10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2021

OR

 

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: 001-39062

 

FREQUENCY THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

47-2324450

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

75 Hayden Avenue, Suite 300

Lexington, MA

02421

(Address of principal executive offices)

(Zip Code)

 

(781) 315-4600

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.001 par value per share

 

FREQ

 

The Nasdaq Stock Market LLC (The Nasdaq Global Select Market)

 

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. Yes ☒ No ☐

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). Yes ☒ No ☐

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.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

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 No ☒

As of November 8, 2021, the registrant had 34,602,285 shares of common stock, $0.001 par value per share, outstanding.

 

 


 

 

 

 


 

Table of Contents

 

 

 

Page

 

 

 

 

Forward-Looking Statements

2

 

Risk Factors Summary

4

PART I.

FINANCIAL INFORMATION

5

Item 1.

Consolidated Financial Statements (Unaudited)

5

 

Consolidated Balance Sheets

5

 

Consolidated Statements of Operations

6

 

Consolidated Statements of Comprehensive Loss

7

 

Consolidated Statements of Stockholders’ Equity (Deficit)

8

 

Consolidated Statements of Cash Flows

9

 

Notes to Unaudited Consolidated Financial Statements

10

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

37

Item 4.

Controls and Procedures

37

PART II.

OTHER INFORMATION

38

Item 1.

Legal Proceedings

38

Item 1A.

Risk Factors

38

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

82

Item 3.

Defaults Upon Senior Securities

82

Item 4.

Mine Safety Disclosures

82

Item 5.

Other Information

82

Item 6.

Exhibits

83

Signatures

84

 

 

 

 


 

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:

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), Phase 2b clinical trial of FX-322 (FX-322-208), extension trials of FX-322-111 and FX-322-112, and any future clinical trials for our product candidates;
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;
our ability to continue to develop our progenitor cell activation, or PCA, platform and identify additional product candidates;
our ability to successfully complete clinical trials of any product candidate and obtain regulatory approval for it;
the timing or likelihood of regulatory filings and approvals;
the commercialization, marketing and manufacture of any product candidate, if approved;
the pricing and reimbursement of any product candidate, if approved;
the rate and degree of market acceptance and clinical utility of any products for which we receive regulatory approval;
the implementation of our strategic plans for our business, product candidates, and technology;
the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates, PCA platform, and technology;
estimates of our expenses, future revenues, capital requirements, and our need for additional financing;
our ability to maintain and establish collaborations, including our License and Collaboration Agreement with Astellas Pharma Inc.;
our ability to protect our network from cybersecurity threats;
our financial performance and the sufficiency of our financial resources; and
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:

 

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;

 

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;

 

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;

 

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 our other product candidates, our business will be substantially harmed;

 

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;

 

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;

 

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;

 

We face significant competition from biotechnology, pharmaceutical, and medical device companies and our operating results will suffer if we fail to compete effectively;

 

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;

 

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

 

We are currently subject to securities class action litigation and could be subject to similar or other litigation in the future.

4


 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Frequency Therapeutics, Inc.

 

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

 

September 30, 2021

 

 

December 31, 2020

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

112,034

 

 

$

220,341

 

Short-term marketable securities

 

 

36,040

 

 

 

 

Prepaid expenses and other current assets

 

 

1,835

 

 

 

4,723

 

Total current assets

 

 

149,909

 

 

 

225,064

 

Long-term marketable securities

 

 

12,397

 

 

 

 

Property and equipment, net

 

 

6,232

 

 

 

7,287

 

Right of use assets

 

 

31,921

 

 

 

30,551

 

Restricted cash

 

 

1,726

 

 

 

1,820

 

Total assets

 

$

202,185

 

 

$

264,722

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

3,607

 

 

$

5,506

 

Accrued expenses

 

 

5,197

 

 

 

6,663

 

Deferred revenue

 

 

 

 

 

14,068

 

Lease liabilities

 

 

1,681

 

 

 

397

 

Total current liabilities

 

 

10,485

 

 

 

26,634

 

Lease liabilities, net of current portion

 

 

29,306

 

 

 

30,597

 

Term loan

 

 

15,000

 

 

 

15,000

 

Other long-term liabilities

 

 

278

 

 

 

 

Total liabilities

 

 

55,069

 

 

 

72,231

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized, no shares issued or outstanding at September 30, 2021 and December 31, 2020, respectively

 

 

 

 

 

 

Common stock, $0.001 par value; 200,000,000 shares authorized,
   
34,551,875 and 33,964,000 shares issued and outstanding at September 30, 2021
   and December 31, 2020, respectively

 

 

35

 

 

 

34

 

Additional paid-in capital

 

 

305,663

 

 

 

287,829

 

Accumulated other comprehensive income

 

 

3

 

 

 

27

 

Accumulated deficit

 

 

(158,585

)

 

 

(95,399

)

Total stockholders’ equity

 

 

147,116

 

 

 

192,491

 

Total liabilities and stockholders’ equity

 

$

202,185

 

 

$

264,722

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

5


 

Frequency Therapeutics, Inc.

