Quince Therapeutics: High-Potential Turnaround With Phase 3 Asset EryDex

seekingalpha08-20

Quince’s transformation is complete with the acquisition of EryDel in October 2023.The ongoing Phase 3 trial for the orphan disease Ataxia-Telangiectasia builds on the recently published teachings of ...

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Tippapatt Thesis Quince Therapeutics (NASDAQ:QNCX) is a biotech company that currently has a drug delivery platform and a Phase 3 asset with proven efficacy as its main assets. Both assets originate from the purchase of Italian company EryDel S.p.A. In an earlier Phase 3 trial, treatment candidate EryDex had failed to achieve statistical significance in the entire trial population diagnosed with Ataxia-Telangiectasia, but saw statistically significant efficacy in the 6-9 year old subgroup. This 6-9 year old subgroup forms the patient population of Quince’s ongoing Phase 3 trial. Quince’s AIDE technology platform allows for encapsulation of a drug into a patient’s red blood cells. In the case of EryDex, dexamethasone sodium phosphate is the drug to be delivered. By loading this drug into a patient’s red blood cells, EryDex allows for continuous delivery of efficacious concentrations over a month’ time with no toxicity issues. There are approximately 4,600 patients in the U.S. diagnosed with Ataxia-Telangiectasia, on a total of 10,000 estimated in the U.S., U.K., and Big 4 EU countries. Ataxia-Telangiectasia, also called the Louis-Bar syndrome, does not have an approved treatment. There is no other equally far-advanced drug candidate that forms a potential competition for EryDex. Topline data from that trial should be reported in Q4 2025. EryDex has orphan drug designation both in the U.S. and the EU, Fast Track Designation in the U.S., and the Phase 3 trial is conducted under a Special Protocol Assessment agreement with the FDA. After the Phase 3 go-ahead from regulatory authorities and good insight into the earlier trial’s results, the results of which have just been published and reported on, the company is in a totally different spot than where it has been the past years. In Q4 2025, investors should know whether Quince’s Phase 3 trial will be successful or not. Enrollment appears to be on track with 7 patients enrolled so far, and Quince adds that it is poised to accelerate. Peak commercial potential for Ataxia-Telangiectasia is more than $1 billion, if one would assume pricing similar to what has been seen in Friedreich’s Ataxia. Company Introduction Quince’s goal since 2023 is to prioritize capital resources toward the expansion of its development pipeline through opportunistic in-licensing and acquisition of clinical-stage assets targeting debilitating and rare diseases. This reorientation has followed lack of success in Alzheimer’s disease in 2021 with a predecessor company. Following a reverse merger, in October 2023, Quince closed a much more interesting acquisition, namely that of the Italian company EryDel. EryDel had suffered a setback due to an imperfect Phase 3 trial design named ‘ATTeST’ in Ataxia-Telangiectasia. With the recent announcement of first-patient dosing in its Phase 3 trial for the treatment of Ataxia-Telangiectasia, I believe Quince is now turning the page. EryDex appears to be a very interesting asset with no competition and proven efficacy in the patient population currently focused on. I believe the market has yet to pick up on the interesting and quite de-risked Phase 3 trial the company is currently conducting. EryDex and the AIDE platform EryDex is based on the AIDE platform technology which allows for an autologous delivery of drugs through the patient’s own red blood cells. The monthly treatment involves harvesting about 50 ml of the patient’s blood is, then red blood cells are loaded with dexamethasone, and infused back into the patient’s body. EryDex does not require altering or editing of cell surface receptors or genes. AIDE technology slide (Corporate Presentation) Quince would like to target EryDex for other indications such as Duchenne Muscular Dystrophy, and possibly apply the same technology with other drugs to be loaded to address additional rare diseases. Corticosteroids have applications across a broad range of diseases and conditions, and come with known side effects which could be diminished by EryDex. Ataxia-Telangiectasia Ataxia Telangiectasia is a genetic disorder characterized by poor coordination – ataxia – and dilated blood vessels - telangiectasia. The disease is caused by a genetic mutation in the ATM gene. This gene has several functions both in neurons and T-cells, and by extension in B-cells, and mutations cause these functions to degenerate over time. The effect is that patients diagnosed with Ataxia-Telangiectasia have problems with coordination at young age, gradually worsen and eventually die at young age. Patients often become wheelchair dependent by age 12, and have a median lifespan of 25-30 years. ATM plays a major role in repairing damaged DNA, managing the repair of externally caused double-stranded helix breaks, by activation of other proteins through kinase and subsequent phosphorylation, such as proteins that prevent reproduction or cause controlled cell death. Within T-cells, an essential part of the adaptive immune system, double-helix breaks are purposefully caused within the cell to rearrange DNA to create new antigen receptors. ATM helps repair these double-helix breaks within T-cells. The lacking double-helix repair, particularly in the cerebellum, which is responsible for movement, causes neuronal damage. Other causes of disease-progression