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Term Loan Facility
 6 Months Ended
Jun. 30, 2025
Debt Disclosure [Abstract]  
Term Loan Facility

8. Term Loan Facility

 

2024 EIB Term Loan Facility

On December 19, 2024, IO Biotech ApS (the “Borrower”) entered into a Finance Contract with the EIB, establishing a loan facility of up to €57.5 million that includes three committed tranches of potential financing in an aggregate principal amount of up to €37.5 million, subject to certain conditions precedent, and one uncommitted accordion tranche of €20.0 million.

Pursuant to the Finance Contract, the Company (through the Borrower) had €10.0 million available to draw in an initial tranche of the term loan facility (“Tranche A”), subject to satisfaction of certain customary conditions and the issuance of warrants pursuant to a Warrant Issuance Agreement (described below). The Company satisfied the specified business conditions of the Tranche A loan to draw up to €10.0 million and the specified business conditions of the loan to draw up to €12.5 million (“Tranche B”) , before payment of certain fees and transaction expense. Tranche A and Tranche B were funded on May 6, 2025 and July 4, 2025, respectively.

The Finance Contract provides for one potential additional term loan tranche in principal amount of €15.0 million (“Tranche C” and, together with Tranche A and Tranche B, each a “Tranche”), respectively, which is subject to specified conditions, including, but not limited, the issuance of warrants and achievement of certain clinical trial and other milestones. The Borrower has thirty-six months to satisfy the conditions for Tranche C, which include raising an additional $50.0 million in cash and submission of an application for marketing authorization for IO102-IO103, which in the U.S. is known as Cylembio® (imsapepimut and etimupepimut, adjuvanted), in the U.S. or the EU based on positive data from a Phase 3 trial.

Each of the Tranche A, Tranche B, and Tranche C loans bears or will bear interest at a fixed rate of 8% that accrues annually and will become payable at their respective maturity dates, which will be six years after disbursement of such loan.

Any unpaid balance owed under the Finance Contract may be accelerated upon an Investment Cost Reduction Event, a Change-of-Control Event, a Change-of-Law Event, an Illegality Event or a Voluntary Non-EIB Prepayment Event (each as defined in the Finance Contract included within Part IV - Item 15. Exhibits, Financial Statement Schedules of the Annual Report on Form 10-K filed on March 31, 2025).

If the Borrower elects to voluntarily prepay any Tranche, the Borrower will be required to additionally pay to EIB a prepayment fee ranging from 5% of the Tranche, if repaid within twelve months of disbursement of such Tranche, to 1% of the Tranche, if repaid after the third anniversary of disbursement of such Tranche. No such prepayment fee is payable after the fourth anniversary of disbursement of the applicable Tranche.

The Finance Contract also contains various financial and non-financial covenants that the Borrower must comply with, including customary conditions with respect to material adverse changes and substantial changes to the general nature of business, which leave significant discretion on the side of the EIB.

Concurrently with the execution of the Finance Contract, the Borrower entered into a non-binding side letter, pursuant to which EIB may, in its discretion and subject to approvals by its investment committee, make available to the Borrower an additional €20.0 million in funding related to the Company’s ongoing clinical trials.

In connection with the Finance Contract, the Company also entered into a warrant issuance agreement (the “Warrant Issuance Agreement”) on December 19, 2024, pursuant to which the Company agreed to issue to EIB certain warrants to purchase shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) in connection with the disbursement of each of the Tranche A loan (such warrants, the “Tranche A Warrants”), Tranche B loan (such warrants, the “Tranche B Warrants”) and Tranche C loan (such warrants, the “Tranche C Warrants” and, together with the Tranche A Warrants and the Tranche B Warrants, the “Warrants”). The number of shares for which the Warrants will be exercisable will be determined at the time of issuance of each Warrant in accordance with the formulas set forth in the Warrant Issuance Agreement, which formulas generally provide that the number of shares will decrease as the price of the Common Stock increases.

Under the terms of each Warrant, each share of Common Stock issuable upon exercise thereof shall have an exercise price equal to the greater of (x) the Company’s 5-Day VWAP on the date of execution of the applicable Warrant and (y) the applicable “Minimum Price” as defined in Nasdaq Rule 5635(d), in each case subject to adjustment. The Tranche A Warrant shall become initially exercisable on the date of disbursement of the Tranche A loan; the Tranche B Warrant shall become initially exercisable on the date of disbursement of the Tranche B loan; and the Tranche C Warrant shall become initially exercisable on the date of disbursement of the Tranche C loan. Each Warrant shall be exercisable until the earlier of one day prior to the closing of an Acquisition (as such term is defined in the applicable Warrant included within Part IV - Item 15. Exhibits, Financial Statement Schedules of the Annual Report on Form 10-K filed with the SEC on March 31, 2025) and twenty years following the date of issuance.

