ITEOS THERAPEUTICS, INC. Management's discussion and analysis of financial condition and results of operation
The following discussion and analysis of our financial condition and results of
operations should be read together with our unaudited condensed consolidated
financial statements and related notes appearing elsewhere in this Quarterly
Report on Form 10-Q and our audited consolidated financial statements and
related notes for the year ended
Overview
We are a clinical-stage biopharmaceutical company pioneering the discovery and development of a new generation of highly differentiated immuno-oncology therapeutics for people living with cancer. We leverage our deep understanding of tumor immunology and immunosuppressive pathways to design novel product candidates with the aim of restoring the immune response against cancer. Our innovative pipeline includes two clinical-stage programs targeting novel, de-risked immuno-oncology pathways. Each of our therapies in development has optimized pharmacologic properties designed to improve clinical outcomes.
Our lead antibody product candidate, EOS-448, also known as GSK4428859A, is an
antagonist of TIGIT, or T-cell immunoreceptor with lg and ITIM domains, an
immune checkpoint with multiple mechanisms of action. EOS-448 was selected for
its affinity for TIGIT, its potency and its potential to engage the Fc gamma
receptor, or Fc?R, to activate dendritic cells, natural killer cells and
macrophages and to promote cytokine release, activation of antigen presenting
cells and antibody-dependent cellular cytotoxicity, or ADCC, activity. In 2020,
we started an open-label Phase 1/2a clinical trial of EOS-448 in adult cancer
patients with advanced solid tumors. In
On
In
Based on favorable preclinical data generated in collaboration with
We are also advancing inupadenant, a next-generation adenosine A2A receptor antagonist tailored to overcome the specific adenosine-mediated immunosuppression found in tumor microenvironment, into proof-of concept trials in several indications following encouraging single-agent activity in Phase 1. We are investigating inupadenant in an open-label
18
--------------------------------------------------------------------------------
multi-arm Phase 1/2a clinical trial in adult cancer patients with advanced solid tumors. The single-agent dose-escalation and expansion portions of our Phase 1/2a clinical trial of inupadenant have demonstrated durable monotherapy antitumor activity in patients with advanced solid tumors and safety consistent with previously reported results. As part of this monotherapy assessment of inupadenant, we identified a potential predictive biomarker and we are enrolling patients in the biomarker cohort of the ongoing Phase 1b/2a trial. In 2022, we plan to initiate a randomized Phase 2 trial in a solid tumor indication to evaluate the combination of inupadenant with chemotherapy compared to standard of care chemotherapy alone. We have completed enrollment in the safety evaluation portion of the clinical trial of inupadenant in combination with chemotherapy and with pembrolizumab, as well as the monotherapy expansion cohort in prostate cancer. We have initiated an expansion arm evaluating inupadenant in combination with pembrolizumab in patients with PD-1-resistant melanoma, currently in an ongoing trial. In addition, we are evaluating a salt form of inupadenant in a Phase 1 study.
Our internal research and development team has extensive expertise in tumor
immunology, characterization of immunosuppressive mechanisms in the tumor
microenvironment, pharmacology and translational medicine. We have also built
discovery capabilities to develop both small molecules and antibodies with
differentiated and optimized product profiles for targets validated by a strong
scientific rationale. We continue to progress research programs focused on
additional targets that complement our TIGIT and A2AR programs or address
additional immunosuppressive pathways. In
Since our inception in
We expect to continue to incur significant expenses in connection with ongoing development activities, particularly if and as we:
•
continue preclinical studies and clinical trials and initiate new clinical trials for our product candidates;
•
pursue regulatory approvals for our product candidates;
•
advance the development of our product candidate pipeline;
•
continue research activities as we seek to discover and develop additional product candidates;
•
obtain, maintain, expand and protect our intellectual property portfolio;
•
hire additional research and development, clinical and commercial personnel;
•
scale up our clinical and regulatory capabilities; and
•
add operational, financial and management information systems and personnel, including personnel to support our research and development programs, any future commercialization efforts and our transition to operating as a public company.
