# Korro Bio, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Korro Bio, Inc.](/companies/krro.md) (CIK 1703647)
- Form: 10-Q
- Filed: 2023-11-02
- Accepted by EDGAR: Nov 2, 2023, 16:05 ET
- Period: 2023-09-30
- Accession: 0000950170-23-058171
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1703647/000095017023058171/freq-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1703647/000095017023058171/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $2.6m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $18.5m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$12.7m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$45.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $0 | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $284.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | −$7.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $22.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$11.6m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$42.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.31 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$1.17 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.31 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$1.17 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 36,922,236 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 36,005,269 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$27.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $100.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $41.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $42.5m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $46.3m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $9.6m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $9.6m | us-gaap:Liabilities |
| Current portion of debt | at 2023-09-30 | $0 | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-09-30 | $36.7m | us-gaap:StockholdersEquityIncludingPortionAttributableToNoncontrollingInterest |

## Management's discussion and analysis

As filed, 34,348 characters.

*You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended December 31, 2022, or the 2022 Annual Report, including the audited consolidated financial statements and notes thereto contained in our 2022 Annual Report. Some of the information contained in this discussion and analysis contains forward-looking statements that involve risks and uncertainties. You should review the section titled “Risk factors” in this Quarterly Report on Form 10-Q for a discussion of important factors that could cause actual results to differ materially from the results described below.*

### Overview

Our business has focused on developing therapeutics that activate a person’s innate regenerative potential through our proprietary progenitor cell activation, or PCA, approach. We first applied our PCA approach for the restoration of the cochlea, with a focus on treating sensorineural hearing loss, or SNHL. Beginning in 2019, we ran five clinical studies of FX-322 aimed at understanding safety as well as severities and etiologies that FX-322 might treat and the appropriate dose regime. In 2021, we commenced our sixth study, or the FX-322-208 study, and introduced a second hearing program, FX 345, which we believed might expand the opportunity to treat different types of SNHL. In February 2023, we announced that the FX-322-208 study failed to achieve its primary endpoint of an improvement in speech perception. We decided to discontinue the FX-322 development program and, given the similarities between the mechanisms of FX-322 and FX 345, decided to discontinue the FX-345 development program as well. Following this decision, we decided to focus our efforts on developing a product candidate designed to activate oligodendrocyte precursor cells with the goal of inducing remyelination and functional recovery for individuals living with multiple sclerosis, or the MS Program, and to explore strategic alternatives for the MS Program, including the sale of the MS Program. On July 14, 2023, we and Korro Bio entered into the Merger Agreement.

On April 8, 2022, we announced a reduction in force of approximately 30% of our workforce to better align the workforce with the near-term needs of the business and focus more of our capital resources on research and development programs for hearing and remyelination in MS. On February 13, 2023, in connection with the discontinuation of the hearing program, we announced a restructuring of our business including a downsizing of personnel by approximately 55%. On May 31, 2023, we announced a reduction in force of approximately 55% of our workforce to better align our workforce with the needs of our business.

On August 11, 2023, we entered into a lease termination agreement with our landlord to terminate the lease for our Lexington, MA office on January 31, 2024. Also on August 11, 2023, we entered into a sublease termination agreement with our sublessee to terminate the sublease of our Lexington, MA office on January 31, 2024. We are not subject to any payments or costs pursuant to the lease or sublease termination agreements.

Since formation in 2014, we have devoted substantially all our resources to developing our PCA approach, conducting research and development activities, including product candidate development, recruiting skilled personnel, establishing our intellectual property portfolio, and providing general and administrative support for these operations. We have financed our operations primarily through private and public securities financings, a term loan, and amounts received under a collaboration agreement.

Since inception, we have incurred significant operating losses and have not generated any revenue from the sale of products. Our net losses were $11.6 million, $42.0 million and $81.6 million for the three and nine months ended September 30, 2023 and year ended December 31, 2022, respectively. As of September 30, 2023, we had an accumulated deficit of $303.6 million.

Our operating expenses discussed in this section reflect our development programs around FX-322, FX-345, the MS Program and contemplated future programs, as well as our operations as a public company. Following the Merger, the business of Korro Bio will be the business of the combined company, and we do not expect any further development of our product candidates or programs.

