SEC Filing | Quince Therapeutics

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qncx-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________________________________________________

FORM 10-Q

________________________________________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________

Commission File Number: 001-38890

________________________________________________________

Quince Therapeutics, Inc.

(Exact Name of Registrant as Specified in its Charter)

________________________________________________________


Delaware			90-1024039
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
611 Gateway Boulevard, Suite 273 South San Francisco, California			94080
(Address of principal executive offices)			(Zip Code)
Registrant’s telephone number, including area code: (415) 910-5717

________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

QNCX

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of August 6, 2024, the registrant had 43,276,606 shares of common stock, $0.001 par value per share, outstanding.

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		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	7
	Condensed Consolidated Balance Sheets	7
	Condensed Consolidated Statements of Operations and Comprehensive Loss	8
	Condensed Consolidated Statements of Stockholders’ Equity	9
	Condensed Consolidated Statements of Cash Flows	11
	Notes to Unaudited Condensed Consolidated Financial Statements	12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49
Item 4.	Controls and Procedures	49
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	50
Item 1A.	Risk Factors	50
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	104
Item 3.	Defaults Upon Senior Securities	104
Item 4.	Mine Safety Disclosures	104
Item 5.	Other Information	104
Item 6.	Exhibits	105
Signatures		106

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Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical facts contained in this report, including statements regarding our future results of operations and financial position, business strategy, drug candidates, planned preclinical studies and clinical trials, research and development costs, regulatory approvals, timing and likelihood of success, as well as plans and objectives of management for future operations, are forward-looking statements. In some cases, forward-looking statements may be identified by words such as "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "could," "would," "expect," "objective," "plan," "potential," "seek," "grow," "target," "if," and similar expressions intended to identify forward-looking statements.

We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions, including risks described in the section titled “Risk Factors” set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and in our other filings with the SEC. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur, and actual results may differ materially and adversely from those anticipated or implied in the forward-looking statements. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

•our ability to successfully execute on our current strategic direction;

•future research and development activities, including the scope, success, cost and timing of any future development activities, preclinical studies and clinical trials, including clinical trials of EryDex or other pipeline compounds we advance through the drug development process;

•the timing and focus of any potential future clinical trials, and the reporting of data from those trials;

•our ability and timing of seeking and obtaining FDA and any other regulatory approvals for our drug candidates;

•the willingness of the FDA or other regulatory authorities to accept any future completed or planned clinical and preclinical studies and other work, as the basis for review and approval of our drug candidates for their respective indications;

•whether regulatory authorities determine that additional trials or data are necessary in order to accept a new drug application for review and/or approval;

•the ability of any future clinical trials to demonstrate safety and efficacy of our EryDex and other drug candidates, and other positive results;

•our financial performance;

•the sufficiency of our existing cash and cash equivalents to fund our future operating expenses and capital expenditure requirements;

•the accuracy of our estimates regarding expenses, future revenue, capital requirements, and needs for additional financing;

•our expectations related to the use of our available cash;

•our ability to obtain funding for our operations, including funding necessary to develop and commercialize our drug candidates;

•our expectations regarding the potential market size and the size of the patient populations for our drug candidates, if approved for commercial use, and the potential market opportunities for commercializing our drug candidates;

•our plans relating to commercializing our drug candidates, if approved;

•our plans and ability to establish sales, marketing and distribution infrastructure to commercialize any drug candidates for which we obtain approval;

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•our ability to attract and retain key scientific and clinical personnel, in light of recent management changes and reduction in force;

•our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;

•our reliance on third parties to conduct clinical trials of our drug candidates, and for the manufacture of our drug candidates for preclinical studies and clinical trials;

•dependence upon the integrity of our supply chain, including multiple single-source suppliers;

•our reliance on third-party suppliers for certain of our raw materials and components;

•our ability to expand our drug candidates into additional indications and patient populations;

•the success of competing therapies that are or may become available;

•the beneficial characteristics, safety and efficacy of our drug candidates;

•governmental or regulatory delays, information requests, clinical holds, and regulatory developments in the United States and other jurisdictions;

•our ability to obtain and maintain regulatory approval of our drug candidates, and any related restrictions, limitations and/or warnings in the label of any approved drug candidate;

•our ability to obtain and maintain CE Certificates of conformity for the medical device components of our EryDex System in accordance with applicable legislation governing medical devices;

•our ability to transition CE Certifications under the previous Medical Device Directive, to a regulatory framework under MDR;

•our plans and ability to obtain or protect intellectual property rights, including extensions of existing patent terms where available;

•the scope of protection we are able to establish and maintain for intellectual property rights covering our drug candidates and technology;

•potential claims relating to our intellectual property; and

•our ability to grow our organization and increase the size of our facilities to meet our anticipated growth.

•our ability to regain and maintain compliance with Nasdaq minimum listing requirements.

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, we do not intend to update any of these forward-looking statements after the date of this Quarterly Report on Form 10-Q or to conform these statements to actual results or revised expectations.

You should read this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

This Quarterly Report on Form 10-Q contains estimates, projections and other information concerning our industry, our business and the markets for our drug candidates. We obtained the industry, market and similar data set forth in this report from our own internal estimates and research and from academic and industry research, publications, surveys and studies conducted by third parties, including governmental agencies. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. While we believe that the data we use from third parties are reliable, we have not separately verified these data. Further, while we believe our internal research is reliable, such research has not been verified by any third party. You are cautioned not to give undue weight to any such information, projections and estimates.

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DEFINED TERMS

Unless the context requires otherwise, references to “Quince,” “the Company,” “we,” “us,” or “our” in this Quarterly Report on Form 10-Q refer to Quince Therapeutics, Inc. and its consolidated subsidiaries. We also have used several other terms in this Quarterly Report on Form 10-Q, most of which are explained or defined below.


Abbreviated Term			Defined Term

2017 Tax Act			Tax Cuts and Jobs Act of 2017
3PLs			Third-party Logistics Providers
AE			Adverse Event
AIA			Leahy-Smith America Invents Act
AIDE			Autologous Intracellular Drug Encapsulation
ANDA			Abbreviated New Drug Application
ARB			Angiotensin Receptor Blockers
ASC			Accounting Standards Codification
ASU			Accounting Standards Update
A-T			Ataxia-Telangiectasia
ATTeST			Ataxia Telangiectasia Trial with the EryDex System
CARES Act			Coronavirus Aid, Relief, and Economic Security Act
C-GIC			Clinical Global Impression of Change
GMP			Current Good Manufacturing Practice
Cmax			The highest (peak) concentration of a drug in the bloodstream or other part of the body after drug administration
CMC			Chemistry Manufacturing Controls
CMO			Contract Manufacturing Organization
CMS			Center for Medicare and Medicaid Services
the Code			Internal Revenue Code of 1986, as amended
COSO framework			Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
COVID-19			Coronavirus disease
CPA			Certified Public Accountant
Credits			Tax credits
CRO			Contract Research Organization
CTA			Clinical Trial Application
DMD			Duchenne muscular dystrophy
DOJ			United States Department of Justice
DSMB			Data Safety Monitoring Board
DSP			Dexamethasone Sodium Phosphate
EC			European Commission
EMA			European Medicines Agency
EryDel			Quince Therapeutics, S.p.A (previously named EryDel S.p.A.)
EryDex			Red blood cell encapsulated dexamethasone sodium phosphate
EryDex System			Automated combination product to encapsulate dexamethasone sodium phosphate in Red blood cells
EU			European Union
EryKit			Consumable sterile kit component of the EryDex System
Exchange Act			Securities Exchange Act of 1934, as amended

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FASB			Financial Accounting Standards Board
FCPA			Foreign Assets Controls, the United States Foreign Corrupt Practices Act of 1977
FDA			United States Food and Drug Administration
GAAP			generally accepted accounting principles in the United States
GCP			Good Clinical Practice
GDPR			General Data Protection Regulation
GLP			Good Laboratory Practice
GMP			Good Manufacturing Practice
HHS			United States Department of Health and Human Services
HIPAA			Health Insurance Portability and Accountability Act of 1996
HITECH			Health Information Technology for Economic and Clinical Health Act of 2009
HPA			Hypothalamic-Pituitary-Adrenal (HPA) Axis
HTA			Health Technology Assessment
ICARS			International Cooperative Ataxia Rating Scale
IND			Investigational New Drug
IPO			Initial Public Offering
IPR&D			In-process Research and Development
IRA			Inflation Reduction Act of 2022
IRB			Institutional Review Board
ITT			Intent To Treat
Jefferies			Jefferies LLC
Lighthouse			Lighthouse Pharmaceuticals, Inc.
LSM			Least Square Mean
MAA			Marketing Authorization Application
MAD			Multiple Ascending Dose
MDD			Medical Devices Directive
MDR			Medical Devices Regulation 2017/745
mICARS			Modified International Cooperative Ataxia Rating Scale
MHRA			United Kingdom Medicines and Healthcare Products Regulatory Agency
MPEEM			Multi-Period Excess Earnings Method
Nasdaq			The Nasdaq Stock Market LLC
NCE			New Chemical Entity
NDA			New Drug Application
NEAT			EryDex Phase 3 Trial (Neurologic Effects of EryDex on Subjects with A-T)
NIH			National Institute of Health
NOL			Net Operating Loss
Novosteo			Novosteo, Inc.
PCAOB			Public Company Accounting Oversight Board
PCT			Patent Cooperation Treaty
PD			Pharmacodynamic
PDMA			Prescription Drug Marketing Act
Process solutions			(Hypotonic Solutions 1& 2 and Hypertonic Solution PIGPA) sterile solutions to allow drug encapsulation and restoring the physiological osmolarity during EryDex process
PP			Per Protocol Population is all patients who enrolled into the study and fulfilled all inclusion/exclusion criteria, did not have any major protocol violations, and completed the initial treatment period of the study as planned.

