Korro Bio(KRRO) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited financial statements, management's discussion, and related disclosures Item 1. Consolidated Financial Statements (Unaudited) Unaudited Q3 2023 financials show reduced assets, liabilities, and net loss, driven by restructuring and debt repayment Consolidated Balance Sheets Total assets and liabilities significantly decreased by September 30, 2023, primarily due to lower cash and debt repayment Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $41,723 | $51,954 | | Total current assets | $42,500 | $87,493 | | Total assets | $46,349 | $121,238 | | Liabilities & Equity | | | | Total current liabilities | $9,612 | $21,026 | | Total liabilities | $9,612 | $52,043 | | Total stockholders' equity | $36,737 | $69,195 | Consolidated Statements of Operations Net loss significantly narrowed for Q3 and nine months 2023, driven by reduced research and development expenses Consolidated Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | :--- | | Research and development | $2,560 | $11,715 | $18,509 | $38,769 | | General and administrative | $10,105 | $8,560 | $26,498 | $26,037 | | Loss from operations | $(12,665) | $(20,275) | $(45,007) | $(64,806) | | Net loss | $(11,614) | $(19,547) | $(41,953) | $(64,218) | | Net loss per share | $(0.31) | $(0.55) | $(1.17) | $(1.83) | Consolidated Statements of Cash Flows Cash flows for nine months 2023 show reduced operating cash burn, increased investing cash, and cash used in financing Cash Flow Summary for Nine Months Ended September 30 (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | 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) | Notes to Unaudited Consolidated Financial Statements Notes detail corporate events including the Korro Bio merger, program discontinuation, debt repayment, and restructuring charges - On July 14, 2023, the company entered into a Merger Agreement with Korro Bio, Inc., which will become a wholly owned subsidiary[29] - The company announced a restructuring in February 2023, discontinuing its hearing program and reducing its workforce by approximately 55%, followed by another 55% reduction in May 2023[29] - On April 3, 2023, the company prepaid the remaining $11.7 million due under its Loan Agreement with Silicon Valley Bank[47] - During 2023, the company terminated its collaboration agreement with Astellas and license agreements with MIT, MEE, and CALIBR, with no resulting payments or costs[72][76][80] - The company incurred $4.3 million in restructuring-related expenses in the nine months ended September 30, 2023, primarily from severance and benefit costs[96] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strategic shifts, including program discontinuation, workforce reductions, and their impact on expenses and liquidity - In February 2023, the company discontinued its FX-322 and FX-345 hearing development programs after the FX-322-208 study failed to meet its primary endpoint[101] - The company executed multiple workforce reductions in 2022 and 2023 to align with its new strategic focus and preserve capital[102] - As of September 30, 2023, the company had an accumulated deficit of $303.6 million and cash, cash equivalents, and marketable securities of $41.7 million[105][147] - Following the merger with Korro Bio, the business of the combined company will focus on Korro Bio's programs, and Frequency does not expect further development of its own product candidates[106][153] Results of Operations Operating expenses significantly decreased for Q3 and nine months 2023, driven by reduced R&D offset by higher G&A Comparison of Operating Expenses (in thousands) | Expense Category | Q3 2023 | Q3 2022 | Change | Nine Months 2023 | Nine Months 2022 | Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Research and development | $2,560 | $11,715 | $(9,155) | $18,509 | $38,769 | $(20,260) | | General and administrative | $10,105 | $8,560 | $1,545 | $26,498 | $26,037 | $461 | | Total operating expenses | $12,665 | $20,275 | $(7,610) | $45,007 | $64,806 | $(19,799) | - The decrease in R&D costs is directly attributed to the discontinuation of the FX-322 and FX-345 programs in Q1 2023[124][125] - The increase in G&A expenses was primarily due to higher professional service fees, particularly legal fees[128][141] Liquidity and Capital Resources Liquidity is supported by $41.7 million in cash, with key events including debt prepayment and ATM program termination - Cash, cash equivalents and marketable securities totaled $41.7 million as of September 30, 2023[147] - In April 2023, the company prepaid the remaining $11.7 million on its term loan[148] - The company's ATM Program was terminated on September 26, 2023. No shares were sold under the program in 2023[149] - Restructuring in February 2023 related to program discontinuation and a 55% staff reduction incurred costs of approximately $4.3 million[151] Item 3. Quantitative and Qualitative Disclosures About Market Risk This disclosure is not required as the company is a smaller reporting company - The company is a smaller reporting company and is not required to provide this information[171] Item 4. Controls and Procedures Management concluded disclosure controls were effective as of September 30, 2023, with no material changes to internal controls - Management concluded that as of September 30, 2023, the company's disclosure controls and procedures were effective at a reasonable assurance level[173] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[174] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and other required disclosures Item 1. Legal Proceedings This section refers to Note 15 of the financial statements for legal contingencies - For information on legal proceedings, the report directs readers to Note 15, "Commitments and contingencies – Legal Contingencies"[176] Item 1A. Risk Factors The company incorporates prospectus risk factors by reference, highlighting its history of significant losses and anticipated unprofitability - The company has incurred significant losses since inception and had an accumulated deficit of $303.6 million as of September 30, 2023[178] - Frequency is a preclinical-stage company that is not profitable and expects to continue incurring significant operating losses for the foreseeable future[178][179] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities No material change in the use of net proceeds from the October 2019 IPO was reported - There has been no material change in the use of the approximately $79.7 million in net proceeds from the company's October 2019 IPO[181][182] Item 3. Defaults Upon Senior Securities None reported - None reported Item 4. Mine Safety Disclosures Not applicable - Not applicable Item 5. Other Information Not applicable - Not applicable Item 6. Exhibits This section lists exhibits filed with the report, including the Korro Bio merger agreement and officer certifications