 

Consolidated Statements of Operations

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenue

 

$

 

 

$

11,247

 

 

$

14,068

 

 

$

27,034

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

15,662

 

 

 

10,153

 

 

 

48,169

 

 

 

25,587

 

General and administrative

 

 

9,328

 

 

 

6,512

 

 

 

28,571

 

 

 

18,720

 

Total operating expenses

 

 

24,990

 

 

 

16,665

 

 

 

76,740

 

 

 

44,307

 

Loss from operations

 

 

(24,990

)

 

 

(5,418

)

 

 

(62,672

)

 

 

(17,273

)

Interest income

 

 

172

 

 

 

74

 

 

 

315

 

 

 

962

 

Interest (expense)

 

 

(182

)

 

 

 

 

 

(582

)

 

 

 

Realized (loss) gain on investments

 

 

(9

)

 

 

 

 

 

(23

)

 

 

65

 

Foreign exchange (loss) gain

 

 

(4

)

 

 

18

 

 

 

16

 

 

 

27

 

Other (expense), net

 

 

(139

)

 

 

 

 

 

(227

)

 

 

 

Loss before income taxes

 

 

(25,152

)

 

 

(5,326

)

 

 

(63,173

)

 

 

(16,219

)

Income taxes

 

 

(3

)

 

 

(15

)

 

 

(13

)

 

 

(60

)

Net loss

 

$

(25,155

)

 

$

(5,341

)

 

$

(63,186

)

 

$

(16,279

)

Net loss per share attributable to common stockholders-basic and diluted

 

$

(0.73

)

 

$

(0.16

)

 

$

(1.84

)

 

$

(0.51

)

Weighted-average shares of common stock outstanding-basic and diluted

 

 

34,448,746

 

 

 

33,073,889

 

 

 

34,268,736

 

 

 

31,729,702

 

 

See accompanying notes.

6


 

Frequency Therapeutics, Inc.

 

Consolidated Statements of Comprehensive Loss

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net loss

 

$

(25,155

)

 

$

(5,341

)

 

$

(63,186

)

 

$

(16,279

)

Other comprehensive (loss) gain:

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized (loss) on marketable securities

 

 

(4

)

 

 

(16

)

 

 

(24

)

 

 

(10

)

Total other comprehensive (loss) gain

 

 

(4

)

 

 

(16

)

 

 

(24

)

 

 

(10

)

Comprehensive loss

 

$

(25,159

)

 

$

(5,357

)

 

$

(63,210

)

 

$

(16,289

)

 

See accompanying notes.

7


 

Frequency Therapeutics, Inc.

 

Consolidated Statements Stockholders’ Equity (Deficit)

(in thousands, except share and per share amounts)

 

 

 

 

 

Common
shares issued

 

 

Common
par value

 

 

Additional
paid-in capital

 

 

Accumulated other
comprehensive income

 

 

Accumulated
deficit

 

 

Total stockholders’
equity (deficit)

 

Balance, December 31, 2019

 

 

30,844,507

 

 

$

31

 

 

$

236,161

 

 

$

54

 

 

$

(68,888

)

 

$

167,358

 

Stock-based compensation expense
  

 

 -

 

 

 

-

 

 

 

7,218

 

 

 

-

 

 

 

-

 

 

 

7,218

 

Issuance of common stock upon exercise of stock options

 

 

537,675

 

 

 

1

 

 

 

1,161

 

 

 

-

 

 

 

-

 

 

 

1,162

 

Issuance of common stock in Private Placement, net

 

 

2,350,108

 

 

 

2

 

 

 

40,141

 

 

 

-

 

 

 

-

 

 

 

40,143

 

Other comprehensive (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(10

)

 

 

-

 

 

 

(10

)

Net loss

 

 -

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(16,279

)

 

 

(16,279

)

Balance, September 30, 2020

 

 

33,732,290

 

 

 

34

 

 

 

284,681

 

 

 

44

 

 

 

(85,167

)

 

 

199,592

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2020

 

 

33,964,000

 

 

$

34

 

 

$

287,829

 

 

$

27

 

 

$

(95,399

)

 

$

192,491

 

Stock-based compensation expense
  

 

 

-

 

 

 

-

 

 

 

16,586

 

 

 

-

 

 

 

-

 

 

 

16,586

 

Purchase under Employee Stock Purchase Plan

 

 

7,064

 

 

 

1

 

 

 

60

 

 

 

-

 

 

 

-

 

 

 

61

 

Issuance of common stock upon exercise of stock options

 

 

582,976

 

 

 

-

 

 

 

1,188

 

 

 

-

 

 

 

-

 

 

 

