Q32 Bio Inc.(US:QTTB)2025-05-08 11:11PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The unaudited condensed consolidated financial statements for Q32 Bio Inc. as of March 31, 2025, reflect the company's financial position following its merger with Homology. The company reported a net loss of $11.0 million for the first quarter of 2025, a significant shift from a net income of $1.0 million in the same period of 2024, which was primarily due to a one-time gain from the change in fair value of convertible notes in 2024. Total assets decreased, driven by cash used in operations, resulting in a stockholders' deficit of $4.0 million Condensed Consolidated Balance Sheets As of March 31, 2025, the company's total assets were $79.1 million, a decrease from $92.3 million at December 31, 2024, primarily due to a reduction in cash and cash equivalents from $78.0 million to $65.5 million. Total liabilities decreased slightly to $83.1 million from $86.7 million. The company shifted from a stockholders' equity of $5.7 million to a stockholders' deficit of $4.0 million, driven by the net loss during the quarter Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $65,483 | $77,965 | | Total current assets | $68,632 | $81,877 | | Total assets | $79,071 | $92,332 | | Liabilities & Stockholders' Equity | | | | Total current liabilities | $14,579 | $16,465 | | Total liabilities | $83,085 | $86,657 | | Total stockholders' equity (deficit) | $(4,014) | $5,675 | Condensed Consolidated Statements of Operations For the three months ended March 31, 2025, the company reported a net loss of $11.0 million, or ($0.90) per share. This contrasts with a net income of $1.0 million, or $1.03 per basic share, for the same period in 2024. The 2024 income was primarily due to a $15.9 million non-cash gain from the change in fair value of convertible notes upon the merger. Operating expenses decreased to $12.2 million in Q1 2025 from $14.8 million in Q1 2024, mainly due to lower research and development costs Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Research and development | $7,124 | $9,841 | | General and administrative | $5,104 | $5,002 | | Total operating expenses | $12,228 | $14,843 | | Loss from operations | $(12,228) | $(14,843) | | Change in fair value of convertible notes | — | $15,890 | | Net income (loss) | $(11,031) | $1,029 | | Net income (loss) per share—basic | $(0.90) | $1.03 | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities was $12.5 million for the three months ended March 31, 2025, compared to $14.6 million in the prior-year period. There were no investing or financing activities in Q1 2025. In contrast, Q1 2024 saw significant financing inflows of $99.3 million, primarily from cash acquired in the reverse recapitalization ($53.2 million), proceeds from the pre-closing financing ($42.0 million), and new debt ($7.0 million). The company's total cash, cash equivalents, and restricted cash decreased from $78.6 million at the beginning of the period to $66.1 million at the end of Q1 2025 Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(12,482) | $(14,551) | | Net cash provided by investing activities | — | $97 | | Net cash provided by financing activities | — | $99,346 | | Net (decrease) increase in cash | $(12,482) | $84,892 | Notes to Condensed Consolidated Financial Statements The notes detail significant events and accounting policies, including the March 2024 merger with Homology, which was accounted for as a reverse recapitalization. The company adopted a restructuring plan in February 2025, incurring $0.9 million in severance costs. The company has venture debt of $12.5 million outstanding and has various license agreements with potential future milestone and royalty payments. As of March 31, 2025, the company believes its cash and cash equivalents of $65.5 million are sufficient to fund operations for at least one year - The merger with Homology was completed on March 25, 2024, and accounted for as a reverse recapitalization, with Legacy Q32 as the accounting acquirer. This resulted in Homology's net assets being recorded at fair value on the combined company's financial statements3335 - In February 2025, the company initiated a restructuring plan to focus on the bempikibart program, which included discontinuing the Phase 2 trial for ADX-097 and a reduction in workforce. This resulted in a restructuring charge of approximately $0.9 million in Q1 202599 - As of March 31, 2025, the company had $12.5 million in principal outstanding under its venture debt agreement with Silicon Valley Bank. The loan has an interest-only period until July 1, 2025115 - The company believes its cash and cash equivalents of $65.5 million as of March 31, 2025, are sufficient to fund operating and capital expenditures for at least one year from the issuance date of the financial statements40 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's focus on developing biologics for autoimmune diseases, with bempikibart as the lead candidate for alopecia areata (AA). A corporate restructuring in February 2025 prioritized bempikibart, discontinuing the ADX-097 trial. The analysis covers the financial impact of the March 2024 merger with Homology and a comparison of Q1 2025 and Q1 2024 results, highlighting a decrease in R&D expenses. The company's cash and cash equivalents of $65.5 million are expected to fund operations into the second half of 2026, though substantial additional capital will be needed for future development and commercialization Overview Q32 Bio is a clinical-stage biotech company focused on autoimmune and inflammatory diseases. Its lead candidate, bempikibart, is being advanced for alopecia areata (AA) following Phase 2a results, with topline data from the Part B expansion expected in the first half of 2026. In February 2025, the company restructured to prioritize bempikibart, discontinuing the Phase 2 trial of its other asset, ADX-097, and reducing its workforce - The company's most advanced product candidate, bempikibart, is being advanced for the treatment of alopecia areata (AA), with topline data from the SIGNAL-AA Part B trial expected in