10-Q
November 30, 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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 March 31, 2022

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 April 27, 2022, the registrant had 34,976,409 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

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

24

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

83

Item 3.

Defaults Upon Senior Securities

83

Item 4.

Mine Safety Disclosures

83

Item 5.

Other Information

83

Item 6.

Exhibits

84

Signatures

85

 

 

 

 


 

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 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 impact and any future impact of the novel coronavirus, or 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, including our recent reduction in force and changes to senior management;
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 sensorineural hearing loss did not demonstrate improvements in hearing measures versus placebo, a finding we believe is due to an uncontrolled bias and the limitation to a single baseline measure. Any product candidate that we advance into clinical trials may not achieve favorable results in later clinical trials, if any, or receive marketing approval;

 

We may be impacted by general economic, political, and geopolitical conditions such as recessions, interest rates, fuel prices, sanctions, and acts of war or terrorism, including the recent hostilities between Russia and Ukraine. For example, the recent sanctions imposed by the United States on Russia may impede our ability to pay fees related to Russian patents making the future of such patents uncertain;

 

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;

 

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

 

Our recent organizational changes undertaken to better align our workforce with the needs of our business and focus more of our capital resources on our research and development programs may not be successful.

4


 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Frequency Therapeutics, Inc.

 

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

 

March 31, 2022

 

 

December 31, 2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

49,830

 

 

$

79,635

 

Short-term marketable securities

 

 

67,531

 

 

 

51,072

 

Prepaid expenses and other current assets

 

 

2,577

 

 

 

4,041

 

Total current assets

 

 

119,938

 

 

 

134,748

 

Long-term marketable securities

 

 

7,410

 

 

 

11,719

 

Property and equipment, net

 

 

4,808

 

 

 

5,522

 

Right of use assets

 

 

30,757

 

 

 

31,350

 

Restricted cash

 

 

1,699

 

 

 

1,699

 

Long-term assets

 

 

327

 

 

 

320

 

Total assets

 

$

164,939

 

 

$

185,358

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

2,247

 

 

$

2,748

 

Accrued expenses

 

 

4,779

 

 

 

6,101

 

Lease liabilities

 

 

1,813

 

 

 

1,747

 

Term loan, current portion

 

 

3,333

 

 

 

833

 

Total current liabilities

 

 

12,172

 

 

 

11,429

 

Lease liabilities, net of current portion

 

 

28,373

 

 

 

28,851

 

Term loan, net of current portion

 

 

11,667

 

 

 

14,167

 

Other long-term liabilities

 

 

57

 

 

 

87

 

Total liabilities

 

 

52,269

 

 

 

54,534

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized, no shares issued or outstanding at March 31, 2022 and December 31, 2021

 

 

 

 

 

 

Common stock, $0.001 par value; 200,000,000 shares authorized,
   
34,976,409 and 34,611,213 shares issued and outstanding at March 31, 2022
   and December 31, 2021, respectively

 

 

35

 

 

 

35

 

Additional paid-in capital

 

 

316,402

 

 

 

310,936

 

Accumulated other comprehensive income

 

 

(296

)

 

 

(62

)

Accumulated deficit

 

 

(203,471

)

 

 

(180,085

)

Total stockholders’ equity

 

 

112,670

 

 

 

130,824

 

Total liabilities and stockholders’ equity

 

$

164,939

 

 

$

185,358

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

5


 

Frequency Therapeutics, Inc.

 

Consolidated Statements of Operations

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

Three Months Ended
March 31,

 

 

 

2022

 

 

2021

 

Revenue

 

$

 

 

$

4,651

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

 

13,781

 

 

 

15,106

 

General and administrative

 

 

9,477

 

 

 

9,744

 

Total operating expenses

 

 

23,258

 

 

 

24,850

 

Loss from operations

 

 

(23,258

)

 

 

(20,199

)

Interest income

 

 

95

 

 

 

25

 

Interest expense

 

 

(178

)

 

 

(218

)

Realized loss on investments

 

 

 

 

 

(4

)

Foreign exchange gain

 

 

1

 

 

 

21

 

Other expense, net

 

 

(34

)

 

 

 

Loss before income taxes

 

 

(23,374

)

 

 

(20,375

)

Income taxes

 

 

(12

)

 

 

 

Net loss

 

$

(23,386

)

 

$

(20,375

)

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

 

$

(0.67

)

 

$

(0.60

)

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

 

 

34,810,676

 

 

 

34,115,682

 

 

See accompanying notes.

