Quince Therapeutics(US:QNCX)2024-04-01 20:50PART I This section provides an overview of the company's business, strategic direction, associated risks, corporate governance, and operational details Item 1. Business. Quince Therapeutics pivoted to rare diseases via EryDel acquisition, advancing AIDE platform and lead Phase 3 asset EryDex for A-T - Quince Therapeutics, Inc. (formerly Cortexyme, Inc.) completed the acquisition of EryDel on October 20, 2023, shifting its strategic focus to late-stage biotechnology for rare diseases, utilizing EryDel's proprietary AIDE technology platform and lead Phase 3 asset, EryDex293233 - The AIDE technology platform is an innovative drug/device combination designed to encapsulate drugs into a patient's own red blood cells, offering potential benefits such as better tolerability, enhanced tissue distribution, reduced immunogenicity, and prolonged circulating half-life344045 - EryDex, the lead asset, encapsulates Dexamethasone Sodium Phosphate (DSP) in red blood cells to treat Ataxia-Telangiectasia (A-T), a rare neurodegenerative disease with no approved treatments, representing a potential $1+ billion peak commercial opportunity374952 - The company plans to initiate enrollment for the Phase 3 NEAT clinical trial of EryDex in A-T in Q2 2024, with top-line results anticipated in H2 2025, and aims for a U.S. NDA submission in 2026, contingent on positive study results426667 - As of December 31, 2023, Quince had $75.1 million in cash, cash equivalents, and investments, providing capital into 2026 to fund the Phase 3 NEAT clinical trial and prepare for potential NDA submission36485 - Key events in Fiscal Year 2023 included the sale of the legacy small molecule protease inhibitor portfolio, a workforce reduction of approximately 47% to align with the new corporate strategy, and the acquisition of EryDel43 Overview Strategy Fiscal Year 2023 Key Events Proprietary AIDE Technology Platform Phase 3 Lead Asset – EryDex for the Potential Treatment of A-T Prior ATTeST Phase 3 Clinical Trial Results in Patients with A-T Pivotal Phase 3 NEAT Clinical Trial of EryDex in Patients with A-T Regulatory Interactions Manufacturing Commercialization Plan Competition Intellectual Property Regulatory Matters U.S. Drug Development EU Drug Development Combination Products Pharmaceutical Coverage, Pricing and Reimbursement Healthcare Law and Regulation Healthcare Reform Employees and Human Capital Corporate Information Item 1A. Risk Factors. The company faces significant risks in EryDex development, integration, funding, regulatory compliance, and intellectual property protection - The success of the EryDel Acquisition and the realization of expected operational efficiencies and benefits are uncertain, with potential challenges in integration, retaining key employees, and managing increased costs194195 - The company is substantially dependent on the success of its lead drug candidate, EryDex, for A-T. The previous Phase 3 ATTeST trial failed its primary endpoint, and there is no guarantee the upcoming NEAT study will be successful or lead to NDA approval196197201 - The company has never generated revenue from sales, has incurred net losses since inception ($31.4 million in 2023, $51.7 million in 2022), and expects to continue incurring losses, requiring substantial additional funding198200230 - Milestone payments of up to $485.0 million to EryDel shareholders and obligations under the EIB Facility could impose substantial additional costs and adversely affect EryDex's profitability if approved204205 - Clinical drug development is lengthy, expensive, and uncertain; preclinical and early clinical trial results are not always predictive of future outcomes, and drug candidates may not achieve favorable results or receive marketing approval213214 - The company's ability to obtain and maintain sufficient intellectual property protection for its drug candidates and technology is critical, as competitors could develop similar products, and patent challenges are costly and uncertain354355356 - The company is subject to extensive government regulations (FDA, EMA) for drug development, manufacturing, and marketing. Non-compliance or changes in regulations could lead to delays, penalties, or inability to commercialize products8890342 - Healthcare reforms, including the PPACA and IRA, aim to contain costs and may negatively impact drug pricing, coverage, and reimbursement, potentially limiting revenue and profitability for approved products178180182 Risks Relating to Our Business Risks Related to the Development of Our Drug Candidates Risks Relating to Our Financial Position Risks Relating to Regulatory Review and Approval of Our Drug Candidates and Other Legal Compliance Matters Risks Relating to Our Intellectual Property General Risk Factors Item 1B. Unresolved Staff Comments. The company has no unresolved staff comments from the SEC - There are no unresolved staff comments458 Item 1C. Cybersecurity. Quince Therapeutics maintains a structured cybersecurity risk management program, overseen