1,188

 

Forfeiture of restricted stock

 

 

(2,165

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Other comprehensive (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(24

)

 

 

-

 

 

 

(24

)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(63,186

)

 

 

(63,186

)

Balance, September 30, 2021

 

 

34,551,875

 

 

$

35

 

 

$

305,663

 

 

$

3

 

 

$

(158,585

)

 

$

147,116

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common
shares issued

 

 

Common
par value

 

 

Additional
paid-in capital

 

 

Accumulated other
comprehensive income

 

 

Accumulated
deficit

 

 

Total stockholders’
equity (deficit)

 

Balance, June 30, 2020

 

 

31,249,499

 

 

$

31

 

 

$

241,436

 

 

$

60

 

 

$

(79,826

)

 

$

161,701

 

Stock-based compensation expense
  

 

 -

 

 

 

-

 

 

 

2,643

 

 

 

-

 

 

 

-

 

 

 

2,643

 

Issuance of common stock upon exercise of stock options

 

 

132,683

 

 

 

1

 

 

 

461

 

 

 

-

 

 

 

-

 

 

 

462

 

Issuance of common stock in Private Placement, net

 

 

2,350,108

 

 

 

2

 

 

 

40,141

 

 

 

-

 

 

 

-

 

 

 

40,143

 

Other comprehensive (loss)

 

 -

 

 

 

-

 

 

 

-

 

 

 

(16

)

 

 

-

 

 

 

(16

)

Net loss

 

 -

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(5,341

)

 

 

(5,341

)

Balance, September 30, 2020

 

 

33,732,290

 

 

$

34

 

 

$

284,681

 

 

$

44

 

 

$

(85,167

)

 

$

199,592

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2021

 

 

34,385,916

 

 

$

34

 

 

$

299,429

 

 

$

7

 

 

$

(133,430

)

 

$

166,040

 

Stock-based compensation expense
  

 

 

-

 

 

 

-

 

 

 

5,886

 

 

 

-

 

 

 

-

 

 

 

5,886

 

Purchase under Employee Stock Purchase Plan

 

 

7,064

 

 

 

1

 

 

 

60

 

 

 

-

 

 

 

-

 

 

 

61

 

Issuance of common stock upon exercise of stock options

 

 

161,060

 

 

 

-

 

 

 

288

 

 

 

-

 

 

 

-

 

 

 

288

 

Forfeiture of restricted stock

 

 

(2,165

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Other comprehensive (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(4

)

 

 

-

 

 

 

(4

)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(25,155

)

 

 

(25,155

)

Balance, September 30, 2021

 

 

34,551,875

 

 

$

35

 

 

$

305,663

 

 

$

3

 

 

$

(158,585

)

 

$

147,116

 

 

See accompanying notes.

8


 

Frequency Therapeutics, Inc.

 

Consolidated Statements of Cash Flows

(in thousands)

 

 

 

Nine Months Ended
September 30,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(63,186

)

 

$

(16,279

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

Stock-based compensation

 

 

16,586

 

 

 

7,218

 

Depreciation expense

 

 

2,038

 

 

 

760

 

Non-cash lease expense

 

 

495

 

 

 

256

 

Non-cash interest expense

 

 

179

 

 

 

 

Loss on disposal of assets

 

 

16

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

2,888

 

 

 

985

 

Accounts payable

 

 

(1,910

)

 

 

2,870

 

Deferred revenue

 

 

(14,068

)

 

 

(27,034

)

Lease liabilities

 

 

(7

)

 

 

 

Accrued expenses

 

 

(1,202

)

 

 

869

 

Net cash (used in) operating activities

 

 

(58,171

)

 

 

(30,355

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(2,853

)

 

 

(2,253

)

Purchase of marketable securities

 

 

(66,226

)

 

 

 

Redemption of marketable securities

 

 

17,600

 

 

 

17,090

 

Net cash (used in) provided by investing activities

 

 

(51,479

)

 

 

14,837

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from issuance of common stock upon exercise of stock options

 

 

1,188

 

 

 

1,162

 

Proceeds from Employee Stock Purchase Plan

 

 

61

 

 

 

 

Proceeds from Private Placement, net of issuance costs

 

 

 

 

 

40,143

 

Net cash provided by financing activities

 

 

1,249

 

 

 

41,305

 

Net (decrease) increase in cash, cash equivalents and restricted cash

 

 

(108,401

)

 

 

25,787

 

Cash, cash equivalents, and restricted cash at beginning of period

 

 

222,161

 

 

 

200,259

 

Cash, cash equivalents, and restricted cash at end of period

 

$

113,760

 

 

$

226,046

 

Non-cash items:

 

 

 

 

 

 

Right-of-use assets in exchange for lease liabilities

 

$

 

 

$

2,163

 

Purchases of property and equipment in accounts payable and accrued expenses

 

$

34

 

 

$

24