the first half of 2026163167 - In February 2025, a corporate restructuring was initiated to focus resources on bempikibart. This included discontinuing the Phase 2 renal basket clinical trial of ADX-097 and a workforce reduction172 - In April 2025, the FDA granted Fast Track designation to bempikibart for the treatment of AA, which is intended to facilitate development and expedite review168 Results of Operations For Q1 2025, the company reported a net loss of $11.0 million, compared to a net income of $1.0 million in Q1 2024. The prior year's income was driven by a $15.9 million non-cash gain on the conversion of convertible notes during the merger. Research and development expenses decreased by $2.7 million to $7.1 million, primarily due to lower clinical trial costs for bempikibart and the discontinuation of the ADX-097 trial. General and administrative expenses remained stable at $5.1 million Comparison of Results of Operations (in thousands) | Line Item | Q1 2025 | Q1 2024 | Change | | :--- | :--- | :--- | :--- | | Research and development | $7,124 | $9,841 | $(2,717) | | General and administrative | $5,104 | $5,002 | $102 | | Total operating expenses | $12,228 | $14,843 | $(2,615) | | Change in fair value of convertible notes | — | $15,890 | $(15,890) | | Net income (loss) | $(11,031) | $1,029 | $(12,060) | - The decrease in R&D expenses was primarily due to a $2.5 million reduction in clinical spend for the bempikibart program and a $0.5 million decrease related to the discontinuation of the ADX-097 Phase 2 trial200 - Other income (expense), net increased to $1.2 million in Q1 2025, mainly due to a $1.0 million gain on the change in fair value of the CVR liability, which was not present in the prior year204 Liquidity and Capital Resources As of March 31, 2025, the company had $65.5 million in cash and cash equivalents and an accumulated deficit of $245.8 million. Management expects the current cash position to be sufficient to fund operations into the second half of 2026. The company has primarily funded its operations through sales of preferred stock, convertible notes, venture debt, and proceeds from the Homology merger and pre-closing financing. Net cash used in operating activities was $12.5 million for Q1 2025. Substantial additional capital will be required to complete development and potential commercialization of its programs - The company had cash and cash equivalents of $65.5 million as of March 31, 2025206208 - Management projects that current cash and cash equivalents will fund operations to the second half of 2026208219 - Net cash used in operating activities for Q1 2025 was $12.5 million, primarily to fund operating expenses related to research and development activities for the bempikibart program209211 Quantitative and Qualitative Disclosures About Market Risk The company is a smaller reporting company and is not required to provide the information requested under this item - As a smaller reporting company, Q32 Bio Inc. is not required to provide quantitative and qualitative disclosures about market risk237 Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded that they were effective as of March 31, 2025. There were no changes in the company's internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by this report, March 31, 2025239 - No material changes to the company's internal control over financial reporting occurred during the first quarter of 2025240 PART II. OTHER INFORMATION Legal Proceedings The company reports that it is not currently a party to any material legal proceedings - As of the filing date, the company is not involved in any material legal proceedings243 Risk Factors The company outlines numerous risks that could materially affect its business. Key risks include a history of significant losses and the need for substantial additional capital; dependence on the success of its lead product candidate, bempikibart; competition from larger companies; uncertainties in clinical development and regulatory approval processes; reliance on third parties for manufacturing and clinical trials; and the ability to protect its intellectual property. Additional risks relate to operating as a public company post-merger, potential disruptions from its recent restructuring, and macroeconomic uncertainties Risks Related to Our Limited Operating History, Financial Position and Need for Capital The company has a history of significant losses ($11.0 million in Q1 2025) and expects them to continue. It has no products approved for sale and may never become profitable. Substantial additional capital is required to fund operations, and failure to raise it on acceptable terms could force delays or elimination of clinical programs. The company's limited operating history makes it difficult to evaluate its future success - The company has incurred significant losses since inception and expects these to continue, with a net loss of $11.0 million for the three months ended March 31, 2025245246 - Substantial additional capital is needed to finance future operations. An inability to raise funds may force the company to delay, reduce, or eliminate clinical trials and commercialization efforts250 - The company has a limited operating history and no approved products, making it difficult for investors to evaluate its business and likelihood of success255 Risks Related to Discovery, Development and Commercialization The company's success is substantially dependent on its lead candidate, bempikibart, which is in the early stages of development and faces significant competition. The development process is lengthy, expensive, and uncertain, with a high risk of failure. Early positive results may not be predictive of future outcomes. The company also faces risks related to patient enrollment, potential adverse events in clinical trials, and the unproven nature of its scientific approach - The company is substantially dependent on the success of its most advanced product candidate, bempikibart, which is still in clinical development and may not be successful264 - The company faces intense competition from multinational biopharmaceutical companies