mentioned in literature include, among others, increased oxidative stress from sustained microglial activation, increased inflammation, and mitochondrial exhaustion. Over time, the muscles in the mouth are affected, causing difficulties to eat, and potential lung infections. Lacking proper T- and B-cell function, the body lacks immunoglobulin, becomes more susceptible to infections and patients have a higher risk of cancer on average. Current treatments and effects of dexamethasone As there is no approved treatment, the current standard of care is symptomatic, e.g., prevention of infections by immunoglobulin supplements and antibiotics, or beta-blockers to help with coordination difficulties. Italian studies from about ten years ago have shown that dexamethasone, a corticosteroid used to lower inflammation in a variety of diseases, appears to have a beneficial and perhaps even disease-modifying effect in patients with Ataxia-Telangiectasia. The administration of dexamethasone leads to the creation of an ATM-variant, a shortened ATM protein variant that retained kinase activity, leading to lower ATM deficiency. Further studies have been conducted to discover the mechanism of action underlying such effects, with one of the findings establishing a relationship between observed efficacy and saturation of glucocorticoid receptors. However, although corticosteroids were initially hailed as a potential solution, long-term treatment comes with side effects that often leads to treatment discontinuation, such as adrenal suppression, elevated glucose, and immunosuppression. Daily dexamethasone administration leads to toxicity-associated effects, as shown in orange – peaks and lows – in the graph below. Comparison of EryDex and monthly dexamethasone (Corporate Presentation) The advances of treatment with EryDex After the finding that dexamethasone may have a disease-modifying effect, the principal question to resolve was how to dose it without the accompanying toxicity issues. The solution provided by EryDex is a slow-release solution through delivery of dexamethasone through the patient’s own red blood cells over the course of 21-28 days. In doing so, only 40% of the normal dose of dexamethasone is delivered during the first 24 hours, with further continuous delivery to maintain glucocorticoid receptor saturation. The subsequent dose-tapering avoids the drug reaching the toxicity thresholds seen with intravenous or oral delivery. EryDex sustained efficacy (Corporate Presentation) The Phase 3 ATTeST trial run by EryDel Results EryDel had then moved on to test EryDex in the largest ever Phase 3 trial in patients with Ataxia-Telangiectasia that ran from 2017 to 2021, having enrolled 175 patients worldwide over a 6-month treatment period with a 12-month open label trial extension, supported by EU grants and further funding. The mICARS rating scale was the primary endpoint. ATTeST had produced good results in the trial patients aged 6-9, where difference to placebo was achieved with statistical significance. On the ICARS, mICARS, RmICARS rating scales, statistically significant results in slowing down disease progression compared to placebo had been shown (green bars). ATTeST results slide 1 (Corporate Presentation) In the prespecified 6- to 9-year-old age subgroup, a particularly interesting subgroup in view of the time of treatment and before patients are wheelchair-dependent, and the high dose showed a 4.8 statistically significant difference to placebo on the 54-point mICARS rating scale. ATTeST results slide 2, 6-9 year olds (Corporate Presentation) Results in the entire patient population, (i.e., including the patient group aged 10 and above, across all age groups) saw directional benefits on the primary mICARS endpoint and the secondary endpoint, CGI-C, but without statistical significance. ATTeST slide 3, improvement in all ages (Corporate Presentation) Peer-reviewed possible explanations for having missed statistical significance With directional benefits seen in the entire trial population but p-values in the low and high doses of 0.0847 and 0.0765 respectively, the trial failed to reach statistical significance. In the peer-reviewed paper on the study that the company just covered in a press release, the authors point to two potential causes for efficacy to be more pronounced in the 6-9 year age group. First, the most rapid disease progression is seen to take place in the 6-9 year age group, which allows for better detection of treatment divergence in that group. Second, treatment of neurodegenerative disorders is often more effective earlier in the disease course, before significant neuronal damage occurs. As a third possible reason for having missed statistical significance, the authors mention that the trial had suffered from pandemic-related guidelines and visit restrictions, varying among countries including India, which resulted in missed and delayed treatments. Because of those delays, 35% of the modified intent-to-treat population did not receive treatment as planned. Remarkably, the recent peer-reviewed paper has been co-authored by over 30 authors, including 19 professors from four continents. Safety and tolerability EryDex was well-tolerated over the course of 12 months, and did not show the safety concerns typically associated with chronic steroid administration. ATTeST slide 4: safety and tolerability (Corporate Presentation) The 12-month open-label extension of the ATTeST trial also means there is useful long-term data on safety of EryDex. The recently published paper mentions safe treatment in four patients up to 24 months. Presumably lacking sufficient further