[FORM 10-Q](index=1&type=section&id=FORM%2010-Q) [FORWARD-LOOKING STATEMENTS](index=4&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section cautions that the report contains forward-looking statements, subject to risks and uncertainties, especially regarding the proposed merger with Korro Bio, Inc - Forward-looking statements are covered by safe harbor provisions of the Securities Act of 1933 and Securities Exchange Act of 1934[8](index=8&type=chunk) - Key forward-looking topics include the merger with Korro Bio, future funding needs, expenses, and business strategy[8](index=8&type=chunk) - Actual results may differ materially due to known and unknown risks and uncertainties, including those detailed in 'Risk Factors' and 'Management's Discussion and Analysis of Financial Condition and Results of Operations'[9](index=9&type=chunk) [PART I. FINANCIAL INFORMATION](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Consolidated Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20(Unaudited)) Presents unaudited consolidated financial statements for September 30, 2023, including balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, with explanatory notes [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheets (September 30, 2023 vs. December 31, 2022) | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :----------------------------- | :-------------------------- | :-------------------------- | | Cash and cash equivalents | $41,723 | $51,954 | | Short-term marketable securities | $— | $31,143 | | Prepaid expenses and other current assets | $423 | $4,396 | | Assets held for sale | $354 | $— | | Total current assets | $42,500 | $87,493 | | Property and equipment, net | $543 | $2,739 | | Right of use assets | $1,339 | $28,980 | | Restricted cash | $1,967 | $1,699 | | Other long-term assets | $— | $327 | | Total assets | $46,349 | $121,238 | | Accounts payable | $338 | $3,114 | | Accrued expenses | $7,847 | $5,891 | | Lease liabilities, current portion | $1,427 | $2,021 | | Term loan, current portion | $— | $10,000 | | Total current liabilities | $9,612 | $21,026 | | Lease liabilities, net of current portion | $— | $26,761 | | Term loan, net of current portion | $— | $4,167 | | Other long-term liabilities | $— | $89 | | Total liabilities | $9,612 | $52,043 | | Common stock | $37 | $35 | | Additional paid-in capital | $340,308 | $331,023 | | Accumulated other comprehensive gain (loss) | $10 | $(198) | | Accumulated deficit | $(303,618) | $(261,665) | | Total stockholders' equity | $36,737 | $69,195 | | Total liabilities and stockholders' equity | $46,349 | $121,238 | [Consolidated Statements of Operations](index=6&type=section&id=Consolidated%20Statements%20of%20Operations) Consolidated Statements of Operations (Three Months Ended September 30, 2023 vs. 2022) | Metric | Sep 30, 2023 (in thousands) | Sep 30, 2022 (in thousands) | | :------------------------- | :-------------------------- | :-------------------------- | | Research and development | $2,560 | $11,715 | | General and administrative | $10,105 | $8,560 | | Total operating expenses | $12,665 | $20,275 | | Loss from operations | $(12,665) | $(20,275) | | Interest income | $448 | $351 | | Interest expense | $— | $(263) | | Other income, net | $596 | $617 | | Loss before income taxes | $(11,621) | $(19,570) | | Income tax | $7 | $23 | | Net loss | $(11,614) | $(19,547) | | Net loss per share attributable to common stockholders-basic and diluted | $(0.31) | $(0.55) | | Weighted-average shares of common stock outstanding-basic and diluted | 36,922,236 | 35,247,680 | Consolidated Statements of Operations (Nine Months Ended September 30, 2023 vs. 2022) | Metric | Sep 30, 2023 (in thousands) | Sep 30, 2022 (in thousands) | | :------------------------- | :-------------------------- | :-------------------------- | | Research and development | $18,509 | $38,769 | | General and administrative | $26,498 | $26,037 | | Total operating expenses | $45,007 | $64,806 | | Loss from operations | $(45,007) | $(64,806) | | Interest income | $1,317 | $871 | | Interest expense | $(284) | $(649) | | Other income, net | $2,043 | $357 | | Loss before income taxes | $(41,931) | $(64,227) | | Income tax | $(22) | $9 | | Net loss | $(41,953) | $(64,218) | | Net loss per share attributable to common stockholders-basic and diluted | $(1.17) | $(1.83) | | Weighted-average shares of common stock outstanding-basic and diluted | 36,005,269 | 35,013,189 | [Consolidated Statements of Comprehensive Loss](index=7&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Loss) Consolidated Statements of Comprehensive Loss (Three and Nine Months Ended September 30, 2023 vs. 2022) | Metric | Three Months Ended Sep 30, 2023 (in thousands) | Three Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | | :------------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net loss | $(11,614) | $(19,547) | $(41,953) | $(64,218) | | Unrealized gain (loss) on marketable securities and money market funds | $16 | $16 | $208 | $(314) | | Total other comprehensive gain (loss) | $16 | $16 | $208 | $(314) | | Comprehensive loss | $(11,598) | $(19,531) | $(41,745) | $(64,532) | [Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity) - Total stockholders' equity decreased from **$69,195 thousand** at December 31, 2022, to **$36,737 thousand** at September 30, 2023, primarily due to net losses[15](index=15&type=chunk)[23](index=23&type=chunk) - Common shares issued and outstanding increased from **35,262,083** at December 31, 2022, to **36,926,285** at September 30, 2023[15](index=15&type=chunk)[23](index=23&type=chunk) - Accumulated deficit increased from **$(261,665) thousand** at December 31, 2022, to **$(303,618) thousand** at September 30, 2023[15](index=15&type=chunk)[23](index=23&type=chunk) [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Consolidated Statements of Cash Flows (Nine Months Ended September 30, 2023 vs. 2022) | Metric | Sep 30, 2023 (in thousands) | Sep 30, 2022 (in thousands) | | :------------------------------------------------- | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(27,358) | $(42,618) | | Net cash provided by investing activities | $31,528 | $6,573 | | Net cash (used in) provided by financing activities | $(14,133) | $256 | | Net decrease in cash, cash equivalents and restricted cash | $(9,963) | $(35,789) | | Cash, cash equivalents, and restricted cash at end of period | $43,690 | $45,545 | [Notes to Unaudited Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) [1. Organization and basis of presentation](index=10&type=section&id=1.%20Organization%20and%20basis%20of%20presentation) Frequency Therapeutics, a preclinical-stage regenerative medicine company, restructured in 2023, discontinued hearing programs, downsized, and entered a merger agreement with Korro Bio, Inc - Company is a preclinical-stage regenerative medicine company focused on activating innate regenerative potential[28](index=28&type=chunk) - Restructuring in February 2023 included discontinuing the hearing program and a **55% reduction in personnel**, followed by an additional **55% reduction in May 2023**[28](index=28&type=chunk) - Entered into a Merger Agreement with Korro Bio, Inc. on July 14, 2023[28](index=28&type=chunk) - Accumulated deficit of **$303,618 thousand** as of September 30, 2023, with expected continued operating losses, and future viability dependent on raising additional capital[29](index=29&type=chunk) [2. Recently adopted and issued accounting standards](index=11&type=section&id=2.%20Recently%20adopted%20and%20issued%20accounting%20standards) As an 'emerging growth company,' the company adopted ASU No. 2016-13 on January 1, 2023, with no material impact, utilizing an extended transition period - Company is an 'emerging growth company' and elected the extended transition period for complying with new or revised accounting standards[34](index=34&type=chunk) - Adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), on January 1, 2023, with no material impact on consolidated financial statements[35](index=35&type=chunk) [3. Fair value measurements](index=11&type=section&id=3.%20Fair%20value%20measurements) Financial assets at fair value primarily include Level 1 money market funds, with no Level 2 marketable securities held as of September 30, 2023, following SVB's closure Fair Value Measurements (September 30, 2023 vs. December 31, 2022) | Asset Category | Fair Value Hierarchy | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :------------------------- | :------------------- | :-------------------------- | :-------------------------- | | Cash equivalents: Money market funds | Level 1 | $35,299 | $30,649 | | Investments: Short-term marketable securities | Level 2 | $— | $31,143 | | Total | | $35,299 | $61,792 | - Silicon Valley Bank (SVB) was closed on March 10, 2023, and the company's sweep and deposit accounts are now held by Silicon Valley Bridge Bank, N.A. (SVBB)[37](index=37&type=chunk) [4. Investments](index=12&type=section&id=4.%20Investments) The company held no investments as of September 30, 2023, after previously holding available-for-sale marketable securities affected by SVB's closure - Company held no investments at September 30, 2023[38](index=38&type=chunk) Investments at December 31, 2022 (Available-for-Sale) | Category | Amortization Cost (in thousands) | Unrealized Loss (in thousands) | Fair Market Value (in thousands) | | :------------------------- | :------------------------------- | :----------------------------- | :------------------------------- | | Short-term marketable securities | $31,280 | $(317) | $31,143 | - Unrealized losses at December 31, 2022, were attributable to changes in interest rates and did not represent credit losses[39](index=39&type=chunk) [5. Property and equipment](index=13&type=section&id=5.%20Property%20and%20equipment) Net property and equipment significantly decreased due to reclassification of lab equipment as 'assets held for sale' related to the merger agreement Property and Equipment, Net (September 30, 2023 vs. December 31, 2022) | Category | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Lab equipment | $101 | $5,706 | | Furniture and office equipment | $3,238 | $3,238 | | Software | $291 | $291 | | Total | $3,630 | $9,235 | | Accumulated depreciation | $(3,087) | $(6,496) | | Property and equipment, net | $543 | $2,739 | - Certain lab equipment with a carrying value of **$354 thousand** was classified as 'assets held for sale' as of September 30, 2023, in connection with the Agreement and Plan of Merger with Korro Bio, Inc[43](index=43&type=chunk) [6. Accrued expenses](index=13&type=section&id=6.%20Accrued%20expenses) Accrued expenses increased to **$7,847 thousand** by September 30, 2023, driven by higher professional fees and legal settlements Accrued Expenses (September 30, 2023 vs. December 31, 2022) | Category | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :--------------------------------- | :-------------------------- | :-------------------------- | | Payroll and employee related expenses | $1,868 | $4,216 | | Professional fees | $3,895 | $377 | | Third-party research and development expenses | $29 | $773 | | Legal settlements | $1,675 | $— | | Other | $380 | $525 | | Total | $7,847 | $5,891 | [7. Debt](index=14&type=section&id=7.