“Hi Jeff, at one time you were very high of FIXX and over the years it hasn't shown much, so may we please have an update on this company?” — Jeff I.
Hi Jeff, I’m glad you asked about Homology Medicines (FIXX), as there have been some major developments in the last several weeks.
I also received questions about Homology from several other subscribers, so I’m happy to provide an update.
Homology Medicines was a very promising early stage biotech company focused on genetic medicines targeting rare genetic diseases.
These types of diseases tend to have small patient populations. And as a result, therapies have the ability to get “Orphan Drug” status from the FDA, which results in an accelerated FDA trial process. These can make for exciting investments as a result.
Unfortunately, the impact of the pandemic policies was difficult for Homology and its clinical trials.
Because the patient populations are so small for rare diseases, and it was extremely difficult to manage clinical trials through the pandemic, Homology struggled to move its clinical programs forward in any material way.
In October of last year, the executive team of Homology noted the difficult funding environment for biotech in general, and they informed investors that they would be seeking strategic options for Homology that included an acquisition, a merger, reverse merger, or outright sale of the business.
Despite having $103 million in cash on hand at the end of the third quarter (September 30, 2023), Homology’s board had decided to put its therapeutic programs on hold and look for strategic options. The company implemented an 87% reduction in force.
So it came as no surprise when Homology announced on November 16, 2023 that it was merging with a private early stage biotech company called Q32 Bio.
I’ve seen this kind of thing before. A biotech company loses momentum for some reason, yet it has plenty of cash. The shareholders of that company decide that the wait would be too long and fundraising would be too hard in the current environment. So they look to merge or sell the assets of the company.
They’re willing to do this so that they can take the tax loss on the business and just move on. I believe that this was the decision process for Homology.
All of the details are not yet known about the merger, but it appears that Q32 Bio will use Homology Medicines as a shell for a reverse merger in order to go public. In that way, it is almost like a SPAC deal.
Homology Medicines decided to suspend its therapeutic programs and sit on its pile of cash while looking for a strategic deal. Q32 Bio merges into the publicly traded shell, goes public, and receives the cash from Homology.
We can discern this because the merged company will be focused on the development of two of Q32s clinical programs — not any of the Homology therapeutic candidates.
From Homology’s S-4 filing, it appears that the former Q32 shareholders will end up with about 75% of the merged company, and the former Homology shareholders will end up with about 25% of the merged company.
The new company will trade under the ticker QTTB.
It’s not yet clear when that will happen, but I expect sometime in the coming weeks.
I haven’t had time to research Q32 Bio, so I don’t have an opinion on the company or its therapeutic pipeline. Q32 focuses on severe inflammatory and autoimmune diseases.
Any investors in Homology Medicines (FIXX) have two choices. They can sell and close out the position in Homology, as it is no longer an operating entity with an active therapeutic program. Or they can hold on and receive shares in the new merged company, Q32 Bio.
Q32 is backed by two of my favorite biotech venture capital firms, Atlas Ventures and OrbiMed. But that alone isn’t a reason for holding onto shares.
On a personal note, I really dislike these kinds of deals.
Homology had fantastic backing from some of the best in the business. I would have liked to have seen several of these companies raise additional capital, support Homology, and double down on Homology’s vision.
But institutional capital like this makes decisions at a portfolio level and tends to prioritize those decisions over shareholders in the company.
This is especially true around the fourth quarter of every year.
