FREQUENCY THERAP(FREQ) - 2024 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) Unaudited financial statements show a $62.4 million net loss for nine months, with cash decreasing to $63.2 million due to investments and operations Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $63,207 | $166,150 | | Marketable securities (Short & Long-term) | $105,905 | $0 | | Total current assets | $152,783 | $172,728 | | Total assets | $243,543 | $221,663 | | Liabilities & Stockholders' Equity | | | | Total current liabilities | $13,610 | $19,483 | | Total liabilities | $63,911 | $51,752 | | Accumulated deficit | $(245,387) | $(183,005) | | Total stockholders' equity | $179,632 | $169,911 | Condensed Consolidated Statements of Operations and Comprehensive Loss Statement of Operations Highlights (in thousands, except per share data) | Metric | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Research and development | $46,674 | $41,828 | | General and administrative | $22,196 | $15,813 | | Total operating expenses | $68,870 | $57,641 | | Loss from operations | $(68,870) | $(57,641) | | Net loss | $(62,382) | $(55,746) | | Net loss per share, basic and diluted | $(7.11) | $(200.94) | - The significant difference in Net loss per share year-over-year is primarily due to a substantial increase in the weighted-average shares outstanding following the reverse merger and financing activities, from approximately 277,000 to 8.77 million[17] Condensed Consolidated Statements of Cash Flows Cash Flow Summary for the Nine Months Ended September 30 (in thousands) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(52,579) | $(46,176) | | Net cash (used in) provided by investing activities | $(120,582) | $12,819 | | Net cash provided by financing activities | $68,423 | $43,173 | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(104,738) | $9,816 | - The significant use of cash in investing activities in 2024 was driven by the purchase of $118.1 million in marketable securities. Cash from financing activities in 2024 was primarily from a $67.4 million net proceed from a PIPE financing[22] Notes to Unaudited Condensed Consolidated Financial Statements - The company completed a reverse merger with Frequency Therapeutics, Inc. on November 3, 2023, and is now trading under the ticker "KRRO". The transaction was accounted for as a reverse recapitalization, with Legacy Korro as the accounting acquirer[26][34] - The company believes its existing cash, cash equivalents, and marketable securities of $169.1 million as of September 30, 2024, are sufficient to fund operations for at least the next 12 months from the issuance date of the financial statements[36] - In September 2024, the company entered into a research collaboration and license agreement with Novo Nordisk, receiving a $10.0 million upfront payment in October 2024. The company is eligible for up to $530.0 million in total payments plus royalties across two programs[75][76][80] - The company is involved in a putative class action lawsuit inherited from Frequency Therapeutics. The lawsuit was dismissed, and the dismissal was affirmed on appeal. However, the plaintiff filed a motion to vacate the dismissal, which was denied on November 1, 2024. The company cannot estimate a range of possible loss[89] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses RNA editing focus, KRRO-110 entering Phase 1/2 in Q1 2025, and $169.1 million liquidity funding operations into H2 2026 Overview and Recent Developments - Korro Bio is a biopharmaceutical company focused on developing a new class of genetic medicines based on editing RNA using its proprietary OPERA platform[96][98] - The most advanced program is KRRO-110 for Alpha-1 Antitrypsin Deficiency (AATD). A regulatory filing for a Phase 1/2 clinical trial was submitted in November 2024, with the first participant expected to be dosed in Q1 2025 and interim data anticipated in H2 2025[99] - In September 2024, the company entered a collaboration with Novo Nordisk for two cardiometabolic targets, with the potential to receive up to $530 million plus royalties and cost reimbursement. An initial $10 million upfront fee was received[104][105] Results of Operations Operating Expenses Comparison (in thousands) | Expense Category | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | Change | | :--- | :--- | :--- | :--- | | Research and development | $46,674 | $41,828 | $4,846 | | General and administrative | $22,196 | $15,813 | $6,383 | | Total operating expenses | $68,870 | $57,641 | $11,229 | - The $4.8 million increase in R&D expenses for the nine-month period was primarily driven by a $3.7 million increase in discovery, preclinical, and contract manufacturing costs in preparation for the KRRO-110 trial, and a $3.0 million increase in personnel costs due to higher headcount[118][119] - The $6.4 million increase in G&A expenses for the nine-month period was mainly due to a $2.5 million increase in employee-related expenses from headcount growth, a $1.6 million increase in IT and insurance costs, and a $1.3 million increase in professional fees[121] Liquidity and Capital Resources - As of September 30, 2024, the company had $169.1 million in cash, cash equivalents, and marketable securities[124] - The company expects its current cash position to be sufficient to fund operating expenses and capital expenditure requirements into the second half of 2026[126] - Since inception, the company has raised approximately $223.6 million from convertible preferred stock, $117.3 million from the Pre-Closing Financing, and $70.0 million from the April 2024 PIPE[124] Quantitative and Qualitative