%20Debt) The company fully prepaid its **$11,667 thousand** term loan on April 3, 2023, eliminating interest expense for Q3 2023 - Prepaid the remaining **$11,667 thousand** due under the Loan Agreement on April 3, 2023[45](index=45&type=chunk) - No interest expense was incurred for the three months ended September 30, 2023, compared to **$263 thousand** in the prior year[45](index=45&type=chunk) - Interest expense for the nine months ended September 30, 2023, was **$284 thousand**, down from **$649 thousand** in the prior year[45](index=45&type=chunk) [8. Net loss per share](index=14&type=section&id=8.%20Net%20loss%20per%20share) Basic and diluted net loss per share improved for both three and nine months ended September 30, 2023, due to decreased net loss Net Loss Per Share (Three Months Ended September 30, 2023 vs. 2022) | Metric | Sep 30, 2023 | Sep 30, 2022 | | :------------------------------------------------- | :----------- | :----------- | | Net Loss | $(11,614) | $(19,547) | | Weighted-average shares of common stock outstanding | 36,922,236 | 35,247,680 | | Net loss per share attributable to common stockholders basic and diluted | $(0.31) | $(0.55) | Net Loss Per Share (Nine Months Ended September 30, 2023 vs. 2022) | Metric | Sep 30, 2023 | Sep 30, 2022 | | :------------------------------------------------- | :----------- | :----------- | | Net Loss | $(41,953) | $(64,218) | | Weighted-average shares of common stock outstanding | 36,005,269 | 35,013,189 | | Net loss per share attributable to common stockholders basic and diluted | $(1.17) | $(1.83) | - Potential shares of common stock (unvested restricted stock units and outstanding stock options) were excluded from diluted net loss per share computation as they were anti-dilutive[49](index=49&type=chunk) [9. Stockholders' equity](index=14&type=section&id=9.%20Stockholders%27%20equity) Stockholders' equity decreased to **$36,737 thousand** by September 30, 2023, due to net loss, and the ATM equity offering program was terminated - Common stock shares issued and outstanding increased from **35,262,083** at December 31, 2022, to **36,926,285** at September 30, 2023[51](index=51&type=chunk) - The 'at the market' (ATM) equity offering program was terminated on September 26, 2023, with no shares sold during the three or nine months ended September 30, 2023[54](index=54&type=chunk) Shares Reserved for Future Issuance (September 30, 2023 vs. December 31, 2022) | Category | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------------- | :----------- | :----------- | | Stock options outstanding | 4,662,721 | 5,742,053 | | Shares available for future grant under incentive plans | 3,016,412 | 988,216 | | Total | 7,679,133 | 6,730,269 | [10. Stock-based compensation](index=15&type=section&id=10.%20Stock-based%20compensation) Stock-based compensation expense decreased due to workforce reductions and lower grant date fair value, despite incremental expense from 2022 option repricing Stock-based Compensation Expense (Three and Nine Months Ended September 30, 2023 vs. 2022) | Category | Three Months Ended Sep 30, 2023 (in thousands) | Three Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | | :------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Research and development | $750 | $2,095 | $1,760 | $5,994 | | General and administrative | $2,175 | $3,500 | $7,493 | $9,431 | | Total | $2,925 | $5,595 | $9,253 | $15,425 | - The weighted-average grant date fair value of options granted was **$0** for the three months ended September 30, 2023 (vs. **$1.40** in 2022) and **$3.58** for the nine months ended September 30, 2023 (vs. **$1.60** in 2022)[57](index=57&type=chunk) - Repricing of 'Underwater Options' on August 17, 2022, resulted in incremental stock-based compensation of **$2,505 thousand**, with **$179 thousand** and **$518 thousand** recorded as expense in the three and nine months ended September 30, 2023, respectively[60](index=60&type=chunk) [11. Employee stock purchase plan](index=17&type=section&id=11.%20Employee%20stock%20purchase%20plan) The ESPP allows participants to purchase common stock via payroll deductions, with **1,547,065 shares** remaining available for issuance - The ESPP permits participants to purchase common stock through payroll deductions of up to **15%** of their eligible compensation[63](index=63&type=chunk) - **6,329 shares** were purchased in July 2023 related to the first offering period of 2023[64](index=64&type=chunk) - As of September 30, 2023, a total of **1,547,065 shares** remain available for future issuance under the ESPP[64](index=64&type=chunk) [12. Income taxes](index=17&type=section&id=12.%20Income%20taxes) Due to cumulative losses, the company recorded a full valuation allowance against deferred tax assets, with income tax expense representing state taxes on subsidiary interest income - The company has recorded a full valuation allowance against its deferred tax assets due to its cumulative loss position, making it unlikely to realize the benefits of federal and state deferred tax assets[66](index=66&type=chunk) - Income tax expense for the three and nine months ended September 30, 2023 and 2022, represents state taxes on interest income earned by its subsidiary, Frequency Therapeutics Securities Corporation[65](index=65&type=chunk) - Since inception, the company has generated cumulative federal and state net operating loss and research and development credit carryforwards for which no net tax benefit has been recorded[67](index=67&type=chunk) [13. Collaboration agreement](index=17&type=section&id=13.%20Collaboration%20agreement) The Astellas License and Collaboration Agreement for FX-322 was terminated on April 14, 2023, incurring no payments or costs for the company - The License and Collaboration Agreement with Astellas Pharma Inc. for FX-322 outside the United States was terminated on April 14, 2023[70](index=70&type=chunk) - The company was not subject to any payments or costs as a result of this termination[70](index=70&type=chunk) - Astellas had paid an upfront payment of **$80,000 thousand** in July 2019 and agreed to potential development and commercialization milestone payments up to **$545,000 thousand**[69](index=69&type=chunk) [14. License agreements](index=18&type=section&id=14.%20License%20agreements) Frequency Therapeutics terminated key license agreements with MIT, CALIBR, and MEE in early 2023, incurring no payments or costs - The exclusive patent license agreement with Massachusetts Institute of Technology (MIT) for hearing loss treatment was terminated on July 6, 2023[74](index=74&type=chunk) - The license agreement with The Scripps Research Institute (CALIBR) for MS treatment was terminated on April 28, 2023[76](index=76&type=chunk) - The Non-Exclusive Patent License Agreement with Massachusetts Eye and Ear (MEE) for hearing loss treatment was terminated on April 4, 2023[78](index=78&type=chunk) - The company was not subject to any payments or costs as a result of these terminations[74](index=74&type=chunk)[76](index=76&type=chunk)[78](index=78&type=chunk) [15. Commitments and contingencies](index=18&type=section&id=15.%20Commitments%20and%20contingencies) The company faces contractual commitments and legal proceedings, including a class action lawsuit under appeal and a **$1,675 thousand** settlement, and terminated its office lease - The company indemnifies its officers and directors, with directors' and officers' insurance coverage to limit exposure[81](index=81&type=chunk) - The operating lease for office space in Lexington, Massachusetts, was terminated, effective January 31, 2024[83](index=83&type=chunk) - A class action lawsuit (Quinones et al. v. Frequency Therapeutics, Inc. et al.) alleging securities fraud was dismissed on March 29, 2023, but the plaintiff filed a notice of appeal on April 27, 2023[87](index=87&type=chunk) - The company reached an agreement to resolve a lawsuit (The Gregory J. Parseghian Revocable Trust, et al. v. Frequency Therapeutics, Inc., et al.) for **$1,675 thousand**, which is accrued as of September 30, 2023[88](index=88&type=chunk) [16. Sublease](index=20&type=section&id=16.%20Sublease) The Lexington, MA office sublease was terminated effective January 31, 2024, with **$580 thousand** and **$1,766 thousand** in sublease income recognized for the three and nine months ended September 30, 2023 - The Sublease Agreement for approximately **30,040 rentable square feet** of office space in Lexington, MA, was terminated, effective January 31, 2024[90](index=90&type=chunk) - Sublease income recognized was **$580 thousand** for the three months ended September 30, 2023, and **$1,766 thousand** for the nine months ended September 30, 2023[91](index=91&type=chunk) Expected Future Sublease Income (as of September 30, 2023) | Years Ending December 31, | Sublease Income (in thousands) | | :------------------------ | :----------------------------- | | 2023 | $574 | | 2024 | $191 | | Total future sublease income | $765 | [17. Restructuring](index=20&type=section&id=17.%20Restructuring) Following FX-322 study failure, the company discontinued hearing programs, initiated a **55% workforce reduction**, incurring **$4,329 thousand** in restructuring expenses - Discontinued the FX-322 and FX-345 hearing development programs in February 2023 after the FX-322 Phase 2b study failed to achieve its primary efficacy endpoint[93](index=93&type=chunk) - The restructuring resulted in a **55% reduction** in the company's workforce[93](index=93&type=chunk) Restructuring-Related Expenses (Nine Months Ended September 30, 2023) | Category | Amount (in thousands) | | :-------------------------------- | :-------------------- | | Severance and other benefit related costs | $3,840 | | Accelerated depreciation expense | $360 | | Accelerated hearing program charges | $129 | | Total | $4,329 | - A liability for restructuring of **$922 thousand** is classified as current and included in accrued expenses as of September 30, 2023[96](index=96&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition, operations, strategic shift to MS, pending Korro Bio merger, operating expenses, and liquidity for the periods ended September 30, 2023 [Overview](index=22&type=section&id=Overview) Following FX-322 study failure, the company pivoted from SNHL to exploring MS program alternatives, involving workforce reductions, lease termination, and a merger with Korro Bio, Inc - Discontinued FX-322 and FX-345 hearing development programs in February 2023 after the FX-322-208 study failed to achieve its primary endpoint[99](index=99&type=chunk) - Shifted focus to developing a product candidate for multiple sclerosis (MS Program) and exploring strategic alternatives, including its sale[99](index=99&type=chunk) - Entered