UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of August 5, 2021, the registrant had
Table of Contents
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2 |
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4 |
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PART I. |
5 |
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Item 1. |
5 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
22 |
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Item 3. |
37 |
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Item 4. |
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PART II. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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84 |
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FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, or Quarterly Report, contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our future results of operations and financial position, business strategy, product candidates, clinical development plans and expectations, including, without limitation, planned commencements of clinical studies, patient enrollment expectations, expected release of clinical trial results and data, and expected completion dates, potential regulatory submissions, prospective products, product approvals, research and development costs, timing and likelihood of success, and plans and objectives of management for future operations and results, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including the risks, uncertainties and assumptions described under the sections in this Quarterly Report titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These forward-looking statements are subject to numerous risks, including, without limitation, the following:
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the initiation, timing, progress and results of our preclinical and clinical trials and research and development of programs, including our ongoing Phase 1b clinical trial (FX-322-113), planned Phase 2 clinical trial of FX-322 and any future Phase 2 clinical trials or Phase 3 clinical trials for the treatment of hearing loss and our program to develop a product candidate for the treatment of multiple sclerosis, or MS; |
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the continued impact of the novel coronavirus, COVID-19, on our ongoing and planned clinical trials, our research and development activities and our business and financial markets; |
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our ability to continue to develop our progenitor cell activation, or PCA, platform and identify additional product candidates; |
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our ability to successfully complete clinical trials of any product candidate and obtain regulatory approval for it; |
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the timing or likelihood of regulatory filings and approvals; |
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the commercialization, marketing and manufacture of any product candidate, if approved; |
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the pricing and reimbursement of any product candidate, if approved; |
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the rate and degree of market acceptance and clinical utility of any products for which we receive regulatory approval; |
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the implementation of our strategic plans for our business, product candidates, and technology; |
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the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates, PCA platform, and technology; |
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estimates of our expenses, future revenues, capital requirements, and our need for additional financing; |
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our ability to maintain and establish collaborations, including our License and Collaboration Agreement with Astellas Pharma Inc.; |
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our financial performance and the sufficiency of our financial resources; and |
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developments relating to our competitors and our industry, including the impact of government regulation. |
2
Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur, and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances, or otherwise.
You should read this Quarterly Report and the documents that we reference in this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
3
RISK FACTORS SUMMARY
Our business is subject to numerous risks and uncertainties, including those described in Part II Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. You should carefully consider these risks and uncertainties when investing in our common stock. The principal risks and uncertainties affecting our business include the following:
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We are heavily dependent on the success of FX-322, our lead product candidate for the treatment of hearing loss, which is still under clinical development. If FX-322 does not receive regulatory approval or is not successfully commercialized, our business will be materially adversely harmed; |
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We utilize our PCA platform to develop product candidates that are designed to activate progenitor cells, which is a new approach to therapeutic intervention and, as a result, successful development, approval, and commercialization of our product candidates, including FX-322, is uncertain; |
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Clinical trials are expensive, time consuming, and difficult to design and implement, and involve an uncertain outcome. The results of preclinical studies and early clinical trials are not always predictive of future results. Our Phase 2a results (FX-322-202), for example, showed that four weekly injections in subjects with mild to moderately severe SNHL did not demonstrate improvements in hearing measures versus placebo. Any product candidate that we advance into clinical trials may not achieve favorable results in later clinical trials, if any, or receive marketing approval; |
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The regulatory approval processes of the FDA and comparable foreign regulatory authorities are lengthy, time consuming, and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for FX-322 or any other product candidates, our business will be substantially harmed; |
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We may not be successful in our efforts to identify additional product candidates. Due to our limited resources and access to capital, we must prioritize development of certain product candidates, the choice of which may prove to be wrong and adversely affect our business; |
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If we fail to comply with our obligations in our intellectual property licenses and funding arrangements with third parties, or otherwise experience disruptions to our business relationships with our licensors, we could lose intellectual property rights that are important to our business; |
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We will require additional capital to fund our operations, and if we fail to obtain necessary financing, we may not be able to complete the development and commercialization of FX-322 and additional product candidates; |
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We face significant competition from biotechnology, pharmaceutical, and medical device companies and our operating results will suffer if we fail to compete effectively; |