### License and collaboration agreements

### Astellas Pharma Inc.

In July 2019, we entered into a license and collaboration agreement, or the Astellas Agreement with Astellas Pharma, Inc., or Astellas, under which we granted Astellas an exclusive, royalty-bearing, sub-licensable, nontransferable license to certain patent rights to research, develop, manufacture, have manufactured, use, seek, and secure regulatory approval for, commercialize, offer for sale, sell, have sold and import, and otherwise exploit licensed products containing both a GSK-3 inhibitor and an HDAC inhibitor, including our product candidate FX-322, outside of the United States. On April 14, 2023, the Astellas Agreement was terminated. We are not subject to any payments or costs as a result of this termination.

### Massachusetts Institute of Technology

In December 2016, we entered into an Exclusive Patent License Agreement, or the MIT License, with the Massachusetts Institute of Technology, or MIT, under which we received an exclusive, worldwide, royalty-bearing license to certain patent rights to develop, make, have made, use, sell, offer to sell, lease, and import products and to develop and perform processes that incorporate the licensed technology for the treatment of disease, including but not limited to the prevention and remediation of hearing loss. We were required to pay certain annual license maintenance fees ranging from $30 thousand to $0.1 million to MIT under the MIT License. On July 6, 2023, the MIT License Agreement was terminated. We are not subject to any payments or costs as a result of this termination.

### Massachusetts Eye and Ear (Formerly Massachusetts Eye and Ear Infirmary)

In February 2019, we entered into an Non-Exclusive Patent License Agreement, or the MEE License, with the Massachusetts Eye and Ear, or MEE, under which we received a non-exclusive, non-sub-licensable, worldwide, royalty-bearing license to certain patent rights to develop, make, have made, use, sell, offer to sell, lease, and import products, and to develop and perform processes that incorporate the licensed technology for the treatment or prevention of hearing loss. We were obligated to pay certain annual license maintenance fees between $5 thousand and $7.5 thousand per each MEE patent family case number included in the licensed MEE patent rights under the MEE License. On April 4, 2023, the MEE License was terminated. We are not subject to any payments or costs as a result of this termination.

### The Scripps Research Institute (California Institute for Biomedical Research)

In September 2018, we entered into a license agreement, or the CALIBR License, with the California Institute for Biomedical Research, or CALIBR, a division of Scripps, under which we received an exclusive, worldwide, royalty-bearing license to certain patent rights to make, have made, use, sell, offer to sell, and import products that incorporate licensed technology for the treatment of MS. On April 28, 2023, the CALIBR License was terminated. We are not subject to any payments or costs as a result of this termination.

### Components of our results of operations

### Research and development expenses

Research and development expenses presented in this section consist primarily of costs related to activities largely focused on hearing restoration and MS. These expenses include the following:

- salaries, benefits and other related costs, including stock-based compensation expense, for personnel engaged in research and development functions;
- expenses incurred under agreements with third parties, including contract research organizations, or CROs, and other third parties that conduct preclinical research and development activities and clinical trials on our behalf;
- costs to manufacture our clinical trial material for use in our preclinical studies and clinical trials;
- costs of outside consultants, including their fees and related travel expenses;
- costs of laboratory supplies and acquiring, developing and manufacturing preclinical study and clinical trial materials;
- option and license payments made to third parties, including MIT, CALIBR, and MEE for intellectual property used in research and development activities; and
- facility-related expenses, which include direct depreciation costs and expenses for rent and maintenance of facilities and other operating costs if specifically, identifiable to research activities.

We track external research and development costs, including the cost of services, outsourced research and development, clinical trials, contract manufacturing, laboratory equipment and maintenance, and certain other development costs, by product candidate when the costs are specifically identifiable to a product candidate. Internal and external costs associated with infrastructure resources, other research and development costs, facility-related costs, and depreciation and amortization that are not identifiable to a specific product candidate are included in the platform development, early-stage research, and unallocated expenses category.

In connection with the Merger, we are focusing on pursuing strategic alternatives for our MS Program and expect research & development expenses incurred for the remainder of 2023 to relate to this initiative.

### General and administrative expenses

General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, business development, and administrative functions. General and administrative expenses also include legal fees relating to intellectual property and corporate matters; professional fees for accounting, auditing, tax and consulting services; investor and public relations costs; insurance costs; travel expenses; and facility-related expenses, which include direct depreciation costs and expenses for rent and maintenance of facilities, and other operating costs that are not specifically attributable to research and development activities.

### Interest income

Interest income consists of interest earned on cash equivalents and marketable securities.

### Interest expense

Interest expense consists of interest paid on our term loan.

