Quince Therapeutics, Inc. quarterly report, Q3 FY2022

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Quince Therapeutics, Inc. — Q3 2022 Form 10-Q

Reporting period: Quarter and nine months ended September 30, 2022. Dollar amounts below are in millions unless otherwise noted. Quince is a preclinical-stage biopharmaceutical company with no approved products.

Business context

The company changed its name from Cortexyme, Inc. to Quince Therapeutics, Inc. effective August 1, 2022. Following its May 19 acquisition of Novosteo, Quince shifted its primary development focus to NOV004, a bone-targeting candidate for fracture repair and rare skeletal diseases. It intends to seek partners or licensees for legacy programs, including atuzaginstat (COR388), COR588 and COR803.

Financial results and liquidity

  • Revenue: No meaningful product revenue. The acquisition-related supplemental table reports $0.262 million of revenue for the nine months and none for Q3; the MD&A also says the company has not generated revenue. The filing does not clearly reconcile these statements.
  • Q3 2022: R&D expense was $2.5 million, down 82.5% from $14.0 million a year earlier; G&A was $4.3 million, down 43.1% from $7.6 million. Operating loss was $7.6 million and net loss was $7.9 million, compared with a $21.7 million net loss in Q3 2021. Basic and diluted loss per share was $0.22 versus $0.73.
  • Nine months: R&D expense was $22.4 million, down 50.8% year over year; G&A was $22.5 million, up 6.0%. Net loss was $46.1 million, down from $66.5 million; loss per share was $1.41 versus $2.25.
  • Margins: Gross margin is not meaningful for this pre-revenue development-stage business.
  • Cash and investments: At September 30, cash and cash equivalents were $31.8 million, short-term investments $62.5 million and long-term investments $5.0 million. Total cash, cash equivalents and investments were $99.3 million; cash, cash equivalents and short-term investments were $94.3 million. At December 31, 2021, those respective totals were $126.7 million and $106.8 million.
  • Cash flow: Nine-month operating cash use was $38.2 million, versus $48.5 million in 2021. Investing activities used $0.7 million, versus providing $38.0 million; financing provided $0.7 million, versus $5.8 million. Cash and cash equivalents fell $37.9 million to $31.8 million.
  • Balance sheet and debt: Total assets were $109.8 million, total liabilities $5.2 million and stockholders’ equity $104.5 million. No material borrowings are reported; lease liabilities were approximately $0.4 million in total, including operating and financing leases.
  • Accumulated deficit: $282.7 million at September 30, 2022. The company reported no profitability and expects continuing losses.

Material changes versus the prior comparable period

  • Lower R&D spending mainly reflected completion of the GAIN trial for COR388 in 2021, completion of COR588’s Phase 1 SAD/MAD trial in 2022, reduced headcount and discontinued or wound-down research programs. Spending began on NOV004 following the Novosteo acquisition.
  • G&A fell in Q3, primarily due to lower personnel-related and stock-based compensation costs. Nine-month G&A rose, reflecting acquisition-related legal and professional fees and severance, partly offset by lower stock-based compensation and cost reductions.
  • Quince issued 5.52 million common shares in connection with the Novosteo acquisition, representing approximately 15.5% of shares outstanding at closing. It recorded a $5.9 million indefinite-lived in-process R&D intangible asset for NOV004.
  • The company recorded a non-cash $0.825 million goodwill impairment in Q3, fully impairing the goodwill recorded in the acquisition. It cited a market capitalization substantially below carrying value, alongside adverse market conditions.
  • Common shares outstanding rose to 36.13 million from 30.07 million at year-end 2021. The company also sold 51,769 shares under its at-the-market sales agreement for net proceeds of $0.6 million during the nine months.

Outlook, management commentary and key risks

  • Management expects to advance NOV004 toward an IND submission in the first half of 2023 and a Phase 1 study in 2023. It expects R&D spending to increase as NOV004 advances.
  • The filing gives differing runway statements: the financial-statement note says cash, cash equivalents and short-term investments are expected to fund planned operations for at least 12 months from issuance; MD&A says existing cash, cash equivalents and investments should fund operations into the second half of 2025. The MD&A cautions that assumptions may prove wrong and additional capital may be needed.
  • The FDA placed a full clinical hold on COR388 in January 2022. The GAIN Alzheimer’s trial did not meet its co-primary cognitive and functional endpoints, and dose-related liver enzyme elevations were reported. Further development is intended to depend on out-licensing or partnership opportunities; additional FDA holds remain a risk.
  • COR588’s Phase 1 trial was completed, with preliminary results described as well tolerated across 25–200 mg and no serious adverse events. Quince says it will pursue further development only through a partner or licensee. COR803 is also being offered for partnering.
  • The company completed a workforce reduction in July 2022 and disclosed departures of multiple senior executives and directors during 2022. These changes, integration of Novosteo, and reliance on key personnel are risks.
  • As of September 30, the company had approximately $4.8 million of cancellable future contract commitments and $2.6 million accrued for vendor expenditures. It disclosed no material legal proceedings.
  • Quince reported that its disclosure controls and procedures were effective and that there had been no material change in internal control over financial reporting during the quarter.
  • The filing disclosed that the common stock’s closing price had been below $0.99 from November 1 through the filing date and warned of possible Nasdaq minimum-bid-price noncompliance if the price remained below $1.00 for 30 consecutive trading days.

Important facts for investors to verify

  • Reconcile the stated cash runway through the second half of 2025 with the note’s more limited statement of at least 12 months, and confirm which funds and spending assumptions underpin each estimate.
  • Clarify the reported $0.262 million of nine-month revenue in the acquisition-related table against management’s statement that Quince has not generated revenue; distinguish any acquired or non-product revenue from product sales.
  • Track NOV004 IND-enabling work, the planned first-half 2023 IND submission and Phase 1 timing, including regulatory feedback and funding needs.
  • Monitor the COR388 clinical hold, safety findings and any progress toward a partnership, as well as partnering prospects for COR588 and COR803.
  • Assess ongoing operating cash burn, the effect of increasing NOV004 development costs, potential financing or dilution, and the investment portfolio’s value and liquidity.
  • Review Nasdaq listing compliance, continued management and board stability, and any additional impairment or changes to the acquired NOV004 intangible asset valuation.