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PK			Pharmacokinetic
PPACA			Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act of 2010
PRF			Purdue Research Foundation
PTE			Patent Term Extension
R&D			Research and Development
RCL			Red Cell Loader, the machine that encapsulates drug into red blood cells
Registrational or pivotal trial			An adequate and well-controlled trial designed to be sufficient to apply for regulatory approval of a drug candidate, although notwithstanding the Company’s design a regulatory agency may determine that further clinical studies or data are required
RmICARS			Rescored modified International Cooperative Ataxia Rating Scale
RBC			Red Blood Cell
RSA			Restricted Stock Awards
RSU			Restricted Stock Units
SAD			Single Ascending Dose
SAE			Serious Adverse Event
Sarbanes-Oxley Act			The Sarbanes-Oxley Act of 2002
SEC			United States Securities and Exchange Commission
Securities Act			Securities Act of 1933
SPA			Special Protocol Assessment
Syringe Kit			Device for anticoagulated blood collection and for the sterile connection to the EryKit
TCA			Trade and Cooperation Agreement
TEAE			Treatment-Emergent Adverse Effect
UPC			Unified Patent Court
USPTO			The United States Patent and Trademark Office
VA			Veterans Affairs

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

QUINCE THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands except share amounts)


	June 30, 2024		December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	7,890	$	20,752
Short-term investments	51,555		54,307
Prepaid expenses and other current assets	3,993		2,381
Total current assets	63,438		77,440
Property and equipment, net	246		234
Operating lease right-of-use assets	554		385
Goodwill	—		17,625
Intangible assets	61,793		63,672
Other assets	8,798		8,544
Total assets	$	134,829	$	167,900

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,405	$	2,033
Short-term contingent consideration	5,000		4,103
Accrued expenses and other current liabilities	2,916		3,436
Total current liabilities	10,321		9,572
Long-term debt	13,834		13,429
Long-term operating lease liabilities	453		321
Long-term contingent consideration	57,471		53,603
Deferred tax liabilities	5,173		5,304
Other long-term liabilities	609		587
Total liabilities	87,861		82,816
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value, 10,000,000 authorized, (100,000 shares of which are designated as Series A Junior Participating Preferred Stock), no shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively.	—		—
Common stock, $0.001 par value, 100,000,000 shares authorized, 43,276,606 and 42,973,215 issued and outstanding as of June 30, 2024 and December 31, 2023, respectively.	43		43
Additional paid in capital	404,360		401,638
Accumulated other comprehensive income	1,087		3,047
Accumulated deficit	(358,522)		(319,644)
Total stockholders’ equity	46,968		85,084
Total liabilities and stockholders’ equity	$	134,829	$	167,900

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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QUINCE THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In thousands, except share and per share amounts)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Operating expenses:
Research and development	$	4,147	$	1,353	$	7,849	$	4,583
General and administrative	4,695		4,231		9,666		8,057
Goodwill impairment charge	17,130		—		17,130		—
Intangible asset impairment charge	—		—		—		5,900
Fair value adjustment for contingent consideration	2,220		—		4,765		—
Total operating expenses	28,192		5,584		39,410		18,540
Loss from operations	(28,192)		(5,584)		(39,410)		(18,540)
Fair value adjustment for long-term debt	(415)		—		(803)		—
Interest income	823		805		1,710		1,505
Other income (expense), net	91		(107)		(308)		(353)
Net loss before income tax benefit	(27,693)		(4,886)		(38,811)		(17,388)
Income tax (expense) benefit	(36)		—		(67)		248
Net loss	(27,729)		(4,886)		(38,878)		(17,140)
Other comprehensive loss:
Foreign currency translation adjustments	(726)		59		(1,955)		152
Unrealized gain (loss) on available-for-sale securities	(12)		160		(5)		394
Total comprehensive loss	$	(28,467)	$	(4,667)	$	(40,838)	$	(16,594)
Net loss per share - basic and diluted	$	(0.64)	$	(0.14)	$	(0.90)	$	(0.48)
Weighted average shares of common stock outstanding - basic and diluted	43,096,374		35,917,592		43,053,351		35,886,568

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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QUINCE THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

(In thousands, except share and per share amounts)


For the three months ended June 30, 2024 and 2023
	Common Stock			Additional Paid in Capital		Accumulated Other Comprehensive Income / (Loss)		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount
Balance March 31, 2024	43,215,233	$	43	$	403,102	$	1,825	$	(330,793)	$	74,177
Issuance of common stock on exercise of stock options and vesting of restricted stock units	61,373	—		35		—		—		35
Stock based compensation	—	—		1,223				—		1,223
Foreign currency translation adjustment	—	—		—		(726)		—		(726)
Unrealized gain (loss) on available for sale investments	—	—		—		(12)		—		(12)
Net loss	—	—		—		—		(27,729)		(27,729)
Balance June 30, 2024	43,276,606	$	43	$	404,360	$	1,087	$	(358,522)	$	46,968

Balance March 31, 2023	36,278,433	$	36	$	390,642	$	38	$	(300,513)	$	90,203
Issuance of common stock on exercise of stock options and vesting of restricted stock units	58,098	—		27		—		—		27
Restricted stock award retirement	(8,536)									—
Stock based compensation	—	—		1,321		—		—		1,321
Foreign currency translation adjustment	—	—		—		59		—		59
Unrealized gain (loss) on available for sale investments	—	—		—		160		—		160
Net loss	—	—		—		—		(4,886)		(4,886)
Balance June 30, 2023	36,327,995	$	36	$	391,990	$	257	$	(305,399)	$	86,884

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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QUINCE THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

(In thousands, except share and per share amounts)


For the six months ended June 30, 2024 and 2023
	Common Stock			Additional Paid in Capital		Accumulated Other Comprehensive Income / (Loss)		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount
Balance December 31, 2023	42,973,215	$	43	$	401,638	$	3,047	$	(319,644)	$	85,084
Issuance of common stock on exercise of stock options and vesting of restricted stock units	303,391	—		225		—		—		225
Stock based compensation	—	—		2,497				—		2,497
Foreign currency translation adjustment	—	—		—		(1,955)		—		(1,955)
Unrealized gain (loss) on available for sale investments	—	—		—		(5)		—		(5)
Net loss	—	—		—		—		(38,878)		(38,878)
Balance June 30, 2024	43,276,606	$	43	$	404,360	$	1,087	$	(358,522)	$	46,968

Balance December 31, 2022	36,136,480	$	36	$	389,105	$	(289)	$	(288,259)	$	100,593
Issuance of common stock on exercise of stock options and vesting of restricted stock units	200,051	—		82		—		—		82
Restricted stock award retirement	(8,536)	—		—		—		—		—
Stock based compensation	—	—		2,803		—		—		2,803
Foreign currency translation adjustment	—	—		—		152		—		152
Unrealized gain (loss) on available for sale investments	—	—		—		394		—		394
Net loss	—	—		—		—		(17,140)		(17,140)
Balance June 30, 2023	36,327,995	$	36	$	391,990	$	257	$	(305,399)	$	86,884

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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QUINCE THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	For the Six Months Ended June 30,
	2024		2023
Cash flows from operating activities
Net Loss	$	(38,878)	$	(17,140)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock based compensation	2,497		2,803
Depreciation and amortization	84		18
Impairment loss on operating lease	—		66
Loss on disposal of fixed assets	—		79
Equity investment in Lighthouse, Inc.	—		(78)
Change in the fair value of contingent consideration liabilities	4,765		—
Change in fair value of long-term debt	803		—
Non-cash goodwill and intangible asset impairment charge	17,130		5,900
Amortization of discount on available-for-sale investments	(1,266)		(602)
Change in deferred tax liabilities due to acquisition of Novosteo, Inc.	—		(248)
Changes in operating assets and liabilities, net of acquisitions:
Prepaid expenses and other current assets	(2,042)		2,715
Right of use assets, operating leases and operating lease liabilities	(181)		126
Other assets	(118)		—
Accounts payable	401		(216)
Accrued expenses and other current liabilities	(287)		(819)
Net cash used in operating activities	(17,092)		(7,396)
Cash flow from investing activities:
Purchase of investments	(85,721)		(50,131)
Proceeds from maturities of investments	89,735		35,394
Proceeds from disposal of assets	—		90
Purchase of property and equipment	(78)		(136)
Net cash provided by (used in) investing activities	3,936		(14,783)
Cash flows from financing activities:
Payments of finance leases	—		(6)
Proceeds from issuance of common stock upon exercise of stock options	225		82
Net cash provided by financing activities	225		76
Effect of exchange rate changes on cash	69		174
Net decrease in cash and cash equivalents	(12,862)		(21,929)
Cash and cash equivalents at beginning of period	20,752		44,579
Cash and cash equivalents at end of period	$	7,890	$	22,650

Supplemental disclosures of non-cash information:
Right-of-use assets obtained in exchange for new operating lease liabilities	$	227	—
Right-of-use asset and financing lease liability reduction as a result of lease modification	—		$	(70)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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QUINCE THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1. Organization

Description of Business

Quince Therapeutics, Inc. is a late-stage biotechnology company dedicated to unlocking the power of a patient’s own biology for the treatment of rare diseases.

