SEC Filing - Frequency Therapeutics

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10-Q

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


☐	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.

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.

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.

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.

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.

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.

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.

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.

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