IO Biotech(IOBT) - 2025 Q2 - Quarterly Report

FORM 10-Q Cover Page IO Biotech, Inc. filed its Quarterly Report on Form 10-Q for the period ended June 30, 2025. The company is a non-accelerated filer, smaller reporting company, and an emerging growth company[2][3][5] Registrant Information | Attribute | Value | | :--- | :--- | | Exact Name of Registrant | IO Biotech, Inc. | | State of Incorporation | Delaware | | IRS Employer Identification No. | 87-0909276 | | Principal Executive Offices | Ole Maaløes Vej 3, DK-2200 Copenhagen N, Denmark | | Telephone Number | +45 7070 2980 | | Title of Class | Common Stock, par value $0.001 per share | | Trading Symbol | IOBT | | Exchange Registered | The Nasdaq Stock Market LLC | | Shares Outstanding (as of Aug 11, 2025) | 65,880,914 | | Filer Status | Non-accelerated filer, Smaller reporting company, Emerging growth company | Table of Contents Cautionary Note Regarding Forward-Looking Statements This report contains forward-looking statements regarding future operations, financial position, business strategy, and management objectives, subject to risks and uncertainties that could cause actual results to differ materially - Key factors that could cause actual results to differ include the timing and success of clinical trials (e.g., Cylembio, IO112, IO170), regulatory approvals, commercialization capabilities, manufacturing, intellectual property protection, and the ability to obtain additional financing[10][14] Trademarks The report includes trademarks, service marks, and trade names owned by IO Biotech or other companies, noting that the omission of ® and ™ symbols does not waive their respective owners' rights[15] PART I—FINANCIAL INFORMATION Item 1. Interim Financial Statements (Unaudited) This section presents the unaudited interim consolidated financial statements, including balance sheets, statements of operations and comprehensive loss, stockholders' equity, and cash flows, along with detailed notes explaining the company's business, accounting policies, fair value measurements, and specific financial line items Consolidated Balance Sheets Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $28,131 | $60,031 | | Total current assets | $38,980 | $64,951 | | Total assets | $42,326 | $67,699 | | Total current liabilities | $19,897 | $19,486 | | Term loan debt, net | $6,720 | — | | Common stock warrants (non-current) | $13,249 | — | | Total liabilities | $40,734 | $20,684 | | Total stockholders' equity | $1,592 | $47,015 | - Total assets decreased from $67.7 million at December 31, 2024, to $42.3 million at June 30, 2025, primarily due to a significant reduction in cash and cash equivalents[18] - Total liabilities increased substantially from $20.7 million to $40.7 million, driven by the introduction of term loan debt and common stock warrants[18] Consolidated Statements of Operations and Comprehensive Loss Consolidated Statements of Operations and Comprehensive Loss Highlights (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Research and development expenses | $16,652 | $15,848 | $33,027 | $30,159 | | General and administrative expenses | $6,518 | $5,685 | $12,727 | $11,571 | | Total operating expenses | $23,170 | $21,533 | $45,754 | $41,730 | | Loss from operations | $(23,170) | $(21,533) | $(45,754) | $(41,730) | | Total other (expense) income, net | $(2,929) | $1,221 | $(2,620) | $2,376 | | Net loss | $(26,217) | $(20,686) | $(48,638) | $(40,143) | | Net loss per common share, basic and diluted | $(0.40) | $(0.31) | $(0.74) | $(0.61) | - Net loss increased by 26.7% to $26.2 million for the three months ended June 30, 2025, compared to $20.7 million in the prior year, primarily due to a significant decrease in other income (expense), net[21] - For the six months ended June 30, 2025, net loss increased by 21.2% to $48.6 million, compared to $40.1 million in the prior year, driven by higher operating expenses and a negative shift in other income (expense)[21] Consolidated Statements of Stockholders' Equity Consolidated Statements of Stockholders' Equity Highlights (in thousands) | Metric | Balance, January 1, 2025 | Balance, June 30, 2025 | | :--- | :--- | :--- | | Common Stock (shares) | 65,880,914 | 65,880,914 | | Common Stock (amount) | $66 | $66 | | Additional Paid-In Capital | $413,113 | $416,289 | | Accumulated Other Comprehensive Loss | $(6,851) | $(6,812) | | Accumulated Deficit | $(359,313) | $(407,951) | | Total Stockholders' Equity | $47,015 | $1,592 | - Total stockholders' equity significantly decreased from $47.0 million at January 1, 2025, to $1.6 million at June 30, 2025, primarily due to the net loss incurred during the period[24] - The accumulated deficit increased by $48.6 million to $408.0 million as of June 30, 2025, reflecting ongoing operating losses[24] Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(42,893) | $(41,914) | | Net cash used in investing activities | $(54) | $(23) | | Net cash provided by financing activities | $11,487 | — | | Net decrease in cash, cash equivalents and restricted cash | $(31,460) | $(41,937) | | Cash, cash equivalents and restricted cash, end of period | $28,399 | $101,015 | - Net cash used in operating activities increased slightly to $42.9 million for the six months ended June 30, 2025, compared to $41.9 million in the prior year[27] - Net cash provided by financing activities was $11.5 million for the six months ended June 30, 2025, primarily from the EIB Tranche A loan facility, compared to no financing activities in the prior year[27] - Cash, cash equivalents and restricted cash decreased significantly from $101.0 million at June 30, 2024, to $28.4 million at June 30, 2025[27] Notes to Consolidated Financial Statements Note 1. Description of Business, Organization and Liquidity - IO Biotech, Inc. is a clinical-stage biopharmaceutical company focused on developing novel, immune-modulatory, off-the-shelf therapeutic cancer vaccines based on its T-win® platform[30] - The company has incurred substantial losses since inception, with an accumulated deficit of $408.0 million as of June 30, 2025, and expects