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 June 30, 2022


☐	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 August 2, 2022, the registrant had 35,262,033 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	39
Item 4.	Controls and Procedures	39
PART II.	OTHER INFORMATION	40
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	87
Item 3.	Defaults Upon Senior Securities	87
Item 4.	Mine Safety Disclosures	87
Item 5.	Other Information	87
Item 6.	Exhibits	88
Signatures		89

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.

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 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 other product candidate that we advance into clinical trials may also 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, labor shortages, supply chain difficulties, 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 achieve our intended outcome.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Frequency Therapeutics, Inc.

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(unaudited)


	June 30, 2022			December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	42,373		$	79,635
Short-term marketable securities		68,643			51,072
Prepaid expenses and other current assets		2,405			4,041
Total current assets		113,421			134,748
Long-term marketable securities		—			11,719
Property and equipment, net		4,123			5,522
Right of use assets		30,088			31,350
Restricted cash		1,699			1,699
Long-term assets		327			320
Total assets	$	149,658		$	185,358
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	3,552		$	2,748
Accrued expenses		5,499			6,101
Lease liabilities		1,877			1,747
Term loan, current portion		5,833			833
Total current liabilities		16,761			11,429
Lease liabilities, net of current portion		27,809			28,851
Term loan, net of current portion		9,167			14,167
Other long-term liabilities		68			87
Total liabilities		53,805			54,534
Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized, no shares issued or outstanding at June 30, 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 June 30, 2022 and December 31, 2021, respectively		35			35
Additional paid-in capital		320,966			310,936
Accumulated other comprehensive income		(392	)		(62	)
Accumulated deficit		(224,756	)		(180,085	)
Total stockholders’ equity		95,853			130,824
Total liabilities and stockholders’ equity	$	149,658		$	185,358

See accompanying notes.

Frequency Therapeutics, Inc.

Consolidated Statements of Operations

(in thousands, except share and per share amounts)

(unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Revenue	$	—		$	9,417		$	—		$	14,068
Operating expenses:
Research and development		13,273			17,401			27,054			32,507
General and administrative		8,000			9,499			17,477			19,243
Total operating expenses		21,273			26,900			44,531			51,750
Loss from operations		(21,273	)		(17,483	)		(44,531	)		(37,682	)
Interest income		425			118			520			143
Interest expense		(208	)		(182	)		(386	)		(400	)
Realized gain (loss) on investments		2			(10	)		2			(14	)
Foreign exchange (loss) gain		(3	)		(1	)		(2	)		20
Other expense, net		(226	)		(88	)		(260	)		(88	)
Loss before income taxes		(21,283	)		(17,646	)		(44,657	)		(38,021	)
Income taxes		(2	)		(10	)		(14	)		(10	)
Net loss	$	(21,285	)	$	(17,656	)	$	(44,671	)	$	(38,031	)
Net loss per share attributable to common stockholders-basic and diluted	$	(0.61	)	$	(0.52	)	$	(1.28	)	$	(1.11	)
Weighted-average shares of common stock outstanding-basic and diluted		34,976,409			34,238,394			34,894,001			34,177,262

See accompanying notes.

Frequency Therapeutics, Inc.

Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Net loss	$	(21,285	)	$	(17,656	)	$	(44,671	)	$	(38,031	)
Other comprehensive loss:
Unrealized loss on marketable securities		(96	)		(3	)		(330	)		(20	)
Total other comprehensive loss		(96	)		(3	)		(330	)		(20	)
Comprehensive loss	$	(21,381	)	$	(17,659	)	$	(45,001	)	$	(38,051	)

See accompanying notes.

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, March 31, 2021		34,216,186	$	34	$	293,137	$	10		$	(115,774	)	$	177,407
Stock-based compensation expense	-			-		6,089		-			-			6,089
Issuance of common stock, net		169,730		-		203		-			-			203
Other comprehensive loss	-			-		-		(3	)		-			(3	)
Net loss	-			-		-		-			(17,656	)		(17,656	)
Balance, June 30, 2021		34,385,916	$	34	$	299,429	$	7		$	(133,430	)	$	166,040



Balance, March 31, 2022		34,976,409	$	35	$	316,402	$	(296	)	$	(203,471	)	$	112,670
Stock-based compensation expense		-		-		4,564		-			-			4,564
Other comprehensive loss		-		-		-		(96	)		-			(96	)
Net loss		-		-		-		-			(21,285	)		(21,285	)
Balance, June 30, 2022		34,976,409	$	35	$	320,966	$	(392	)	$	(224,756	)	$	95,853


	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	-			-		10,700		-			-			10,700
Issuance of common stock, net		421,916		-		900		-			-			900
Other comprehensive loss		-		-		-		(20	)		-			(20	)
Net loss		-		-		-		-			(38,031	)		(38,031	)
Balance, June 30, 2021		34,385,916		34		299,429		7			(133,430	)		166,040


Balance, December 31, 2021		34,611,213	$	35	$	310,936	$	(62	)	$	(180,085	)	$	130,824
Stock-based compensation expense		-		-		9,830		-			-			9,830
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		-		-		-		(330	)		-			(330	)
Net loss		-		-		-		-			(44,671	)		(44,671	)
Balance, June 30, 2022		34,976,409	$	35	$	320,966	$	(392	)	$	(224,756	)	$	95,853

See accompanying notes.

Frequency Therapeutics, Inc.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Six Months Ended June 30,
	2022			2021
Cash flows from operating activities:
Net loss	$	(44,671	)	$	(38,031	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		9,830			10,700
Depreciation expense		1,415			1,303
Non-cash lease expense		1,262			421
Non-cash interest expense		443			16
Loss on disposal of assets		—			16
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		1,636			1,248
Accounts payable		797			(2,355	)
Deferred revenue		—			(14,068	)
Lease liabilities		(912	)		374
Accrued expenses		(621	)		(2,772	)
Net cash used in operating activities		(30,821	)		(43,148	)
Cash flows from investing activities:
Purchases of property and equipment		(16	)		(2,542	)
Purchase of marketable securities		(38,108	)		(43,023	)
Redemption of marketable securities		31,483			2,500
Net cash used in investing activities</