Assessing the Fairness of iTeos Therapeutics' $10.047-per-Share Acquisition Offer: A Valuation Deep Dive

The proposed $10.047-per-share acquisition offer for iTeos Therapeutics (ITOS), combined with contingent value rights (CVRs), has sparked debate among investors about whether it fairly compensates shareholders for the company's clinical pipeline and strategic potential. To evaluate this, we must dissect the offer's structure, compare it to historical biotech M&A trends, and weigh the risks and rewards of the CVRs against iTeos' operational runway and pipeline progress.

The iTeos Valuation Framework

iTeos Therapeutics, a clinical-stage biopharma firm, reported $624.3 million in cash and investments as of Q1 2025, with operational runway extending through 2027. This liquidity, coupled with its advancing immuno-oncology pipeline, positions the company to potentially initiate multiple Phase 3 trials for the belrestotug + dostarlimab combination in non-small cell lung cancer (NSCLC) and head and neck squamous cell carcinoma (HNSCC).

The acquisition offer of $10.047 per share represents a 21% premium over ITOS' 90-day volume-weighted average price (VWAP) as of May 16, 2025. While this provides immediate liquidity, the CVRs introduce a critical layer of complexity. Shareholders receive:
1. Excess Net Cash at Closing: 100% of iTeos' cash in excess of $475 million.
2. Asset Disposition Proceeds: 80% of net proceeds from selling pipeline candidates within six months post-merger.

CVRs: A Double-Edged Sword

CVRs have become a staple in biotech M&A, particularly for early-stage companies with unproven assets. Between 2023 and 2025, major deals like Novartis' $1.7 billion acquisition of Regulus Therapeutics and AstraZeneca's $1 billion deal for EsoBiotec incorporated CVRs to align acquirer and seller interests. These structures typically tie payments to regulatory or clinical milestones, but iTeos' CVR is unique in its focus on cash liquidity and asset monetization rather than trial outcomes.

The fairness of the offer hinges on two questions:
1. Is $10.047 sufficient for iTeos' current pipeline and cash reserves?
- At the time of the offer, iTeos' cash balance of $624.3 million exceeds the $475 million threshold. If the company maintains its current burn rate, the CVR could deliver $149.3 million in excess cash to shareholders. This creates a floor value for the CVR, even if asset sales fall short.
2. What is the upside potential from asset disposition?
- iTeos' belrestotug program, in collaboration with GSK, is its most valuable asset. If Concentra Biosciences (the acquirer) decides to sell this program, the 80% proceeds share could significantly boost shareholder returns. However, the six-month window for monetization introduces uncertainty—will Concentra prioritize speed over value?

Historical Precedent: Fairness in Biotech M&A

From 2023 to 2025, CVR structures in biotech deals typically offered 1.5x to 2.5x upside potential relative to the upfront cash component, assuming successful milestone achievement. For example:
- Novartis' Regulus deal: $7/share upfront + $7/share contingent on ADPKD drug approval.
- AstraZeneca's EsoBiotec deal: $425 million upfront + $575 million in milestones tied to CAR-T development.

In contrast, iTeos' offer provides a fixed cash component with a CVR that depends on cash liquidity and asset sales—a less traditional structure. This approach reduces the acquirer's risk but also caps the upside potential for shareholders, who are not rewarded for achieving clinical milestones (e.g., Phase 3 success in GALAXIES Lung-201).

Strategic Alternatives and Shareholder Risk

If iTeos were to reject the offer, its strategic alternatives include:
1. Continuing development: Leveraging its $624.3 million cash runway to advance belrestotug into Phase 3 trials. A successful trial could justify a higher valuation, especially if the drug demonstrates superior efficacy in PD-L1 selected NSCLC.
2. Partnerships or co-development deals: Collaborating with other pharma firms to monetize the belrestotug program without a full sale.
3. Going public or raising capital: While dilutive, a public offering could unlock value if the market reassesses iTeos' pipeline post-GALAXIES data.

However, these alternatives carry risks. Clinical trial failures, regulatory delays, or competitive pressures could erode value. The acquisition offer, while modest, provides certainty in an uncertain environment.

Investment Implications

For shareholders, the decision boils down to risk tolerance and confidence in the pipeline's potential:
- Take the offer: The $10.047 cash plus CVR offers a floor of $149.3 million in excess cash. If Concentra sells the belrestotug program for $200 million, shareholders could receive an additional $160 million (80% of $200 million), pushing total proceeds to $10.047 + $149.3M + $160M = ~$10.20/share in combined value.
- Hold out: If iTeos advances belrestotug into Phase 3 and achieves positive data, the company could command a higher valuation. However, this path requires navigating clinical and regulatory risks that could take years to resolve.

Conclusion: A Prudent but Conservative Offer

The $10.047-per-share offer, combined with CVRs, represents a conservative but reasonable valuation for iTeos. While the CVR structure lacks the upside of milestone-based CVRs seen in other biotech deals, it provides immediate liquidity and a tangible floor value through excess cash and asset sales. For risk-averse investors, this offer is a compelling exit. For those willing to bet on iTeos' pipeline, rejecting the offer could unlock greater long-term value—but at the cost of prolonged uncertainty.

Final Recommendation: Investors should support the acquisition if they believe the CVR's potential upside (from excess cash and asset sales) justifies the opportunity cost of holding out. However, those who view the belrestotug program as a high-probability blockbuster may prefer to wait, assuming iTeos can secure additional funding or partnerships. The decision ultimately hinges on the balance between certainty and ambition.