continued operating losses[43] - Management has concluded that there is substantial doubt about the company's ability to continue as a going concern for at least 12 months from the financial statement issuance date, citing insufficient cash and cash equivalents to fund operations beyond Q1 2026, even with the second tranche of the EIB Loan[43][46] - The company plans to secure additional funding through equity or debt financings, strategic collaborations, or the draw down of remaining EIB loan tranches (Tranche C of €15.0 million is subject to unmet business conditions)[44][45] Note 2. Summary of Significant Accounting Policies - The company classifies warrants issued with common stock or debt as either liability or equity based on ASC 480-10 or ASC 815-40. Liability-classified warrants are measured at fair value through profit or loss[49][51][52] - The company adopted ASU 2023-07 (Segment Reporting) effective December 31, 2024, which enhances disclosures about significant segment expenses[55] - New accounting standards ASU 2023-06 (Disclosure Improvements), ASU 2023-09 (Income Tax Disclosures), and ASU 2024-03 (Expense Disaggregation) are being assessed for their impact on future financial statements[56][57][58] Note 3. Fair Value Measurements Fair Value Measurements (in thousands) | Item | June 30, 2025 Total | June 30, 2025 Level 1 | June 30, 2025 Level 3 | | :--- | :--- | :--- | :--- | | Money market funds | $22,670 | $22,670 | — | | Common stock warrants | $13,249 | — | $13,249 | | Item | December 31, 2024 Total | December 31, 2024 Level 1 | | :--- | :--- | :--- | | Money market funds | $46,134 | $46,134 | - The company's common stock warrants (Tranche A and B) are classified as Level 3 liabilities and valued using the Black-Scholes option-pricing model, with a fair value of $13.2 million as of June 30, 2025[62][63][64][66] - Money market funds are classified as Level 1 assets, totaling $22.7 million at June 30, 2025, down from $46.1 million at December 31, 2024[60][61] Note 4. License and Collaboration Agreements - IO Biotech has multiple clinical collaboration agreements with MSD International GmbH (an affiliate of Merck) to evaluate IO102-IO103 in combination with KEYTRUDA® (pembrolizumab) for various cancer types[67][68][69][70] - Under these collaborations, IO Biotech sponsors the clinical trials and bears most costs, while MSD provides KEYTRUDA® free of charge. Data rights are shared, and IO Biotech retains global commercial rights to IO102-IO103[67][68][69][70] Note 5. Prepaid Expenses and Other Current Assets Prepaid Expenses and Other Current Assets (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Deferred financing asset | $5,657 | — | | Prepaid income taxes | $1,607 | $1,292 | | Prepaid contract research and development costs | $1,109 | $1,119 | | Research and development tax credit receivable | $865 | $573 | | Insurance | $639 | $768 | | Value-added tax refund receivable | $276 | $365 | | Other | $696 | $803 | | Total | $10,849 | $4,920 | - Total prepaid expenses and other current assets increased significantly from $4.9 million at December 31, 2024, to $10.8 million at June 30, 2025, primarily due to a new deferred financing asset of $5.7 million[71] Note 6. Property and Equipment, Net Property and Equipment, Net (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Laboratory equipment | $927 | $839 | | Office furniture | $261 | $235 | | Computer hardware | $141 | $141 | | Less: accumulated depreciation | $(726) | $(577) | | Total | $603 | $638 | - Net property and equipment decreased slightly from $638 thousand at December 31, 2024, to $603 thousand at June 30, 2025, with $0.1 million in depreciation expense recognized for both the three and six months ended June 30, 2025 and 2024[72] Note 7. Accrued Expenses and Other Current Liabilities Accrued Expenses and Other Current Liabilities (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Accrued contract research and development costs | $9,133 | $9,070 | | Employee compensation costs | $3,351 | $4,311 | | Professional fees | $692 | $227 | | Other liabilities | $416 | $500 | | Total | $13,592 | $14,108 | - Total accrued expenses and other current liabilities decreased from $14.1 million at December 31, 2024, to $13.6 million at June 30, 2025, mainly due to a decrease in employee compensation costs, partially offset by an increase in professional fees[73] Note 8. Term Loan Facility - IO Biotech ApS entered into a Finance Contract with the European Investment Bank (EIB) for a loan facility of up to €57.5 million, including three committed tranches (up to €37.5 million) and one uncommitted accordion tranche (€20.0 million)[74] - Tranche A (€10.0 million) was drawn on May 6, 2025, and Tranche B (€12.5 million) was drawn on July 4, 2025. Tranche C (€15.0 million) is subject to conditions, including raising an additional $50.0 million and submitting a marketing authorization application for Cylembio®[75][76] - The loans bear a fixed interest rate of 8% annually, payable at their respective maturity dates (six years after disbursement). The company also issued Tranche A and Tranche B warrants to EIB, valued at $5.0 million and $5.7 million, respectively, classified as liability[77][87][88] Term Loan Debt, Net (in thousands) | Item | June 30, 2025 | | :--- | :--- | | Term loan debt principal | $11,720 | | Amortized paid-in-kind interest | $142 | | Less: Unamortized debt issuance costs | $(5,290) | | Currency adjustments | $148 | | Total term loan debt, net | $6,720 | EIB Warrants Issued and Outstanding (June 30, 2025) | Warrant Type | Outstanding Shares | Exercise Price | | :--- | :--- | :--- | | Tranche A | 5,623,664 | $0.89 | | Tranche B | 4,221,868 | $1.32 | Note 9. Leases - As of June 30, 2025, the company has a right-of-use lease asset of $1.5 million and corresponding current and non-current lease liabilities of $0.8 million and $0.9 million, respectively, primarily for office and laboratory spaces in Copenhagen, New York, and Rockville[93] Lease Cost and Cash Flows (in thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Operating lease cost | $359 | $369 | | Operating cash flows paid for lease liabilities | $413 | $385 | | Remaining average lease term (years) | 2.1 | 3.0 | | Weighted average discount rate | 6.4% | 6.3% | Future Lease Payments (Undiscounted, in thousands) | Year | Amount | | :--- | :--- | | Remainder of 2025 | $419 | | 2026 | $863 | | 2027 | $470 | | Total | $1,752 | Note 10. Commitments and Contingencies - The company was not subject to any material legal proceedings during the six months ended June 30, 2025, and no material legal proceedings are currently pending or threatened[96][223] - Contractual obligations for clinical trials, preclinical research, and manufacturing generally allow for termination with 30 to 90 days' notice, and noncancelable obligations are not considered material[97][192] - The company enters into indemnification agreements with various parties, including officers and directors, for certain claims, but it is not possible to estimate the maximum potential liability[98][99] Note 11. Stockholders' Equity - As of June 30, 2025, and December 31, 2024, the company had 65,880,914 common shares outstanding, with 300,000,000 shares authorized[100][106] - In August 2023, the company completed a private placement, selling 37,065,647 common shares and an equal number of warrants for $2.025 per unit, generating $71.9 million in net proceeds[101][103] - The warrants from the private placement are exercisable at $2.47 per share until February 9, 2027, and are classified as a component of permanent stockholders' equity[102][104] Note 12. Equity-Based Compensation - The 2021 Equity and Incentive Plan had 486,563 shares available for future grant as of June 30, 2025, and the 2023 Inducement Award Plan had 1,666,427 shares available[107][109] Stock Options Activity (Six Months Ended June 30, 2025) | Metric | Number of stock options | Weighted average exercise price per share | | :--- | :--- | :--- | | Outstanding, January 1, 2025 | 8,967,605 | $5.18 | | Granted | 2,709,284 | $1.13 | | Cancelled or forfeited | (137,589) | $4.28 | | Outstanding, June 30, 2025 | 11,539,300 | $4.24 | | Exercisable, June 30, 2025 | 5,537,588 | $6.87 | Equity-Based Compensation Expense (in thousands) | Expense Type | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Research and development | $644 | $677 | $1,262 | $1,290 | | General and administrative | $963 | $965 | $1,914 | $1,920 | | Total | $1,607 | $1,642 | $3,176 | $3,210 | - Unrecognized compensation cost related to unvested stock-based awards was $7.2 million as of June 30, 2025, expected to be recognized over a weighted average period of 2.8 years[112] Note 13. Income Taxes - Income tax expense was $0.1 million for the three months and $0.3 million for the six months ended June 30, 2025, a decrease from the prior year periods[114] - The company maintains a full valuation allowance against all deferred tax assets due to a history of cumulative net losses and lack of commercial products, indicating uncertainty in realizing these benefits[114][115] Note 14. Net Loss Per Share Net Loss Per Common Share (Basic and Diluted) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net loss | $(26,217) | $(20,686) | $(48,638) | $(40,143) | | Net loss per common share | $(0.40) | $(0.31) | $(0.74) | $(0.61) | | Weighted-average shares | 65,880,914 | 65,880,914 | 65,880,914 | 65,880,914 | - Basic and diluted net loss per common share increased to $(0.40) for Q2 2025 and $(0.74) for the six months ended June 30, 2025, compared to $(0.31) and $(0.61) in the respective prior year periods[116] - Potentially dilutive securities, including stock options and warrants, were excluded from diluted EPS calculation as their effect was anti-dilutive due to the net loss[116] Note 15. Segments - The company operates as a single operating segment, focusing on developing therapeutic cancer vaccines based on its T-win® platform, with the CEO managing the company and allocating resources on an aggregate basis[117] Research and Development Expenses by Category (in thousands) | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Clinical trial-related activities | $6,390 | $6,637 | $14,081 | $13,785 | | Personnel | $6,531 | $5,123 | $12,714 | $9,917 | | Chemistry, manufacturing and control | $2,484 | $2,994 | $4,776 | $5,161 | | Preclinical studies and activities | $616 | $295 | $1,028 | $632 | | Other costs | $631 | $799 | $428 | $664 | | Total | $16,652 | $15,848 | $33,027 | $30,159 | General and Administrative Expenses by Category (in thousands) | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Personnel | $2,840 | $2,899 | $5,852 | $5,693 | | Professional services | $1,743 | $975 | $3,124 | $2,048 | | Other costs | $1,935 | $1,811 | $3,751 | $3,830 | | Total | $6,518 | $5,685 | $12,727 | $11,571 | Note 16. Subsequent Events - On July 4, 2025, President Trump signed the One Big Beautiful Bill Act, which includes measures potentially affecting the company's income tax provision, such as permanent and immediate deduction for domestic R&D expenditures[120] - On July 4, 2025, the company drew €12.5 million from the EIB Tranche B loan facility, following the issuance of Tranche B Warrants on June 24, 2025, to purchase 4,221,867.59 common shares at a strike price of $1.32[121] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an overview of the company's business, product pipeline, clinical trial progress, and a detailed analysis of its financial condition and results of operations for the three and six months ended June 30, 2025, compared to the prior year. It also discusses liquidity, capital resources, and critical accounting policies Overview - IO Biotech is a clinical-stage biopharmaceutical company developing novel, immune-modulatory, off-the-shelf therapeutic cancer vaccines using its T-win® platform[124] - The lead candidate, Cylembio® (IO102-IO103), targets IDO and PD-L1. A Phase 1/2 trial in metastatic melanoma showed a confirmed ORR of 73% and median PFS of 25.5 months in combination with nivolumab, leading to FDA Breakthrough Therapy Designation[124] - Topline results from the Phase 3 trial (IOB-013/KN-D18) of