iTeos Therapeutics(ITOS) - 2021 Q4 - Annual Report

Part I Business iTeos Therapeutics is a clinical-stage biopharmaceutical company developing immuno-oncology therapeutics, with lead candidates EOS-448 and inupadenant, supported by strategic collaborations and a growing IP portfolio Overview and Pipeline The company is a clinical-stage biopharmaceutical firm advancing lead candidates EOS-448 (anti-TIGIT) and inupadenant (A2AR antagonist) through clinical trials, alongside a growing preclinical pipeline - The company's lead antibody product candidate is EOS-448, an antagonist of TIGIT, being explored in combination with pembrolizumab, dostarlimab, and inupadenant in ongoing Phase 1b trials[16] - The company is also advancing inupadenant, a next-generation adenosine A2A receptor antagonist, with plans to initiate a randomized Phase 2 trial in 2022 to evaluate its combination with chemotherapy[19] - In September 2021, a new product candidate in the adenosine pathway was nominated for Investigational New Drug (IND) enabling studies, expanding the preclinical pipeline[21][46] Collaborations and Licenses Key collaborations include a major agreement with GSK for EOS-448, involving significant upfront and milestone payments, alongside partnerships with Adimab and WuXi Biologics for discovery and manufacturing - Entered into a collaboration and license agreement with GSK for EOS-448, which became effective on July 26, 2021[18][47] GSK Collaboration Agreement Financials | Metric | Amount | | :--- | :--- | | Upfront Payment | $625.0 million | | Potential Milestone Payments | Up to $1.45 billion | | Profit Share (U.S.) | Equally split | | Royalties (ex-U.S.) | Tiered double-digit, up to 20% | - A collaboration with Adimab for antibody discovery, under which EOS-448 was licensed, involves potential milestone payments up to $45.8 million for new products and low to mid-single-digit royalties[52][53] - A manufacturing agreement with WuXi Biologics for EOS-448 includes a potential low single-digit royalty or a one-time milestone payment in the low tens of millions if a different manufacturer is used for all commercial supplies[56] Competition The company faces intense competition in the immuno-oncology market for its anti-TIGIT (EOS-448) and A2AR antagonist (inupadenant) programs, with rivals in advanced clinical stages - Competitors for the anti-TIGIT antibody EOS-448 include Bristol-Myers Squibb, Merck, Roche/Genentech, Beigene, Arcus, and Gilead, with the most advanced programs in Phase 3 clinical trials[60] - Competitors for the A2AR antagonist inupadenant include AstraZeneca, Corvus Pharmaceuticals, Incyte, Arcus, Gilead, and Novartis, with the most advanced programs in Phase 2 clinical trials[61] Intellectual Property The company's IP portfolio for TIGIT (EOS-448) and A2AR (inupadenant) programs includes issued patents and numerous pending applications, with expirations generally from 2038 to 2042 - The TIGIT program portfolio (covering EOS-448) has one issued U.S. patent and one issued European patent, with natural expiration in 2038; over thirty pending applications have potential expiration dates from 2038 to 2042[71] - The A2AR program portfolio (covering inupadenant) has one issued U.S. patent and one issued Australian patent, with natural expiration in 2038; over fifty pending applications have potential expiration dates from 2038 to 2042[72] Human Capital Resources As of December 31, 2021, the company had 94 employees, with a strong focus on R&D, diversity, competitive compensation, and employee well-being Employee Statistics (as of Dec 31, 2021) | Category | Number/Percentage | | :--- | :--- | | Total Full-Time Employees | 94 | | R&D Employees | 70 | | Finance, Legal, HR, General Mgmt | 24 | | Employees with Ph.D. or M.D. | 36 | | Women in Global Workforce | 66% | | Women in Leadership (Director+) | 55% | Risk Factors The company faces significant risks including clinical trial failures, regulatory hurdles, heavy reliance on third parties, financial instability, intellectual property challenges, and operational issues - Successful commercialization is contingent on completing successful preclinical and clinical trials, but results from early-stage trials may not predict later-stage outcomes[171][172] - The company relies on third parties like CROs to conduct clinical trials and CMOs for manufacturing, making it vulnerable to their performance, regulatory compliance, and potential supply disruptions[235][246] - The collaboration with GSK for EOS-448 carries risks, including limited control over development and commercialization, potential disputes, and reliance on GSK's efforts outside the U.S.[241][242][244] - The company has a limited operating history, has incurred significant losses, and will require additional financing, which may not be available on acceptable terms[258][260][265] - The ongoing COVID-19 pandemic may adversely impact clinical trials, manufacturing, and operations due to delays, resource allocation issues, and supply chain disruptions[291][292] Unresolved Staff Comments The company reports no unresolved staff comments - None[342] Properties The company leases its principal executive office in Watertown, MA, and laboratory/office space in Charleroi, Belgium, with leases extending to 2027 and 2030 respectively - The company's principal office is a leased 9,068 sq. ft. space in Watertown, MA, with the lease terminating in February 2027[343] - The Belgian subsidiary leases approximately 2,231 square meters of laboratory and office space in Charleroi, Belgium, with the lease extended through