, to advance it through clinical development and regulatory approval.    Based on the preliminary single-agent activity we observed in the dose escalation portion of our Phase 1/2a clinical trial, we intend to advance EOS-850 as a single agent and in combination with standard cancer treatments for a range of solid tumors. We plan to initiate expansion cohorts of EOS-850 in combination with pembrolizumab in patients with melanoma who are resistant to anti-PD-1 therapy and in patients with CRPC, and in combination with carboplatin and paclitaxel in patients with TNBC.

 

 

Exploit the broad potential of TIGIT inhibition and advance EOS-448, our FcgR-engaging anti-TIGIT antibody, through clinical development and regulatory approval.    We believe that the profile of EOS-448, with inhibition of TIGIT and engagement of FcgR, has the potential to deliver potent antitumor activity across a wide range of cancer types. We have initiated a Phase 1/2a clinical trial of EOS-448 as a monotherapy for patients with solid tumors and expect to report initial dose-escalation data in the first half of 2021. We intend to evaluate EOS-448 in multiple solid tumors and hematological malignancies as a single agent and in combination with existing therapies, including CPIs, as well as with our A2AR antagonist, EOS-850.

 

 

Leverage our deep understanding of immune pathways and the tumor microenvironment to identify novel product candidates.    Since our founding, we have established extensive knowledge in immuno-metabolism, characterization of the immunosuppressive mechanisms in the tumor microenvironment, pharmacology and translational medicine. We plan to leverage our expertise to continue to select and pursue novel immuno-oncology product candidates both through in-house research and in-licensing of complementary technologies.

 

 

Maximize the value of our product candidates and pipeline by selectively entering into strategic collaborations.    We hold worldwide development and commercial rights to our pipeline of immuno-oncology programs, and we intend to commercialize our product candidates, if approved, in key geographies. In the future, we may selectively enter into strategic collaborations around certain targets, product candidates, disease areas or geographies and to enable potentially synergistic therapeutic combinations if we believe these collaborations could maximize the value of our product candidates and bring them to more patients. For example, we have entered into a non-exclusive clinical supply agreement with Merck & Co, or Merck, to evaluate EOS-850 in combination with pembrolizumab.

 

 

Maintain a strong culture of innovation and build a leading immuno-oncology company putting patients first in everything we do.    Core to our strategy is continuing to build a team and company culture that prioritizes patient needs as we develop our lead programs and pipeline assets by applying our deep expertise in understanding of the tumor microenvironment to the discovery and development of novel immuno-oncology therapies that have the potential to provide breakthroughs for patients suffering from cancers with limited treatment options. We believe our presence in Cambridge, Massachusetts and Belgium is a strategic advantage that enhances our ability to attract global talent and remain at the forefront of innovation in the field of immuno-oncology.

 

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Series B-2 convertible preferred stock financing

In March 2020, we raised an aggregate of $125.4 million in gross proceeds from the sale of our Series B-2 convertible preferred stock, led by Boxer Capital LLC and RA Capital Management L.P. and with participation from multiple other dedicated life sciences investors.

Risks associated with our business

Our ability to implement our business strategy is subject to numerous risks that you should be aware of before making an investment decision. These risks are described more fully in the section entitled “Risk factors” in this prospectus. These risks include, among others:

 

 

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 incurred significant losses since inception, and we expect to incur losses over the next several years and may not be able to achieve or sustain revenues or profitability in the future;

 

 

We have never generated any revenue from product sales and may never be profitable;

 

 

We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development or commercialization efforts;

 

 

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;

 

 

Difficulty in enrolling patients could delay or prevent clinical trials of our current product candidates and any future product candidates. We may find it difficult to enroll patients in our ongoing clinical trials or any subsequent trials we may conduct and our receipt of necessary regulatory approvals could be delayed or prevented;

 

 

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;

 

 

If we are unable to successfully commercialize any product candidate for which we receive regulatory approval, or experience significant delays in doing so, our business will be materially harmed;

 

 

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;

 

 

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;

 

 

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

 

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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.

Corporate information

We were incorporated in October 2019 under the laws of the State of Delaware. Our principal executive offices are located at 139 Main Street, Cambridge, MA 02142, and our telephone number is (339) 217-0162. We have one subsidiary located in Belgium, iTeos Belgium SA, which was incorporated in August 2011 under the laws of Belgium. Our website address is https://www.iteostherapeutics.com. The information contained in or accessible from our website is not incorporated into this prospectus, and you should not consider it part of this prospectus. We have included our website address in this prospectus solely as an inactive textual reference.

Corporate reorganization

Pursuant to the corporate reorganization, on October 4, 2019, iTeos Therapeutics, Inc., iTeos Belgium SA, and the stockholders of iTeos Belgium SA entered into an Equity Contribution and Exchange Agreement, or the Share Exchange, pursuant to which all outstanding shares of preferred stock, common stock and profit certificates of iTeos Belgium SA were exchanged on a one-for-one basis for newly issued shares of iTeos Therapeutics, Inc. iTeos Therapeutics, Inc. was a holding company, and as a result of the Share Exchange, iTeos Belgium SA became a wholly owned subsidiary of iTeos Therapeutics, Inc. Please see “Corporate reorganization” for more information.

Implications of being an emerging growth company and a smaller reporting company

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, as amended. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include:

 

 

being permitted to only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s discussion and analysis of financial condition and results of operations” disclosure;

 

 

reduced disclosure about our executive compensation arrangements;

 

 

not being required to hold advisory votes on executive compensation or to obtain stockholder approval of any golden parachute arrangements not previously approved; and

 

 

an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.

We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of this offering; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission, or the SEC. We may choose to take advantage of some but not all of these exemptions. We have taken advantage of reduced reporting requirements in this prospectus. Accordingly, the information contained herein may be different from the information you receive from other public companies in which you hold stock.

 

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We have elected not to “opt out” of the exemption for the delayed adoption of certain accounting standards and, therefore, we will adopt new or revised accounting standards at the time private companies adopt the new or revised accounting standard, unless earlier adopted, 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 are also a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates plus the proposed aggregate amount of gross proceeds to us as a result of this offering is 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 after this offering 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.

 

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The offering

 

Common stock offered by us

                shares

Common stock to be outstanding after this offering

                shares (or              shares if the underwriters exercise their option to purchase additional shares in full)

Option to purchase additional shares

   We have granted the underwriters a 30-day option to purchase up to              additional shares of our common stock at the initial public offering price, less the underwriting discounts and commissions.

Use of proceeds

   We estimate that the net proceeds to us from the sale of              shares of our common stock in this offering will be $         million, or $         million if the underwriters exercise their option to purchase additional shares in full, assuming an initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds of this offering, together with our existing cash to (i) fund clinical development of EOS-850, (ii) fund clinical development of EOS-448, (iii) fund development of other product candidates in our pipeline and our drug discovery programs and (iv) for general corporate purposes. See “Use of proceeds.”

Proposed Nasdaq Global Market symbol

   “ITOS”

Risk factors

   Investment in our common stock involves substantial risks. You should read this prospectus carefully, including the section entitled “Risk factors” and the financial statements and the related notes to those statements included in this prospectus, before investing in our common stock.

The number of shares of our common stock outstanding after this offering is based on 72,413,546 shares of our common stock outstanding as of March 31, 2020, after giving effect to the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 71,563,984 shares of common stock upon the completion of this offering, and excludes:

 

 

6,119,737 shares of common stock issuable upon exercise of options outstanding under our 2019 Stock Option and Grant Plan, or our 2019 Plan, at a weighted-average exercise price of $1.27 per share, as of March 31, 2020;

 

 

5,539,912 shares of common stock issuable upon exercise of options outstanding under our 2019 Plan, at a weighted-average exercise price of $1.42 per share, granted subsequent to March 31, 2020;

 

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5,352,347 shares of common stock reserved for issuance under our 2019 Plan as of March 31, 2020;

 

 

             shares of common stock to be reserved for future issuance under our 2020 Stock Option and Incentive Plan, or our 2020 Plan, to be effective upon the effectiveness of the registration statement of which this prospectus forms a part; and

 

 

             shares of common stock to be reserved for future issuance under our 2020 Employee Stock Purchase Plan, or the 2020 ESPP, to be effective upon the effectiveness of the registration statement of which this prospectus forms a part.

Except as otherwise noted, all information in this prospectus:

 

 

gives effect to a          for         reverse stock split of our common stock effected on         , 2020;

 

 

assumes no exercise of the underwriters’ option to purchase up to              additional shares of common stock in this offering;

 

 

assumes no exercise of the outstanding options described above;

 

 

gives effect to the automatic conversion upon the completion of this offering of all of our outstanding shares of preferred stock into an aggregate of 71,563,984 shares of common stock; and

 

 

assumes the filing of our amended and restated certificate of incorporation and the effectiveness of our amended and restated bylaws, which will occur upon the closing of this offering.

 

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Summary consolidated financial data

The following summary consolidated financial data should be read together with “Management’s discussion and analysis of financial condition and results of operations” and the consolidated financial statements, related notes and other financial information included elsewhere in this prospectus. The summary consolidated financial data in this section are not intended to replace the consolidated financial statements and are qualified in their entirety by the consolidated financial statements and related notes included elsewhere in this prospectus.

We have derived the consolidated statement of operations data for the years ended December 31, 2018 and 2019 from our audited consolidated financial statements appearing elsewhere in this prospectus. We have derived the summary statement of operations data for the three months ended March 31, 2019 and 2020 and the summary consolidated balance sheet data as of March 31, 2020 from our unaudited consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results that may be expected in the future, and our interim period results are not necessarily indicative of results to be expected for a full year or any other interim period.

 

     
    

Year ended December 31,

    

Three months ended March 31,

 
(in thousands, except share and per share amounts)    2018     2019      2019     2020  

Consolidated statement of operations data:

         

Operating expenses:

         

Research and development expenses

   $ 17,189     $ 19,211      $ 4,351     $ 5,825  

General and administrative expenses

     4,312       8,837        1,769       2,418  
  

 

 

   

 

 

    

 

 

   

 

 

 

Total operating expenses

     21,501       28,048        6,120       8,243  
  

 

 

   

 

 

    

 

 

   

 

 

 

Loss from operations

     (21,501     (28,048      (6,120     (8,243

Other income and expenses:

         

Grant income

     2,928       3,989        764       1,589  

R&D tax credits

     756       790        198       184  

Fair value adjustment for preferred stock tranche rights liability and anti-dilution warrants liability

     (130     1,019        784       1,265  

Other expense, net

     (99     (85      (28     (42
  

 

 

   

 

 

    

 

 

   

 

 

 

Net loss before income tax

     (18,046     (22,335      (4,402     (5,247

Income tax expense

     11       119               
  

 

 

   

 

 

    

 

 

   

 

 

 

Net loss

     (18,057     (22,454      (4,402     (5,247

Cumulative dividends on Series A Preferred Stock

     (427     (427      (107     (107

Accretion of redeemable convertible preferred stock to redemption value

     (1,582     (3,654      (697     (1,195
  

 

 

   

 

 

    

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (20,066   $ (26,535    $ (5,206   $ (6,549
  

 

 

   

 

 

    

 

 

   

 

 

 

Basic and diluted net loss per common share (1)

   $ (32.63   $ (39.51    $ (8.47   $ (7.71
  

 

 

   

 

 

    

 

 

   

 

 

 

Weighted-average common shares outstanding—basic and diluted (1)

     615,000       671,552        615,000       849,562  
  

 

 

   

 

 

    

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders—basic and diluted (1)

     $ (0.92      $ (0.17
  

 

 

   

 

 

    

 

 

   

 

 

 

Pro forma weighted-average common shares outstanding—basic and diluted (1)

  

 

 

      24,507,960     

 

 

      31,379,567  

 

(1)   See Note 13 to our consolidated financial statements and Note 11 to our unaudited interim financial statements appearing elsewhere in this prospectus for further details on the calculation of basic and diluted net loss per common share and on the calculation of pro forma basic and diluted earnings per common share.

 

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     As of March 31, 2020  
(in thousands)    Actual     Pro forma(1)     Pro forma as
adjusted(2)
 

Balance sheet data:

      

Cash

   $ 147,732     $ 147,732     $                    

Total assets

     153,970       153,970    

Redeemable convertible preferred stock

     177,978          

Accumulated deficit

     (41,112     (41,112  

Total stockholders’ (deficit) equity

     (38,526     139,452    

 

 

 

 

(1)   Pro forma balance sheet data give effect to the automatic conversion of all outstanding shares of convertible preferred stock upon the completion of this offering.

 

(2)   The pro forma as adjusted balance sheet data give further effect to the sale by us of         shares of our common stock offered in this offering, at the initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The pro forma as adjusted information discussed above is illustrative only and will depend on the actual initial public offering price and other terms of this offering determined at pricing. A $1.00 increase (decrease) in the assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash, total assets and total stockholders’ equity by $         million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, an increase (decrease) of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash, total assets and total stockholders’ equity by $         million, assuming no change in the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

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Risk factors

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this prospectus, including our financial statements and the related notes thereto and the section of this prospectus titled “Management’s discussion and analysis of financial condition and results of operations” before you make an investment decision. The occurrence of any of the events or developments described below could harm our business, financial condition, results of operations and prospects. As a result, the market price of our common stock could decline, and you may lose all or part of your investment in our common stock.

Risks related to our limited operating history, financial position and capital requirements

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 are a clinical-stage immuno-oncology company with a limited operating history. We commenced operations in 2012, and our operations to date have been limited 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. Our two lead product candidates, EOS-850 and EOS-448, are currently in clinical trials and we have additional programs in preclinical development. We have not yet demonstrated our ability to successfully conduct or complete any clinical trials, obtain marketing approvals, manufacture a commercial-scale product or arrange for a third party to do so on our behalf, or conduct sales, marketing and distribution activities necessary for successful product commercialization. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history.

In addition, as an early-stage business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We will need to transition at some point from a company with a research and development focus to a company capable of supporting commercial activities. We may not be successful in such a transition.

We expect our financial condition and operating results to continue to fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. Accordingly, you should not rely upon the results of any quarterly or annual periods as indications of future operating performance.

We have incurred significant losses since inception, and we expect to incur losses over the next several years and may not be able to achieve or sustain revenues or profitability in the future.

Investment in biopharmaceutical product development is a highly speculative undertaking and entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory approval and become commercially viable. We are still in the early stages of development of our product candidates. Our most advanced product candidate, EOS-850, and our lead antibody product candidate, EOS-448, are each in ongoing Phase 1/2a clinical trials. We have no products licensed for commercial sale and have not generated any revenue from product sales to date, and we continue to incur significant research and development and other expenses related to our ongoing operations. We have financed our operations primarily through private placements of our preferred stock.

 

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We have incurred significant net losses in each period since inception. For the years ended December 31, 2018 and 2019, our net losses were $18.1 million and $22.4 million, respectively. For the three months ended March 31, 2019 and 2020, we reported net losses of $4.4 million and $5.2 million, respectively. As of March 31, 2020, we had an accumulated deficit of $41.1 million. We expect to continue to incur significant losses for the foreseeable future, and we expect these losses to increase substantially if and as we:

 

 

conduct preclinical studies and clinical trials for our current and future product candidates;

 

 

continue our research and development efforts and submit investigational new drug applications, or INDs, for future product candidates;

 

 

seek marketing approvals for any product candidates that successfully complete clinical trials;

 

 

build commercial infrastructure to support sales and marketing for any approved product candidates;

 

 

scale up external manufacturing and distribution capabilities for clinical and, if approved, commercial supply of our product candidates;

 

 

expand, maintain and protect our intellectual property portfolio;

 

 

hire additional clinical, regulatory and scientific personnel and scale up such capabilities; and

 

 

operate as a public company.

Because of the numerous risks and uncertainties associated with biopharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses we will incur or when, if ever, we will be able to achieve profitability. Even if we succeed in eventually commercializing one or more of our product candidates, we will continue to incur substantial research and development and other expenditures to develop, seek approval for, and market additional product candidates. We may never succeed in these activities and, even if we succeed in commercializing one or more of our current product candidates and any future product candidates, we may never generate revenues that are significant or large enough to achieve profitability. In addition, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown challenges that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on stockholders’ equity (deficit).

We have never generated any revenue from product sales and may never be profitable.

Our ability to become profitable depends upon our ability to generate revenue. To date, we have not generated any revenue from any product sales. We have no products approved for commercial sale, and do not anticipate generating any revenue from product sales until after we have received marketing approval for the commercial sale of a product candidate, if ever. Our ability to generate revenue and achieve profitability depends significantly on our success in achieving a number of goals, including:

 

 

initiating and completing research regarding, and preclinical and clinical development of, EOS-850, EOS-448, and any future product candidates;

 

 

obtaining marketing approvals for EOS-850, EOS-448, and any future product candidates for which we complete clinical trials;

 

 

developing a sustainable and scalable manufacturing process for EOS-850, EOS-448, and any future product candidates, including establishing and maintaining commercially viable supply and manufacturing relationships with third parties;

 

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launching and commercializing EOS-850, EOS-448, and any future product candidates for which we obtain marketing approvals, either directly or with a collaborator or distributor;

 

 

obtaining market acceptance of EOS-850, EOS-448, and any future product candidates as viable treatment options;

 

 

addressing any competing technological and market developments;

 

 

identifying, assessing, acquiring and developing new product candidates;

 

 

negotiating favorable terms in any collaboration, licensing, or other arrangements into which we may enter;

 

 

obtaining, maintaining, protecting, and expanding our portfolio of intellectual property rights, including patents, trade secrets, and know-how; and

 

 

attracting, hiring, and retaining qualified personnel.

Even if our current product candidates or any future product candidates that we develop are approved for commercial sale, we anticipate incurring significant costs associated with commercializing any such product candidate. Our expenses could increase beyond expectations if we are required by the FDA or comparable foreign regulatory authorities to change our manufacturing processes or assays, or to perform clinical, nonclinical, or other types of studies in addition to those that we currently anticipate.

If we are successful in obtaining regulatory approvals to market EOS-850, EOS-448, or any future product candidates, our revenue will be dependent, in part, upon the size of the markets in the territories for which we gain marketing approval, the accepted price for the product, the ability to get reimbursement at any price, and whether we own the commercial rights for that territory. If the number of our addressable patients is not as significant as we estimate, the indication approved by regulatory authorities is narrower than we expect, the labels for our current product candidates and any future product candidates contain significant safety warnings, regulatory authorities impose burdensome or restrictive distribution requirements, or the reasonably accepted patient population for treatment is narrowed by competition, physician choice or treatment guidelines, we may not generate significant revenue from sales of such products, even if approved. If we are not able to generate revenue from the sale of any approved products, we could be prevented from or significantly delayed in achieving profitability.

Even if we achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the value of our company and could impair our ability to raise capital, expand our business, maintain our development efforts, obtain product approvals, diversify our offerings or continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.

We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development or commercialization efforts.

Our operations have consumed substantial amounts of cash since inception. We expect to continue to spend substantial amounts to continue the clinical development of our product candidates, including our ongoing Phase 1/2a clinical trials of EOS-850 and EOS-448 and our ongoing and planned IND-enabling studies for our other product candidates. If approved, we will require significant additional amounts in order to launch and commercialize our product candidates.

As of March 31, 2020, we had $147.7 million of cash. We estimate that our net proceeds from this offering will be $ million, based on an assumed initial public offering price of $ per share, which is the midpoint of the price

 

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range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. The net proceeds of this offering and our existing cash will not be sufficient to fund all of our efforts that we plan to undertake.

We believe that the net proceeds from this offering, together with our existing cash, will enable us to fund our operations into            . However, we have based this estimate on assumptions that may prove to be wrong. Additionally, changing circumstances may cause us to consume capital significantly faster than we currently anticipate, and we may need to spend more money than currently expected because of circumstances beyond our control. Accordingly, we will need to raise substantial additional capital in connection with our continuing operations.

Our future capital requirements depend on many factors, including:

 

 

the scope, progress, results and costs of researching and developing EOS-850, EOS-448, and any future product candidates, and conducting preclinical studies and clinical trials;

 

 

the timing of, and the costs involved in, obtaining marketing approvals for EOS-850, EOS-448, and any future product candidates if clinical trials are successful;

 

 

the extent to which we develop, in-license or acquire other product candidates and technologies;

 

 

the number and development requirements of other product candidates we may pursue;

 

 

the success of any collaborations;

 

 

the cost of commercialization activities for any approved product, including marketing, sales and distribution costs;

 

 

the cost of manufacturing EOS-850, EOS-448, and any future product candidates for clinical trials in preparation for marketing approval and commercialization;

 

 

our ability to establish and maintain strategic licensing or other arrangements and the financial terms of such agreements;

 

 

the costs involved in preparing, filing, prosecuting, maintaining, expanding, defending and enforcing patent claims, including litigation costs and the outcome of such litigation;

 

 

the timing, receipt, and amount of sales of, or royalties on, future approved products, if any; and

 

 

the emergence of competing cancer therapies and other adverse market developments.

We have limited committed external source of funds or other support for our development efforts. Until we can generate sufficient product revenue to finance our cash requirements, which we may never do, we expect to finance our future cash needs through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing and grant arrangements and other marketing or distribution arrangements. We cannot be certain that additional funding will be available on acceptable terms, or at all. Further, our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to and volatility in the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue our research and development initiatives. We could be required to seek collaborators for our product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available or relinquish or license on unfavorable terms our rights to our product candidates in markets where we otherwise would seek to pursue development or commercialization ourselves.

 

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Any of the above events could significantly harm our business, prospects, financial condition and results of operations and cause the price of our common stock to decline.

Risks related to the development of our product candidates

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.

Our most advanced product candidate, EOS-850, has been administered to 21 adult patients with advanced solid tumors, as of February 28, 2020, in a first-in-human open-label Phase 1/2a clinical trial, and we plan to initiate additional trials of EOS-850 in combination with pembrolizumab and with carboplatin and paclitaxel. In addition, in February 2020, we dosed our first patients with our lead antibody product candidate, EOS-448, in a first-in-human open-label Phase 1/2a clinical trial in adult patients with advanced cancers. We have additional oncology-focused product candidates in preclinical development. Our current product candidates and any future product candidates we may develop will require preclinical and clinical trials before we can submit a marketing application to the applicable regulatory authorities. Our current product candidates and any future product candidates are susceptible to the risks of failure inherent at any stage of product development, including the occurrence of unexpected or unacceptable adverse events or the failure to demonstrate efficacy in clinical trials. Clinical development is expensive and can take many years to complete, and its outcome is inherently uncertain.

The results of preclinical studies, preliminary study results, and early clinical trials of our current product candidates and any future product candidates may not be predictive of the results of later-stage clinical trials. Even if early-stage clinical trials are successful, we may need to conduct additional clinical trials of our product candidates in additional patient populations or under different treatment conditions before we are able to seek approvals from the FDA or comparable foreign regulatory authorities. While we are currently conducting first-in-human Phase 1/2a trials of EOS-850 and EOS-448, we have not yet completed any clinical trials. Our current product candidates and any future product candidates may not perform as we expect, may ultimately have a different or no impact on tumors, may have a different mechanism of action than we expect, and may not ultimately prove to be safe and effective.

Preliminary and final results from preclinical studies and early stage trials, and trials in compounds that we believe are similar to ours, may not be representative of results that are found in larger, controlled, blinded, and longer-term studies. Product candidates may fail at any stage of preclinical or clinical development. Product candidates may fail to show the desired safety and efficacy traits even if they have progressed through preclinical studies or initial clinical trials. Preclinical studies and clinical trials may also reveal unfavorable product candidate characteristics, including safety concerns. A number of companies in the biopharmaceutical industry have suffered significant setbacks in clinical trials, notwithstanding promising results in earlier preclinical studies or clinical trials or promising mechanisms of action. In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the clinical trial protocols and the rate of dropout among clinical trial participants. Moreover, should there be an issue with the design of a clinical trial, our results may be impacted. We may not discover such a flaw until the clinical trial is at an advanced stage.

Additionally, our clinical trials, to date, have been open-label trials, where both the patient and investigator know whether the patient is receiving the investigational product candidate or either an existing approved drug, introducing bias in early interpretation of the results. Most typically, open-label clinical trials test only the investigational product candidate and sometimes do so at different dose levels. Open-label clinical trials are

 

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subject to various limitations that may exaggerate any therapeutic effect as patients in open-label clinical trials are aware when they are receiving treatment. In addition, open-label clinical trials may be subject to an “investigator bias” where those assessing and reviewing the physiological outcomes of the clinical trials are aware of which patients have received treatment and may interpret the information of the treated group more favorably given this knowledge. Therefore, it is possible that positive results observed in open-label trials will not be replicated in later placebo-controlled trials. We may also experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize our current product candidates and any future product candidates, including:

 

 

regulators or institutional review boards, or IRBs, may not authorize us or our investigators to commence a clinical trial, conduct a clinical trial at a prospective trial site, or amend trial protocols, or may require that we modify or amend our clinical trial protocols;

 

 

we may experience delays in reaching, or fail to reach, agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites and/or clinical research organizations, or CROs;

 

 

we may be unable to initiate or complete preclinical studies or clinical trials on time or at all due to the impacts of COVID-19;

 

 

clinical trials of our current product candidates and any future product candidates may produce negative or inconclusive results, or our studies may fail to reach the necessary level of statistical significance, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;

 

 

the number of patients required for clinical trials of our current product candidates and any future product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials or be lost to follow-up at a higher rate than we anticipate, or may elect to participate in alternative clinical trials sponsored by our competitors with product candidates that treat the same indications as our current product candidates and any future product candidates;

 

 

our third-party contractors may fail to comply with regulatory requirements or the clinical trial protocol, or meet their contractual obligations to us in a timely manner, or at all, or we may be required to engage in additional clinical trial site monitoring;

 

 

we, regulators, or IRBs may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks, undesirable side effects, or other unexpected characteristics of the product candidate, including where combination dosing of or with our product candidates results in serious adverse events or undesirable side effects, or due to findings of undesirable effects caused by a chemically or mechanistically similar therapeutic or therapeutic candidate;

 

 

changes could be adopted in marketing approval policies during the development period, rendering our data insufficient to obtain marketing approval;

 

 

statutes or regulations or site policies could be amended or new ones could be adopted;

 

 

changes could be adopted in the regulatory review process for submitted product applications;

 

 

the cost of clinical trials of our current product candidates and any future product candidates may be greater than we anticipate or we may have insufficient funds for a clinical trial or to pay the substantial user fees required by the FDA or comparable foreign regulatory authorities upon the filing of a Biologics License

 

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Application, or BLA, or a New Drug Application, or NDA, or equivalent authorizations from comparable foreign regulatory authorities;

 

 

the supply or quality of our current product candidates and any future product candidates or other materials necessary to conduct clinical trials of our current product candidates and any future product candidates may be insufficient or inadequate or may be interrupted or impacted by the COVID-19 pandemic;

 

 

we may decide, or regulators may require us, to conduct or gather, as applicable, additional clinical trials, analyses, reports, data, or preclinical trials, or we may abandon product development programs;

 

 

we may fail to reach an agreement with regulators or IRBs regarding the scope, design, or implementation of our clinical trials, and the FDA or comparable foreign regulatory authorities may require changes to our study designs that make further study impractical or not financially prudent;

 

 

regulators may ultimately disagree with the design or our conduct of our preclinical studies or clinical trials, finding that they do not support product candidate approval;

 

 

we may have delays in adding new investigators or clinical trial sites, or we may experience a withdrawal of clinical trial sites;

 

 

patients that enroll in our studies may misrepresent their eligibility or may otherwise not comply with the clinical trial protocol, resulting in the need to drop the patients from the study or clinical trial, increase the needed enrollment size for the clinical trial or extend its duration;

 

 

there may be regulatory questions or disagreements regarding interpretations of data and results, or new information may emerge regarding our current product candidates and any future product candidates;

 

 

the FDA or comparable foreign regulatory authorities may disagree with our study design, including endpoints, or our interpretation of data from preclinical studies and clinical trials or find that a product candidate’s benefits do not outweigh its safety risks;

 

 

we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a drug or biologic candidate is safe and effective for its proposed indication or a related companion diagnostic is suitable to identify appropriate patient populations;

 

 

the FDA or comparable foreign regulatory authorities may not accept data from studies with clinical trial sites in foreign countries;

 

 

the FDA or comparable foreign regulatory authorities may disagree with our intended indications;

 

 

the FDA or comparable foreign regulatory authorities may fail to approve or subsequently find fault with the manufacturing processes or our manufacturing facilities for clinical and future commercial supplies;

 

 

the data collected from clinical trials of our current product candidates and any future product candidates may not be sufficient to the satisfaction of the FDA or comparable foreign regulatory authorities to support the submission of an BLA or NDA or other comparable submission in foreign jurisdictions or to obtain regulatory approval in the United States or elsewhere;

 

 

the FDA or comparable foreign regulatory authorities may take longer than we anticipate to make a decision on our current product candidates and any future product candidates; and

 

 

we may not be able to demonstrate that a product candidate provides an advantage over current standards of care or current or future competitive therapies in development.

 

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Our development costs will also increase if we experience delays in testing or approvals, and we may not have sufficient funding to complete the testing and approval process for our current product candidates and any future product candidates. We may be required to obtain additional funds to complete clinical trials and prepare for possible commercialization of our current product candidates and any future product candidates. We do not know whether any preclinical tests or clinical trials beyond what we currently have planned will be required, will begin as planned, will need to be restructured, or will be completed on schedule, or at all. Significant delays relating to any preclinical or clinical trials also could shorten any periods during which we may have the exclusive right to commercialize our current product candidates and any future product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our current product candidates and any future product candidates and may harm our business and results of operations. In addition, many of the factors that cause, or lead to, delays in clinical trials may ultimately lead to the denial of marketing approval of any of our current product candidates and any future product candidates. If any of these occur, our business, financial condition, results of operations, stock price and prospects may be materially harmed.

We anticipate that our current product candidates and any future product candidates will be used in combination with third-party drugs or biologics, some of which are still in development, and we have limited or no control over the supply, regulatory status, or regulatory approval of such drugs or biologics.

Our current product candidates and any future product candidates have the potential to be administered in combination with checkpoint inhibitor immunotherapies or other standards of care like chemotherapies, targeted therapies or radiotherapy. For example, we are currently conducting a Phase 1/2a clinical trial of EOS-850 as a single agent and in combination with pembrolizumab. Our ability to develop and ultimately commercialize our current product candidates and any future product candidates used in combination with pembrolizumab or any other checkpoint inhibitor immunotherapies will depend on our ability to access such drugs or biologics on commercially reasonable terms for the clinical trials and their availability for use with the commercialized product, if approved. We cannot be certain that current or potential future commercial relationships, including our relationship with Merck with respect to our Phase 1/2a clinical trial of EOS-850, will provide us with a steady supply of such drugs or biologics on commercially reasonable terms or at all.

Any failure to maintain or enter into new successful commercial relationships, or the expense of purchasing checkpoint inhibitor immunotherapies or other comparator therapies in the market, may delay our development timelines, increase our costs and jeopardize our ability to develop our current product candidates and any future product candidates as commercially viable therapies. If any of these occur, our business, financial condition, results of operations, stock price and prospects may be materially harmed.