into a Merger Agreement with Korro Bio, Inc. on July 14, 2023; following the Merger, Korro Bio's business will be the business of the combined company[99](index=99&type=chunk)[104](index=104&type=chunk) - Implemented workforce reductions of approximately **30%** in April 2022, **55%** in February 2023, and an additional **55%** in May 2023[100](index=100&type=chunk) - Terminated the lease and sublease for its Lexington, MA office, effective January 31, 2024[101](index=101&type=chunk) - Incurred significant operating losses since inception, with an accumulated deficit of **$303.6 million** as of September 30, 2023[103](index=103&type=chunk) [License and collaboration agreements](index=22&type=section&id=License%20and%20collaboration%20agreements) The company terminated all major license and collaboration agreements in early 2023, including Astellas, MIT, MEE, and CALIBR, incurring no costs - The Astellas Agreement for FX-322 outside the U.S. was terminated on April 14, 2023, with no payments or costs incurred[106](index=106&type=chunk) - The Exclusive Patent License Agreement with MIT for hearing loss treatment was terminated on July 6, 2023, with no payments or costs incurred[107](index=107&type=chunk) - The Non-Exclusive Patent License Agreement with MEE for hearing loss treatment was terminated on April 4, 2023, with no payments or costs incurred[108](index=108&type=chunk) - The license agreement with CALIBR for MS treatment was terminated on April 28, 2023, with no payments or costs incurred[109](index=109&type=chunk) [Components of our results of operations](index=23&type=section&id=Components%20of%20our%20results%20of%20operations) Details operating expense components (R&D, G&A), interest income/expense, other income, and income taxes, with R&D shifting to MS strategic alternatives post-merger - Research and development expenses primarily include salaries, third-party agreements (CROs), manufacturing costs, consultant fees, laboratory supplies, and license payments[110](index=110&type=chunk) - Following the Merger, R&D expenses for the remainder of 2023 are expected to relate to strategic initiatives for the MS Program[112](index=112&type=chunk) - General and administrative expenses cover executive, finance, business development, and administrative functions, including legal, accounting, and facility-related costs[113](index=113&type=chunk) - Income tax provision is based on the United States statutory rate, increased by state taxes, and reduced by a full valuation allowance on deferred tax assets due to cumulative losses[117](index=117&type=chunk)[118](index=118&type=chunk)[119](index=119&type=chunk) [Results of operations](index=25&type=section&id=Results%20of%20operations) [Comparison of three months ended September 30, 2023 and 2022](index=25&type=section&id=Comparison%20of%20three%20months%20ended%20September%2030%2C%202023%20and%202022) Net loss decreased to **$11.6 million** for Q3 2023, driven by reduced R&D expenses from discontinued hearing programs, despite increased G&A costs Summary of Operations (Three Months Ended September 30, 2023 vs. 2022) | Metric | Sep 30, 2023 (in thousands) | Sep 30, 2022 (in thousands) | | :------------------------- | :-------------------------- | :-------------------------- | | Research and development | $2,560 | $11,715 | | General and administrative | $10,105 | $8,560 | | Total operating expenses | $12,665 | $20,275 | | Loss from operations | $(12,665) | $(20,275) | | Net loss | $(11,614) | $(19,547) | - Research and development expenses decreased by **$9.2 million**, primarily due to the discontinuation of FX-322 and FX-345 programs (zero costs in Q3 2023) and a **$2.8 million** decrease in employee-related costs[121](index=121&type=chunk)[122](index=122&type=chunk)[123](index=123&type=chunk)[125](index=125&type=chunk) - General and administrative expenses increased by **$1.5 million**, mainly due to higher professional service fees, particularly legal fees[126](index=126&type=chunk) - No interest expense was incurred in Q3 2023 due to the term loan prepayment in April 2023[128](index=128&type=chunk) [Comparison of nine months ended September 30, 2023 and 2022](index=27&type=section&id=Comparison%20of%20nine%20months%20ended%20September%2030%2C%202023%20and%202022) Net loss decreased to **$42.0 million** for 9M 2023, primarily due to reduced R&D expenses from discontinued hearing programs and workforce reductions Summary of Operations (Nine Months Ended September 30, 2023 vs. 2022) | Metric | Sep 30, 2023 (in thousands) | Sep 30, 2022 (in thousands) | | :------------------------- | :-------------------------- | :-------------------------- | | Research and development | $18,509 | $38,769 | | General and administrative | $26,498 | $26,037 | | Total operating expenses | $45,007 | $64,806 | | Loss from operations | $(45,007) | $(64,806) | | Net loss | $(41,953) | $(64,218) | - Research and development expenses decreased by **$20.3 million**, driven by a **$7.5 million** decrease in FX-322 costs, a **$2.8 million** decrease in FX-345 costs (due to program discontinuation), and a **$6.6 million** decrease in employee-related costs[132](index=132&type=chunk)[133](index=133&type=chunk)[134](index=134&type=chunk)[136](index=136&type=chunk) - General and administrative expenses increased by **$0.5 million**, primarily due to higher legal fees, partially offset by decreases in employee-related costs[137](index=137&type=chunk) - Interest income increased by **$0.4 million** due to changes in investment balances, and other income, net, increased by **$1.7 million**, primarily from sublease income[138](index=138&type=chunk)[140](index=140&type=chunk) - Interest expense decreased by **$0.3 million** due to the term loan prepayment in April 2023[139](index=139&type=chunk) [Liquidity and capital resources](index=28&type=section&id=Liquidity%20and%20capital%20resources) The company, with **$303.6 million** accumulated deficit, held **$41.7 million** in cash and equivalents, prepaid its term loan, terminated its ATM program, and anticipates future funding needs impacted by the Korro Bio merger [Cash flows](index=29&type=section&id=Cash%20flows) Net cash used in operating activities decreased to **$27.4 million**, investing activities provided **$31.5 million**, and financing activities used **$14.1 million** for 9M 2023 Cash Flow Summary (Nine Months Ended September 30, 2023 vs. 2022) | Metric | Sep 30, 2023 (in thousands) | Sep 30, 2022 (in thousands) | | :------------------------------------------------- | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(27,358) | $(42,618) | | Net cash provided by investing activities | $31,528 | $6,573 | | Net cash (used in) provided by financing activities | $(14,133) | $256 | | Decrease in cash and cash equivalents | $(9,963) | $(35,789) | - Net cash used in operating activities decreased by **$15.3 million**, primarily due to a **$22.3 million** decrease in net loss[151](index=151&type=chunk)[152](index=152&type=chunk)[153](index=153&type=chunk) - Net cash provided by investing activities increased by **$24.9 million**, mainly attributable to **$33.5 million** in redemptions of marketable securities, partially offset by **$2.0 million** in purchases[154](index=154&type=chunk)[155](index=155&type=chunk) - Net cash used in financing activities was **$14.1 million**, primarily due to term loan repayments, representing an increase in cash used compared to the prior year[156](index=156&type=chunk) [Funding requirements](index=30&type=section&id=Funding%20requirements) Post-merger, the combined company's funding will be driven by Korro Bio's programs, as Frequency Therapeutics will not further develop its own product candidates - Following the Merger, the business of Korro Bio will be the business of the combined company[160](index=160&type=chunk) - Frequency Therapeutics does not expect any further development of its product candidates or programs that would require additional funding[160](index=160&type=chunk) - The funding requirements of the combined company will reflect the funding requirements for the development of Korro Bio's product candidates and programs[160](index=160&type=chunk) [Critical accounting policies and use of estimates](index=30&type=section&id=Critical%20accounting%20policies%20and%20use%20of%20estimates) Financial statements adhere to GAAP, requiring management estimates, with no material changes to critical accounting policies during 9M 2023 - The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses, and the disclosure of contingent assets and liabilities[162](index=162&type=chunk) - There were no material changes to critical accounting policies during the nine months ended September 30, 2023, from those described in the Annual Report on Form 10-K filed on March 10, 2023[163](index=163&type=chunk) [Recent accounting pronouncements](index=31&type=section&id=Recent%20accounting%20pronouncements) Refer to Note 2 of the unaudited consolidated financial statements for details on recent accounting pronouncements - A description of recent accounting pronouncements that may potentially impact the company's financial position, results of operations, or cash flows is disclosed in Note 2 to the unaudited consolidated financial statements[164](index=164&type=chunk) [Emerging growth company status](index=31&type=section&id=Emerging%20growth%20company%20status) As an 'emerging growth company,' the company utilizes an extended transition period for new or revised accounting standards compliance - The company is an 'emerging growth company' as defined in the Jumpstart Our Business Startups Act of 2012[165](index=165&type=chunk) - The company has elected to take advantage of an extended transition period for complying with new or revised accounting standards[165](index=165&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=32&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is not required as the company is classified as a smaller reporting company - This item is not required as the company is currently considered a smaller reporting company[166](index=166&type=chunk) [Item 4. Controls and Procedures](index=32&type=section&id=Item%204.%20Controls%20and%20Procedures) Management assessed disclosure controls and procedures as effective as of September 30, 2023, with no material changes to internal control over financial reporting - Disclosure controls and procedures were evaluated as effective at the reasonable assurance level as of September 30, 2023[168](index=168&type=chunk) - No material change in internal control over financial reporting occurred during the period covered by this Quarterly Report on Form 10-Q[169](index=169&type=chunk) [PART II. OTHER INFORMATION](index=33&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings) Refer to Note 15, 'Commitments and contingencies – Legal Contingencies,' for detailed information on legal proceedings - Refer to Note 15, 'Commitments and contingencies – Legal Contingencies', for more information on legal proceedings[171](index=171&type=chunk) [Item 1A. Risk Factors](index=33&type=section&id=Item%201A.