Quince Therapeutics, Inc. quarterly report, Q2 FY2022

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Business context and reporting period

Quince Therapeutics, Inc. (formerly Cortexyme, Inc.; name and ticker changed to QNCX effective August 1, 2022) filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2022. The company is a preclinical-stage biopharmaceutical business with no product sales. Following its May 19 acquisition of Novosteo, it shifted strategic priority to the bone-targeting platform and lead candidate NOV004; it expects to pursue partnering or out-licensing for legacy programs.

Financial performance and liquidity

Amounts below are in U.S. dollars; financial statement figures are in millions unless stated otherwise.

  • Revenue: No product revenue was reported. The filing says Novosteo contributed approximately $0.1 million of net loss after acquisition through June 30; its statement of operations contribution was immaterial. The filing does not provide a clear separate operating-revenue figure for the combined company.
  • Second-quarter results: Operating expenses were $16.3 million, including R&D of $7.2 million and G&A of $9.1 million. Net loss was $16.6 million, or $0.51 per share, versus $21.8 million, or $0.74 per share, in Q2 2021. There are no meaningful operating margins to assess given the absence of product sales.
  • First-half results: Operating expenses were $38.1 million (R&D $20.0 million; G&A $18.1 million). Net loss was $38.2 million, or $1.22 per share, versus $44.8 million, or $1.52 per share, in the first half of 2021. Accumulated deficit was $274.8 million.
  • Cash flow: Operating cash use was $31.5 million in the first half, broadly comparable to $31.2 million a year earlier. Investing activities provided $8.2 million, including $10.6 million of cash acquired with Novosteo; financing activities provided $0.7 million. Cash and cash equivalents declined $22.8 million to $46.9 million.
  • Liquidity and balance sheet: At June 30, cash, cash equivalents, and short-term investments totaled $94.7 million; long-term investments were $11.0 million, bringing cash and investments to $105.7 million. Total assets were $117.9 million, liabilities $6.3 million, and stockholders’ equity $111.5 million. The company reported no significant conventional borrowings; lease liabilities included $0.4 million operating and $0.1 million financing obligations.
  • Capital and dilution: The Novosteo acquisition consideration was approximately $16.5 million, primarily 5.52 million Quince shares. The company also sold 51,769 shares under its at-the-market agreement in the first half for net proceeds of $0.6 million; the agreement permits sales of up to $150 million in aggregate.

Material changes versus the prior comparable period

  • Q2 R&D expense fell 51% year over year, largely because COR388 clinical-trial and related costs declined after its Phase 2/3 GAIN trial concluded. First-half R&D fell 37% for similar reasons, partly offset by increased COR588 costs and the addition of NOV004 after the acquisition.
  • G&A rose 28% in Q2 and 34% in the first half, reflecting acquisition-related legal costs, legal compliance costs, and restructuring and severance expenses.
  • The company recorded $14.3 million of stock-based compensation in the first half, compared with $13.7 million a year earlier. Reported losses narrowed, while operating cash use remained similar.
  • Available-for-sale investments had $0.6 million of unrealized losses at June 30, 2022, recorded in other comprehensive loss; the company reported no significant realized gains or losses.

Outlook, commentary, and key risks

  • Runway statements differ: The financial-statement note says cash, cash equivalents, and short-term investments should fund planned operations for at least 12 months from issuance of the statements. MD&A says existing cash, cash equivalents, and investments should fund operations into the second half of 2025. Investors should note the different measures and verify the assumptions underlying the longer estimate.
  • Management expects substantial future losses and additional capital needs. Financing may come from equity, debt, partnerships, or licensing; unavailable or unfavorable financing could force delays, reductions, or discontinuation of development programs.
  • Management plans to progress NOV004 toward an IND submission in the first half of 2023 and anticipates a Phase 1 study in 2023. NOV004 is preclinical and has not been tested in humans.
  • The FDA placed a full clinical hold on the atuzaginstat (COR388) IND in January 2022. The GAIN Alzheimer’s trial did not meet its co-primary endpoints in the overall population; dose-related liver-enzyme elevations were reported. Further COR388 development is intended to depend on out-licensing or a partnership.
  • COR588 completed its Phase 1 SAD/MAD trial; preliminary results were described as well tolerated, and the company expects further development to depend on partnering. COR803 and other legacy programs are also being pursued through partnership or licensing.
  • A cost-reduction program followed the COR388 hold, with workforce reductions and facility changes. Multiple senior leaders departed or announced departures, including the former CFO/COO, legal and administrative chief, and R&D executive; the company also appointed a new CEO and other Novosteo executives after the acquisition.
  • Risks include clinical and regulatory failure, integration and key-personnel challenges, dependence on NOV004 and successful legacy-asset partnering, financing and dilution, manufacturing and third-party execution, intellectual-property and Purdue-license obligations, and foreign-exchange exposure. Management reported no material operational or financial impact from COVID-19 to date. Disclosure controls were assessed as effective, and no material legal proceedings were reported.

Most important facts for investors to verify

  1. Reconcile the stated cash runway through the second half of 2025 with the note’s at-least-12-month liquidity statement, including which investment balances and spending assumptions each uses.
  2. Track NOV004 preclinical, manufacturing, IND-enabling, and regulatory progress against the first-half 2023 IND target and planned 2023 Phase 1 study.
  3. Monitor whether any partners or licensees are secured for COR388, COR588, COR803, or other legacy assets, and the resulting development and funding obligations.
  4. Assess the implications of the COR388 clinical hold and GAIN results, including liver-safety findings and any restrictions on other indications.
  5. Review cash burn, future financing and potential dilution under the $150 million sales agreement, restructuring costs, and the impact of acquisition-related compensation and share awards.
  6. Verify the final purchase-price allocation for Novosteo during the measurement period and the continuing obligations, milestones, royalties, and license-maintenance fees under the Purdue agreement.