Moreover, the development of product candidates for use in combination with another product or product candidate may present challenges that are not faced for single agent product candidates. We are currently developing EOS-850 and EOS-448 and may develop other future product candidates for use in combination with checkpoint inhibitor immunotherapies and may develop EOS-850, EOS-448, or any future product candidates for use with other therapies. The FDA or comparable foreign regulatory authorities may require us to use more complex clinical trial designs in order to evaluate the contribution of each product and product candidate to any observed effects. It is possible that the results of such trials could show that any positive previous trial results are attributable to the combination therapy and not our current product candidates and any future product candidates. Moreover, following product approval, the FDA or comparable foreign regulatory authorities may require that products used in conjunction with each other be cross labeled for combined use. To the extent that we do not have rights to the other product, this may require us to work with a third party to satisfy such a requirement. Moreover, developments related to the other product may impact our clinical trials for the combination as well as our commercial prospects should we receive marketing approval. Such developments

 

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may include changes to the other product’s safety or efficacy profile, changes to the availability of the approved product, quality, manufacturing and supply issues, and changes to the standard of care.

In the event that Merck or any future collaborator or supplier cannot continue to supply their products on commercially reasonable terms, we would need to identify alternatives for accessing such checkpoint inhibitor immunotherapies. Additionally, should the supply of products from Merck or any future collaborator or supplier be interrupted, delayed or otherwise be unavailable to us, our clinical trials may be delayed. In the event we are unable to source an alternative supply, or are unable to do so on commercially reasonable terms, our business, financial condition, results of operations, stock price and prospects may be materially harmed.

If we fail to develop additional product candidates, our commercial opportunity could be limited.

We expect initially to focus on the development of EOS-850 and EOS-448. A key part of our strategy, however, is to continue to pursue clinical development of additional product candidates designed to address the main causes of PD-1 or other standard-of-care resistance. Developing, obtaining marketing approval for, and commercializing any future product candidates will require substantial additional funding beyond the net proceeds of this offering and will be subject to the risks of failure inherent in drug product development. We cannot assure you that we will be able to successfully advance any future product candidates through the development process.

Even if we obtain approval from the FDA or comparable foreign regulatory authorities to market any future product candidates for the treatment of solid tumors, we cannot assure you that any such product candidates will be successfully commercialized, widely accepted in the marketplace, or more effective than other commercially available alternatives. If we are unable to successfully develop and commercialize additional product candidates our commercial opportunity may be limited and our business, financial condition, results of operations, stock price and prospects may be materially harmed.

Difficulty in enrolling patients could delay or prevent clinical trials of our current product candidates and any future product candidates. We may find it difficult to enroll patients in our ongoing clinical trials or any subsequent trials we may conduct and our receipt of necessary regulatory approvals could be delayed or prevented.

Identifying and qualifying patients to participate in clinical studies of our current product candidates and any future product candidates is critical to our success. The timing of completion of our clinical trials depends in part on the speed at which we can recruit patients to participate in testing our current product candidates and any future product candidates, and we may experience delays in our clinical trials if we encounter difficulties in enrollment or patient retention due to other unforeseen factors. We may not be able to initiate or continue clinical trials for our current product candidates and any future product candidates if we are unable to locate and enroll and retain a sufficient number of eligible patients to participate in these trials as required by the FDA or comparable foreign regulatory authorities outside the United States. For example, the COVID-19 pandemic may impact our ability to initiate clinical sites and recruit, enroll and retain patients or may divert healthcare resources away from clinical trials. In addition, some of our competitors have ongoing clinical trials for product candidates that treat the same indications as our current product candidates, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’ product candidates or future product candidates.

In addition to the competitive trial environment, the eligibility criteria of our planned clinical trials will further limit the pool of available study participants as we will require that patients have specific characteristics that we can measure to assure their cancer is either severe enough or not too advanced to include them in a study. Additionally, the process of finding patients may prove costly. We also may not be able to identify, recruit and enroll a sufficient number of patients to complete our clinical studies because of the perceived risks and

 

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benefits of the product candidates under study, the availability and efficacy of competing therapies and clinical trials, the proximity and availability of clinical trial sites for prospective patients, and the patient referral practices of physicians. If patients are unwilling to participate in our studies for any reason, the timeline for recruiting patients, conducting studies and obtaining regulatory approval of potential products may be delayed.

We may also engage third parties to develop companion diagnostics for use in our clinical trials, but such third parties may not be successful in developing such companion diagnostics, furthering the difficulty in identifying patients with the targeted genetic mutations for our clinical trials. Further, if we are required to develop companion diagnostics and are unable to include patients with the targeted genetic mutations, this could compromise our ability to seek participation in the FDA’s expedited review and development programs, including Breakthrough Therapy Designation and Fast Track Designation, or otherwise to seek to accelerate clinical development and regulatory timelines.

The enrollment of patients further depends on many factors, including:

 

 

the size of the patient population and process for identifying patients;

 

 

the eligibility criteria for the clinical trial in question;

 

 

the availability of an appropriate screening test, as necessary;

 

 

the perceived risks and benefits of the product candidate under study;

 

 

the efforts to facilitate timely enrollment in clinical trials;

 

 

the proximity and availability of clinical trial sites for prospective patients;

 

 

the design of the clinical trial;

 

 

our ability to recruit clinical trial investigators with the appropriate competencies and experience;

 

 

our ability to obtain and maintain patient consents;

 

 

reporting of the preliminary results of any of our clinical trials; and

 

 

the risk that patients enrolled in clinical trials will drop out of the clinical trials before clinical trial completion.

In addition, our clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas as our current product candidates and any future product candidates, and this competition will reduce the number and types of patients available to us because some patients who might have opted to enroll in our clinical trials may instead opt to enroll in a clinical trial being conducted by one of our competitors. Since the number of qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials at such clinical trial sites. Furthermore, even if we are able to enroll a sufficient number of patients for our clinical trials, we may have difficulty maintaining enrollment of such patients in our clinical trials.

If we experience delays in the completion of, or termination of, any clinical trial of our current product candidates and any future product candidates, the commercial prospects of our current product candidates and any future product candidates will be harmed, and our ability to generate product revenue from such product candidates could be delayed or prevented.

 

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Interim “top-line” and preliminary results from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.

From time to time, we may publish interim top-line or preliminary results from our clinical trials. Interim results from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Preliminary or top-line results also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, interim and preliminary data should be viewed with caution until the final data are available. Differences between preliminary or interim data and final data could significantly harm our business prospects and may cause the trading price of our common stock to fluctuate significantly.

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.

The FDA or comparable foreign regulatory authorities may require us to file separate INDs for additional clinical trials we plan to conduct with our current lead product candidates, EOS-850 and EOS-448. We may not be able to file any additional INDs required for our current product candidates and any future product candidates on the timelines we expect. For example, we may experience manufacturing delays or other delays with IND-enabling studies, including due to the impact of the COVID-19 pandemic on suppliers, study sites or third-party contractors and vendors on whom we depend. Moreover, we cannot be sure that submission of an IND will result in the FDA or comparable foreign regulatory authorities allowing further clinical trials to begin, or that, once begun, issues will not arise that suspend or terminate clinical trials. Additionally, even if such regulatory authorities agree with the design and implementation of the clinical trials set forth in an IND, we cannot guarantee that such regulatory authorities will not change their requirements in the future. These considerations also apply to new clinical trials we may submit as amendments to existing INDs or to a new IND. Any failure to file INDs on the timelines we expect or to obtain regulatory approvals for our trials may prevent us from completing our clinical trials or commercializing our products on a timely basis, if at all. There are similar risks related to the review and authorization of our protocols and amendments by comparable foreign regulatory authorities.

We are conducting clinical trials for product candidates outside the United States, and the FDA and comparable foreign regulatory authorities may not accept data from such trials.

We are conducting one or more clinical trials outside the United States, including in Europe, and we may conduct trials in the future in Asia. The acceptance of data from clinical trials conducted outside the United States or another jurisdiction by the FDA or comparable foreign regulatory authority may be subject to certain conditions or may not be accepted at all. In cases where data from foreign clinical trials are intended to serve as the basis for marketing approval in the United States, the FDA will generally not approve the application on the basis of foreign data alone unless (i) the data are applicable to the U.S. population and U.S. medical practice; and (ii) the trials were performed by clinical investigators of recognized competence and pursuant to good clinical practice, or GCP, regulations. In general, the patient population for any clinical trials conducted outside the United States must be representative of the population for whom we intend to label the product candidate in the United States. Additionally, the FDA’s clinical trial requirements, including sufficient size of patient populations and statistical powering, must be met. Many foreign regulatory authorities have similar approval requirements. In addition, such foreign trials would be subject to the applicable local laws of the foreign jurisdictions where the trials are conducted. There can be no assurance that the FDA or any comparable foreign regulatory authority will accept data from trials conducted outside of the United States or the applicable jurisdiction. If the FDA or any comparable foreign regulatory authority does not accept such data, it

 

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would result in the need for additional trials, which could be costly and time-consuming, and which may result in product candidates that we may develop not receiving approval for commercialization in the applicable jurisdiction.

We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.

Because we have limited financial and managerial resources, we must focus on a limited number of research programs and product candidates and on specific indications. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future discovery and preclinical development programs and product candidates for specific indications may not yield any commercially viable products.

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.

We will need to successfully complete pivotal clinical trials in order to obtain the approval of the FDA or comparable foreign regulatory authorities to market EOS-850, EOS-448, or any future product candidate. Carrying out pivotal clinical trials is a complicated process. As an organization, we have not previously conducted any later stage or pivotal clinical trials. In order to do so, we will need to expand our clinical development and regulatory capabilities, and we may be unable to recruit and train qualified personnel. We also expect to continue to rely on third parties to conduct our pivotal clinical trials. Consequently, we may be unable to successfully and efficiently execute and complete necessary clinical trials in a way that leads to BLA or NDA submission and approval of EOS-850, EOS-448, or future product candidates. We may require more time and incur greater costs than our competitors and may not succeed in obtaining regulatory approvals of product candidates that we develop. Failure to commence or complete, or delays in, our planned clinical trials, could prevent us from or delay us in commercializing our product candidates.

Risks related to regulatory approval

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 not permitted to market or promote or sell our current product candidates or any future product candidates before we receive regulatory approval from the FDA or comparable foreign regulatory authorities, and we may never receive such regulatory approval. Securing marketing approval requires the submission of extensive preclinical and clinical data and supporting information to regulatory authorities for each therapeutic indication to establish the product candidate’s safety and efficacy for that indication. Securing marketing approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities and clinical trial sites by, the regulatory authorities. If we do not receive approval from the FDA and comparable foreign regulatory authorities for any of our current product candidates and any future product candidates, we will not be able to commercialize such product candidates in the United

 

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States or in other jurisdictions. If significant delays in obtaining approval for and commercializing our current product candidates and any future product candidates occur in any jurisdictions, our business, financial condition, results of operations, stock price and prospects will be materially harmed. Even if our current product candidates and any future product candidates are approved, they may:

 

 

be subject to limitations on the indicated uses or patient populations for which they may be marketed, distribution restrictions, or other conditions of approval;

 

 

contain significant safety warnings, including boxed warnings, contraindications, and precautions;

 

 

not be approved with label statements necessary or desirable for successful commercialization; or

 

 

contain requirements for costly post-market testing and surveillance, or other requirements, including the submission of a risk evaluation and mitigation strategy, or REMS, to monitor the safety or efficacy of the products.

We have not previously submitted a BLA or NDA to the FDA, or a similar marketing application to comparable foreign regulatory authorities, for any product candidate, and we can provide no assurance that will ultimately be successful in obtaining regulatory approval for claims that are necessary or desirable for successful marketing, or at all.

The regulatory approval processes of the FDA and comparable foreign regulatory authorities are lengthy, time consuming and inherently unpredictable. If we are not able to obtain, or experience delays in obtaining, required regulatory approvals, we will not be able to commercialize our current product candidates and any future product candidates as expected, and our ability to generate revenue may be materially impaired.

The time required to obtain approval by the FDA and comparable foreign regulatory authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. These regulatory requirements may require us to amend our clinical trial protocols, conduct additional preclinical studies or clinical trials that may require regulatory or IRB approval, or otherwise cause delays in the approval or rejection of an application. Any delay in obtaining or failure to obtain required approvals could materially adversely affect our ability to generate revenue from the particular product candidate, which may materially harm our business, financial condition, results of operations, stock price and prospects.

Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent marketing approval of a product candidate. The number and types of preclinical studies and clinical trials that will be required for regulatory approval also varies depending on the product candidate, the disease or condition that the product candidate is designed to address, and the regulations applicable to any particular product candidate. Approval policies, regulations or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions, and there may be varying interpretations of data obtained from preclinical studies or clinical trials, any of which may cause delays or limitations in the approval or a decision not to approve an application. It is possible that our current product candidates and any future product candidates will never obtain the appropriate regulatory approvals necessary for us to commence product sales.

Even if we eventually complete clinical testing and receive approval of a BLA, NDA or foreign marketing application for EOS-850, EOS-448, or any future product candidates, the FDA or a comparable foreign

 

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regulatory authority may grant approval or other marketing authorization contingent on the performance of costly additional clinical trials, including post-marketing clinical trials. The FDA or a comparable foreign regulatory authority also may approve or authorize for marketing a product candidate for a more limited indication or patient population than we originally request, and the FDA or a comparable foreign regulatory authority may not approve or authorize the labeling that we believe is necessary or desirable for the successful commercialization of a product candidate.

In addition, the FDA and comparable foreign regulatory authorities may change their policies, issue additional regulations or revise existing regulations, or take other actions, which may prevent or delay approval of our future products under development on a timely basis. Such policy or regulatory changes could impose additional requirements upon us that could delay our ability to obtain approvals, increase the costs of compliance or restrict our ability to maintain any marketing authorizations we may have obtained.

If we experience delays in obtaining approval, if we fail to obtain approval of a product candidate or if the label for a product candidate does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate, the commercial prospects for such product candidate may be harmed and our ability to generate revenues from that product candidate may be materially impaired.

The FDA or a comparable foreign regulatory authority may determine that our current product candidates and any future product candidates have serious adverse events or undesirable side effects that could delay or prevent their regulatory approval or commercialization.

Serious adverse events or undesirable side effects caused by our current product candidates and any future product candidates could cause us, IRBs, and other reviewing entities or regulatory authorities to interrupt, delay, or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or comparable foreign regulatory authorities. For example, if concerns are raised regarding the safety of a new therapeutic as a result of undesirable side effects identified during clinical or preclinical testing, the FDA or comparable foreign regulatory authority may order us to cease further development, decline to approve the product candidate or issue a letter requesting additional data or information prior to making a final decision regarding whether or not to approve the product candidate. The FDA or comparable foreign regulatory authorities, or IRBs and other reviewing entities, may also require, or we may voluntarily develop, strategies for managing adverse events during clinical development, which could include restrictions on our enrollment criteria, the use of stopping criteria, adjustments to a study’s design, or the monitoring of safety data by a data monitoring committee, among other strategies. The FDA or a comparable foreign regulatory authority requests for additional data or information could also result in substantial delays in the approval of our current product candidates and any future product candidates. Additionally, we may evaluate our product candidates in combination with one another, and safety concerns arising during a combination trial could negatively affect the individual development program of each candidate, as the FDA or comparable foreign regulatory authorities may require us to discontinue single-candidate trials until the contribution of each product candidate to any safety issues is better understood.

Further, clinical trials by their nature utilize a sample of the potential patient population. With a limited number of patients and limited duration of exposure, rare and severe side effects of a drug or biologic candidate may only be uncovered when a significantly larger number of patients are exposed to the drug or biologic candidate or when patients are exposed for a longer period of time.

Undesirable side effects caused by our current product candidates or any future product candidates could also result in denial of regulatory approval by the FDA or comparable foreign regulatory authorities for any or all targeted indications or the inclusion of unfavorable information in our product labeling, such as limitations on the indicated uses for which the products may be marketed or distributed, a label with significant safety

 

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warnings, including boxed warnings, contraindications, and precautions, a label without statements necessary or desirable for successful commercialization, or may result in requirements for costly post-marketing testing and surveillance, or other requirements, including REMS, to monitor the safety or efficacy of the products, and in turn prevent us from commercializing and generating revenues from the sale of our current product candidates and any future product candidates. Undesirable side effects may limit the potential market for any approved products or could result in the discontinuation of the sales and marketing of the product, or withdrawal of product approvals. Later discovered undesirable side effects may further result in the imposition of a REMS, label revisions, post-approval study requirements, or other testing and surveillance.

If our current product candidates and any future product candidates are associated with serious adverse events or undesirable side effects or have properties that are unexpected, we may need to abandon development or limit development of that product candidate to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. The therapeutic-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may materially harm our business, financial condition, results of operations, stock price and prospects.

Changes in product candidate manufacturing or formulation may result in additional costs or delay.

As product candidates are developed through preclinical studies to later-stage clinical trials towards approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods and formulation, are altered along the way in an effort to optimize processes and results. Any of these changes could cause our current product candidates or any future product candidates to perform differently and affect the results of planned clinical trials or other future clinical trials conducted with the altered materials. Such changes may also require additional testing, or notification to, or approval by the FDA or a comparable foreign regulatory authority. This could delay completion of clinical trials, require the conduct of bridging clinical trials or studies, require the repetition of one or more clinical trials, increase clinical trial costs, delay approval of our current product candidates and any future product candidates and/or jeopardize our ability to commence product sales and generate revenue.

Regulatory approval by the FDA or comparable foreign regulatory authorities is limited to those specific indications and conditions for which approval has been granted, and we may be subject to substantial fines, criminal penalties, injunctions, or other enforcement actions if we are determined to be promoting the use of our products for unapproved or “off-label” uses, or in a manner inconsistent with the approved labeling, resulting in damage to our reputation and business.

We must comply with requirements concerning advertising and promotion for any product candidates for which we obtain marketing approval. Promotional communications with respect to therapeutics are subject to a variety of legal and regulatory restrictions and continuing review by the FDA or comparable foreign regulatory authorities, Department of Justice, Department of Health and Human Services’, or HHS, Office of Inspector General, state attorneys general, members of Congress, and the public. When the FDA or comparable foreign regulatory authorities issue regulatory approval for a product candidate, the regulatory approval is limited to those specific uses and indications for which a product is approved. If we are not able to obtain FDA or comparable foreign regulatory authority approval for desired uses or indications for our current product candidates and any future product candidates, we may not market or promote them for those indications and uses, referred to as off-label uses, and our business, financial condition, results of operations, stock price and prospects will be materially harmed. We also must sufficiently substantiate any claims that we make for our products, including claims comparing our products to other companies’ products, and must abide by the FDA or a comparable foreign regulatory authority’s strict requirements regarding the content of promotion and advertising.

 

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While physicians may choose to prescribe products for uses that are not described in the product’s labeling and for uses that differ from those tested in clinical trials and approved by the regulatory authorities, we and any third parties engaged on our behalf are prohibited from marketing and promoting the products for indications and uses that are not specifically approved by the FDA or comparable foreign regulatory authorities. Regulatory authorities in the United States generally do not restrict or regulate the behavior of physicians in their choice of treatment within the practice of medicine. Regulatory authorities do, however, restrict communications by biopharmaceutical companies concerning off-label use.

If we are found to have impermissibly promoted any of our current product candidates and any future product candidates, we may become subject to significant liability and government fines. The FDA and other agencies actively enforce the laws and regulations regarding product promotion, particularly those prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted a product may be subject to significant sanctions. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed.

In the United States, engaging in the impermissible promotion of our products, following approval, for off-label uses can also subject us to false claims and other litigation under federal and state statutes. These include fraud and abuse and consumer protection laws, which can lead to civil and criminal penalties and fines, agreements with governmental authorities that materially restrict the manner in which we promote or distribute therapeutic products and conduct our business. These restrictions could include corporate integrity agreements, suspension or exclusion from participation in federal and state healthcare programs, and suspension and debarment from government contracts and refusal of orders under existing government contracts. These False Claims Act lawsuits against manufacturers of drugs and biologics have increased significantly in volume and breadth, leading to several substantial civil and criminal settlements pertaining to certain sales practices and promoting off-label uses. In addition, False Claims Act lawsuits may expose manufacturers to follow-on claims by private payers based on fraudulent marketing practices. This growth in litigation has increased the risk that a biopharmaceutical company will have to defend a false claim action, pay settlement fines or restitution, as well as criminal and civil penalties, agree to comply with burdensome reporting and compliance obligations, and be excluded from Medicare, Medicaid, or other federal and state healthcare programs. If we do not lawfully promote our approved products, if any, we may become subject to such litigation and, if we do not successfully defend against such actions, those actions may have a material adverse effect on our business, financial condition, results of operations, stock price and prospects.

In the United States, the promotion of biopharmaceutical products are subject to additional FDA requirements and restrictions on promotional statements. If after one or more of our current product candidates and any future product candidates obtains marketing approval the FDA determines that our promotional activities violate its regulations and policies pertaining to product promotion, it could request that we modify our promotional materials or subject us to regulatory or other enforcement actions, including issuance of warning letters or untitled letters, suspension or withdrawal of an approved product from the market, requests for recalls, payment of civil fines, disgorgement of money, imposition of operating restrictions, injunctions or criminal prosecution, and other enforcement actions. Similarly, industry codes in foreign jurisdictions may prohibit companies from engaging in certain promotional activities and regulatory agencies in various countries may enforce violations of such codes with civil penalties. If we become subject to regulatory and enforcement actions our business, financial condition, results of operations, stock price and prospects will be materially harmed.

Furthermore, the use of our products for indications other than those approved by the FDA or comparable foreign regulatory authorities may not effectively treat such conditions. Any such off-label use of our product

 

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candidates could harm our reputation in the marketplace among physicians and patients. There may also be increased risk of injury to patients if physicians attempt to use our products for these uses for which they are not approved, which could lead to product liability suits that that might require significant financial and management resources and that could harm our reputation.

Even if our current product candidates and any future product candidates receive regulatory approval, we will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense and limit how we manufacture and market our products.

Any product candidate for which we obtain marketing approval will be subject to extensive and ongoing requirements of and review by the FDA and comparable foreign regulatory authorities, including requirements related to the manufacturing processes, post-approval clinical data, labeling, packaging, distribution, adverse event reporting, storage, recordkeeping, export, import, advertising, marketing, and promotional activities for such product. These requirements further include submissions of safety and other post-marketing information, including manufacturing deviations and reports, registration and listing requirements, the payment of annual fees, continued compliance with cGMP requirements relating to manufacturing, quality control, quality assurance, and corresponding maintenance of records and documents, and good clinical practices, or GCPs, for any clinical trials that we conduct post-approval.

The FDA and comparable foreign regulatory authorities will continue to closely monitor the safety profile of any product even after approval. If the FDA or comparable foreign regulatory authorities become aware of new safety information after approval of any of our current product candidates and any future product candidates, they may withdraw approval, issue public safety alerts, require labeling changes or establishment of a REMS or similar strategy, impose significant restrictions on a product’s indicated uses or marketing, or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance. Any such restrictions could limit sales of the product.

We and any of our suppliers or collaborators, including our contract manufacturing organizations, or CMOs, could be subject to periodic unannounced inspections by the FDA to monitor and ensure compliance with cGMPs and other FDA regulatory requirements. Application holders must further notify the FDA, and depending on the nature of the change, obtain FDA pre-approval for product and manufacturing changes.

In addition, later discovery of previously unknown adverse events or that the product is less effective than previously thought or other problems with our products, manufacturers or manufacturing processes, or failure to comply with regulatory requirements both before and after approval, may yield various negative results, including:

 

 

restrictions on manufacturing, distribution, or marketing of such products;

 

 

restrictions on the labeling, including required additional warnings, such as boxed warnings, contraindications, precautions, and restrictions on the approved indication or use;

 

 

modifications to promotional pieces;

 

 

issuance of corrective information;

 

 

requirements to conduct post-marketing studies or other clinical trials;

 

 

clinical holds or termination of clinical trials;

 

 

requirements to establish or modify a REMS or similar strategy;

 

 

changes to the way the product candidate is administered;

 

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liability for harm caused to patients or subjects;

 

 

reputational harm;

 

 

the product becoming less competitive;

 

 

warning or untitled letters;

 

 

suspension of marketing or withdrawal of the products from the market;

 

 

regulatory authority issuance of safety alerts, Dear Healthcare Provider letters, press releases, or other communications containing warnings or other safety information about the product candidate;

 

 

refusal to approve pending applications or supplements to approved applications that we submit;

 

 

recalls of products;

 

 

fines, restitution or disgorgement of profits or revenues;

 

 

suspension or withdrawal of marketing approvals;

 

 

refusal to permit the import or export of our products;

 

 

product seizure or detention;

 

 

FDA or comparable foreign regulatory authority debarment, suspension and debarment from government contracts, and refusal of orders under existing government contracts, exclusion from federal healthcare programs, consent decrees, or corporate integrity agreements; or

 

 

injunctions or the imposition of civil or criminal penalties, including imprisonment.

Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved, or could substantially increase the costs and expenses of commercializing such product, which in turn could delay or prevent us from generating significant revenues from its marketing and sale. Any of these events could further have other material and adverse effects on our operations and business and could adversely impact our business, financial condition, results of operations, stock price and prospects.

The FDA’s policies or those of comparable foreign regulatory authorities may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our current product candidates and any future product candidates, limit the marketability of our current product candidates and any future product candidates, or impose additional regulatory obligations on us. Changes in medical practice and standard of care may also impact the marketability of our current product candidates and any future product candidates.

If we are slow or unable to adapt to changes in existing requirements, standards of care, or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and be subject to regulatory enforcement action.

Should any of the above actions take place, we could be prevented from or significantly delayed in achieving profitability. Further, the cost of compliance with post-approval regulations may have a negative effect on our operations and business and could adversely impact our business, financial condition, results of operations, stock price and prospects.

 

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We may in the future seek orphan drug status for our current or future product candidates, but we may be unable to obtain such designations or to maintain the benefits associated with orphan drug status, including market exclusivity, which may cause our revenue, if any, to be reduced.

Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or condition, defined as a disease or condition with a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the United States when there is no reasonable expectation that the cost of developing and making available the drug or biologic in the United States will be recovered from sales in the United States for that drug or biologic. Orphan drug designation must be requested before submitting an NDA or BLA. In the United States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. After the FDA grants orphan drug designation, the generic identity of the drug and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.

If a product that has orphan drug designation subsequently receives the first FDA approval for a particular active ingredient for the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same product for the same indication for seven years, except in limited circumstances such as a showing of clinical superiority to the product with orphan drug exclusivity or if the FDA finds that the holder of the orphan drug exclusivity has not shown that it can assure the availability of sufficient quantities of the orphan drug to meet the needs of patients with the disease or condition for which the drug was designated. As a result, even if our current product candidates and any future product candidates receive orphan exclusivity, the FDA can still approve other drugs that have a different active ingredient for use in treating the same indication or disease. Furthermore, the FDA can waive orphan exclusivity if we are unable to manufacture sufficient supply of our product.

We may seek orphan drug designation for some or all of our current or future product candidates in orphan indications in which there is a medically plausible basis for the use of these products. Even if we obtain orphan drug designation, exclusive marketing rights in the United States may be limited if we seek approval for an indication broader than the orphan designated indication and may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition. In addition, the FDA has expressed concerns regarding the regulatory considerations for orphan drug designation as applied to tissue agnostic therapies, and the FDA may interpret the federal Food, Drug and Cosmetic Act, as amended, or the FD&C Act, and regulations promulgated thereunder in a way that limits or blocks our ability to obtain orphan drug designation or orphan drug exclusivity, if our current product candidates and any future product candidates are approved, for our targeted indications.

The FDA may reevaluate the Orphan Drug Act and its regulations and policies. We do not know if, when, or how the FDA may change the orphan drug regulations and policies in the future, and it is uncertain how any changes might affect our business. Depending on what changes the FDA may make to its orphan drug regulations and policies, our business could be adversely impacted.

A Breakthrough Therapy designation by the FDA, even if granted for any of our current product candidates and any future product candidates, may not lead to a faster development or regulatory review or approval process and it does not increase the likelihood that our current product candidates and any future product candidates will receive marketing approval.

We may seek Breakthrough Therapy designation for our current and future product candidates. A breakthrough therapy is defined as a drug or biologic that is intended, alone or in combination with one or more other drugs

 

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or biologics, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the drug or biologic may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For product candidates that have been designated as breakthrough therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Drugs designated as breakthrough therapies by the FDA may also be eligible for other expedited approval programs, including accelerated approval.

Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe our current product candidates and any future product candidates meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of a Breakthrough Therapy designation for a product candidate may not result in a faster development process, review or approval compared to candidate products considered for approval under non-expedited FDA review procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of our current product candidates and any future product candidates qualify as breakthrough therapies, the FDA may later decide that the product no longer meets the conditions for qualification. Thus, even though we intend to seek Breakthrough Therapy designation for some or all of our current and future product candidates for the treatment of various cancers, there can be no assurance that we will receive breakthrough therapy designation.

A Fast Track designation by the FDA, even if granted for any of our current or future product candidates, may not lead to a faster development or regulatory review or approval process, and does not increase the likelihood that our current product candidates and any future product candidates will receive marketing approval.

If a drug is intended for the treatment of a serious or life-threatening condition and the drug demonstrates the potential to address unmet medical needs for this condition, the drug sponsor may apply for FDA Fast Track designation for a particular indication. We may seek Fast Track designation for our current and future product candidates, but there is no assurance that the FDA will grant this status to any of our proposed product candidates. Marketing applications filed by sponsors of products in Fast Track development may qualify for priority review under the policies and procedures offered by the FDA, but the Fast Track designation does not assure any such qualification or ultimate marketing approval by the FDA. The FDA has broad discretion whether or not to grant Fast Track designation, so even if we believe a particular product candidate is eligible for this designation, there can be no assurance that the FDA would decide to grant it. Even if we do receive Fast Track designation, we may not experience a faster development process, review or approval compared to conventional FDA procedures, and receiving a Fast Track designation does not provide assurance of ultimate FDA approval. In addition, the FDA may withdraw Fast Track designation if it believes that the designation is no longer supported by data from our clinical development program. In addition, the FDA may withdraw any Fast Track designation at any time.

Obtaining and maintaining regulatory approval of our current product candidates or any future product candidates in one jurisdiction does not mean that we will be successful in obtaining regulatory approval of our current product candidates or any future product candidates in other jurisdictions.

Obtaining and maintaining regulatory approval of our current product candidates or any future product candidates in one jurisdiction does not guarantee that we will be able to obtain or maintain regulatory approval in any other jurisdiction, while a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in others. For example, even if the FDA grants marketing approval of a product candidate, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion of the product candidate in those countries. Approval procedures

 

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vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the United States, including additional preclinical studies or clinical trials as clinical trials conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge for our products is also subject to approval.

We may also submit marketing applications in other countries. Regulatory authorities in jurisdictions outside of the United States have requirements for approval of product candidates with which we must comply prior to marketing in those jurisdictions. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. If we fail to comply with the regulatory requirements in international markets and/or receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our current product candidates or any future product candidates will be harmed.

If we are unable to successfully validate, develop and obtain regulatory approval for companion diagnostic tests for our product candidates that require or would commercially benefit from such tests, or experience significant delays in doing so, we may not realize the full commercial potential of these product candidates.

In connection with the clinical development of our product candidates for certain indications, we may engage third parties to develop or obtain access to in vitro companion diagnostic tests to identify patient subsets within a disease category who may derive selective and meaningful benefit from our product candidates. Such companion diagnostics would be used during our clinical trials as well as in connection with the commercialization of our product candidates. To be successful, we or our collaborators will need to address a number of scientific, technical, regulatory and logistical challenges. The FDA and comparable foreign regulatory authorities regulate in vitro companion diagnostics as medical devices and, under that regulatory framework, will likely require the conduct of clinical trials to demonstrate the safety and effectiveness of any diagnostics we may develop, which we expect will require separate regulatory clearance or approval prior to commercialization.