%20Risk%20Factors) Incorporates risk factors from a prior prospectus, emphasizing financial position risks, accumulated losses, capital needs, and profitability uncertainty in biopharmaceutical development - Risk factors from the prospectus filed on September 29, 2023, are incorporated by reference[172](index=172&type=chunk) - Frequency has incurred significant losses since inception, with net losses of **$11.6 million** (Q3 2023) and **$42.0 million** (9M 2023), and an accumulated deficit of **$303.6 million** as of September 30, 2023[173](index=173&type=chunk) - Investment in biopharmaceutical product development is highly speculative, entailing substantial upfront capital expenditures and significant risk of product candidate failure[173](index=173&type=chunk) - The company expects to continue incurring significant operating losses and cannot accurately predict when or if it will achieve or maintain profitability[174](index=174&type=chunk) [Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities](index=34&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%2C%20Use%20of%20Proceeds%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company completed its IPO in October 2019, raising **$79.7 million** in net proceeds, with no unregistered sales or material changes in proceeds use - Completed IPO in October 2019, issuing **6,325,000 shares** and receiving approximately **$79.7 million** in net proceeds[177](index=177&type=chunk) - There has been no material change in the expected use of the net proceeds from the IPO[178](index=178&type=chunk) [Item 3. Defaults Upon Senior Securities](index=34&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities - No defaults upon senior securities[179](index=179&type=chunk) [Item 4. Mine Safety Disclosures](index=34&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[179](index=179&type=chunk) [Item 5. Other Information](index=34&type=section&id=Item%205.%20Other%20Information) As a smaller reporting company, the company is not required to provide information under Item 408(a) of Regulation S-K - The company is a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and is not required to provide the information otherwise required under Item 408(a) of Regulation S-K[180](index=180&type=chunk) [Item 6. Exhibits](index=35&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with Form 10-Q, including the Merger Agreement, organizational documents, and various related agreements and certifications - Exhibit 2.1: Agreement and Plan of Merger, dated July 14, 2023, by and among Frequency Therapeutics, Inc., Frequency Merger Sub, Inc., and Korro Bio, Inc[181](index=181&type=chunk) - Includes various support agreements (10.1, 10.2) and lock-up agreements (10.3, 10.4) related to the merger[181](index=181&type=chunk) - Includes Rule 13a-14(a) / 15d-14(a) Certifications (31.1, 31.2) and Section 1350 Certifications (32.1, 32.2)[181](index=181&type=chunk) [SIGNATURES](index=37&type=section&id=SIGNATURES)

[FORM 10-Q Filing Information](index=1&type=section&id=FORM%2010-Q%20Filing%20Information) This section details the company's Form 10-Q filing status, identifying it as a non-accelerated, smaller reporting, and emerging growth company for the period ended June 30, 2023 - This is a Quarterly Report on Form 10-Q for the period ended June 30, 2023[2](index=2&type=chunk) - Frequency Therapeutics, Inc. is a Delaware corporation with Commission File Number 001-39062[2](index=2&type=chunk) Registrant Status | Status | Mark | | :---------------------- | :--- | | Large accelerated filer | ☐ | | Accelerated filer | ☐ | | Non-accelerated filer | ☒ | | Smaller reporting company | ☒ | | Emerging growth company | ☒ | [Forward-Looking Statements](index=3&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section outlines the company's forward-looking statements, emphasizing potential material differences in actual results due to risks and uncertainties, and the policy on updates - This report contains forward-looking statements covered by safe harbor provisions, including those related to the Merger Agreement with Korro Bio, Inc., future funding needs, expenses, and business strategy[7](index=7&type=chunk) - Actual results may differ materially due to known and unknown risks, uncertainties, and assumptions, as described in the 'Risk Factors' and 'Management's Discussion and Analysis' sections[7](index=7&type=chunk)[8](index=8&type=chunk) - The company does not plan to publicly update or revise any forward-looking statements unless required by applicable law[9](index=9&type=chunk) [PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Consolidated Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated financial statements for Frequency Therapeutics, Inc., including balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, along with accompanying notes. These statements are prepared in accordance with GAAP, and interim results are not necessarily indicative of full-year performance [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity as of June 30, 2023, and December 31, 2022 Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :-------------- | :---------------- | | Cash and cash equivalents | $39,712 | $51,954 | | Short-term marketable securities | $6,766 | $31,143 | | Total current assets | $48,379 | $87,493 | | Total assets | $79,383 | $121,238 | | Total current liabilities | $8,328 | $21,026 | | Total liabilities | $33,975 | $52,043 | | Accumulated deficit | $(292,004) | $(261,665) | | Total stockholders' equity | $45,408 | $69,195 | [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) This section presents the company's financial performance over specific periods, highlighting operating expenses and net loss for the three and six months ended June 30, 2023 and 2022 Consolidated Statements of Operations Highlights (in thousands, except per share) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------------------------------ | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Research and development | $4,594 | $13,273 | $15,949 | $27,054 | | General and administrative | $7,237 | $8,000 | $16,393 | $17,477 | | Total operating expenses | $11,831 | $21,273 | $32,342 | $44,531 | | Net loss | $(10,796) | $(21,285) | $(30,339) | $(44,671) | | Net loss per share (basic and diluted) | $(0.30) | $(0.61) | $(0.85) | $(1.28) | - Net loss decreased by **$10.5 million** for the three months ended June 30, 2023, and by **$14.3 million** for the six months ended June 30, 2023, compared to the prior year periods[120](index=120&type=chunk)[131](index=131&type=chunk) [Consolidated Statements of Comprehensive Loss](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Loss) This section details the company's comprehensive loss, including net loss and other comprehensive income (loss) components for the three and six months ended June 30, 2023 and 2022 Consolidated Statements of Comprehensive Loss (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------------------------ | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(10,796) | $(21,285) | $(30,339) | $(44,671) | | Unrealized gain (loss) on marketable securities | $58 | $(96) | $192 | $(330) | | Comprehensive loss | $(10,738) | $(21,381) | $(30,147) | $(45,001) | [Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) This section outlines changes in the company's stockholders' equity, reflecting the impact of net loss, stock-based compensation, and other comprehensive income (loss) Stockholders' Equity Changes (in thousands) | Metric | Balance, Dec 31, 2022 | Stock-based compensation expense | Other comprehensive gain | Net loss | Balance, June 30, 2023 | | :-------------------------- | :-------------------- | :----------------------------- | :----------------------- | :------- | :--------------------- | | Total stockholders' equity | $69,195 | $6,328 | $192 | $(30,339) | $45,408 | - Common shares issued and outstanding increased from **35,262,083** at December 31, 2022, to **35,963,706** at June 30, 2023[14](index=14&type=chunk)[51](index=51&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section presents the company's cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2023 and 2022 Consolidated Statements of Cash Flows (in thousands) | Activity | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(22,556) | $(30,821) | | Net cash provided by (used in) investing activities | $24,710 | $(6,641) | | Net cash (used in) provided by financing activities | $(14,135) | $200 | | Net decrease in cash, cash equivalents and restricted cash | $(11,981) | $(37,262) | | Cash, cash equivalents, and restricted cash at end of period | $41,672 | $44,072 | - Net cash used in operating activities decreased by **$8.3 million** year-over-year due to a **$14.3 million** decrease in net loss[151](index=151&type=chunk)[152](index=152&type=chunk) - Net cash provided by investing activities significantly increased due to **$26.8 million** in redemptions of marketable securities in 2023[154](index=154&type=chunk)[155](index=155&type=chunk) [Notes to Unaudited Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) This section provides detailed explanations and additional information supporting the unaudited consolidated financial statements, covering organization, accounting policies, and specific financial items [1. Organization and basis of presentation](index=9&type=section&id=1.%20Organization%20and%20basis%20of%20presentation) This note describes the company's business, recent restructuring, and its financial viability concerns due to recurring losses and accumulated deficit - Frequency Therapeutics, Inc. is a preclinical-stage regenerative medicine company that underwent significant restructuring in February and May 2023, discontinuing its hearing program and reducing personnel by approximately **55%** each time[28](index=28&type=chunk)[101](index=101&type=chunk) - The company has incurred recurring losses since inception, with an accumulated deficit of **$292.0 million** as of June 30, 2023, and its future viability is dependent on raising additional capital[29](index=29&type=chunk) [2. Recently adopted and issued accounting standards](index=10&type=section&id=2.%20Recently%20adopted%20and%20issued%20accounting%20standards) This note outlines the company's adoption of new accounting standards and its election as an 'emerging growth company' to use an extended transition period - As an 'emerging growth company,' the company has elected to use the extended transition period for complying with new or revised accounting standards[34](index=34&type=chunk) - The company adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), on January 1, 2023, which did not have a material impact on its consolidated financial statements[35](index=35&type=chunk) [3. Fair value measurements](index=10&type=section&id=3.