### Other income, net

Other income, net consists of amortization expense and accretion income on investments as well as sublease income.

### Income taxes

Our total provision is based on the United States statutory rate of 21%, increased by state taxes and reduced by a full valuation allowance on our deferred tax assets. The income tax expense for the three and nine months ended September 30, 2023 and 2022 represents state taxes on interest income earned by our subsidiary, Frequency Therapeutics Securities Corporation, a Massachusetts Securities Corporation.

ASC 740 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all the evidence, both positive and negative, we have recorded a valuation allowance against our deferred tax assets at December 31, 2022 because we have determined that it is more likely than not that we will not recognize the benefits of our federal and state deferred tax assets primarily due to our cumulative loss position and, as a result, a valuation allowance has been established.

Since our inception in 2014, we have generated cumulative federal and state net operating loss and research and development credit carryforwards for which we have not recorded any net tax benefit due to uncertainty around utilizing these tax attributes within their respective carryforward periods.

### Results of operations

### Comparison of three months ended September 30, 2023 and 2022

The following table summarizes our results of operations for the three months ended September 30, 2023 and 2022:

*(in thousands)*

| Operating expenses: | Three Months Ended September 30, 2023 | 2022 | Increase (Decrease) |
| --- | ---: | ---: | ---: |
| Research and development | $2,560 | $11,715 | $(9,155) |
| General and administrative | 10,105 | 8,560 | 1,545 |
| Total operating expenses | 12,665 | 20,275 | (7,610) |
| Loss from operations | (12,665) | (20,275) | 7,610 |
| Interest income | 448 | 351 | 97 |
| Interest expense | - | (263) | 263 |
| Other income, net | 596 | 617 | (21) |
| Loss before income taxes | (11,621) | (19,570) | 7,949 |
| Income tax | 7 | 23 | (16) |
| Net loss | $(11,614) | $(19,547) | $7,933 |

### Research and development expenses

*(in thousands)*

| Direct research and development expenses by therapeutic area and product candidate: | Three Months Ended September 30, 2023 | 2022 | Increase (Decrease) |
| --- | ---: | ---: | ---: |
| FX-322 | $— | $2,922 | $(2,922) |
| FX-345 | — | 1,011 | (1,011) |
| Multiple Sclerosis | 175 | 1,128 | (953) |
| Platform development, early-stage research and unallocated expenses: |  |  |  |
| Employee-related costs | 1,607 | 4,431 | (2,824) |
| Laboratory supplies | 2 | 49 | (47) |
| Outsourced research and development | 7 | 67 | (60) |
| Facility-related costs | 615 | 1,523 | (908) |
| Depreciation and amortization | 119 | 392 | (273) |
| Other research and development costs | 35 | 192 | (157) |
| Platform development, early-stage research and unallocated expenses total | 2,385 | 6,654 | (4,269) |
| Total research and development expenses | $2,560 | $11,715 | $(9,155) |

23

There were no costs incurred related to FX-322 for the three months ended September 30, 2023 as the program was discontinued in the first quarter of 2023 and all remaining expense was accelerated at that time. The $3.0 million of costs related to FX-322 incurred for the three months ended September 30, 2022 consisted primarily of $2.7 million of clinical costs associated with trials, including the Phase 2b clinical trial (FX-322-208), and $0.1 million of drug development and manufacturing costs.

There were no costs incurred related to FX-345 for the three months ended September 30, 2023 as the program was discontinued in the first quarter of 2023 and all remaining expense was accelerated at that time. The $1.0 million of costs related to FX-345 incurred for the three months ended September 30, 2022 consisted primarily of $0.6 million of clinical costs associated with the Phase 1b trial and $0.4 million of drug development and manufacturing costs.

The $0.2 million of costs related to the MS development program incurred for the three months ended September 30, 2023 consisted primarily of clinical and regulatory costs. The $1.1 million of costs related to the MS development program incurred for the three months ended September 30, 2022 consisted primarily of $0.8 million of chemistry and compound characterization costs and $0.2 million of drug development costs.

The $2.4 million of platform development, early-stage research and unallocated expenses incurred for the three months ended September 30, 2023, consisted primarily of $1.6 million in employee-related costs, including $0.8 million of stock-based compensation expense, and $0.6 million in facility-related costs. The decrease in platform development, early-stage research and unallocated expenses of $4.3 million during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, is primarily attributable to a decrease of $2.8 million in employee-related costs, including salary, bonus, and stock-based compensation costs, as a result of the reductions in force implemented in April 2022 and February 2023, as well as a $0.9 million decrease in facility-related costs due to a combination of reduced headcount and the initiation of cost sharing with our sublessee in connection with our sublease.

