10-Q
--12-31falseNovember 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 June 30, 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 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.

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 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.

4


 

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.

 

5


 

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.

6


 

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.

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, 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.

8


 

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