The Company's proprietary AIDE technology platform is an innovative drug/device combination platform that uses an automated process to encapsulate a drug into a patient’s own red blood cells. Red blood cells have several characteristics that make them a potentially ideal vehicle for drug delivery and our AIDE technology is designed to harness many of these benefits to allow for new and improved therapeutic options for patients living with high unmet medical needs. The AIDE technology platform is believed to confer several benefits over conventional therapies which could be applied to a broad range of small or large molecule drugs and biologics. Our Phase 3 lead asset, EryDex, leverages the AIDE technology to encapsulate DSP into a patient’s own red blood cells, and is targeted to treat a rare pediatric neurodegenerative disease, A-T.

By pioneering the encapsulation of drugs in a patient’s own red blood cells, we seek to advance proprietary therapeutics that hold the potential to redefine the standard of care and meaningfully improve the quality of life for patients with rare disease.

Liquidity and Capital Resources

The Company has incurred losses and negative cash flows from operations since inception and expects to continue to generate operating losses for the foreseeable future. As of June 30, 2024, the Company had an accumulated deficit of $358.5 million. Since inception through June 30, 2024, the Company has funded operations primarily with the net proceeds from the issuance of convertible promissory notes, from the issuance of redeemable convertible preferred stock, from the net proceeds from the Company’s initial public offering (the “IPO”) and from the net proceeds of the private investment in public equity transaction (“PIPE Financing”). As of June 30, 2024, the Company had cash, cash equivalents, and short-term investments of $59.4 million, which it believes will be sufficient to fund its planned operations for a period of at least 12 months from the date of the issuance of the accompanying unaudited consolidated financial statements.

Management expects to incur additional losses in the future to fund the Company's operations and conduct product research and development and may need to raise additional capital to fully implement its business plan. The Company may raise additional capital through the issuance of equity securities, debt financings or other sources including out-licensing or partnerships, in order to further implement its business plan. However, if such financing is not available when needed and at adequate levels, the Company will need to reevaluate its operating plan and may be required to delay the development of product candidates.

Note 2. Summary of Significant Accounting Policies

Basis of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Quince Therapeutics, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and pursuant to the instructions of the SEC on Form 10-Q and Article 8 of Regulation S-X of the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the management’s opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the results of operations and cash flows for the periods presented have been included.

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The condensed consolidated balance sheet as of June 30, 2024, the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2024 and 2023, the condensed consolidated statements of stockholders’ equity for the three and six months ended June 30, 2024 and 2023, the condensed consolidated statements of cash flows for the six months ended June 30, 2024 and 2023, and the financial data and other financial information disclosed in the notes to the condensed consolidated financial statements are unaudited. These financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2023 included in the Company’s Form 10-K filed with the SEC on April 1, 2024. The results of operations for the six months ended June 30, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024 or for any other future annual or interim period.

Risks and Uncertainties

The Company’s future results of operations involve a number of risks and uncertainties. Factors that could affect the Company’s future operating results and cause actual results to vary materially from expectations include, but are not limited to, uncertainty of results of clinical trials and reaching milestones, uncertainty of regulatory approval of the Company’s potential drug candidates, uncertainty of market acceptance of the Company’s drug candidates, competition from substitute products and larger companies, securing and protecting proprietary technology, strategic relationships and dependence on key individuals and sole source suppliers. The Company’s drug candidates will require approvals from the FDA and comparable foreign regulatory agencies prior to commercial sales in their respective jurisdictions. There can be no assurance that any drug candidate will receive the necessary approvals.

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and expenses, as well as related disclosure of contingent assets and liabilities. The most significant estimates used in the Company’s consolidated financial statements relate to the determination of the fair value of stock-based awards and other issuances, determination of the fair value of identifiable assets and liabilities in connection with business combinations including associated intangible assets and goodwill, contingent consideration, accruals for research and development costs, useful lives of long-lived assets, stock-based compensation and related assumptions, the incremental borrowing rate for leases and income tax uncertainties, including a valuation allowance for deferred tax assets, eligibility of expenses for the Australia research and development refundable tax credits, impairment of intangible assets, including goodwill; and contingencies. The Company bases its estimates on historical experience and on various other market specific and other relevant assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ materially from the Company’s estimates.

Foreign Currency Translation and Transactions

The functional currency of the Company’s wholly-owned subsidiaries are the Euro and Australian Dollar. The Company's financial results and financial position are translated into U.S. dollars using exchange rates at balance sheet dates for assets and liabilities and using average exchange rates for income and expenses. The resulting translation differences are presented as a separate component of accumulated other comprehensive loss, as a separate component of equity.

Foreign currency transactions are translated into the functional currencies using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses, resulting from the settlement of such transactions and from the re-measurement of monetary assets and liabilities denominated in foreign currencies using exchange rates at balance sheet date and non-monetary assets and liabilities using historical exchange rates, are recognized in the condensed consolidated statements of operations and comprehensive loss.

Significant Accounting Policies

There have been no significant changes to the accounting policies during the six months ended June 30, 2024, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2023.

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Segments

The Company operates and manages its business as one reportable and operating segment, which is the business of developing and commercializing therapeutics. The Company’s chief executive officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for purposes of allocating and evaluating financial performance. All long-lived assets are maintained in Italy.

Business Combinations

The Company evaluates acquisitions of assets and other similar transactions to assess whether or not the transaction should be accounted for as a business combination or asset acquisition by first applying a screen to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If the screen is met, the transaction is accounted for as an asset acquisition. If the screen is not met, further determination is required as to whether or not the Company has acquired inputs and processes that have the ability to create outputs, which would meet the requirements of a business.

The Company accounts for business combinations using the acquisition method pursuant to the FASB ASC Topic 805. This method requires, among other things, that results of operations of acquired companies are included in the Company's financial results beginning on the respective acquisition dates, and that identifiable assets acquired and liabilities assumed are recognized at fair value as of the acquisition date. Intangible assets acquired in a business combination are recorded at fair value using one of three valuation approaches, the income approach, the market approach or the cost approach. The Company reviewed the three valuation approaches and determined the income approach was the most appropriate model to approximate fair value for the EryDel Acquisition. The income approach model requires assumptions about the timing and amount of future net cash flows, the cost of capital and terminal values from the perspective of a market participant. Any excess of the fair value of consideration transferred (the “Purchase Price”) over the fair values of the net assets acquired is recognized as goodwill. The fair value of identifiable assets acquired and liabilities assumed in certain cases may be subject to revision based on the final determination of fair value during a period of time not to exceed 12 months from the acquisition date. Legal costs, due diligence costs, business valuation costs and all other acquisition-related costs are expensed when incurred.

Intangible Assets

Definite lived Intangible Assets

Intangible assets with a definite useful life are amortized on a straight-line basis over the estimated useful life of the related assets. The Company regularly reviews whether current conditions or events suggest that the carrying values of its acquired definite lived intangible assets might not be recoverable. When such conditions are identified, an estimate of the undiscounted future cash flows from these assets, or relevant asset groupings, is compared to their carrying value to determine if an impairment exists. If an impairment is identified, the loss is calculated as the difference between the carrying value of the intangible asset and its fair value, which is based on the net present value of the estimated future cash flows.