January 2030[344] Legal Proceedings The company is not currently involved in any material legal proceedings - The company is not currently a party to any material legal proceedings[346] Mine Safety Disclosures This item is not applicable to the company - Not applicable[348] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "ITOS", with no history or plans for cash dividends, as earnings are retained for business expansion - Common stock is traded on the Nasdaq Global Select Market under the symbol "ITOS"[350] - The company has not paid any cash dividends since inception and does not plan to in the foreseeable future[352] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2021, the company achieved significant net income of $214.5 million, driven by $344.8 million in GSK collaboration revenue, with increased operating expenses and $848.5 million in cash expected to fund operations into 2026 Results of Operations In 2021, the company reported $344.8 million in revenue and $214.5 million net income, driven by the GSK agreement, while R&D and G&A expenses significantly increased due to clinical trials and public company costs Comparison of Results of Operations (Years Ended Dec 31) | (in thousands) | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | License and collaboration revenue | $344,775 | $0 | $344,775 | | Research and development expenses | $59,369 | $29,900 | $29,469 | | General and administrative expenses | $40,505 | $15,340 | $25,165 | | Income (loss) from operations | $244,901 | $(45,240) | $290,141 | | Net income (loss) | $214,521 | $(38,033) | $252,554 | - R&D expenses increased by $29.5 million in 2021, mainly due to a $19.8 million increase in CRO/CMO fees and internal lab expenses for EOS-448 and inupadenant clinical trials[385] - G&A expenses increased by $25.2 million in 2021, primarily due to an $11.3 million increase in professional fees (including $6.8 million for the GSK deal) and an $8.0 million increase in stock-based compensation[386][387] Liquidity and Capital Resources As of December 31, 2021, the company held $848.5 million in cash, largely due to the GSK upfront payment, with sufficient liquidity projected to fund operations into 2026 - As of December 31, 2021, the company had $848.5 million in cash and cash equivalents[397][411] - The company received a $625.0 million upfront payment from GSK on August 5, 2021[395][410] - Management believes existing cash and cash equivalents will be sufficient to fund operating expenses and capital expenditure requirements into 2026[411] Cash Flow Summary (Years Ended Dec 31) | (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $513,140 | $(25,176) | | Net cash used in investing activities | $(1,242) | $(377) | | Net cash provided by financing activities | $3,659 | $340,339 | Critical Accounting Policies and Estimates Critical accounting policies involve significant judgments, particularly for GSK revenue recognition, R&D expense accruals, stock-based compensation, government grants, and income tax provisions - Revenue from the GSK Collaboration Agreement is recognized over time using a cost-to-cost measure of progress, as the upfront license was bundled with other promises (Phase 1 study, know-how transfer) into a single performance obligation[417][419] - The company must estimate accrued R&D expenses for services performed by CROs and CMOs when invoices have not yet been received, based on progress and contracted fees[417][418] - As of December 31, 2021, the company recorded a full valuation allowance against its net deferred tax assets and a $17.0 million liability for an uncertain tax position regarding the allocation of revenue between Belgium and the U.S.[381][631] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021, with new controls implemented for the GSK agreement and ASC 842 adoption - Management concluded that disclosure controls and procedures were effective as of December 31, 2021[437] - Management concluded that internal control over financial reporting was effective as of December 31, 2021[439] - Significant new accounting processes and internal controls were implemented as a result of the GSK Collaboration Agreement and the adoption of the new lease accounting standard (ASC 842)[443][444] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2022 Annual Meeting of Stockholders proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Stockholders[447] Executive Compensation Executive compensation information is incorporated by reference from the 2022 Annual Meeting of Stockholders proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Stockholders[449] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information for beneficial owners and management is incorporated by reference from the 2022 Annual Meeting of Stockholders proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Stockholders[450] Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the 2022 Annual Meeting of Stockholders proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Stockholders[451] Principal Accounting Fees and Services Principal accounting fees and services information is incorporated by reference from the 2022 Annual Meeting of Stockholders proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Stockholders[452] Part IV Exhibits, Financial Statement Schedules This section lists all exhibits filed with the report, including material contracts and certifications, and notes the inclusion of financial statements - This section contains a list of all exhibits filed with the report, including material contracts and certifications[454][457]