Quince Therapeutics(QNCX) - 2021 Q4 - Annual Report

PART I Business Cortexyme pivoted to prioritize COR588 for Alzheimer's after atuzaginstat failed its GAIN trial and received a full FDA clinical hold, initiating a 53% workforce reduction - The company's core strategy is based on the discovery of P. gingivalis and its toxic proteases (gingipains) in the brains of Alzheimer's and Parkinson's disease patients, suggesting a causal link to neurodegeneration[20] - The Phase 2/3 GAIN trial for atuzaginstat (COR388) in mild to moderate Alzheimer's patients did not meet its co-primary cognitive and functional endpoints in the overall cohort of 643 participants[21] - On January 25, 2022, the FDA placed a full clinical hold on the Investigational New Drug (IND) application for atuzaginstat (COR388) for Alzheimer's disease[22][36] - Following the clinical hold on atuzaginstat, the company is prioritizing the development of its next-generation gingipain inhibitor, COR588, for Alzheimer's disease. A Phase 1 trial for COR588 began in August 2021[22][23] - The company is exploring new indications for atuzaginstat (COR388), including oncology (oral/head and neck squamous cell carcinoma) and periodontal disease[22][25][29] - In response to the pipeline reprioritization, the company initiated a cost reduction program in February 2022, planning to reduce headcount by approximately 53% and incurring estimated severance costs of up to $2.1 million[37][116] Pipeline and Clinical Development Cortexyme's pipeline details atuzaginstat's GAIN trial failure and clinical hold, prioritizing COR588 and other inhibitors - The GAIN trial showed a dose-dependent slowing of cognitive decline in a pre-specified subgroup of patients with detectable P. gingivalis DNA in saliva, with the 80 mg dose showing a 57% slowing of decline on ADAS-Cog11 (p=0.02)[21] - Atuzaginstat (COR388) was associated with dose-related, asymptomatic liver enzyme elevations in the GAIN trial, which led to a partial clinical hold in February 2021 and ultimately a full clinical hold in January 2022 for the Alzheimer's indication[21][35][36] - The company is advancing COR588, a second-generation brain-penetrant lysine gingipain inhibitor, which has completed IND-enabling studies and entered a Phase 1 trial in August 2021[23] - The pipeline also includes a 3CLpro inhibitor (COR803) for coronavirus infections and two arginine gingipain inhibitors progressing toward IND-enabling studies[32][33] Operations and Strategy Cortexyme's operations rely on third-party manufacturing, lack commercial capabilities, face competition, and detail intellectual property - The company does not own manufacturing facilities and relies on third-party contract manufacturing organizations (CMOs) for the supply of its drug candidates[43] - Cortexyme currently has no sales, marketing, or commercial distribution capabilities and plans to build this infrastructure or partner with third parties if any of its drug candidates approach commercialization[48][49] - The company faces competition from large pharmaceutical and biotechnology companies developing therapies for Alzheimer's disease, including AbbVie, Biogen, Eli Lilly, Eisai, and Roche[51][52] - The company holds issued U.S. patents for atuzaginstat (COR388) providing composition of matter and method of treatment coverage through 2037, with foreign patents extending through 2035[53] Regulatory and Human Capital Cortexyme's drug development is subject to extensive regulation, with a significant planned workforce reduction impacting human capital - The company's operations are subject to extensive regulation by government authorities in the U.S. (FDA) and other countries, covering all stages from research and development to post-approval marketing[56] - The FDA drug development process involves preclinical studies, an Investigational New Drug (IND) application, and multiple phases of human clinical trials (Phase 1, 2, 3) to establish safety and efficacy before a New Drug Application (NDA) can be submitted[58][67][70] - As of December 31, 2021, the company had 55 employees, with 39 in research and development. A planned cost reduction program will reduce headcount by approximately 53% by July 2022[115][116] Risk Factors The company faces substantial risks, including drug candidate success, novel therapeutic approach, funding needs, regulatory hurdles, and stock price volatility - The company is substantially dependent on the success of COR588 and atuzaginstat (COR388). The full clinical hold on atuzaginstat for Alzheimer's disease significantly harms the business[123][124] - The company's novel therapeutic approach, targeting