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Echo Lake Criticizes Quince Therapeutics Board for Enriching Themselves While Destroying Significant Shareholder Value

Tuesday, 06 June 2023 08:00

- Criticizes Board's abysmal track record, excessive compensation, and limited stock ownership

- Calls on Board to abandon any potential acquisitions and instead to liquidate/sell the company

- Notes stock dropped 75% after company's last acquisition (a related party transaction)

- Stock trades at approximately 60% of its net cash

- Closing company would be easy and inexpensive

- Stock trades below rejected buyout offer of $1.60 per share

- Stock is heavily shorted despite trading significantly below cash (32 days to cover)

- Cautions Board not to repeat mistake it made last year of not selling/liquidating the company

NEW YORK, NY / ACCESSWIRE / June 6, 2023 / Earlier today Echo Lake Capital issued a letter to the Board of Directors of Quince Therapeutics, Inc. (NASDAQ:QNCX). The letter criticized the Board's poor investment decisions, excessive compensation, and lack of stock ownership during a time that significant shareholder value was destroyed. The letter urges the Board to publicly abandon any potential acquisitions and instead to liquidate/sell the company in a transaction that could create significant and immediate shareholder value. The letter expresses Echo Lake's belief that most shareholders want the company to be sold/liquidated and that the Board has not been acting in the best interest of shareholders.

A full copy of the letter can be found below:

Ephraim Fields
[email protected]


June 6, 2023

To The Board Of Directors:

David Lamond - c/o Lucira Health, Applied Molecular Transport, Various EPIQ investments
Dirk Thye - c/o Novosteo, Geom Therapeutics, Cidara, Agenvoir
June Bray - c/o BioXcel
Margaret McLoughlin
Una Ryan - c/o RenovoRx
Christopher Senner - c/o Exelixis

Haven't you enriched yourselves enough and destroyed enough shareholder value? Don't you think QNCX shareholders have suffered enough and that it is finally time that you acted in shareholders' best interests instead of your own?

Under the guidance of QNCX's Board of Directors more than $400 million of shareholder value has been destroyed and the stock is down 91% since its IPO four years ago. This abysmal performance is primarily attributable to two costly investing mistakes the Board made: 1) investing heavily in Alzheimers drugs that ultimately failed and were abandoned, and 2) acquiring Novosteo (which was focused on rare skeletal diseases) in a related party transaction, only to abandon those assets as well only a few months later. These two failures raise serious concerns about your ability to invest in early-stage drugs.

Since your poor decisions have destroyed so much shareholder value, we believe the investment community has lost all confidence in you. Investors are aware not only of your failures at QNCX, but also at other companies.

After rejecting our buyout offer you must now make a critical decision regarding QNCX. You can either:

  1. create immediate and significant shareholder value by embarking on a safe, easily implementable and highly certain plan of liquidating the company or selling it (in an all or mostly cash transaction), or
  2. choose a very risky path of using QNCX's cash to acquire early stage drugs, which would yield highly uncertain and perhaps negative returns to QNCX's long-suffering shareholders.

Considering your dismal track record and QNCX's continued depressed valuation, we think you are delusional if you believe shareholders want you to make more acquisitions.

We believe you should sell/liquidate QNCX because there is no good reason for the company to remain public. QNCX is a tiny company with no products, lots of cash and a leadership team with a very, very poor track record. We can only wonder why you would even contemplate risking even more of shareholders' money when you can so easily create significant value by selling/liquidating the company. QNCX trades at only 60% of its approximate net cash and it would be very easy and inexpensive to wind down QNCX's operations since there are no long-term leases or breakup fees.

We believe the below table illustrates some of the reasons the investment community has such little faith in you. As you can see, under your watch QNCX shareholders have suffered tremendous losses while most of you have received very generous compensation. Furthermore, despite your many years of Board service, most of you barely own any QNCX stock.

David Lamond
-91% $1.0 3,883,660 4
Margaret McLoughlin
-91% $2.0 0 4
Una Ryan
-91% $1.4 2,875 4
Christopher Senner
-91% $1.7 0 4
Dirk Thye
-51% $5.0 280,911 1
June Bray
-50% $0.2 0 1

We think QNCX's depressed stock valuation quantifies just how poorly you are perceived in the investment community. Before we offered to acquire the company last March, QNCX was trading at approximately 85c or only 35% of its net cash per share (and the stock was in jeopardy of being delisted). We believe this incredibly low valuation indicates the investment community did not believe you would create any shareholder value and in fact was expecting you to destroy even more shareholder value. Today, after our rejected buyout offer, the stock still trades at only 60% of net cash, reflecting investors' continued belief you will fail to allocate QNCX's capital in an accretive manner. Even more telling is that is a very large short position in QNCX's stock. Currently there are 3.0 million shares sold short, which is equivalent to 32 days to cover. What does it say about you that so many people are betting QNCX's stock price will decline further even though it is already down so much and trades at such a large discount to net cash?

We believe investors are concerned not only about your poor performance and excessive compensation, but also about your motives. In particular, investors are alarmed by your decision to approve the (ultimately disastrous) related party transaction acquisition of Novosteo. As a reminder, in May of 2022 QNCX's stock price was already down a staggering 75% from its IPO. The company still had a very large cash balance but instead of liquidating or selling the company, the Board decided to make an acquisition. Despite the countless number of companies available to buy, the Board decided to acquire Novosteo, a company in which David Lamond (QNCX's Chairman and largest shareholder) and other "interesting" parties just happened to be investors. QNCX spent over $16 million to acquire Novosteo. QNCX shareholders immediately began to question the transaction and QNCX's stock subsequently fell another 75% . Investors were correct to question your judgment because QNCX subsequently abandoned Novosteo's drugs and took a large write down only months after completing the acquisition. There are other deeply troubling aspects of this acquisition which we hope we will not need to elaborate on.

Not selling/liquidating QNCX last year was a terrible mistake that you only magnified by wasting QNCX's cash on a horrendous acquisition. We hope you will not make the same mistake again this time.

We realize that selling/liquidating the company is not in your own financial best interests. However, we hope you will finally act in the best interests of QNCX's long-suffering shareholders, abandon any thoughts of making acquisitions and instead immediately issue a public statement declaring your commitment to selling/liquidating the company.

We hope you will follow our advice because we believe it is clearly in the best interests of all shareholders. If you do not, we will be forced to take additional public steps to protect the value of our investments.


Ephraim Fields

Echo Lake Capital

SOURCE: Echo Lake Capital

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