Quince Therapeutics(QNCX) - 2022 Q4 - Annual Report

PART I Business Quince Therapeutics transformed its strategy, shifting from Alzheimer's to rare skeletal diseases, selling its legacy portfolio, and focusing on in-licensing clinical-stage assets while seeking to out-license its bone-targeting platform - In January 2023, the company sold its legacy small molecule protease inhibitor portfolio, including atuzaginstat (COR388) and COR588, to Lighthouse Pharmaceuticals, Inc[22][34] - The company's current strategy is to in-license or acquire clinical-stage assets for rare diseases and to out-license its bone-targeting drug platform and lead compound NOV004[23] - A corporate restructuring plan was approved in January 2023, involving a 47% reduction in workforce to align with the new strategy, expected to save approximately $10 million in annualized operating expenses[38][99] Key Events in 2022-2023 | Event | Date/Period | Details | | :--- | :--- | :--- | | FDA Clinical Hold | January 2022 | FDA placed a full clinical hold on atuzaginstat (COR388) | | Management Change | January 2022 | CEO and CSO resigned | | Novosteo Acquisition | May 2022 | Acquired Novosteo, Inc., focusing on rare skeletal diseases | | New Management | May 2022 | Appointed Dirk Thye, M.D. as CEO and other key executives | | Legacy Portfolio Sale | January 2023 | Sold protease inhibitor portfolio to Lighthouse Pharmaceuticals, Inc. | Drug Candidate Portfolio The company's main asset is NOV004, a bone anabolic peptide for fracture repair, which it seeks to partner or out-license, having sold its legacy Alzheimer's portfolio - NOV004 is a systemically administered bone anabolic peptide engineered to target and concentrate at bone fracture sites, showing positive results in preclinical studies[25][26] - The legacy portfolio, including atuzaginstat (COR388) which was placed on a full clinical hold by the FDA in January 2022, has been sold[28][29][34] Strategic Transactions and Restructuring The company acquired Novosteo in May 2022, sold its legacy portfolio in January 2023 for potential milestones and royalties, and initiated a 47% workforce reduction for capital conservation - The acquisition of Novosteo was completed on May 19, 2022, resulting in Novosteo becoming a wholly owned subsidiary[32] - The sale of the legacy portfolio to Lighthouse Pharmaceuticals includes potential milestone payments up to $150 million and tiered royalties on future net sales[36] - The 2023 restructuring plan is expected to incur charges of $0.6 million to $0.8 million, primarily for severance, and result in annualized savings of approximately $10 million[38][39] Commercialization, Competition, and Intellectual Property Lacking commercialization capabilities, the company faces competition in bone disease and relies on licensed patents for NOV004, expiring between 2037 and 2041 - The company has no commercialization infrastructure and will need to build or partner to market any future approved drugs[46][47] - Key competitors in the bone disease and osteogenesis imperfecta space include Amgen, Lilly, Radius Health, Ultragenyx, and Sanofi[49][50] - The company has exclusively licensed patents covering NOV004 as a composition of matter and its therapeutic use, with estimated expiration dates between 2037 and 2041, not including potential extensions[55] Regulatory Environment The company's drug development is subject to extensive FDA regulation, requiring multi-phase clinical trials and ongoing compliance with manufacturing, labeling, and healthcare laws - The U.S. drug development process requires completion of preclinical studies, submission of an Investigational New Drug (IND) application, and performance of adequate and well-controlled human clinical trials before submitting a New Drug Application (NDA) to the FDA[59][60] - Human clinical trials are typically conducted in three sequential phases (Phase 1, 2, and 3) to test for safety, efficacy, and dosage, with potential for post-approval Phase 4 studies[69][72] - The business is subject to healthcare reform measures, such as the Affordable Care Act (ACA) and the Inflation Reduction Act of 2022 (IRA), which can impact drug pricing, coverage, and reimbursement[94][95][98] Risk Factors The company faces significant strategic, financial, operational, and intellectual property risks, including uncertainty in asset acquisition, ongoing losses, potential Nasdaq delisting, and challenges in drug development and patent protection Strategic and Financial Risks The company's new in-licensing strategy is uncertain, it has a history of significant losses and no revenue, requires substantial additional capital, and its stock faces Nasdaq delisting risk - The success of the company's new strategic direction to in-license or acquire clinical-stage assets is uncertain and may not enhance shareholder value[103][104][105] - The