iTeos Therapeutics(ITOS) - 2022 Q3 - Quarterly Report

Preliminary Information Summary of Material Risks The company faces significant risks in drug development, commercialization, and financial sustainability, including clinical trial uncertainties, third-party reliance, and competition - Successful commercialization is contingent on completing successful preclinical and clinical trials to demonstrate safety and efficacy[5] - The company relies on third parties for conducting clinical trials, manufacturing product candidates (e.g., CMOs), and for combination therapies, creating dependency risks[5] - Significant competition exists from other biopharmaceutical companies, which may develop or commercialize products more quickly or effectively[5] - The business is dependent on its collaboration with GSK for the development of EOS-448 and will require additional financing to achieve its long-term goals[5] Special Note Regarding Forward-Looking Statements This report includes forward-looking statements on clinical trials, regulatory approvals, and financial projections, subject to inherent risks and uncertainties - Forward-looking statements cover critical operational aspects such as the timing and success of clinical trials for EOS-448 and inupadenant, and the potential for regulatory approvals[9] - Statements address financial projections, including the sufficiency of existing capital resources, future expenses, and potential milestone and royalty payments from the GSK collaboration[9][12] - The company warns that actual results could differ materially from these forward-looking statements due to various factors, including those listed in the 'Risk Factors' section[7][10] PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Unaudited financial statements show a strong cash position from the GSK collaboration, increasing R&D expenses, and net income driven by deferred revenue recognition Condensed Consolidated Balance Sheets The balance sheet shows $752.2 million in cash, a decrease in deferred revenue, and an increase in total stockholders' equity as of September 30, 2022 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $752,243 | $848,537 | | Total current assets | $768,546 | $874,713 | | Total assets | $777,873 | $884,712 | | Liabilities & Equity | | | | Deferred revenue (current) | $66,500 | $280,225 | | Total current liabilities | $93,831 | $304,124 | | Total liabilities | $143,674 | $331,892 | | Total stockholders' equity | $634,199 | $552,820 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Operations show increased license revenue and R&D expenses, resulting in a net income of $76.2 million for the nine months ended September 30, 2022 Statement of Operations Highlights (in thousands, except per share data) | Metric | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | License and collaboration revenue | $213,725 | $104,271 | | Research and development expenses | $71,938 | $41,983 | | General and administrative expenses | $32,846 | $30,907 | | Income from operations | $108,941 | $31,381 | | Net income | $76,199 | $29,649 | | Basic net income per share | $2.14 | $0.84 | | Diluted net income per share | $2.01 | $0.79 | Condensed Consolidated Statements of Cash Flows Cash flow from operations shifted to a net usage of $84.0 million in 2022, reflecting operating expenses and deferred revenue recognition, leading to a $96.4 million cash decrease Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(84,020) | $571,956 | | Net cash used in investing activities | $(942) | $(1,081) | | Net cash provided by financing activities | $610 | $1,303 | | Net decrease in cash, cash equivalents and restricted cash | $(96,366) | $563,450 | Notes to Unaudited Condensed Consolidated Financial Statements Notes detail the GSK collaboration's financial impact, including a $625 million upfront payment and revenue recognition, alongside a $40.9 million unrecognized tax liability - The company's lead product candidates are EOS-448 (TIGIT antagonist) and inupadenant (A2A receptor antagonist)[28][29][31] - The GSK Collaboration Agreement, effective July 2021, included a $625 million upfront payment and potential for $1.45 billion in milestones. Development costs for EOS-448 are shared, with GSK responsible for 60%[56][60] - For the nine months ended Sep 30, 2022, the company recognized $213.7 million in revenue from the GSK agreement, with $66.5 million remaining as deferred revenue[66] - The company has an unrecognized tax liability of $40.9 million as of Sep 30, 2022, related to an uncertain tax position regarding the allocation of revenue between Belgium and the U.S[94] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses clinical pipeline progress, the financial impact of the GSK collaboration, increased R&D expenses, and a strong liquidity position projected to fund operations into 2026 - The company is advancing two clinical-stage programs: EOS-448 (TIGIT antagonist) in collaboration with GSK, and inupadenant (A2AR antagonist)[108][109][113] - As of September 30, 2022, the company had cash and cash equivalents of $752.2 million, which management