P. gingivalis, is unproven and exposes it to unforeseen risks. The GAIN trial's failure to meet primary endpoints underscores this risk[126][127] - The company has a limited operating history, has never generated revenue, and has incurred significant net losses, with an accumulated deficit of $236.6 million as of December 31, 2021[144][146] - Substantial additional funding is required to finance operations. Without it, the company may be forced to delay, reduce, or eliminate drug development programs[152] - The company relies on third parties for manufacturing and conducting clinical trials, which reduces control and introduces risks related to performance, compliance, and potential delays[174] - The market price of the company's common stock is highly volatile and has been negatively impacted by clinical trial results and regulatory actions, such as the FDA clinical hold[298] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None[321] Properties The company's corporate headquarters are in a subleased facility in South San Francisco, with additional office space in San Diego for clinical operations - The main corporate headquarters are subleased in South San Francisco, CA, with a lease expiring in July 2022 and an option to extend to July 2023[321] - An additional office for clinical trial operations is leased in San Diego, CA, with that lease expiring in August 2023[321] Legal Proceedings The company is not a party to any material litigation or legal proceedings expected to adversely affect its business - The company is not currently a party to any material legal proceedings[322] Mine Safety Disclosures This item is not applicable to the company's business - Not applicable[323] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "CRTX", has never paid dividends, and has significantly underperformed market indexes since its IPO - The company's common stock is listed on the Nasdaq Global Select Market under the ticker symbol "CRTX"[326][327] - The company has never declared or paid cash dividends and does not anticipate doing so in the foreseeable future[330] Stock Performance | Company/Index | 5/9/2019 | 12/31/2019 | 12/31/2020 | 12/31/2021 | |---|---|---|---|---| | Cortexyme, Inc (CRTX) | $100.00 | $170.69 | $84.46 | $38.37 | | Nasdaq Composite Index | $100.00 | $113.43 | $162.92 | $197.77 | | Nasdaq Biotechnology Index | $100.00 | $114.28 | $143.64 | $142.73 | Management's Discussion and Analysis of Financial Condition and Results of Operations The company reported an increased net loss of $89.9 million in 2021, driven by strategic pivot to COR588, a 53% workforce reduction, and increased G&A expenses, while maintaining $126.7 million in cash to fund operations through 2024 - On January 25, 2022, the FDA placed a full clinical hold on the atuzaginstat (COR388) IND for Alzheimer's Disease, prompting a prioritization of the next-generation inhibitor, COR588[335] - In February 2022, the Board approved a cost reduction program to reduce headcount by approximately 53%, with expected annualized savings of $8.0 million to $8.5 million in 2022[348][390] Selected Financial Data (in millions) | | Year Ended December 31, 2021 | Year Ended December 31, 2020 | |---|---|---| | Research and development | $60.8 million | $61.3 million | | General and administrative | $29.5 million | $17.6 million | | Loss from operations | ($90.3 million) | ($78.9 million) | | Net loss | ($89.9 million) | ($76.8 million) | - As of December 31, 2021, the company had cash, cash equivalents, and investments of $126.7 million and believes these resources are sufficient to fund planned operations through 2024[346][347][386] - In December 2021, the company entered into an Open Market Sales Agreement (ATM) to sell up to $150.0 million of common stock. Between January 1 and February 24, 2022, it sold 51,769 shares for net proceeds of approximately $608,000[387][388] Results of Operations Cortexyme's results detail changes in R&D, G&A expenses, and interest income for the fiscal year - Research and development expenses decreased slightly by $0.5 million to $60.8 million in 2021. A $16.5 million decrease in atuzaginstat (COR388) costs was largely offset by an $11.4 million increase in personnel-related expenses (including stock-based compensation) and a $3.0 million increase in costs for the COR588 program[377][378][380] - General and administrative expenses increased by $11.9 million (67.9%) to $29.5 million in 2021, primarily due to a $9.2 million increase in personnel-related costs from higher headcount and stock-based compensation, and a $1.2 million increase in consulting and marketing expenses[382] - Interest income