Cylembio plus KEYTRUDA® for first-line advanced melanoma showed clinical improvement in PFS (median 19.4 months vs. 11.0 months for pembrolizumab alone), but narrowly missed statistical significance (p=0.056)[124] - A trend toward improved overall survival was observed, with results projected for 2026. The company plans to discuss the data with the FDA in Fall 2025 for a potential Biologics License Application (BLA) submission[124][134] T-win Platform - The T-win platform is a novel approach to therapeutic cancer vaccines designed to activate pre-existing T cells to target immunosuppressive mechanisms, employing a dual mechanism of action: direct killing of immune-suppressive cells and modulation of the tumor microenvironment[125] - Product candidates like IO102-IO103 target IDO and PD-L1, while IO112 targets Arginase 1, and IO170 targets TGFβ, aiming to amplify immune-oncology treatment effects across various tumor types[125] Product Pipeline and Milestones Product Pipeline and Expected Upcoming Milestones | Product Candidates | Line of therapy/indication | Pre-clinical | Phase 1 | Phase 2 | Phase 3 | Takeaways & next steps | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Cylembio® IO102-IO103 (Targets: IDO1, PD-L1) | IOB-013: First Line Advanced Melanoma* | | | | X | Cylembio demonstrated clinical improvement in PFS, narrow miss on statistical significance. Plans to discuss data with FDA in Fall 2025; potential US BLA submission. | | | IOB-022: First Line Solid Tumors* (Lung (NSCLC), Head & Neck (SCCHN)) | | | X | | SCCHN: Primary endpoint met. NSCLC: Encouraging data. | | | IOB-032: Neoadjuvant / Adjuvant Solid Tumors* (Melanoma, Head & Neck (SCCHN)) | | | X | | Enrollment completed in January 2025. Data available 2H25; presented in 2026. | | IO112 (Target: Arginase 1) | Solid Tumors (Indications TBD) | X | | | | Next pipeline candidate expected to enter clinical development. | | IO170 (Target: TGFB) | Solid Tumors (Indications TBD) | X | | | | Early-stage pipeline candidate. | * In combination with pembrolizumab Potentially Registrational Phase 3 IOB-013/KN-D18 Trial - The Phase 3 IOB-013/KN-D18 trial for Cylembio® in combination with pembrolizumab for first-line advanced melanoma enrolled 407 patients and demonstrated a median PFS of 19.4 months versus 11.0 months for pembrolizumab alone, narrowly missing statistical significance (p=0.056)[129][130] - PFS improvement was observed across most subgroups, with a profound effect in PD-L1 negative patients (HR: 0.54, mPFS 16.6 months vs. 3.0 months). The combination was well tolerated with no new safety signals[131][133] - The company plans to meet with the FDA in Fall 2025 to discuss the data and determine next steps for a potential Biologics License Application (BLA) submission[134] Phase 2 IOB-022/KN-D38 Basket Trial - The Phase 2 IOB-022/KN-D38 basket trial investigated IO102-IO103 with pembrolizumab in first-line metastatic NSCLC and SCCHN. The SCCHN cohort (B) met its primary endpoint with a confirmed ORR of 44.4% and a 6.6-month median PFS[135][136] - Preliminary results for the NSCLC cohort (A) showed promising activity with a 48% confirmed ORR and an 8.1-month median PFS. The safety profile was consistent with anti-PD-1 monotherapy, with no significant added systemic toxicity[137][138] - The efficacy results from the SCCHN cohort satisfied conditions for accessing the EIB Tranche B loan of €12.5 million, which was drawn on July 4, 2025[136] Phase 2 IOB-032/PN-E40 Basket Trial - The Phase 2 IOB-032/PN-E40 trial evaluates IO102-IO103 in combination with pembrolizumab as neoadjuvant/adjuvant therapy for resectable melanoma and SCCHN. Enrollment for all cohorts was completed in January 2025[139][140] - The primary endpoint is major pathological response at surgery. Data is expected in the second half of 2025 and will be presented at a medical meeting in 2026[140] Preclinical Development - IO112, targeting Arginase 1, is an IND-ready T-win® vaccine candidate that demonstrated anti-tumor activity and dynamic changes in the TME in preclinical studies. An IND filing is anticipated in 2026[141][143] - IO170, targeting TGFβ, is an early-stage pipeline candidate. Preclinical data showed significant tumor growth inhibition in breast and prostate cancer models, with IND-enabling studies planned for 2025 and 2026[145][146] Development of IO102 and IO103 - The development of IO102-IO103 is based on prior separate development of IO102 (IDO1-derived peptide) and IO103. IO102 showed proof-of-concept in a Phase 1 NSCLC trial with 47% clinical benefit and 26 months OS[147] - New non-clinical data presented in April 2025 further supports the dual mechanism of action of IO102-IO103, demonstrating strong T-cell responses, tumor growth control, and unique molecular changes not seen with PD-1/PD-L1 inhibitors[148][149] Components of Operating Results Research and Development - Research and development expenses primarily include personnel costs, external consultant and CRO/CMO expenses, laboratory costs, and intellectual property-related fees. All R&D costs are expensed as incurred[155][156][162] - The company expects significant R&D expenses to continue as it advances product candidates through clinical development, manufacturing, and regulatory approvals[160] - Substantially all direct R&D expenses are focused on Cylembio®, used across its three ongoing clinical trials[159] General and Administrative Expenses - General and administrative expenses consist mainly of personnel costs (salaries, benefits, equity-based compensation), professional services (legal, HR, audit, accounting), and facility-related fees[166] - These expenses are expected to remain significant as the company supports R&D, manufacturing, and operates as a public company, including costs for compliance and retaining key personnel[166] Other Income (Expense), Net - Other income (expense), net includes foreign currency exchange gains/losses, interest income from money market funds, interest expense on the EIB debt, and changes in the fair value of warrants[168] Results of Operations Comparison of the