company has a history of net losses and has never been profitable, with an accumulated deficit of $288.3 million as of December 31, 2022[106] - The company will require substantial additional funding to finance its operations and future acquisitions, and failure to raise capital could force it to delay or eliminate programs[112][141] - The company's common stock is at risk of delisting from Nasdaq due to its failure to meet the minimum $1.00 bid price requirement, which could adversely affect liquidity and the ability to raise capital[297][298] Development, Regulatory, and Commercial Risks Drug development is risky, relying on third parties, with no guarantee of regulatory approval or effective commercialization due to lack of internal infrastructure - Clinical drug development is inherently risky, and positive results from preclinical or early clinical trials are not predictive of success in later-stage trials[130][131] - The company relies on third-party CROs and contract manufacturers, and their failure to perform satisfactorily could delay or halt development and commercialization efforts[157][160] - Obtaining regulatory approval is a lengthy and uncertain process, and the FDA or other authorities may not approve any future drug candidates[146][148][149] - The company has no sales, marketing, or distribution infrastructure and would need to build these capabilities or partner with third parties to commercialize any approved drugs[167] Intellectual Property Risks The company faces significant IP risks, including challenges in obtaining and defending patents, reliance on a key license for NOV004, and potential costly litigation - The company's ability to commercialize its technology could be adversely affected if it fails to obtain and maintain sufficient patent protection or if its patents are deemed invalid or unenforceable[225][226][227] - The company depends on an exclusive license agreement with Purdue Research Foundation for NOV004; termination of this license could result in the loss of significant rights[238][241] - The company may be involved in costly and time-consuming lawsuits to protect its patents or may face infringement claims from third parties, which could prevent or delay drug development[244][252] - Protecting trade secrets is difficult, and unauthorized disclosure by employees, consultants, or partners could harm the company's competitive position[267] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[315] Properties The company leases corporate headquarters in South San Francisco and other office/lab spaces in San Diego and West Lafayette, with the latter recently subleased - The company leases office and lab space in South San Francisco, CA; San Diego, CA; and West Lafayette, IN[315] - In response to strategic changes, the company entered into a sublease agreement for its West Lafayette property on February 27, 2023[315] Legal Proceedings The company is not currently involved in any material legal proceedings - The company is not currently a party to any material legal proceedings[316] Mine Safety Disclosures This item is not applicable to the company - Not applicable[317] 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 "QNCX," with no sales of unregistered securities or issuer purchases reported - The company's common stock trades on the Nasdaq Global Select Market under the symbol "QNCX"[319][320] - There were no sales of unregistered securities or issuer purchases of equity securities reported for the period[321] Management's Discussion and Analysis of Financial Condition and Results of Operations The company's 2022 net loss decreased to $51.7 million due to reduced R&D, with $93.8 million in cash expected to fund operations through 2026, excluding new acquisitions Results of Operations The company's 2022 net loss significantly improved to $51.7 million, driven by a 58.6% reduction in R&D expenses and an 11.9% decrease in G&A, alongside a $0.8 million goodwill impairment Comparison of Operations (Years Ended Dec 31) | (in thousands) | 2022 | 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Research and development | $25,178 | $60,795 | $(35,617) | (58.6)% | | General and administrative | $26,012 | $29,523 | $(3,511) | (11.9)% | | Goodwill impairment charge | $825 | $0 | $825 | 100.0% | | Loss from operations | $(52,015) | $(90,318) | $(38,303) | (42.4)% | | Net loss | $(51,660) | $(89,945) | $(38,285) | (42.6)% | - The $35.6 million decrease in R&D expenses was primarily due to a $24.2 million reduction in costs for the atuzaginstat (COR388) program as its Phase 2/3 GAIN trial concluded in late 2021[380][381] - A non-cash goodwill impairment charge of $0.8 million was recorded in 2022 related to the Novosteo acquisition, driven by deteriorating macroeconomic conditions and a decline in the company's market capitalization[391] Liquidity and Capital Resources As of December 