We intend to rely on third parties for the design, development and manufacture of companion diagnostic tests for our therapeutic product candidates that may require such tests. If we enter into such collaborative agreements, we will be dependent on the sustained cooperation and effort of our future collaborators in developing and obtaining approval for these companion diagnostics. It may be necessary to resolve issues such as selectivity/specificity, analytical validation, reproducibility, or clinical validation of companion diagnostics during the development and regulatory approval processes. Moreover, even if data from preclinical studies and early clinical trials appear to support development of a companion diagnostic for a product candidate, data generated in later clinical trials may fail to support the analytical and clinical validation of the companion diagnostic. We and our future collaborators may encounter difficulties in developing, obtaining regulatory approval for, manufacturing and commercializing companion diagnostics similar to those we face with respect to our therapeutic candidates themselves, including issues with achieving regulatory clearance or approval, production of sufficient quantities at commercial scale and with appropriate quality standards, and in gaining market acceptance. If we are unable to successfully develop companion diagnostics for these therapeutic product candidates, or experience delays in doing so, the development of these therapeutic product candidates may be adversely affected, these therapeutic product candidates may not obtain marketing approval, and we may not realize the full commercial potential of any of these therapeutics that obtain marketing approval. As a result, our business, results of operations and financial condition could be materially harmed. In addition, a diagnostic company with whom we contract may decide to discontinue selling or manufacturing the companion diagnostic test that we anticipate using in connection with development and commercialization of our product

 

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candidates or our relationship with such diagnostic company may otherwise terminate. We may not be able to enter into arrangements with another diagnostic company to obtain supplies of an alternative diagnostic test for use in connection with the development and commercialization of our product candidates or do so on commercially reasonable terms, which could adversely affect and/or delay the development or commercialization of our therapeutic candidates.

Inadequate funding for the FDA, the SEC and other government agencies could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business.

The ability of the FDA or comparable foreign regulatory authorities to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory and policy changes. Average review times at the agency have fluctuated in recent years as a result. Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. In addition, government funding of the SEC and other government agencies on which our operations may rely, including those that fund research and development activities, is subject to the political process, which is inherently fluid and unpredictable.

For example, over the last several years, including beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough FDA, SEC and other government employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Further, future government shutdowns could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.

Risks Related to Commercialization

If we are unable to successfully commercialize any product candidate for which we receive regulatory approval, or experience significant delays in doing so, our business will be materially harmed.

If we are successful in obtaining marketing approval from applicable regulatory authorities for our current or future product candidates, our ability to generate revenues from our current product candidates or any future product candidates will depend on our success in:

 

 

launching commercial sales of our current product candidates and any future product candidates, whether alone or in collaboration with others;

 

 

receiving an approved label with claims that are necessary or desirable for successful marketing, and that does not contain safety or other limitations that would impede our ability to market our current product candidates or any future product candidates;

 

 

creating market demand for our product candidates through marketing, sales and promotion activities;

 

 

hiring, training, and deploying a sales force or contracting with third parties to commercialize our current product candidates or any future product candidates in the United States;

 

 

manufacturing product candidates in sufficient quantities and at acceptable quality and cost to meet commercial demand at launch and thereafter;

 

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establishing and maintaining agreements with wholesalers, distributors, and group purchasing organizations on commercially reasonable terms;

 

 

creating partnerships with, or offering licenses to, third parties to promote and sell product candidates in foreign markets where we receive marketing approval;

 

 

maintaining patent and trade secret protection and regulatory exclusivity for our current product candidates or any future product candidates;

 

 

achieving market acceptance of our current product candidates or any future product candidates by patients, the medical community, and third-party payors;

 

 

achieving appropriate reimbursement for our current product candidates or any future product candidates;

 

 

effectively competing with other therapies; and

 

 

maintaining a continued acceptable safety profile of our current product candidates or any future product candidates following launch.

To the extent we are not able to do any of the foregoing, our business, financial condition, results of operations, stock price and prospects will be materially harmed.

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.

The development and commercialization of cancer immunotherapy products is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary rights. We face competition with respect to our current product candidates, and will face competition with respect to any product candidates that we may seek to develop or commercialize in the future, from major biopharmaceutical companies, specialty biopharmaceutical companies, and biotechnology companies worldwide. There are a number of large biopharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of products for the treatment of solid tumors. Potential competitors also include academic institutions, government agencies, and other public and private research organizations that conduct research, seek patent protection, and establish collaborative arrangements for research, development, manufacturing, and commercialization. See “Business – Competition.”

While our product candidates are intended to be used in combination with other drugs or biologics with different mechanisms of action, if and when marketed they will still compete with a number of drugs and biologics that are currently marketed or in development that also target cancer. To compete effectively with these products, our current product candidates or any future product candidates will need to demonstrate advantages in clinical efficacy and safety compared to these competitors when used alone or in combination with other drugs or biologics.

Our commercial opportunities could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are easier to administer or are less expensive alone or in combination with other therapies than any products that we may develop alone or in combination with other therapies. Our competitors also may obtain FDA or comparable foreign regulatory authorities’ approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. In addition,

 

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our ability to compete may be affected in many cases by insurers or other third-party payors coverage decisions.

Many of the companies with which we are competing or may compete in the future have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals, and marketing approved products than we do. Mergers and acquisitions in the biopharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in developing or acquiring technologies complementary to, or necessary for, our programs. If we are unable to successfully compete with these companies our business, financial condition, results of operations, stock price and prospects may be materially harmed.

If we are unable to establish effective marketing, sales and distribution capabilities or enter into agreements with third parties to market and sell our current product candidates or any future product candidates, if they are approved, the revenues that we generate may be limited and we may never become profitable.

We currently do not have a commercial infrastructure for the marketing, sale, and distribution of our cancer immunotherapies. If and when our current product candidates or any future product candidates receive marketing approval, we intend to commercialize such product candidates on our own in the United States and potentially with pharmaceutical or biotechnology partners in other geographies. In order to commercialize our products, we must build our marketing, sales, and distribution capabilities or make arrangements with third parties to perform these services. We may not be successful in doing so. Should we decide to move forward in developing our own marketing capabilities, we may incur expenses prior to product launch or even approval in order to recruit a sales force and develop a marketing and sales infrastructure. If a commercial launch is delayed as a result of the FDA or comparable foreign regulatory authority requirements or other reasons, we would incur these expenses prior to being able to realize any revenue from sales of our current product candidates and any future product candidates. Even if we are able to effectively hire a sales force and develop a marketing and sales infrastructure, our sales force and marketing teams may not be successful in commercializing our current product candidates or any future product candidates. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.

We may also or alternatively decide to collaborate with third-party marketing and sales organizations to commercialize any approved product candidates in the United States, in which event, our ability to generate product revenues may be limited. To the extent we rely on third parties to commercialize any products for which we obtain regulatory approval, we may receive less revenues than if we commercialized these products ourselves, which could materially harm our prospects. In addition, we would have less control over the sales efforts of any other third parties involved in our commercialization efforts, and could be held liable if they failed to comply with applicable legal or regulatory requirements. Such third parties may also fail to devote the necessary resources and attention to sell and market any approved products effectively.

We have no prior experience in the marketing, sale, and distribution of biopharmaceutical products, and there are significant risks involved in building and managing a commercial infrastructure. The establishment and development of commercial capabilities, including compliance plans, to market any products we may develop will be expensive and time consuming and could delay any product launch, and we may not be able to successfully develop this capability. We will have to compete with other biopharmaceutical and biotechnology companies, including oncology-focused companies, to recruit, hire, train, manage, and retain marketing and

 

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sales personnel, which is expensive and time consuming and could delay any product launch. Developing our sales capabilities may also divert resources and management attention away from product development.

In the event we are unable to develop a marketing and sales infrastructure, we may not be able to commercialize our current product candidates or any future product candidates in the United States or elsewhere, which could limit our ability to generate product revenues and materially harm our business, financial condition, results of operations, stock price and prospects. Factors that may inhibit our efforts to commercialize our current product candidates or any future product candidates include:

 

 

the inability to recruit, train, manage, and retain adequate numbers of effective sales and marketing personnel;

 

 

the inability of sales personnel to obtain access to physicians and educate adequate numbers of physicians on the benefits of prescribing our current product candidates or any future product candidates;

 

 

our inability to effectively oversee a geographically dispersed sales and marketing team;

 

 

the costs associated with training sales and marketing personnel on legal and regulatory compliance matters and monitoring their actions;

 

 

an inability to secure adequate coverage and reimbursement by government and private health plans;

 

 

the clinical indications for which the products are approved and the claims that we may make for the products;

 

 

limitations or warnings, including distribution or use restrictions, contained in the products’ approved labeling;

 

 

any distribution and use restrictions imposed by the FDA or comparable foreign regulatory authorities or to which we agree as part of a mandatory REMS or voluntary risk management plan;

 

 

liability for sales or marketing personnel who fail to comply with the applicable legal and regulatory requirements;

 

 

the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and

 

 

unforeseen costs and expenses associated with creating an independent sales and marketing organization or engaging a contract sales organization.

If our current product candidates or any future product candidates do not achieve broad market acceptance, the revenues that we generate from their sales may be limited, and we may never become profitable.

We have never commercialized a product candidate for any indication. Even if our current product candidates and any future product candidates are approved by the appropriate regulatory authorities for marketing and sale, they may not gain acceptance among physicians, patients, third-party payors, and others in the medical community. If any product candidates for which we obtain regulatory approval do not gain an adequate level of market acceptance, we may not generate significant revenue and may not become profitable, or may be significantly delayed in achieving profitability. Market acceptance of our current product candidates and any future product candidates by the medical community, patients, and third-party payors will depend on a number of factors, some of which are beyond our control. For example, physicians are often reluctant to switch their patients and patients may be reluctant to switch from existing therapies even when new and potentially more effective or safer treatments enter the market. If public perception is influenced by claims that the use of

 

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cancer immunotherapies is unsafe, whether related to our immunomedicines or our competitors’ products, our products may not be accepted by the general public or the medical community. Future adverse events in immuno-oncology or the biopharmaceutical industry could also result in greater governmental regulation, stricter labeling requirements and potential regulatory delays in the testing or approvals of our products.

Efforts to educate the medical community and third-party payors on the benefits of our current product candidates and any future product candidates may require significant resources and may not be successful. If our current product candidates or any future product candidates are approved but do not achieve an adequate level of market acceptance, we could be prevented from or significantly delayed in achieving profitability. The degree of market acceptance of any of our current product candidates and any future product candidates will depend on a number of factors, including:

 

 

the efficacy of our current product candidates and any future product candidates as a single agent and in combination with marketed checkpoint inhibitor immunotherapies;

 

 

the commercial success of the checkpoint blockade drugs and biologics with which our products are co-administered;

 

 

the prevalence and severity of adverse events associated with our current product candidates and any future product candidates or those products with which they are co-administered;

 

 

the clinical indications for which the products are approved and the approved claims that we may make for the products;

 

 

limitations or warnings contained in the product’s FDA-approved labeling or those of comparable foreign regulatory authorities, including potential limitations or warnings for our current product candidates and any future product candidates that may be more restrictive than other competitive products;

 

 

changes in the standard of care for the targeted indications for our current product candidates and any future product candidates, which could reduce the marketing impact of any claims that we could make following FDA approval or approval by comparable foreign regulatory authorities, if obtained;

 

 

the relative convenience and ease of administration of our current product candidates and any future product candidates and any products with which they are co-administered;

 

 

the cost of treatment compared with the economic and clinical benefit of alternative treatments or therapies;

 

 

the availability of adequate coverage or reimbursement by third party payors, including government healthcare programs such as Medicare and Medicaid and other healthcare payors;

 

 

the price concessions required by third-party payors to obtain coverage;

 

 

the willingness of patients to pay out-of-pocket in the absence of adequate coverage and reimbursement;

 

 

the extent and strength of our marketing and distribution of our current product candidates and any future product candidates;

 

 

the safety, efficacy, and other potential advantages over, and availability of, alternative treatments already used or that may later be approved;

 

 

distribution and use restrictions imposed by the FDA or comparable foreign regulatory authorities with respect to our current product candidates and any future product candidates or to which we agree as part of a REMS or voluntary risk management plan;

 

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the timing of market introduction of our current product candidates and any future product candidates, as well as competitive products;

 

 

our ability to offer our current product candidates and any future product candidates for sale at competitive prices;

 

 

the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;

 

 

the extent and strength of our third-party manufacturer and supplier support;

 

 

the actions of companies that market any products with which our current product candidates and any future product candidates are co-administered;

 

 

the approval of other new products;

 

 

adverse publicity about our current product candidates and any future product candidates or any products with which they are co-administered, or favorable publicity about competitive products; and

 

 

potential product liability claims.

The size of the potential market for our current product candidates or any future product candidates is difficult to estimate and, if any of our assumptions are inaccurate, the actual markets for our current product candidates or any future product candidates may be smaller than our estimates.

The potential market opportunities for our current product candidates or any future product candidates are difficult to estimate and will depend in large part on the drugs with which our current product candidates or any future product candidates are co-administered and the success of competing therapies and therapeutic approaches. Our estimates of the potential market opportunities are predicated on many assumptions, which may include industry knowledge and publications, third-party research reports, and other surveys. Although we believe that our internal assumptions are reasonable, these assumptions involve the exercise of significant judgment on the part of our management, are inherently uncertain, and their reasonableness has not been assessed by an independent source. Further, new studies may change the estimated incidence or prevalence of these diseases, and any regulatory approvals that we may receive for a product candidate may include limitations for use or contraindications that decrease the addressable patient population. If any of the assumptions proves to be inaccurate, the actual markets for our current product candidates and any future product candidates could be smaller than our estimates of the potential market opportunities.

Negative developments in the field of immuno-oncology could damage public perception of our current or future product candidates and negatively affect our business.

The commercial success of our current product candidates or any future product candidates will depend in part on public acceptance of the use of cancer immunotherapies. Adverse events in clinical trials of EOS-850, EOS-448, or any future product candidates, or in clinical trials of others developing similar products and the resulting publicity, as well as any other negative developments in the field of immuno-oncology that may occur in the future, including in connection with competitor therapies, could result in a decrease in demand for EOS-850, EOS-448, or any future product candidates that we may develop. These events could also result in the suspension, discontinuation, or clinical hold of or modification to our clinical trials. If public perception is influenced by claims that the use of cancer immunotherapies is unsafe, whether related to our therapies or those of our competitors, our current product candidates and any future product candidates may not be accepted by the general public or the medical community and potential clinical trial subjects may be discouraged from enrolling in our clinical trials. As a result, we may not be able to continue or may be delayed in conducting our development programs.

 

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Future negative developments in the field of immuno-oncology or the biopharmaceutical industry could also result in greater governmental regulation, stricter labeling requirements and potential regulatory delays in the testing or approvals of our current product candidates or any future product candidates. Any increased scrutiny could delay or increase the costs of obtaining marketing approval for EOS-850, EOS-448, or any future product candidates.

Even if we are able to commercialize any current product candidates or any future product candidates, such drugs and biologics may become subject to unfavorable pricing regulations or third-party coverage and reimbursement policies, which would harm our business.

The regulations that govern regulatory approvals, pricing and reimbursement for new drugs and biologics vary widely from country to country. Some countries require approval of the sale price of a drug or biologic before it can be marketed. In many countries, the pricing review period begins after marketing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product candidate in a particular country, but then be subject to price regulations that delay our commercial launch of the product candidate, possibly for lengthy time periods, and negatively impact the revenues we are able to generate from the sale of the product candidate in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more of our current product candidates and any future product candidates, even if our current product candidates and any future product candidates obtain marketing approval.

Our ability to commercialize our current product candidates and any future product candidates successfully also will depend in part on the extent to which coverage and reimbursement for our current product candidates and any future product candidates and related treatments will be available from government authorities, private health insurers and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. In the United States, the principal decisions about reimbursement for new medicines are typically made by the Centers for Medicare & Medicaid Services, or CMS, an agency within HHS. CMS decides whether and to what extent a new medicine will be covered and reimbursed under Medicare and private payors tend to follow CMS to a substantial degree. Other factors payors consider in determining reimbursement are based on whether the product is:

 

 

a covered benefit under its health plan;

 

safe, effective and medically necessary;

 

appropriate for the specific patient;

 

cost-effective; and

 

neither experimental nor investigational.

A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular drugs and biologics. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for drugs and biologics. For products administered under the supervision of a physician, obtaining coverage and adequate reimbursement may be particularly difficult because of the higher prices often associated with such drugs and biologics. We cannot be sure that coverage will be available for any product candidate that we commercialize and, if coverage is available, the level of reimbursement. Reimbursement may impact the demand for, or the price of, any product candidate for which we obtain marketing approval. If reimbursement is not available or is available only to limited levels, we may not be able to successfully commercialize any product candidate for which we obtain marketing approval. Additionally, we or our collaborators may develop companion diagnostic tests for use with our product candidates. We, or our collaborators, will be required to obtain coverage and

 

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reimbursement for these tests separate and apart from the coverage and reimbursement we seek for our product candidates, once approved. There is significant uncertainty regarding our ability, or a collaborator’s ability, to obtain coverage and adequate reimbursement for the same reasons applicable to our product candidates.

There may be significant delays in obtaining reimbursement for newly approved drugs and biologics, and coverage may be more limited than the purposes for which the drug is approved or for which a biologic is licensed by the FDA or similar regulatory authorities outside the United States. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug or biologic and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost products and may be incorporated into existing payments for other services. Net prices for drugs and biologics may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs or biologics from countries where they may be sold at lower prices than in the United States. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for any approved drugs or biologics that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize drugs and biologics and our overall financial condition.

Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe, Canada and other countries has and will continue to put pressure on the pricing and usage of our product candidates. In many countries, the prices of drugs and biologics are subject to varying price control mechanisms as part of national health systems. Other countries allow companies to fix their own prices for drugs and biologics, but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our product candidates. Accordingly, in markets outside the United States, the reimbursement for our products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenue and profits.

The delivery of healthcare in the European Union, including the establishment and operation of health services and the pricing and reimbursement of medicines, is almost exclusively a matter for national, rather than European Union, law and policy. National governments and health service providers have different priorities and approaches to the delivery of healthcare and the pricing and reimbursement of products in that context. In general, however, the healthcare budgetary constraints in most European Union member states, or Member States, have resulted in restrictions on the pricing and reimbursement of medicines by relevant health service providers. Coupled with ever-increasing European Union and national regulatory burdens on those wishing to develop and market products, this could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities and affect our ability to commercialize any products for which we obtain marketing approval.

Healthcare legislative reform measures may have a material adverse effect on our business and results of operations.

The United States and many foreign jurisdictions have enacted or proposed legislative and regulatory changes affecting the healthcare system that could prevent or delay marketing approval of our current product candidates and any future product candidates, restrict or regulate post-approval activities and affect our ability

 

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to profitably sell a product for which we obtain marketing approval. Changes in regulations, statutes or the interpretation of existing regulations could impact our business in the future by requiring, for example: (i) changes to our manufacturing arrangements; (ii) additions or modifications to product labeling; (iii) the recall or discontinuation of our products; or (iv) additional record-keeping requirements. If any such changes were to be imposed, they could adversely affect the operation of our business.

In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, the ACA, was passed, which substantially changed the way healthcare is financed by both governmental and private insurers, and significantly impacted the U.S. pharmaceutical industry. The ACA, among other things, subjected biological products to potential competition by lower-cost biosimilars, addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs and biologics that are inhaled, infused, instilled, implanted or injected, increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to individuals enrolled in Medicaid managed care organizations, established annual fees and taxes on manufacturers of certain branded prescription drugs and biologics, and created a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 70% (increased from 50% pursuant to the Bipartisan Budget Act of 2018, effective as of 2019) point-of-sale discounts off negotiated prices of applicable brand drugs and biologics to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs or biologics to be covered under Medicare Part D.

There remain judicial and Congressional challenges to certain aspects of the ACA, as well as efforts by the Trump administration to repeal or replace certain aspects of the ACA. While Congress has not passed repeal legislation to date, the Tax Cuts and Jobs Act of 2017, or TCJA, repealed, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” On December 14, 2018, a federal district court in Texas ruled the individual mandate is a critical and inseverable feature of the ACA, and therefore, because it was repealed as part of the TCJA, the remaining provisions of the ACA are invalid as well. Additionally, on December 18, 2019, the U.S. Court of Appeals for the Fifth Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the ACA are invalid as well. On March 2, 2020, the United States Supreme Court granted the petitions for writs of certiorari to review this case, and has allotted one hour for oral arguments, which are expected to occur in the fall of 2020. We will continue to evaluate the effect that the ACA and its possible repeal and replacement has on our business.

Further, on January 20, 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal burden on states or a cost, fee, tax, penalty or regulatory burden on individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. On October 13, 2017, President Trump signed an Executive Order terminating the cost-sharing subsidies that reimburse insurers under the ACA. In December 2018, CMS published a final rule permitting further collections and payments to and from certain ACA qualified health plans, or QHPs, and health insurance issuers under the ACA risk adjustment program in response to the outcome of federal district court litigation regarding the method CMS uses to determine this risk adjustment. Since then, the ACA risk adjustment program payment parameters have been updated annually. However, on April 27, 2020, the United States Supreme Court reversed a Federal Circuit decision that previously upheld Congress’ denial of $12 billion in “risk corridor” funding.

 

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In addition, the 2020 federal spending package permanently eliminates, effective January 1, 2020, the ACA-mandated “Cadillac” tax on high-cost employer-sponsored health coverage and medical device tax and, effective January 1, 2021, also eliminates the health insurer tax. The Bipartisan Budget Act of 2018 also amended the ACA, effective January 1, 2019, by increasing the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D and closing the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” In addition, CMS published a final rule that would give states greater flexibility, effective January 1, 2020, in setting benchmarks for insurers in the individual and small group marketplaces, which may have the effect of relaxing the essential health benefits required under the ACA for plans sold through such marketplaces. Other legislative changes have been proposed and adopted in the United States since the ACA was enacted. In August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers up to 2% per fiscal year, and, due to subsequent legislative amendments, will remain in effect through 2030 unless additional Congressional action is taken. The Coronavirus Aid, Relief and Economic Security Act, or CARES Act, which was signed into law in March 2020 and is designed to provide financial support and resources to individuals and businesses affected by the COVID-19 pandemic, suspended the 2% Medicare sequester from May 1, 2020 through December 31, 2020. The American Taxpayer Relief Act of 2012, or ATRA, among other things, reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

There has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices. Specifically, there have been several recent U.S. Congressional inquiries and proposed federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. At the federal level, the Trump administration’s budget for fiscal year 2021 includes a $135 billion allowance to support legislative proposals seeking to reduce drug prices, increase competition, lower out-of-pocket drug costs for patients, and increase patient access to lower-cost generic and biosimilar drugs. On March 10, 2020, the Trump administration sent “principles” for drug pricing to Congress, calling for legislation that would, among other things, cap Medicare Part D beneficiary out-of-pocket pharmacy expenses, provide an option to cap Medicare Part D beneficiary monthly out-of-pocket expenses, and place limits on pharmaceutical price increases. Additionally, the Trump administration previously released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contained proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out of pocket costs of product candidates paid by consumers. HHS has solicited feedback on some of these measures and has implemented others under its existing authority. For example, in May 2019, CMS issued a final rule to allow Medicare Advantage Plans the option of using step therapy, a type of prior authorization, for Part B drugs beginning January 1, 2020. This final rule codified CMS’s policy change that was effective January 1, 2019.

Further, on May 30, 2018, the Right to Try Act, was signed into law. The law, among other things, provides a federal framework for certain patients to access certain investigational new product candidates that have completed a Phase 1 clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program. There is no obligation for a pharmaceutical manufacturer to make its product candidates available to eligible patients as a result of the Right to Try Act.

 

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At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In addition, regional health care authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other health care programs. These measures could reduce the ultimate demand for our products, once approved, or put pressure on our product pricing.

We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our current product candidates and any future product candidates or additional pricing pressures. It is possible that additional governmental action is taken to address the COVID-19 pandemic. For example, on April 18, 2020, CMS announced that QHP issuers under the ACA may suspend activities related to the collection and reporting of quality data that would have otherwise been reported between May and June 2020 given the challenges healthcare providers are facing responding to the COVID-19 virus.

Our revenue prospects could be affected by changes in healthcare spending and policy in the United States and abroad. We operate in a highly regulated industry and new laws, regulations or judicial decisions, or new interpretations of existing laws, regulations or decisions, related to healthcare availability, the method of delivery or payment for healthcare products and services could negatively impact our business, operations and financial condition.

There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. We cannot predict the initiatives that may be adopted in the future, including repeal, replacement or significant revisions to the ACA. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare and/or impose price controls may adversely affect:

 

 

the demand for our current product candidates and any future product candidates, if we obtain regulatory approval;

 

 

our ability to set a price that we believe is fair for our products;

 

 

our ability to obtain coverage and reimbursement approval for a product;

 

 

our ability to generate revenue and achieve or maintain profitability;

 

 

the level of taxes that we are required to pay; and

 

 

the availability of capital.

Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors, which may adversely affect our future profitability.

Our relationships with healthcare providers, customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to significant administrative, civil, and criminal penalties, damages, fines, disgorgement, imprisonment, exclusion from government healthcare programs, contractual damages, reputational harm and diminished profits and future earnings.

Although we do not currently have any products on the market, our current and future arrangements with healthcare providers, third-party payors, customers, and others may expose us to broadly applicable fraud and

 

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abuse and other healthcare laws and regulations which may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we research, market, sell and distribute our current product candidates and any future product candidates for which we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations, include the following:

 

 

the federal Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federal and state healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. Further, courts have found that if “one purpose” of remuneration is to induce referrals, the federal Anti-Kickback Statute is violated. The Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers, and formulary managers on the other. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution; but the exceptions and safe harbors are drawn narrowly and require strict compliance in order to offer protection;

 

 

the federal civil and federal false claims laws and civil monetary penalty laws, including the False Claims Act which can be enforced through civil whistleblower or qui tam actions, impose criminal and civil penalties against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government. In addition, the government may assert that a claim including items and services resulting from a violation of the federal Anti-Kickback Statute constitutes a false of fraudulent claim for purposes of the False Claims Act;

 

 

the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services; similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

 

 

the federal physician payment transparency requirements, sometimes referred to as the “Sunshine Act” under the ACA require certain manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report CMS information related to payments and other transfers of value to physicians, as defined by such law, and teaching hospitals and the ownership and investment interests of such physicians and their immediate family members. Effective January 1, 2022, these reporting obligations will extend to include transfers of value made to certain non-physician providers such as physician assistants and nurse practitioners;

 

 

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and its implementing regulations, which also imposes obligations on certain covered entity healthcare providers, health plans, and healthcare clearinghouses as well as their business associates that perform certain services involving the use or disclosure of individually identifiable health information, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information. HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to

 

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enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions; and

 

 

analogous state laws and regulations, such as state anti-kickback and false claims laws that may be broader in scope and apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers; and some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures; state and local laws that require the registration of pharmaceutical sales representatives; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

Ensuring that our future business arrangements with third parties comply with applicable healthcare laws and regulations could involve substantial costs. We have entered into certain advisory board and consulting agreements with physicians, including some who are compensated in the form of stock or stock options who may influence the ordering or use of our product candidates, if approved, in the future. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations were to be found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from government funded healthcare programs, such as Medicare and Medicaid, integrity oversight and reporting obligations and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject to significant criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. The shifting compliance environment and the need to build and maintain robust and expandable systems to comply with multiple jurisdictions with different compliance or reporting requirements increases the possibility that a healthcare company may run afoul of one or more of the requirements.

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.

We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological and radioactive materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.

Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide

 

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adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials.

Our business activities will be subject to the Foreign Corrupt Practices Act, or FCPA, and similar anti-bribery and anti-corruption laws.

As we expand our business activities outside of the United States, including our clinical trial efforts, we will be subject to the FCPA and similar anti-bribery or anti-corruption laws, regulations or rules of other countries in which we operate. The FCPA generally prohibits offering, promising, giving, or authorizing others to give anything of value, either directly or indirectly, to a non-United States government official in order to influence official action, or otherwise obtain or retain business. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls. Our business is heavily regulated and therefore involves significant interaction with public officials, including officials of non-United States governments. Additionally, in many other countries, the healthcare providers who prescribe pharmaceuticals are employed by their government, and the purchasers of pharmaceuticals are government entities; therefore, our dealings with these prescribers and purchasers will be subject to regulation under the FCPA. Recently the SEC and Department of Justice have increased their FCPA enforcement activities with respect to biotechnology and pharmaceutical companies. There is no certainty that all of our employees, agents, suppliers, manufacturers, contractors, or collaborators, or those of our affiliates, will comply with all applicable laws and regulations, particularly given the high level of complexity of these laws. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers, or our employees, the closing down of facilities, including those of our suppliers and manufacturers, requirements to obtain export licenses, cessation of business activities in sanctioned countries, implementation of compliance programs, and prohibitions on the conduct of our business. Any such violations could include prohibitions on our ability to offer our products in one or more countries as well as difficulties in manufacturing or continuing to develop our products, and could materially damage our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, and our business, prospects, operating results, and financial condition.

Risks related to intellectual property

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.

Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to our current product candidates or any future product candidates and research programs. We seek to protect our proprietary position by filing patent applications in the United States and abroad related to our novel discoveries and technologies that are important to our business, however, we cannot predict:

 

 

if and when patents may issue based on our patent applications;

 

 

the scope of protection of any patent issuing based on our patent applications;

 

 

whether the claims of any patent issuing based on our patent applications will protect our current product candidates or any future product candidates and their intended uses or prevent others from commercializing competitive technologies or products;

 

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whether or not third parties will find ways to invalidate or circumvent our patent rights;

 

 

whether or not others will obtain patents claiming aspects similar to those covered by our patents and patent applications; and/or

 

 

whether we will need to initiate litigation or administrative proceedings to enforce and/or defend our patent rights which will be costly whether we win or lose.

Obtaining and enforcing patents is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications, or maintain and/or enforce patents that may issue based on our patent applications, at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development results before it is too late to obtain patent protection. Although we enter into non-disclosure and confidentiality agreements with parties who have access to patentable aspects of our research and development output, such as our employees, corporate collaborators, outside scientific collaborators, contract research organizations, or CROs, CMOs, consultants, advisors and other third parties, any of these parties may breach these agreements and disclose such results before a patent application is filed, thereby jeopardizing our ability to seek patent protection.

We also cannot be certain that the claims in our pending patent applications directed to our product candidates and/or technologies will be considered patentable by the U.S. Patent and Trademark Office, or the USPTO, or by patent offices in foreign countries. One aspect of the determination of patentability of our inventions depends on the scope and content of the “prior art,” information that was or is deemed available to a person of skill in the relevant art prior to the priority date of the claimed invention. There may be prior art of which we are not aware that may affect the patentability of our patent claims or, if issued, affect the validity or enforceability of a patent claim. Even if the patents do issue based on our patent applications, third parties may challenge the validity, enforceability or scope thereof, which may result in such patents being narrowed, invalidated or held unenforceable. Furthermore, even if they are unchallenged, patents in our portfolio may not adequately exclude third parties from practicing relevant technology or prevent others from designing around our claims. If the breadth or strength of our intellectual property position with respect to our current product candidates or any future product candidates is threatened, it could dissuade companies from collaborating with us to develop and threaten our ability to commercialize our current product candidates or any future product candidates. In the event of litigation or administrative proceedings, we cannot be certain that the claims in any of our issued patents will be considered valid by courts in the United States or foreign countries.

We may not identify relevant third-party patents or may incorrectly interpret the relevance, scope or expiration of a third-party patent which might adversely affect our ability to develop and market our products.