Impact of COVID-19
With the ongoing concern related to the COVID-19 pandemic during 2021 and the
first three months of 2022, we have maintained our business continuity plans to
address and mitigate the impact of the COVID-19 pandemic on our business. In
19
--------------------------------------------------------------------------------
for all our employees. We will continue to monitor and make adjustments in
response to the public health environment, together with local, state and
federal guidance regarding workplace protective measures. We expect to continue
incurring additional costs to ensure we adhere to the guidelines instituted by
the
While the ongoing COVID-19 pandemic has not significantly impacted our business or results of operations, the future impact of the COVID-19 pandemic on our industry, the healthcare system, our development timelines for EOS-448 and inupadenant, our preclinical research and development, and our current and future operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted with confidence. These developments include the scope, severity and duration of the COVID-19 pandemic, the identification of additional variants of COVID-19, the availability and utilization of vaccines and treatments for COVID-19, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others particularly in the geographies where we, our third party manufacturers, contract research organizations (CROs) or current and planned clinical trial sites operate. Disruptions to the global economy, disruption of global healthcare systems, and other significant impacts of the COVID-19 pandemic could have a material adverse effect on our business, financial condition, results of operations and growth prospects. See "Risk factors" for a discussion of the potential adverse impact of COVID-19 on our business, results of operations and financial condition.
Components of our results of operations
Revenue
To date, our revenues have been derived from the upfront payment associated with the GSK Collaboration Agreement.
For all collaboration agreements, no development or commercial milestones were included in the transaction price at inception, as all milestone amounts were fully constrained. As part of our evaluation of the constraint, we considered numerous factors, including that receipt of the milestones is outside our control and contingent upon success in future clinical trials and the licensee's efforts. Any consideration related to sales-based milestones will be recognized when the related sales occur as they were determined to relate predominantly to the license granted to GSK and therefore have also been excluded from the transaction price. We are applying the royalty exception for sales-based royalties and will not recognize revenue until the subsequent sale of product occurs.
Research and development expenses
Research and development expenses consist primarily of costs incurred for the development of our product candidates, which include:
•
costs to obtain licenses to intellectual property and related future payments should certain success, development and regulatory milestones be achieved;
•
employee-related expenses, including salaries, benefits and stock-based compensation expense;
•
expenses incurred under agreements with CROs, contract manufacturing organizations, or CMOs, and independent contractors that conduct research and development, preclinical and clinical activities on our behalf;
•
costs of purchasing lab supplies and non-capital equipment used in our preclinical activities and in manufacturing clinical study materials through CMOs;
•
consulting and professional fees related to research and development activities; and
•
facility costs, depreciation, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance, and other supplies.
We expense research and development costs as incurred. We recognize costs for certain development activities, such as preclinical studies and clinical trials, based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors, such as patient enrollment or clinical site activations for services received and efforts expended.
Research and development activities are central to our business model. We expect research and development costs to increase significantly for the foreseeable future as our current development programs progress and new programs are added.
Because of the numerous risks and uncertainties associated with product development, we cannot determine with certainty the duration and completion costs of the current or future preclinical studies and clinical trials or if, when, or to
20
--------------------------------------------------------------------------------
what extent we will generate revenues from the commercialization and sale of any product candidates that receive regulatory approval. We may never succeed in achieving regulatory approval for our product candidates. The duration, costs and timing of preclinical studies and clinical trials and development of our product candidates will depend on a variety of factors, which could all be impacted by the ongoing COVID-19 pandemic, including, but not limited to:
•
successful enrollment in, and completion of, clinical trials;
•
receipt of marketing approvals from applicable regulatory authorities;
•
successful completion of preclinical studies and IND-enabling studies;
•
establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
•
obtaining and maintaining patent and trade secret protection and non-patent exclusivity;
•
launching commercial sales of the product, if and when approved, whether alone or in collaboration with others;
•
acceptance of a product, if and when approved, by patients, the medical community and third-party payors;
•
effectively competing with other therapies and treatment options;
•
a continued acceptable safety profile following approval;
•
enforcing and defending intellectual property and proprietary rights and claims; and
A change in the outcome of any of these factors could mean a significant change in the costs and timing associated with the development of our current and future preclinical and clinical product candidates. For example, if the FDA or comparable foreign regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development, or if we experience significant delays in execution of or enrollment in any of our preclinical studies or clinical trials, we could be required to expend significant additional financial resources and time on the completion of preclinical and clinical development.