31, 2022, the company held $93.8 million in cash, sufficient for operations through 2026, but will require additional capital for new asset acquisitions - The company had cash, cash equivalents, and investments totaling $93.8 million as of December 31, 2022[396] - Existing capital is expected to fund planned operations through at least 2026, but this forecast excludes any costs related to future in-licensing or acquisition of new assets[345][403] Summary Statement of Cash Flows (in thousands) | | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(44,038) | $(62,932) | | Net cash provided by investing activities | $18,002 | $58,952 | | Net cash provided by financing activities | $707 | $6,808 | Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Quince Therapeutics, Inc. is not required to provide this information - The company is a smaller reporting company and is not required to provide this information[415] Financial Statements and Supplementary Data This section presents audited financial statements for 2022 and 2021, showing decreased assets and net loss, with notes detailing the Novosteo acquisition and subsequent strategic changes Consolidated Balance Sheet Data (in thousands) | | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $44,579 | $69,724 | | Total current assets | $93,748 | $111,673 | | Total assets | $103,910 | $133,228 | | Total current liabilities | $3,069 | $14,222 | | Total liabilities | $3,317 | $14,642 | | Total stockholders' equity | $100,593 | $118,586 | Consolidated Statement of Operations Data (in thousands) | | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | | :--- | :--- | :--- | | Total operating expenses | $52,015 | $90,318 | | Loss from operations | $(52,015) | $(90,318) | | Net loss | $(51,660) | $(89,945) | | Net loss per share | $(1.54) | $(3.03) | - The May 2022 acquisition of Novosteo was accounted for as a business combination with a total consideration of $16.5 million, resulting in the recognition of a $5.9 million in-process research and development (IPR&D) intangible asset and $0.8 million in goodwill[553][554][555] - Subsequent events in January 2023 include the sale of the legacy protease inhibitor portfolio and a cost reduction program that will reduce headcount by approximately 47%[564][567] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reported no changes in or disagreements with its accountants regarding accounting and financial disclosure - None[572] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with no material changes in Q4 2022 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[572] - Management assessed internal control over financial reporting and concluded it was effective as of December 31, 2022[575] PART III This section incorporates information by reference from the company's 2023 Proxy Statement, covering directors, executive compensation, security ownership, related transactions, and accountant fees Directors, Executive Officers and Corporate Governance Information required by this item, including details about directors, executive officers, and the code of business conduct, is incorporated by reference from the company's 2023 Proxy Statement - Information is incorporated by reference from the 2023 Proxy Statement[582][583] Executive Compensation Information regarding director and executive compensation is incorporated by reference from the company's 2023 Proxy Statement - Information is incorporated by reference from the 2023 Proxy Statement[584] Security Ownership of Certain Beneficial Owners and Management And Related Stockholder Matters Information regarding security ownership and equity compensation plans is incorporated by reference from the company's 2023 Proxy Statement - Information is incorporated by reference from the 2023 Proxy Statement[585] Certain Relationships and Related Transactions, and Director Independence Information regarding related party transactions and director independence is incorporated by reference from the company's 2023 Proxy Statement - Information is incorporated by reference from the 2023 Proxy Statement[586] Principal Accountant Fees and Services Information regarding fees and services of the principal accountant, BDO USA, LLP, is incorporated by reference from the company's 2023 Proxy Statement - Information is incorporated by reference from the 2023 Proxy Statement[587] PART IV This section lists exhibits filed with the Form 10-K and notes the omission of financial statement schedules where not applicable or redundant Exhibits and Financial Statement Schedules This item lists the exhibits filed with the annual report and notes the omission of financial statement schedules - This section lists the exhibits filed with the report, including various agreements, certificates, and certifications[590][592] Form 10-K Summary The company did not provide a summary for this item - None[593]