Indefinite lived Intangible Assets

Intangible assets with an indefinite useful life are not amortized. Intangible assets acquired in a business combination or an acquisition that are used in research and development activities (regardless of whether they have an alternative future use) shall be considered indefinite lived until the completion or abandonment of the associated research and development efforts. Intangible assets acquired in a business combination are initially recorded at fair value. During the period that those assets are considered indefinite lived, they shall not be amortized but shall be tested for impairment. Once the research and development efforts are completed or abandoned, the entity shall determine the useful life of the assets. An indefinite lived intangible asset shall be tested for impairment annually and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of the intangible asset is less than its carrying amount. If that is the case, the Company performs a quantitative impairment test, and, if the carrying amount of the Company exceeds its fair value, then the Company will recognize an impairment charge for the amount by which its carrying amount exceeds its fair value, not to exceed the carrying amount of the intangible asset. Qualitative factors to be considered include but are not limited to:

•Cost factors such as increases in raw materials, labor, or other costs that have a negative effect on future expected earnings and cash flows

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•Legal/regulatory factors or progress and results of clinical trials

•Other relevant entity-specific events such as changes in management, key personnel, strategy, or customers; contemplation of bankruptcy; or litigation that could affect significant inputs used to determine the fair value of the indefinite-lived intangible asset

•Industry and market considerations such as a deterioration in the environment in which an entity operates, an increased competitive environment

•Macroeconomic conditions such as deterioration in general economic conditions, limitations on accessing capital, fluctuations in foreign exchange rates, or other developments in equity and credit markets that could affect significant inputs used to determine the fair value of the indefinite-lived intangible asset

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net assets acquired as of the acquisition date. Goodwill has an indefinite useful life and is not amortized. The Company reviews its goodwill for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of the Company may exceed its fair value. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of the Company is less than its carrying amount, including goodwill. If that is the case, the Company performs a quantitative impairment test, and, if the carrying amount of the Company exceeds its fair value, then the Company will recognize an impairment charge for the amount by which its carrying amount exceeds its fair value, not to exceed the carrying amount of the goodwill.

During the three and six months ended June 30, 2024, the Company recognized a non-cash goodwill impairment charge of $17.1 million as the quantitative analysis resulted in the Company's fair value being significantly below its carrying value.

Contingent Consideration

The Company determines the acquisition date fair value of contingent consideration using a discounted cash flow method, with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement as defined in ASC Topic 820, Fair Value Measurement. The significant inputs in the Level 3 measurement not supported by market activity included our probability assessments of expected future cash flows related to the Company's acquisition of EryDel in October 2023, during the contingent consideration period, appropriately discounted considering the uncertainties associated with the earnout obligation, and calculated in accordance with the terms of the definitive agreement. The liabilities for the contingent consideration are established at the time of the acquisition and will be evaluated on a quarterly basis based on additional information as it becomes available. Any change in the fair value adjustment is recorded in the earnings of that period. During the three and six months ended June 30, 2024, the Company recorded a $2.2 million and $4.8 million adjustment, respectively, to increase the fair value of its contingent consideration related to the acquisition of EryDel. The adjustment is reflected within operating loss on the consolidated statement of operations and comprehensive loss. Changes in the fair value of the contingent consideration obligations may result from changes in probability assumptions with respect to the likelihood of achieving the various contingent payment obligations. Significant increases or decreases in the inputs noted above in isolation would result in a significantly lower or higher fair value measurement.

Cash, Cash Equivalents and Investments

The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. Cash equivalents include marketable securities. Management determines the appropriate classification of its investments in debt securities at the time of purchase and at the end of each reporting period. Investments with original maturities beyond three months at the date of purchase and which mature at, or less than twelve months from the balance sheet date are classified as short-term investments. Investments with a maturity beyond twelve months from the balance sheet date are classified as long-term investments. Collectively, cash equivalents, short-term investments and long-term investments are considered available-for-sale and are recorded at fair value. Unrealized gains and losses are recorded as a component of other comprehensive loss in the consolidated statements of operations and included as a separate component of consolidated statements of stockholders’ equity (deficit). Realized gains and losses are included in interest income in the consolidated statements of operations and comprehensive loss.

Premiums (discounts) are amortized (accreted) over the life of the related investment as an adjustment to yield using the straight-line interest method. Dividend and interest income are recognized when earned. These amounts are recorded in “interest income” in the consolidated statements of operations and comprehensive loss.

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Recent Accounting Pronouncements Not Yet Adopted

The following are new accounting pronouncements that the Company is evaluating for future impacts on its financial statements:

Improvements to Income Tax Disclosures (ASC 740): In December 2023, the FASB issued ASU No. 2023-09, "Improvements to Income Tax Disclosures." This ASU establishes new income tax disclosure requirements in addition to modifying and eliminating certain existing requirements. Under this ASU, entities must consistently categorize and provide greater disaggregation of information in the rate reconciliation. They must also further disaggregate income taxes paid. The ASU is effective beginning after December 2024 under a prospective approach. Early adoption is permitted. The Company is evaluating the disclosure requirements related to the new standard.

Accounting Standard Update 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”): In November 2023, the FASB issued ASU 2023-07, which is intended to improve reportable segment disclosure requirements, primarily through additional disclosures about significant segment expenses, including for single reportable segment entities. The standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. The Company is evaluating the disclosure requirements related to the new standard.

All other newly issued accounting pronouncements not yet effective have been deemed either immaterial or not applicable.

Note 3. Fair Value Measurements

The fair value of the Company's financial instruments reflects the amounts that the Company estimates that it would receive in connection with the sale of an asset or pay in connection with the transfer of a liability in an orderly transaction between market participants at the measurement date (exit price). The Company discloses and recognizes the fair value of the assets and liabilities using a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements). The guidance establishes three levels of the fair value hierarchy as follows:

Level 1 - Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2 - Inputs other than quoted prices that are observable for the assets or liability either directly or indirectly, including inputs in markets that are not considered to be active.

Level 3 - Inputs that are unobservable. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The Company's financial instruments are carried in the accompanying condensed consolidated balance sheets at amounts that approximate fair value.

The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability. The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers within the hierarchy during the three and six months ended June 30, 2024 and 2023.

The Company elected the fair value option for the EIB Loan assumed as part of the EryDel Acquisition. The Company adjusted the EIB Loan to fair value through the change in fair value of debt in the accompanying consolidated statements of operations and comprehensive loss. Subsequent unrealized gains and losses on items for which the fair value option is elected are reported in earnings. The Company will breakout any change in value due to credit loss in accumulated other comprehensive loss. For the three and six months ended June 30, 2024, there was no change in value due to credit loss.

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Financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used in such measurements by major security type as of June 30, 2024 and December 31, 2023 are presented in the following tables (in thousands):


	Fair Value Measurements as of June 30, 2024
	Total		Level 1		Level 2		Level 3
Assets:
Money market funds	$	4,262	$	4,262	$	—	$	—

Government and agency notes	54,532		—		54,532		—
Total Assets	$	58,794	$	4,262	$	54,532	$	—
Liabilities:
Contingent consideration	62,471		—		—		62,471
Long-term debt	13,834		—		—		13,834
Total	$	76,305	$	—	$	—	$	76,305


	Fair Value Measurements as of December 31, 2023
	Total		Level 1		Level 2		Level 3
Assets:
Money market funds	$	4,285	$	4,285	$	—	$	—
Certificates of Deposit	729		—		729		—
Government and agency notes	68,524		3,971		64,553		—
Total Assets	$	73,538	$	8,256	$	65,282	$	—
Liabilities:
Contingent consideration	57,706		—		—		57,706
Long-term debt	13,429		—		—		13,429
Total	$	71,135	$	—	$	—	$	71,135

The Company classifies certificates of deposit and government and agency notes as Level 2 investments as the Company uses quoted prices for similar assets sourced from certain third-party pricing services. The third-party pricing services generally utilize industry standard valuation models for which all significant inputs are observable, either directly or indirectly, to estimate the price or fair value of the securities. The primary input generally includes reported trades of or quotes on the same or similar securities. The Company does not make additional judgments or assumptions made to the pricing data sourced from the third-party pricing services.

Level 3 Assets and Liabilities

Contingent Consideration

The following table reflects the changes in present value of acquisition related accrued earnouts of contingent consideration liability using significant unobservable inputs (Level 3) for the six months ended June 30, 2024:


	(in thousands)
Beginning Balance as of January 1, 2024	$	57,706
Change in fair value of contingent consideration	4,765
Ending Balance as of June 30, 2024	$	62,471

During the three months ended June 30, 2024, the Company enrolled the first patient in the Phase 3 NEAT clinical trial. In accordance with the purchase agreement entered into in connection with EryDel Acquisition, the Company notified the former EryDel shareholders of this achievement within 45 days of achieving this milestone. Additionally, within 30 days of

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the notification, the Company is required to make a cash milestone payment of $5 million to the former EryDel shareholders.

The change in the fair value of the contingent consideration is primarily driven by the passage of time and achievement of this milestone. The Company owes no further payments to EryDel shareholders for development-related milestones. The remaining potential contingent payments in connection with the EryDel Acquisition pertain to regulatory on market and sales milestones.