The following table summarizes our principal product development programs,
including direct research and development expenses allocated to each clinical
product candidate:
Three Months Ended
March 31,
(in thousands) 2022 2021Direct research and development expenses by
program:
EOS-448$ 7,172 $ 2,428 Inupadenant 6,173 4,323 Other non-clinical programs 2,822 1,551
Indirect research and development expenses (1) 4,929 3,341
Total research and development expense
(1)
The substantial majority of these costs relate to the EOS-448 and inupadenant programs. The majority of these costs are payroll and related costs for our employees performing in-house research and development activities and the remainder represents other research and development costs.
General and administrative expenses
General and administrative expenses consist primarily of employee-related expenses, including salaries, benefits and stock-based compensation, for personnel in executive, finance, business development, facility operations and administrative functions. Other significant costs include facility costs not otherwise included in research and development expenses, legal fees relating to patent and corporate matters and fees for accounting, tax and consulting services.
Grant income
We have agreements with granting agencies whereby we receive funding under grants that partially or fully reimburse us for eligible research and development expenditures. Certain grant agreements require us to repay the funding depending on whether we decide to pursue commercial development or out-licensing of any drug candidate that is produced from the research program. The repayment provision includes a portion that is fixed (corresponding to 30% of the grant), payable in annual installments, which is effective unless we decide not to pursue commercial development or
21
--------------------------------------------------------------------------------
out licensing of the drug candidate. The repayment provision also includes a potential obligation to pay a royalty that is contingent upon achieving sales of a product developed through the program. The maximum amount payable to the granting agency under each grant, including the fixed repayments, the royalty on revenue and the interest thereon, is twice the amount of funding received.
Research and development tax credits
Our wholly owned subsidiary iTeos
Other income (expense), net
Other income (expense), net includes income and expenses that do not fall within other categories of the statement of operations and comprehensive income (loss). Items included are interest income, bank fees and gain or loss on foreign currency transactions.
Income taxes
We are subject to income taxes in the
Results of operations
Comparison of the three months ended
The following table summarizes our results of operations for the three months
ended
Three Months Ended Period to
March 31, period
(in thousands) 2022 2021 change
Revenue:
License and collaboration revenue
152,522 - 152,522
Operating expenses: Research and development expenses 21,096 11,643 9,453 General and administrative expenses 10,615 7,046 3,569 Total operating expenses
31,711 18,689 13,022
Income (loss) from operations 120,811 (18,689 ) 139,500
Other income and expenses:
Grant income 491 4,915 (4,424 )
Research and development tax credits 254 - 254
Other (expense) income, net (2,023 ) 240 (2,263 )
Income (loss) before income taxes 119,533 (13,534 ) 133,067
Income tax expense (49,951 ) - (49,951 )
Net income (loss) $ 69,582 $ (13,534 ) $ 83,116
License revenue
License and collaboration revenue equaled
22
--------------------------------------------------------------------------------
Research and development expenses
Research and development expenses increased by
General and administrative expenses
General and administrative expenses increased by
The increase was primarily attributable to an increase of
Grant income
Grant income decreased by
Research and development tax credits
Research and development tax credits increased by
Other income (expense), net
The other income (expense), net for the three months ended
Income tax expense
Our effective tax rates were 41.8% and 0.0% for the three months ended
Liquidity and capital resources
In June, 2021, the Company's wholly owned subsidiary, iTeos
To date, we have funded our operations primarily with proceeds from the IPO, the
sales of preferred stock, grants and licenses and the upfront payment from the
GSK Collaboration Agreement. As of
23
--------------------------------------------------------------------------------
million in cash and cash equivalents. To date we have not generated any revenue from product sales and do not expect to generate revenue from the sales of products for the foreseeable future.