%20Fair%20value%20measurements) This note details the fair value of the company's financial assets, including money market funds and marketable securities, and efforts to move bank accounts Fair Value of Financial Assets (in thousands) | Asset Category | June 30, 2023 Fair Value | December 31, 2022 Fair Value | | :------------------------- | :------------------------- | :--------------------------- | | Money market funds (Level 1) | $30,441 | $30,649 | | Short-term marketable securities (Level 2) | $6,766 | $31,143 | | Total | $37,207 | $61,792 | - The company is actively working to move its sweep and deposit accounts from Silicon Valley Bridge Bank to another financial institution[37](index=37&type=chunk) [4. Investments](index=11&type=section&id=4.%20Investments) This note provides details on the company's short-term marketable securities, including their amortized cost, unrealized gains/losses, and fair market value Short-term Marketable Securities (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :------------------------- | :-------------- | :---------------- | | Amortization Cost | $6,571 | $31,280 | | Unrealized Gain (Loss) | $195 | $(317) | | Fair Market Value | $6,766 | $31,143 | - The company held **4** debt securities in an unrealized loss position at June 30, 2023, totaling **$6.8 million** fair value with a **$(15) thousand** unrealized loss, an improvement from **14** securities totaling **$27.2 million** fair value with a **$(213) thousand** unrealized loss at December 31, 2022[40](index=40&type=chunk)[41](index=41&type=chunk)[42](index=42&type=chunk) - Unrealized losses are attributed to changes in interest rates and do not represent credit losses; the company does not intend to sell these investments before recovery of their amortized cost bases[39](index=39&type=chunk) [5. Property and equipment](index=12&type=section&id=5.%20Property%20and%20equipment) This note details the company's property and equipment, net of accumulated depreciation, categorized by lab equipment, furniture, office equipment, and software Property and Equipment, Net (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :-------------------------- | :-------------- | :---------------- | | Lab equipment | $5,658 | $5,706 | | Furniture and office equipment | $3,238 | $3,238 | | Software | $291 | $291 | | Total | $9,187 | $9,235 | | Accumulated depreciation | $(7,860) | $(6,496) | | Property and equipment, net | $1,327 | $2,739 | - Depreciation expense for the six months ended June 30, 2023, was **$1,494 thousand**, compared to **$1,415 thousand** for the same period in 2022[43](index=43&type=chunk) [6. Accrued expenses](index=12&type=section&id=6.%20Accrued%20expenses) This note itemizes the company's accrued expenses, including payroll, professional fees, third-party R&D, and other categories, as of June 30, 2023, and December 31, 2022 Accrued Expenses (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :-------------- | :---------------- | | Payroll and employee related expenses | $2,885 | $4,216 | | Professional fees | $1,541 | $377 | | Third-party research and development expenses | $73 | $773 | | Other | $372 | $525 | | Total | $4,871 | $5,891 | [7. Debt](index=13&type=section&id=7.%20Debt) This note details the prepayment of the company's term loan in April 2023 and the resulting decrease in interest expense for the reported periods - The company prepaid the remaining **$11.7 million** of its term loan on April 3, 2023[45](index=45&type=chunk) - Interest expense for the three months ended June 30, 2023, was **$0**, down from **$208 thousand** in 2022, and for the six months ended June 30, 2023, was **$284 thousand**, down from **$386 thousand** in 2022[45](index=45&type=chunk) [8. Net loss per share](index=13&type=section&id=8.%20Net%20loss%20per%20share) This note presents the calculation of basic and diluted net loss per share, along with the weighted-average shares outstanding for the reported periods Net Loss Per Share (basic and diluted) | Period | Net Loss (in thousands) | Weighted-average shares outstanding | Net loss per share | | :----------------------------- | :---------------------- | :---------------------------------- | :----------------- | | 3 Months Ended June 30, 2023 | $(10,796) | 35,800,821 | $(0.30) | | 3 Months Ended June 30, 2022 | $(21,285) | 34,976,409 | $(0.61) | | 6 Months Ended June 30, 2023 | $(30,339) | 35,563,754 | $(0.85) | | 6 Months Ended June 30, 2022 | $(44,671) | 34,894,001 | $(1.28) | - Potential common shares (unvested restricted stock units and outstanding stock options) were excluded from diluted net loss per share computation as they were anti-dilutive due to the net loss[47](index=47&type=chunk)[49](index=49&type=chunk) [9. Stockholders' equity](index=13&type=section&id=9.%20Stockholders'%20equity) This note details changes in common stock outstanding, shares reserved for future issuance under incentive plans, and activity under the 'at the market' equity offering program - Common stock outstanding increased to **35,963,706** shares at June 30, 2023, from **35,262,083** shares at December 31, 2022[51](index=51&type=chunk) - Shares reserved for future issuance under incentive plans and stock options outstanding totaled **7,464,133** at June 30, 2023[52](index=52&type=chunk) - No shares were sold under the 'at the market' equity offering program during the three or six months ended June 30, 2023[54](index=54&type=chunk) [10. Stock-based compensation](index=14&type=section&id=10.%20Stock-based%20compensation) This note provides a breakdown of stock-based compensation expense by category and period, including details on outstanding stock options and the impact of option repricing Stock-based Compensation Expense (in thousands) | Category | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :-------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Research and development | $171 | $1,598 | $1,010 | $3,899 | | General and administrative | $2,726 | $2,966 | $5,318 | $5,931 | | Total | $2,897 | $4,564 | $6,328 | $9,830 | - Outstanding stock options decreased from **5,742,053** at December 31, 2022, to **4,739,486** at June 30, 2023, with a weighted-average exercise price of **$2.34**[55](index=55&type=chunk) - The repricing of 'Underwater Options' on August 17, 2022, resulted in **$2.5 million** of incremental stock-based compensation, with **$339 thousand** recognized in the six months ended June 30, 2023[59](index=59&type=chunk)[60](index=60&type=chunk) [11. Employee stock purchase plan](index=16&type=section&id=11.%20Employee%20stock%20purchase%20plan) This note details the number of shares purchased under the Employee Stock Purchase Plan (ESPP) and the remaining shares available for future issuance - **24,754** shares were purchased under the Employee Stock Purchase Plan (ESPP) in January 2023[64](index=64&type=chunk) - As of June 30, 2023, a total of **1,553,394** shares remain available for future issuance under the ESPP[64](index=64&type=chunk) [12. Income taxes](index=16&type=section&id=12.%20Income%20taxes) This note explains the company's income tax expense, primarily state taxes on interest income, and the full valuation allowance against deferred tax assets - Income tax expense for the three and six months ended June 30, 2023, was **$5 thousand** and **$29 thousand**, respectively, representing state taxes on interest income[65](index=65&type=chunk) - A full valuation allowance has been recorded against deferred tax assets due to the company's cumulative loss position, making it more likely than not that the benefits will not be realized[66](index=66&type=chunk) [13. Collaboration agreement](index=16&type=section&id=13.%20Collaboration%20agreement) This note details the termination of the License and Collaboration Agreement with Astellas Pharma Inc. for FX-322 and the associated financial implications - The License and Collaboration Agreement with Astellas Pharma Inc. for FX-322 was terminated on April 14, 2023[70](index=70&type=chunk)[105](index=105&type=chunk) - The company was not subject to any payments or costs as a result of this termination[70](index=70&type=chunk)[105](index=105&type=chunk) - Joint costs invoiced to Astellas were **$81 thousand** for the three months and **$108 thousand** for the six months ended June 30, 2023, significantly down from 2022[71](index=71&type=chunk) [14. License agreements](index=17&type=section&id=14.%20License%20agreements) This note outlines the termination of several key license agreements, including those with MIT, CALIBR, and Massachusetts Eye and Ear, impacting various treatment programs - The exclusive patent license agreement with the Massachusetts Institute of Technology (MIT) was terminated, effective July 6, 2023[73](index=73&type=chunk)[106](index=106&type=chunk) - The license agreement with the California Institute for Biomedical Research (CALIBR) for MS treatment was terminated, effective April 2023[75](index=75&type=chunk)[108](index=108&type=chunk) - The non-exclusive patent license agreement with Massachusetts Eye and Ear (MEE) for hearing loss treatment was terminated, effective April 2023[77](index=77&type=chunk)[107](index=107&type=chunk) [15. Commitments and contingencies](index=17&type=section&id=15.%20Commitments%20and%20contingencies) This note addresses the company's indemnification obligations and legal contingencies, including a dismissed class action lawsuit and a shareholder derivative complaint - The company indemnifies its officers and directors and other parties in the ordinary course of business, with no material losses experienced to date[80](index=80&type=chunk)[81](index=81&type=chunk)[83](index=83&type=chunk) - A class action lawsuit (Quinones et al. v. Frequency Therapeutics, Inc. et al.) alleging securities fraud was dismissed on March 29, 2023, but the plaintiff filed an appeal[86](index=86&type=chunk) - The company is unable to estimate a range of possible loss for its legal contingencies, including a shareholder derivative complaint, and therefore no accruals have been recorded as of June 30, 2023[86](index=86&type=chunk)[88](index=88&type=chunk)[89](index=89&type=chunk) [16. Sublease](index=19&type=section&id=16.%20Sublease) This note details the company's sublease agreement for office space, including the square footage, term, and recognized and expected future sublease income - The company subleased approximately **30,040** square feet of its office space in Lexington, MA, for a two-year term, commencing July 8, 2022[90](index=90&type=chunk) - Sublease income recognized was **$593 thousand** for the three months and **$1,186 thousand** for the six months ended June 30, 2023[91](index=91&type=chunk) Expected Future Sublease Income (in thousands) | Years Ending December 31, | Sublease Income | | :------------------------ | :-------------- | | 2023 | $1,186 | | 2024 | $1,383 | | Total future sublease income | $2,569 | [17. Restructuring](index=19&type=section&id=17.