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Topline Summary and Update
iTeos Therapeutics (NASDAQ:ITOS) is an immunotherapy-focused cancer biotech with an important shot at developing an anti-TIGIT molecule in various forms of cancer. While they have advanced to late-stage clinical study and have significant backing in the form of a GSK partnership, there are numerous headwinds facing their market valuation at this time. In my first analysis of this company, I expressed a “Buy” sentiment with reservations about how ITOS would be moving in line with how other TIGIT players (mainly Roche) were developing. Today, let’s take a look at how the investment thesis is evolving, as ITOS has taken a significant decline over the last 2 months.
Pipeline Updates
Belrestotug
The main clinical shot on goal for ITOS remains belrestotug, an antagonist of the immune checkpoint TIGIT, which has been one of the “next-generation” targets of interest in the growing field of immunotherapy, particularly for solid tumors. We’ve made dramatic progress in the 21st century thanks to the introduction of anti-PD-1 antibodies in particular, with assaults on other immune checkpoints yielding mixed or unclear benefit.
ITOS and other biotechs are hoping that TIGIT will be a target that moves the needle. The company is co-developing belrestotug with GlaxoSmithKline (GSK), combining it with the latter’s anti-PD-1 antibody dostarlimab in a variety of solid tumor contexts. We have seen a decidedly mixed bag from the TIGIT story from the likes of Roche and Beigene, but ITOS hopes that belrestotug is a differentiated molecule, with higher target engagement than other anti-TIGIT approaches.
It’s interesting to me that ITOS has proceeded so far along its clinical path, making a few positive announcements on the way, but not really presenting formative clinical trial data so far. In the most recent business update, ITOS referred to an interim data readout exceeding expectations for the combination of belrestotug and dostarlimab compared with belrestotug alone in patients with NSCLC. The company guided that these findings will be presented at a congress later this year (which I would personally expect to be either ESMO in September, or possibly IASLC World Lung at around the same time).
Moreover, the hot-off-the-presses news for ITOS is that the first patient in their anticipated phase 3 trial called GALAXIES-Lung-301 was treated, triggering a $35 million milestone payment from GSK. This trial is comparing the belrestotug-dostarlimab combo against standard pembrolizumab for patients with metastatic, PD-L1-high NSCLC.
Financial Overview
As of their most recent quarterly filing, ITOS held $146.6 million in cash and another $302.5 million in short-term investments. Notable non-current assets included $132.6 million in long-term investments as well.
Operating expenses for the quarter reached $47.2 million, and after recognizing various sources of income (most notably $7.4 million in interest income), ITOS’s net loss for the quarter was $38.2 million.
At this cash burn rate, the implied cash runway for the company is between 15 and 16 quarters. This filing obviously did not take into account the $35 million milestone payment from GSK from the enrollment of the first patient of their phase 3 NSCLC trial.
Strengths and Risks
Strength – Moving into phase 3 in a position of strength
The balance sheet of ITOS is highly enviable, commanding strong interest income that has helped to offset some of the costs incurred by their rapid expansion into different tumor areas, as well as opening and conducting the GALAXIES-Lung-301 study. They have upwards of 4 years of cash and assets to fund operations, which should be more than enough time to reach a critical milestone, and that’s assuming no other momentous developments. I did not touch on the inupadenant program, since I covered it in some more detail in my previous analysis, and there have not been any major clinical announcements since then.
But ITOS has a lot cooking, with minimal risk of dilution at this point, which are strong points in their favor.
Risk – TIGIT remains unproven as a target, with multiple failures outside of the ITOS pipeline
The recent announced failure of the SKYSCRAPER-06 trial has sent some ripples throughout the whole space of anti-TIGIT development, and ITOS’s market valuation has seen the effect of this. It speaks to the underlying reliance that ITOS has had on other players in the space to drive interest in the belrestotug story. None of the successes or failures really tell us much about what ITOS’s entry will ultimately show, but as long as we’re waiting on key data from the company, the market cap will continue to follow along with bigger players that have demonstrated not that much in terms of optimistic news.
Bottom-Line Summary
ITOS presents an interesting investment proposition. Sitting at a market cap of around $500 million at the time of writing, it would appear to me as though the company is being valued as a player of pretty significant interest that is heading into late-stage clinical study. They are not garnering the massive hype of companies like Janux Therapeutics or ALX Oncology (until recently, at least) sending the market cap into the billions.
If ITOS were sitting at those kinds of levels, I would not be very sanguine about their near-term prospects. There is going to be probably another few years before we get a readout of their newly started phase 3 trial, and hype for ITOS from earlier this year has been cooling off substantially, ebbing from its $18 per share high point.
I feel that ITOS is worthy of a “Buy” sentiment, given these developments and the ongoing strength of their balance sheet. However, there’s still significant risk of valuation retreat based on failure of other companies’ anti-TIGIT programs, and I see downside risk from the current valuation. One might be able to find a better buy-in point than the $14 per share the ITOS sits at. Given that we’re going to be getting an important look at data later this year, I am maintaining a near-term “Buy” sentiment for the stock, with caution that for at least another month there’s not much we can expect from the company, which may translate into more short-term fall before anticipation of a September data readout (assuming that’s even when it’s coming).