We cannot guarantee that any of our patent searches or analyses, including the identification of relevant patents, the scope of patent claims or the expiration of relevant patents, are complete or thorough, nor can we be certain that we have identified each and every third party patent and pending application in the United States and abroad that is relevant to or necessary for the commercialization of our current product candidates or any future product candidates in any jurisdiction.

The scope of a patent claim is determined by an interpretation of the law, the written disclosure in a patent and the patent’s prosecution history. Our interpretation of the relevance or the scope of a patent or a pending application may be incorrect, which may negatively impact our ability to market our products. We may incorrectly determine that our products are not covered by a third-party patent or may incorrectly predict whether a third party’s pending application will issue with claims of relevant scope. Our determination of the expiration date of any patent in the United States or abroad that we consider relevant may be incorrect, which may negatively impact our ability to develop and market our current product candidates or any future product

 

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candidates. Our failure to identify and correctly interpret relevant patents may negatively impact our ability to develop and market our products.

In the future, we may need to obtain additional licenses of third-party technology that may not be available to us or are available only on commercially unreasonable terms, and which may cause us to operate our business in a more costly or otherwise adverse manner that was not anticipated.

From time to time we may be required to license technology from additional third parties to further develop or commercialize our current product candidates or any future product candidates. Should we be required to obtain licenses to any third-party technology, including any such patents required to manufacture, use or sell our current product candidates or any future product candidates, such licenses may not be available to us on commercially reasonable terms, or at all. The inability to obtain any third-party license required to develop or commercialize any of our current product candidates or any future product candidates could cause us to abandon any related efforts, which could seriously harm our business and operations.

We may become involved in lawsuits alleging that we have infringed the intellectual property rights of third parties or to protect or enforce our patents or other intellectual property, which litigation could be expensive, time consuming and adversely affect our ability to develop or commercialize our current product candidates or any future product candidates.

The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. There is a substantial amount of intellectual property litigation in the biotechnology and pharmaceutical industries, and we may become party to, or threatened with, litigation or other adversarial proceedings regarding intellectual property rights with respect to our products candidates. Third parties may assert infringement claims against us based on existing or future intellectual property rights. If we were sued for patent infringement, we would need to demonstrate that our current product candidates or any future product candidates, products or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid or unenforceable, and we may not be able to do this. Proving invalidity may be difficult. For example, in the United States, proving invalidity in court requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. If we are found to infringe a third party’s intellectual property rights, we could be forced, including by court order, to cease developing, manufacturing or commercializing the infringing product candidate or product. Alternatively, we may be required to obtain a license from such third party in order to use the infringing technology and continue developing, manufacturing or marketing the infringing product candidate. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our current product candidates or any future product candidates or force us to cease some of our business operations, which could materially harm our business.

In addition, we may find that competitors are infringing our patents, trademarks, copyrights or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time consuming and divert the time and attention of our management and scientific personnel. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents, in addition to counterclaims asserting that our patents are invalid or unenforceable, or both. In any patent infringement proceeding, there is a risk that a court will decide that a patent of ours is invalid or unenforceable, in whole or in part, and that we do not have the right to stop the other party from using the invention at issue. There is also a risk that, even if the validity of such patents is upheld, the court will construe the patent’s claims narrowly or decide that we do not have the

 

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right to stop the other party from using the invention at issue on the grounds that our patent claims do not cover the invention. An adverse outcome in a litigation or proceeding involving our patents could limit our ability to assert our patents against those parties or other competitors, and may curtail or preclude our ability to exclude third parties from making and selling similar or competitive products. Any of these occurrences could adversely affect our competitive business position, business prospects and financial condition. Similarly, if we assert trademark infringement claims, a court may determine that the marks we have asserted are invalid or unenforceable, or that the party against whom we have asserted trademark infringement has superior rights to the marks in question. In this case, we could ultimately be forced to cease use of such trademarks. Even if we establish infringement, the court may decide not to grant an injunction against further infringing activity and instead award only monetary damages, which may or may not be an adequate remedy.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of shares of our common stock. Moreover, we cannot assure you that we will have sufficient financial or other resources to defend or pursue such litigation, which typically last for years before they are concluded. Even if we are successful in these proceedings, we may incur substantial costs and the time and attention of our management and scientific personnel could be diverted in pursuing these proceedings, which could have a material adverse effect on our business and operations. In addition, we may not have sufficient resources to bring these actions to a successful conclusion.

Because of the expense and uncertainty of litigation, we may not be in a position to enforce our intellectual property rights against third parties.

Because of the expense and uncertainty of litigation, we may conclude that even if a third party is infringing our issued patent, any patents that may be issued as a result of our pending or future patent applications or other intellectual property rights, the risk-adjusted cost of bringing and enforcing such a claim or action may be too high or not in the best interest of our company or our stockholders. In such cases, we may decide that the more prudent course of action is to simply monitor the situation or initiate or seek some other non-litigious action or solution.

We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.

We could in the future be subject to claims that we or our employees have inadvertently or otherwise used or disclosed alleged trade secrets or other confidential information of former employers or competitors. Although we try to ensure that our employees and consultants do not use the intellectual property, proprietary information, know-how or trade secrets of others in their work for us, we may become subject to claims that we caused an employee to breach the terms of his or her non-competition or non-solicitation agreement, or that we or these individuals have, inadvertently or otherwise, used or disclosed the alleged trade secrets or other proprietary information of a former employer or competitor.

While we may litigate to defend ourselves against these claims, even if we are successful, litigation could result in substantial costs and could be a distraction to management. If our defenses to these claims fail, in addition to requiring us to pay monetary damages, a court could prohibit us from using technologies or features that are essential to our current product candidates or any future product candidates, if such technologies or features are found to incorporate or be derived from the trade secrets or other proprietary information of the former employers. Moreover, any such litigation or the threat thereof may adversely affect our reputation, our ability to form strategic alliances or sublicense our rights to collaborators, engage with scientific advisors or hire

 

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employees or consultants, each of which would have an adverse effect on our business, results of operations and financial condition.

We may not be able to protect our intellectual property rights throughout the world.

Patents are of national or regional effect, and filing, prosecuting and defending patents on all of our current product candidates or any future product candidates throughout the world would be prohibitively expensive. As such, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Further, the legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to pharmaceuticals or biologics, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. In addition, certain developing countries, including China and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In those countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party, which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

Changes in patent law in the United States and other jurisdictions could diminish the value of patents in general, thereby impairing our ability to protect our current product candidates or any future product candidates.

As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. However, the patent position of biopharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation, resulting in court decisions, including Supreme Court decisions, that have increased uncertainties as to the ability to obtain and enforce patent rights in the future. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries could increase the uncertainties and costs. For example, in September 2011 the Leahy-Smith America Invents Act, or the America Invents Act, was signed into law and included a number of significant changes to U.S. patent law as then existed. These include provisions that affect the way patent applications are prosecuted, redefine prior art and provide more efficient and cost-effective avenues for competitors to challenge the validity of patents. These include allowing third-party submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO administered post-grant proceedings, including post-grant review, inter partes review, and derivation proceedings. After March 2013, under the America Invents Act, the United States transitioned to a first inventor to file system in which, assuming that the other statutory requirements are met, the first inventor to file a patent application will be entitled to the patent on an invention regardless of whether a third party was the first to invent the claimed invention. However, the America Invents Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. Depending on future actions by the U.S. Congress, the U.S. courts, the USPTO and the relevant law-making bodies in other countries, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.

 

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We may rely on trade secret and proprietary know-how which can be difficult to trace and enforce and, if we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.

In addition to seeking patents for some of our technology and current product candidates or any future product candidates, we may also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. Elements of our current product candidates or any future product candidates, including processes for their preparation and manufacture, may involve proprietary know-how, information, or technology that is not covered by patents, and thus for these aspects we may consider trade secrets and know-how to be our primary intellectual property. Any disclosure, either intentional or unintentional, by our employees, the employees of third parties with whom we share our facilities or third party consultants and vendors that we engage to perform research, clinical trials or manufacturing activities, or misappropriation by third parties (such as through a cybersecurity breach) of our trade secrets or proprietary information could enable competitors to duplicate or surpass our technological achievements, thus eroding our competitive position in our market.

Trade secrets and know-how can be difficult to protect. We require our employees to enter into written employment agreements containing provisions of confidentiality and obligations to assign to us any inventions generated in the course of their employment. We enter into written agreements that include confidentiality and intellectual property obligations to protect each party’s property, potential trade secrets, proprietary know-how, and information. We further seek to protect our potential trade secrets, proprietary know-how, and information in part, by entering into non-disclosure and confidentiality agreements with parties who are given access to them, such as our corporate collaborators, outside scientific collaborators, CROs, CMOs, consultants, advisors and other third parties. With our consultants, contractors, and outside scientific collaborators, these agreements typically include invention assignment obligations. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor or other third party, we would have no right to prevent them from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor or other third party, our competitive position would be harmed.

We may become subject to claims challenging the inventorship or ownership of our patents and other intellectual property.

We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents or other intellectual property as an inventor or co-inventor. The failure to name the proper inventors on a patent application can result in the patents issuing thereon being unenforceable. Inventorship disputes may arise from conflicting views regarding the contributions of different individuals named as inventors, the effects of foreign laws where foreign nationals are involved in the development of the subject matter of the patent, conflicting obligations of third parties involved in developing our current product candidates or any future product candidates or as a result of questions regarding co-ownership of potential joint inventions. Litigation may be necessary to resolve these and other claims challenging inventorship and/or ownership. Alternatively, or additionally, we may enter into agreements to clarify the scope of our rights in such intellectual property. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

 

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Patent terms may be inadequate to protect our competitive position on our current product candidates or any future product candidates for an adequate amount of time.

Patent rights are of limited duration. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. Even if patents covering our current product candidates or any future product candidates are obtained, once the patent life has expired for a product, we may be open to competition from biosimilar or generic products. A patent term extension based on regulatory delay may be available in the United States. However, only a single patent can be extended for each marketing approval, and any patent can be extended only once, for a single product. Moreover, the scope of protection during the period of the patent term extension does not extend to the full scope of the claim, but instead only to the scope of the product as approved. Laws governing analogous patent term extensions in foreign jurisdictions vary widely, as do laws governing the ability to obtain multiple patents from a single patent family. Additionally, we may not receive an extension if we fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. If we are unable to obtain patent term extension or restoration, or the term of any such extension is less than we request, the period during which we will have the right to exclusively market our product will be shortened and our competitors may obtain approval of competing products following our patent expiration, and our revenue could be reduced, possibly materially.

Risks related to reliance on third parties

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.

We do not have the ability to conduct all aspects of our preclinical testing or clinical trials ourselves. As a result, we are, and expect to remain, dependent on third parties to conduct our ongoing clinical trials and any future clinical trials of our product candidates. The timing of the initiation and completion of these trials will therefore be partially controlled by such third parties and may result in delays to our development programs. Specifically, we expect CROs, clinical investigators, and consultants to play a significant role in the conduct of these trials and the subsequent collection and analysis of data. However, we will not be able to control all aspects of their activities. Nevertheless, we are responsible for ensuring that each of our trials is conducted in accordance with the applicable protocol and legal, regulatory and scientific standards, and our reliance on the CROs and other third parties does not relieve us of our regulatory responsibilities. We and our CROs are required to comply with GCP requirements, which are regulations and guidelines enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area and comparable foreign regulatory authorities for all of our current product candidates and any future product candidates in clinical development. Regulatory authorities enforce these GCP requirements through periodic inspections of trial sponsors, clinical trial investigators and clinical trial sites. If we or any of our CROs or clinical trial sites fail to comply with applicable GCP requirements, the data generated in our clinical trials may be deemed unreliable, and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. In addition, our clinical trials must be conducted with product produced under cGMP regulations. Our failure to comply with these regulations may require us to stop and/or repeat clinical trials, which would delay the marketing approval process.

There is no guarantee that any such CROs, clinical trial investigators or other third parties on which we rely will devote adequate time and resources to our development activities or perform as contractually required. Further, the performance of our CROs may also be interrupted by the ongoing COVID-19 pandemic, including

 

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due to travel or quarantine policies, heightened exposure of CRO staff who are healthcare providers to COVID-19 or prioritization of resources toward the pandemic. If any of these third parties fail to meet expected deadlines, adhere to our clinical protocols or meet regulatory requirements, otherwise performs in a substandard manner, or terminates its engagement with us, the timelines for our development programs may be extended or delayed or our development activities may be suspended or terminated. If any of our clinical trial sites terminates for any reason, we may experience the loss of follow-up information on subjects enrolled in such clinical trials unless we are able to transfer those subjects to another qualified clinical trial site, which may be difficult or impossible. In addition, clinical trial investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and may receive cash or equity compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, or the FDA or comparable foreign regulatory authorities concludes that the financial relationship may have affected the interpretation of the trial, the integrity of the data generated at the applicable clinical trial site may be questioned and the utility of the clinical trial itself may be jeopardized, which could result in the delay or rejection of any marketing application we submit by the FDA or any comparable foreign regulatory authority. Any such delay or rejection could prevent us from commercializing our current product candidates and any future product candidates.

Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals for our current product candidates or any future product candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize our products.

If any of our relationships with these third-party CROs or others terminate, we may not be able to enter into arrangements with alternative CROs or other third parties or to do so on commercially reasonable terms.

Switching or adding additional CROs involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO begins work. As a result, delays may occur, which can materially impact our ability to meet our desired development timelines. Though we endeavor to carefully manage our relationships with our CROs and other third parties, there can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and prospects.

We rely on third parties to manufacture our product candidates, and we expect to continue to rely on third parties for the clinical as well as any future commercial supply of our product candidates and other future product candidates. The development of our current and future product candidates, and the commercialization of any approved products, could be stopped, delayed or made less profitable if any such third party fails to provide us with sufficient clinical or commercial quantities of such product candidates or products, fails to do so at acceptable quality levels or prices or fails to achieve or maintain satisfactory regulatory compliance.

We do not currently have, and we do not plan to build, the infrastructure or capability internally to manufacture current product candidates or any future product candidates for use in the conduct of our clinical trials or, if approved, for commercial supply. We rely on, and expect to continue to rely on, contract manufacturing organizations, or CMOs. Reliance on third-party providers may expose us to more risk than if we were to manufacture our product candidates ourselves. We do not control the manufacturing processes of the CMOs we contract with and are dependent on those third parties for the production of our product candidates in accordance with relevant applicable regulations such as cGMP, which includes, among other things, quality control, quality assurance and the maintenance of records and documentation.

 

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In complying with the manufacturing regulations of the FDA and comparable foreign regulatory authorities, we and our third-party suppliers must spend significant time, money and effort in the areas of design and development, testing, production, record-keeping and quality control to assure that the products meet applicable specifications and other regulatory requirements. The failure to comply with these requirements could result in an enforcement action against us, including the seizure of products and shutting down of production. We and any of these third-party suppliers may also be subject to audits by the FDA or comparable foreign regulatory authorities. If any of our third-party suppliers fails to comply with cGMP or other applicable manufacturing regulations, our ability to develop and commercialize our product candidates could suffer significant interruptions.

Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or drugs, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our products.

Any disruption, such as a fire, natural hazards or vandalism at our CMOs, or any impacts on our CMOs due to the COVID-19 pandemic, could significantly interrupt our manufacturing capability. We currently do not have alternative production plans in place or disaster-recovery facilities available. In case of a disruption, we will have to establish alternative manufacturing sources. This would require substantial capital on our part, which we may not be able to obtain on commercially acceptable terms or at all. Additionally, we would likely experience months of manufacturing delays as we build facilities or locate alternative suppliers and seek and obtain necessary regulatory approvals. If this occurs, we will be unable to satisfy manufacturing needs on a timely basis, if at all. If changes to CMOs occur, then there also may be changes to manufacturing processes inherent in the setup of new operations for our product candidates and any products that may obtain approval in the future. Any such changes could require the conduct of bridging studies before we can use any materials produced at new facilities or under new processes in clinical trials or, for any products reaching approval, in our commercial supply. Further, business interruption insurance may not adequately compensate us for any losses that may occur and we would have to bear the additional cost of any disruption. For these reasons, a significant disruptive event of any CMOs could have drastic consequences, including placing our financial stability at risk.

Our product candidates and any drugs that we may develop may compete with other product candidates and drugs for access to manufacturing facilities. There are no assurances we would be able to enter into similar commercial arrangements with other manufacturers that operate under cGMP regulations and that might be capable of manufacturing for us. Any performance failure on the part of our existing or future manufacturers could delay clinical development or marketing approval.

If we were to experience an unexpected loss of supply of or if any supplier were unable to meet our clinical or commercial demand for any of our product candidates, we could experience delays in our planned clinical studies or commercialization. For example, the COVID-19 pandemic may impact our ability to procure sufficient supplies for the development of our current and future product candidates, and the extent of such impacts will depend on the severity and duration of the spread of the virus and the actions undertaken to contain COVID-19 or treat its effects. We could be unable to find alternative suppliers of acceptable quality and experience that can produce and supply appropriate volumes at an acceptable cost or on favorable terms. Moreover, our suppliers are often subject to strict manufacturing requirements and rigorous testing requirements, which could limit or delay production. The long transition periods necessary to switch manufacturers and suppliers, if necessary, would significantly delay our clinical trials and, for any product candidates that reach approval, the commercialization of our products, which would materially adversely affect our business, financial condition and results of operation.

 

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The manufacture of biologics is complex and our third-party manufacturers may encounter difficulties in production. If any of our third-party manufacturers encounter such difficulties, our ability to provide supply of our current product candidates or any future product candidates for clinical trials or our products for patients, if approved, could be delayed or prevented.

Manufacturing biologics, especially in large quantities, is often complex and may require the use of innovative technologies to handle living cells. Each lot of an approved biologic must undergo thorough testing for identity, strength, quality, purity and potency. Manufacturing biologics requires facilities specifically designed for and validated for this purpose, and sophisticated quality assurance and quality control procedures are necessary. Slight deviations anywhere in the manufacturing process, including filling, labeling, packaging, storage and shipping and quality control and testing, may result in lot failures, product recalls or spoilage. When changes are made to the manufacturing process, we may be required to provide preclinical and clinical data showing the comparable identity, strength, quality, purity or potency of the products before and after such changes. If microbial, viral or other contaminations are discovered at the facilities of our manufacturers, such facilities may need to be closed for an extended period of time to investigate and remedy the contamination, which could delay clinical trials and adversely harm our business. The use of biologically derived ingredients can also lead to allegations of harm, including infections or allergic reactions, or closure of product facilities due to possible contamination.

In addition, there are risks associated with large scale manufacturing for clinical trials or commercial scale including, among others, cost overruns, potential problems with process scale-up, process reproducibility, stability issues, compliance with good manufacturing practices, lot consistency and timely availability of raw materials. Even if we obtain marketing approval for any of our current product candidates or any future product candidates, there is no assurance that our manufacturers will be able to manufacture the approved product to specifications acceptable to the FDA or other comparable foreign regulatory authorities, to produce it in sufficient quantities to meet the requirements for the potential commercial launch of the product or to meet potential future demand. If our manufacturers are unable to produce sufficient quantities for clinical trials or for commercialization, our development and commercialization efforts would be impaired, which would have an adverse effect on our business, financial condition, results of operations and growth prospects.

We may form or seek collaborations or strategic alliances or enter into additional licensing arrangements in the future, and we may not realize the benefits of such collaborations, alliances or licensing arrangements.

We may form or seek strategic alliances, create joint ventures or collaborations, or enter into licensing arrangements with third parties that we believe will complement or augment our development and commercialization efforts with respect to our product candidates and any future product candidates that we may develop. Any of these relationships may require us to incur non-recurring and other charges, increase our near and long-term expenditures, issue securities that dilute our existing stockholders or disrupt our management and business.

In addition, we face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for our product candidates because they may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view our product candidates as having the requisite potential to demonstrate safety, potency, purity and efficacy and obtain marketing approval.

Further, collaborations involving our product candidates are subject to numerous risks, which may include the following:

 

 

collaborators have significant discretion in determining the efforts and resources that they will apply to a collaboration;

 

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collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or renew development or commercialization of our product candidates based on clinical trial results, changes in their strategic focus due to the acquisition of competitive products, availability of funding or other external factors, such as a business combination that diverts resources or creates competing priorities;

 

 

collaborators may delay clinical trials, provide insufficient funding for a clinical trial, stop a clinical trial, abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;

 

 

collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our product candidates;

 

 

a collaborator with marketing and distribution rights to one or more products may not commit sufficient resources to their marketing and distribution;

 

 

collaborators may not properly maintain or defend our intellectual property rights or may use our intellectual property or proprietary information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential liability;

 

 

disputes may arise between us and a collaborator that cause the delay or termination of the research, development or commercialization of our product candidates, or that result in costly litigation or arbitration that diverts management attention and resources;

 

 

collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates; and

 

 

collaborators may own or co-own intellectual property covering our products that results from our collaborating with them, and in such cases, we would not have the exclusive right to commercialize such intellectual property.

As a result, if we enter into additional collaboration agreements and strategic partnerships or license our product candidates, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company culture, which could delay our timelines or otherwise adversely affect our business. We also cannot be certain that, following a strategic transaction or license, we will achieve the revenue or specific net income that justifies such transaction. Any delays in entering into new collaborations or strategic partnership agreements related to our product candidates could delay the development and commercialization of our product candidates in certain geographies for certain indications, which would harm our business prospects, financial condition and results of operations.

Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.

Because we rely on third parties to research and develop and to manufacture our product candidates, we must share trade secrets with them. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, consulting agreements or other similar agreements with our advisors, employees, third-party contractors and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, including our trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our

 

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proprietary position is based, in part, on our know-how and trade secrets, a competitor’s independent discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have a material adverse effect on our business.

In addition, these agreements typically restrict the ability of our advisors, employees, third-party contractors and consultants to publish data potentially relating to our trade secrets, although our agreements may contain certain limited publication rights. For example, any academic institution that we may collaborate with will likely expect to be granted rights to publish data arising out of such collaboration and any joint research and development programs may require us to share trade secrets under the terms of our research and development or similar agreements. Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through breach of our agreements with third parties, independent development or publication of information by any of our third-party collaborators. A competitor’s discovery of our trade secrets would impair our competitive position and have an adverse impact on our business. Enforcing a claim that a third party illegally obtained and is using our trade secrets, like patent litigation, is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets.

Risks related to our employee matters and managing growth

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

Public health pandemics or outbreaks could adversely impact our business. In December 2019, a novel strain of coronavirus (COVID-19) emerged in Wuhan, Hubei Province, China and has since spread to several other countries, including the United States and European countries, with infections and deaths reported globally. The continued spread of COVID-19 could adversely impact our manufacturing and other operations, including our ability to recruit and retain patients, principal investigators, clinical trial sites and their staff, caregivers and healthcare providers as necessary. The COVID-19 outbreak may negatively affect the operations of third-party suppliers and service providers that we rely upon to carry out our clinical trials or the operations of our third-party manufacturers, which could result in delays or disruptions in the supply of our product candidates for our clinical trials. Furthermore, COVID-19 may delay startup of new clinical trial sites and enrollment in our clinical trials due to prioritization of hospital resources toward the outbreak, restrictions in travel and site enrollment restrictions. Some patients may be unwilling to enroll in future clinical trials or be unable to comply with clinical trial protocols if quarantines or travel restrictions impede patient movement or interrupt healthcare services. Increased demand at clinical trial sites and quarantined doctors and staff may reduce personnel and other available resources at clinical trial sites needed to conduct our clinical trials and may cause the screening of new patients or clinical trial operations to be paused, and the procedures or assessments of patients on trial to be delayed or missed. Trial sites may also limit or prohibit on site monitoring to decrease potential exposure of doctors, staff and patients to COVID-19, which would require us to use remote monitoring via video conferences. While we do not anticipate any negative effects from remote monitoring, it could potentially affect quality, training and source data verification at clinical trial sites. Additionally, if a clinical trial site does not have remote monitoring capabilities, we may be required to find other distance monitoring solutions. Further, we are currently experiencing challenges with respect to climate-controlled shipping of our product candidates, which may delay our ability to dose patients in our ongoing trials. Any negative impact COVID-19 has to patient enrollment, retention or treatment could delay our clinical trial timelines and adversely affect our ability to obtain regulatory approval for and to commercialize our product candidates, particularly on our current projected timelines, increase our operating expenses and have a material adverse effect on our business and financial results. As of the date of this prospectus, we remain in active dialog with our CROs and clinical sites to minimize the impact of this pandemic to our clinical trials of EOS-850 and EOS-

 

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448 without adversely impacting the safety of patients. Despite our best efforts, it may prove difficult to continue to treat patients in a timely manner and activation of new sites could be delayed, particularly for our clinical trial sites in areas with high rates of community spread.

In addition, COVID-19 has resulted in significant governmental measures being implemented to control the spread of the virus, including quarantines, travel restrictions and business shutdowns. As of the date hereof, we have taken temporary precautionary measures intended to help minimize the risk of the virus to our employees and their families, including temporarily requiring all non-laboratory employees and all non-essential employees for laboratory work to work remotely. We have suspended non-essential travel worldwide for our employees and are discouraging employee attendance at other gatherings. Further measures may be taken as the pandemic continues. These measures could negatively affect our business. For instance, temporarily requiring most employees to work remotely has required us to decrease pre-clinical laboratory work, which may delay and otherwise adversely impact our pre-clinical program development. Further, remote work may disrupt our operations or increase the risk of a cybersecurity incident. In addition, although our employees are accustomed to working remotely, changes in internal controls due to remote work arrangements could potentially result in control deficiencies in the preparation of our financial reports, which could be significant. COVID-19 has also caused volatility in the global financial markets and threatened a slowdown in the global economy, which may negatively affect our ability to raise additional capital on attractive terms or at all.

The extent to which COVID-19 may impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, the severity of COVID-19 or the effectiveness of actions to contain and treat COVID-19, particularly in the geographies where we, our third party manufacturers, CROs or current and planned clinical trial sites operate. We cannot presently predict the scope and severity of any potential business shutdowns or disruptions. If we or any of the third parties with whom we engage, however, were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively affected, which could have a material adverse impact on our business and our results of operation and financial condition.

In addition, to the extent the ongoing COVID-19 pandemic adversely affects our business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties described in this “Risk factors” section.

We expect to expand our development, regulatory and operational capabilities and, as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

As of June 15, 2020, we had 46 full-time employees. As we advance our research and development programs and as we transition to operating as a public company, we expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of management and operations, clinical development, quality, regulatory affairs and, if any of our current product candidates or any future product candidates receive marketing approval, sales, marketing and distribution. To manage our anticipated future growth, we must:

 

 

identify, recruit, integrate, maintain and motivate additional qualified personnel;

 

 

manage our development efforts effectively, including the initiation and conduct of clinical trials for our current product candidates or any future product candidates, both as monotherapy and in combination with other intra-portfolio product candidates; and

 

 

improve our operational, financial and management controls, reporting systems and procedures.

 

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Our future financial performance and our ability to develop, manufacture and commercialize our current product candidates or any future product candidates will depend, in part, on our ability to effectively manage any future growth, and our management may also have to divert financial and other resources, and a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of time, to managing these growth activities. Due to our limited financial resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel.

We currently rely, and for the foreseeable future will continue to rely, in substantial part on certain independent organizations, advisors and consultants to provide certain services, including substantially all aspects of regulatory approval, clinical trial management and manufacturing. There can be no assurance that the services of independent organizations, advisors and consultants will continue to be available to us on a timely basis when needed, or that we can find qualified replacements. In addition, if we are unable to effectively manage our outsourced activities or if the quality or accuracy of the services provided by consultants is compromised for any reason, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval of our product candidates or otherwise advance our business. There can be no assurance that we will be able to manage our existing consultants or find other competent outside contractors and consultants on economically reasonable terms, or at all.

If we are not able to effectively expand our organization by hiring new employees and expanding our groups of consultants and contractors, we may not be able to successfully implement the tasks necessary to further develop and commercialize our current product candidates or any future product candidates and, accordingly, may not achieve our research, development and commercialization goals.

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 are highly dependent on the services of our founder, Michel Detheux, Ph.D., who serves as our Chief Executive Officer and President. Although we have entered into an employment agreements with him, it is not for a specific term and he may terminate his employment with us at any time, though we are not aware of any present intention of him to leave us. We do not maintain “key person” insurance for Dr. Detheux or any of our other executives or employees.

Dr. Detheux has significant experience identifying and developing drugs and biopharmaceuticals. We believe that his drug discovery and development experience, and overall biopharmaceutical company management experience, would be difficult to replace. However, the historical results, past performance and/or acquisitions of companies with which they were affiliated do not necessarily predict or guarantee similar results for our company.

Our industry has experienced a high rate of turnover in recent years. Our ability to compete in the highly competitive biopharmaceuticals industry depends upon our ability to attract, retain and motivate highly skilled and experienced personnel with scientific, medical, regulatory, manufacturing and management skills and experience. Although we conduct our research and development in Belgium, our headquarters with management is located, and we plan on expanding our clinical development activities, in the Boston area, a region that is home to many other biopharmaceutical companies as well as many academic and research institutions, resulting in fierce competition for qualified personnel. We may not be able to attract or retain qualified personnel in the future due to the intense competition for a limited number of qualified personnel among biopharmaceutical companies. Many of the other biopharmaceutical companies against which we compete have greater financial and other resources, different risk profiles and a longer history in the industry than we do. Our competitors may provide higher compensation, more diverse opportunities and/or better

 

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opportunities for career advancement. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. Any or all of these competing factors may limit our ability to continue to attract and retain high quality personnel, which could negatively affect our ability to successfully develop and commercialize our current product candidates or any future product candidates and to grow our business and operations as currently contemplated.

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.

We rely on information technology systems that we or our third-party providers operate to process, transmit and store electronic information in our day-to-day operations. In connection with our product discovery efforts, we may collect and use a variety of personal data, such as names, mailing addresses, email addresses, phone numbers and clinical trial information. A successful cyberattack could result in the theft or destruction of intellectual property, data, or other misappropriation of assets, or otherwise compromise our confidential or proprietary information and disrupt our operations. Cyberattacks are increasing in their frequency, sophistication and intensity, and have become increasingly difficult to detect. Cyberattacks could include wrongful conduct by hostile foreign governments, industrial espionage, wire fraud and other forms of cyber fraud, the deployment of harmful malware, denial-of-service, social engineering fraud or other means to threaten data security, confidentiality, integrity and availability. A successful cyberattack could cause serious negative consequences for us, including, without limitation, the disruption of operations, the misappropriation of confidential business information, including financial information, trade secrets, financial loss and the disclosure of corporate strategic plans. Although we devote resources to protect our information systems, we realize that cyberattacks are a threat, and there can be no assurance that our efforts will prevent information security breaches that would result in business, legal, financial or reputational harm to us, or would have a material adverse effect on our results of operations and financial condition. Any failure to prevent or mitigate security breaches or improper access to, use of, or disclosure of our clinical data or patients’ personal data could result in significant liability under state (e.g., state breach notification laws), federal (e.g., HIPAA, as amended by HITECH), and international law (e.g., the General Data Protection Regulation, or GDPR) and may cause a material adverse impact to our reputation, affect our ability to conduct new studies and potentially disrupt our business.

