Buying and selling Under Money, Going through Activist Stress

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Quince Therapeutics (QNCX) ($55MM market cap) is a damaged biotech that’s buying and selling nicely beneath money and is going through activist stress from two events seeking to both purchase the corporate for money or put the corporate into liquidation.  Within the first half of 2022, Quince (often known as Cortexyme on the time) purchased Novosteo in a reverse merger, then on this previous January, the corporate offered their outdated drug portfolio again to the earlier administration of Cortexyme who now run privately held Lighthouse Prescription drugs for a 7.5% fairness stake in Lighthouse (plus a CVR of as much as $150MM primarily based on assembly sure milestones).  Alongside the asset sale, Quince additionally introduced a 47% discount in power and that they might be pursuing an out-licensing technique for his or her remaining drug candidate, NOV004, which is designed to speed up bone fracture therapeutic.  The go-forward technique now’s:

On January 30, 2023, the Firm offered an replace on its growth pipeline and enterprise outlook for 2023. The Firm intends to prioritize capital sources towards the enlargement of its growth pipeline by means of opportunistic in-licensing and acquisition of clinical-stage belongings focusing on debilitating and uncommon ailments. The Firm plans to out-license its bone-targeting drug platform and precision bone development molecule NOV004 designed for accelerated fracture restore in sufferers with bone fractures and osteogenesis imperfecta.

This acquisition technique seems to be doubtful given their monitor file, the present market temper in direction of reverse mergers and/or speculative biotech corporations.  Biotechs on this place ought to present some humility, liquidate and let the shareholders resolve the place to redeploy that capital, not administration.  My tremendous easy again of the envelope math for these damaged biotechs is as follows:

This example has caught the eye of two buyers: 

  1. Kevin Tang owns just below 10% of the shares and primarily based on different related conditions, one can assume he is requested if administration could be open to a suggestion to purchase QNCX for some low cost of money plus a CVR for any proceeds the pipeline brings in a sale; 
  2. Echo Lake Capital submitted a non-binding proposal to purchase QNCX for $1.60/share, which was formally rejected by the corporate, who then adopted a poison tablet.  Echo Lake adopted up this week with one other letter criticizing administration.

Whereas administration hasn’t given up right here like I would favor to see, they’ve lower prices and that is principally a money shell at this level with no enterprise, to not dissimilar to different concepts within the damaged biotech basket.  If Tang or Echo Lake handle to power administration’s hand, a strategic options or liquidation announcement may very well be a catalyst to maneuver the inventory increased.

Disclosure: I personal shares of QNCX

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