three months ended June 30, 2025 and 2024 Operating Results (Three Months Ended June 30, in thousands) | Metric | 2025 | 2024 | Change Amount | Change Percent | | :--- | :--- | :--- | :--- | :--- | | Research and development | $16,652 | $15,848 | $804 | 5.1% | | General and administrative | $6,518 | $5,685 | $833 | 14.7% | | Total operating expenses | $23,170 | $21,533 | $1,637 | 7.6% | | Loss from operations | $(23,170) | $(21,533) | $(1,637) | 7.6% | | Other (expense) income, net | $(2,929) | $1,221 | $(4,150) | (339.9)% | | Net loss | $(26,217) | $(20,686) | $(5,531) | 26.7% | - Research and development expenses increased by $0.8 million (5.1%) to $16.7 million, primarily due to a $1.4 million increase in personnel expenses, partially offset by a $0.5 million decrease in manufacturing activities[170] - General and administrative expenses increased by $0.8 million (14.7%) to $6.5 million, mainly driven by a rise in professional services, particularly legal expenses[171] - Other income (expense), net decreased by $4.2 million to $(2.9) million, primarily due to a $2.6 million change in fair value of EIB warrants and a $1.0 million decrease in interest income[172] Comparison of the six months ended June 30, 2025 and 2024 Operating Results (Six Months Ended June 30, in thousands) | Metric | 2025 | 2024 | Change Amount | Change Percent | | :--- | :--- | :--- | :--- | :--- | | Research and development | $33,027 | $30,159 | $2,868 | 9.5% | | General and administrative | $12,727 | $11,571 | $1,156 | 10.0% | | Total operating expenses | $45,754 | $41,730 | $4,024 | 9.6% | | Loss from operations | $(45,754) | $(41,730) | $(4,024) | 9.6% | | Other (expense) income, net | $(2,620) | $2,376 | $(4,996) | (210.3)% | | Net loss | $(48,638) | $(40,143) | $(8,495) | 21.2% | - Research and development expenses increased by $2.9 million (9.5%) to $33.0 million, primarily due to a $2.8 million increase in personnel and contractor-related costs[174] - General and administrative expenses increased by $1.2 million (10.0%) to $12.7 million, mainly due to a $1.1 million increase in legal expenses within professional services[175] - Other (expense) income, net decreased by $5.0 million to $(2.6) million, primarily driven by a $2.6 million change in fair value of EIB warrants and a $2.2 million decrease in interest income[176] Liquidity and Capital Resources Sources of Liquidity - The company's operations have been financed by $386.4 million in net proceeds from convertible preference shares, notes, IPO, Private Placement, and the EIB Loan Facility[177] - As of June 30, 2025, cash and cash equivalents were $28.1 million. With the €12.5 million EIB Tranche B funds drawn on July 4, 2025, existing capital is expected to fund development activities into Q1 2026[152][181] - The EIB Loan Facility provides up to €57.5 million, with €15.0 million in committed funds contingent on conditions and €20.0 million in uncommitted funds[178] - The company has an at-the-market equity program for up to $75.0 million, but no shares have been issued under it as of June 30, 2025[180] Cash Flows Summary of Cash Flows (Six Months Ended June 30, in thousands) | Cash Flow Type | 2025 | 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(42,893) | $(41,914) | | Net cash used in investing activities | $(54) | $(23) | | Net cash provided by financing activities | $11,487 | — | | Net decrease in cash and cash equivalents | $(31,460) | $(41,937) | Net Cash Used in Operating Activities - Net cash used in operating activities was $42.9 million for the six months ended June 30, 2025, primarily due to a net loss of $48.6 million, partially offset by $7.0 million in non-cash items (equity-based compensation, change in fair value of warrants)[183] Net Cash Used in Investing Activities - Cash used in investing activities was minimal, at $0.1 million for the six months ended June 30, 2025, and $0.02 million for the same period in 2024, related to property and equipment purchases[185] Net Cash Provided by Financing Activities - Net cash provided by financing activities was $11.5 million for the six months ended June 30, 2025, entirely from the net proceeds of the EIB Tranche A loan facility funding[186] Funding Requirements - The company anticipates continued losses and increasing R&D, G&A, and capital expenditures. Existing cash and cash equivalents, plus the EIB Tranche B funds, are expected to fund operations into Q1 2026[187][188] - Additional financing will be required to advance product candidates and fund operations, which may involve equity offerings, debt financings, or collaborations, potentially leading to dilution or restrictive covenants[188] - Future funding needs depend on factors such as clinical trial progress, regulatory outcomes, commercialization costs, intellectual property maintenance, and the ability to secure non-dilutive funding[189][196] Contractual Obligations and Commitments - The company has operating leases for office and laboratory spaces in Copenhagen, Rockville, and New York, with terms expiring between May 2025 and December 2027[191] - Contracts with third-party service providers for clinical trials, research, and manufacturing generally allow for termination with 30 to 90 days' notice, and non-cancelable obligations are not considered material[192] Critical Accounting Policies and Significant Judgments and Estimates Going Concern - Management has concluded that there is substantial doubt about the company's ability to continue as a going concern for one year after the financial statements are issued, as current cash and EIB Tranche B funds are insufficient to cover operating expenses and capital requirements beyond Q1 2026[195] Research and Development Costs - The company estimates R&D costs for activities performed by CMOs, CROs, and other vendors, recognizing expenses based on estimated progress and contracted amounts. Significant judgments are made in determining accrued liabilities and prepaid expenses[197][198][199] Equity-based Compensation - Equity-based compensation awards are measured at fair value on the grant date and expensed over