FREQUENCY THERAP(FREQ) - 2023 Q4 - Annual Report

Part I Business Korro Bio develops genetic medicines by editing RNA using its proprietary OPERA platform, with lead candidate KRRO-110 for AATD - Korro Bio is a biopharmaceutical company focused on developing genetic medicines based on editing RNA to treat both rare and highly prevalent diseases[19] - The company's proprietary platform, OPERA (Oligonucleotide Promoted Editing of RNA), integrates ADAR biology, oligonucleotide chemistry, machine learning, and targeted delivery to create its product candidates[24][27] Korro Bio, Inc. Development Pipeline | Program | Indication | Target | Approach | Development Stage | | :--- | :--- | :--- | :--- | :--- | | KRRO-110 | Alpha-1 Antitrypsin Deficiency (AATD) | SERPINA1 | Repair Pathogenic Variant | Preclinical (IND-enabling) | | Undisclosed | Parkinson's Disease (PD) | LRRK2 | Repair Pathogenic Variant | Research | | Undisclosed | Severe Alcohol-associated Hepatitis (sAH) | Transcription Factor | Disrupt Protein-Protein Interaction | Research | | Undisclosed | Amyotrophic Lateral Sclerosis (ALS) | TDP-43 | Prevent Protein Aggregation | Research | | Undisclosed | Pain | Ion Channel | Selectively Modulate Ion Channel | Research | - The lead product candidate, KRRO-110, is being developed for Alpha-1 Antitrypsin Deficiency (AATD) and aims to repair the pathogenic SNV in the SERPINA1 gene to restore normal AAT protein production, with preclinical development ongoing and a potential regulatory filing planned for the second half of 2024[35][39][93] - The company relies on third-party Contract Manufacturing Organizations (CMOs) for manufacturing and has a collaboration and license agreement with Genevant Sciences GmbH for access to clinically validated Lipid Nanoparticle (LNP) technology to optimize delivery of KRRO-110[182][183] - As of December 31, 2023, the company's patent portfolio consisted of 32 patent families, including two issued U.S. patents, with patents related to the OPERA platform and product candidates expected to expire between 2040 and 2044[193][194][200] Risk Factors The company faces substantial risks including significant financial losses, unproven RNA editing technology, early-stage pipeline, and need for additional funding - The company has a history of significant operating losses, with a net loss of $81.2 million for the year ended December 31, 2023, and an accumulated deficit of $183.0 million, expecting to incur losses for the foreseeable future[292] - RNA editing is a novel technology not yet clinically validated for human therapeutic use, and the company's approaches are unproven and may never lead to marketable products[319] - All of the company's product development programs are in the research or preclinical stage, facing a high risk of failure, and commercialization may be many years away, if ever[312][321] - The company will need substantial additional funding to continue operations, and inability to raise capital may force delays, reductions, or elimination of research and development programs[299] - The company's ability to utilize its net operating loss (NOL) carryforwards of $302.5 million (federal) and $266.3 million (state) may be limited due to ownership changes, including the recent merger[306][307] - The company faces risks related to obtaining and protecting intellectual property rights, as the patent position in biotechnology is uncertain, and failure to secure patent protection could adversely affect product candidate development and commercialization[453] Unresolved Staff Comments The company reports that it has no unresolved staff comments - None[562] Cybersecurity The company has a cybersecurity risk management process integrated into its enterprise risk management, with oversight by the audit committee - The company has a cybersecurity risk management process that is integrated into its overall enterprise risk management, utilizing third-party providers for security testing and risk assessments[563][564] - The Vice President of Information Technology is responsible for the cybersecurity program, with oversight provided by the audit committee of the board of directors[566][568] Properties The company leases office and lab space in Cambridge and Woburn, MA, with plans to relocate its headquarters to a new 50,453 sq ft facility in Cambridge - The company leases approximately 22,500 sq ft in Cambridge, MA and 18,148 sq ft in Woburn, MA[570] - A new headquarters facility of 50,453 sq ft is planned for 60 First Street, Cambridge, MA, with occupancy expected in 2024[570] Legal Proceedings The company is involved in a putative class action lawsuit against its predecessor, currently under appeal after initial dismissal - A putative class action lawsuit was filed against the company's predecessor, Frequency Therapeutics, Inc., alleging violations of the Securities Exchange Act of 1934 related to disclosures about a Phase 2a clinical trial[572] - The lawsuit was dismissed by the U.S. District Court in