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If we are unable to establish sales and marketing capabilities either on our own or in collaboration with third parties, we may not be successful in commercializing any product candidate we develop, if approved; |
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The COVID-19 pandemic has caused and could continue to cause disruptions to our business, including our preclinical studies, clinical trials and operations and could adversely impact our financial condition and results of operations; and |
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We are currently subject to securities class action litigation and could be subject to similar or other litigation in the future. |
4
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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Frequency Therapeutics, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
(unaudited)
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June 30, 2021 |
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December 31, 2020 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Short-term marketable securities |
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— |
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Prepaid expenses and other current assets |
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Total current assets |
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Long-term marketable securities |
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— |
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Property and equipment, net |
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Right of use assets |
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Restricted cash |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses |
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Deferred revenue |
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— |
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Lease liabilities |
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Total current liabilities |
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Lease liabilities, net of current portion |
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Term loan |
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Other long-term liabilities |
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— |
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Total liabilities |
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Stockholders’ equity: |
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Preferred stock, $ outstanding at June 30, 2021 and December 31, 2020, respectively |
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Common stock, $ and December 31, 2020, respectively |
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Additional paid-in capital |
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Accumulated other comprehensive income |
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Accumulated deficit |
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( |
) |
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( |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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See accompanying notes.
5
Frequency Therapeutics, Inc.
Consolidated Statements of Operations
(in thousands, except share and per share amounts)
(unaudited)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2021 |
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2020 |
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2021 |
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2020 |
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Revenue |
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$ |
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$ |
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$ |
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$ |
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Operating expenses: |
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Research and development |
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General and administrative |
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Total operating expenses |
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Loss from operations |
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( |
) |
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( |
) |
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( |
) |
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( |
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Interest income |
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Interest (expense) |
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( |
) |
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— |
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( |
) |
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— |
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Realized (loss) gain on investments |
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( |
) |
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( |
) |
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( |
) |
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Foreign exchange (loss) gain |
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( |
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Other (expense), net |
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( |
) |
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— |
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( |
) |
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— |
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Loss before income taxes |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
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Income taxes |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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Net loss per share attributable to common stockholders-basic and diluted |
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$ |
( |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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Weighted-average shares of common stock outstanding-basic and diluted |
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See accompanying notes.
6
Frequency Therapeutics, Inc.
Consolidated Statements of Comprehensive Loss
(in thousands, except share and per share amounts)
(unaudited)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2021 |
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2020 |
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2021 |
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2020 |
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Net loss |
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$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
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$ |
( |
) |
|
Other comprehensive (loss) gain: |
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|
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Unrealized (loss) gain on marketable securities |
|
|
( |
) |
|
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( |
) |
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Total other comprehensive (loss) gain |
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( |
) |
|
|
|
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( |
) |
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Comprehensive loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
|
$ |
( |
) |
See accompanying notes.
7
Frequency Therapeutics, Inc.