the vesting period. The Black-Scholes option pricing model is used, requiring assumptions for fair value, expected life, volatility, and risk-free interest rate[201][202] Income Taxes - Deferred tax assets and liabilities are recognized for temporary differences and carryforwards, measured using enacted statutory tax rates. A full valuation allowance is maintained against net deferred tax assets due to historical operating losses and uncertainty of future taxable income[204][205] - Tax benefits from uncertain tax positions are recognized only if it's more likely than not they will be sustained, measured at the largest likely realized amount[206] Warrants Issued in Connection with a Sale of Common Stock or Issuance of Debt - Warrants are classified as liabilities or equity based on ASC 480-10 or ASC 815-40. Liability-classified warrants are measured at fair value through profit or loss, while equity-classified warrants are allocated proceeds based on relative fair values at issuance[209][210] Recently Adopted Significant Accounting Policies - Refer to Note 2 for details on recently issued accounting standards and their potential impact[211] Off-Balance Sheet Arrangements - The company did not have any off-balance sheet arrangements as defined under SEC rules during the periods presented[212] Emerging Growth Company ("EGC") Status - As an Emerging Growth Company (EGC) under the JOBS Act, the company utilizes reduced disclosure requirements and has elected to delay the adoption of certain new or revised accounting standards[213][214] - The company may remain an EGC until December 31, 2026, unless its non-affiliate common stock market value exceeds $700 million, annual gross revenues reach $1.235 billion, or it issues over $1.0 billion in non-convertible debt[215] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, IO Biotech, Inc. is not required to provide quantitative and qualitative disclosures about market risk - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[216] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were not effective as of June 30, 2025, due to a previously identified material weakness in internal control over financial reporting related to CRO-related accruals and prepayments. Remediation efforts are ongoing - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were not effective as of June 30, 2025[217][219] - A material weakness was identified in internal control over financial reporting related to the accounting for CRO-related accruals and prepayments, specifically concerning the accounting framework and processes for ongoing clinical trials[219] - Remediation efforts are underway and expected to be fully implemented during the fiscal year ending December 31, 2025, but the material weakness will not be considered fully remediated until new controls are operational and tested effectively[220] - There has been no change in internal control over financial reporting during the most recently completed fiscal quarter that materially affected, or is reasonably likely to materially affect, internal control over financial reporting[221] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently a party to any material legal proceedings and believes that the outcome of ordinary course litigation will not have a material adverse effect on its business - The company is not currently a party to any material legal proceedings and believes that the final outcome of ordinary course matters will not have a material adverse effect on its business[223] Item 1A. Risk Factors This section outlines numerous material risks associated with the company's business, including its limited operating history, substantial doubt about its ability to continue as a going concern, dependence on product candidate success, regulatory approval challenges, manufacturing complexities, intense competition, intellectual property protection issues, and general operational and market risks Summary of the Material and Other Risks Associated with Our Business - Key risks include a limited operating history with recurring losses, substantial doubt about going concern, the need for additional funding, and the absence of marketing approval for any product candidates, including Cylembio®[227] - Other significant risks involve potential clinical trial failures, reliance on third-party manufacturers, intense competition, challenges in intellectual property protection, and the impact of public health emergencies or geopolitical events[227] - The company also faces risks related to regulatory changes, data privacy and security, and a material weakness in internal control over financial reporting[230] Risks Related to Limited Operating History, Financial Position and Capital Requirements - The company has a limited operating history, has incurred net losses since inception ($48.6 million for H1 2025), and expects to continue incurring significant losses, raising substantial doubt about its ability to continue as a going concern[228][231] - Existing cash and cash equivalents, even with the EIB Tranche B funds, are only sufficient to fund development activities into Q1 2026, necessitating substantial additional funding[233] - Failure to raise additional capital when needed could force delays, reductions, or elimination of product development programs, or even cessation of operations, and may lead to dilution for existing stockholders or restrictive debt covenants[236][237][238] Risks Related to the Discovery, Development and Regulatory Approval of Our Product Candidates - None of the company's product candidates, including Cylembio®, have received marketing approval, and successful advancement through clinical development and regulatory approval is uncertain and critical for business success[240][241][243] - The Phase 3 trial for Cylembio® narrowly missed statistical significance on its primary endpoint (PFS), potentially requiring additional data or trials for regulatory approval and extending commercialization timelines[245] - Preclinical and early clinical trial results are not always predictive of later-stage outcomes, and product