March 2023, but the plaintiff appealed the decision, with the appeal heard in January 2024 and a decision pending[573] Mine Safety Disclosures This item is not applicable to the company - Not applicable[574] 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 'KRRO', with 8,020,788 shares outstanding held by 96 record holders as of March 1, 2024 - The company's common stock trades on the Nasdaq Capital Market under the ticker symbol "KRRO"[577] - As of March 1, 2024, there were 8,020,788 shares of common stock outstanding, held by 96 holders of record[578] [Reserved] This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations The company reported a net loss of $81.2 million in 2023, driven by increased R&D and G&A expenses, with $166.1 million in cash expected to fund operations into 2026 Comparison of Results of Operations (Years Ended Dec 31) | (in thousands) | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Research and development | $57,250 | $42,201 | $15,049 | | General and administrative | $27,284 | $16,797 | $10,487 | | Total operating expenses | $84,534 | $58,998 | $25,536 | | Loss from operations | ($84,534) | ($58,998) | ($25,536) | | Other income, net | $3,389 | $976 | $2,413 | | Net loss | ($81,172) | ($58,032) | ($23,140) | - The increase in R&D expenses was primarily due to higher external research costs for oligonucleotide synthesis and in vivo studies ($4.8 million), increased personnel costs from higher headcount ($5.3 million), and increased facilities costs ($4.7 million)[607][610] - The increase in G&A expenses was mainly driven by severance costs related to the merger ($2.5 million), increased headcount, and higher professional service fees for recruiting and IP legal matters ($4.0 million)[608][611] - As of December 31, 2023, the company had $166.1 million in cash and cash equivalents, which is expected to be sufficient to fund operating expenses and capital requirements into 2026[612][614] - The merger with Frequency Therapeutics was accounted for as a reverse recapitalization, with Legacy Korro as the accounting acquirer, making Legacy Korro's historical financial statements the historical consolidated financial statements of the combined company[591][665] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations on its $166.1 million cash and equivalents, with minimal foreign currency exposure - The company's primary market risk is interest rate risk on its $166.1 million in cash and cash equivalents, though a 10% change in interest rates is not expected to have a material impact[632] - The company has minimal exposure to foreign currency risk as its operations are mainly in the U.S. and foreign contracts are short-term[633] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2023 and 2022, including balance sheets, statements of operations, equity, and cash flows Consolidated Balance Sheet Highlights (as of Dec 31) | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $166,150 | $36,333 | | Total current assets | $172,728 | $57,083 | | Total assets | $221,663 | $73,742 | | Total current liabilities | $19,483 | $8,701 | | Total liabilities | $51,752 | $8,910 | | Total stockholders' equity (deficit) | $169,911 | ($99,031) | Consolidated Statement of Operations Highlights (Year Ended Dec 31) | (in thousands, except per share data) | 2023 | 2022 | | :--- | :--- | :--- | | Research and development | $57,250 | $42,201 | | General and administrative | $27,284 | $16,797 | | Loss from operations | ($84,534) | ($58,998) | | Net loss | ($81,172) | ($58,032) | | Net loss per share, basic and diluted | ($53.08) | ($227.42) | Consolidated Statement of Cash Flows Highlights (Year Ended Dec 31) | (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($67,283) | ($53,645) | | Net cash provided by investing activities | $11,164 | $11,060 | | Net cash provided by financing activities | $187,761 | $18 | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[779] Controls and Procedures Management concluded disclosure controls were effective as of December 31, 2023, but did not assess internal control over financial reporting due to the recent merger - Management concluded that disclosure controls and procedures were effective as of December 31, 2023[781] - Management did not assess internal control over financial reporting for the year ended December 31, 2023, due to the recent merger, which caused substantial changes in operations, management, and the internal control environment[783][784] Other Information The 2024 Annual Meeting of Stockholders is scheduled for June 11, 2024, with a stockholder proposal deadline of April 9, 2024 - The 2024 Annual Meeting of Stockholders is scheduled for June 11, 2024[786] - The deadline for stockholder proposals to be considered for inclusion in the proxy materials is April 9, 2024[787] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[789] Part III Directors, Executive Officers and Corporate Governance This section outlines the company's executive officers and board of