funding after having spent over $100 million, EryDel became an interesting acquisition target [link to acquisition presentation]. Quince’s ongoing NEAT trial The acquisition of EryDel by Quince closed less than a year ago. Quince has been actively engaging with regulatory authorities, and has reached an agreement on trial design. Quince’s pivotal randomized placebo-controlled Phase 3 trial entitled NEAT will enroll approximately 86 patients with ages 6-9 as the primary analysis population for 6 months. The primary endpoint is RmICARS, and the two secondary endpoints are CGI-S and CGI-C. In case of positive results, Quince should be able to file an NDA for EryDex in this indication in 2026. NEAT study design (Corporate Presentation) This trial is being conducted under a Special Protocol Assessment agreement with the FDA. Quince announced first patient dosing in June of this year, and has meanwhile enrolled 7 patients. Generally enrollment picks up as the trial progresses. With the initiation of the Phase 3 neat trial in Ataxia-Telangiectasia, I believe Quince’s inflection moment has come. This is essentially the only Phase 3 trial in the world for this disease, so I assume it will have interest from potential participants and investors over time. Insofar as I see it, the worldwide pipeline for Ataxia-Telangiectasia has three other interesting drugs, nicotinamide riboside, IB1001 and triheptanoin, but these drugs have shown efficacy only in small open-label studies, and are less advanced-stage than EryDex. With completion of study enrollment likely in Q1 2025, topline results should occur in Q4 2025, after which requests for approval could follow in 2026. EryDex for Duchenne Muscular Dystrophy The second target indication Quince will be pursuing with EryDex will be Duchenne Muscular Dystrophy or DMD, with a proof-of-concept trial start probably sometime next year. EryDex for Duchenne Muscular Dystrophy (Corporate Presentation) Corticosteroids are the main treatment for patients diagnosed with DMD through their anti-inflammatory activity and metabolic modulation, but long-term use comes with a number of severe side effects such as obesity, stunted growth and loss of bone density. For that reason, intermittent use regimens are often prescribed. DMD, more known with about three times the amount of patients as Ataxia-Telangiectasia, has recently made headlines as the FDA approved the first gene therapy for this disease, commercialized by Sarepta Therapeutics (SRPT) at a wholesale price of $3.2 million. Sarepta’s approval was contested, as its Phase 3 trial had failed to reach statistical significance on its primary endpoint but not on the secondary endpoints. The results from Sarepta show that even with gene therapy, patients will probably still need corticosteroid therapy, and apparently at higher doses right after the gene therapy. Perfected anti-inflammatory treatments such as EryDex could be promising in DMD. In that regard, Agamree was also recently approved for the treatment of DMD. Agamree is a steroid with a slightly better safety profile than prednisone. Similarly, INmune Bio’s (INMB) preclinical research with its drug candidate XPro had shown decrease in muscle damage and increase in muscle regeneration, and on that basis that company has created a subsidiary to have XPro acquired for DMD. Leadership The current leadership team at QNCX is well-experienced, with almost the entire team having 20+ years of experience. The team is totally different from that of 2021, and there is one profile I would like to highlight at this time. Leadership team slide (Corporate Presentation) Quince’s CEO and CMO, Dirk Thye, M.D., has founded seven companies five of which were sold with significant returns for investors, has been responsible for the FDA approval of several drug programs, and has been the CMO in several companies including Cidara Therapeutics (CDTX). Notable acquisitions that occurred under his leadership were Agenovir acquired by Vir Biotechnology (VIR) in 2018 for $285 million. Quince’s head of regulatory, Pamela Williamson, also has a particularly strong regulatory background with previous leadership positions at Alexion Pharmaceuticals and Genzyme Corporation. Quince’s leadership may be the excellent opportunity for Dr. Thye to add another FDA approval and acquisition to his name. In this framework, it is worth mentioning that over the course of August 2023 until December 2023, 19 insider buys took place, including CEO and CMO Dirk Thye more than doubling his stake at average prices of 1.24 and 1.26 respectively. Currently, 12.3% of the stock is held by insiders. Valuation Quince’s stock is currently trading at less than half of its last-reported cash level, and has at least one interesting and efficacious drug in its portfolio. There are approximately 10,000 diagnosed patients with Ataxia-Telangiectasia in the U.S., U.K. and Big 4 EU countries, of which 4,600 patients are diagnosed in the U.S. The company estimates a $1+ billion global peak commercial potential. $1+ billion potential for EryDex (Corporate Presentation) A lot will depend on the price one can ask for a treatment for Ataxia-Telangiectasia. Drug pricing of $218,000 is in line with the average seen in orphan diseases, but more recently we have seen Biogen (BIIB) pricing Skyclarys for Friedreich’s Ataxia at $370,000 per year, ACADIA Pharmaceuticals (ACAD) pricing its drug DAYBUE (trofinetide) for Rett Syndrome at an average estimated cost of $575,000 – 595,000 annually, and Sarepta putting a $3.2 million price tag on its one-time gene therapy for DMD. Assuming a market penetration of 60% as there is