%20Restructuring) This note describes the company's restructuring efforts following the FX-322 Phase 2b study failure, including workforce reductions and associated charges - Following the failure of the FX-322 Phase 2b study in February 2023, the company discontinued its hearing development programs and initiated a restructuring, including a **55%** workforce reduction[93](index=93&type=chunk)[100](index=100&type=chunk) Restructuring-Related Charges (Six Months Ended June 30, 2023, in thousands) | Category | Severance and other benefit related costs | Accelerated depreciation charges | Accelerated hearing program charges | Total | | :-------------------------- | :-------------------------------------- | :----------------------------- | :-------------------------------- | :---- | | Research and development | $2,138 | $360 | $129 | $2,627 | | General and administrative | $1,702 | — | — | $1,702 | | Total | $3,840 | $360 | $129 | $4,329 | - The remaining liability for restructuring as of June 30, 2023, was **$1,953 thousand**, classified as current accrued expenses[95](index=95&type=chunk)[96](index=96&type=chunk) [18. Subsequent events](index=20&type=section&id=18.%20Subsequent%20events) This note details the company's Agreement and Plan of Merger with Korro Bio, Inc., including the structure of the transaction and potential termination fees - On July 14, 2023, the company entered into an Agreement and Plan of Merger with Korro Bio, Inc., where Korro Bio will merge into a subsidiary and survive as a wholly-owned subsidiary of Frequency Therapeutics[97](index=97&type=chunk) - The Merger Agreement includes potential termination fees: Korro Bio may pay **$4.0 million** to Frequency, or Frequency may pay **$1.5 million** to Korro Bio, under specified circumstances[98](index=98&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, highlighting the discontinuation of hearing programs, multiple workforce reductions, and the proposed merger with Korro Bio. The merger will significantly alter the company's future business focus and funding requirements, shifting to Korro Bio's programs [Overview](index=21&type=section&id=Overview) This overview summarizes the company's strategic shifts, including the discontinuation of hearing programs, workforce reductions, accumulated deficit, and the proposed merger with Korro Bio - The company discontinued its FX-322 and FX-345 hearing development programs in February 2023 after the FX-322-208 study failed its primary endpoint[100](index=100&type=chunk) - Significant workforce reductions of approximately **55%** were announced in February and May 2023 to align with business needs[101](index=101&type=chunk) - As of June 30, 2023, the company had an accumulated deficit of **$292.0 million**, having incurred significant operating losses since inception[103](index=103&type=chunk) - On July 14, 2023, the company entered into a Merger Agreement with Korro Bio, Inc., and following the merger, the combined company's business will be Korro Bio's[100](index=100&type=chunk)[104](index=104&type=chunk) [License and collaboration agreements](index=21&type=section&id=License%20and%20collaboration%20agreements) This section details the termination of key license and collaboration agreements, including those with Astellas Pharma Inc., MIT, MEE, and CALIBR, impacting various development programs - The collaboration agreement with Astellas Pharma Inc. for FX-322 was terminated on April 14, 2023, with no associated payments or costs to the company[105](index=105&type=chunk) - The Exclusive Patent License Agreement with MIT for hearing loss treatment was terminated, effective July 6, 2023[106](index=106&type=chunk) - The Non-Exclusive Patent License Agreement with MEE for hearing loss treatment was terminated on April 4, 2023[107](index=107&type=chunk) - The license agreement with CALIBR for MS treatment was terminated on April 28, 2023[108](index=108&type=chunk) [Components of our results of operations](index=22&type=section&id=Components%20of%20our%20results%20of%20operations) This section breaks down the key components influencing the company's financial results, including research and development, general and administrative, interest income/expense, and other income [Research and development expenses](index=22&type=section&id=Research%20and%20development%20expenses) This section defines R&D expenses and outlines future expectations following the merger, focusing on strategic alternatives for the MS Program - R&D expenses primarily consist of employee-related costs, third-party agreements (CROs, manufacturing), consultants, laboratory supplies, and intellectual property license payments[110](index=110&type=chunk) - Following the Merger, R&D expenses for the remainder of 2023 are expected to relate to pursuing strategic alternatives for the MS Program[111](index=111&type=chunk) [General and administrative expenses](index=23&type=section&id=General%20and%20administrative%20expenses) This section details G&A expenses, encompassing salaries, stock-based compensation, legal, professional, investor relations, insurance, travel, and facility-related costs - G&A expenses include salaries and stock-based compensation for executive, finance, business development, and administrative functions, as well as legal, professional, investor relations, insurance, travel, and facility-related costs[112](index=112&type=chunk) [Interest income](index=23&type=section&id=Interest%20income) This section clarifies that interest income is generated from the company's cash equivalents and marketable securities holdings - Interest income is earned on cash equivalents and marketable securities[113](index=113&type=chunk) [Interest expense](index=23&type=section&id=Interest%20expense) This section states that interest expense is solely derived from interest paid on the company's term loan - Interest expense consists of interest paid on the company's term loan[114](index=114&type=chunk) [Other income, net](index=23&type=section&id=Other%20income,%20net) This section defines other income, net, as including amortization and accretion income on investments, along with sublease income - Other income, net, includes amortization and accretion income on investments, as well as sublease income[115](index=115&type=chunk) [Income taxes](index=23&type=section&id=Income%20taxes) This section explains that income tax expense represents state taxes on interest income, with a full valuation allowance due to cumulative losses - The income tax expense represents state taxes on interest income earned by a subsidiary, with a full valuation allowance on deferred tax assets due to cumulative losses[116](index=116&type=chunk)[117](index=117&type=chunk) [Results of operations](index=24&type=section&id=Results%20of%20operations) This section provides a comparative analysis of the company's financial performance for the three and six months ended June 30, 2023 and 2022 [Comparison of three months ended June 30, 2023 and 2022](index=24&type=section&id=Comparison%20of%20three%20months%20ended%20June%2030,%202023%20and%202022) This section compares the company's financial performance, including operating expenses and net loss, for the three months ended June 30, 2023, versus 2022 Financial Performance (3 Months Ended June 30, in thousands) | Metric | 2023 | 2022 | Increase (Decrease) | | :-------------------------- | :----- | :----- | :------------------ | | Research and development | $4,594 | $13,273 | $(8,679) | | General and administrative | $7,237 | $8,000 | $(763) | | Total operating expenses | $11,831 | $21,273 | $(9,442) | | Net loss | $(10,796) | $(21,285) | $10,489 | - Interest expense decreased to **$0** in 2023 from **$(208) thousand** in 2022 due to the loan prepayment in April 2023[128](index=128&type=chunk) - Other income (expense), net, improved by **$921 thousand**, turning from an expense of **$(227) thousand** in 2022 to income of **$694 thousand** in 2023, primarily due to sublease income[129](index=129&type=chunk) [Comparison of six months ended June 30, 2023 and 2022](index=26&type=section&id=Comparison%20of%20six%20months%20ended%20June%2030,%202023%20and%202022) This section compares the company's financial performance, including operating expenses and net loss, for the six months ended June 30, 2023, versus 2022 Financial Performance (6 Months Ended June 30, in thousands) | Metric | 2023 | 2022 | Increase (Decrease) | | :-------------------------- | :----- | :----- | :------------------ | | Research and development | $15,949 | $27,054 | $(11,105) | | General and administrative | $16,393 | $17,477 | $(1,084) | | Total operating expenses | $32,342 | $44,531 | $(12,189) | | Net loss | $(30,339) | $(44,671) | $14,332 | - Interest income increased by **$349 thousand** to **$869 thousand** in 2023 from **$520 thousand** in 2022[138](index=138&type=chunk) - Other income (expense), net, improved by **$1.7 million**, turning from an expense of **$(260) thousand** in 2022 to income of **$1,447 thousand** in 2023, primarily due to sublease income[140](index=140&type=chunk) [Liquidity and capital resources](index=27&type=section&id=Liquidity%20and%20capital%20resources) This section discusses the company's financial position, including accumulated deficit, cash holdings, debt prepayment, and capital preservation efforts through workforce reductions - The company has incurred significant operating losses and had an accumulated deficit of **$292.0 million** as of June 30, 2023[103](index=103&type=chunk)[142](index=142&type=chunk) - Cash, cash equivalents, and marketable securities totaled **$46.5 million** as of June 30, 2023[143](index=143&type=chunk) - The remaining **$11.7 million** term loan was prepaid on April 3, 2023[144](index=144&type=chunk) - Workforce reductions in April 2022, February 2023 (**55%**), and May 2023 (**55%** of remaining personnel) were implemented to preserve capital[146](index=146&type=chunk)[147](index=147&type=chunk)[148](index=148&type=chunk) [Cash flows](index=28&type=section&id=Cash%20flows) This section analyzes the company's cash flow activities from operations, investing, and financing for the six months ended June 30, 2023 and 2022 [Cash flows for the six months ended June 30, 2023](index=28&type=section&id=Cash%20flows%20for%20the%20six%20months%20ended%20June%2030,%202023) This section details cash flows for the six months ended June 30, 2023, highlighting operating cash usage, investing cash generation, and financing cash usage - Net cash used in operating activities was **$22.6 million**, a decrease from the prior year, primarily due to a **$14.3 million** decrease in net loss[151](index=151&type=chunk)[152](index=152&type=chunk) - Net cash provided by investing activities was **$24.7 million**, primarily from **$26.8 million** in redemptions of marketable securities[154](index=154&type=chunk) - Net cash used in financing activities was **$14.1 million**, primarily due to term loan repayments[156](index=156&type=chunk) [Cash flows for the six months ended June 30, 2022](index=29&type=section&id=Cash%20flows%20for%20the%20six%20months%20ended%20June%2030,%202022) This section details cash flows for the six months ended June 30, 2022, highlighting operating cash usage, investing cash usage, and financing cash generation - Net cash used