directors, their committee memberships, and adopted corporate governance policies Executive Officers and Directors | Name | Position | | :--- | :--- | | Ram Aiyar | President, Chief Executive Officer and Director | | Vineet Agarwal | Chief Financial Officer | | Todd Chappell | Chief Operating Officer | | Steve Colletti | Chief Scientific Officer | | Shelby Walker | General Counsel | | Ali Behbahani | Director | | Nessan Bermingham | Director | | Jean-Francois Formela | Director | | Rachel Meyers | Director | | Timothy Pearson | Director | | David L. Lucchino | Director | - The Board of Directors has three standing committees: Audit, Compensation, and Nominating and Corporate Governance[807] - The company has adopted a Code of Business Conduct and Ethics and a compensation recovery policy as required by SEC and Nasdaq regulations[816][817] Executive Compensation This section details the 2023 compensation for named executive officers, including base salaries, bonuses, and equity awards, along with non-employee director compensation policies 2023 Summary Compensation | Name | Position | Total Compensation ($) | | :--- | :--- | :--- | | Ram Aiyar | CEO and President | 2,858,230 | | David L. Lucchino | Former President and CEO | 3,878,265 | | Vineet Agarwal | CFO | 1,322,891 | | Steven Colletti | CSO | 1,647,368 | | Christopher R. Loose | Former CSO | 1,580,474 | - For 2023, annual base salaries were: Dr. Aiyar ($498,487), Mr. Lucchino ($661,500), Mr. Agarwal ($426,484), Dr. Colletti ($420,000), and Dr. Loose ($504,361)[825] - Target annual bonuses for 2023 as a percentage of base salary were: Dr. Aiyar (45%), Mr. Lucchino (60%), Mr. Agarwal (35%), Dr. Colletti (35%), and Dr. Loose (40%)[827] - The company has a new non-employee director compensation policy post-merger, which includes annual cash retainers ($40,000 for board membership plus committee fees) and equity awards (initial grant valued at $300,000 and annual grants valued at $150,000)[882][883] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details beneficial ownership of common stock as of February 29, 2024, including 5%+ stockholders and collective holdings of directors and executive officers Security Ownership of 5% or Greater Stockholders (as of Feb 29, 2024) | Name of Beneficial Owner | Percentage (%) | | :--- | :--- | | Entities affiliated with Atlas Venture | 14.0% | | Entities affiliated with New Enterprise Associates | 13.4% | | FMR LLC | 9.1% | | Mutual Fund Series Trust (Eventide) | 6.8% | | Entities affiliated with Point72 Asset Management | 6.8% | | Platanus Investment LLC | 6.7% | | Entities affiliated with Citadel | 6.6% | | Entities affiliated with Cormorant Asset Management LP | 6.6% | | Invus Public Equities, L.P. | 5.2% | - All directors and executive officers as a group beneficially own approximately 5.0% of the company's common stock as of February 29, 2024[889] Certain Relationships and Related Transactions, and Director Independence This section discloses related party transactions, including major stockholder investments, registration rights, and indemnification agreements for directors and officers - Several 5% stockholders, including entities affiliated with Atlas Venture, New Enterprise Associates, and FMR LLC, participated in Legacy Korro's Series B Preferred Stock financing and the Pre-Closing Financing that occurred immediately prior to the merger[897][898] - The company has indemnification agreements in place with its directors and executive officers, requiring it to cover certain expenses and liabilities incurred in their official capacities[903] - Investors from both the predecessor company (Frequency) and Legacy Korro hold registration rights, obligating the company to register their shares for public sale under certain conditions[904][910] Principal Accountant Fees and Services The company paid Ernst & Young LLP $1,358,866 in 2023 for audit and other services, with all services pre-approved by the Audit Committee Accountant Fees (Fiscal Years 2023 & 2022) | Fee Category | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | | Audit Fees | 1,341,206 | 191,007 | | Tax Fees | 14,060 | 13,390 | | All Other Fees | 3,600 | 3,500 | | Total Fees | 1,358,866 | 207,897 | - The Audit Committee pre-approves all audit and permissible non-audit services provided by the independent registered public accounting firm[921] Part IV Exhibit and Financial Statement Schedules This section provides an index of all financial statements and exhibits filed with the annual report, including the Merger Agreement and corporate governance documents - This item provides an index of all financial statements and exhibits filed with the annual report[925] - Key exhibits filed include the Agreement and Plan of Merger, Restated Certificate of Incorporation, Amended and Restated Bylaws, various stock incentive and compensation plans, and employment agreements with executive officers[924] Form 10-K Summary The company reports that there is no Form 10-K summary - None[929]