The following table summarizes the quantitative information including the unobservable inputs related to the Company's acquisition related accrued earnout as of June 30, 2024 (in thousands except for percentages):

June 30, 2024

Valuation Technique

Unobservable Input

Range (Input Used)

Contingent consideration

62,471

Expected present value

Probability of achieving

earnout objectives per the

purchase agreement

0% - 100%

Long-term Debt

The following table presents the changes in the fair value of the Level 3 EIB Loan for the six months ended June 30, 2024:


	(in thousands)
Beginning Balance as of January 1, 2024	$	13,429
Change in fair value	803
Due to foreign currency translation	(398)
Ending Balance as of June 30, 2024	$	13,834

The following table summarizes the quantitative information including the unobservable inputs related to the Company's acquisition related long term debt as of June 30, 2024 (in thousands except for percentages):

June 30, 2024

Valuation Technique

Unobservable Input

Range (Input Used)

EIB loan

13,834

Expected present value

Credit quality of company

and credit spreads for comparable debt

13%

Note 4. Cash, Cash Equivalents and Investments

The following tables categorize the fair values of cash, cash equivalents, short-term investments and long-term investments measured at fair value on a recurring basis on our balance sheets (in thousands):


	June 30, 2024		December 31, 2023
Cash and cash equivalents:
Cash	$	651	$	1,521
Money market funds	4,262		4,285
Government and agency notes	2,977		14,946
Total cash and cash equivalents	$	7,890	$	20,752

Short-term investments:
Certificates of deposit	$	—	$	729
Government and agency notes	51,555		53,578
Total short-term investments	$	51,555	$	54,307

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The Company's investments are classified as available-for-sale securities. As of June 30, 2024, the weighted average remaining contractual maturities of available-for-sale securities was approximately 6 months. The unrealized gain (loss) activity related to the Company’s available-for-sale securities is included in the Company’s accumulated other comprehensive income. There were no significant realized gains or losses recognized on the sale or maturity of available-for-sale securities for the three and six months ended June 30, 2024 and 2023, and as a result, the Company did not reclassify any amounts out of accumulated other comprehensive income. Based on the Company’s review of its available-for-sale securities, the Company has a limited number of available-for-sale securities in insignificant loss positions as of June 30, 2024. No other-than-temporary impairments on these securities were recognized for the three and six months ended June 30, 2024 and 2023.

The Company periodically assess its investment in available-for-sale securities for impairment losses and credit losses. The amount of credit losses are determined by comparing the difference between the present value of future cash flows expected to be collected on these securities and the amortized cost. Factors considered in assessing credit losses include the position in the capital structure, vintage and amount of collateral, delinquency rates, current credit support, and geographic concentration. There have been no impairment and credit losses related to available-for-sale securities for the three and six months ended June 30, 2024 and 2023.

For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value and recognized in interest and other income, net in the statement of operations and comprehensive loss. If neither criteria is met, the Company evaluates whether the decline in fair value is related to credit-related factors or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. Credit-related impairment losses, limited by the amount that the fair value is less than the amortized cost basis, are recorded through an allowance for credit losses in interest and other income, net.

Any unrealized losses from declines in fair value below the amortized cost basis as a result of non-credit factors are recognized in accumulated other comprehensive income, net of tax as a separate component of stockholders’ equity, along with unrealized gains. Realized gains and losses and declines in fair value, if any, on available-for-sale securities are included in interest and other income, net in the condensed statement of operations and comprehensive loss.

For purposes of identifying and measuring credit-related impairments, the Company’s policy is to exclude applicable accrued interest from both the fair value and amortized cost basis of the related security. The Company has elected to write-off uncollectible accrued interest receivable balances in a timely manner, which is defined by the Company as when interest due becomes 90 days delinquent. The accrued interest write-off will be recorded by reversing interest income. Accrued interest receivable is recorded in other current assets on the condensed balance sheets.

The following table summarizes the available-for-sale securities (in thousands):


	Fair Value Measurements as of June 30, 2024
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Money market funds	$	4,262	$	—	$	—	$	4,262

Government and agency notes	54,547		1		(16)		54,532
Total cash equivalents and investments	$	58,809	$	1	$	(16)	$	58,794

Classified as:
Cash equivalents (original maturities within 90 days)							$	7,239
Short-term investments (maturities within one year)							51,555
Total cash equivalents and investments							$	58,794

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	Fair Value Measurements as of December 31, 2023
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Money market funds	$	4,285	$	—	$	—	$	4,285
Certificates of Deposit	735		—		(6)		729
Government and agency notes	68,528		13		(17)		68,524
Total cash equivalents and investments	$	73,548	$	13	$	(23)	$	73,538

Classified as:
Cash equivalents (original maturities within 90 days)							$	19,231
Short-term investments (maturities within one year)							54,307
Total							$	73,538

Note 5. Balance Sheet Components

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following (in thousands):


	June 30, 2024		December 31, 2023
Prepaid expenses	$	443	$	365
Prepaid insurance	282		809
Prepaid research and development expenses	2,225		133
Short-term Italian research and development refundable tax credit	964		993
Other current assets	79		81
Total prepaid expenses and other current assets	$	3,993	$	2,381

The Company is eligible to obtain an R&D tax credit as companies in Italy that invest in eligible research and development activities, regardless of the legal form and economic sector in which they operate, can benefit from a R&D tax credit. Such tax credits can only be used to offset payments of certain taxes and contributions (e.g., social contributions, VAT payables, registration fees, income and withholding taxes and all other tax-related items that companies usually pay monthly). The Company recognized reductions to R&D expense of $0.4 million and $0.8 million for the three and six months ended June 30, 2024 respectively, and $0 reductions for the three and six months ended June 30, 2023.

Novosteo Pty, Ltd, a wholly-owned subsidiary of Novosteo, LLC, is eligible to obtain a cash refund from the Australian Taxation Office for eligible R&D expenditures under the Australian Tax Incentive. During the three and six months ended June 30, 2024, the Company received $0 refundable tax credit. During the first quarter of 2023, the Company received a refundable tax credit of $0.5 million, which reduced prepaid expenses and other current assets by $0.5 million as of March 31, 2023.

Other Assets

Other assets consisted of the following (in thousands):


	June 30, 2024		December 31, 2023
VAT receivable	$	3,748	$	3,463
Long-term Italian research and development refundable tax credit	4,965		4,993
Equity investments in Lighthouse Pharmaceuticals, Inc.	78		78
Assets held for sale	7		10
Total other assets	$	8,798	$	8,544

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Property and Equipment, Net

Property and equipment, net consist of the following (in thousands):


	June 30, 2024		December 31, 2023
Computer equipment	$	35	$	36
Computer Software	29		30
Lab equipment	511		486
Leasehold improvement	35		36
Office furniture	202		153
Less: accumulated amortization and depreciation	(566)		(507)
Property and equipment, net	$	246	$	234

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (in thousands):


	June 30, 2024		December 31, 2023
Personnel expenses	$	1,844	$	2,340
Research and development expenses	500		564
Professional fees	200		211
Current portion of operating lease liabilities	94		64
Other	278		257
Total accrued expenses and other current liabilities	$	2,916	$	3,436

For the six months ended June 30, 2024 and 2023, the severance accrual activity were as follows (in thousands):


	2024		2023
Beginning accrued severance	$	341	$	—
Incurred during the period	—		268
Severance paid during the period	(251)		(268)
Ending accrued severance	$	90	$	—

On January 30, 2023, in response to the reprioritization of the Company's pipeline following the decision to discontinue internal development of NOV004 and to pursue out-licensing opportunities, the Company's Board of Directors approved a cost reduction program to reorganize operations and allow continued support for the needs of the business. Under the cost reduction program, the Company lowered headcount through a reduction in workforce. The Company recognized the severance of $0.3 million and related expenses of $0.1 million over the requisite employment obligation period. The reduction in force was completed in April 2023.

On August 4, 2023, the Company entered into a transition and separation agreement with Karen Smith, M.D., Ph.D., (the “Separation Agreement”) in connection with Dr. Smith’s transition and departure from the Company as the Company's Chief Medical Officer, effective as of September 1, 2023. Pursuant to the Separation Agreement, the Company is required to pay cash severance, equal to her annual salary, in the aggregate amount of $0.5 million, of which $0.3 million was paid during the six months ended June 30, 2024. The severance is to be paid on regular payroll schedule through the third quarter of 2024. Additionally, pursuant to the Separation Agreement, the Company paid an additional cash bonus severance payment equal to 100% of Dr. Smith’s target annual bonus opportunity for 2023 on a prorated basis, an additional cash severance payment equal to 12 months’ of the monthly premiums for health care continuation benefits, and provided for 50% accelerated vesting with respect to Dr. Smith’s equity award. The acceleration of 612,141 options and 54,757 RSAs resulted in a stock-based compensation expense of approximately $0.1 million that was recorded in 2023.