We rely on our third-party providers to implement effective security measures and identify and correct for any such failures, deficiencies or breaches. If we or our third-party providers fail to maintain or protect our information technology systems and data integrity effectively or fail to anticipate, plan for or manage significant disruptions to our information technology systems, we or our third-party providers could have difficulty preventing, detecting and controlling such cyber-attacks and any such attacks could result in the losses described above as well as disputes with physicians, patients and our partners, regulatory sanctions or penalties, increases in operating expenses, expenses or lost revenues or other adverse consequences, any of which could have a material adverse effect on our business, results of operations, financial condition, prospects and cash flows. Any failure by such third parties to prevent or mitigate security breaches or improper access to or disclosure of such information could have similarly adverse consequences for us. If we are unable to prevent or mitigate the impact of such security or data privacy breaches, we could be exposed to litigation and governmental investigations, which could lead to a potential disruption to our business. By way of example, the California Consumer Privacy Act, or CCPA, which went into effect on January 1, 2020, creates individual privacy rights for California consumers and increases the privacy and security obligations of entities handling certain personal data. The CCPA provides for civil penalties for violations, as well as a private right of action for data

 

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breaches that is expected to increase data breach litigation. In March 2020, the California State Attorney General has proposed varying versions of companion draft regulations which are not yet finalized. Despite the delay in adopting regulations, the California State Attorney General will commence enforcement actions against violators beginning July 1, 2020. The CCPA may increase our compliance costs and potential liability, and many similar laws have been proposed at the federal level and in other states. By way of example regarding foreign laws and regulations with respect to data privacy and security, the GDPR went into effect in the EU in May 2018 and introduces strict requirements for processing the personal data of EU data subjects. Companies that must comply with the GDPR face increased compliance obligations and risk, including more robust regulatory enforcement of data protection requirements and potential fines for noncompliance of up to 20 million or 4% of the annual global revenues of the noncompliant company, whichever is greater.

If we or third-party CMOs, CROs or other contractors or consultants fail to comply with U.S. and international data protection laws and regulations, it could result in government enforcement actions (which could include civil or criminal penalties), private litigation, and/or adverse publicity and could negatively affect our operating results and business. Moreover, clinical trial subjects about whom we or our potential collaborators obtain information, as well as the providers who share this information with us, may contractually limit our ability to use and disclose the information. Claims that we have violated individuals’ privacy rights, failed to comply with data protection laws, or breached our contractual obligations, even if we are not found liable, could be expensive and time-consuming to defend and could result in adverse publicity that could harm our business.

Unfavorable global economic and trade conditions could adversely affect our business, financial condition or results of operations.

Our current operations are located in Belgium, while our headquarters with management is located in Massachusetts. Any unplanned event, such as flood, fire, explosion, earthquake, extreme weather condition, medical epidemics, including any potential effects from the current global spread of COVID-19, power shortage, telecommunication failure or other natural or man-made accidents or incidents that result in us being unable to fully utilize our facilities, or the manufacturing facilities of our third-party CMOs, may have a material and adverse effect on our ability to operate our business, particularly on a daily basis, and have significant negative consequences on our financial and operating conditions. Loss of access to these facilities may result in increased costs, delays in the development of our product candidates or interruption of our business operations. Natural disasters or pandemics such as the COVID-19 outbreak could further disrupt our operations, and have a material and adverse effect on our business, financial condition, results of operations and prospects. For example, we have instituted a temporary work from home policy for non-essential office personnel and it is possible that this could have a negative impact on the execution of our business plans and operations. If a natural disaster, power outage or other event occurred that prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure, such as our research facilities or the manufacturing facilities of our third-party CMOs, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible, for us to continue our business for a substantial period of time. The disaster recovery and business continuity plans we have in place may prove inadequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which could have a material adverse effect on our business. As part of our risk management policy, we maintain insurance coverage at levels that we believe are appropriate for our business. However, in the event of an accident or incident at these facilities, we cannot assure our investors that the amounts of insurance will be sufficient to satisfy any damages and losses. If our facilities or the manufacturing facilities of our third-party CMOs are unable to operate because of an accident or incident or for any other reason, even for a short period of time, any or all of our research and development programs may be harmed. Any business interruption may have a material and adverse effect on our business, financial condition, results of operations and prospects.

 

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Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets and global trade. We conduct, and we expect to continue to conduct, portions of our clinical trials outside the United States, and unfavorable economic conditions resulting in the weakening of the U.S. dollar would make those clinical trials more costly to operate. Furthermore, the most recent global financial crisis caused extreme volatility and disruptions in the capital and credit markets. A severe or prolonged economic downturn could result in a variety of risks to our business, including a reduced ability to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy could also strain our suppliers, possibly resulting in supply disruption. In addition, proposed tariffs by the Trump administration have included a 25% tariff on raw ingredients for pharmaceuticals, such as the active pharmaceutical ingredients for our proposed product candidates. Furthermore, EOS-448 and precursors of EOS-850 are produced in China, and may be subject to governmental controls, trade restrictions and tariffs. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business.

A portion of our manufacturing of our lead product candidates takes place in China through third-party manufacturers. A significant disruption in the operation of those manufacturers, a trade war or political unrest in China could materially adversely affect our business, financial condition and results of operations.

We currently contract manufacturing operations to third parties, and clinical quantities of our lead product candidates EOS-850 and EOS-448 are manufactured by these third parties outside the United States, including in China, and we expect to continue to use such third-party manufacturers for such product candidates. Any disruption in production or inability of our manufacturers in China to produce adequate quantities to meet our needs, whether as a result of a natural disaster, the COVID-19 pandemic or other causes, could impair our ability to operate our business on a day-to-day basis and to continue our development of our product candidates. Furthermore, since these manufacturers are located in China, we are exposed to the possibility of product supply disruption and increased costs in the event of changes in the policies of the United States or Chinese governments, political unrest or unstable economic conditions in China. For example, a trade war could lead to tariffs on the chemical intermediates we use that are manufactured in China. Any of these matters could materially and adversely affect our business and results of operations. Any recall of the manufacturing lots or similar action regarding our product candidates used in clinical trials could delay the trials or detract from the integrity of the trial data and its potential use in future regulatory filings. In addition, manufacturing interruptions or failure to comply with regulatory requirements by any of these manufacturers could significantly delay clinical development of potential products and reduce third-party or clinical researcher interest and support of proposed trials. These interruptions or failures could also impede commercialization of our product candidates and impair our competitive position. Further, we may be exposed to fluctuations in the value of the local currency in China. Future appreciation of the local currency could increase our costs. In addition, our labor costs could continue to rise as wage rates increase due to increased demand for skilled laborers and the availability of skilled labor declines in China.

Our employees, clinical trial investigators, CROs, consultants, vendors and any potential commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading.

We are exposed to the risk of fraud or other misconduct by our employees, clinical trial investigators, CROs, consultants, vendors and any potential commercial partners. Misconduct by these parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to us that violates: (i) FDA laws and regulations or those of comparable foreign regulatory authorities, including those laws that require the reporting of true, complete and accurate information, (ii) manufacturing standards, (iii) federal and state health and data privacy, security, fraud and abuse, government price reporting, transparency reporting requirements, and other healthcare laws and regulations in the United States and abroad, or (iv) laws that

 

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require the true, complete and accurate reporting of financial information or data. Such misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and cause serious harm to our reputation. We have adopted a code of conduct applicable to all of our employees, as well as a disclosure program and other applicable policies and procedures, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.

Our future growth may depend, in part, on our ability to operate in foreign markets, where we would be subject to additional regulatory burdens and other risks and uncertainties.

Our future profitability may depend, in part, on our ability to commercialize our current product candidates or any future product candidates in foreign markets for which we may rely on collaboration with third parties. We are not permitted to market or promote any of our current product candidates or any future product candidates before we receive marketing approval from the applicable regulatory authority in that foreign market, and we may never receive such marketing approval for any of our current product candidates or any future product candidates. To obtain marketing approval in many foreign countries, we must comply with numerous and varying regulatory requirements of such countries regarding safety and efficacy and governing, among other things, clinical trials and commercial sales, pricing and distribution of our current product candidates or any future product candidates, and we cannot predict success in these jurisdictions. If we obtain approval of our current product candidates or any future product candidates and ultimately commercialize our current product candidates or any future product candidates in foreign markets, we would be subject to additional risks and uncertainties, including:

 

 

differing payor reimbursement regimes, governmental payors or patient self-pay systems and price controls;

 

 

our customers’ ability to obtain reimbursement for our current product candidates or any future product candidates in foreign markets;

 

 

our inability to directly control commercial activities because we are relying on third parties;

 

 

the burden of complying with complex and changing foreign regulatory, tax, accounting and legal requirements;

 

 

different medical practices and customs in foreign countries affecting acceptance in the marketplace;

 

 

import or export licensing requirements;

 

 

longer accounts receivable collection times;

 

 

longer lead times for shipping;

 

 

language barriers for technical training;

 

 

reduced protection of intellectual property rights in some foreign countries;

 

 

the existence of additional potentially relevant third-party intellectual property rights;

 

 

foreign currency exchange rate fluctuations; and

 

 

the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute.

 

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Foreign sales of our current product candidates or any future product candidates could also be adversely affected by the imposition of governmental controls, political and economic instability, trade restrictions and changes in tariffs.

The United Kingdom’s withdrawal from the European Union may have a negative effect on global economic conditions, financial markets and our business.

Following the result of a referendum in 2016, the United Kingdom left the European Union on January 31, 2020, commonly referred to as Brexit. Pursuant to the formal withdrawal arrangements agreed to by the United Kingdom and the European Union, the United Kingdom will be subject to a transition period until December 31, 2020, or the Transition Period, during which European Union rules will continue to apply. Negotiations between the United Kingdom and the European Union are expected to continue in relation to the customs and trading relationship between the United Kingdom and the European Union following the expiry of the Transition Period.

Since a significant proportion of the regulatory framework in the United Kingdom applicable to our business and our product candidates is derived from European Union directives and regulations, Brexit, following the Transition Period, could materially impact the regulatory regime with respect to the development, manufacture, importation, approval and commercialization of our product candidates in the United Kingdom or the European Union. For example, as a result of the uncertainty surrounding Brexit, the EMA relocated to Amsterdam from London. Following the Transition Period, the United Kingdom will no longer be covered by the centralized procedures for obtaining European Union-wide marketing and manufacturing authorizations from the EMA and, unless a specific agreement is entered into, a separate process for authorization of drug products will be required in the United Kingdom, the potential process for which is currently unclear. Any delay in obtaining, or an inability to obtain, any marketing approvals, as a result of Brexit or otherwise, would prevent us from commercializing our product candidates in the United Kingdom or the European Union and limit our ability to generate revenue and achieve and sustain profitability. In addition, we may be required to pay taxes or duties or be subjected to other hurdles in connection with the importation of our product candidates into the European Union, or we may incur expenses in establishing a manufacturing facility in the European Union in order to circumvent such hurdles. If any of these outcomes occur, we may be forced to restrict or delay efforts to seek regulatory approval in the United Kingdom or the European Union for our product candidates, or incur significant additional expenses to operate our business, which could significantly and materially harm or delay our ability to generate revenues or achieve profitability of our business. Any further changes in international trade, tariff and import/export regulations as a result of Brexit or otherwise may impose unexpected duty costs or other non-tariff barriers on us. These developments, or the perception that any of them could occur, may significantly reduce global trade and, in particular, trade between the impacted nations and the United Kingdom. It is also possible that Brexit may negatively affect our ability to attract and retain employees, particularly those from the European Union.

U.S. federal income tax reform could adversely affect our business and financial condition.

The rules dealing with U.S. federal, state, and local income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service and the U.S. Treasury Department. Changes to tax laws (which changes may have retroactive application) could adversely affect us or holders of our common stock. In recent years, many such changes have been made and changes are likely to continue to occur in the future. For example, on March 27, 2020, President Trump signed into law the CARES Act, which included certain changes in tax law intended to stimulate the U.S. economy in light of the COVID-19 coronavirus outbreak, including temporary beneficial changes to the treatment of net operating losses, interest deductibility limitations and payroll tax matters. Additionally, on December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act, or the TCJA, which significantly reformed the Internal Revenue Code of 1986, as amended. The TCJA, among other things, contains significant changes to corporate and individual taxation,

 

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some of which could adversely impact an investment in our common stock. Future changes in tax laws could have a material adverse effect on our business, cash flow, financial condition or results of operations. We urge investors to consult with their legal and tax advisers regarding the implications of potential changes in tax laws on an investment in our common stock.

Our ability to use our U.S. net operating loss carryforwards and certain other U.S. tax attributes may be limited.

We have incurred substantial losses during our history and do not expect to become profitable in the near future, and we may never achieve profitability. U.S. federal net operating losses generated after December 31, 2017, the TCJA, as modified by the CARES Act, will not expire and may be carried forward indefinitely, and generally may not be carried back to prior taxable years, except that, under the CARES Act, net operating losses generated in 2018, 2019 and 2020 may be carried back five taxable years. Additionally, for taxable years beginning after December 31, 2020, the deductibility of such U.S. federal net operating losses is limited to 80% of our taxable income in any future taxable year. In addition, both our current and our future unused losses may be subject to limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (IRC), if we undergo an “ownership change,” generally defined as a greater than 50 percentage point change (by value) in its equity ownership by certain stockholders over a three-year period. We may have experienced such ownership changes in the past, and we may experience ownership changes in the future as a result of this offering or subsequent shifts in our stock ownership, some of which are outside the Company’s control. As of December 31, 2019, we had U.S. federal net operating loss carryforwards of $0.4 million, and our ability to utilize those net operating loss carryforwards could be limited by an “ownership change” as described above, which could result in increased tax liability to the Company.

We are exposed to unanticipated changes in Belgian tax laws and regulations, as well as to adjustments to our Belgian tax provisions, exposure to additional tax liabilities in Belgium, or forfeiture of our Belgian tax assets.

The determination in Belgium of our provision for income taxes and other tax liabilities requires significant judgment, including the adoption of certain accounting policies and our determination of whether our deferred tax assets are, and will remain, tax effective. We cannot guarantee that our interpretation or application of accounting policies will not be questioned by the relevant tax authorities, or that the relevant tax laws and regulations, or the interpretation thereof, including through tax rulings, by the relevant tax authorities, will not be subject to change. Any adverse outcome of such a review or change may lead to adjustments in the amounts recorded in our financial statements, and could have a materially adverse effect on our operating results and financial condition.

We are subject to laws and regulations on tax levies and other charges or contributions in different countries, including transfer pricing and tax regulations for the compensation of personnel and third parties. Dealings between current and former group companies as well as additional companies that may form part of our group in the future are subject to transfer pricing regulations, which may be subject to change and could affect us.

Our effective tax rates in Belgium could be adversely affected by changes in tax laws, treaties and regulations, both internationally and domestically, or the interpretation thereof by the relevant tax authorities, including changes to the innovation income deduction, possible changes to the corporate income tax base, wage withholding tax incentive for qualified research and development personnel in Belgium and other tax incentives and the implementation of new tax incentives. An increase of the effective Belgian tax rates could have an adverse effect on our business, financial position, results of operations and cash flows.

 

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If we are unable to use Belgian tax loss carryforwards to reduce future taxable income or benefit from the favourable Belgian tax legislation, our business, results of operations and financial condition may be adversely affected.

At December 31, 2019, we had cumulative carry forward tax losses of 42.5 million in Belgium. Under the current legislation these are available to carry forward and offset against future taxable income for an indefinite period in Belgium. If we are unable to use tax loss carryforwards to reduce future taxable income, our business, results of operations and financial condition may be adversely affected. As a company active in research and development in Belgium we have benefited from certain research and development incentives including, for example, the Belgian research and development tax credit. This tax credit can be offset against the Belgian corporate income tax due. The excess portion may be refunded as from the end of a five-year fiscal period. The research and development incentive is calculated based on the amount of eligible research and development expenditure. The Belgian tax authorities may audit each research and development program in respect of which a tax credit has been claimed and assess whether it qualifies for the tax credit regime. The tax authorities may challenge our eligibility for, or our calculation of, certain tax reductions and/or deductions in respect of our research and development activities and, should the Belgian tax authorities be successful, we may be liable for additional corporate income tax, and penalties and interest related thereto, which could have a significant impact on our results of operations and future cash flows. Furthermore, if the Belgian government decides to eliminate, or reduce the scope or the rate of, the research and development incentive benefit, either of which it could decide to do at any time, our results of operations could be adversely affected.

As a company active in research and development in Belgium, we also expect to benefit from the innovation income deduction, or IID, in Belgium. The IID regime allows net profits attributable to revenue from patented products (or products for which the patent application is pending), among other things, be taxed at a lower rate than other revenues, 3.75% as of January 1, 2020.

When taken in combination with tax losses carried forward and research and development incentives mentioned above, we expect that this will result in a long-term low rate of Belgian corporation tax for us. It should be noted however that the Belgian corporate income tax reform introduced as of assessment year 2019 a de facto minimum taxable base, whereby the existing tax attributes have to be allocated into two so-called “baskets”: a first basket which contains the tax deductions that can be applied without any restrictions and a second basket which contains the tax deductions that are subject to restrictions. The first basket contains (in order of deduction) the non-taxable items (such as deductible gifts), current year dividends received deduction, or DRD, grandfathered patent income deduction, or PID, current year IID and investment deduction. The second basket contains (in order of deduction and subject to the restrictions as mentioned hereunder) the current year notional income deduction, or NID, DRD carry-forward, IID carry-forward, tax loss carry-forward, unlimited NID carry-forward and NID carry-forward subject to the seven-year limitation. The taxable base can be reduced without any limitation with the deductions contained in the first basket. Any remaining taxable basis below 1 million can be fully compensated with deductions contained in the second basket. If the remaining taxable basis exceeds 1 million, the excess above 1 million can only be compensated with deductions of the second basket up to 70%. Such minimum taxable basis may have an impact on our future cash flows. At the end of 2019 we had 1.9 million of carry-forward IID in Belgium.

Our inability to qualify for the abovementioned advantageous tax regimes, as well as the application of the minimum taxable base, may adversely affect our business, results of operations and financial condition.

We are subject to certain covenants as a result of certain non-dilutive financial support we have received to date.

We have been awarded grants from the Walloon Region, a federal region of Belgium, or the Walloon Region, and the European Union to fund research and development activities.

 

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Several of the grants include no obligation to repay the amount received under the grants. We own the intellectual property rights that result from the research programs or with regard to a patent covered by these grants. Subject to certain exceptions, however, we cannot grant to third parties, by way of license, transfer or otherwise, any right to use the patents or research results without the prior consent of the Walloon Region. In addition, certain grants require that we exploit the patent in the countries where the protection was granted and to make an industrial use of the underlying invention. In case of bankruptcy, liquidation or dissolution, the rights to the patents covered by the patent grants will be assumed by the Walloon Region by operation of law unless the grants are reimbursed. Furthermore, we would lose our qualification as a small or medium-sized enterprise, the grants subsidies would terminate and no additional expenses would be covered by such patent grants.

Two of the grants, which are referred to as recoverable cash advance grants, or RCAs, include a potential obligation to repay the amount received under the grants. Under the RCAs, the Walloon Region will provide us with up to 22.4 million for our research and development programs for EOS-850 and EOS-848. During the three months ended March 31, 2020, we received 7.0 million under the EOS-850 grant and 1.8 million under the EOS-448 grant.

We must repay 30% of the amount received under the grants unless we decide not to pursue commercial development or out licensing of 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. This is referred to as the fixed repayment. In addition, in the event that we receive revenue from products or services related to the results of the program, we will have to pay to the Walloon Region a 0.33% royalty on revenue resulting from the first RCA grant and a 0.12% royalty on revenue resulting from the second RCA grant. The maximum amount payable to the Walloon Region under each grant, including the fixed repayment, the royalty on revenue, and the interest thereon, is twice the amount of funding received.

Subject to certain exceptions, we cannot grant to third parties, by way of license or otherwise, any right to use the results without the prior consent of the Walloon Region. We also need the consent of the Walloon Region to transfer an intellectual property right resulting from the research programs or a transfer or license of a prototype or installation. Obtaining such consent from the Walloon Region could give rise to their review of the applicable financial terms. The RCAs also contain provisions prohibiting us from conducting research within the scope of the RCAs for any third parties. This prohibition is applicable beyond the research phase and decision phase and could restrict our ability to enter into research-related collaboration or partnership agreements with respect to those programs.

We may be exposed to significant foreign exchange risk.

We incur portions of our expenses, and may in the future derive revenues, in a variety of currencies. As a result, we are exposed to foreign currency exchange risk as our results of operations and cash flows are subject to fluctuations in foreign currency exchange rates. Fluctuations in currency exchange rates have had, and will continue to have, an impact on our results as expressed in U.S. dollars. We currently do not engage in hedging transactions to protect against uncertainty in future exchange rates between particular foreign currencies and the euro. We cannot predict the impact of foreign currency fluctuations, and foreign currency fluctuations in the future may adversely affect our financial condition, results of operations and cash flows.

The audit report included in this prospectus is prepared by an auditor who is not inspected by the PCAOB, and, as such, you are deprived of the benefits of such inspection.

Auditors of companies that are registered with the SEC and traded publicly in the United States, including our auditors, must be registered with the United States Public Corporation Accounting Oversight Board, or PCAOB,

 

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and are required by the laws of the United States to undergo regular inspections by the PCAOB to assess their compliance with the laws of the United States and professional standards. Although our auditors are registered with the PCAOB, because our auditors are located in Belgium, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Belgian authorities, our auditors are not currently inspected by the PCAOB. This lack of PCAOB inspections in Belgium currently prevents the PCAOB from regularly evaluating audits and quality control procedures of any auditors operating in Belgium, including our auditors. The inability of the PCAOB to conduct inspections of auditors in Belgium makes it more difficult to evaluate the effectiveness of our auditors’ audit procedures or quality control procedures as compared to auditors outside of Belgium that are subject to PCAOB inspections. As a result, investors may be deprived of the benefits of PCAOB inspections.

Product liability lawsuits against us could cause us to incur substantial liabilities and could limit our commercialization of any product candidates that we may develop.

We face an inherent risk of product liability exposure related to the testing of our current product candidates or any future product candidates in human clinical trials and will face an even greater risk if we commercially sell any products that we may develop. If we cannot successfully defend ourselves against claims that our current product candidates, any future product candidates or products caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, product liability claims may result in:

 

 

delay or termination of clinical trials;

 

 

decreased demand for any product candidates or products that we may develop;

 

 

injury to our reputation and significant negative media attention;

 

 

withdrawal of clinical trial subjects;

 

 

initiation of investigations by regulators;

 

 

significant costs to defend the related litigation and diversion of management’s time and our resources;

 

 

substantial monetary awards to study subjects or patients;

 

 

product recalls, withdrawals or labeling, marketing or promotional restrictions;

 

 

loss of revenue; and

 

 

the inability to commercialize any products that we may develop.

Although we maintain product liability insurance coverage, it may not be adequate to cover all liabilities that we may incur. We anticipate that we will need to increase our insurance coverage as our current product candidates or any future product candidates advance through clinical trials and if we successfully commercialize any products. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.

Risks related to this offering and ownership of our common stock

We do not know whether an active, liquid and orderly trading market will develop for our common stock or what the market price of our common stock will be and, as a result, it may be difficult for you to sell your shares of our common stock.

Prior to this offering, there was no public trading market for shares of our common stock. Although we have applied to list our common stock on The Nasdaq Global Market, an active trading market for our shares may

 

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never develop or be sustained following this offering. You may not be able to sell your shares quickly or at the market price if trading in shares of our common stock is not active. The initial public offering price for our common stock will be determined through negotiations with the underwriters, and the negotiated price may not be indicative of the market price of the common stock after the offering. As a result of these and other factors, you may be unable to resell your shares of our common stock at or above the initial public offering price. Further, an inactive market may also impair our ability to raise capital by selling shares of our common stock and may impair our ability to enter into strategic partnerships or acquire companies or products by using our shares of common stock as consideration.

The price of our stock may be volatile, and you could lose all or part of your investment.

The trading price of our common stock following this offering is likely to be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control, including limited trading volume. In addition to the factors discussed in this “Risk factors” section and elsewhere in this prospectus, these factors include:

 

 

the results of our ongoing, planned or any future preclinical studies, clinical trials or clinical development programs;

 

 

the commencement, enrollment, or results of clinical trials of our product candidates or any future clinical trials we may conduct, or changes in the development status of our product candidates;

 

 

adverse results or delays in preclinical studies and clinical trials;

 

 

our decision to initiate a clinical trial, not to initiate a clinical trial, or to terminate an existing clinical trial;

 

 

any delay in our regulatory filings or any adverse regulatory decisions, including failure to receive regulatory approval of our product candidates;

 

 

changes in laws or regulations applicable to our products, including but not limited to clinical trial requirements for approvals;

 

 

adverse developments concerning our manufacturers or our manufacturing plans;

 

 

our inability to obtain adequate product supply for any licensed product or inability to do so at acceptable prices;

 

 

our inability to establish collaborations if needed;

 

 

our failure to commercialize our product candidates;

 

 

additions or departures of key scientific or management personnel;

 

 

unanticipated serious safety concerns related to the use of our product candidates;

 

 

introduction of new products or services offered by us or our competitors;

 

 

announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors;

 

 

changes in the structure of healthcare payment systems;

 

 

our ability to effectively manage our growth;

 

 

the size and growth of our initial cancer target markets;

 

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our ability to successfully treat additional types of cancers or at different stages;

 

 

actual or anticipated variations in quarterly operating results;

 

 

our cash position;

 

 

our failure to meet the estimates and projections of the investment community or that we may otherwise provide to the public;

 

 

publication of research reports about us or our industry, or immunotherapy in particular, or positive or negative recommendations or withdrawal of research coverage by securities analysts;

 

 

changes in the market valuations of similar companies;

 

 

overall performance of the equity markets;

 

 

sales of our common stock by us or our stockholders in the future;

 

 

trading volume of our common stock;

 

 

changes in accounting practices;

 

 

ineffectiveness of our internal controls;

 

 

disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies;

 

 

significant lawsuits, including intellectual property or stockholder litigation;

 

 

general political and economic conditions; and

 

 

other events or factors, many of which are beyond our control.

In addition, the stock market in general, and the market for biopharmaceutical companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies, including very recently in connection with the ongoing COVID-19 pandemic, which has resulted in decreased stock prices for many companies notwithstanding the lack of a fundamental change in their underlying business models or prospects. Broad market and industry factors, including potentially worsening economic conditions and other adverse effects or developments relating to the ongoing COVID-19 pandemic, may negatively affect the market price of our common stock, regardless of our actual operating performance. If the market price of our common stock after this offering does not exceed the initial public offering price, you may not realize any return on your investment in us and may lose some or all of your investment. In the past, securities class action litigation has often been instituted against companies following periods of volatility in the market price of a company’s securities. This type of litigation, if instituted, could result in substantial costs and a diversion of management’s attention and resources, which would harm our business, operating results, or financial condition.

If you purchase our common stock in this offering, you will incur immediate and substantial dilution in the book value of your shares.

The initial public offering price will be substantially higher than the net tangible book value per share of our common stock. Investors purchasing common stock in this offering will pay a price per share that substantially exceeds the book value of our tangible assets after subtracting our liabilities. As a result, investors purchasing common stock in this offering will incur immediate dilution of $         per share, based on the assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this

 

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prospectus. Further, investors purchasing common stock in this offering will contribute approximately         % of the total amount invested by stockholders since our inception, but will own only approximately         % of the total number of shares of our common stock outstanding after this offering.

This dilution is due to our investors who purchased shares prior to this offering having paid substantially less when they purchased their shares than the price offered to the public in this offering and the exercise of stock options granted to our employees. To the extent that outstanding stock options are exercised, there will be further dilution to new investors. As a result of the dilution to investors purchasing common stock in this offering, investors may receive significantly less than the purchase price paid in this offering, if anything, in the event of our liquidation. For a further description of the dilution that you will experience immediately after this offering, see the section of this prospectus entitled “Dilution.”

Raising additional capital and future issuances of our common stock or rights to purchase common stock, including pursuant to our 2020 Plan, could result in additional dilution of the percentage ownership of our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidate, and could cause our stock price to fall.

We expect that significant additional capital may be needed in the future to continue our planned operations, including conducting clinical trials, expanded research and development activities, and costs associated with operating as a public company. To raise capital, we may sell common stock, convertible securities, or other equity securities in one or more transactions, including through a combination of public and private equity offerings, debt financings, strategic partnerships and alliances and licensing arrangements, at prices and in a manner we determine from time to time. If we sell common stock, convertible securities, or other equity securities, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights, preferences, and privileges senior to the holders of our common stock, including shares of common stock sold in this offering.

Pursuant to our 2020 Plan, which will become effective upon the effectiveness of the registration statement of which this prospectus is a part, our management is authorized to grant stock options to our employees, directors, and consultants. Initially, the aggregate number of shares of our common stock that may be issued pursuant to stock awards under the 2020 Plan will be          shares, less the shares of common stock remaining available for issuance under our 2019 Plan as of the business day immediately prior to the effective date of the registration statement of which this prospectus forms a part. The number of shares of our common stock reserved for issuance under the 2020 Plan shall be cumulatively increased on January 1, 2021 and each January 1 thereafter by         % of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year or a lesser number of shares determined by our board of directors. Unless our board of directors elects not to increase the number of shares available for future grant each year, our stockholders may experience additional dilution, which could cause our stock price to fall.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. The incurrence of indebtedness would result in increased fixed payment obligations and could involve certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates, or grant licenses on terms unfavorable to us.

 

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We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

Our management will have broad discretion in the application of the net proceeds from this offering, including for any of the purposes described in the section entitled “Use of proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. Our management might not apply our net proceeds in ways that ultimately increase or maintain the value of your investment.

We do not intend to pay dividends on our common stock, so any returns will be limited to the value of our stock.

We currently anticipate that we will retain future earnings for the development, operation, and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. In addition, we may enter into agreements that prohibit us from paying cash dividends without prior written consent from our contracting parties, or which other terms prohibiting or limiting the amount of dividends that may be declared or paid on our common stock. Any return to stockholders will therefore be limited to the appreciation of their stock, which may never occur.

Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant influence over matters subject to stockholder approval.

Prior to this offering, our executive officers, directors, and 5% stockholders beneficially owned approximately         % of our voting stock as of         , 2020, and, assuming the sale by us of          shares of common stock in this offering, based on an assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and not accounting for any shares purchased in this offering by certain of our existing stockholders (or their affiliates), we anticipate that same group will hold approximately         % of our outstanding voting stock following this offering (assuming no exercise of the underwriters’ option to purchase additional shares). Therefore, even after this offering, these stockholders will have the ability to influence us through this ownership position. These stockholders may be able to determine all matters requiring stockholder approval. For example, these stockholders may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders.

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.

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act, or JOBS Act, enacted in April 2012. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in this prospectus and our periodic reports and proxy statements, and exemptions from the requirements of holding nonbinding advisory votes on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years following the year in which we complete this offering, although circumstances could cause us to lose that status earlier. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the closing of this offering, (b) in which we have total annual gross revenue of at least $1.07 billion or (c) in which we are deemed

 

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to be a large accelerated filer, which requires the market value of our common stock that is held by non-affiliates to exceed $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1 billion in non-convertible debt during the prior three-year period.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to avail ourselves of this exemption from complying with new or revised accounting standards and, therefore, will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company,” which would allow us to take advantage of many of the same exemptions from disclosure requirements, including regarding executive compensation in this prospectus and our periodic reports and proxy statements. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

We will incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.

As a public company, we will incur significant legal, accounting, and other expenses that we did not incur as a private company. We will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, which will require, among other things, that we file with the Securities and Exchange Commission, or SEC, annual, quarterly, and current reports with respect to our business and financial condition. In addition, the Sarbanes-Oxley Act, as well as rules subsequently adopted by the SEC and The Nasdaq Global Market to implement provisions of the Sarbanes-Oxley Act, impose significant requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Further, in July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, was enacted. There are significant corporate governance and executive compensation related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas, such as “say on pay” and proxy access. Recent legislation permits emerging growth companies to implement many of these requirements over a longer period and up to five years from the pricing of this offering. We intend to take advantage of this new legislation but cannot guarantee that we will not be required to implement these requirements sooner than budgeted or planned and thereby incur unexpected expenses. Stockholder activism, the current political environment, and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate.

