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 the standard of care – or could be in the absence of long-term corticosteroid toxicity. 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.

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 achievement of a specified development milestone, $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. As of December 31, 2023, there were no significant changes in the range of outcomes for the contingent consideration recognized as a result of the EryDel acquisition.

Prior to the acquisition the Company had a preexisting relationship with EryDel. The Company had advanced $1.0 million to EryDel pursuant to a promissory note agreement. At the date of the acquisition, the Company had notes receivable due from EryDel of $1.0 million, including interest receivable of $1,300. As a result of the EryDel Acquisition, the promissory note between EryDel Italy and EryDel was effectively settled and recognized as additional consideration.

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):



Assets acquired:		Preliminary Purchase Price Allocation
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			(12,564	)
Other non-current liabilities			(854	)
Deferred tax liability			(5,098	)
Total liabilities assumed			(23,144	)
Fair value of total consideration transferred	$		66,907

The purchase price allocation is preliminary and may change as a result of additional information obtained regarding assets acquired and liabilities assumed and revisions of estimates of fair values of intangible assets and related deferred tax assets and liabilities. The Company will finalize its valuation and the allocation of the purchase price, along with required retrospective adjustments, if any, within a year following the acquisition date.

The fair value of identifiable Acquired IPR&D intangible assets was $60.6 million. IPR&D was determined using the Multi-Period Excess Earnings Method ("MPEEM") under the income approach. MPEEM calculates the economic benefits by determining the income attributable to an intangible asset after the returns are subtracted for contributory assets such as working capital, assembled workforce, and fixed assets. The resulting after-tax net earnings were discounted at 16.6%, a rate commensurate with the risk inherent in the economic benefit projections of the assets. The probability-weighted, projected cash flows were calculated based on projections of revenues and expenses related to the asset and were assumed to extend through a multi-year projection period. The IPR&D has an indefinite useful life, and as such, is not amortized but rather tested for impairment at least annually.

The fair value of tradename intangible assets was $0.5 million. The tradename intangible assets were derived using the relief from royalties method under the income approach, utilizing royalty rate of 0.3%. This approach is used to estimate the cost savings that accrue for the owner of an intangible asset who would otherwise have to pay royalties or licensing fees on revenues earned through the use of the asset if they had not owned the rights to use the assets. The probability-weighted, net after-tax royalty savings are calculated for each year in the remaining economic life of the intangible asset and discounted to present value using a discount rate of 16.6%. The trademark has a useful life of 21 years. The trademark is amortized on a straight-line basis over the useful life.

The excess of the fair value of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill, which is primarily attributed to the assembled workforce and expanded global market opportunities. None of the goodwill is expected to be deductible for income tax purposes. Goodwill is not amortized but is tested for impairment at least annually, refer to Note 16 for this assessment.

The transaction costs associated with the acquisition were approximately $2.5 million, of which $2.3 million were recorded in general and administrative expenses and $0.2 million were recorded in research and development expenses in the consolidated statement of operations and comprehensive loss.

The Company has included the financial results of EryDel in the consolidated financial statements from the date of acquisition. From October 21, 2023 through December 31, 2023, the Company recognized no revenue and a net loss of $3.7 million attributable to EryDel.

The following unaudited pro forma information gives effect to the acquisition of EryDel as if it had been completed on January 1, 2022 (the beginning of the comparable prior reporting period), including pro forma adjustments primarily related to

amortization of acquired intangible assets, tax benefit from release of the valuation allowance and the inclusion of acquisition-related expenses reflected in the revenue and net loss (in thousands):


	For the year ended December, 31
		2023			2022
Revenue		$	—		$	—
Net Loss			(40,265	)		(67,580	)

The 2023 supplemental pro forma earnings were adjusted to exclude $2.5 million of acquisition-related costs incurred in 2023, the 2022 pro forma earnings were adjusted to include these charges.

On May 19, 2022, the Company completed the Novosteo Acquisition. Pursuant to the terms of the Merger Agreement, at the closing of the Novosteo Acquisition (the “Effective Time”), each share of capital stock of Novosteo (the “Novosteo Capital Stock”) that was issued and outstanding immediately prior to the Effective Time was automatically cancelled and converted into the right to receive 0.0911 shares of common stock, par value $0.001 per share, of the Company (the “Company Common Stock”). These shares included options to purchase an aggregate of 507,108 shares of the Company Common Stock upon conversion of the outstanding Novosteo options based on the Company Option Exchange Ratio (as defined in the Merger Agreement), with the awards retaining the same vesting and other terms and conditions as in effect immediately prior to consummation of the Acquisition. These options, as well as 519,216 unvested restricted shares were concluded to be post-combination expense and were excluded from purchase consideration.

The Company has included the financial results of Novosteo in the consolidated financial statements from the date of the Acquisition and recorded immaterial amounts of expenses and earnings since the period from May 19, 2022 through December 31, 2023. The transaction costs associated with the Acquisition were approximately $1.1 million and were recorded in general and administrative expense. The acquisition date fair value of the consideration transferred for Novosteo was approximately $16,502,587, which consisted of 5,000,784 shares at $3.30 per share.

The Company accounted for the Acquisition as a business combination in accordance with ASC 805. The Company applied the acquisition method, which requires the identifiable assets acquired and liabilities assumed be recorded at fair value with limited exceptions. The following table summarizes the fair values of the identifiable assets acquired and liabilities assumed as the final determination of the date of acquisition (in thousands):


	May 19,
	2022
Identifiable assets acquired and liabilities assumed:
Cash and cash equivalents	$	10,593
Prepaid expenses and other current assets		1,040
ROU asset		124
Property and equipment		279
In-process Research and Development		5,900
Accounts payable and accrued liabilities		(1,726	)
Deferred tax liabilities		(532	)
Net assets acquired		15,678
Goodwill	$	825

The final determination of the fair value of assets and liabilities have been completed within the one-year measurement period as required by ASC 805. As part of the valuation analysis, the fair value of the intangible assets was estimated by discounting forecasted risk adjusted cash flows at a rate that approximated the cost of capital of a market participant. Management's forecast of future cash flows was based on the income approach. Significant estimates, all of which are considered Level 3 inputs, were used in the fair value methodology, including the Company's forecast regarding its future operations and likeliness of obtaining approval to sell its products, as well as other market conditions. The Company recorded no measurement period adjustments for the years ended December 31, 2023 and 2022. All subsequent adjustments will be recorded to earnings.

The excess of the fair value of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill, which is primarily attributed to the assembled workforce and expanded market opportunities, for which there is no basis for U.S. income tax purposes. Goodwill amounts are not amortized but are rather tested for impairment at least annually, see Note 16 for this assessment. Goodwill is not deductible for tax purposes.

The Intangible asset balance above is attributable to in-process research and development with an indefinite useful life.

The amounts of Novosteo's net loss was $9.4 million included in the Company's consolidated statement of operations and comprehensive loss for the year ended year ended December 31, 2022. The amount of Novosteo's revenue was $0 for the year ended December 31, 2022. The unaudited pro forma revenue and net loss of the combined entity had the acquisition date been January 1, 2021 are as follows (in thousands):

The 2022 supplemental pro forma earnings were adjusted to exclude $2.2 million of acquisition-related costs incurred in 2022, the 2021 pro forma earnings were adjusted to include these charges. The Company’s consolidated statements of operations and comprehensive loss for the year ended December 31, 2022 include immaterial net revenue and net loss attributable to the Acquisition.