Q32 Bio Inc.(QTTB) - 2023 Q3 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Financial Statements The company's financial statements reflect a strategic halt in operations, resulting in significant net losses and going concern doubts | Indicator | As of Sep 30, 2023 (in thousands) | As of Dec 31, 2022 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $29,111 | $33,986 | | Short-term investments | $74,187 | $141,040 | | Total current assets | $106,635 | $181,015 | | Total assets | $140,063 | $228,470 | | Total liabilities | $51,852 | $50,492 | | Total stockholders' equity | $88,211 | $177,978 | | Accumulated deficit | ($525,979) | ($429,137) | | Indicator (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Collaboration revenue | $0 | $802 | $1,156 | $2,406 | | Research and development | $17,519 | $25,854 | $60,489 | $71,202 | | General and administrative | $6,842 | $7,810 | $23,355 | $29,991 | | Restructuring and other charges | $6,640 | $0 | $6,640 | $0 | | Loss from operations | ($31,001) | ($32,862) | ($89,328) | ($98,787) | | Gain on sale of business | $0 | $0 | $0 | $131,249 | | Net income (loss) | ($32,954) | ($33,726) | ($96,842) | $29,290 | | Net income (loss) per share-diluted | ($0.57) | ($0.59) | ($1.68) | $0.51 | - In July 2023, the company initiated a review of strategic options, stopped further development of its programs, and reduced its workforce by 86% to significantly cut operating costs[23] - Management has concluded there is substantial doubt regarding the company's ability to continue as a going concern for more than twelve months from the financial statement issuance date[30] - A restructuring charge of $6.9 million for severance and related costs was recorded in Q3 2023 in connection with the 86% workforce reduction[84] - Effective October 1, 2023, the company was released from its primary lease obligations, which is expected to result in a gain of $8.8 million[132] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses its strategic pivot, program halts, and workforce reduction, which significantly lowered operating expenses - In July 2023, the Board approved a plan to explore strategic options, including mergers or asset sales, and consequently stopped all program development and reduced its workforce by 86%[137] | Expense Category (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Change | | :--- | :--- | :--- | :--- | | Research and development | $17,519 | $25,854 | ($8,335) | | General and administrative | $6,842 | $7,810 | ($968) | | Restructuring and other charges | $6,640 | $0 | $6,640 | - The $8.3 million decrease in Q3 2023 R&D expenses compared to Q3 2022 was primarily due to the decision to stop program development and the workforce reduction[167] - As of September 30, 2023, the company had $103.3 million in cash, cash equivalents, and short-term investments, but management has concluded there is substantial doubt about its ability to continue as a going concern[151][199] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate sensitivity on its cash and investments, with inflation deemed immaterial - The company's main market risk is interest rate sensitivity on its $103.3 million of cash and investments; a hypothetical 10% change in interest rates is not expected to have a material effect[206] - As of September 30, 2023, the company does not believe inflation has had a material effect on its business, financial condition, or results of operations[207] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls - Based on an evaluation as of the end of the period, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[210] - No changes in internal control over financial reporting occurred during the three months ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, internal controls[211] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is defending a securities class action lawsuit related to its HMI-102 clinical trial disclosures - The company is defending a putative class action lawsuit filed in March 2022 related to disclosures for its HMI-102 clinical trial; a motion to dismiss the case is currently pending[213] Item 1A. Risk Factors Key risks include a history of losses, going concern doubts, strategic uncertainty, and consequences of workforce reduction - The company has a history of significant operating losses, with an accumulated deficit of approximately $526.0 million as of September 30, 2023, and anticipates continued losses[216] - Management has concluded there is substantial doubt regarding the company's ability to continue as a going concern for more than twelve months[231] - The ongoing evaluation of strategic alternatives is costly and complex, with no assurance that any transaction will be completed or have a positive impact[218][222] - The recent 86% reduction in force may lead to unintended consequences such as loss of institutional knowledge and decreased morale[481][483] - The company's novel gene editing and AAVHSC platforms are unproven in late-stage trials, and the regulatory landscape for such therapies is uncertain and continues to change[250][251][253] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities This section is not applicable for the reporting period Item 5. Other Information The company reports no other material information and notes its status as a smaller reporting company - The company is a smaller reporting company and is not required to provide information otherwise required under Item 408(a) of Regulation S-K[527] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents and certifications