We expect the rules and regulations applicable to public companies to substantially increase our legal and financial compliance costs and to make some activities more time-consuming and costly. If these requirements divert the attention of our management and personnel from other business concerns, they could have a material adverse effect on our business, financial condition, and results of operations. The increased costs will decrease our net income or increase our net loss and may require us to reduce costs in other areas of our business or increase the prices of our products or services. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain the same or similar coverage. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees, or as executive officers.

 

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Sales of a substantial number of shares of our common stock by our existing stockholders in the public market could cause our stock price to fall.

If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market after the lockup and other legal restrictions on resale discussed in this prospectus lapse, the trading price of our common stock could decline. Based on the number of shares of common stock outstanding as of         , 2020, upon the closing of this offering, we will have outstanding a total of          shares of common stock. Of these shares, only the shares of common stock sold in this offering by us, plus any shares sold upon exercise of the underwriters’ option to purchase additional shares, will be freely tradable without restriction in the public market immediately following this offering, unless purchased by our affiliates. In connection with this offering, our officers, directors and substantially all of our stockholders have agreed to be subject to a contractual lock-up with the underwriters, which will expire 180 days after the date of this prospectus. The lock-up agreements contain important exceptions that govern their applicability. J.P. Morgan Securities LLC, SVB Leerink LLC and Piper Sandler & Co., however, may, in their sole discretion, permit our officers, directors and other stockholders who are subject to these lock-up agreements to sell shares prior to the expiration of the lock-up agreements.

In addition, shares of common stock that are either subject to outstanding options or reserved for future issuance under our 2020 Plan, to be effective upon the effectiveness of the registration statement of which this prospectus forms a part, will become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules, the lock-up agreements and Rule 144 and Rule 701 under the Securities Act of 1933, as amended, or the Securities Act. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.

After this offering, the holders of shares of our common stock will be entitled to rights with respect to the registration of their shares under the Securities Act, subject to the 180-day lock-up agreements described above. See “Description of Capital Stock— Registration Rights.” Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares held by affiliates, as defined in Rule 144 under the Securities Act. Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock.

Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a change of control, which could limit the market price of our common stock and may prevent or frustrate attempts by our stockholders to replace or remove our current management.

Our amended and restated certificate of incorporation and amended and restated bylaws, which are to become effective upon the closing of this offering, will contain provisions that could delay, defer or prevent a change of control of our company or changes in our board of directors that our stockholders might consider favorable. Some of these provisions include:

 

 

a board of directors divided into three classes serving staggered three-year terms, such that not all members of the board will be elected at one time;

 

 

a prohibition on stockholder action through written consent, which requires that all stockholder actions be taken at a meeting of our stockholders;

 

 

a requirement that special meetings of stockholders be called only by a majority of the members of our board of directors then in office;

 

 

advance notice requirements for stockholder proposals and nominations for election to our board of directors;

 

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a requirement that no member of our board of directors may be removed from office by our stockholders except for cause and, in addition to any other vote required by law, upon the approval of not less than          of all outstanding shares of our voting stock then entitled to vote in the election of directors;

 

 

a requirement of approval of not less than          of all outstanding shares of our voting stock and not less than          of the outstanding shares of each class entitled to vote thereon as a class to amend specific provisions of our certificate of incorporation;

 

 

a requirement of approval of not less than          of all outstanding shares of our voting stock to amend any bylaws by stockholder action; and

 

 

the authority of the board of directors to issue preferred stock on terms determined by the board of directors without stockholder approval and which preferred stock may include rights superior to the rights of the holders of common stock.

In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporate Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These antitakeover provisions and other provisions in our amended and restated certificate of incorporation and amended and restated bylaws could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors and could also delay or impede a merger, tender offer, or proxy contest involving our company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing or cause us to take other corporate actions you desire. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline.

Our bylaws to be effective upon the consummation of this offering designate certain courts as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.

Our bylaws that will become effective upon the completion of this offering provide that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any state law claim for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers, and employees to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws or (iv) any action asserting a claim that is governed by the internal affairs doctrine, in each case subject to the Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein, or the Delaware Forum Provision. The Delaware Forum Provision will not apply to any causes of action arising under the Securities Act or the Exchange Act. Our bylaws further provide that, unless we consent in writing to the selection of an alternative forum, the United States District Court for the District of Massachusetts shall be the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, or the Federal Forum Provision, as our principle office is located in Cambridge, Massachusetts. In addition, our bylaws that will become effective upon the completion of this offering will provide that any person or entity purchasing or otherwise acquiring any interest in shares of our common stock is deemed to have notice of and consented to the foregoing provisions; provided, however, that stockholders cannot and will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder.

We recognize that the Delaware Forum Provision and the Federal Forum Provision in our bylaws may impose additional litigation costs on stockholders in pursuing any such claims, particularly if the stockholders do not

 

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reside in or near the State of Delaware or the Commonwealth of Massachusetts. Additionally, the forum selection clauses in our amended and restated bylaws may limit our stockholders’ ability to bring a claim in a forum that they find favorable for disputes with us or our directors, officers or employees, which may discourage such lawsuits against us and our directors, officers and employees even though an action, if successful, might benefit our stockholders. In addition, while the Delaware Supreme Court ruled in March 2020 that federal forum selection provisions purporting to require claims under the Securities Act be brought in federal court were “facially valid” under Delaware law, there is uncertainty as to whether other courts will enforce our Federal Forum Provision. If the Federal Forum Provision is found to be unenforceable, we may incur additional costs associated with resolving such matters. The Federal Forum Provision may also impose additional litigation costs on stockholders who assert that the provision is not enforceable or invalid. The Court of Chancery of the State of Delaware and the United States District Court for the District of Massachusetts may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments may be more or less favorable to us than our stockholders.

If we fail to establish and maintain proper and effective internal control over financial reporting, our operating results and our ability to operate our business could be harmed.

Ensuring that we have adequate internal control over financial reporting in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. In connection with this offering, we intend to begin the process of documenting, reviewing, and improving our internal controls and procedures for compliance with Section 404 of the Sarbanes-Oxley Act, which will require annual management assessment of the effectiveness of our internal control over financial reporting. We have begun recruiting additional finance and accounting personnel with certain skill sets that we will need as a public company. If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to maintain proper and effective internal controls, we may not be able to produce timely and accurate financial statements. If that were to happen, the market price of our stock could decline and we could be subject to sanctions or investigations by the stock exchange on which our common stock is listed, the SEC or other regulatory authorities.

Implementing any appropriate changes to our internal controls may distract our officers and employees, entail substantial costs to modify our existing processes, and take significant time to complete. These changes may not, however, be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and harm our business. In addition, investors’ perceptions that our internal controls are inadequate or that we are unable to produce accurate financial statements on a timely basis may harm our stock price and make it more difficult for us to effectively market and sell our service to new and existing customers.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on our company. If no securities or industry analysts commence coverage of our company, the trading price for our stock would likely be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrades our stock or publishes

 

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inaccurate or unfavorable research about our business, our stock price may decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.

After the completion of this offering, we may be at an increased risk of securities class action litigation.

Historically, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biotechnology and pharmaceutical companies have experienced significant stock price volatility in recent years. If we were to be sued, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.

 

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Special note regarding forward-looking statements

This prospectus, including the sections entitled “Prospectus summary,” “Risk factors,” “Management’s discussion and analysis of financial condition and results of operations,” and “Business,” contains express or implied forward-looking statements that are based on our management’s belief and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements in this prospectus include, but are not limited to, statements about:

 

 

the timing, progress and the success of our clinical trials of EOS-850 and EOS-448 and any other product candidates, including statements regarding the timing of initiation and completion of studies or trials and related preparatory work, the period during which the results of the trials will become available and our research and development programs;

 

 

whether the results of our trials will be sufficient to support domestic or foreign regulatory approvals for EOS-850 and EOS-448 or any other product candidates we may develop;

 

 

regulatory actions with respect to our product candidates or our competitors’ products and product candidates;

 

 

our ability to obtain, including on an expedited basis, and maintain regulatory approval of EOS-850 and EOS-448 or any other product candidates we may develop;

 

 

the outcomes of our preclinical studies;

 

 

our ability to enroll patients in our clinical trials at the pace that we project;

 

 

our ability to establish clinical programs moving forward in multiple indications by 2020, with a rapidly advancing portfolio and sustainable platform;

 

 

our ability to establish and conduct our clinical programs on our expected timelines;

 

 

the costs of development of any of our product candidates or clinical development programs;

 

 

our expectation about the period of time over which our existing capital resources and the net proceeds from this offering will be sufficient to fund our operating expenses and capital expenditures, and the degree to which such resources will enable us to fund our planned development of EOS-850 and EOS-448 and any other product candidates we may identify and pursue;

 

 

the potential attributes and clinical benefits of the use of EOS-850 and EOS-448 or any other product candidate, if approved;

 

 

our ability to successfully commercialize EOS-850 and EOS-448 or any other product candidates we may identify and pursue, if approved;

 

 

our ability to successfully establish or maintain collaborations or strategic relationships for our product candidates;

 

 

the rate and degree of market acceptance of EOS-850 and EOS-448 or any other product candidates we may identify and pursue;

 

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our ability to obtain orphan drug or Breakthrough Therapy designation or other accelerated approval for any of our product candidates we may identify;

 

 

our expectations regarding government and third-party payor coverage and reimbursement;

 

 

our ability to manufacture EOS-850 and EOS-448 or any other product candidate in conformity with the Food and Drug Administration’s requirements and to scale up manufacturing of our product candidates to commercial scale, if approved;

 

 

our ability to successfully build a specialty sales force and commercial infrastructure;

 

 

ability to compete with companies currently producing or engaged in the clinical development of treatments for the disease indications that we pursue and treatment modalities that we develop;

 

 

our reliance on third parties to conduct our clinical trials;

 

 

our reliance on third-party CMOs to manufacture and supply our product candidates for us;

 

 

our ability to retain and recruit key personnel;

 

 

our ability to obtain and maintain intellectual property protection for EOS-850 and EOS-448 or any other product candidates we may identify and pursue;

 

 

our estimates of our expenses, ongoing losses, future revenue, capital requirements and our needs for or ability to obtain additional financing;

 

 

our expectations regarding the time during which we will be an emerging growth company under the JOBS Act;

 

 

our financial performance;

 

 

the effect of the COVID-19 pandemic, including mitigation efforts and economic effects, on any of the foregoing or other aspects of our business operations, including but not limited to our preclinical studies and future clinical trials;

 

 

the impact of laws and regulations; and

 

 

developments and projections relating to our competitors or our industry.

In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties, and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under the section titled “Risk factors” and elsewhere in this prospectus. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this prospectus and the documents that we reference in this prospectus and have filed with the Securities and Exchange Commission as exhibits to the registration statement, of which this prospectus forms a part, completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements.

 

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The forward-looking statements in this prospectus represent our views as of the date of this prospectus. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should therefore not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this prospectus.

This prospectus also contains estimates, projections and other information concerning our industry, our business and the markets for our product candidates. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. Unless otherwise expressly stated, we obtained this industry, business, market, and other data from our own internal estimates and research as well as from reports, research surveys, studies, and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources. While we are not aware of any misstatements regarding any third-party information presented in this prospectus, their estimates, in particular, as they relate to projections, involve numerous assumptions, are subject to risks and uncertainties and are subject to change based on various factors, including those discussed under the section titled “Risk factors” and elsewhere in this prospectus.

 

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Use of proceeds

We estimate that the net proceeds to us from the sale of         shares of our common stock in this offering will be $         million, or $         if the underwriters exercise their option to purchase additional shares in full, assuming an initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

A $1.00 increase (decrease) in the assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by $         million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase (decrease) of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by $         million, assuming no change in the assumed initial public offering price per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We do not expect that a change in the offering price or the number of shares by these amounts would have a material effect on our intended uses of the net proceeds from this offering, although it may impact the amount of time prior to which we may need to seek additional capital.

As of March 31, 2020, we had cash of $147.7 million. We currently intend to use the net proceeds from this offering, together with our existing cash, as follows:

 

   

approximately $        million to $         million for the clinical development of EOS-850 through                         ;

 

   

approximately $        million to $         million for the clinical development of EOS-448 through                         ;

 

   

approximately $        million to $         million for the development of other product candidates in our pipeline and our drug discovery programs; and

 

   

the remainder for general corporate purposes.

Based on our current plans, we believe our existing cash, together with the net proceeds from this offering, will be sufficient to fund our operations and capital expenditure requirements through         . Based on our current operational plans and assumptions, we expect our cash, together with the net proceeds from this offering, will be sufficient to         .

We may also use a portion of the net proceeds to in-license, acquire or invest in new businesses, technology or assets. Although we have no current agreements, commitments or understandings with respect to any such in-license or acquisition, we evaluate such opportunities and engage in related discussions with third parties from time to time.

This expected use of the net proceeds from this offering represents our intentions based upon our current plans and business conditions, which could change in the future as our plans and business conditions evolve. We cannot currently predict with certainty all of the particular uses for the net proceeds to be received upon the closing of this offering or the amounts that we will actually spend on the uses set forth above. The amounts and timing of our actual expenditures and the extent of clinical development may vary significantly depending on numerous factors, including the progress of our development, the status of and results from preclinical studies or clinical trials we may commence in the future, as well as any collaborations that we may enter into with third parties for our product candidates or strategic opportunities that become available to us, and any unforeseen cash needs. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering.

 

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Pending our use of proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation instruments, including short-term, investment-grade, interest-bearing instruments and U.S. government securities.

 

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Dividend policy

We have never declared or paid any cash dividends on our capital stock. We currently intend to retain any future earnings to fund the development and expansion of our business, and therefore we do not anticipate paying cash dividends on our common stock in the foreseeable future.

 

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Corporate reorganization

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

Investors in this offering will acquire only, and this prospectus describes only the offering of, common stock representing shares of iTeos Therapeutics, Inc. We refer to the reorganization, pursuant to which iTeos Therapeutics, Inc. acquired all of the interests in iTeos Belgium SA in exchange for newly issued shares of iTeos Therapeutics, Inc., and the subsequent merger of iTeos Therapeutics US, Inc. with and into iTeos Therapeutics, Inc., as our “corporate reorganization.”

Unless otherwise indicated or the context otherwise requires, all references in this prospectus to the terms “iTeos” “the company,” “we,” “us” and “our” refer to (i) iTeos Belgium SA and its wholly owned subsidiary iTeos Therapeutics US, Inc. prior to the completion of our corporate reorganization and (ii) iTeos Therapeutics, Inc. and its subsidiary iTeos Belgium SA after the completion of our corporate reorganization.

 

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Capitalization

The following table sets forth our cash and our capitalization as of March 31, 2020:

 

 

on an actual basis;

 

 

on a pro forma basis to give effect to (i) the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 71,563,984 shares of common stock upon the completion of this offering, as if such conversion had occurred on March 31, 2020, and (ii) the filing and effectiveness of our amended and restated certificate of incorporation, which will occur upon the completion of this offering; and

 

 

on a pro forma as adjusted basis to give further effect to the sale and issuance by us of         shares of our common stock in this offering at an assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

You should read this table below with our consolidated financial statements and the related notes appearing elsewhere in this prospectus and the “Selected consolidated financial data” and “Management’s discussion and analysis of financial condition and results of operations” sections of this prospectus.

 

   
     As of March 31, 2020  
(in thousands, except share and per share amounts)    Actual     Pro forma    

Pro forma as

adjusted

 

Cash

   $ 147,732     $ 147,732     $                    
  

 

 

 

Grants repayable

   $ 4,071     $ 4,071     $    

Redeemable convertible preferred stock:

      

Series B-2 preferred stock, $0.001 par value; 44,453,477 shares authorized, issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

     125,192              

Series B preferred stock, $0.001 par value: 31,989,428 shares authorized; 20,942,781 shares issued and outstanding, actual; no shares authorized, issued or outstanding pro forma and pro forma as adjusted

     47,433              

Series A-l and A-2 preferred stock, $0.001 par value: 6,167,726 shares authorized, issued and outstanding, actual; no shares authorized, issued or outstanding pro forma and pro forma as adjusted

     5,353              
  

 

 

 

Stockholders’ (deficit) equity:

      

Preferred stock, $0.001 par value, no shares authorized, issued and outstanding, actual;              shares authorized and no shares issued and outstanding pro forma and pro forma as adjusted

                  

Common stock, $0.001 par value, 50,000,000 shares authorized; 849,562 and 615,000 shares issued and outstanding, actual;             shares authorized, 83,460,193 shares issued and outstanding pro forma;            shares authorized,            shares issued and outstanding pro forma as adjusted

     1       73    

Additional paid-in capital

     3,126       181,032    

Accumulated other comprehensive income (loss)

     (541     (541  

Accumulated deficit

     (41,112     (41,112  
  

 

 

 

Total stockholders’ (deficit) equity

     (38,526     139,452    
  

 

 

 

Total capitalization

   $ 143,523     $ 143,523     $    

 

 

 

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The pro forma as adjusted capitalization information discussed above is illustrative only and will depend on the actual initial public offering price. A $1.00 increase (decrease) in the assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash, additional paid-in capital, total stockholders’ equity and total capitalization by $         million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase (decrease) of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash, additional paid-in capital, total stockholders’ equity and total capitalization by $         million, assuming no change in the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The table above excludes:

 

 

6,119,737 shares of common stock issuable upon exercise of options outstanding under our 2019 Plan outstanding as of March 31, 2020, at a weighted-average exercise price of $1.27 per share;

 

 

5,539,912 shares of common stock issuable upon exercise of options outstanding under our 2019 Plan, at a weighted-average exercise price of $1.42 per share, granted subsequent to March 31, 2020;

 

 

5,352,347 shares of common stock reserved for issuance under our 2019 Plan as of March 31, 2020;

 

 

        shares of common stock to be reserved for future issuance under our 2020 Plan, to be effective upon the effectiveness of the registration statement of which this prospectus forms a part; and

 

 

        shares of common stock to be reserved for future issuance under our ESPP, to be effective upon the effectiveness of the registration statement of which this prospectus forms a part.

 

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Dilution

If you invest in our common stock in this offering, your ownership interest will be diluted immediately to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock after this offering. As of March 31, 2020, our historical net tangible book value (deficit) was $(38.5) million, or $(45.35) per share of common stock. Our historical net tangible book value (deficit) is the amount of our total tangible assets less our total liabilities and the carrying value of our convertible preferred stock, which is not included in stockholders’ deficit. Historical net tangible book value (deficit) per share represents historical net tangible book value (deficit) divided by 849,562 shares of common stock outstanding as of March 31, 2020.

Our pro forma net tangible book value as of March 31, 2020 was $139.5 million, or $1.93 per share of common stock, after giving effect to the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 71,563,984 shares of our common stock upon the completion of this offering. Pro forma net tangible book value per share represents pro forma net tangible book value divided by the total number of shares outstanding as of March 31, 2020, after giving effect to such conversion.

After giving further effect to our issuance and sale of         shares of our common stock in this offering at an assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2020 would have been $         million, or $         per share of common stock. This represents an immediate increase in pro forma as adjusted net tangible book value of $         per share to existing stockholders and an immediate dilution of $         in pro forma as adjusted net tangible book value per share to new investors purchasing common stock in this offering. Dilution per share to new investors is determined by subtracting pro forma as adjusted net tangible book value per share after this offering from the assumed initial public offering price per share paid by new investors. The following table illustrates this dilution on a per share basis:

 

     

Assumed initial public offering price per share

     $                

Historical net tangible book value (deficit) per share as of March 31, 2020

   $ (45.35  

Increase per share attributable to the conversion of preferred stock

     47.28    
  

 

 

   

Pro forma net tangible book value per share as of March 31, 2020, before giving effect to this offering

     1.93    
  

 

 

   

Increase in pro forma as adjusted net tangible book value per share attributable to new investors purchasing common stock in this offering

    
  

 

 

   

Pro forma as adjusted net tangible book value per share after giving effect to this offering

    
    

 

 

 

Dilution in pro forma as adjusted net tangible book value per share to new investors purchasing common stock in this offering

     $        
    

 

 

 

 

 

The pro forma as adjusted dilution information discussed above is illustrative only and will depend on the actual initial public offering price. A $1.00 increase (decrease) in the assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted net tangible book value by $         per share and the dilution to investors purchasing common stock in this offering by $         per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase of 1,000,000 shares in the number of shares offered by us in this offering would increase the pro forma as adjusted net tangible book

 

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value by $         per share and would decrease the dilution per share to new investors purchasing common stock in this offering by $         per share, assuming no change in the assumed initial public offering price of $         per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. A decrease of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would decrease our pro forma as adjusted net tangible book value per share after this offering by $         and increase the dilution per share to new investors purchasing common stock in this offering by $        , assuming no change in the assumed initial public offering price and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriters exercise their option to purchase additional shares in full, our pro forma as adjusted net tangible book value per share after this offering would be $        , representing an immediate increase in pro forma as adjusted net tangible book value per share of $         to existing stockholders and immediate dilution in pro forma as adjusted net tangible book value per share of $         to new investors purchasing common stock in this offering, assuming an initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The following table summarizes, on the pro forma as adjusted basis described above as of March 31, 2020, the total number of shares of common stock purchased from us on an as converted basis, the total consideration paid or to be paid and the average price per share paid, or to be paid by existing stockholders and by new investors in this offering, based on the assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover of this prospectus, and before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us:

 

       
     Shares purchased      Total consideration      Average price
per share
 
      Number      Percent      Amount      Percent  

Existing stockholders

        %      $                  %      $                      

New investors

              
  

 

 

    

Total

        100.0%      $          100.0%     

 

 

A $1.00 increase (decrease) in the assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the total consideration paid by new investors by $         million and, in the case of an increase, would increase the percentage of total consideration paid by new investors by         percentage points and, in the case of a decrease, would decrease the percentage of total consideration paid by new investors by         percentage points, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase (decrease) of 1,000,000 shares in the number of shares offered by us in this offering would increase (decrease) the total consideration paid by new investors in this offering by $         million, and, in the case of an increase, would increase the percentage of total consideration paid by new investors by         percentage points and, in the case of a decrease, would decrease the percentage of total consideration paid by new investors by         percentage points, assuming no change in the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The table above assumes no exercise of the underwriters’ option to purchase additional shares in this offering. If the underwriters exercise their option to purchase additional shares of our common stock in full, the number of shares of our common stock held by existing stockholders would be reduced to         % of the total number of shares of our common stock outstanding after this offering.

 

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The foregoing tables and calculations exclude:

 

 

6,119,737 shares of common stock issuable upon exercise of options outstanding under our 2019 Plan at a weighted-average exercise price of $1.27 per share, as of March 31, 2020;

 

 

5,539,912 shares of common stock issuable upon exercise of options outstanding under our 2019 Plan, at a weighted-average exercise price of $1.42 per share, granted subsequent to March 31, 2020;

 

 

5,352,347 shares of common stock reserved for issuance under our 2019 Plan as of March 31, 2020;

 

 

        shares of common stock to be reserved for future issuance under our 2020 Plan, to be effective upon the effectiveness of the registration statement of which this prospectus forms a part; and

 

 

        shares of common stock to be reserved for future issuance under our ESPP, to be effective upon the effectiveness of the registration statement of which this prospectus forms a part.

To the extent that outstanding stock options are exercised, new stock options are issued, or we issue additional shares of common stock in the future, there will be further dilution to existing stockholders and new investors. In addition, we may choose to raise additional capital because of market conditions or strategic considerations even if we believe that we have sufficient funds for our current or future operating plans. If we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

 

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Selected consolidated financial data

You should read the following selected consolidated financial data together with our consolidated financial statements and the related notes appearing elsewhere in this prospectus and the “Management’s discussion and analysis of financial condition and results of operations” section of this prospectus. We have derived the consolidated statement of operations data for the years ended December 31, 2018 and 2019 and the consolidated balance sheet data as of December 31, 2018 and 2019 from our audited consolidated financial statements appearing elsewhere in this prospectus. The condensed consolidated statements of operations data for the three months ended March 31, 2019 and 2020 and the balance sheet data as of March 31, 2020 are derived from our unaudited financial statements included elsewhere in this prospectus and have been prepared on the same basis as the audited financial statements. Our historical results are not necessarily indicative of the results that may be expected in the future, and our results for any interim period are not necessarily indicative of results that may be expected for any full year.

 

     
    Year ended
December 31,
    Three months ended
March 31,
 
(in thousands, except share and per share amounts)   2018     2019     2019     2020  

Consolidated statement of operations data:

       

Operating expenses:

       

Research and development expenses

  $ 17,189     $ 19,211     $ 4,351     $ 5,825  

General and administrative expenses

    4,312       8,837       1,769       2,418  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    21,501       28,048       6,120       8,243  
 

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (21,501     (28,048     (6,120     (8,243

Other income and expenses:

       

Grant income

    2,928       3,989       764       1,589  

R&D tax credits

    756       790       197       184  

Fair value adjustment for preferred stock tranche rights liability and anti-dilution warrants liability

    (130     1,019       784       1,265  

Other expense, net

    (99     (85     (28     (42
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss before income tax

    (18,046     (22,335     (4,402     (5,247

Income tax expense

    11       119              
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (18,057     (22,454     (4,402     (5,247

Cumulative dividends on Series A Preferred Stock

    (427     (427     (107     (107

Accretion of redeemable convertible preferred stock to redemption value

    (1,582     (3,654     (697     (1,195
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

  $ (20,066   $ (26,535   $ (5,206   $ (6,549
 

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted net loss per common share(1)

  $ (32.63   $ (39.51   $ (8.47   $ (7.71
 

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average common shares outstanding—basic and diluted(1)

    615,000       671,552       615,000       849,562  
 

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders—basic and diluted(1)

    $ (0.92     $ (0.17
 

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma weighted-average common shares outstanding—basic and diluted(1)

                           24,507,960                              31,379,567  

 

 

 

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(1)   See Note 13 to our consolidated financial statements and Note 11 to our unaudited interim financial statements appearing elsewhere in this prospectus for further details on the calculation of basic and diluted net loss per common share and on the calculation of proforma basic and diluted net loss per common share.

 

     
     As of December 31,     As of
March 31,
 
(In thousands)    2018     2019     2020  

Consolidated balance sheet data:

      

Cash

   $ 21,988     $ 19,868     $ 147,732  

Total assets

     27,391       30,744       153,970  

Redeemable convertible preferred stock

     25,731       51,757       177,978  

Accumulated deficit

     (10,765     (35,865     (41,112

Total stockholders’ deficit

     (10,678     (36,088     (38,526

 

 

 

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Management’s discussion and analysis of financial condition and results of operation

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 prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, 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 prospectus, 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 highly differentiated immuno-oncology therapeutics for patients. We leverage our deep understanding of the tumor microenvironment and immunosuppressive pathways to design novel product candidates with an aim to improve the clinical benefit of oncology therapies. Our innovative pipeline includes two clinical-stage programs targeting novel, validated immuno-oncology pathways designed to build on prior learnings in the field to have differentiated pharmacological and clinical profiles. Our most advanced product candidate, EOS-850, is designed as a highly selective small molecule antagonist of the adenosine A2a receptor, in the adenosine triphosphate, or ATP, adenosine pathway, a key driver of immunosuppression in the tumor microenvironment across a broad range of tumors. We are investigating EOS-850 in an open-label Phase 1/2a clinical trial in patients with advanced solid tumors and in the dose escalation portion of the trial it has shown encouraging preliminary single-agent activity. We expect to report initial data from monotherapy and combination therapy expansion cohorts in the first half of 2021. Our lead antibody product candidate, EOS-448, is an antagonist of TIGIT, a checkpoint that has a role in both inhibitory and stimulatory pathways in the immune system. EOS-448 was also designed to engage the Fc gamma receptor, or FcgR, to promote antibody-dependent cellular cytotoxicity, or ADCC, activity, including the elimination of tumor-infiltrating regulatory T cells. We have recently initiated an open-label Phase 1/2a clinical trial of EOS-448 in patients with advanced solid tumors and expect to report initial data in the first half of 2021. We are using our expertise in tumor immunology to select additional targets for other novel, differentiated programs. To date, we have initiated one preclinical program that we believe has the potential to be complementary to both standard cancer treatments and our own product candidates. We retain worldwide rights to develop and commercialize all of our product candidates.

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 not generated any revenue from product sales and have financed our operations primarily through the private placement of our securities, license agreements and grant proceeds. As of March 31, 2020, we had raised an aggregate of $177.1 million from the sale of preferred stock. As of March 31, 2020, our principal source of liquidity was cash, which totaled $147.7 million.

We have incurred recurring losses since inception. Our net losses were $18.1 million and $22.4 million for the years ended December 31, 2018 and 2019, respectively, and $4.4 million and $5.3 million for the three months ended March 31, 2019 and 2020, respectively. As of March 31, 2020, we had an accumulated deficit of $41.1 million. Our

 

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ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our current or future product candidates.

We expect to continue to incur significant expenses and increasing operating losses 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 following the completion of this offering.

Furthermore, upon the closing of this offering, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company.

As a result of these anticipated expenditures, we will need substantial additional financing to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, grants, collaborations, strategic alliances and licensing arrangements. We may be unable to raise additional funds or enter into such other agreements when needed on favorable terms or at all. Our inability to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We will need to generate significant revenue to achieve profitability, and we may never do so.

As of March 31, 2020, we had cash of $147.7 million. We believe that the anticipated net proceeds from this offering, together with our existing cash will enable us to fund our operating expenses and capital expenditure requirements into         . Our future viability beyond that point is dependent on our ability to raise additional capital to finance our operations. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See “Liquidity and capital resources.” Because of the numerous risks and uncertainties associated with our programs, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates.

We are party to collaboration and license agreements 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, or Adimab, pursuant to which we paid $1.0 million 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 EOS-448. This agreement provides for potential future milestone payments up to an aggregate of $42.8 million for the first three products and additional milestone payments up to $13.5 million for each additional product. We will also pay Adimab low to mid single-digit percentage royalties on a country-by-country and product-by-product basis

 

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on worldwide net sales of licensed products. To date, we have paid a total of $3.4 million to Adimab pursuant the collaboration agreement. We are also party to a biologics master services agreement with WuXi Biologics Hong Kong Limited, or 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.

Impact of COVID-19

In December 2019, a novel strain of coronavirus (COVID-19) emerged in Wuhan, Hubei Province, China. As of May 12 2020, 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 and the United States, including the Commonwealth of Massachusetts where our headquarters are located, 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.

We have been carefully monitoring the COVID-19 pandemic and its potential impact on our business and have taken important steps to help ensure the safety of our employees and their families and to reduce the spread of COVID-19 in the Cambridge and Belgian communities. We have 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, we have implemented stringent safety measures designed to comply with applicable federal, state and local guidelines instituted in response to the COVID-19 pandemic. We have also maintained efficient communication with our partners and clinical sites as the COVID-19 situation has progressed. We have taken these precautionary steps while maintaining business continuity so that we can continue to progress our programs. The effect of the COVID-19 pandemic on our development timelines for EOS-850 and EOS-448 and its effect on our preclinical research and development is uncertain.

While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock.

The future impact of the COVID-19 pandemic on our industry, the healthcare system and our current and future operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. See “Risk factors” for a discussion of the potential adverse impact of COVID-19 on our business, results of operations and financial condition.