believes is sufficient to fund operations and capital expenditures into 2026[115][162] - R&D expenses are expected to increase significantly as clinical programs for EOS-448 and inupadenant progress into later-stage trials[121] Results of Operations Operations analysis shows GSK revenue driving profitability, with $213.7 million in revenue and $76.2 million net income for the nine-month period, alongside increased R&D expenses Comparison of Results for the Nine Months Ended Sep 30 (in thousands) | Metric | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | License and collaboration revenue | $213,725 | $104,271 | $109,454 | | Research and development expenses | $71,938 | $41,983 | $29,955 | | General and administrative expenses | $32,846 | $30,907 | $1,939 | | Net income | $76,199 | $29,649 | $46,550 | - The $30.0 million increase in R&D expenses for the nine-month period was primarily due to a $23.6 million increase in CRO/CMO fees and a $2.6 million increase in payroll costs, reflecting expanded clinical trial activities for EOS-448 and inupadenant[143] - General and administrative expenses increased by $1.9 million for the nine-month period, mainly due to higher stock-based compensation and payroll costs, partially offset by a $6.3 million decrease in one-time advisor fees related to the 2021 GSK agreement[144] Liquidity and Capital Resources The company's liquidity is strong with $752.2 million in cash, projected to fund operations into 2026, with future funding dependent on clinical trial progress and GSK cost-sharing - The company had $752.2 million in cash and cash equivalents as of September 30, 2022[151] - Management believes existing cash is sufficient to fund operating expenses and capital requirements into 2026[162] - Under the GSK collaboration, the company is responsible for 40% of the costs related to the Global Development Plan, which has a total planned spend of at least $900 million[153] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's market risk primarily stems from interest rate fluctuations on cash holdings and foreign currency exposure, particularly the euro-to-U.S. dollar exchange rate - The company is exposed to interest rate risk on its cash and cash equivalents of $752.2 million, but due to the short-term nature of these holdings, a 10% change in rates is not expected to have a material impact[178] - The company is subject to foreign currency exchange risk, particularly with respect to the euro, as its wholly owned subsidiary, iTeos Belgium SA, operates with the euro as its functional currency[179] Item 4. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of September 30, 2022, with no material changes during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2022[182] - Based on an evaluation using the COSO 2013 framework, management concluded that internal control over financial reporting was also effective as of September 30, 2022[184] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[186] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any material legal proceedings that would adversely affect its financial condition or operations - As of the filing date, the company is not a party to any material legal proceedings[190] Item 1A. Risk Factors The company faces significant risks including development uncertainties, regulatory hurdles, heavy reliance on third parties, financial sustainability challenges, and operational complexities - Development Risks: The success of product candidates like inupadenant and EOS-448 is uncertain, and results from early trials may not predict later-stage success. Challenges include patient enrollment and reliance on third-party drugs for combination therapies[192][193][199] - Regulatory Risks: The FDA approval process is lengthy and unpredictable. There is a risk of serious adverse events delaying or preventing approval, and even if approved, products will be subject to ongoing regulatory review and potential marketing restrictions[222][225][226] - Third-Party Reliance: The company depends on CROs to conduct clinical trials and CMOs for manufacturing, creating risks related to performance, quality (cGMP), and supply chain continuity. The collaboration with GSK is critical but also introduces risks related to shared control and potential disputes[254][262][266] - Financial & Operational Risks: The company has a limited operating history, expects to incur future losses, and will require additional financing. Managing growth, potential disruptions from COVID-19, cybersecurity threats, and unfavorable economic conditions are key operational challenges[278][285][310] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the reporting period - None[363] Item 5. Other Information No other information required for disclosure under this item was reported by the company - Not applicable[366] Item 6. Exhibits This section lists exhibits filed with the quarterly report, including corporate governance documents, officer certifications, and XBRL data files - Exhibits filed include corporate governance documents, officer certifications, and interactive data files (XBRL)[367]