### General and administrative expenses

The $10.1 million of general and administrative expenses for the three months ended September 30, 2023 consisted primarily of $2.9 million in employee-related costs, including $2.2 million of stock-based compensation, $1.5 million in facility-related costs, $5.4 million in professional services costs, and $0.3 million in depreciation expense. General and administrative expenses increased by $1.5 million from the three months ended September 30, 2022 due primarily to an increase in professional service fees, particularly legal fees.

### Interest income

Interest income was $0.4 million for the three months ended September 30, 2023 and 2022.

### Interest expense

There was no interest expense for the three months ended September 30, 2023 compared to interest expense of $0.3 million for the three months ended September 30, 2022. The decrease is due to the loan prepayment in April 2023.

### Other income, net

Other income, net was $0.6 million for the three months ended September 30, 2023 and 2022.

### Income tax

Income tax benefit was $7 thousand for the three months ended September 30, 2023 as compared to income tax benefit of $23 thousand for the three months ended September 30, 2022.

### Results of operations

### Comparison of nine months ended September 30, 2023 and 2022

The following table summarizes our results of operations for the nine months ended September 30, 2023 and 2022:

*(in thousands)*

| Operating expenses: | Nine Months Ended September 30, 2023 | 2022 | Increase (Decrease) |
| --- | ---: | ---: | ---: |
| Research and development | $18,509 | $38,769 | $(20,260) |
| General and administrative | 26,498 | 26,037 | 461 |
| Total operating expenses | 45,007 | 64,806 | (19,799) |
| Loss from operations | (45,007) | (64,806) | 19,799 |
| Interest income | 1,317 | 871 | 446 |
| Interest expense | (284) | (649) | 365 |
| Other income, net | 2,043 | 357 | 1,686 |
| Loss before income taxes | (41,931) | (64,227) | 22,296 |
| Income tax | (22) | 9 | (31) |
| Net loss | $(41,953) | $(64,218) | $22,265 |

### Research and development expenses

*(in thousands)*

| Direct research and development expenses by therapeutic area and product candidate: | Nine Months Ended September 30, 2023 | 2022 | Increase (Decrease) |
| --- | ---: | ---: | ---: |
| FX-322 | $1,081 | $8,583 | $(7,502) |
| FX-345 | 647 | 3,493 | (2,846) |
| Multiple Sclerosis | 2,956 | 3,194 | (238) |
| Platform development, early-stage research and unallocated expenses: |  |  |  |
| Employee-related costs | 9,206 | 15,834 | (6,628) |
| Laboratory supplies | 74 | 223 | (149) |
| Outsourced research and development | 73 | 620 | (547) |
| Facility-related costs | 3,151 | 4,934 | (1,783) |
| Depreciation and amortization | 1,079 | 1,233 | (154) |
| Other research and development costs | 242 | 655 | (413) |
| Platform development, early-stage research and unallocated expenses total | 13,825 | 23,499 | (9,674) |
| Total research and development expenses | $18,509 | $38,769 | $(20,260) |

25

The $1.1 million of costs related to FX-322 incurred for the nine months ended September 30, 2023 consisted of clinical costs associated with the Phase 2b clinical trial (FX-322-208) which concluded in the first quarter 2023. The $8.6 million of costs related to FX-322 incurred for the nine months ended September 30, 2022 consisted primarily of $7.8 million of clinical costs associated with clinical trials, including the Phase 2b clinical trial (FX-322-208), and $0.5 million of drug development and manufacturing costs.

The $0.6 million of costs related to FX-345 incurred for the nine months ended September 30, 2023 consisted of clinical trial costs associated with the planned Phase 1b trial (FX-345-101), which was discontinued in the first quarter of 2023. The $3.5 million of costs related to FX-345 incurred for the nine months ended September 30, 2022 consisted primarily of $2.4 million of drug development and manufacturing costs, $0.5 million in clinical trial costs associated with the Phase 1b trial, and $0.2 million in regulatory fees related to the investigational new drug filing.

The $3.0 million of costs related to the MS development program incurred for the nine months ended September 30, 2023 consisted primarily of $1.2 million of chemistry and compound characterization costs, $0.6 million of drug development and manufacturing costs, $0.2 million of clinical and regulatory costs, and $0.8 million of preclinical safety costs. The $3.2 million of costs related to the MS development program incurred for the nine months ended September 30, 2022 consisted primarily of $1.9 million of chemistry and compound characterization costs, $0.4 million of preclinical safety costs, and $0.3 million of drug development and manufacturing costs.