Components of our results of operations

Revenue

To date, we have not generated any revenue from product sales and do not expect to do so in the near future, if at all. All of our revenue to date has been derived from licensing fees in connection with a research collaboration and license agreement with Pfizer, which terminated in 2017. We had no revenue for the years ended December 31, 2018 and 2019 or the three month periods ended March 31, 2019 and 2020.

 

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We expect that our revenue, if any, will be less than our expenses for the foreseeable future and that we will experience increasing losses as we continue our development of, and seek regulatory approvals for, our product candidates and begin to commercialize any approved products. Our ability to generate revenue for each product candidate for which we receive regulatory approval will depend on numerous factors, including competition, commercial manufacturing capability and market acceptance of our products.

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 CROs, contract manufacturing organizations, or 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;

 

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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 direct research and development expenses allocated to each clinical product candidate:

 

     
     Year ended
December 31,
     Three months ended
March 31,
 
(in thousands)    2018      2019      2019      2020  

Direct research and development expenses by program:

           

EOS-850

   $ 4,144      $ 6,475      $ 1,386      $ 2,402  

EOS-448

     5,100        3,819        920        913  

Other non-clinical programs

     693        1,423        102        665  

Indirect research and development expenses(1)

     7,252        7,494        1,943        1,845  
  

 

 

 

Total research and development expense

   $ 17,189      $ 19,211      $ 4,351      $ 5,825  

 

 

 

(1)   The substantial majority of these costs relate to the EOS-850 and EOS-448 programs. Approximately half of these costs are payroll and related costs for our employees performing in-house research and development activities and the remainder represents other research and development costs.

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.

We anticipate that our general and administrative expenses will increase in the future to support continued research and development activities, potential commercialization of our product candidates and increased costs of operating as a public company. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, lawyers and accountants, among other expenses. Additionally, we anticipate increased costs associated with being a public company, including services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance costs and investor and public relations costs.

 

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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 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.

Grant funding for research and development received under grant agreements where there is no obligation to repay is recognized as other income in the period during which the related qualifying expenses are incurred, based on the applicable reimbursement percentage, provided that the grants are fully approved by the granting agencies and the conditions under which the grants were provided have been met.

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 potential obligation to repay this 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.

We assess whether there is an obligation to repay under the repayment provision through a royalty payment the probability of successful completion of the research and development and future sales and commercial success of the drug candidate.

When we receive grant funding in advance of incurring qualifying expenses, we record deferred income. When we incur qualifying expenses in advance of receipt of grant funding, we record grants receivable.

Research and development tax credits

Our subsidiary iTeos Belgium SA, 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 (13.5% for 2018 and 2019) 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.

Fair value adjustment for tranche rights and warrants

We have determined that our obligation to issue and our investors’ obligation to purchase additional shares of Series B preferred stock of iTeos Belgium SA represented a freestanding financial instrument. In addition, the investors in Series A and B preferred stock held anti-dilution warrants, which also represented a freestanding financial instrument. The resulting preferred stock tranche right and anti-dilution warrant liabilities were initially recorded at fair value, with gains and losses arising from changes in fair value recognized in the statement of operations and comprehensive loss during each period while such instruments were outstanding. The anti-dilution warrants were settled in October 2019 in connection with our corporate reorganizations and the tranche rights were settled in the first quarter of 2020. Accordingly, we are no longer required to record liabilities for these obligations or changes in the fair value of those liabilities.

 

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Other expense, net

Other expense, net includes income and expenses that do not fall within other categories of the statement of operations and comprehensive loss. Items included are interest income, bank fees and gain or loss on foreign currency transactions. For the three months ended March 31, 2019 and 2020, other expense, net, also includes interest expense.

Income taxes

Income tax expense results from foreign minimum income tax and profit on a legal entity basis. The losses that we have incurred since inception result primary from the losses of our Belgian subsidiary. As of December 31, 2019, we had foreign net operating loss carryforwards of $47.6 million with no expiration. We also had net operating loss carryforwards of $0.4 million for federal income tax purposes. These net operating losses, along with temporary differences related primarily to capitalized R&D expenses for tax purposes in Belgium, resulted in a deferred tax asset of $21.7 million. We have considered 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, 2019.

Results of operations

Comparison of the three months ended March 31, 2019 and 2020

The following table summarizes our results of operations for the three months ended March 31, 2019 and 2020, together with the dollar change in those items:

 

     
     Three months ended
March 31,
    Period to
period
change
 
(in thousands)    2019     2020  

Operating expenses:

      

Research and development expenses

   $ 4,351     $ 5,825     $ 1,474  

General and administrative expenses

     1,769       2,418       649  
  

 

 

 

Total operating expenses

     6,120       8,243       2,123  
  

 

 

 

Loss from operations

     (6,120     (8,243     (2,123
  

 

 

 

Other income and expense:

      

Grant income

     764       1,589       825  

Fair value adjustment for preferred stock tranche rights liability and anti-dilution warrants liability

     784       1,265       481  

R&D tax credits

     198       184       14  

Other expense, net

     (28     (42     (14
  

 

 

 

Net loss

   $ (4,402   $ (5,247   $ (845

 

 

Research and development expenses

Research and development expenses increased by $1.5 million to $5.8 million for the three months ended March 31, 2020, from $4.3 million for the three months ended March 31, 2019. This increase was primarily due to an increase in activities related to clinical trials, with the commencement of a Phase 1/2a clinical trial for EOS-448 in February 2020, as well as increased clinical activities for EOS-850, which had a full period of activity during the three months ended March 31, 2020 and only a partial period during the three months ended March 31, 2019.

 

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In the three months ended March 31, 2020, foreign currency fluctuations caused an overall decrease in research and development expense by approximately $0.1 million compared with the three months ended March 31, 2019.

General and administrative expenses

General and administrative expenses increased by $0.6 million to $2.4 million for the three months ended March 31, 2020 from $1.8 million for the three months ended March 31, 2019. The increase in general and administrative expenses was primarily attributable to an increase of $1.1 million of professional fees, including legal, consulting, accounting, and audit fees related to financing and other related activities in preparing to operate as a public company, and an increase of $0.1 million in facilities, including rent, mostly related to the office in Cambridge, Massachusetts, which we opened in May 2019. These increases were partially offset by a decrease of $0.4 million for employee-related costs, caused by certain one-time costs incurred in moving our chief executive officer from Belgium to the United States in early 2019.

Grant income

Grant income increased by $0.8 million to $1.6 million for the three months ended March 31, 2020 from $0.8 million for the three months ended March 31, 2019. The overall increase in grant income, driven by spending on qualified research and development activities, was primarily attributable to an increase in grants for the following programs:

 

   

EOS-850: $0.5 million

   

EOS-448: $0.3 million

EOS-448 was a new program in 2019 and had generated no grant income during the three months ended March 31, 2019.

Fair value adjustment for tranche rights and warrants

As a result of changes in the fair value of tranche rights and warrants, we recognized other income of $0.8 million and $1.3 million for the three months ended March 31, 2019 and 2020, respectively. As of March 31, 2020, the tranche rights and the warrants have been settled and the remaining liability has been reclassified to preferred stock.

 

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Comparison of the years ended December 31, 2018 and 2019

The following table summarizes our results of operations for the years ended December 31, 2018 and 2019, together with the dollar change in those items:

 

     
     Year ended
December 31,
    Period to
period

change
 
(in thousands)    2018     2019  

Operating expenses:

      

Research and development expenses

   $ 17,189     $ 19,211     $ 2,022  

General and administrative expenses

     4,312       8,837       4,525  
  

 

 

 

Total operating expenses

     21,501       28,048       6,547  
  

 

 

 

Loss from operations

     (21,501     (28,048     (6,547

Other income and expenses:

      

Grant income

     2,928       3,989       1,061  

R&D tax credits

     756       790       34  

Interest expense

     (66           66  

Fair value adjustment for preferred stock tranche rights liability and anti-dilution warrants liability

     (130     1,019       1,149  

Other expense, net

     (33     (85     (52
  

 

 

 

Loss before income tax

     (18,046     (22,335     (4,289

Income tax expense

     11       119       108  
  

 

 

 

Net loss

   $ (18,057   $ (22,454   $ (4,397

 

 

Research and development expenses

Research and development expenses increased by $2.0 million to $19.2 million for the year ended December 31, 2019, from $17.2 million for the year ended December 31, 2018. This increase was primarily due to a $1.9 million increase in CRO and CMO fees relating to the initiation of our Phase 1/2a clinical trial of EOS-850 in January 2019, an increase of $0.3 million in employee-related costs including increased salary, bonus, benefits and non-cash stock-based compensation to support our increased research and development activities, and an increase in depreciation expense on research and development-related equipment of $0.1 million. These increases were partially offset by a $0.3 million decrease in various other research and development expenses.

For the year ended December 31, 2019, foreign currency fluctuations caused an overall decrease in research and development expenses of approximately $0.9 million compared with the year ended December 31, 2018.

General and administrative expenses

General and administrative expenses increased by $4.5 million to $8.8 million for the year ended December 31, 2019 from $4.3 million for the year ended December 31, 2018. The increase in general and administrative expenses was primarily attributable to an increase of $2.5 million for employee-related costs, including increased salary, bonus, benefits, non-cash stock-based compensation and travel and entertainment, for additional personnel to support increased activities, and an increase of $1.5 million of professional fees, including legal, consulting, accounting, audit and recruiting expenses. The increase in professional and consulting fees resulted from the corporate reorganization and establishing corporate headquarters in the United States, as well as preparations to operate as a public company and bringing on additional management personnel. Other factors contributing to the increase were an increase in rent expense of $0.2 million in 2019

 

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due to a full year of leasing office space in the United States compared to only two months in 2018, and an increase of $0.2 million of management fees paid to directors.

In 2019, foreign currency fluctuations caused an overall decrease to general and administrative expenses of $0.2 million compared with 2018.

Grant income

Grant income increased by $1.1 million to $4.0 million for the year ended December 31, 2019 from $2.9 million for the year ended December 31, 2018. The overall increase in grant income, driven by spending on qualified research and development activities, was primarily attributable to an increase in grants for the following programs:

 

   

EOS 850: $0.6 million

   

EOS-448: $0.4 million

   

Other preclinical programs: $0.1 million

Interest expense

Interest expense decreased to zero for the year ended December 31, 2019 from $0.1 million for the year ended December 31, 2018. The interest expense in 2018 was associated with a convertible loan prior to its conversion in June 2018.

Fair value adjustment for tranche rights and warrants

As a result of changes in the fair value of the tranche right and anti-dilution warrants liabilities, we recognized other income of $0.1 million for the year ended December 31, 2018 and other expense of $1.0 million for the three months ended December 31, 2019.

Income tax expense

Income tax expense primarily related to iTeos Therapeutics U.S., a wholly owned subsidiary of iTeos Belgium SA, which generated taxable income during 2018 and 2019. The increase of $0.1 million in 2019 resulted from the increase in taxable income resulting from higher management fees related to management fees charged from iTeos Therapeutics U.S. to iTeos Belgium SA due to having a full year of operations in 2019 compared to a partial year in 2018.

Liquidity and capital resources

Since our inception, we have funded our operations primarily through private placements of our redeemable convertible preferred stock and convertible debt, as well as from grants, and licenses. Through March 31, 2020, we had received gross proceeds of approximately $177.1 million from the issuance of our redeemable convertible preferred stock. As of March 31, 2020, we had cash of $147.7 million and the principal amount of grants that are potentially repayable to government agencies was $4.1 million. Since inception, we have raised gross proceeds of $5.8 million from the issuance of our Series A redeemable convertible preferred stock, $2.0 million from the issuance of convertible debt, $46.0 million from the issuance of our Series B redeemable convertible preferred stock, and $125.4 million from the issuance of our Series B-2 redeemable convertible preferred stock.

Since inception, we have received 23.4 million ($26.3 million) in proceeds from grant programs.

Between January 2015 and September 2016, we received a total of 34.1 million ($38.6 million) from Pfizer under a License and Collaboration Agreement.

 

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Cash flows

The following table provides information regarding our cash flows for the years ended December 31, 2018 and 2019 and the three months ended March 31, 2019 and 2020:

 

     
     Year ended
December 31,
    Three months ended
March 31,
 
(in thousands)    2018     2019     2019     2020  

Net cash (used in) provided by:

        

Operating activities

   $ (19,097   $ (23,145   $ (4,815   $ 521  

Investing activities

     (299     (926     (616     (37

Financing activities

     23,508       22,539             127,739  

Effects of exchange rate changes on cash and restricted cash

     (875     (532     (407     (360
  

 

 

 

Net increase (decrease) in cash and restricted cash

   $ 3,237     $ (2,064   $ (5,838   $ 127,863  

 

 

Net cash used in operating activities

The use of cash in all periods resulted primarily from our net losses adjusted for non-cash charges and changes in components of working capital.

Net cash provided by operating activities was $0.5 million during the three months ended March 31, 2020 compared to net cash used in operating activities of $4.8 million used in operating activities during the three months ended March 31, 2019. The change was primarily due to cash received from granting agencies of $6.9 million during the three months ended March 31, 2020, partially offset by the increase in net loss of $0.8 million, resulting from an increase in our operating expenses in connection with our lead programs and other research and development pipeline.

Net cash used in operating activities was $23.1 million during the year ended December 31, 2019 compared to $19.1 million during the year ended December 31, 2018. The increase in net cash used in operations was primarily due to an increase in our net loss of $4.3 million for the year ended December 31, 2019 as compared to the year ended December 31, 2018 due to an increase in our operating expenses in connection with our lead programs and other research and development pipeline.

Net cash used in investing activities

Net cash used in investing activities decreased $0.6 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019. The decrease in cash used in investing activities was primarily due to higher investments in laboratory and other equipment and software during the three months ended March 31, 2019.

Net cash used in investing activities was $0.9 million for the year ended December 31, 2019 compared to $0.3 million during the year ended December 31, 2018. The increase in cash used in investing activities was primarily due to increases in investments in laboratory and other equipment and software.

Net cash provided by financing activities

Net cash provided by financing activities was $127.7 million during the three months ended March 31, 2020. We raised cash through the issuance of Series B-2 preferred stock, with net proceeds of $125.0 million. In addition, we received $2.7 million under grant programs with a potential obligation for repayment.

Net cash provided by financing activities was $22.5 million during the year ended December 31, 2019 compared to $23.5 million during the year ended December 31, 2018. We raised cash through the issuance of Series B

 

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preferred stock in euros in both 2019 and 2018, the proceeds of which were translated into U.S. dollars at a higher exchange rate in 2018.

Funding requirements

We expect our expenses to increase in connection with our ongoing activities, particularly as we continue our Phase 1/2a clinical trial of EOS-448, continue our Phase 1/2a clinical trial of EOS-850, advance the development of pipeline 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. Furthermore, upon the closing of this offering, we expect to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.

We believe that the anticipated net proceeds from this offering, together with our existing cash as of March 31, 2020, will enable us to fund our operating expenses and capital expenditure requirements through                 .

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 EOS-850 and EOS-448, 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.

 

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Identifying potential product candidates and conducting preclinical studies and clinical trials is a time-consuming, expensive and uncertain process that takes many years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, grants, collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

If we raise funds through additional collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or grants when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Contractual obligations and commitments

The following is a summary of our contractual obligations as of December 31, 2019:

 

           
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

   $ 1,125      $ 534      $ 585      $ 6      $  

Grants repayable(1)

     1,512               50        101        1,361  
  

 

 

 

Totals

   $ 2,637      $ 534      $ 635      $ 107      $ 1,361  

 

 

 

(1)   We have entered into two arrangements with the Walloon Region of Belgium, or the RCAs, whereby the Walloon Region would provide us with up to $25.0 million for our EOS-850 ($21.1 million) and EOS-448 ($3.9 million) research and development programs. As of December 31, 2019, we have received $5.0 million under the EOS-850 grant. We must repay 30% of the amount received under the grants in annual installments from 2021 to 2041 unless we decide not to pursue development and commercialization of the results of the program, 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. Because of the requirement to repay 30% of the amounts received under the grant, we record the present value of such amounts as a grant repayable on the consolidated balance sheet.

 

    In addition, in the event that we receive revenue from products or services related to the results of the programs, we must pay to the Walloon Region a 0.33% royalty on revenue related the EOS-850 grant and a 0.12% royalty on revenue on the EOS-448 grant. 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 was recorded as of December 31, 2019.

The table above does not include potential milestone and success fees, sublicense fees, royalty fees, 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

 

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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.

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.

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 prospectus, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements.

Corporate reorganization

On October 4, 2019, we completed a corporate reorganization, pursuant to which each shareholder of iTeos Belgium SA contributed their interests to iTeos Therapeutics, Inc. in exchange for newly issued shares of capital stock of iTeos Therapeutics, Inc., a holding company formed for such purpose with nominal assets and no liabilities, contingencies or commitments at the time of such transaction. Following the share exchange, holders of stock option warrants of iTeos Belgium SA received options to purchase shares of iTeos Therapeutics, Inc. common stock. As a result of these transactions, iTeos Belgium SA became a wholly owned subsidiary of iTeos Therapeutics, Inc. On February 28, 2020, iTeos Therapeutics US, Inc. was sold from iTeos Belgium SA to iTeos Therapeutics, Inc. On the same date, iTeos Therapeutics US, Inc. merged with and into iTeos Therapeutics, Inc., with iTeos Therapeutics, Inc. as the surviving entity.

The share exchange was accounted for in accordance with the Financial Accounting Standards Board, or FASB, Accounting Standard Codification, or ASC, 805, Business Combinations. We evaluated the guidance in ASC 805-50 with respect to the combinations among entities or businesses under common control and concluded that since all shareholders of iTeos Therapeutics, Inc. and iTeos Belgium SA 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. Transactions among entities under common ownership are accounted for similar to common control transactions; therefore, they are not accounted for at fair value. Rather, they are accounted for at the carrying amount of the net assets or equity interests transferred. As a result, the financial position and the results of operations of iTeos Therapeutics, Inc. and iTeos Belgium SA are presented as consolidated for all periods presented in these financial statements.

 

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Research and development expenses

We expense research and development costs to operations as incurred. Research and development expenses comprise costs incurred in performing research and development activities, including salaries, benefits and other employee-related expenses, share-based compensation expense, laboratory supplies and other direct expenses, facilities cost, overhead costs, third-party contract costs relating to pre-clinical studies and clinical trial activities and related contract manufacturing expenses, and other outside costs.

As part of the process of preparing our financial statements, we are required to estimate our accrued 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. Advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed. 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.

We base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple CROs that conduct and manage clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the clinical expense. Payments under some of these contracts depend on factors such as the successful enrollment of subjects and the completion of clinical trial milestones. In accruing service fees, we determine the time period over which services will be performed, enrollment of subjects and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, differences may cause us to report amounts that are too high or too low in any particular period. To date, there have been no material differences from our estimates to the amounts actually incurred.

Stock-based compensation expense

We account for stock-based compensation arrangements in accordance with ASC 718, Stock Compensation. On January 1, 2017, we early-adopted Accounting Standard Update, or ASU, No. 2018-07 (Topic 718), Compensation—Stock Compensation, which expanded the scope of Topic 718 to include share-based payment transactions with non-employees.

Stock-based awards granted include stock options with time-based vesting. ASC 718 requires the recognition of compensation expense, using a fair value-based method, for costs related to all stock-based payments. Our determination of the fair value of stock options with time-based vesting on the date of grant utilizes the Black-Scholes option-pricing model, and is impacted by our common stock price as well as other variables including, but not limited to, expected term that options will remain outstanding, expected common stock price volatility over the term of the option awards, risk-free interest rates and expected dividends.

 

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The fair value of a stock-based award is recognized over the period during which an optionee is required to provide services in exchange for the option award, known as the requisite service period (usually the vesting period) on a straight-line basis. Stock-based compensation expense is recognized based on the fair value determined on the date of grant and is reduced for forfeitures as they occur. Estimating the fair value of equity-settled awards as of the grant date using valuation models, such as the Black-Scholes option pricing model, is affected by assumptions regarding a number of complex variables. Changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized. These inputs are subjective and generally require significant analysis and judgment to develop.

As there has been no public market for our common stock to date, the estimated fair value of our common stock has been determined by our board of directors as of the date of each option grant, with input from management, considering our most recently available third-party valuations of common stock, and our board of directors’ assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant. These third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Our common stock valuations were prepared using an option pricing method, or OPM, which used market approaches to estimate our enterprise value. The OPM treats common stock and preferred stock as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a company’s securities changes. Under this method, the common stock has value only if the funds available for distribution to stockholders exceeded the value of the preferred stock liquidation preferences at the time of the liquidity event, such as a strategic sale or a merger. A discount for lack of marketability of the common stock is then applied to arrive at an indication of value for the common stock. In addition to considering the results of these third-party valuations, our board of directors considered both objective and subjective factors, including:

 

 

the prices at which we sold preferred stock and the superior rights and preferences of the preferred stock relative to our common stock at the time of each grant;

 

 

the progress of our research and development programs, including the status of preclinical studies and planned clinical trials for our product candidates;

 

 

our stage of development and our business strategy;

 

 

external market conditions affecting the biotechnology industry, and trends within the biotechnology industry;

 

 

our financial position, including cash on hand, and our historical and forecasted performance and operating results;

 

 

the lack of an active public market for our common stock and our preferred stock; and

 

 

the likelihood of achieving a liquidity event, such as an initial public offering or a sale of our company in light of prevailing market conditions.

The following are estimates of the fair value of our common stock on the date of grant. The valuation date is the same as the date of grant.

 

   
Valuation date    Fair value per
share of
common stock
 

December 31, 2018

   $ 0.72  

July 31, 2019

   $ 0.89  

 

 

 

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Expected Term—We have opted to use the “simplified method” for estimating the expected term of options, whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the option (7—10 years).

Expected Volatility—Due to our limited operating history and a lack of company specific historical and implied volatility data, we have based our estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. The historical volatility data was computed using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated expected term of the stock-based awards.

Risk-Free Interest Rate—The risk-free rate assumption is based on the U.S. Treasury instruments with maturities similar to the expected term of our stock options.

Expected Dividend—We have not issued any dividends in our history and do not expect to issue dividends over the life of the options and therefore have estimated the dividend yield to be zero.

The assumptions underlying these valuations represented management’s best estimate, which involved inherent uncertainties and the application of management’s judgment. As a result, if we had used significantly different assumptions or estimates, the fair value of our common stock and our stock-based compensation expense could have been materially different. We will continue to use judgment in evaluating the expected volatility, expected terms and interest rates utilized for our stock-based compensation expense calculations on a prospective basis.

The following table presents the grant dates of shares subject to awards from January 1, 2018 through the date of this prospectus, along with the corresponding exercise price for each option grant and our estimate of the fair value per share of our common stock on each grant date, which we utilized to calculate stock-based compensation expense:

 

         
Date of Grant    Number of
shares
subject to
award
     Exercise
price
     Fair value
of common
stock at
grant date
    Per share
estimated
fair value
of award(1)
 

March 31, 2019

     3,835,178      $ 1.30      $ 0.72 (2)    $ 0.45  

February 21, 2020

     1,534,636      $ 0.89      $ 0.89 (3)    $ 0.66  

 

 

 

(1)   The per share estimated fair value of award reflects the fair value of options estimated at the date of grant using the Black-Scholes option-pricing model.

 

(2)   The fair value of common stock used for financial reporting purposes for the March 31, 2019 options was determined based on a fair value assessment as of December 31, 2018.

 

(3)   The fair value of the common stock used for financial reporting purposes for the February 21, 2020 option grants was determined based on a fair value assessment as of July 31, 2019.

Estimates of the fair value of common stock will not be necessary to determine the fair value of new awards once the underlying shares begin trading publicly.

Valuation of preferred stock tranche rights

Our issuance of Series B preferred stock provided investors the right to participate in subsequent offerings of Series B preferred stock, in the event specified developmental and regulatory milestones were achieved. We classified the tranche rights as liabilities on our consolidated balance sheets as we determined that the tranche rights met the definition of a freestanding financial instrument since they are legally detachable. We also determined that such instruments represent forward sale contracts on redeemable shares and, accordingly, the instrument should be accounted for as a liability separate from the convertible preferred stock. We remeasure the liabilities associated with tranche rights to fair value at each reporting date, and immediately prior to

 

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exercise or settlement, and recognize changes in the fair value of the liabilities in our consolidated statements of operations recorded as “fair value adjustment for preferred stock tranche rights and anti-dilution warrants.”

The fair value of the liabilities was determined using a probability-weighted scenario analysis utilizing the underlying preferred stock. The liabilities were valued as forward contracts, which considered inputs including, but not limited to, the probability of attaining the milestones, the expected timing of meeting the milestones, market-based assumptions for expected term and the risk free rate. Changes to these assumptions could have a significant impact on the fair value of the tranche right liabilities.

We determined that the right granted to the investors of Series B Preferred Stock to purchase additional stock at the original issuance price in two subsequent closings and the anti-dilution warrants, which were issued as part of the Series A and Series B Preferred Stock Subscription Agreements, are considered freestanding financial instruments and are accounted for as liabilities under ASC 480. They are reported at fair value at inception with an allocation of the proceeds from the preferred stock issuance and are remeasured at fair value at each reporting date until settlement, with the changes in fair value included in the other income and expense section of the consolidated statements of operations and comprehensive loss.

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 are predicated on whether the 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 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 repay 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 no obligation to repay is recognized as other income in the period during which the related qualifying expenses are incurred, based on the applicable reimbursement percentage, provided that the grants are fully approved by the granting agencies and the conditions under which the grants were provided have been met.

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 potential obligation to repay this 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.

We assess whether there is an obligation to repay under the repayment provision through a royalty payment the probability of successful completion of the research and development and future sales and commercial success of the drug candidate.

When we receive grant funding in advance of incurring qualifying expenses, we record deferred income. When we incur qualifying expenses in advance of receipt of grant funding, we record grants receivable.

Off-balance sheet arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under the applicable regulations of the SEC.

 

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Recent accounting pronouncements

Refer to Note 2, “Summary of Significant Accounting Policies,” in the accompanying notes to the unaudited interim condensed consolidated financial statements for a discussion of recent accounting pronouncements.

Qualitative and quantitative disclosures about market risk

We are exposed to market risk related to changes in interest rates. As of December 31, 2019 and March 31, 2020, we had cash of $19.9 million and $147.7 million, respectively. Our primary 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 March 31, 2020, our cash is held primarily in savings and money market accounts. 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, 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. As of March 31, 2020 we had cash balances held by iTeos Belgium SA in euros. 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 consolidated statements of stockholders’ deficit 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 consolidated statements of operations and comprehensive loss as incurred.

The JOBS Act

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 are also a “smaller reporting company” meaning that the market value of our stock held by non-affiliates plus the proposed aggregate amount of gross proceeds to us as a result of this offering is 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 after this offering 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.

 

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Business

Overview

We are a clinical-stage biopharmaceutical company pioneering the discovery and development of a new generation of highly differentiated immuno-oncology therapeutics for patients. We leverage our deep understanding of the tumor microenvironment and immunosuppressive pathways to design novel product candidates with an aim to improve the clinical benefit of oncology therapies. Our innovative pipeline includes two clinical-stage programs targeting novel, validated immuno-oncology pathways designed to build on prior learnings in the field to have differentiated pharmacological and clinical profiles. Our most advanced product candidate, EOS-850, is designed as a highly selective small molecule antagonist of the adenosine A2a receptor, or A2AR, in the adenosine triphosphate, or ATP, adenosine pathway, a key driver of immunosuppression in the tumor microenvironment across a broad range of tumors. We are investigating EOS-850 in an open-label Phase 1/2a clinical trial in adult patients with advanced solid tumors and we have observed encouraging preliminary single-agent activity in the dose escalation portion of the trial. We expect to report initial data from monotherapy and combination therapy expansion cohorts in the first half of 2021. Our lead antibody product candidate, EOS-448, is an antagonist of TIGIT, or T-cell immunoreceptor with Ig and ITIM domains, a checkpoint that has a role in both inhibitory and stimulatory pathways in the immune system. EOS-448 was also designed to engage the Fc gamma receptor, or FcgR, to promote antibody-dependent cellular cytotoxicity, or ADCC, activity, including the elimination of tumor-infiltrating regulatory T cells, or Tregs. We have recently initiated an open-label Phase 1/2a clinical trial of EOS-448 in adult patients with advanced solid tumors and expect to report initial data in the first half of 2021. We are using our expertise in tumor immunology to select additional targets for other novel, differentiated programs. To date, we have initiated two preclinical programs that we believe have the potential to be complementary to both standard cancer treatments and our own product candidates. We retain worldwide rights to develop and commercialize all of our product candidates.

We are developing EOS-850 to inhibit the ATP-adenosine pathway by specifically targeting A2AR, which is the primary adenosine receptor on immune cells with high affinity for adenosine. A2AR is expressed across a number of solid tumors and hematological malignancies with high unmet medical need. We chose to directly and selectively inhibit A2AR, a target with the potential to alleviate immunosuppression in multiple solid tumors and hematological malignancies and to minimize off-target effects. As elevated levels of adenosine in the tumor microenvironment are known to be immunosuppressive, we also designed EOS-850 to remain potent at high adenosine concentrations and maintain continuous target coverage. With this profile, we believe that EOS-850 has the potential for enhanced antitumor activity as compared to other A2AR antagonists currently in clinical development. In our preclinical studies, we have shown that EOS-850 inhibited adenosine pathway-mediated immunosuppression and led to both T cell activation and antitumor activity, when dosed either as monotherapy or in combination with immune checkpoint inhibitors, or CPIs, or chemotherapy. We have also shown in preclinical studies that dosing of EOS-850 in combination with a CPI resulted in the rejection of tumors after reintroduction without further treatment, suggesting the potential for a durable immune memory response.

In the dose escalation portion of our ongoing Phase 1/2a clinical trial of EOS-850 in 21 heavily pretreated patients with advanced solid tumors, we observed preliminary evidence of clinical benefit, with seven patients achieving at least stable disease. Of these seven patients, as of         , 2020, two have exhibited confirmed partial responses, one with CPI-refractory metastatic melanoma and one with heavily pretreated metastatic castration-resistant prostate cancer, or CRPC. EOS-850 has been reported to be generally well-tolerated, and as of         , 2020, with              patients remaining on-study, we have observed no dose-limiting toxicity or drug-related serious adverse events. Based on these results, we plan to continue development of EOS-850 both as a monotherapy and in combination with pembrolizumab, a CPI approved for use in a variety of cancers, and with other standard cancer therapies. We also plan to further evaluate activity in the monotherapy setting and to

 

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identify relevant biomarkers for patient selection. We expect to report data from the expansion cohort of this Phase 1/2a clinical trial in the first half of 2021.

EOS-448 is an anti-TIGIT human immunoglobulin G1, or IgG1, antibody that we are developing to inhibit the immunosuppressive activity of TIGIT. TIGIT is a cell surface receptor expressed on multiple immune cells, including CD8+T cells, natural killer, or NK, cells, and T regulatory cells, or Tregs, a cell population that inhibits the immune response and, in the context of cancer, promotes tumor growth by inhibiting the activation and proliferation of effector T cells and NK cells. TIGIT has also been shown to be a mediator of resistance to existing CPIs, including anti-PD-1 therapies. We have designed EOS-448 to have a high affinity for TIGIT and also to actively engage FcgR. We have shown in preclinical studies using a mouse anti-TIGIT antibody that engagement of FcgR was an important mediator of antitumor activity in vivo. Engagement of FcgR by EOS-448 results in the activation of a number of immune cells, including NK cells, macrophages and other effector cells, promoting inflammation and their cell killing function. Through engagement of FcgR and activation of ADCC, EOS-448 is designed to deplete Tregs, which are known to express high levels of TIGIT, within the tumor microenvironment. In our preclinical studies, we have also shown that EOS-448 had high binding to TIGIT and, compared to a number of clinical-stage anti-TIGIT antibody equivalents, generated high levels of immune cell activation in an IL-2 promoter-dependent functional assay.