by the Audit Committee, integrating threat identification and mitigation - The board of directors' Audit Committee oversees the company's cybersecurity risk management processes, including oversight and mitigation of risks from cybersecurity threats459466 - The company implements various information security processes, including manual and automated tools, threat reports, systems monitoring, personnel training, cybersecurity insurance, data encryption, and access controls, to identify, assess, and manage material cybersecurity risks460461462 - Cybersecurity risk management is integrated into the company's overall risk management processes, with the IT Department and senior management prioritizing and mitigating threats463467 - The company utilizes third-party service providers for cybersecurity assistance and employs a vendor management strategy to address risks associated with these providers464 Cybersecurity Risk Management and Strategy Governance Item 2. Properties. Quince Therapeutics operates headquarters in South San Francisco, a manufacturing facility in Medolla, Italy, and an office in Bresso, Italy - The company's corporate headquarters are in South San Francisco, California, with a lease expiring in November 2024469 - Manufacturing operations are located in Medolla, Italy, under a lease agreement expiring in August 2028469 - An additional office space is leased in Bresso, Italy, with a lease agreement extending until January 2036469 Item 3. Legal Proceedings. The company is not currently involved in material legal proceedings, but future litigation could adversely impact its business and reputation - The company is not currently a party to any litigation or legal proceedings that are likely to have a material adverse effect on its business470 - Litigation, regardless of outcome, can adversely impact the company due to defense and settlement costs, diversion of management resources, negative publicity, and reputational harm470 Item 4. Mine Safety Disclosures. This item is not applicable to the company PART II This section details the company's common equity market, dividend policy, financial condition, results of operations, and market risk disclosures Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Quince Therapeutics' common stock trades on Nasdaq under 'QNCX', with 50 holders of record, and no cash dividends are declared or planned - The company's common stock is listed on the Nasdaq Stock Market LLC under the trading symbol "QNCX" since August 1, 2022, previously "CRTX" since May 9, 20193474 - As of March 25, 2024, there were 50 holders of record of the company's common stock5475 - The company has never declared or paid any cash dividends on its common stock and does not intend to in the foreseeable future, planning to retain all future earnings for business operations and general corporate purposes. The EIB Facility also prohibits dividend payments442476 Market Information Stockholders Dividend Policy Sales of Unregistered Securities Issuer Purchases of Equity Securities Item 6. Reserved. This item is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Quince Therapeutics, now a rare disease biotech, reported a $31.4 million net loss in 2023, with $75.1 million cash to fund operations into 2026 - Quince Therapeutics is now a late-stage biotechnology company focused on rare diseases, leveraging its AIDE technology platform and lead asset EryDex for Ataxia-Telangiectasia (A-T)479480481 - The company completed the acquisition of EryDel in October 2023, issuing 6,525,315 shares of common stock and potentially up to $485.0 million in contingent cash payments based on development, NDA acceptance, approval, and sales milestones484 Net Loss and Cash Position | Metric | 2023 (in millions) | 2022 (in millions) | Change (YoY) | | :-------------------------------- | :------------------ | :------------------ | :------------- | | Net Loss | $(31.4) | $(51.7) | $(20.3) decrease | | Accumulated Deficit (as of Dec 31) | $(319.6) | $(288.3) | $(31.3) increase | | Cash, Cash Equivalents & Investments (as of Dec 31) | $75.1 | $90.2 | $(15.1) decrease | - The company expects its existing capital resources of $75.1 million to fund planned operations, including the Phase 3 NEAT clinical trial for EryDex, into 2026485491552 Operating Expenses (in thousands) | Expense Category | 2023 | 2022 | Change ($) | Change (%) | | :----------------------------------- | :----- | :----- | :--------- | :--------- | | Research and development | $9,447 | $25,178 | $(15,731) | (62.5)% | | General and administrative | $17,695 | $26,012 | $(8,317) | (32.0)% | | Goodwill impairment charge | $0 | $825 | $(825) | (100.0)% | | Intangible asset impairment charge | $5,900 | $0 | $5,900 | 100.0% | | Fair value adjustment for contingent consideration | $1,578 | $0 | $1,578 | 100.0% | | Total operating expenses | $34,620 | $52,015 | $(17,395) | (33.4)% | - Research and development expenses decreased by $15.7 million (62.5%) in 2023, primarily due to the completion of COR588 trials, out-licensing of legacy assets (COR388, COR588, NOV004), and reduced personnel costs, despite increased EryDex development costs529530532533535 - General and administrative expenses decreased by $8.3 million (32.0%) in 2023, mainly due to reduced personnel expenses (including stock-based compensation and headcount reduction) and lower corporate insurance, partially offset by increased business development consulting for the EryDel acquisition537 Cash Flows Summary (in thousands) | Activity | 2023 | 2022 | | :-------------------------- | :------- | :------- | | Operating activities | $(18,292) | $(44,038) | | Investing activities | $(5,758) | $18,002 | | Financing activities | $143 | $707 | | Effect of exchange rate changes | $80 | $184 | | Net decrease in cash | $(23,827) | $(25,145) | Overview 2023 Events Financial Overview Critical Accounting Policies, Significant Judgments and Use of Estimates Research and Development Expenses Stock-Based Compensation Expense Income Taxes Business Combination Goodwill Identifiable Intangible Assets Impairment of Intangible Assets Contingent Consideration Long-term Debt Components of Operating Results Research and Development Expenses General and Administrative Expenses Interest Income Other Expense, net Results of Operations Research and Development Expenses General and Administrative Expenses Goodwill Impairment Charge Intangible Asset Impairment Charge Fair Value Adjustment for Contingent Consideration Fair Value Adjustment for Long-term Debt Interest Income Other Expense Income Tax Liquidity, Capital Resources and Plan of Operations Capital Resources Summary Statement of Cash Flows Operating Activities Investing Activities Financing Activities Contractual Obligations and Commitments Recent Accounting Pronouncements Item 7A. Quantitative and Qualitative Disclosures About Market Risk. As a smaller reporting company, Quince Therapeutics is not required to provide quantitative and qualitative disclosures about market risk - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk564 Item 8. Financial Statements and Supplementary Data. This section presents audited consolidated financial statements for 2023 and 2022, including balance sheets, income statements, cash flows, and notes, with auditor's opinion - The independent auditor, BDO USA, P.C., issued an unqualified opinion on the consolidated financial statements for the years ended December 31, 2023 and 2022, stating they present fairly the financial position and results of operations in conformity with GAAP569 - A critical audit matter identified was the valuation of contingent consideration and intangible assets related to In-process Research and Development (IPR&D) from the EryDel acquisition, due to significant management judgment and subjectivity in determining fair values, probability rates, discount rates, and revenue projections574575 Consolidated Balance Sheet Highlights (in thousands) | Metric | December 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------------ | :------------------ | | Total Assets | $167,900 | $103,910 | | Total Liabilities | $82,816 | $3,317 | | Total Stockholders' Equity | $85,084 | $100,593 | | Cash and cash equivalents | $20,752 | $44,579 | | Short-term investments | $54,307 | $45,602 | | Goodwill | $17,625 | $0 | | Intangible asset | $63,672 | $5,900 | | Long-term debt | $13,429 | $0 | | Long-term contingent consideration | $53,603 | $0 | Consolidated Statements of Operations and Comprehensive Loss Highlights (in thousands) | Metric | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | | :--------------------------------------- | :---------------------- | :---------------------- | | Research and development expenses | $9,447 | $25,178 | | General and administrative expenses | $17,695 | $26,012 | | Intangible asset impairment charge | $5,900 | $0 | | Fair value adjustment for contingent consideration | $1,578 | $0 | | Loss from operations | $(34,620) | $(52,015) | | Interest income | $3,478 | $1,068 | | Net loss | $(31,385) | $(51,660) | | Net loss per share - basic and diluted | $(0.84) | $(1.54) | Consolidated Statements of Cash Flows Highlights (in thousands) | Activity | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | | :-------------------------------- | :---------------------- | :---------------------- | | Net cash used in operating activities | $(18,292) | $(44,038) | | Net cash used in investing activities | $(5,758) | $18,002 | | Net cash provided by financing activities | $143 | $707 | | Net decrease in cash and cash equivalents | $(23,827) | $(25,145) | - The EryDel acquisition on October 20, 2023, involved a total consideration of approximately $66.9 million, including $7.16 million in common stock and $56.1 million in contingent consideration, leading to the recognition of $61.1 million in intangible assets (IPR&D) and $16.9 million in goodwill744745746749750752 Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations and Comprehensive Loss Consolidated Statements of Stockholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Note 1. Organization Note 2. Summary