with greater financial and technical resources258 - Preclinical and clinical development is a long, expensive process with an uncertain outcome, and results from early trials may not predict success in later, larger trials274 Risks Related to our Intellectual Property The company's ability to protect its patents and proprietary rights is uncertain. It relies on a combination of patents, trade secrets, and licenses from third parties (like BMS and the University of Colorado). Failure to comply with license terms could result in the loss of critical rights. The patent landscape is complex and litigious, and the company may face challenges to the validity of its patents or infringement claims from others, which could be expensive and time-consuming to defend - The company's success depends on its ability to obtain and maintain patent protection for its product candidates, but pending applications may not issue as patents, and issued patents may be challenged or invalidated290 - The company is dependent on licenses from third parties, such as Bristol Myers Squibb (BMS) for bempikibart. Failure to comply with license obligations could lead to the loss of essential rights298299 - The company may be involved in expensive and time-consuming lawsuits to protect its intellectual property or defend against infringement claims from others334336 Risks Related to Government Regulation The company faces a lengthy, time-consuming, and unpredictable regulatory approval process with the FDA and other foreign authorities. There is no guarantee of obtaining approval for any product candidate. Even if approved, products will be subject to extensive ongoing regulation, and potential healthcare reforms could lead to unfavorable pricing and reimbursement policies. The company may seek expedited review pathways, but these do not guarantee faster approval or increase the likelihood of success - The regulatory approval process is lengthy, expensive, and unpredictable, and there is no guarantee that the company's product candidates will be approved350 - Even if approved, products will be subject to extensive ongoing regulatory obligations, and failure to comply can result in significant penalties366 - Healthcare legislative reform, price controls, and unfavorable reimbursement policies could adversely affect the commercial viability of any approved products368374377 Risks Related to Our Third Party Relationships The company relies heavily on third parties, including CROs for clinical trials and CDMOs for manufacturing. These third parties may not perform satisfactorily, leading to delays or failures in development. The company has less control over these activities but remains responsible for regulatory compliance. Finding and maintaining strategic collaborators for development and commercialization is also a key challenge - The company depends on third-party CROs to conduct clinical trials and may not have full control over their performance, which could delay development386394 - The company relies on third-party CDMOs for the supply and manufacture of its product candidates, and any interruption or quality issue could harm its research and clinical activities396 - The company may not be successful in establishing or maintaining strategic collaborations needed for the development and commercialization of its product candidates388 Risks Related to Our Business, Personnel and Operations The February 2025 strategic refocus and workforce reduction may not yield anticipated cost savings and could disrupt business operations and morale. The company is highly dependent on attracting and retaining key management and scientific personnel. Cybersecurity risks, data privacy regulations, and managing growth also present significant challenges. The company's operations are also subject to environmental, health, and safety laws - The February 2025 restructuring and workforce reduction may not result in anticipated cost savings and could lead to disruptions, attrition, and reduced employee morale406 - The company is highly dependent on its ability to attract and retain qualified key management and scientific personnel in a competitive market417 - Internal computer systems are vulnerable to security incidents and data breaches, which could result in significant liabilities and disrupt operations409 Risks Related to Our Operations Following the Merger The company faces risks related to its recent merger, including the potential inability to successfully integrate the businesses of Homology and Legacy Q32 and realize the anticipated benefits. It will continue to incur costs and demands on management associated with being a public company. Failure to maintain effective internal controls could impair the ability to produce accurate financial statements in a timely manner - The company may be unable to successfully integrate the businesses of Homology and Legacy Q32, which could prevent the realization of the merger's anticipated benefits455 - The company will continue to incur significant costs and management demands related to public company compliance and reporting obligations458 - Failure to maintain proper and effective internal controls could impair the company's ability to produce accurate and timely financial statements, potentially leading to a decline in stock price and regulatory sanctions462464 Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the period - The company reports no unregistered sales of equity securities for the period465 Defaults Upon Senior Securities There were no defaults upon senior securities during the period - The company reports no defaults upon senior securities for the period466 Other Information The company states that no Rule 10b5-1 plans or non-Rule 10b5-1 trading arrangements were adopted, modified, or terminated by officers or directors during the quarter ended March 31, 2025 - No officers or directors adopted, modified, or terminated any Rule 10b5-1 trading plans during the first quarter of 2025468 Exhibits This section lists the exhibits filed with the Form 10-Q, including the Merger Agreement, corporate governance documents, and officer certifications