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Note 6. Leases

In October 2023, as part of the EryDel Acquisition the Company acquired operating leases in which the Company recorded an operating lease right of use asset and liability in total of $0.4 million. This includes a lease agreement renting office space in Bresso, in the Province of Milan, Italy. The Lease Agreement commenced on September 1, 2016 and will end on August 31, 2028. At acquisition date, the Company recorded an operating lease right of use asset and liability of $0.1 million. This also includes a lease agreement renting office space in Medolla, in the Province of Modena, Italy. The Lease Agreement commenced on June 18, 2018, with a duration of 12 years, until January 31, 2030. At acquisition date, the Company recorded an operating lease right of use asset and liability of $0.2 million. The acquired lease agreements also included other operating leases two of which are car leases and the other a printing press.

In January 2024, the above-mentioned Lease Agreement for the office space in Medolla was renegotiated. The new Lease Agreement includes an additional space and commenced on February 1, 2024, and will end on January 31, 2036, substituting the Lease Agreement commenced in June 2018. The Company recorded an additional $0.2 million of operating lease right of use asset and liability during the six months ended June 30, 2024.

The Company recognizes lease expense on a straight-line basis over the term of its operating lease. During the three and six months ended June 30, 2024 and 2023, the Company recorded rent expense of less than $0.1 million.

Supplemental balance sheet information related to leases as follows (in thousands except lease terms and discount rates):


	June 30, 2024			December 31, 2023
Assets:
Operating lease right of use asset, net	$	554		$	385
Liabilities:
Short-term operating lease liability	94			64
Long-term operating lease liability	453			321
Total lease liabilities	$	547		$	385

Other information:
Weighted average remaining lease term	5.1 years			5.4 years
Weighted average discount rate	9.09		%	7.95		%

Future minimum lease payments under lease agreements as of June 30, 2024, were as follows (in thousands):


Fiscal Year
2024 (remainder of the year)	$	68
2025	136
2026	133
2027	127
2028 and thereafter	203
Total lease payments	667
Less: imputed interest	(120)
Total remaining lease liability	$	547

Note 7. Stockholders’ Equity

On April 5, 2023, the Company’s Board of Directors declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of the common stock of the Company. The dividend was effective as of April 17, 2023 (the “Record Date”) with respect to stockholders of record on that date. The Rights also attached to shares of common stock issued after the Record Date. Each Right entitled the registered holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $0.001 per share, (the “Preferred Shares”), of the Company at a price of $6.00 per one one-thousandth of a Preferred Share, subject to adjustment.

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On April 5, 2024, the Rights Plan and the Rights issued thereunder expired.

Note 8. Stock-Based Compensation

The Company operates three stock plans as of June 30, 2024:

•2019 Equity Incentive Plan (Quince)

•2019 Equity Incentive Plan (Novosteo)

•2022 Inducement Plan (Quince)

2019 Equity Incentive Plan (Quince)

On December 4, 2014, the Company’s stockholders approved the 2014 Stock Plan (“2014 Plan”), and on April 25, 2019 amended, restated and re-named the 2014 Plan as the 2019 Equity Incentive Plan (the “Quince 2019 Plan”), which became effective as of May 7, 2019, the day prior to the effectiveness of the registration statement filed in connection with the IPO. The remaining shares available for issuance under the 2014 Plan were added to the shares reserved for issuance under the Quince 2019 Plan.

The Quince 2019 Plan provides for the grant of stock options (including incentive stock options and non-qualified stock options), stock appreciation rights, restricted stock, RSUs, performance units, and performance shares to the Company’s employees, directors, and consultants. As of June 30, 2024, the maximum aggregate number of shares that may be issued under the 2019 Plan is 11,755,418 shares of the Company’s common stock. In addition, the number of shares available for issuance under the Quince 2019 Plan will be annually increased on the first day of each fiscal years beginning with fiscal 2020, by an amount equal to the least of (i) 2,146,354 shares of common stock; (ii) 4% of the outstanding shares of its common stock as of the last day of its immediately preceding fiscal year; and (iii) such other amount as the Board may determine.

The Quince 2019 Plan may be amended, suspended or terminated by the Board at any time, provided such action does not impair the existing rights of any participant, subject to stockholder approval of any amendment to the Quince 2019 Plan as required by applicable law or listing requirements. Unless sooner terminated by the Company's Board of Directors, the 2019 Plan will automatically terminate on April 23, 2029.

As of June 30, 2024, the Company had 2,366,900 shares available for future issuance under the Quince 2019 Plan.

Stock Options

Stock options under the 2019 Plan may be granted for periods of up to 10 years and at prices no less than 100% of the fair market value of the shares on the date of grant. If, at the time of grant, the optionee directly owns stocks representing more than 10% of the voting power of all our outstanding capital stock, the exercise price for these options must be at least 110% of the fair value of the underlying common stock. Stock options granted to employees and non-employees generally have a maximum term of ten years and vest over four years from the vesting commencement date, of which 25% vest on the one-year anniversary of the vesting commencement date, and 75% vest in equal monthly installments over the remaining three years or monthly vesting over 3 to 4 years. We may grant options with different vesting terms from time to time. Unless an employee's or non-employee's termination is due to cause, disability or death, upon termination of service, any unexercised vested options will be forfeited at the end of the three months from the termination date or expiration of the option, whichever is earlier.

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Activity for service-based stock options under the Quince 2019 Plan is as follows:


	Number of Options and Unvested Shares	Weighted Average Exercise Price		Weighted average remaining contractual life (years)	Aggregate intrinsic value
					(In thousands)
Balance as of December 31, 2023	4,267,178	$	5.00	8.85	$	197
Options granted	3,417,500	1.28		—	—
Options exercised	(155,311)	0.93		—	65
Options cancelled / forfeited	(59,688)	0.95		—	—
Balance as of June 30, 2024	7,469,679	$	3.41	8.88	$	4
Options vested and expected to vest as of June 30, 2024	7,469,679	3.41		8.88	4
Options exercisable as of June 30, 2024	1,676,149	$	10.39	7.41	$	4

For the three and six months ended June 30, 2024, the Company recognized stock-based compensation expense of $0.8 million and $1.6 million, respectively, related to options granted to employees and non-employees. For the three and six months ended June 30, 2023, the Company recognized stock-based compensation expense of $0.6 million and $1.4 million, respectively, related to options granted to employees and non-employees.

The compensation expense is allocated on a departmental basis, based on the classification of the option holder. No income tax benefits have been recognized in the condensed consolidated statement of operations and comprehensive loss for stock-based compensation arrangements. As of June 30, 2024, total unamortized employee stock-based compensation was $6.1 million, which is expected to be recognized over the remaining estimated vesting period of 2.91 years.

Restricted Stock Units (“RSUs”)

RSUs are share awards that entitle the holder to receive freely tradable shares of the Company’s common stock upon vesting. The fair value of RSUs is based upon the closing sales price of the Company’s common stock on the grant date. RSUs granted to employees generally vest over a 2 – 4 year period.

The following table summarizes activity under the Company’s RSUs from the Quince 2019 Plan and related information:


	Restricted Stock Units Outstanding
	Number of Shares	Weighted Average Grant Date Fair Value
Unvested - December 31, 2023	1,488	$	4.30
RSUs granted	—	—
RSUs vested	(1,488)	4.30
RSUs cancelled	—	—
Unvested - June 30, 2024	—	$	—

The fair value of the RSUs is determined on the grant date based on the fair value of the Company’s common stock. The fair value of the RSUs is recognized as expense ratably over the vesting period of two years.

The total grant date fair value and the aggregate intrinsic value of the shares of the RSUs vested during the three and six months ended June 30, 2024 was $0 and $6.4 thousand, respectively. The aggregate intrinsic value of the shares of the RSUs vested during the three and six months ended June 30, 2024 was $0 and $1.9 thousand, respectively. The total grant date fair value of the RSUs vested during the three and six months ended June 30, 2023 was $6.4 thousand and $31.1 thousand, respectively. The aggregate intrinsic value of the shares of the RSUs vested during the three and six months ended June 30, 2023 was $2.2 thousand and $7.9 thousand, respectively.

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For the three and six months ended June 30, 2024, the Company recognized stock-based compensation expense of $0 and $4.0 thousand, respectively, related to these RSUs. For the three and six months ended June 30, 2023, the Company recognized stock-based compensation expense of $6.0 thousand and $24.0 thousand respectively, related to these RSUs. As of June 30, 2024, total unamortized stock-based compensation related to RSUs was $0.

2019 Equity Incentive Plan (Novosteo)

On May 19, 2022, in accordance with the term of the Merger Agreement, the Company assumed the 2019 Novosteo, Inc. Equity Incentive Plan (the "2019 Novosteo Plan"). The 2019 Novosteo Plan provides for the grant of stock options (including incentive stock options and non-qualified stock options), stock appreciation rights, restricted stock, RSUs, performance units, and performance shares to the Novosteo legacy employees. On the closing date, each outstanding Novosteo stock option granted under Novosteo’s equity compensation plans was converted into a corresponding stock option with the number of shares underlying such option and the applicable exercise price adjusted based on the exchange ratio of 0.0911. Each such converted stock option continues to be subject to substantially the same terms and conditions as applied to the corresponding Novosteo stock option prior to the Acquisition. The maximum aggregate number of shares that may be issued under the 2019 Novosteo Plan is 544,985 shares of the Company’s common stock.