Our preclinical data suggest that EOS-448 has the potential to deliver robust single-agent antitumor activity and could be complementary to and used in combination with other cancer therapies such as CPIs and chemotherapy. Our preclinical data also suggests that EOS-448 is active in combination with EOS-850 and chemotherapy, thus creating the potential for intra-portfolio synergies. In animal models and ex vivo experiments in patient-derived cells, we have shown that EOS-448 promoted the killing of immunosuppressive tumor-infiltrating Tregs. TIGIT is also expressed on tumor cells in certain hematological malignancies. Based on the high expression of TIGIT in multiple solid tumors and hematological malignancies, we believe there is significant potential for EOS-448 in clinical applications. We recently began the dose escalation portion of a Phase 1/2a clinical trial of EOS-448 as a monotherapy in patients with solid tumors with the primary goal of assessing its safety and tolerability. The dose escalation portion is expected to be completed in the first half of 2021, which we anticipate will enable us to start multiple expansion cohorts in select indications with different combinations in mid-2021.

We began our research and development activities as a spin-off of Ludwig Cancer Research and have built significant expertise in designing novel cancer immunotherapies. Our internal research and development team has gained extensive knowledge in immuno-metabolism, characterization of the immunosuppressive mechanisms in the tumor microenvironment, pharmacology and translational medicine. We have also built discovery capabilities to develop both small molecules and antibodies with differentiated and optimized target product profiles for underexploited pathways validated by a strong scientific rationale. We have been able to move from initiation of a discovery campaign to the identification of a preclinical candidate within 18 months for both EOS-850 and EOS-448. Our expertise also allows us to integrate a biomarker-rich strategy into our clinical programs to measure the effect of a product candidate in patients, choose optimal combination agents and identify the patients most likely to benefit from treatment.

We have assembled a seasoned management team with extensive experience in developing novel oncology therapies, including advancing product candidates from preclinical research through clinical development and ultimately regulatory approval and commercialization. Our team is led by our President, Chief Executive Officer and founder, Michel Detheux, Ph.D., who gained extensive experience in research and business development at

Ogeda SA. Matt Call, MBA, our Chief Operating Officer, spent over 16 years at Endocyte, Inc., where he served most recently as its Chief Operating Officer. Joanne Lager, M.D., our Chief Medical Officer, has 16 years of experience in oncology drug development, most recently as Head of Global Oncology Development at Sanofi. Matthew Gall, our Chief Financial Officer, has over 15 years of experience in healthcare and was most recently the Senior Vice President of Corporate Development and Treasurer of Sarepta Therapeutics, Inc.

 

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We have raised $177.1 million of capital from a group of leading life sciences investors, including MPM Capital, RA Capital Management, Boxer Capital, Janus Henderson, HBM Partners, RTW Investments and The Invus Group.

Our pipeline

The following chart summarizes our clinical product pipeline. We hold worldwide development and commercialization rights to our product candidates.

 

LOGO

Strategy

Our vision is to transform the treatment of patients suffering from cancer by creating a broad portfolio of immuno-oncology therapies focused on novel targets in the tumor microenvironment. The key pillars of our strategy to achieve our vision include:

 

 

Build upon the differentiated profile and encouraging preliminary single-agent activity of our lead product candidate, EOS-850, to advance it through clinical development and regulatory approval. We believe that EOS-850 is a highly differentiated A2AR antagonist based on its specificity, potency and continuous target coverage. We believe that these characteristics may position EOS-850 to deliver a better tolerability profile and more robust anti-tumor response than existing A2AR inhibitors in clinical development. We have observed preliminary single-agent activity in our Phase 1/2a clinical trial in advanced solid tumor patients and we intend to advance EOS-850 both as a single agent and in combination with standard cancer treatments. Beginning in the third quarter of 2020, we plan to initiate expansion cohorts of EOS-850 in combination with pembrolizumab in patients with melanoma who are resistant to anti-PD-1 therapy and in patients with CRPC who have not previously had immuno-oncology therapy, and in patients with triple-negative breast cancer, or TNBC, in combination with carboplatin and paclitaxel, a commonly used chemotherapy combination treatment. We expect initial data from the expansion cohorts to be available in the first half of 2021. We plan to meet with regulatory authorities to discuss potential expedited regulatory strategies for EOS-850.

 

 

Exploit the broad potential of TIGIT inhibition and advance EOS-448, our FcgR engaging anti-TIGIT antibody, through clinical development and regulatory approval. We believe the ability of EOS-448 to inhibit TIGIT and activate the FcgR on immune cells has the potential to deliver potent anti-tumor effects across a wide range of cancers. We have initiated a Phase 1/2a clinical trial of EOS-448 as a monotherapy for

 

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patients with solid tumors and expect to report initial dose-escalation data in the first half of 2021. We intend to evaluate EOS-448 in multiple solid tumors and hematological malignancies in combination with existing therapies, including CPIs, as well as with our A2AR antagonist, EOS-850. Our preclinical data suggest that EOS-448 is synergistic with other immuno-oncology agents and standard cancer therapies. We anticipate initiating expansion cohorts in our ongoing clinical trial of EOS-448 to evaluate combination regimens in mid-2021. We plan to meet with regulatory authorities to discuss potential expedited regulatory strategies for EOS-448. We plan to leverage our in-depth understanding of TIGIT-mediated pathways and potential predictive biomarkers to select patient populations we believe will be most likely to respond to treatment.

 

 

Leverage our deep understanding of immune pathways and the tumor microenvironment to identify novel product candidates. Since our founding, we have established extensive knowledge in immuno-metabolism, characterization of the immunosuppressive mechanisms in the tumor microenvironment, pharmacology and translational medicine. We will continue to apply our expertise in understanding and targeting immunosuppressive cells and mechanisms of resistance within the tumor microenvironment to develop novel product candidates for the treatment of cancer. We plan to leverage our expertise to continue to select and pursue novel immuno-oncology product candidates targeting CPIs, tumor resistance mechanisms or immune system activation mechanisms, through both in-house research and in-licensing of complementary technologies. Building upon our work to date in the ATP-adenosine pathway, the TIGIT-mediated immunoregulatory pathway and Tregs, we expect to advance an additional product candidate into IND-enabling studies by the first quarter of 2021.

 

 

Maximize the value of our product candidates and pipeline by selectively entering into strategic collaborations. We hold worldwide development and commercial rights to our pipeline of immuno-oncology programs, and we intend to commercialize our product candidates, if approved, in key geographies. In the future, we may selectively enter into strategic collaborations around certain targets, product candidates, disease areas or geographies if we believe these collaborations could maximize the value of our product candidates. We have and may in the future enter into collaborations that grant us access to certain compounds owned by third parties to enable therapeutic combinations that could enhance the clinical and commercial potential of our product candidates. For example, we have entered into a non-exclusive, clinical supply agreement with Merck & Co, or Merck, to evaluate EOS-850 in combination with pembrolizumab.

 

 

Maintain a strong culture of innovation and build a leading immuno-oncology company putting patients first in everything we do. We will continue to apply our deep understanding of the tumor microenvironment to the discovery and development of novel immuno-oncology therapies that have the potential to provide breakthroughs for patients suffering from cancers who are currently underserved by available therapies. Core to this strategy is continuing to build a team and company culture, at our headquarters in Cambridge, Massachusetts and our research and development center in Belgium, that prioritizes patients’ needs as we develop our lead programs and pipeline assets. Our vision, values, talent and strategy maximize our ability to operate at the forefront of innovations in immuno-oncology. We believe our presence in the United States and Belgium is a strategic advantage that enhances our ability to attract global talent and remain at the forefront of innovation in the field of immuno-oncology.

 

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The promise of immuno-oncology and the limitations of current immuno-oncology therapies

In recent years, the treatment of cancer has been reshaped by the promise of immuno-oncology therapies, particularly CPIs. Cancer cells have evolved the ability to evade recognition by the immune system, including by expressing immune checkpoints that inhibit the immune response. Immune checkpoints are proteins on certain immune cells that regulate the activation, often functioning as on-off switches, of effector cells. The first clinical validation of the manipulation of these receptors to reactivate and activate the immune system, since named immuno-oncology, came in 2010 when ipilimumab, an antibody targeting the immune checkpoint CTLA-4, demonstrated clinical benefit in metastatic melanoma patients. Since then, a number of immuno-oncology drugs have been approved and become a cornerstone of treatment for a wide range of cancers. CPIs, including ipilimumab, pembrolizumab and others, have now become a foundation of the immuno-oncology market, with an estimated $22 billion in sales in 2019.

CPIs work by binding to proteins on the surface of either immune or cancer cells that mediate inhibitory signals, thereby blocking the immunosuppressive interactions between the two. One of the most successful approved checkpoint inhibitors acts by preventing programmed death-ligand 1, or PD-L1, on the tumor cell from interacting with its binding partner, the programmed death cell protein 1, or PD-1, which is found on the surface of cytotoxic T cells. Blocking this interaction can allow effector T cells to attack and destroy tumors.

While CPIs have provided significant therapeutic benefit for certain cancers, they are not efficacious in a majority of patients with cancer. For example, the reported efficacy of CPIs is limited in melanoma, a tumor known as having high immune cell infiltration, and only approximately 20% of patients with second-line melanoma had progression-free survival, or PFS, a year after the initiation of treatment with the anti-PD-1 CPI pembrolizumab (Keytruda), as illustrated in the figure below from the Keytruda package insert. The PFS observed to date in many other solid tumor types has been more limited. Furthermore, the long-term benefit of these immunotherapy approaches, including CPIs, is limited because the majority of patients eventually become resistant or refractory to therapy.

 

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The understanding of the biology behind resistance to immunotherapy is evolving. Several different pathways have been identified that contribute to suppression of the immune system in the tumor microenvironment beyond those targeted by current CPIs.

Our drug discovery efforts are dedicated to a better understanding of these immune resistance pathways with the specific goal of generating novel product candidates that restore the immune response against cancer. We currently have two clinical-stage product candidates, EOS-850 and EOS-448, each targeting a key mechanism that has the potential to inhibit an effective antitumor immune response: the ATP-adenosine pathway and the novel checkpoint TIGIT pathway, respectively. We believe that both product candidates have the potential to further increase patient responses to immunotherapy, including in patients resistant to currently approved CPIs. We are also using our deep understanding of these critical immune resistance pathways to identify new targets and generate additional product candidates that have the potential to work in synergy with EOS-850 and EOS-448.

EOS-850, our next generation immuno-oncology product candidate designed to counteract the ATP-adenosine immunosuppressive pathway

EOS-850 is a small molecule designed to block the immunosuppressive activity of adenosine by inhibiting the signaling of the A2AR on immune cells. In animal models, we showed antitumor activity of EOS-850 both as a monotherapy and in combination with other standard cancer therapies, including CPIs. In the dose escalation portion of our ongoing Phase 1/2a clinical trial of EOS-850 as a monotherapy in heavily pretreated solid tumor patients, we observed clinical benefit in seven out of 21 patients, including two patients with confirmed partial responses as of June 10, 2020. EOS-850 has been reported to be generally well-tolerated, with four of 21 patients in the dose escalation cohort remaining on-study as of June 10, 2020, we have observed no dose-limiting toxicity or drug-related serious adverse events, or SAEs. Based on these results, we plan to continue development of EOS-850 both (i) as a monotherapy to further evaluate activity we have observed and to identify relevant biomarkers for patient selection and (ii) in combination with pembrolizumab and other current cancer therapies.

The immunosuppressive ATP-adenosine pathway

It is well established that the ATP -adenosine pathway is a key pathway that modulates immune responses in pathological conditions. ATP is normally found at very low levels extracellularly. Following cellular stress or cell death, large amounts of ATP are released from cells, triggering inflammation. Under normal conditions, extracellular ATP is rapidly converted to adenosine. Adenosine is immunosuppressive and acts to modulate the immune response and limit tissue destruction by activated immune cells. This balance is especially disturbed in the tumor microenvironment, where the combination of hypoxia and cancer cell death generates high concentrations of ATP. The hypoxic conditions in the tumor microenvironment at the same time induce the expression of CD39 and CD73, two enzymes that convert ATP into adenosine. In addition, there are other enzymes such as tissue non-specific alkaline phosphatase, or TNAP, and prostate-specific acid phosphatase, or PAP, that contribute to the production of adenosine. The expression of these enzymes contributes to an increase in processing of ATP to adenosine, and the resulting high levels of adenosine in the tumor microenvironment suppress the activity of cytotoxic effector T cells that would otherwise kill tumor cells.

Adenosine A2A receptor and immune cell function

The ATP-adenosine pathway offers multiple potential targets for drug programs, including the enzymes involved in adenosine production, the adenosine deaminase, the enzyme involved in adenosine degradation, and the adenosine receptors expressed on immune cells found in the tumor microenvironment. There are four

 

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known adenosine receptors: A1, A2A, A2B and A3. Of these, only A2AR and A2BR are believed to play a role in intra-tumoral immune suppression. A2AR has been shown to have an affinity for adenosine that is approximately 100-fold higher than A2BR. Furthermore, as illustrated in the figure below, A2AR is the primary adenosine receptor expressed on CD4+ and CD8+ T cells, NK cells, monocytes and dendritic cells. To measure the adenosine receptors expression, we quantified messenger RNA, or mRNA, of all adenosine receptors in purified human immune cell populations in resting and stimulated conditions. T cells and NK cells were stimulated with anti-CD3/CD28 and IL-2, respectively. Monocytes and dendritic cells were stimulated with lipopolysaccharides, or LPS.

 

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We are focused on the direct target for adenosine, its receptor, and we chose A2AR as it is the most highly expressed in relevant immune cell populations and one of the receptors with high affinity for the ligand as opposed to targeting upstream enzymes that are involved in production of adenosine. We selected A2AR as the target for EOS-850 because we believe it is a key actor that mediates the immunosuppressive effects of adenosine regardless of the source of adenosine production.

Validation of A2AR antagonist as immunomodulator

The major role played by A2AR in immunosuppression in the tumor microenvironment has been demonstrated in several preclinical studies published by other groups in peer-reviewed journals. In these studies, pharmacologic agents that inhibited A2AR were shown to induce antitumor activity. Additional experiments showed that the genetic knockout of A2AR in mice led to the rejection of multiple tumor types in a CD8+ T cell-dependent manner, providing support for the hypothesis that A2AR could be a valid therapeutic target. The antitumor activity was further enhanced when the compounds were tested in combination with CPIs.

A2AR antagonists have previously been evaluated in clinical trials for central nervous system, or CNS, indications, and one of these agents, istradefylline, has been approved by the FDA for the treatment of Parkinson’s disease. As the role of adenosine in tumor-mediated immunosuppression became clear, several companies set out to evaluate A2AR antagonists initially developed for use in CNS diseases in oncology settings. These first-generation compounds have shown initial signs of activity, but were in some cases associated with dose-limiting toxicity, possibly related to CNS effects. Furthermore, rolofylline, an A1R antagonist that was

 

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tested in a Phase 3 clinical trial in patients with heart failure, was associated with an increase of stroke and seizure, underscoring that lack of selectivity for A2AR could present safety risks. Therefore, we have specifically designed EOS-850 to target A2AR and not to cross the blood-brain barrier, which we believe will lead to an improved therapeutic index.

High adenosine concentrations prevent an effective anti-tumor immune response and play a role in resistance to current cancer therapies

While it has been accepted that adenosine levels are elevated in the tumor microenvironment, precise measurement of adenosine concentrations in tumors has been hindered by its short half-life. We set out to assess adenosine concentration in tumors using 10 different patient-derived xenograft, or PDX, models to confirm the hypothesis that adenosine concentration is higher in tumors than in normal tissue. In these models, as illustrated in the figure below, the mean extracellular adenosine concentration in tumors was 10.66 µM, which is approximately 20-fold higher than adenosine levels measured in normal tissue. These data support our rationale for designing adenosine receptor antagonists to maintain potency at high adenosine concentrations for use as a cancer therapeutic.

 

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We believe the elevated levels of adenosine in the tumor microenvironment may be a modulator of resistance to current cancer therapies, including both CPIs and chemotherapy. High activity of soluble CD73 was associated with poor overall survival and PFS in patients with metastatic melanoma treated with nivolumab, an anti-PD-1 CPI. An association between high adenosine blood concentrations and lack of response to nivolumab was shown in a clinical trial of renal cell cancer patients conducted by others. In this trial, patients who failed to respond to nivolumab had significantly higher blood adenosine levels than those who responded, both at

 

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baseline (158% higher) and at four weeks after initiation of treatment (138% higher). Patients with baseline adenosine levels in the top quartile also had a significantly worse PFS. These data further support our belief that adenosine plays an important role in resistance to CPIs such as nivolumab. Additional data support a potential role in chemotherapy-induced resistance, as chemotherapy has been shown in some cases to increase the production of adenosine in the tumor microenvironment and some chemotherapeutics induce adenosine-mediated immunosuppression that may limit the efficacy of these therapies.

Given the important role of A2AR in mediating the immunosuppressive effects of adenosine in the tumor microenvironment, we believe that a potent and selective antagonist of A2AR has the potential to restore antitumor immune response inhibited by adenosine and enhance the activity of other cancer therapies, including CPIs and chemotherapy.

Our solution: EOS-850

EOS-850 is an A2AR antagonist that we engineered to specifically inhibit the activity of A2AR on immune cells at the high concentrations of adenosine found in the tumor microenvironment, in order to address the shortcomings of other A2AR antagonists currently in development. As illustrated in the figure below, hypoxia and cell necrosis in the tumor lead to the release of ATP, which is converted to adenosine in the tumor microenvironment. Adenosine exerts an immunosuppressive effect via activation of A2AR, thereby inhibiting the tumor-killing function of effector T cells. EOS-850 is designed to release the adenosine driven immunosuppression of T cells by antagonizing A2AR, thereby allowing T cells to kill their tumor targets.

 

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Differentiation of EOS-850

We believe EOS-850 has three key characteristics that provide the molecule with a unique profile and potential advantages in clinical settings when compared to other A2AR antagonists currently in development:

 

1.  

High affinity for A2AR and insurmountable antagonism. We believe that the affinity and sustained binding of EOS-850 to its target may allow it to maintain potency at high concentrations of adenosine, differentiating it from other A2AR antagonists in development. The ability of an A2AR antagonist to reduce the maximum effect of A2AR activation at any concentration of an agonist such as adenosine is a characteristic known as insurmountable antagonism. In our in vitro studies, we measured cyclic adenosine monophosphate, or cAMP, to assess the potency of several A2AR antagonists. The activation of A2AR on the surface of primary human T cells leads to the production of cAMP, which makes it a relevant indicator for potency. In this functional assay, we tested competitor antagonists and, as illustrated in the figure below, we observed that at low adenosine concentrations, EOS-850 was the most potent antagonist of the A2AR antagonists tested, and most notably, when compared to other antagonists developed by competitors, the

 

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potency of EOS-850 was not reduced at the high adenosine concentrations typically found in the tumor microenvironment.

 

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We further illustrated the potential advantage of EOS-850’s high potency and insurmountable antagonism for A2AR in mouse models. As illustrated in the figure below, we showed that administration of a single 3 mg/kg oral dose resulted in plasma levels of EOS-850 that exceeded the half maximal inhibitory concentration, or IC50, for mouse A2AR for eight hours. However, even though EOS-850 was cleared from circulation within hours, inhibition of A2AR cell signaling, as measured by the phosphorylation of a transcription factor CREB, or pCREB, was maintained for longer than 24 hours. This difference between the pharmacokinetics, or PK, meaning the change in drug concentration in circulation over time, and the pharmacodynamics, or PD, meaning the change in biological effect over time, suggests that EOS-850 could provide a prolonged pharmacodynamic effect and sustained A2AR inhibition in patients.

 

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2.  

EOS-850 has higher selectivity for A2AR than other antagonists in clinical development. Because A2AR is the primary adenosine receptor on immune cells, we believe that the high specificity of EOS-850 will enable it to have potent effects on immune cell function in solid tumors and hematological malignancies, while avoiding potential adverse effects that may be associated with inhibition of other subtypes of adenosine receptors with broader expression profiles. The table below summarizes data from our study showing the IC50 for inhibition of cAMP production in HEK cells overexpressing one of the four adenosine receptors, comparing EOS-850 and models of three other adenosine receptor antagonists currently in development. EOS-850 was the most potent A2AR antagonist among other antagonists as demonstrated by the very low concentrations of drug required to give a 50% response in a functional assay. Higher concentrations were required to give the same effect on other adenosine receptors, further supporting the high selectivity of EOS-850.

 

   (IC50 nM, HEK)   

EOS-850

iTeos

  

AB928

Arcus

  

AZD4635

AstraZeneca

  

CPI-444

Corvus

           

  A2AR

   0.7    12    222    17

  A1R

   192    39    185    61

  A2BR

   575    <1    156    275

  A3R

   >30,000    >14,000    >30,000    >30,000

 

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EOS-850 is designed not to cross the blood brain barrier. Unlike first generation A2AR antagonists, we designed EOS-850 specifically to avoid penetration to the CNS through crossing of the blood-brain barrier. In preclinical models, EOS-850 displayed less than 1% blood-brain barrier penetration and accordingly we believe it is designed to minimize the potential for adverse CNS effects.

 

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Antitumor activity in mouse models

We have evaluated the antitumor activity of EOS-850 in multiple syngeneic mouse models, which are models in which the mouse maintains a complete immune system and therefore can be used to demonstrate the effect of an agent that works via immune activation. In some of these studies, we used a racemate of EOS-850, or EOS-850#. A racemate is a mixture of two molecules comprised of an identical atomic structure but in which atoms are arranged as mirror images of each other in three-dimensional space. EOS-850 is a chemically pure form of EOS-850#, and we believe the results from EOS-850# are indicative of the activity of the form of EOS-850 we are currently developing. In a B16F10 melanoma model, we showed that EOS-850# administered as a monotherapy at a dose of 1 mg/kg once daily, significantly delayed tumor growth for over 20 days.

We also showed that EOS-850# significantly enhanced the ability of a variety of anti-mouse CPIs to suppress tumor growth in multiple models. For example, as illustrated in the figure below, in a model of A20 reticulum cell tumors that express a high level of PD-L1, treatment with either anti-PD-L1 or EOS-850# alone led to a modest reduction in tumor growth. However, the combination of anti-PD-L1 and EOS-850# at two different concentrations led to significantly enhanced tumor suppression compared to either monotherapy, at both doses. At the highest combination dose, a statistically significant difference in the tumor response compared to vehicle was shown (p<0.001), and six of 10 mice had tumor regression at the time of treatment termination. P-value is a standard measure of statistical significance, and p-values of 0.05 or lower, reflecting a one-in-20 chance that the results occurred at random, are typically considered statistically significant.

 

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We used another syngeneic tumor model, EMT6, to test the combination of EOS-850 with an anti-CTLA4 CPI, as illustrated in the figure below. EMT6 is a breast tumor model that has been shown to be sensitive to anti-CTLA4 treatment. In this model, we showed that anti-CTLA4 antibody dosed as a monotherapy at days nine and 12 delayed tumor growth until approximately day 30. The addition of daily dosing with EOS-850 from days eight through 36 led to complete tumor regression. Despite stopping treatment at day 36, we showed persistent complete responses through the last measurement point at 60 days. These results were statistically significant (p=0.016).

 

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Importantly, as illustrated in the figure below, in the same mouse model, we showed that treatment with the combination of EOS-850 and anti-CTLA4 antibody resulted in generation of antigen-specific durable immune memory. In this experiment, mice in which EMT6 tumors had been eradicated, were resistant to the establishment of new EMT6 tumors that were injected on day 64, 28 days after suspension of all treatment, and this resistance lasted through day 98, the last measurement point. These mice were not protected from an unrelated colon carcinoma tumor, CT26, which readily grew in these mice in a manner similar to naïve mice. We believe the development of immune memory, or the ability of the immune system to be recalled into action against the same tumor, has important therapeutic implications that may enable long-term durable responses due to the ability to actively prevent reemergence of tumors.

 

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Clinical development of EOS-850

We are conducting an open-label Phase 1/2a clinical trial of EOS-850 as a monotherapy in adult patients with advanced solid tumors that are refractory to standard therapies, as well as in combination with standard cancer therapies. The primary goal of the clinical trial is to assess safety and tolerability of EOS-850, with secondary analyses focused on PK, PD and overall response rate.

We have completed the monotherapy dose escalation portion of the clinical trial, enrolling 21 patients in five dose cohorts (20 mg and 40 mg once daily, or QD, and 40 mg, 80 mg and 160 mg twice daily, or BID). Patients were dosed every day with assessment cycles every 28 days through disease progression. Based on the results of this escalation cohort, we have selected the recommended Phase 2 dose that we will bring forward in the expansion cohorts, specifically 80 mg BID. We are currently enrolling a monotherapy expansion cohort of up to 24 patients to further evaluate the safety, PK and PD at the recommended Phase 2 dose in a subset of solid tumor cancer indications that we believe are most likely to benefit from single-agent treatment, including melanoma, non-small cell lung cancer, or NSCLC, CRPC and endometrial cancer. We are also analyzing tumor samples from patients enrolled in our trials to help identify biomarkers that could be used to select patients that are most likely to respond in future trials.

We are planning to further assess EOS-850 in combination with chemotherapy and with pembrolizumab beginning in the third quarter of 2020, initially evaluating safety and tolerability of the combination regimens in patients with solid tumors before enrolling expansion arms in select indications such as CRPC, melanoma and TNBC. We selected these indications to evaluate EOS-850 where there is a strong rationale for treatment with an A2AR antagonist based on expression of the receptor and adenosine-producing enzymes, evidence that the adenosine pathway plays a role in treatment resistance, and the presence of T cells in the tumor microenvironment. We have selected settings where current immunotherapies, including CPIs, have not had optimal outcomes, such as in (i) CRPC, for which CPIs have had limited benefit, (ii) melanoma patients who are resistant to treatment with anti-PD-1 antibodies, and (iii) the 60% of patients with TNBC who are not eligible to receive standard-of-care atezolizumab, a CPI, in combination with chemotherapy as a first line treatment for metastatic disease. The figure below illustrates the design of our ongoing open-label Phase 1/2a clinical trial of EOS-850. The primary objective of this trial is to define the recommended Phase 2 dose and to characterize the safety and tolerability of EOS-850 as a single agent and in combination with pembrolizumab or chemotherapy. The secondary objectives are to characterize the pharmacokinetics of EOS-850 and to assess the anti-tumor activity of EOS-850 given alone or with pembrolizumab or chemotherapy.

 

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Phase 1 clinical trial results

Preliminary evidence of clinical benefit of EOS-850 monotherapy

We have observed preliminary evidence of clinical benefit, measured as complete or partial response or stable disease as defined by RECIST 1.1, for at least eight weeks in seven of the 21 heavily pre-treated patients with solid tumors as of March 1, 2020, as illustrated in the table below. RECIST 1.1 is a standard set of guidelines for assessing responses in solid tumors, with definitions for complete response (disappearance of all target lesions), partial response (at least a 30% decrease in the sum of the longest diameter of target lesions from baseline), stable disease (neither sufficient shrinkage to qualify for partial response nor sufficient increase to qualify for progressive disease), and progressive disease (at least a 20% increase in the sum of the longest diameter of target lesions from the smallest sum on study or the presence of new lesions). A complete or partial response is considered confirmed if the response criteria are met on a subsequent assessment. Clinical benefit was observed at a higher frequency in patients who received a BID regimen, however the antitumor activity results from dose escalation are considered exploratory and no statistical analysis of the results from this portion of the trial is planned. One patient with CPI-refractory metastatic melanoma and one patient with heavily pretreated metastatic CRPC have experienced confirmed partial responses and are continuing treatment with EOS-850. An additional two patients have achieved stable disease lasting over nine months. The figure below illustrates the current status of patients in our Phase 1/2a clinical trial of EOS-850 as of March 1, 2020.

 

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We observed a confirmed partial response in a patient with checkpoint blockade-resistant metastatic melanoma. This patient had metastatic disease that showed no benefit from pembrolizumab, radiotherapy or ipilimumab, before enrolling in the EOS-850 clinical trial. Eight weeks after the last administration of a four-dose course of ipilimumab, this patient had evidence of disease progression with new lesions and began treatment with EOS-850 160 mg BID. At the first post-enrollment disease assessment seven weeks after the initiation of therapy, this patient showed stable disease, with a 26% reduction in target lesions, and the patient reported improved function of the affected arm. Sixteen weeks after treatment initiation, a 44% reduction in tumor size was observed, as shown in the figure below. As of the         , 2020, this patient is continuing to receive EOS-850. This patient continues to report decreased swelling and has noted improved mobility of his arm.

 

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A confirmed partial response was also observed in a patient with metastatic CRPC. Prior to the EOS-850 trial, this patient had five previous rounds of therapy, including antiandrogen therapy and chemotherapy with docetaxel and cabazitaxel. After eight weeks of treatment with EOS-850 80 mg BID; tumor measurement showed stable disease with a small increase in the size of tumors and lymph nodes reported. Reduction in the size of target lesions of 40% and 49% were observed at 16 weeks and 30 weeks after initiation of EOS-850 dosing, respectively, as illustrated in the figure below. The patient’s level of prostate-specific antigen, a tumor biomarker, also decreased from 2.03 ng/mL to 0.2 ng/mL while on treatment. This patient also reported reduced bone pain. As of June 10, 2020, dosing is continuing in this patient.

 

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Pharmacokinetics and pharmacodynamics

As illustrated in the left column of the figure below, we observed that the exposure of EOS-850 was approximately dose proportional up to a dose of 80 mg BID. At a dose of 80 mg BID, the plasma concentration of EOS-850 was continuously maintained over the IC50, which was approximately 6 ng/mL for pCREB inhibition in whole blood. At a higher dose of 160 mg BID, EOS-850 was generally well tolerated, but the drug exposure was reduced and more variable, which we believe may be related to limited dissolution and absorption of the current formulation of EOS-850 at this dose. At Cycle 2 Day 1, after 28 days of dosing, the exposure for all doses was similar to the first day of dosing, indicating that there is no accumulation or reduction in exposure at steady state dosing.

Pharmacodynamic assays showed target engagement and full inhibition of the pathway for all doses of EOS-850 administered BID tested in blood cells exposed to CGS-21860, an agonist for A2AR. As illustrated in the middle column of the figure below, the effect of EOS-850 on A2AR in patients’ CD8+ T cells, the intended target, was measured by assessing cAMP-dependent changes in activation of transcription related to A2AR inhibition. Inhibition of A2AR caused a reduction in levels of cAMP which in turn prevented CREB from being phosphorylated, indicated as pCREB. Furthermore, as shown in the right column of the figure below, we

 

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observed that administration of EOS-850 restored the release of tumor necrosis factor alpha, or TNFa, an inflammatory cytokine that has multiple immunostimulatory effects. pCREB alters the production of multiple cytokines, including TNFa. On Cycle 1 Day 1, the first day of EOS-850 dosing, we observed reductions in the levels of phosphorylated CREB and nearly full restoration of TNFa within two hours, the first time point measured. BID dosing at 40, 80 or 160 mg was able to maintain these effects for 24 hours on the first day of dosing. On Cycle 2 Day 1, after 28 days of dosing, inhibition of CREB phosphorylation and restoration of TNFa production were maintained. We observed that the effect of EOS-850 on A2AR persisted longer than would be expected based on the concentration of EOS-850 in the blood, which was consistent with our preclinical observations.