6


 

Frequency Therapeutics, Inc.

 

Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)

 

 

 

Three Months Ended
March 31,

 

 

 

2022

 

 

2021

 

Net loss

 

$

(23,386

)

 

$

(20,375

)

Other comprehensive loss:

 

 

 

 

 

 

Unrealized loss on marketable securities

 

 

(234

)

 

 

(17

)

Total other comprehensive loss

 

 

(234

)

 

 

(17

)

Comprehensive loss

 

$

(23,620

)

 

$

(20,392

)

 

See accompanying notes.

7


 

Frequency Therapeutics, Inc.

 

Consolidated Statements Stockholders’ Equity

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

 

Common
shares issued

 

 

Common
par value

 

 

Additional
paid-in capital

 

 

Accumulated other
comprehensive income

 

 

Accumulated
deficit

 

 

Total stockholders’
equity (deficit)

 

Balance, December 31, 2020

 

 

33,964,000

 

 

$

34

 

 

$

287,829

 

 

$

27

 

 

$

(95,399

)

 

$

192,491

 

Stock-based compensation expense

 

-

 

 

 

-

 

 

 

4,611

 

 

 

-

 

 

 

-

 

 

 

4,611

 

Issuance of common stock upon exercise of stock options

 

 

252,186

 

 

 

-

 

 

 

697

 

 

 

-

 

 

 

-

 

 

 

697

 

Other comprehensive loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(17

)

 

 

-

 

 

 

(17

)

Net loss

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(20,375

)

 

 

(20,375

)

Balance, March 31, 2021

 

 

34,216,186

 

 

 

34

 

 

 

293,137

 

 

 

10

 

 

 

(115,774

)

 

 

177,407

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2021

 

 

34,611,213

 

 

$

35

 

 

$

310,936

 

 

$

(62

)

 

$

(180,085

)

 

$

130,824

 

Stock-based compensation expense

 

 

-

 

 

 

-

 

 

 

5,266

 

 

 

-

 

 

 

-

 

 

 

5,266

 

Purchase of common stock under Employee Stock Purchase Plan

 

 

31,832

 

 

 

-

 

 

 

139

 

 

 

-

 

 

 

-

 

 

 

139

 

Issuance of common stock, net

 

 

22,764

 

 

 

-

 

 

 

61

 

 

 

-

 

 

 

-

 

 

 

61

 

Issuance of common stock pursuant to restricted stock units

 

 

310,600

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Other comprehensive loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(234

)

 

 

-

 

 

 

(234

)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(23,386

)

 

 

(23,386

)

Balance, March 31, 2022

 

 

34,976,409

 

 

$

35

 

 

$

316,402

 

 

$

(296

)

 

$

(203,471

)

 

$

112,670

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

8


 

Frequency Therapeutics, Inc.

 

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Three Months Ended
March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(23,386

)

 

$

(20,375

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Stock-based compensation

 

 

5,266

 

 

 

4,611

 

Depreciation expense

 

 

726

 

 

 

382

 

Non-cash lease expense

 

 

593

 

 

 

286

 

Non-cash interest expense

 

 

266

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

1,385

 

 

 

(336

)

Accounts payable

 

 

(429

)

 

 

(1,846

)

Deferred revenue

 

 

 

 

 

(4,651

)

Lease liabilities

 

 

(412

)

 

 

488

 

Accrued expenses

 

 

(1,352

)

 

 

(4,033

)

Net cash used in operating activities

 

 

(17,343

)

 

 

(25,474

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(12

)

 

 

(543

)

Purchase of marketable securities

 

 

(20,786

)

 

 

(25,666

)

Redemption of marketable securities

 

 

8,136

 

 

 

 

Net cash used in investing activities

 

 

(12,662

)

 

 

(26,209

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from issuance of common stock, net

 

 

61

 

 

 

572

 

Proceeds from Employee Stock Purchase Plan

 

 

139

 

 

 

 

Net cash provided by financing activities

 

 

200

 

 

 

572

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(29,805

)

 

 

(51,111

)

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

 

 

81,334

 

 

 

222,161

 

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

 

$

51,529

 

 

$

171,050

 

Non-cash items:

 

 

 

 

 

 

Purchases of right of use assets included in accrued expenses

 

$

 

 

$

(106

)

Purchases of property and equipment and right of use assets in accounts payable

 

$

 

 

$

(1,792

)

 

See accompanying notes

 

 

9


 

Frequency Therapeutics, Inc.