Disclosures About Market Risk Primary market risk is interest rate fluctuations on $169.1 million cash and marketable securities, foreign currency risk is minimal - The company's cash, cash equivalents, and marketable securities totaled $169.1 million as of September 30, 2024, consisting of bank deposits, money market funds, and U.S. government-backed securities[141] - The company has determined that its exposure to interest rate risk and foreign currency risk is not material at this time[141][142] Controls and Procedures Disclosure controls and procedures were effective as of September 30, 2024, with no material changes to internal controls - The CEO and CFO have concluded that the company's disclosure controls and procedures were effective as of September 30, 2024[144] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, these controls[145] PART II. OTHER INFORMATION Legal Proceedings Class action lawsuit inherited from Frequency Therapeutics was dismissed, affirmed, and motion to vacate denied on November 1, 2024 - The company is involved in a putative class action lawsuit, Quinones et al. v. Frequency Therapeutics, Inc. et al., inherited from the merger with Frequency Therapeutics[148] - The lawsuit was dismissed, the dismissal was affirmed by the First Circuit Court of Appeals on July 2, 2024, and a plaintiff's motion to vacate the dismissal was denied on November 1, 2024[148] Risk Factors The company faces significant risks including historical losses, funding needs, unproven technology, development uncertainties, and regulatory and IP challenges Risks Related to Financial Position and Need for Capital - The company has a history of significant operating losses ($245.4 million accumulated deficit as of Sep 30, 2024) and expects to incur losses for the foreseeable future, with no guarantee of ever achieving profitability[150] - Substantial additional funding will be required to continue R&D programs and potential commercialization. Failure to raise capital when needed could force the company to delay, reduce, or eliminate programs[158] Risks Related to Discovery, Development and Commercialization - RNA editing is a novel technology with limited clinical validation. The company's approaches are unproven and may never lead to marketable products[179] - All programs are in the research or preclinical stage. Product candidates may fail in development, and any favorable preclinical results may not be predictive of clinical trial outcomes[181][200] - The manufacturing process for oligonucleotides is complex and subject to risks, including process development, scaling-up, and reliance on a limited number of third-party suppliers and CMOs[196][192] Risks Related to Regulatory, Legal, and Clinical Trials - As a new class of drugs, oligonucleotides face a complex and uncertain regulatory review process, as the FDA and other agencies have limited experience and have not established definitive guidelines for RNA editing therapies[231] - There is a risk that regulatory authorities may not consider the proposed clinical trial endpoints to be clinically meaningful, which could delay or prevent approval[236] - Even if approved, products will be subject to extensive post-marketing regulations, and failure to comply could result in restrictions, withdrawal from the market, or penalties[255] Risks Related to Third Party Relationships - The company relies on third parties (CROs, CMOs, etc.) to conduct clinical trials and for manufacturing, which reduces control over these activities and may lead to delays or performance issues[292][299] - The success of collaborations, like the one with Novo Nordisk, depends heavily on the efforts of partners who have significant discretion over the resources they apply[294][296] Risks Related to Personnel, Operations and Growth - The company is highly dependent on its senior management and scientific staff, and the loss of key personnel could harm the business. There is intense competition for qualified personnel in the biotech industry[310] - Expected expansion of operations may lead to difficulties in managing growth, potentially straining resources and infrastructure[312] Risks Related to Intellectual Property - The company's success depends on its ability to obtain and maintain patent protection for its product candidates and platform technology, but the patent position of biotech companies is highly uncertain[314][320] - The company may be subject to lawsuits from third parties claiming intellectual property infringement, which could be expensive, time-consuming, and prevent or delay development efforts[331][339] - Changes in U.S. or international patent law could diminish the value of patents and impair the ability to protect products[368] Unregistered Sales of Equity Securities and Use of Proceeds This item is not applicable for the reporting period - Not applicable[415] Defaults Upon Senior Securities This item is not applicable for the reporting period - Not applicable[416] Mine Safety Disclosures This item is not applicable for the reporting period - Not applicable[417] Other Information During Q3 2024, officers adopted Rule 10b5-1 trading plans for potential common stock sales from stock options - During the quarter, CFO Vineet Agarwal, COO Todd Chappell, and former CSO Steve Colletti adopted Rule 10b5-1 trading plans for the potential sale of shares[418] Exhibits This section lists exhibits filed with the Form 10-Q, including the Novo Nordisk collaboration agreement and officer certifications - Key exhibits filed include the Research Collaboration and License Agreement with Novo Nordisk A/S, dated September 13, 2024[420]