Q32 Bio Inc
For the period ended Dec 31, 2024. Filed Mar 11, 2025.
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FY2024 · Filed Mar 11, 2025
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Item 8. Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Q32 Bio Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Q32 Bio Inc. (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive loss, convertible preferred stock and stockholders’ equity (deficit) and cash flows for each of the two years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
| Accrued and Prepaid Research and Development Expenses | |
| Description of the Matter | The Company’s accrued external research and development expenses totaled $2.6 million at December 31, 2024. In addition, the Company’s current and noncurrent prepaid external research and development expenses were $2.1 million and $0.1 million, respectively, at December 31, 2024. As discussed in Note 2 to the consolidated financial statements, the Company analyzes the progress of the research activities, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates are made in determining the accrued and prepaid balances at the end of any reporting period for the Company’s clinical trials costs, and costs to manufacture its product candidates. The Company is required to estimate such accruals and prepaids using judgment based on certain information, including actual costs incurred or level of effort expended, as reported to the Company by its vendors. Payments for such activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred. Auditing the Company’s accrued and prepaid research and development expenses was complex, as accounting for the costs associated with the clinical trials, and costs to manufacture its product candidates, requires subjective estimates of the level of services performed and the associated costs incurred by multiple service providers that perform service on the Company’s behalf. In addition, while the Company’s estimates of accrued and prepaid research and development expenses are primarily based on information received related to each contract from its vendors, the Company may need to make an estimate based on its evaluation of the status of the related services since the actual amounts incurred are not typically known at the time the consolidated financial statements are issued. |
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| How We Addressed the Matter in Our Audit | To evaluate the accrued and prepaid research and development expenses, our audit procedures included, among others, testing the accuracy and completeness of the underlying data used in the estimates and evaluating the significant judgments and estimates made by management to determine the recorded accruals and prepayments. To test the significant judgments and estimates, we corroborated the progress of research and development activities through discussion with the Company’s research and development personnel that oversee the research and development projects and inspected the Company’s contracts with vendors and pending change orders to assess the impact on amounts recorded. In addition, we inspected information obtained by the Company from certain vendors, which indicated the vendors’ estimate of costs incurred to date. We obtained direct confirmations from certain vendors confirming costs incurred as of the reporting date to verify that prepaids and accruals are complete and accurate. We also analyzed fluctuations in prepaids and accruals by vendor and by clinical trial throughout the period subject to audit and tested subsequent invoices received from vendors. |
| Accounting for Reverse Merger Acquisition of Homology Medicines, Inc. | |
| Description of the Matter | As further described in Notes 1 and 3 to the consolidated financial statements, on March 25, 2024, the Company completed a reverse merger with Homology Medicines, Inc. (“Homology”), with Legacy Q32 continuing as the surviving entity as a wholly-owned subsidiary of Homology. The reverse merger was accounted for as a reverse recapitalization in accordance with U.S. generally accepted accounting principles with Legacy Q32 as the accounting acquirer of Homology. Accordingly, the reverse merger was treated as the equivalent of Legacy Q32 issuing stock to acquire the net assets of Homology. We identified the evaluation of the reverse merger with Homology as a critical audit matter. Evaluating the Company's accounting treatment of the reverse merger required a high degree of auditor judgment to evaluate the Company's (i) determination of the accounting acquirer, and (ii) assessment of the transaction as a reverse recapitalization. |
| How We Addressed the Matter in Our Audit | To evaluate the accounting for the reverse merger acquisition of Homology, our audit procedures included, among others, evaluating (i) management's technical accounting analysis |
performed to determine the accounting acquirer in the transaction, and (ii) the assessment of the transaction as a reverse recapitalization, supported by our subject matter resources. We inspected minutes of board of directors’ meetings, executed transaction agreements, and other information to assess the nature and structure of the reverse merger in evaluating management’s conclusions with the assistance of professionals in our firm with expertise in accounting for business combinations.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2020.
Boston, Massachusetts
March 11, 2025
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
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