Notes to Unaudited Consolidated Financial Statements

(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, and Frequency Therapeutics Securities Corporation, (the Company), headquartered in Lexington, Massachusetts, was incorporated in November 2014 as a Delaware corporation. The Company is a clinical-stage regenerative medicine company focused on developing therapeutics to activate a person’s innate regenerative potential to restore function.

Liquidity and capital resources

The Company has funded its operations primarily with proceeds from private and public securities, a term loan, and amounts received under a collaboration agreement. The Company has incurred recurring losses since its inception. In addition, as of March 31, 2022, the Company had an accumulated deficit of $203,471. The Company expects to continue to generate operating losses for the foreseeable future. The future viability of the Company is dependent on its ability to raise additional capital to finance its operations. The Company’s inability to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies. There can be no assurances that additional funding will be available on terms acceptable to the Company, or at all. The Company believes that existing resources will be sufficient to fund planned operations for at least twelve months from the date the financial statements were available to be issued.

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 and Frequency Therapeutics PTY, LTD. All intercompany transactions and balances have been eliminated. The significant accounting policies used in preparation of these interim financial statements are consistent with those discussed in Note 2, “Summary of significant accounting policies,” in the Company’s Annual Report on Form 10-K (the Company's Form 10-K).

Unaudited interim financial information

The accompanying consolidated balance sheet as of March 31, 2022 and the consolidated statements of operations, the consolidated statements of comprehensive loss and the consolidated statements of stockholders’ equity for the three months ended March 31, 2022 and 2021, and the consolidated statements of cash flows for the three months ended March 31, 2022 and 2021 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 March 31, 2022, the results of its operations for the three months ended March 31, 2022 and 2021, and cash flows for the three months ended March 31, 2022 and 2021. The financial data and other information disclosed in these notes related to the three months ended March 31, 2022 and 2021 are also unaudited. The results for the three months ended March 31, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2022, any other interim periods, or any future year or period. The consolidated balance sheet as of December 31, 2021 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, 2021 included in the Company’s Form 10-K.

10


Frequency Therapeutics, Inc.

Notes to Unaudited Consolidated Financial Statements –(continued)

(Amounts in thousands, except share and per share amounts)

 

2. Recently adopted and issued accounting standards

 

Recently adopted accounting standards

In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This standard addresses the accounting for implementation costs incurred by a customer in a cloud computing arrangement that is a service contract and also adds certain disclosure requirements related to implementation costs incurred for internal-use software and cloud computing arrangements. The amendment aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The Company adopted this standard on January 1, 2021, using a prospective approach. The adoption of this new standard did not have a material impact on the consolidated financial statements.

 

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 this standard on January 1, 2021 and it did not have a material impact on the consolidated financial statements.

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, the Company 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.

3. Fair value measurements

The Company’s financial assets are measured at fair value on a recurring basis by level within the fair value hierarchy at March 31, 2022 and December 31, 2021 are summarized as follows:

 

 

 

 

 

March 31, 2022

 

 

 

Fair Value

 

Amortization

 

 

Unrealized

 

 

Fair Market

 

 

 

Hierarchy

 

Cost

 

 

Loss

 

 

Value

 

Money market funds

 

Level 1

 

 

30,840

 

 

 

 

 

 

30,840

 

Short-term marketable securities

 

Level 2

 

 

67,650

 

 

 

(119

)

 

 

67,531

 

Long-term marketable securities

 

Level 2

 

 

7,525

 

 

 

(115

)

 

 

7,410

 

 

 

 

 

$

106,015

 

 

$

(234

)

 

$

105,781

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11


Frequency Therapeutics, Inc.