of Significant Accounting Policies Note 3. Fair Value Measurements Note 4: Cash, Cash Equivalents and Investments Note 5: Balance Sheet Components Note 6. Leases Note 7. Long-term Debt Note 8. Commitments and Contingencies Note 9. Equity Incentive Plans Note 10. Common Stock Note 11. Related Party Transactions Note 12. Income taxes Note 13. Net Loss per Share Note 14. Employee Benefit Plan Note 15. Business Combination Note 16. Intangible Assets Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure for the company - There are no changes in or disagreements with accountants on accounting and financial disclosure771 Item 9A. Controls and Procedures Quince Therapeutics' management evaluated disclosure controls and internal control over financial reporting as effective, excluding the EryDel business from the 2023 assessment - As of December 31, 2023, the company's disclosure controls and procedures were evaluated as effective, designed to provide reasonable assurance for timely and accurate information disclosure771 - Management assessed the effectiveness of internal control over financial reporting as of December 31, 2023, and concluded it was effective, using the COSO framework773774 - The acquired EryDel business (representing approximately $91.9 million of total assets and $4.0 million of total operating loss) was excluded from the 2023 assessment of internal control over financial reporting due to ongoing integration, as permitted by SEC Staff guidance774 - There have been no material changes in internal control over financial reporting during the fourth quarter ended December 31, 2023776 Evaluation of Disclosure Controls and Procedures Management's Report on Internal Control over Financial Reporting Changes in Internal Control over Financial Reporting Item 9B. Other Information This item reports that there is no other information required to be disclosed - No other information is required to be disclosed under this item777 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company, indicating no foreign jurisdictions prevent inspections of its operations - This item is not applicable777 PART III This section provides information on the company's directors, executive officers, corporate governance, executive compensation, security ownership, related transactions, and principal accountant fees Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance, including the Code of Business Conduct and Ethics, will be incorporated by reference from the 2024 Proxy Statement - Information on directors, executive officers, and corporate governance will be incorporated by reference from the 2024 Proxy Statement779 - The company has adopted a Code of Business Conduct and Ethics applicable to all directors, officers, and employees, available on its investor relations website780 Code of Business Conduct and Ethics Item 11. Executive Compensation Executive compensation details will be incorporated by reference from the company's 2024 Proxy Statement - Information on executive compensation will be included in the 2024 Proxy Statement, incorporated by reference781 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership information for beneficial owners and management, and related stockholder matters, will be incorporated by reference from the 2024 Proxy Statement - Information on security ownership of beneficial owners, management, and related stockholder matters will be incorporated by reference from the 2024 Proxy Statement782 Item 13. Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence will be incorporated by reference from the 2024 Proxy Statement - Information on certain relationships, related transactions, and director independence will be incorporated by reference from the 2024 Proxy Statement783 Item 14. Principal Accountant Fees and Services Information on principal accountant fees and services will be incorporated by reference from the 2024 Proxy Statement; BDO USA, P.C. is the independent auditor - Information on principal accountant fees and services will be incorporated by reference from the 2024 Proxy Statement784 - BDO USA, P.C. (PCAOB Auditor ID 243) is the independent registered public accounting firm570784 PART IV This section outlines the exhibits and financial statement schedules included in the report, and confirms the absence of a Form 10-K Summary Item 15. Exhibits and Financial Statement Schedules This section lists consolidated financial statements, confirms omission of schedules, and provides an index of exhibits incorporated by reference or filed - The section includes the consolidated financial statements as part of the report787 - All financial statement schedules are omitted as they are not applicable or the required information is presented in the consolidated financial statements or notes788 - An Exhibit Index lists documents incorporated by reference or filed with the report, numbered according to Item 601 of Regulation S-K789792 Item 16. Form 10-K Summary This item indicates that no Form 10-K Summary is provided - No Form 10-K Summary is provided790