Consolidated Statements Stockholders’ Equity (Deficit)
(in thousands, except share and per share amounts)
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Common shares issued |
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Common par value |
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Additional paid-in capital |
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Accumulated other comprehensive income |
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Accumulated deficit |
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Total stockholders’ equity (deficit) |
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Balance, December 31, 2019 |
|
|
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$ |
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$ |
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|
$ |
|
|
|
$ |
( |
) |
|
$ |
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|
Stock-based compensation expense |
|
- |
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|
|
- |
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|
|
|
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|
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- |
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|
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- |
|
|
|
|
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Issuance of common stock upon exercise of stock options |
|
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|
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- |
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|
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|
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- |
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|
|
- |
|
|
|
|
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|
Other comprehensive income |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
Net loss |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
Balance, June 30, 2020 |
|
|
|
|
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( |
) |
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|
Balance, December 31, 2020 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Stock-based compensation expense |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Issuance of common stock upon exercise of stock options |
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Other comprehensive (loss) |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
Balance, June 30, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued |
|
|
Common par value |
|
|
Additional paid-in capital |
|
|
Accumulated other comprehensive income |
|
|
Accumulated deficit |
|
|
Total stockholders’ equity (deficit) |
|
||||||
|
Balance, March 31, 2020 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
Stock-based compensation expense |
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
Issuance of common stock upon exercise of stock options |
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Other comprehensive income |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
Net loss |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
Balance, June 30, 2020 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Stock-based compensation expense |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Issuance of common stock upon exercise of stock options |
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Other comprehensive (loss) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
Balance, June 30, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
See accompanying notes.
8
Frequency Therapeutics, Inc.
Consolidated Statements of Cash Flows
(in thousands)
|
|
|
Six Months Ended June 30, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
Depreciation expense |
|
|
|
|
|
|
|
|
|
Non-cash lease expense |
|
|
|
|
|
|
|
|
|
Non-cash interest expense |
|
|
|
|
|
|
— |
|
|
Loss on disposal of assets |
|
|
|
|
|
|
— |
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
( |
) |
|
|
|
|
|
Deferred revenue |
|
|
( |
) |
|
|
( |
) |
|
Lease liabilities |
|
|
|
|
|
|
— |
|
|
Accrued expenses |
|
|
( |
) |
|
|
( |
) |
|
Net cash (used in) operating activities |
|
|
( |
) |
|
|
( |
) |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
( |
) |
|
|
( |
) |
|
Purchase of marketable securities |
|
|
( |
) |
|
|
— |
|
|
Redemption of marketable securities |
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities |
|
|
( |
) |
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock upon exercise of stock options |
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash, cash equivalents and restricted cash |
|
|
( |
) |
|
|
( |
) |
|
Cash, cash equivalents, and restricted cash at beginning of period |
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, and restricted cash at end of period |
|
$ |
|
|
|
$ |
|
|
|
Non-cash items: |
|
|
|
|
|
|
|
|
|
Right-of-use assets in exchange for lease liabilities |
|
$ |
— |
|
|
$ |
|
|
|
Purchases of property and equipment in accrued expenses |
|
$ |
|
|
|
$ |
— |
|
|
Purchases of property and equipment and right of use asset included in accounts payable |
|
$ |
|
|
|
$ |
|
|
See accompanying notes
9
Frequency Therapeutics, Inc.
Notes to Unaudited Consolidated Financial Statements –(continued)
(Amounts in thousands, except share and per share amounts)
1. Organization and basis of presentation
Organization
Frequency Therapeutics, Inc., together with its wholly owned subsidiaries, Frequency Therapeutics, PTY, LTD, Frequency Therapeutics Securities Corporation and Frequency Therapeutics Japan KK, (the Company), headquartered in Lexington, Massachusetts, was incorporated in as a Delaware corporation. The Frequency Therapeutics Japan KK subsidiary was dissolved in February 2021. The Company is a clinical-stage biotechnology company focused on harnessing the body’s innate biology to repair or reverse damage caused by a broad range of degenerative diseases.
Basis of presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting standards set by the Financial Accounting Standards Board (FASB). The FASB sets generally accepted accounting principles (GAAP) that the Company follows to ensure its financial condition, results of operations, and cash flows are consistently reported. References to GAAP issued by the FASB in these notes to the consolidated financial statements are to the FASB Accounting Standards Codification (ASC).
Principles of consolidation
The consolidated financial statements include the accounts of Frequency Therapeutics, Inc. and its wholly owned subsidiaries Frequency Therapeutics Securities Corporation, Frequency Therapeutics PTY, LTD and Frequency Therapeutics Japan KK, which was dissolved in February 2021. All intercompany transactions and balances have been eliminated. The significant accounting policies used in preparation of these interim financial statements on Form 10-Q are consistent with those discussed in Note 2, “Summary of significant accounting policies,” in the Company’s Form 10-K.