in operating activities was **$30.8 million**, driven by a **$44.7 million** net loss[157](index=157&type=chunk) - Net cash used in investing activities was **$6.6 million**, mainly from **$38.1 million** in marketable securities purchases, partially offset by **$31.5 million** in redemptions[158](index=158&type=chunk) - Net cash provided by financing activities was **$0.2 million**, from common stock issuance and the Employee Stock Purchase Plan[159](index=159&type=chunk) [Funding requirements](index=29&type=section&id=Funding%20requirements) This section states that the combined company's funding requirements post-merger will shift to Korro Bio's programs, with no further development for Frequency's candidates - Following the Merger, the combined company's funding requirements will reflect Korro Bio's product candidates and programs, with no further development expected for Frequency's product candidates[160](index=160&type=chunk) [Critical accounting policies and use of estimates](index=29&type=section&id=Critical%20accounting%20policies%20and%20use%20of%20estimates) This section notes that financial statement preparation involves management estimates and assumptions, with no material changes to critical accounting policies during the period - The preparation of financial statements requires management to make estimates and assumptions that affect reported amounts[161](index=161&type=chunk) - There were no material changes to critical accounting policies during the six months ended June 30, 2023[162](index=162&type=chunk) [Recent accounting pronouncements](index=30&type=section&id=Recent%20accounting%20pronouncements) This section refers to Note 2 for a description of recent accounting pronouncements relevant to the company's financial statements - A description of recent accounting pronouncements is disclosed in Note 2 to the unaudited consolidated financial statements[163](index=163&type=chunk) [Emerging growth company status](index=30&type=section&id=Emerging%20growth%20company%20status) This section highlights the company's status as an 'emerging growth company' and its election to use an extended transition period for new accounting standards - As an 'emerging growth company,' the company has elected to take advantage of an extended transition period for complying with new or revised accounting standards[164](index=164&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is not required for the company as it is currently considered a smaller reporting company - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[166](index=166&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, with the participation of the Chief Executive Officer and Vice President of Finance and Operations, evaluated the effectiveness of the company's disclosure controls and procedures as of June 30, 2023, concluding they were effective at a reasonable assurance level. There were no material changes in internal control over financial reporting during the period - The company's disclosure controls and procedures were evaluated as effective at the reasonable assurance level as of June 30, 2023[168](index=168&type=chunk) - There was no change in internal control over financial reporting that materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting during the period[169](index=169&type=chunk) [PART II. OTHER INFORMATION](index=32&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) Information regarding legal proceedings is incorporated by reference from Note 15, 'Commitments and contingencies – Legal Contingencies,' of the financial statements - Legal proceedings information is detailed in Note 15, 'Commitments and contingencies – Legal Contingencies'[171](index=171&type=chunk) [Item 1A. Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) The risk factors are incorporated by reference from the company's Registration Statement on Form S-4 filed with the SEC on July 27, 2023 - The risk factors are incorporated by reference from the company's Registration Statement on Form S-4 filed with the SEC on July 27, 2023 (File No. 333-273490)[172](index=172&type=chunk) [Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities](index=32&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities,%20Use%20of%20Proceeds,%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company completed its IPO in October 2019, raising approximately $79.7 million in net proceeds. There has been no material change in the expected use of these net proceeds - The company completed its IPO in October 2019, issuing **6,325,000** shares of common stock and receiving approximately **$79.7 million** in net proceeds[173](index=173&type=chunk) - There has been no material change in the expected use of the net proceeds from the IPO[174](index=174&type=chunk) [Item 3. Defaults Upon Senior Securities](index=32&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities during the period - None[175](index=175&type=chunk) [Item 4. Mine Safety Disclosures](index=32&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[175](index=175&type=chunk) [Item 5. Other Information](index=32&type=section&id=Item%205.%20Other%20Information) The company is a smaller reporting company and is not required to provide certain information under Item 408(a) of Regulation S-K - As a smaller reporting company, the company is not required to provide the information otherwise required under Item 408(a) of Regulation S-K[176](index=176&type=chunk) [Item 6. Exhibits](index=33&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including the Agreement and Plan of Merger, organizational documents, various support agreements related to the merger, and certifications from executive officers - Exhibit 2.1 is the Agreement and Plan of Merger, dated July 14, 2023, by and among Frequency Therapeutics, Inc., Frequency Merger Sub, Inc., and Korro Bio, Inc[177](index=177&type=chunk) - Includes various Form of Support Agreements related to the merger with Korro Bio, Inc[177](index=177&type=chunk) - Includes Rule 13a‑14(a) / 15d‑14(a) Certifications from the Chief Executive Officer and Vice President of Finance and Operations[177](index=177&type=chunk) [SIGNATURES](index=35&type=section&id=SIGNATURES) This section confirms the official signing of the report by the President and Chief Executive Officer and the Vice President, Finance and Operations on August 10, 2023 - The report was signed on August 10, 2023, by David L. Lucchino, President and Chief Executive Officer, and Richard Mitrano, Vice President, Finance and Operations[183](index=183&type=chunk)

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, 2023 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 jur ...

Part I [Business](index=6&type=section&id=Item%201.%20Business) Frequency Therapeutics pivoted from failed hearing loss programs to a Multiple Sclerosis remyelination therapy, planning clinical trials in H1 2024, following a significant restructuring and workforce reduction - The company discontinued its hearing loss programs, FX-322 and FX-345, after the Phase 2b clinical trial for FX-322 failed to meet its primary efficacy endpoint[21](index=21&type=chunk)[22](index=22&type=chunk) - The company has pivoted its strategic focus to its remyelination program for Multiple Sclerosis (MS), which is based on a distinct molecular target and mechanism from the discontinued hearing programs. A clinical trial is planned to begin in the first half of 2024[23](index=23&type=chunk)[24](index=24&type=chunk) - In February 2023, the company announced a restructuring that included a **55%** reduction in its workforce to conserve capital and fund the MS program into 2025[25](index=25&type=chunk)[149](index=149&type=chunk) - The company's core technology is Progenitor Cell Activation (PCA), which uses small molecules to activate existing progenitor cells within the body to regenerate functional tissue[18](index=18&type=chunk) [Our Multiple Sclerosis (MS) Program](index=9&type=section&id=Our%20Multiple%20Sclerosis%20(MS)%20Program) - The MS program aims to induce remyelination by activating oligodendrocyte progenitor cells (OPCs) to regenerate myelin, addressing the largest unmet medical need for MS patients, as no currently approved therapies directly promote remyelination[36](index=36&type=chunk)[37](index=37&type=chunk) - In preclinical in vivo models, the company's novel chemical entities have demonstrated significantly greater remyelination effects compared to other clinically studied agents like clemastine and anti-LINGO antibodies[40](index=40&type=chunk) [Intellectual Property](index=11&type=section&id=Intellectual%20Property) Intellectual Property Portfolio Summary (as of Feb 1, 2023) | Category | Count | | :--- | :--- | | Patent Families | 34 | | U.S. Patents | 31 | | Ex-U.S. Patents | 128 | | Pending U.S. Utility Applications | 23 | | Pending Ex-U.S. Utility Applications | 110 | | PCT Patent Applications | 1 | - The MS program's intellectual property portfolio includes 3 patent families with patents projected to expire between 2032 and 2042[51](index=51&type=chunk) [License and Collaboration Agreements](index=12&type=section&id=License%20and%20Collaboration%20Agreements) - **Astellas Pharma Inc.:** Exclusive ex-U.S. license for FX-322. Frequency received an **$80.0 million** upfront payment and is eligible for up to **$230.0 million** in development milestones and **$315.0 million** in commercial milestones, plus tiered royalties[57](index=57&type=chunk)[59](index=59&type=chunk) - **Massachusetts Institute of Technology (MIT):** Exclusive worldwide license for core PCA technology. The agreement includes potential milestone payments up to **$2.9 million** per product, annual maintenance fees, and low single-digit royalties on products and a **20%** royalty on sub-license revenues[61](index=61&type=chunk)[64](index=64&type=chunk) - **The Scripps Research Institute (CALIBR):** Exclusive worldwide license for technology related to the treatment of MS. The agreement includes a **$1.0 million** upfront payment, potential milestone payments up to **$26.0 million** per product category, and mid-single-digit royalties[70](index=70&type=chunk)[73](index=73&type=chunk) [Competition](index=15&type=section&id=Competition) - While there are no approved therapies that promote remyelination for MS, the company faces competition from several entities developing such treatments, including Clene Inc. (CNM-Au8, Phase 2), Pipeline Therapeutics (PIPE-307, Phase 1b/2a), and NervGen Pharma (NVG-291, planning Phase 2)[79](index=79&type=chunk)[80](index=80&type=chunk) [Government Regulation](index=16&type=section&id=Government%20Regulation) - The company's products are subject to extensive regulation by the FDA in the U.S. and comparable foreign authorities. The U.S. drug development process involves preclinical studies, submission of an Investigational New Drug (IND) application, and three phases of clinical trials before an NDA can be submitted for marketing approval[81](index=81&type=chunk)[82](index=82&type=chunk)[83](index=83&type=chunk) - The FDA offers expedited programs like Fast Track, Priority Review, and Breakthrough Therapy designation to facilitate the development and review of drugs for serious conditions with unmet medical needs, which the company may pursue for its product candidates[97](index=97&type=chunk)[101](index=101&type=chunk) - In the European Union, clinical trials are now governed by the Clinical Trials Regulation (CTR), which harmonizes the assessment and supervision process through a centralized portal. Marketing authorization is obtained via a centralized or national procedure[119](index=119&type=chunk)[120](index=120&type=chunk)[124](index=124&type=chunk) [Employees and Human Capital Resources](index=26&type=section&id=Employees%20and%20Human%20Capital%20Resources) - As of February 1, 2023, the company had **48 employees**. Women represented approximately **46%** of employees and **29%** of senior management[146](index=146&type=chunk) - On February 13, 2023, the company announced a reduction in force of approximately **55%** of its workforce, expected to be completed by April 30, 2023[149](index=149&type=chunk) [Risk Factors](index=28&type=section&id=Item%201A.