no other treatment available nor a very promising one in the very limited pipeline, I assume potential peak turnover to be about $1.08 billion. Probability of success could range from 50% to 80% at this time. I assume that in case of success, Quince will out-license the treatment to big pharma outside the U.S. and receive milestone and royalty payments or be acquired. Market entry could occur as early as 2027, and peak sales soon after given the small space with high needs the company is operating in. From that perspective, it makes sense that Quince added a page in its corporate presentation highlighting several recent acquisitions in the rare disease space, for valuations in between $952 million and $27.8 billion. Transaction activity in rare disease space (Corporate Presentation) Worth highlighting is the acquisition by Biogen of Reata Pharmaceuticals for $7.3 billion, soon after the company had gained approval for Skyclarys as the only treatment for Friedreich’s Ataxia in the U.S. at a price of $370,000 per year. In comparison, Friedreich’s Ataxia is an indication with roughly the same number of patients as Ataxia-Telangiectasia, affecting 5,000 patients in the U.S. alone. At similar drug pricing, I believe Quince could be looking at buyout potential in the range of $1-5 billion. Yet, this company trades below its cash value, probably due to its challenging past. At a current market cap of about $25 million, I believe we are looking at a substantially undervalued company. Financials At the end of June 2024, Quince had $59 million in cash, which the company believes should be sufficient to fund operations into 2026, after the ending of the NEAT trial. Quince expects to spend $20 million further costs for the clinical trial and $15 million related to the open label extension. Net loss for the last quarter was $27.7 million as compared to $11.1 million the quarter before. Quince recognized a non-cash goodwill impairment of $17.1 million in the last quarter. Net cash used in operations was $17.1 million in the first 6 months of the year as compared to $8.4 million for the first quarter. Risks A lot of Quince’s risk-reward analysis relies on one treatment candidate which, if it would fail, would put the future of the company at stake. Regulatory authorities may also impose a clinical hold on the ongoing Phase 3 trial. Even in case of success, the path to approval is not always evident. Part of the investment thesis also relies on a small target population, and the assumption that high treatment prices will be able to be charged for a treatment that may be able to delay the disease. A further risk relates to Quince’s chances to find a good partner for commercialization. Given the size and specificity of Quince’s team, commercialization should be outsourced at a given point, if the NEAT trial turns out to be successful. Though it does speak to the present undervaluation, Quince’s acquisition of EryDel entailed $485 million in potential total downstream payments, including $60 million in approval milestones, and $395 million in market and sales milestones. Quince's stock may be thinly traded, as its average daily volume is low. This may mean that high volume either to the upside or downside could generate large stock price movements. Liquidation of a larger position by any party could generate a downward pressure, and high purchase volume may generate a strong movement to the upside. Finally, Quince’s stock is trading below the dollar since May 2024, meaning it is not in compliance with Nasdaq rules. The company normally has 180 days to fix this, a delay which may be extended further. In case Quince considers that chances for recovery of the stock price are low, the risk of a reverse-stock-split exists. Quince had a reverse stock split approved at their annual shareholder meeting earlier this year in June, and has the ability to enact the 10:1 reverse split within 12 months of the meeting. Conclusion Quince Therapeutics has successfully turned the page after a challenging past involving an earlier Alzheimer’s drug. The company now comes at a particularly attractive valuation already in light of its last-reported cash level, which is more than double its market cap. The explanations as to why no statistically significant result was achieved related to Covid-restrictions, which led to 35% of the mITT population not receiving treatment as planned, better detection of efficacy in younger patients and potentially too far-advanced progression in the patient group aged 10 and above. EryDex has both Orphan Drug Designations in the U.S. and the E.U. The Phase 3 NEAT trial is being conducted under a Special Protocol Assessment, and the FDA has recently also granted Fast Track Designation to EryDex. In my opinion, the chances of success of this Phase 3 trial are actually quite high. The peak market potential of EryDex in the Phase 3 trial for Ataxia-Telangiectasia the company is pursuing is more than $1 billion. Enrollment seems to go quite fast, so a topline readout in Q4 2025 seems within the realm of possibilities. If the company can repeat what was seen in the earlier Phase 3 trial, then the path to approval should be open, with $1+ billion in potential yearly sales and multi-billion buyout potential. I believe the market may not have picked up yet on Quince’s recent transformation and trial start, and that valuation may begin to readjust as the trial moves closer to the finish line. For the reasons above, I rate Quince Therapeutics as a Strong Buy at this time.  Editor's Note: This article covers one or more microcap stocks. 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