In addition, in the event that we receive revenue from products or services
related to the intellectual property developed arising from the programs, we
must pay to the
Under the GSK Collaboration Agreement and as part of the Global Development
Plan, the Company and GSK agree to spend an aggregate amount of at least
We enter into contracts in the normal course of business with CROs and clinical sites for the conduct of clinical trials, professional consultants for expert advice and other vendors for clinical supply manufacturing or other services. These contracts are not included in the table above as they provide for termination on notice, and therefore are cancelable contracts and do not include any minimum purchase commitments.
Cash flows
The following table provides information regarding our cash flows for the three
months ended
Three Months Ended
March 31,
(in thousands) 2022 2021
Net cash provided by (used in):
Operating activities $ (24,002 ) $ (14,790 )
Investing activities (323 ) (91 )
Financing activities 333 667
Effects of exchange rate changes on cash, cash
equivalents and
restricted cash (563 ) (717 )
Net decrease in cash, cash equivalents and restricted
cash $ (24,555 ) $ (14,931 ) Net cash used in operating activities
Net cash used in operating activities was
Net cash used in investing activities
Net cash used in investing activities increased by
Net cash provided by financing activities
Net cash provided by financing activities was
Effects of exchange rate changes on cash, cash equivalents and restricted cash
The
24
--------------------------------------------------------------------------------
Funding requirements
We expect our expenses to increase in connection with our ongoing activities, particularly as we continue our Phase 1/2 trials for both EOS-448 and inupadenant and move to larger randomized and registration-directed trials for both programs, advance the development of pipeline programs, initiate new research and preclinical development efforts and seek marketing approval for any product candidates that we successfully develop. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to establishing sales, marketing, distribution and other commercial infrastructure to commercialize such products.
In June, 2021, the Company's wholly owned subsidiary, iTeos
As of
We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with the development and commercialization of EOS-448 and inupadenant, and the research, development and commercialization of other potential product candidates, we are unable to estimate the exact amount of our operating capital requirements. Our future capital requirements will depend on many factors, including:
•
the scope, progress, timing, costs and results of clinical trials of product candidates;
•
research and preclinical development efforts for any future product candidates that we may develop;
•
our ability to enter into and the terms and timing of any collaborations, licensing agreements or other arrangements;
•
the number of future product candidates that we pursue and their development requirements;
•
the outcome, timing and costs of seeking regulatory approvals;
•
the costs of commercialization activities for any of our product candidates that receive marketing approval to the extent such costs are not the responsibility of any future collaborators, including the costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities;
•
subject to receipt of marketing approval, revenue, if any, received from commercial sales of our current and future product candidates;
•
our headcount growth and associated costs as we expand our research and development and establish a commercial infrastructure;
•
the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against intellectual property related claims;
•
the costs of operating as a public company; and
•
the emergence of competing therapies and other adverse market developments.
Critical accounting policies and significant judgments and estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our financial statements, which we have prepared in
accordance with
25
--------------------------------------------------------------------------------
There have been no significant changes to our existing critical accounting
policies discussed in our Annual Report on Form 10-K for the year ended
Revenue Recognition
We generate revenue from our GSK Collaboration Agreement. We recognize revenue in accordance with ASC 606, which applies to all contracts with customers, except for contracts that are within the scope of other standards. Under ASC 606, we recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that we determine are within the scope of ASC 606, we perform the following five steps:
(i)
identify the contract(s) with a customer;
(ii)
identify the performance obligations in the contract;
(iii)
determine the transaction price;
(iv)
allocate the transaction price to the performance obligations in the contract; and
(v)
recognize revenue when (or as) the entity satisfies a performance obligation.
We only apply the five-step model to contracts when it is probable that the entity will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determine those that are performance obligations, and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. We do not include a financing component in our estimated transaction price at contract inception unless we estimate that certain performance obligations will not be satisfied within one year. Additionally, we recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that we otherwise would have recognized is one year or less.