The 2019 Novosteo Plan may be amended, suspended or terminated by the Board at any time, provided such action does not impair the existing rights of any participant, subject to stockholder approval of any amendment to the 2019 Novosteo Plan as required by applicable law or listing requirements. Unless sooner terminated by the Board, the 2019 Novosteo Plan will automatically terminate on May 20, 2029.

Stock options under the 2019 Novosteo Plan may be granted for periods of up to 10 years and at prices no less than 100% of the fair market value of the shares on the date of grant. If, at the time of grant, the optionee directly owns stocks representing more than 10% of the voting power of all our outstanding capital stock, the exercise price for these options must be at least 110% of the fair value of the underlying common stock. Stock options granted to employees and non-employees generally have a maximum term of ten years and vest over four years from the vesting commencement date, of which 25% vest on the one-year anniversary of the vesting commencement date, and 75% vest in equal monthly installments over the remaining three years or monthly vesting over 3 to 4 years. We may grant options with different vesting terms from time to time. Unless an employee's or non-employee's termination is due to cause, disability or death, upon termination of service, any unexercised vested options will be forfeited at the end of the three months from the termination date or expiration of the option, whichever is earlier.

As of June 30, 2024, the Company had 246,797 shares available for future issuance under the 2019 Novosteo Plan.

Activity for service-based stock options under the 2019 Novosteo Plan is as follows:


	Number of Options and Unvested Shares	Weighted Average Exercise Price		Weighted average remaining contractual life (years)	Aggregate intrinsic value
					(In thousands)
Balance as of December 31, 2023	310,431	$	0.55	8.23	$	155
Options granted	—	—		—	—
Options exercised	(146,592)	0.55		—	94
Options cancelled / forfeited	—	—		—	—
Balance as of June 30, 2024	163,839	$	0.55	7.73	$	33
Options vested and expected to vest as of June 30, 2024	163,839	0.55		7.73	33
Options exercisable as of June 30, 2024	28,023	$	0.55	7.73	$	6

For the three and six months ended June 30, 2024, the Company recognized stock-based compensation expense of $48.0 thousand and $97.0 thousand, respectively, related to options granted to employees and non-employees for the 2019 Novosteo Plan. For the three and six months ended June 30, 2023, the Company recognized stock-based compensation expense of $72.0 thousand and $131.0 thousand, respectively, related to options granted to employees and non-employees

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for the 2019 Novosteo Plan. The compensation expense is allocated on a departmental basis, based on the classification of the option holder. No income tax benefits have been recognized in the condensed consolidated statement of operations and comprehensive loss for stock-based compensation arrangements. As of June 30, 2024, total unamortized employee stock-based compensation was $0.3 million, which is expected to be recognized over the remaining estimated vesting period of 1.73 years.

On May 19, 2022, in accordance with the term of the Merger Agreement, the Company assumed a number of restricted stock award ("RSA") agreements with certain employees. Each outstanding Novosteo RSA was converted into a corresponding RSA with the number of shares underlying such RSA adjusted into 0.0911 shares of common stock. Each such converted RSA will continue to be subject to substantially the same terms and conditions as applied to the corresponding Novosteo RSA prior to the Acquisition.

Restricted Stock Awards


	Restricted Stock Awards Outstanding
	Number of Shares	Weighted Average Grant Date Fair Value
Unvested - December 31, 2023	175,764	$	3.30
RSAs granted	—	—
RSAs vested	(48,674)	3.30
RSAs cancelled	—	—
Unvested - June 30, 2024	127,090	$	3.30

For the three and six months ended June 30, 2024, the Company recognized stock-based compensation expense of $0.1 million and $0.2 million, respectively, related to restricted stock awards. For the three and six months ended June 30, 2023, the Company recognized stock-based compensation expense of $0.1 million and $0.2 million, respectively, related to restricted stock awards. The compensation expense is allocated on a departmental basis, based on the classification of the award holder. No income tax benefits have been recognized in the condensed consolidated statement of operations and comprehensive loss for stock-based compensation arrangements. As of June 30, 2024, total unamortized employee stock-based compensation was $0.4 million, which is expected to be recognized over the remaining estimated vesting period of 1.25 years.

2022 Inducement Plan

On May 9, 2022, the Company's Board of Directors approved 4,000,000 shares of common stock that may be offered or issued under the Quince Therapeutics, Inc. 2022 Inducement Plan (the "2022 Inducement Plan"). The 2022 Inducement Plan was adopted by the independent members of the Board without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules (“Nasdaq Rule 5635(c)(4)”). In accordance with Nasdaq Rule 5635(c)(4), awards under those plans may only be made to an employee who has not previously been an employee or member of the Board of Directors or of any board of directors of any parent or subsidiary of the Company, or following a bona fide period of non-employment by the Company or a parent or subsidiary, if he or she is granted such award in connection with his or her commencement of employment with the Company or a subsidiary and such grant is an inducement material to his or her entering into employment with the Company or such subsidiary. The terms and conditions of the 2022 Inducement Plan are substantially similar to those of the Quince 2019 Plan.

Options under the 2022 Inducement Plan may be granted for periods of up to 10 years at prices no less than 100% of the fair market value of the shares on the date of grant. Options granted to employees may have different performance goals or other vesting provisions (including continued employment) in accordance with the applicable award agreement. Unless an employee's termination service is due to disability or death, upon termination of service, any unexercised vested options will be forfeited at the end of the three months from the date of termination or expiration of the option, whichever is earlier.

As of June 30, 2024, the Company had 1,666,694 shares available for future issuance under the 2022 Inducement Plan.

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Activity for service-based stock options under the 2022 Inducement Plan is as follows:


	Number of Options and Unvested Shares	Weighted Average Exercise Price		Weighted average remaining contractual life (years)	Aggregate intrinsic value
					(In thousands)
Balance as of December 31, 2023	2,333,306	$	2.98	8.39	—
Options granted	—	—		—	—
Options exercised	—	—		—	—
Options cancelled / forfeited	—	—		—	—
Balance as of June 30, 2024	2,333,306	$	2.98	7.90	—
Options vested and expected to vest as of June 30, 2024	2,333,306	2.98		7.90	—
Options exercisable as of June 30, 2024	1,215,262	$	2.98	7.90	—

For the three and six months ended June 30, 2024, the Company recognized stock-based compensation expense of $0.3 million and $0.7 million, respectively, related to options granted to employees for the 2022 Inducement Plan. For the three and six months ended June 30, 2023, the Company recognized stock-based compensation expense of $0.5 million and $1.0 million, respectively, related to options granted to employees for the 2022 Inducement Plan. The compensation expense is allocated on a departmental basis, based on the classification of the option holder. No income tax benefits have been recognized in the condensed consolidated statement of operations and comprehensive for stock-based compensation arrangements. As of June 30, 2024, total unamortized employee stock-based compensation was $2.5 million, which is expected to be recognized over the remaining estimated vesting period of 1.89 years.

Stock-Based Compensation Expense

The following table summarizes employee and non-employee stock-based compensation expense for the three and six months ended June 30, 2024 and 2023 and the allocation within the condensed consolidated statements of operations and comprehensive loss (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
General and administrative expense	$	1,142	$	946	$	2,310	$	2,069
Research and development expense	81		375		187		734
Total stock-based compensation	$	1,223	$	1,321	$	2,497	$	2,803

Employee Stock Purchase Plan

On April 24, 2019, the Company's Board of Directors adopted its 2019 Employee Stock Purchase Plan (“2019 ESPP”), which was subsequently approved by the Company’s stockholders and became effective on May 7, 2019, the day immediately prior to the effectiveness of the registration statement filed in connection with the IPO. The 2019 ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Internal Revenue Code (the “Code”) for U.S. employees. In addition, the 2019 ESPP authorizes grants of purchase rights that do not comply with Section 423 of the Code under a separate non-423 component for non-U.S. employees and certain non-U.S. service providers. The Company has reserved 1,924,262 shares of common stock for issuance under the 2019 ESPP. In addition, the number of shares reserved for issuance under the 2019 ESPP will be increased automatically on the first day of each fiscal year for a period of up to ten years, starting with the 2020 fiscal year, by a number equal to the lesser of: (i) 536,589 shares; (ii) 1% of the shares of common stock outstanding on the last day of the prior fiscal year; or (iii) such lesser number of shares determined by the Company's Board of Directors. The 2019 ESPP is expected to be implemented through a series of offerings under which participants are granted purchase rights to purchase shares of the Company’s common stock on specified dates during such offerings. The Company has not yet approved an offering under the 2019 ESPP.

