RHHBY - iTeos Therapeutics: Trading Under Cash Value

2023-06-04 10:04:13 ET

Summary

• Today, we circle back on small oncology concern iTeos Therapeutics, Inc. for the first time since last July.
• The company is advancing its two primary compounds in its pipeline and has a potentially lucrative partnership with GlaxoSmithKline.
• The stock also trades under the net cash on iTeos' balance sheet. An updated investment analysis follows in the paragraphs below.

You can achieve anything, but not everything. ”? Amit Kalantri

Today, we put the spotlight on iTeos Therapeutics, Inc. ( ITOS ) for the first since our initial article on this clinical stage oncology focused concern back last summer. We concluded that piece stating:

The company puts out investment presentations but not conference call transcripts. In addition, timelines/milestones for ongoing/initiating trials are vague at best. Add in the large amount of insider selling, a double-digit percentage short position and unknowns of what Roche's recent setback could mean for EOS-448 development, and I am going to take a pass on any investment recommendation around iTeos at this time. "

Given the company has maintained a huge cash position, trades for under that net cash holding, and made some headway advancing its pipeline since we first looked at iTeos Therapeutics, the firm seemed worthy of a follow-up. An analysis is below.

Company Overview:

iTeos Therapeutics, Inc. is a clinical-stage biopharmaceutical company based just outside of Boston, MA. This small biotech concern is focused on the discovery and development of immuno-oncology therapeutics. The stock currently trades around $15.50 a share and sports an approximate market capitalization of $560 million.

Both of the company's primary drug candidates target key mechanism that inhibits an effective antitumor immune response.

EOS-448:

This compound is also known as belrestotug. It is being evaluated as part of combination therapy with GSK plc's ( GSK ) Jemperli (dostarlimab), with continuing clinical development with both doublet and novel triplets. These efforts include ongoing preparations for our first Phase 3 combination study in first line non-small cell lung cancer {NSCLC} with EOS-448 and dostarlimab. This study should commence by the end of this year.

This is the description of EOS-448 from the company's website:

EOS-448 is an anti-TIGIT human immunoglobulin G1, or IgG1, antibody that we are developing to inhibit the immunosuppressive activity of TIGIT. TIGIT is a cell surface receptor expressed on multiple immune cells, including CD8+ T cells, natural killer, or NK, cells and T regulatory cells, or Tregs, a cell population that inhibits the immune response and, in the context of cancer, promotes tumor growth by inhibiting the activation and proliferation of effector T cells and NK cells. TIGIT has also been shown to be a mediator of resistance to existing CPIs, including anti-PD-1 ."

There are also two ongoing Phase 2 trials and some earlier stage efforts around this potential combination therapy as well. The two Phase 2 trials include:

A randomized trial assessing the combination in previously untreated advanced metastatic NSCLC.

An expansion study for first line advanced or metastatic head and neck squamous cell carcinoma.

EOS-850:

This compound is also known as Inupadenant. This candidate is designed as an insurmountable and highly selective small molecule antagonist of the adenosine A2A receptor. This is the only high-affinity adenosine receptor that is expressed on multiple immune cells found in the tumor microenvironment.

Currently, inupadenant is being evaluated within a two-part Phase 2 study in post-IO metastatic non-squamous NSCLC. The goal of this trial is to assess the combination of inupadenant with platinum-doublet chemotherapy compared to standard platinum-doublet chemotherapy.

iTeos Therapeutics also has a first-in-class small molecule program dubbed EOS-984 targeting a novel mechanism in the adenosine pathway within its pipeline. However, that compound is in too early staged development to be germane to this analysis.

Analyst Commentary & Balance Sheet:

Since mid-March, four analyst firms including JPMorgan and Wedbush have reissued Buy/Outperform ratings on the equity. Price targets proffered range from $32 to $54 a share.

The company ended the first quarter with just over $700 million worth of net cash and marketable securities on its balance sheet. iTeos is burning through approximately $30 million worth of cash per quarter, and management has stated the company has a ' cash runway ' well into 2026 given planned operations. iTeos has no long-term debt. Approximately seven percent of the outstanding shares are currently held short.

Verdict:

The company is slowly advancing on the developmental front. It also has plenty of cash on its balance sheet to fund operations in the years ahead. The partnership with the drugmaker formerly known as GlaxoSmithKline could also turn out to be extremely lucrative, pending successful development of their potential combination therapy.

Therefore, while trying to timeline when commercialization could begin if all goes well remains a bit challenging, ITOS has become an intriguing ' sum of the parts ' story worthy of a small speculative ' watch item ' position. An investor is basically getting its pipeline for 'free' given the stock sell for less than net cash. It should be noted that the whole anti-TIGIT development space took a tumble in February when Roche ( RHHBY ) had some cautionary commentary about its anti-TIGIT study that failed to meet its primary endpoint late last year.

The company obviously could ' bleed ' out from a cash burn point a view if all developmental efforts fail, but the stock seems a decent play for aggressive and patient investors given its current risk/reward profile.

Noise brings confusion. Silence brings clarity .”? Maxime Lagacé

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