iTeos Therapeutics (ITOS) has filed to raise $151 million from the sale of its common stock in an IPO, according to an amended registration statement.

The company is developing a range of treatments for various cancers, including solid tumors.

ITOS is pursuing treatments for highly prevalent cancer conditions, such as solid tumors and the IPO appears reasonably valued.

Cambridge, Massachusetts-based iTeos was founded to develop treatments for a wide range of solid tumor, blood and other cancers that enhance the body's immune system to improve cancer targeting effects.

Management is led by Chief Executive Officer Mr. Michel Detheux, Ph.D, who has been with the firm since the company's inception and was previously a director at Ludwig Cancer Research and held several roles at Ogeda.

Below is a brief overview video of iTeos:

Source: PharmaVentures InSights

The firm's lead candidate, EOS-850, is a small molecule antagonist in Phase 1b/2a trials as a monotherapy for solid tumors.

The candidate is also planned for testing in conjunction with other drugs in three trials initiating in Q3 2020.

Below is the current status of the company’s drug development pipeline:

iteospipe

Source: Company S-1 Filing

Investors in the firm have invested at least $181 million and include MPM Capital, RA Capital, Boxer Capital, UBS Oncology Impact Fund, Janus Henderson Investors affiliated funds, and Fund+ NV.

According to a 2019 market research report by ResearchAndMarkets, the global market for solid tumor treatments was approximately $121 billion in 2018 and is expected to reach $424 billion by 2027.

This represents a forecast CAGR (Compound Annual Growth Rate) of 15.0% from 2019 to 2027.

Key elements driving this expected growth are an increasing incidence of breast cancer as well as growing rates of lung cancer due to a rise of the number of persons smoking and growing air pollution.

Also, the solid tumor area is likely the largest category of cancer treatment by type and the projected growth rate is quite high on such a large base.

Major competitive vendors that provide or are developing treatments include:

iTeos’s recent financial results are typical of a clinical biopharma firm in that they feature minimal revenue and significant R&D and G&A costs associated with advancing its pipeline.

Below are the company’s financial results for the past two and ¼ years (Audited PCAOB for full years):

iteospl

Source: Company registration statement

As of March 31, 2020, the company had $147.7 million in cash and $14.5 million in total liabilities. (Unaudited, interim)

ITOS intends to sell 8.9 million shares of common stock at a midpoint price of $17.00 per share for gross proceeds of approximately $151.3 million, not including the sale of customary underwriter options.

No existing shareholders have indicated an interest to purchase shares at the IPO price, a typical feature of life science IPOs.

Assuming a successful IPO at the midpoint of the proposed price range, the company’s enterprise value at IPO would approximate $392.0 million.

Excluding effects of underwriter options and private placement shares or restricted stock, if any, the float to outstanding shares ratio will be approximately 28.03%.

Per the firm’s most recent regulatory filing, it plans to use the net proceeds as follows:

for the clinical development of EOS-850

for the clinical development of EOS-448

for the development of other product candidates in our pipeline and our drug discovery programs; and

the remainder for general corporate purposes.

Management’s presentation of the company roadshow is not available.

Listed underwriters of the IPO are J.P. Morgan, SVB Leerink, Piper Sandler and Wedbush PacGrow.

Commentary

iTOS is seeking a larger than usual life science IPO to advance its pipeline of treatment candidates for solid tumors and other cancers.

For its lead candidate, EOS-850, is in Phase 1/2 trials for solid tumors and other cancer conditions.

The next data readout for its lead candidate is expected in the first half of 2021, so that is likely the next major catalyst opportunity for the stock.

The market opportunities for the types of cancers the firm is seeking to treat are extremely large, with the solid tumor market expected to reach several hundred billion dollars worldwide in the coming years.

Management has disclosed no research or commercial collaborations with major pharma firms to-date, so is pursuing a ‘go it alone’ approach at this time.

J.P. Morgan is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 80.7% since their IPO. This is a top-tier performance for all major underwriters during the period.

As to valuation, management is asking IPO investors to pay an enterprise value of $392 million. This amount is within the typical range for biopharma IPOs, so it does not present an unreasonable valuation.

For life science investors with a patient hold time frame of at least 18 to 24 months, my opinion on the IPO is a BUY at up to $17.00 per share.

Expected IPO Pricing Date: July 23, 2020.

Glossary Of Terms

(I have no position in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. IPO stocks can be very volatile in the days immediately after an IPO. Information provided is for educational purposes only, may be in error, incomplete or out of date, and does not constitute financial, legal, or investment advice.)

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