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Note 9. Long-term Debt

In connection with the acquisition of EryDel on October 20, 2023, the Company assumed an unsecured line of credit between EryDel and the European Investment Bank (the "EIB Loan"). The EIB Loan was amended and restated as of the acquisition date. The EIB Loan provides for maximum borrowings of 30.0 million euro through four tranches; tranche A, 3.0 million euro; tranche B, 7.0 million euro; tranche C, 10.0 million euro; and tranche D, 10.0 million euro. Each tranche is subject to conditions precedent related to the Company’s business and capitalization. As of June 30, 2024, only tranches A and B have been drawn. All amounts due under tranche A and B are payable on their maturity date of August 2026. Tranche C and D are payable in equal installments of principal together with all amounts outstanding under the tranches on the repayment dates specified in the relevant Disbursement Offer. The first Repayment Date of tranche C shall fall not earlier than twelve months from the Disbursement Date of such tranche. The last Repayment Date of tranche C and tranche D shall fall not later than 5 years from the Disbursement Date of tranche C and tranche D, respectively. The EIB Loan bears interest at fixed rates for each tranche and is payable on the maturity date for each Tranche. The fixed rates range from 7.0% to 9.0% per annum. As of June 30, 2024, principal of 10.0 million euros ($10.8 million) was outstanding on the EIB Loan and it is recorded as Long-term debt on the condensed consolidated balance sheet at fair value with imputed interest of 9.0% included.

The Company may voluntarily prepay, in whole or in part with a prepayment premium. In the event of an occurrence of an event of default or a change in control, as specified in the Debt Agreement, the Company will be required to prepay the outstanding EIB Debt.

The Debt Agreement includes a provision for additional remuneration to be paid in addition to interest. The amount of additional remuneration to be paid is equal to 2.5% of revenue up to 125.0 million euros, plus 1.85% of revenue between 125.0 and 250.0 million euros, plus 1.0% of revenue in excess of 250.0 million euros, multiplied by a varying percentage based on how many tranches have been drawn. The varying percentage is equal to 30.0% in the event tranche A has been drawn, 50.0% in the event tranche A and B have been drawn, 80.0% in the event tranche A, B and C have been drawn, and 100.0% in the event all four tranches have been drawn. The additional remuneration is payable for seven years, during the period January 1, 2026, through December 31, 2032. In the event of an occurrence of an event of default or prepayment, the Company may be required to pay an additional remuneration buyout fee.

The Company elected to account for the EIB Loan at fair value, which requires the EIB Loan to be recorded at fair value at issuance and at the end of each reporting period. Gains or losses upon remeasurement are to be recorded in other expense, net in the condensed consolidated statements of operations and comprehensive income. The Company presents separately in other comprehensive income the portion of the total change in the fair value of the EIB Loan that results from a change in instrument-specific credit risk. The EIB Loan’s fair value at the date it was assumed adjusted its carrying value based on using a discounted cash flow analysis with a discount rate based on a yield curve that was adjusted for credit rating. The change in fair value as of June 30, 2024 was determined using a discounted cash flow analysis discounted at the market yield. The significant inputs used to measure the market yield as of June 30, 2024 relative to the date the EIB Loan was assumed was the change in credit quality of the Company, the change in credit spreads for comparable debt instruments, and the change in the risk-free rate. As of June 30, 2024, the fair value of the EIB Loan is $13.8 million, which includes a fair value adjustment of $0.8 million and foreign currency translation of $0.4 million during the six months ended June 30, 2024.

Future minimum principal payments, as of June 30, 2024 are as follows (in thousands):


Quarter ended June 30, 2024	Amount
2024	$	—
2025	—
2026	10,714
2027 and thereafter	—
Total future minimum payments	10,714
Imputed interest	3,120
Total Debt as of June 30, 2024	$	13,834

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Note 10. Income Taxes

The Company recorded $36.0 thousand and $67.0 thousand of tax expense for the three and six months ended June 30, 2024, respectively, primarily related to foreign withholding tax and interest on uncertain tax position liability.

The Company has a history of losses and expects to incur a loss for 2024. The Company maintains a full valuation allowance against its net deferred tax assets as the Company believes it is not more likely than not that the benefit will be realized. The primary difference between the effective tax rate and the statutory tax rate relates to the change in valuation allowance.

Note 11. Net Loss Per Share

Basic and diluted net loss per common share is determined by dividing the net loss by the weighted-average common shares outstanding during the period, as follows (net loss in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Numerator:
Net loss	$	(27,729)	$	(4,886)	$	(38,878)	$	(17,140)
Denominator:
Weighted average common shares outstanding	43,096,374		35,917,592		43,053,351		35,886,568
Net loss per share, basic and diluted	$	(0.64)	$	(0.14)	$	(0.90)	$	(0.48)

The following outstanding potentially dilutive shares have been excluded from the calculation of diluted net loss per share for the periods presented because including them would have been antidilutive:


	June 30,
	2024	2023
Stock options issued and outstanding	9,966,824	7,301,780
Restricted stock units	—	4,463
Restricted stock awards	127,090	342,062
Total	10,093,914	7,648,305

Note 12. Business Combination

EryDel Business Combination

On October 20, 2023, the Company completed its acquisition of EryDel, a privately held, late-stage biotechnology company with a lead Phase 3 lead asset, EryDex, that targets the potential treatment of a rare neurodegenerative disease, A-T. The acquisition will drive Quinces’ next stage of growth, as EryDel’s proprietary drug-device combination technology platform and promising late-stage clinical asset represents an opportunity for the Company to expand into several debilitating rare diseases where chronic corticosteroid treatment is – or has the potential to become – a standard of care if there were not corticosteroid-related safety concerns. This evaluation process is expected to span across ataxias, neuromuscular indications, hematology, cancer, and autoimmune diseases, with a focus on rare diseases. The Company accounted for this acquisition in accordance with ASC 805, Business Combinations, which requires the assets acquired and the liabilities assumed to be measured at fair value at the date of the acquisition. As part of the acquisition of EryDel, the Company recorded deferred tax liability of $5.1 million and uncertain tax position liability of $0.5 million against Goodwill.

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The acquisition date fair value of the consideration transferred for EryDel was approximately $66.9 million, which consisted of the following (in thousands):


	Fair Value of Consideration
Cash	$	2,615
Quince Therapeutics common stock (7,250,352 shares)	7,164
Contingent consideration	56,128
Settlement of preexisting notes receivable	1,000
Fair value of total consideration transferred	$	66,907

The fair value of the Company’s common stock was determined based on the closing market price of the Company’s common stock of $0.989 per share on the acquisition date. The aggregate stock consideration consists of 6,525,315 shares of Company’s common stock issued at closing and 725,037 shares of common stock (the “Indemnity Holdback Shares”) withheld by the Company for general representations and warranties. The Indemnity Holdback Shares will be issued to the EryDel Shareholders upon the first anniversary of the closing of the acquisition, subject to reduction for any indemnification claims, if any. Any indemnification claims after the acquisition date will result in an adjustment to the consideration transferred if the indemnification claim is made before the end of the measurement period. Any indemnification claim after the end of the measurement period will be recognized in the Company’s consolidated statements of operations and comprehensive loss. The Company has included the total fair value of the stock consideration within additional-paid-in capital and common stock.

The contingent consideration arrangement requires the Company to pay $485.0 million of additional consideration in cash, comprised of up to $5.0 million upon the enrollment of the first patient in the Phase 3 NEAT clinical trial, which was achieved in the second quarter of 2024, $25.0 million at NDA acceptance, up to $60.0 million upon the achievement of specified approval milestones, and up to $395.0 million upon the achievement of specified on market and sales milestones. The Company estimated the fair value of the contingent consideration using a probability-weighted discounted cash flow model. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in ASC 820. The key assumptions in applying the income approach are as follows: 15% discount rate, probability of achievement, 0% to 100%, each of the milestones and future revenues from commercialization over the contingent consideration period. No contingent consideration is payable unless and until the milestones are achieved. The fair value of each milestone after the acquisition is reassessed, with the subsequent change in fair value recorded in the Company’s consolidated statements of operations and comprehensive loss.

During the three months ended June 30, 2024, the Company enrolled the first patient in the Phase 3 NEAT clinical trial. Within 45 days of the achievement of the milestones, the Company is required to notify the former EryDel shareholders of this achievement. Additionally, within 30 days of the notification, the Company is required to make a cash milestone payment of $5 million to the former EryDel shareholders in accordance with the purchase agreement entered into in connection with EryDel Acquisition.

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The following table summarizes the allocation of the consideration paid for EryDel to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date, with the excess recorded to goodwill (in thousands):


	Preliminary Purchase Price Allocation
Assets acquired:
Cash	$	560
Tax assets	10,187
Other current assets	644
Property and equipment, net	238
Operating lease right-of-use assets, net	383
Other non-current assets	14
Intangible assets	61,096
Goodwill	16,929
Total assets acquired	90,051
Liabilities assumed:
Trade payables	(1,685)
Accrued expenses and other current liabilities	(2,943)
Debt, non-current