FREQUENCY THERAP(FREQ) - 2022 Q4 - Annual Report

Part I Business 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][22] - 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][24] - 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][149] - 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] Our Multiple Sclerosis (MS) Program - 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][37] - 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] Intellectual Property 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] License and Collaboration Agreements - 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][59] - 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][64] - 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][73] 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][80] Government Regulation - 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][82][83] - 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][101] - 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][120][124] Employees and Human Capital Resources - As of February 1, 2023, the company had 48 employees. Women represented approximately 46% of employees and 29% of senior management[146] - 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] Risk Factors 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] - 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] - The Progenitor Cell Activation (PCA) approach is a novel therapeutic intervention, which creates uncertainty regarding the development, regulatory approval, and commercialization pathway[170] - 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][676] - 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][328] Properties 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] Legal Proceedings 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] - 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] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 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] - 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] Management's Discussion and Analysis of Financial Condition and Results of Operations 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][447] - 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][434] Quantitative and Qualitative Disclosures About Market Risk 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] Financial Statements and Supplementary Data 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 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] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2022, based on the COSO framework[476] Other Information 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] Part III Directors, Executive Officers and Corporate Governance 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 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] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 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] Certain Relationships and Related Transactions, and Director Independence 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] Principal Accounting Fees and Services 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] Part IV Exhibits, Financial Statement Schedules 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][504] Form 10-K Summary The company has not provided a Form 10-K summary - The company has not provided a Form 10-K summary[511]