Unaudited interim financial information
The accompanying consolidated balance sheet as of June 30, 2021 and the consolidated statements of operations, the consolidated statements of comprehensive loss and the consolidated statements of stockholders’ equity (deficit) for the three and six months ended June 30, 2021 and 2020, and the consolidated statements of cash flows for the six months ended June 30, 2021 and 2020 are unaudited. The unaudited interim consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of June 30, 2021, the results of its operations for the three and six months ended June 30, 2021 and 2020, and cash flows for the six months ended June 30, 2021 and 2020. The financial data and other information disclosed in these notes related to the three and six months ended June 30, 2021 and 2020 are also unaudited. The results for the three and six months ended June 30, 2021 are not necessarily indicative of results to be expected for the year ending December 31, 2021, any other interim periods, or any future year or period. The consolidated balance sheet as of December 31, 2020 included herein was derived from the audited consolidated financial statements as of that date. These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2020 included in the Company’s Form 10-K.
2. Recently adopted and issued accounting standards
Recently adopted accounting standards
In December 2019, the FASB issued ASU 2019-12 amending accounting guidance that simplifies the accounting for income taxes, as part of its initiative to reduce complexity in the accounting standards. The amendments eliminate certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The amendments also clarify and simplify other aspects of the accounting for income taxes. The Company adopted the standard on
10
Frequency Therapeutics, Inc.
Notes to Unaudited Consolidated Financial Statements –(continued)
(Amounts in thousands, except share and per share amounts)
Recently issued accounting standards
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the specified effective date. The Company is an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”). The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company elected to avail itself of this extended transition period and, as a result, we will not be required to adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The FASB has subsequently issued amendments to ASU 2016-13, which have the same effective date and transition date. These standards require that credit losses be reported using an expected losses model rather than the incurred losses model that was previously used, and establishes additional disclosures related to credit risks. For available-for-sale debt securities with unrealized losses, this standard now requires allowances to be recorded instead of reducing the amortized cost of the investment. These standards limit the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and requires the reversal of previously recognized credit losses if fair value increases. This standard will become effective for the Company on January 1, 2023. The Company is still evaluating the impact of this standard on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This new guidance requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to defer and recognize as an asset. ASU 2018-15 generally aligns the guidance on recognizing implementation costs incurred to develop or obtain internal use software, which includes hosting arrangements that include an internal-use software license. This standard will become effective for the Company in annual periods beginning after
3. Fair value measurements
Fair value is defined as the price that would be received upon sale of an asset or paid to transfer a liability between market participants at measurement dates. ASC Topic 820, Fair Value Measurement (ASC 820), establishes a three-level valuation hierarchy for instruments measured at fair value. The hierarchy is based on the transparency of inputs to the valuation of an asset or liability as of the measurement date. The hierarchy defines three levels of valuation inputs, of which the first two are considered observable and the last is considered unobservable:
|
|
Level 1 |
Quoted prices in active markets for identical assets or liabilities. |
|
|
Level 2 |
Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable, such as quoted market prices, interest rates and yield curves. |
|
|
Level 3 |
Unobservable inputs developed using estimates or assumptions developed by the Company, which reflect those that a market participant would use in pricing the asset or liability. |
To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
11
Frequency Therapeutics, Inc.
Notes to Unaudited Consolidated Financial Statements –(continued)
(Amounts in thousands, except share and per share amounts)
The Company’s financial assets are measured at fair value on a recurring basis by level within the fair value hierarchy at June 30, 2021 and December 31, 2020 are summarized as follows:
|
|
|
|
|
June 30, 2021 |
|
|||||||||
|
|
|
Fair Value |
|
Amortization |
|
|
Unrealized |
|
|
Fair Market |
|
|||