Under the terms of each Warrant, the Company will have a call option to repurchase the Warrants upon a Change of Control Event, a Qualifying Tender Offer, or a Transformational Transaction (each, as defined in the Warrant). In connection with an exercise of the Company’s call option, the purchase price for the shares issuable upon exercise of the portion of the Warrant subject to the call option would be equal to the greater of (x) 30% of the amount disbursed under the Finance Contract as of the date of the call option multiplied by a fraction, the numerator of which is (i) the number of Warrant Shares (as defined in the Warrant Agreement) purchasable under the Warrant Agreement and (ii) the denominator which is the number of shares of Common Stock purchasable with respect to all Warrants under the Warrant Issuance Agreement, whether or not remaining outstanding, and (y) the aggregate value of the Warrant Shares purchasable upon exercise of the call option in the event of any of a Qualifying Tender Offer, Transformational Transaction or other transaction, in each case as calculated in accordance with the terms of the Warrant Agreement.

Under the terms of the Warrant Issuance Agreement, EIB will have a put option (“EIB Put Option”) to sell the Warrants to the Company on or following the maturity date of the applicable Tranche or upon the occurrence of an Event Date (as defined in the Warrant Issuance Agreement), subject to certain limitations in the event that the Company publishes a Material Press Release (as defined in the Warrant Issuance Agreement included within Part IV - Item 15. Exhibits, Financial Statement Schedules of the Annual Report on Form 10-K). The conditions for the EIB to exercise the EIB Put Option to have not been met as of June 30, 2025. In connection with an exercise of EIB’s put option, the purchase price for the shares purchasable in connection with the put option would be equal to (x) in the case of a Qualifying Tender Offer (as defined in the Warrant Issuance Agreement), the aggregate price per share of Common Stock being offered minus the aggregate Strike Price (as defined in the Warrant Issuance Agreement) payable to the Company with respect to the Warrants for which the put option is being exercised and (y) in all other cases, an amount equal to the aggregate Fair Market Value (as defined in the Warrant Issuance Agreement) of the Warrant Shares purchasable upon exercise of the put option minus the aggregate Strike Price payable to the Company with respect to the Warrants for which the put option is being exercised. Due to the terms and conditions of the EIB Put Option, we consider the EIB Put Option and the Tranche A Warrants and Tranche B Warrants under each of the Tranches are to be treated as a single compound derivative.

The Company also entered into a registration rights agreement (the “Registration Rights Agreement”) with EIB related to the issuance of the Warrants. Under the terms of the Registration Rights Agreement, the Company has agreed to prepare and file, by the later of (i) 30 days after the date of issuance of any of the Warrants and (ii) May 15, 2025 (the “Filing Deadline”), one or more registration statements with the Securities and Exchange Commission (the “SEC”) to register for resale the common stock issued under the Warrant Issuance Agreement and to cause the applicable registration statements to become effective within a specified period after the Filing Deadline.

On April 24, 2025, the Company issued 5,623,664 Tranche A Warrants to purchase shares of the Company’s common stock at an exercise price of $0.89 per share. On June 24, 2025, the Company issued 4,221,868 Tranche B Warrants to purchase shares of the Company’s common stock at an exercise price of $1.32 per share as a prerequisite to the Tranche B loan funding on July 4, 2025.

The Tranche A and Tranche B Warrants were deemed to be a freestanding financial instruments as they were legally detachable and separately exercisable from the debt obligations. The Company evaluated the terms and conditions of the Warrants and concluded that they met the criteria to be classified as a liability. As such, the Company recorded the Warrants as a non-current liability on the consolidated balance sheet at fair value on the date of funding and as of June 30, 2025. On the date of funding, the Company has recorded a non-current liability related to the loan facilities based on the proceeds received less related debt issuance costs, including the fair value allocation to the respective Warrants. The Company valued the Tranche A Warrants and Tranche B Warrants at $5.0 million and $5.7 million, respectively, upon issuance using the Black-Scholes valuation model.

The Company has $6.7 million of outstanding term loan debt, net within non-current liabilities on the consolidated balance sheet as of June 30, 2025 related to the Tranche A loan. For the three and six months ended June 30, 2025, the Company has recognized $0.1 million in non-cash interest expense related to the amortization of debt issuance costs and $0.2 million in paid-in-kind interest with an effective interest rate of 14.3% related to the Tranche A loan. The Tranche B loan was funded on July 4, 2025 and was not outstanding term loan debt as of June 30, 2025.

Term loan debt, net consisted of the following (in thousands):

 

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

 

Future undiscounted minimum principal and interest payments under the EIB loan facility as of June 30, 2025, were as follows (in thousands):

Future Minimum Debt Payments

 

Amount

 

Remainder of 2025

 

$

—

 

2026

 

 

—

 

2027

 

 

—

 

2028

 

 

—

 

2029

 

 

—

 

2030

 

 

—

 

2031

 

 

18,597

 

Total minimum payments

 

 

18,597

 

Less: Unamortized debt issuance costs and paid-in-kind interest

 

 

(12,025

)

Currency adjustments

 

 

148

 

Total term loan debt

 

$

6,720

 

As of June 30, 2025, the Company had the following Tranche A and Tranche B Warrants issued and outstanding to purchase shares of the Company's common stock.

 

Tranche A

 

 

Tranche B

 

Outstanding

 

 

5,623,664

 

 

 

4,221,868

 

Exercise Price

 

$

0.89

 

 

$

1.32