Filing summary
Entity and period: The supplied filing is Frequency Therapeutics, Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2023—not a Korro Bio standalone 10-Q. Frequency reported that it signed a merger agreement with Korro Bio on July 14, 2023. The figures below are in U.S. dollars; financial statement amounts are in millions unless noted.
Business context and results
Frequency was a preclinical-stage regenerative medicine company with no product sales or approved products. After FX-322 failed to meet its primary endpoint in a Phase 2b hearing-loss study, the company discontinued its FX-322 and FX-345 hearing programs and focused on its multiple sclerosis (MS) program while exploring strategic alternatives. Under the announced merger, Korro Bio’s business was expected to become the combined company’s business.
| Metric | Three months ended June 30, 2023 | Six months ended June 30, 2023 | Comparable 2022 period |
|---|---|---|---|
| Revenue from product sales | None | None | None |
| Research and development expense | $4.6 | $15.9 | $13.3 / $27.1 |
| General and administrative expense | $7.2 | $16.4 | $8.0 / $17.5 |
| Total operating expenses | $11.8 | $32.3 | $21.3 / $44.5 |
| Net loss | $10.8 | $30.3 | $21.3 / $44.7 |
| Basic and diluted loss per share | $0.30 | $0.85 | $0.61 / $1.28 |
| Net cash used in operating activities | Not stated for quarter | $22.6 | $30.8 for six months |
Margins are not meaningful because the company had no product revenue. For the six months, research and development costs included $2.8 million for MS and $11.4 million of platform, early-stage research and unallocated expenses; hearing-program costs largely related to discontinued programs. The filing attributes lower operating costs and net loss versus 2022 primarily to reduced research activity and workforce reductions. Sublease income also contributed to the improvement in other income.
Liquidity, debt and cash flow
- At June 30, 2023, cash and cash equivalents were $39.7 million and short-term marketable securities were $6.8 million, totaling $46.5 million; restricted cash was an additional $2.0 million.
- Total current assets were $48.4 million versus current liabilities of $8.3 million. Total liabilities were $34.0 million, including $27.8 million of lease liabilities.
- The company prepaid its remaining $11.7 million term-loan principal on April 3, 2023, and reported no term-loan balance at quarter-end.
- Six-month cash flows included $22.6 million used in operations, $24.7 million provided by investing activities (mainly security redemptions), and $14.1 million used in financing, primarily for loan repayment. Cash, cash equivalents and restricted cash ended at $41.7 million.
- Management said available resources and restructuring savings were expected to fund planned operations for at least 12 months from when the statements were available to be issued. This statement concerns Frequency’s plans and should be read alongside the subsequent merger and the combined company’s separate funding needs.
Material changes, outlook and risks
- In February 2023, after the Phase 2b failure, Frequency discontinued both hearing programs and announced a roughly 55% workforce reduction. It recorded $4.3 million of restructuring-related costs in the first half, including severance and benefits, accelerated depreciation and hearing-program charges. A further roughly 55% reduction in the remaining workforce was announced May 31; the filing also reports related costs of approximately $1.1 million in R&D and $22,000 in G&A.
- Astellas terminated its collaboration agreement effective April 14, 2023. The company also terminated several hearing- and MS-related licenses in 2023; it reported no termination payments or costs for these agreements.
- On July 14, 2023, Frequency and Korro Bio entered into a merger agreement, subject to required approvals and customary conditions. Under specified termination circumstances, Korro could owe Frequency a $4.0 million fee, or Frequency could owe Korro a $1.5 million fee. The filing said Frequency did not expect further development of its own programs following the merger; combined-company funding needs would depend on Korro Bio’s programs.
- Frequency disclosed unresolved litigation, including an appeal of the dismissal of a securities class action and a separate shareholder suit with some claims remaining. The company said it could not estimate possible losses and recorded no accruals for these matters as of June 30, 2023. A related derivative case was stayed pending the class-action matter.
- Silicon Valley Bridge Bank held the company’s sweep account and one deposit account at quarter-end; Frequency said it was working to move the accounts. Management reported effective disclosure controls at the reasonable-assurance level and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the merger’s status, required approvals, closing conditions, termination rights and any applicable termination fee; the filing describes an agreement, not a completed merger.
- Review the merger registration statement and Korro Bio disclosures for the combined company’s cash needs, financing plans, capitalization and expected operating strategy.
- Assess whether Frequency’s stated 12-month runway remains applicable after the May workforce reduction, merger-related spending and any changes in planned operations.
- Monitor the appeal and remaining shareholder litigation, for which the filing gives no estimable loss range, as well as the status of the company’s bank deposits.
- Note the filing’s identity and date: it is Frequency Therapeutics’ June 30, 2023 quarterly report, signed August 10, 2023; the filing states 36,520,750 common shares outstanding as of August 1, 2023.