Research and development expenses
As part of the process of preparing our financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed for us and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time, which we periodically confirm with the service providers and make adjustments if necessary. Examples of accrued research and development expenses include fees paid to:
•
CROs in connection with clinical trials;
•
CMOs with respect to clinical materials, intermediates, drug substance and drug product;
•
vendors in connection with research and preclinical development activities; and
•
vendors related to manufacturing, development and distribution of clinical supplies.
We must develop assumptions that require judgment to determine whether the individual promises should be accounted for as separate performance obligations or as a combined performance obligation, and to determine the stand-alone selling price for each performance obligation identified in the contract. Since the upfront license was bundled with other promises, we utilized judgment to assess the nature of the combined performance obligation and determined that the combined performance obligation is satisfied over time. Revenue is recognized using a percent complete method based on costs incurred compared with the total expected costs to be incurred (cost to cost measure of progress). There are no outputs from the performance obligation. As a result, an input method was appropriate. A cost to cost measure of progress provides a faithful depiction of the transfer of services to the customer since the predominant inputs to the performance obligation are labor costs, research and development supplies and manufacturing supplies related to the Phase 1 Study, clinical manufacturing and know-how transfer.
26
--------------------------------------------------------------------------------
The preceding estimates and judgments materially affect our recognition of revenue. Changes in our estimates of forecasted development costs could impact percentage complete and could have a material effect on revenue recorded in the period in which we determine that change occurs.
Stock-based compensation expense
Prior to our IPO in
•
the prices at which we sold preferred stock and the superior rights and preferences of the preferred stock relative to our common stock at the time of each grant;
•
the progress of our research and development programs, including the status of preclinical studies and planned clinical trials for our product candidates;
•
our stage of development and our business strategy;
•
external market conditions affecting the biotechnology industry, and trends within the biotechnology industry;
•
our financial position, including cash and cash equivalents on hand, and our historical and forecasted performance and operating results;
•
the lack of an active public market for our common stock and our preferred stock; and
•
the likelihood of achieving a liquidity event, such as an initial public offering or a sale of our company in light of prevailing market conditions.
The assumptions underlying these valuations represented management's best estimate, which involved inherent uncertainties and the application of management judgement. As a result, if factors or expected outcomes changed and we used significantly different assumptions or estimates, our stock-based compensation could be materially different.
Following our IPO, the fair value of our common stock is determined based on the quoted market price of our common stock.
There were no significant changes to assumptions used to value options using the Black Scholes option pricing model in 2022, with the exception of the stock and exercise prices.
Government grant funding and potential repayment commitments under recoverable cash advance grants (RCAs)
We have agreements with granting agencies whereby we receive funding under grants, which partially or fully conreimburse us for eligible research and development expenditures. Certain grant agreements require us to repay the funding wherein the repayment provision of the grants are predicated on whether we decide to pursue commercial development or out licensing of the drug candidate that is produced from the results of the research program. The repayment provision includes a portion that is fixed (corresponding to 30% of the grant) which is effective after we decide to pursue commercial development or out licensing of the drug candidate. The repayment provision also includes a potential obligation to pay a royalty that is contingent upon achieving sales of a product developed through the program. The maximum amount payable to the granting agency under each grant, including the fixed repayments, the royalty on revenue, and the interest thereon, is twice the amount of funding received.
Grant funding for research and development received under grant agreements where there is a repayment provision is recognized as other income to the extent there is no potential obligation to repay this funding. We record the present value of the liability as a grant repayable in the accompanying condensed consolidated balance sheets. The grant repayable is subsequently recorded at amortized cost. There were no significant changes to assumptions in 2022.
27
--------------------------------------------------------------------------------
Income taxes
We are subject to taxes in the
Furthermore, significant judgment is required in evaluating our tax positions.
In the ordinary course of business, there are many transactions and calculations
for which the ultimate tax settlement is uncertain. As a result, we recognize
the effect of this uncertainty on our tax attributes or taxes payable based on
our estimates of the eventual outcome. These effects are recognized when,
despite our belief that our tax return positions are supportable, we believe
that it is more likely than not that some of those positions may not be fully
sustained upon review by tax authorities. We are required to file income tax
returns in the
© Edgar Online, source