candidates based on novel T-win® platform technologies face unpredictable development, timing, and costs[246][247] - Delays or difficulties in clinical trial site activation, patient enrollment, or retention could hinder regulatory approvals. The FDA's Breakthrough Therapy Designation for IO102-IO103 does not guarantee faster development or approval[252][255][273][274] - Regulatory approval processes are lengthy and unpredictable, and product candidates could fail to receive approval due to various factors, including disagreement with trial design, insufficient safety/efficacy data, or manufacturing issues[257][258][259] Risks Related to Ongoing Regulatory Obligations and Review - Even if approved, product candidates will be subject to extensive and ongoing regulatory requirements, including post-marketing studies, labeling restrictions, and compliance with cGMP and GCP[275][276] - Later discovery of unknown problems or non-compliance could lead to severe consequences such as product withdrawal, labeling revisions, fines, or refusal of pending applications[277][280] - The company's product candidates are expected to be used in combination with third-party drugs (e.g., pembrolizumab), over which the company has limited control regarding supply, regulatory status, or approval, posing risks to development and commercialization[279][281][283] Resource Allocation Risks - With limited resources, the company must prioritize R&D, potentially forgoing more profitable opportunities or relinquishing valuable rights to product candidates through collaborations[284] Product Candidate Success and Commercialization Risks - The company's success heavily relies on the development and regulatory approval of its limited product candidates (Cylembio®, IO112, IO170). Failure of any could significantly impact revenue and profitability[285][286] - Difficulty in enrolling or retaining patients in clinical trials, due to factors like competition or eligibility criteria, could delay or prevent regulatory approvals and increase development costs[287][288][289][290][291] International Market Penetration Risks - Future growth depends on penetrating multiple international markets, which exposes the company to risks such as foreign currency fluctuations, adverse tax consequences, complex regulatory requirements, differing medical practices, and price controls[292][294] - Adverse global economic conditions or political instability could affect purchasing decisions, reimbursement obligations, and milestone payments, materially harming the business[295] Risks Related to Manufacturing and Commercialization - Manufacturing product candidates is complex, and difficulties in production, quality control, or regulatory compliance by CMOs could delay clinical trials or product supply, increasing costs[296][297][298] - Changes in manufacturing or formulation may require additional testing or regulatory approval, leading to delays and increased costs[300] - Market acceptance of approved products is uncertain and depends on factors like efficacy, safety, cost, reimbursement, and physician/patient adoption. Failure to achieve broad market acceptance would harm the business[301][302][303] - Unfavorable pricing regulations or inadequate third-party coverage and reimbursement policies could make commercialization unprofitable, as patients rely on payors to cover costs[304][306][307] - Governmental cost containment initiatives, such as the 'most-favored-nation' pricing policy or the Inflation Reduction Act, could further reduce product prices and reimbursement rates, impacting profitability[309][311][312][313][314][315] Sales and Marketing Capabilities Risks - If approved, the company must establish its own sales and marketing capabilities or outsource these functions. Both options involve significant risks, including high costs, recruitment challenges, and reliance on third-party efforts[317][318][319] - Failure to successfully establish sales and marketing capabilities, either internally or through third parties, would prevent successful commercialization of product candidates[319] Off-Label Promotion and Regulatory Compliance Risks - Regulatory approval is limited to specific indications. Promoting products for unapproved ('off-label') uses or inconsistently with approved labeling could lead to substantial fines, criminal penalties, injunctions, and reputational damage[320][321][322] - Engaging in impermissible promotion could also trigger false claims litigation under federal and state statutes, resulting in civil and criminal penalties, exclusion from healthcare programs, and burdensome compliance obligations[324] - Off-label use could harm the company's reputation and increase the risk of product liability suits[326] International Regulatory Approval Risks - Approval in one jurisdiction (e.g., US or EU) does not guarantee approval in others. Varying regulatory requirements, additional testing, and administrative reviews in foreign countries could delay or prevent international commercialization[327][328][329] - Failure to comply with international regulatory requirements or delays in approvals would reduce the target market and limit the full market potential of any approved products[329] Risks Related to Reliance on Third Parties - The company relies on third parties (CROs, clinical investigators) to conduct clinical trials and research. Lack of control over these parties' conduct, adherence to protocols, or meeting deadlines could delay development programs or increase costs[330][331][332][333][334] - Reliance on third-party CMOs for manufacturing product candidates exposes the company to risks of production difficulties, quality deviations, supply interruptions, and failure to comply with cGMP regulations, which could halt or delay clinical trials and commercialization[335][336][337][338][339][340][341] - Dependence on limited or sole-source third-party suppliers for specialty materials and equipment creates risks of supply reduction or interruption, potentially delaying clinical studies and commercialization[342][343][344] - Sharing trade secrets with