decreased by $1.4 million (69.7%) in 2021 due to lower average cash and investment balances and lower yields[384] Liquidity and Capital Resources Cortexyme's liquidity section analyzes cash flow activities from operations, investing, and financing, and its overall financial position Cash Flow Summary (in thousands) | Cash Flow Activity (in thousands) | Year Ended Dec 31, 2021 | Year Ended Dec 31, 2020 | |---|---|---| | Net cash used in operating activities | $(62,932) | $(50,818) | | Net cash provided by (used in) investing activities | $58,952 | $(52,431) | | Net cash provided by financing activities | $6,808 | $118,876 | - Net cash used in operating activities increased to $62.9 million in 2021 from $50.8 million in 2020, primarily due to the higher net loss, partially offset by an increase in non-cash stock-based compensation[394] - Net cash provided by investing activities was $59.0 million in 2021, driven by $98.0 million in maturities of investments exceeding the $38.8 million in purchases[397] - Net cash provided by financing activities was $6.8 million in 2021, consisting of proceeds from stock option exercises. This is a significant decrease from 2020, which included $117.6 million from a private placement[399] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations on its investment portfolio, with foreign currency risk deemed immaterial - The primary market risk is interest rate risk on the company's investment portfolio of cash equivalents and marketable debt securities, which totaled $126.7 million at year-end 2021[405] - The company faces foreign exchange risk from transactions denominated in currencies other than the U.S. dollar but does not use forward exchange contracts to hedge this exposure[406] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for fiscal year 2021, including the auditor's report and detailed notes Consolidated Balance Sheet (in thousands) | Consolidated Balance Sheet (in thousands) | Dec 31, 2021 | Dec 31, 2020 | |---|---|---| | Cash, cash equivalents, and investments | $126,735 | $184,284 | | Total Assets | $133,228 | $189,466 | | Total Liabilities | $14,642 | $17,204 | | Total Stockholders' Equity | $118,586 | $172,262 | Consolidated Statement of Operations (in thousands) | Consolidated Statement of Operations (in thousands) | 2021 | 2020 | 2019 | |---|---|---|---| | Research and development | $60,795 | $61,307 | $30,214 | | General and administrative | $29,523 | $17,586 | $8,954 | | Net Loss | $(89,945) | $(76,849) | $(36,980) | | Net Loss Per Share | $(3.03) | $(2.63) | $(1.94) | - The independent auditor's report identified the accounting for prepaid and accrued clinical trial expenses as a critical audit matter due to the significant judgments and estimates involved in determining the progress and cost of clinical trials[415][416] - As of December 31, 2021, the company had federal net operating loss carryforwards of approximately $207.9 million to offset future taxable income, though their use may be limited by ownership change provisions[527] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reported no changes in or disagreements with its accountants on any matter of accounting principles or practices, or financial statement disclosure - None[537] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2021, with no material changes during Q4 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[537] - Management's assessment concluded that the company's internal control over financial reporting was effective as of December 31, 2021[540] PART III Directors, Executive Officers, Corporate Governance, Compensation, and Other Matters Information for Items 10-14, covering directors, executive officers, corporate governance, compensation, and related matters, is incorporated by reference from the 2022 Proxy Statement - Information regarding Directors, Executive Officers, and Corporate Governance is incorporated by reference from the 2022 Proxy Statement[545] - Information regarding Executive Compensation is incorporated by reference from the 2022 Proxy Statement[547] - Information regarding Security Ownership and Principal Accountant Fees is incorporated by reference from the 2022 Proxy Statement[548][550] PART IV Exhibits and Financial Statement Schedules This section provides an index of consolidated financial statements and all exhibits filed or incorporated by reference, including corporate documents and material contracts - This section contains the index to the Consolidated Financial Statements and a list of all exhibits filed with the Form 10-K[553][554] Form 10-K Summary The company has not provided a summary for its Form 10-K - None[555]