Notes to Unaudited Consolidated Financial Statements –(continued)

(Amounts in thousands, except share and per share amounts)

 

 

 

 

 

 

December 31, 2021

 

 

 

Fair Value

 

Amortization

 

 

Unrealized

 

 

Fair Market

 

 

 

Hierarchy

 

Cost

 

 

Gain

 

 

Value

 

Money market funds

 

Level 1

 

 

48,160

 

 

 

 

 

 

48,160

 

Short-term marketable securities

 

Level 2

 

 

51,116

 

 

 

(44

)

 

 

51,072

 

Long-term marketable securities

 

Level 2

 

 

11,764

 

 

 

(45

)

 

 

11,719

 

 

 

 

 

$

111,040

 

 

$

(89

)

 

$

110,951

 

 

The carrying amounts reflected in the consolidated balance sheet for prepaid expenses and other current assets, accounts payable, accrued expenses, other liabilities, and term loan are shown at their historical values which approximate their fair values.

4. Property and equipment

Property and equipment include the following:

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Lab equipment

 

$

6,189

 

 

$

6,177

 

Furniture and office equipment

 

 

3,238

 

 

 

3,238

 

Software

 

 

291

 

 

 

291

 

Total

 

 

9,718

 

 

 

9,706

 

Accumulated depreciation

 

 

(4,910

)

 

 

(4,184

)

Property and equipment, net

 

$

4,808

 

 

$

5,522

 

 

The Company recognized $726 and $382 of depreciation expense for the three months ended March 31, 2022 and 2021, respectively.

5. Accrued expenses

Accrued expenses consist of the following:

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Payroll and employee related expenses

 

$

2,151

 

 

$

4,375

 

Professional fees

 

 

551

 

 

 

767

 

Third-party research and development expenses

 

 

1,888

 

 

 

840

 

Other

 

 

189

 

 

 

119

 

Total

 

$

4,779

 

 

$

6,101

 

 

12


Frequency Therapeutics, Inc.

Notes to Unaudited Consolidated Financial Statements –(continued)

(Amounts in thousands, except share and per share amounts)

 

6. Debt

On December 11, 2020 (the Closing Date), the Company entered into a Loan and Security Agreement (the Loan Agreement) with a commercial bank for a term loan with a principal balance of $15,000. The Company will make monthly interest only payments through November 30, 2022. The principal balance and interest will be repaid in equal monthly installments after the interest only period and continuing through May 1, 2024 (the Loan Maturity Date). Advances under the Loan Agreement will bear an interest rate equal to the greater of either (i) 1.50% plus the Prime Rate (as reported in The Wall Street Journal, subject to an interest rate floor of zero) or (ii) 4.75%. The interest rate at March 31, 2022 was 4.75%, resulting in interest expense of $178 for the three months ended March 31, 2022.

The Company may prepay the advance made under the Loan Agreement in whole, at any time subject to a prepayment premium equal to: (a) 2.0% of the then-outstanding principal amount of the advance, if such prepayment occurs on or prior to the first anniversary of the Closing Date; (b) 1.0% of the then-outstanding principal amount of the advance, if such prepayment occurs after the first anniversary of the Closing Date and on or prior to the second anniversary of the Closing Date; and (c) 0.0% of the then-outstanding principal amount of the advance, if such prepayment occurs after the second anniversary of the Closing Date. The prepayment premium is waived if the borrowings under the Loan Agreement are refinanced by the bank (in its sole and absolute discretion) on or prior to the Loan Maturity Date.

The Company will pay a final payment of $150, which will occur on the earliest of: (i) the Loan Maturity Date; (ii) the date that the Company prepays all of the outstanding principal in full; (iii) the date the loan payments are accelerated due to an event of default; or (iv) the termination of the Loan Agreement. The Company is accruing the final payment over the term of the loan. The term loan is secured by substantially all of the Company’s assets, excluding intellectual property.

 

7. Net loss per share

Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed using the weighted-average number of shares of common stock outstanding during the period and, if dilutive, the weighted-average number of potential shares of common stock. Diluted net loss per share is the same as basic net loss per share for the three months ended March 31, 2022 and 2021 since all potential shares of common stock instruments are anti-dilutive as a result of the loss for such periods.

 

 

 

Three Months Ended
March 31,

 

 

 

2022

 

 

2021

 

Numerator:

 

 

 

 

 

 

Net Loss

 

$

(23,386

)

 

$

(20,375

)

Denominator:

 

 

 

 

 

 

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

 

 

34,810,676

 

 

 

34,115,682

 

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

 

$

(0.67

)

 

$

(0.60

)

 

The Company excluded the following potential shares of common stock from the computation of diluted net loss per share because including them would have had an anti-dilutive effect.