third parties increases the risk of misappropriation or disclosure, potentially eroding the company's competitive position[345][346] - Future partnerships, collaborations, or licensing arrangements may not yield expected benefits, could incur significant costs, dilute existing stockholders, or divert management attention[347][348][349] Risks Related to Our Industry and Business Operations - Disruptions at regulatory agencies (FDA, EMA, SEC) due to policy changes, funding shortages, or personnel issues could delay product development, regulatory reviews, or approvals, negatively impacting the business[351][352][353][354][355] - The company is exposed to significant foreign exchange risk due to international operations, with fluctuations in currency exchange rates impacting financial results[356] - Employees, investigators, consultants, and partners may engage in misconduct, including non-compliance with regulations or fraud, leading to significant penalties, reputational harm, and operational disruptions[358] - The company faces potential product liability claims from clinical trials and commercial sales, which could result in substantial liability, costs, reputational damage, and delays in regulatory approval[359][360][361][362] - Future success depends on retaining key senior management and attracting/motivating qualified personnel. Competition for talent is intense, and inability to do so could impede R&D and commercialization objectives[363][364] - Expected significant growth in employees and operations (clinical development, regulatory, manufacturing, commercialization) may lead to difficulties in management, requiring improved systems and additional personnel, potentially disrupting operations[365][366][367] - The biopharmaceutical industry is highly competitive, with larger companies possessing greater resources. Failure to compete effectively on efficacy, safety, and convenience could materially harm the business[371][372][373][374][375][376] Risks Related to Intellectual Property - Inability to obtain and maintain sufficient patent protection for its T-win® platform and product candidates, or if the scope is not broad enough, could allow competitors to commercialize similar products, adversely affecting the business[404][406][407][408][409][411] - Reliance on trade secret protection for unpatentable know-how carries risks of disclosure or misappropriation, which could erode competitive position if competitors independently develop or gain access to such information[412][440][441] - Future intellectual property licenses may not be available on reasonable terms, or at all, potentially forcing the company to abandon development efforts or operate in a more costly manner[419] - Being sued for infringing third-party intellectual property rights could lead to costly and time-consuming litigation, prevent commercialization, or require expensive licenses, diverting resources and potentially harming the business[422][423][424][425] - Changes in patent law (e.g., Leahy-Smith Act) or interpretations could diminish the value of patents, increasing uncertainties and costs for protecting inventions and enforcing rights[430][431][432] - Patent terms may be inadequate to protect product candidates for a sufficient time, leading to early competition from generics. Failure to obtain patent term extensions could shorten market exclusivity[434][435] - Limited geographical patent protection means competitors can use technologies in unprotected countries and export infringing products, diminishing the value of intellectual property[436][438][439] Risks Related to Our Common Stock - The trading price of the common stock is highly volatile and can fluctuate widely due to factors like operating performance, clinical trial results, regulatory developments, and market conditions[447][449] - Substantial sales of common stock, particularly by insiders or due to a large number of shares available for sale, could cause the stock price to decline[450] - Failure to maintain Nasdaq listing requirements (e.g., minimum bid price) could lead to delisting, reducing liquidity and market price, and potentially impacting the ability to raise capital[451] - Delaware law and company charter/bylaw provisions could discourage or delay a change of control, potentially depressing the stock price[452][453] - Future sales and issuances of common stock or rights to purchase common stock, including through equity incentive plans or warrant exercises, could result in significant dilution for existing stockholders and cause the stock price to fall[458][459][460][461] - The company does not intend to pay dividends, so investor returns will be limited to stock appreciation[462] - As an 'emerging growth company' and 'smaller reporting company,' reduced disclosure requirements may make the common shares less attractive to investors, potentially leading to lower trading volume and increased stock price volatility[463][464][465][466][467] General Risk Factors - Operating as a public company incurs significantly increased costs and requires substantial management time for compliance initiatives, including Sarbanes-Oxley Act requirements[468] - A material weakness in internal control over financial reporting (related to CRO accruals) could impair the ability to provide timely and reliable financial information, harming the business and stock price[469][470][471][472][473][475] - Future changes in financial accounting standards or practices could cause adverse revenue fluctuations and affect reported results[480] - Changes in tax laws or regulations (e.g., TCJA, IRA) could adversely affect business operations, cash flow, and financial performance[481][482] - Broad discretion in using existing cash and cash equivalents may not lead to effective use or increased share value[483] - Internal IT systems or those of third parties are vulnerable to security breaches, data loss, or other disruptions, which could materially disrupt development programs, compromise sensitive information, and expose the company to liability[484][485][486][487] - Global operations expose the compa