%20Risk%20Factors) The company faces substantial risks from its early-stage MS program, significant financial losses, novel therapeutic uncertainties, and ongoing litigation - The company is heavily dependent on the success of its MS Program, which is still in early development, following the discontinuation of its FX-322 and FX-345 hearing loss programs[168](index=168&type=chunk) - The company has a history of significant losses, with net losses of **$81.6 million** in 2022 and **$84.7 million** in 2021, and an accumulated deficit of **$261.7 million** as of December 31, 2022[155](index=155&type=chunk) - The Progenitor Cell Activation (PCA) approach is a novel therapeutic intervention, which creates uncertainty regarding the development, regulatory approval, and commercialization pathway[170](index=170&type=chunk) - The company is currently subject to a securities class action lawsuit alleging false and misleading statements regarding its Phase 2a clinical trial for FX-322, which could result in substantial costs and diversion of management's attention[359](index=359&type=chunk)[676](index=676&type=chunk) - The recent reduction in force of approximately **55%** of the workforce carries risks such as loss of institutional knowledge, decreased morale, and potential inability to achieve the anticipated benefits[327](index=327&type=chunk)[328](index=328&type=chunk) [Properties](index=68&type=section&id=Item%202.%20Properties) The company leases approximately **61,307 square feet** of office and laboratory space in Lexington, MA, with the lease expiring May 31, 2031 - The company leases approximately **61,307 square feet** of office and laboratory space in Lexington, MA, with the lease term expiring on May 31, 2031[367](index=367&type=chunk) [Legal Proceedings](index=69&type=section&id=Item%203.%20Legal%20Proceedings) The company faces a consolidated securities class action and a shareholder derivative complaint related to alleged false statements about its former FX-322 clinical trial - The company is defending against a consolidated putative class action lawsuit alleging violations of the Securities Exchange Act due to allegedly false and misleading statements about the Phase 2a clinical trial for FX-322[676](index=676&type=chunk) - A shareholder derivative complaint has been filed against members of the company's board of directors based on the same underlying allegations as the class action lawsuit. This case has been stayed pending the resolution of the class action[678](index=678&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=70&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on Nasdaq under 'FREQ', has never paid dividends, and retains earnings for business development - The company's common stock trades on the Nasdaq Global Select Market under the ticker symbol FREQ[371](index=371&type=chunk) - The company has never declared or paid cash dividends and does not intend to in the foreseeable future, retaining all funds for business development[373](index=373&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=71&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) The company reported a net loss of **$81.6 million** in 2022, a decrease from **$84.7 million** in 2021, driven by lower operating expenses and restructuring, with **$83.1 million** cash expected to fund operations into 2025 Consolidated Results of Operations (in thousands) | | Years ended December 31, | | :--- | :--- | :--- | | | **2022** | **2021** | | Revenue | $ — | $ 14,068 | | Research and development | 49,418 | 60,923 | | General and administrative | 33,584 | 37,176 | | **Total operating expenses** | **83,002** | **98,099** | | **Loss from operations** | **(83,002)** | **(84,031)** | | **Net loss** | **$ (81,580)** | **$ (84,686)** | Research & Development Expenses by Program (in thousands) | Program | 2022 | 2021 | | :--- | :--- | :--- | | FX-322 | $ 10,855 | $ 10,334 | | FX-345 | $ 4,217 | $ 5,471 | | Multiple Sclerosis | $ 4,782 | $ 6,627 | | Platform, early-stage & unallocated | $ 29,564 | $ 38,491 | | **Total R&D Expenses** | **$ 49,418** | **$ 60,923** | - The company had **$83.1 million** in cash, cash equivalents, and marketable securities as of December 31, 2022, which management believes is sufficient to fund operations into 2025[430](index=430&type=chunk)[447](index=447&type=chunk) - The company executed two reductions in force: one in April 2022 (**30%** of workforce) and another in February 2023 (**55%** of remaining workforce), with total estimated severance costs of approximately **$1.2 million** and **$4.0 million**, respectively[433](index=433&type=chunk)[434](index=434&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=86&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate sensitivity on its cash and investments, though a **10%** rate change is not expected to be material - The company's main market risk is interest rate sensitivity affecting its cash, cash equivalents, marketable securities, and term loan. A hypothetical **10%** change in interest rates as of December 31, 2022, would not have had a material impact[471](index=471&type=chunk) [Financial Statements and Supplementary Data](index=86&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for 2022 and 2021, including balance sheets, statements of operations, and cash flows, with accompanying notes Key Balance Sheet Data (in thousands) | | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $ 51,954 | $ 79,635 | | Total Current Assets | $ 87,493 | $ 134,748 | | **Total Assets** | **$ 121,238** | **$ 185,358** | | Total Current Liabilities | $ 21,026 | $ 11,429 | | **Total Liabilities** | **$ 52,043** | **$ 54,534** | | **Total Stockholders' Equity** | **$ 69,195** | **$ 130,824** | Key Cash Flow Data (in thousands) | | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $ (58,237) | $ (76,059) | | Net cash provided by (used in) investing activities | $ 31,133 | $ (66,126) | | Net cash (used in) provided by financing activities | $ (577) | $ 1,358 | | **Net decrease in cash and cash equivalents** | **$ (27,681)** | **$ (140,827)** | [Controls and Procedures](index=86&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[474](index=474&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2022, based on the COSO framework[476](index=476&type=chunk) [Other Information](index=87&type=section&id=Item%209B.%20Other%20Information) David Lucchino resumed his CEO role on March 7, 2023, while Christopher Loose resigned as Interim CEO but continues as Chief Scientific Officer - On March 7, 2023, David Lucchino returned from medical leave and resumed his position as CEO. Christopher Loose resigned as Interim CEO and continues as Chief Scientific Officer[478](index=478&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=88&type=section&id=Item%2010.%20Directors,%20Executive%20Officers%20and%20Corporate%20Governance) This section details the company's directors and executive officers, noting upcoming departures due to restructuring, with further information incorporated by reference from the 2023 Proxy Statement Executive Officers and Directors | Name | Position | | :--- | :--- | | **Executive Officers** | | | David L. Lucchino | President, Chief Executive Officer, Director, and Co-Founder | | Christopher R. Loose, PhD. | Chief Scientific Officer and Co-Founder | | Carl P. LeBel, Ph.D. | Chief Development Officer (departing 3/31/23) | | Quentin McCubbin | Chief Manufacturing Officer | | Wendy S. Arnold | Chief People Officer (departing 3/31/23) | | **Non-Employee Directors** | | | Timothy J. Barberich | Vice Chairperson and Director | | Cynthia L. Feldmann | Director | | Michael Huang | Director | | Robert S. Langer, Sc.D. | Director | | Joel S. Marcus | Director | [Executive Compensation](index=91&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the company's 2023 Proxy Statement - Information regarding executive compensation is incorporated by reference from the company's 2023 Proxy Statement[496](index=496&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=92&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership by beneficial owners and management is incorporated by reference from the company's 2023 Proxy Statement - Information regarding security ownership is incorporated by reference from the company's 2023 Proxy Statement[497](index=497&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=92&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions,%20and%20Director%20Independence) Information regarding related party transactions and director independence is incorporated by reference from the company's 2023 Proxy Statement - Information regarding related party transactions and director independence is incorporated by reference from the company's 2023 Proxy Statement[498](index=498&type=chunk) [Principal Accounting Fees and Services](index=92&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information regarding principal accounting fees and services is incorporated by reference from the company's 2023 Proxy Statement - Information regarding principal accounting fees and services is incorporated by reference from the company's 2023 Proxy Statement[499](index=499&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=93&type=section&id=Item%2015.%20Exhibits,%20Financial%20Statement%20Schedules) This section lists the financial statements and exhibits filed as part of the Annual Report on Form 10-K, including an index to consolidated financial statements and various exhibits - This section contains the index to the consolidated financial statements and a list of all exhibits filed with the 10-K report[501](index=501&type=chunk)[504](index=504&type=chunk) [Form 10-K Summary](index=97&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company has not provided a Form 10-K summary - The company has not provided a Form 10-K summary[511](index=511&type=chunk)