The $13.8 million of platform development, early-stage research and unallocated expenses incurred for the nine months ended September 30, 2023, consisted primarily of $9.2 million in employee-related costs, including $1.8 million of stock-based compensation expense, and $3.2 million in facility-related costs. The decrease in platform development, early-stage research and unallocated expenses of $9.7 million during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, is primarily attributable to a decrease of $6.6 million in employee-related costs, including salary, bonus, and stock-based compensation costs, as a result of the reductions in force implemented in April 2022 and February 2023, as well as a $1.8 million decrease in facility-related costs due to a combination of reduced headcount and the initiation of cost sharing with our sublessee in connection with our sublease.

### General and administrative expenses

The $26.5 million of general and administrative expenses for the nine months ended September 30, 2023 consisted primarily of $12.4 million in employee-related costs, including $7.5 million of stock-based compensation, $4.3 million in facility-related costs, $9.0 million in professional services costs, and $0.8 million in depreciation expense. General and administrative expenses increased by $0.5 million from the nine months ended September 30, 2022 due primarily to an increase in professional service fees, particularly legal fees, partially offset by decreases in employee-related costs as a result of the reductions in force implemented in April 2022 and February 2023.

### Interest income

Interest income was $1.3 million for the nine months ended September 30, 2023 compared to interest income of $0.9 million for the nine months ended September 30, 2022. This increase is due to the changes in investment balances from the previous year.

### Interest expense

Interest expense was $0.3 million for the nine months ended September 30, 2023 compared to interest expense of $0.6 million for the nine months ended September 30, 2022. The decrease is due to the loan prepayment in April 2023.

### Other income, net

Other income, net was $2.0 million for the nine months ended September 30, 2023 as compared to $0.4 million for the nine months ended September 30, 2023. This increase is due to the sublease income generated in the nine months ended September 30, 2023.

### Income tax

Income tax expense was $22 thousand for the nine months ended September 30, 2023 as compared to income tax benefit of $9 thousand for the nine months ended September 30, 2022.

### Liquidity and capital resources

Since our inception, we have incurred significant operating losses. We do not currently have any approved products and have never generated any revenue from product sales. We have financed our operations primarily through proceeds from private and public securities financings, a term loan, and amounts received under a collaboration agreement. To date, we have raised approximately $378.3 million, including from grants and option exercises. Our cash, cash equivalents and marketable securities totaled $41.7 million as of September 30, 2023.

In December 2020, we entered into a Loan and Security Agreement with a commercial bank for a term loan with a principal balance of $15.0 million. We made monthly interest only payments through November 30, 2022. On April 3, 2023, we prepaid the remaining $11.7 million due under the term loan. We were not subject to any prepayment premium as the prepayment occurred after the second anniversary of the closing date.

In December 2021, we entered into an Equity Distribution Agreement with Oppenheimer & Co. Inc., or Oppenheimer, to sell shares of our common stock, having an aggregate offering price of up to $125.0 million, from time to time, through an “at the market” equity offering program under which Oppenheimer will act as sales agent and/or principal, or the ATM Program. During the year ended December 31, 2022, we sold 12,767 shares of common stock under the ATM Program for net proceeds of approximately $50 thousand and paid $2 thousand to Oppenheimer in sales agent fees. No shares of common stock have been sold under the ATM Program in 2023. On September 26, 2023, the ATM Program was terminated.

On April 8, 2022, we announced a reduction in force of approximately 30% of our workforce to better align our workforce with the needs of our business and focus more of our capital resources on our research and development programs. The total costs related to this reduction in force are approximately $1.0 million in research and development expense and $0.2 million in general and administrative expense, primarily related to severance costs and related expenses.

On February 13, 2023, in connection with the discontinuation of the FX-322 and FX-345 hearing programs, we announced a restructuring that included downsizing personnel by approximately 55%. These changes are expected to preserve capital, ensuring that we are appropriately resourced to complete a first clinical trial of our MS development program. The total costs related to this restructuring are approximately $4.3 million, of which $3.8 million is related to severance costs and related expenses, $0.4 million is related to accelerated depreciation, and $0.1 million is related to accelerated hearing program costs.

On May 31, 2023, we announced a reduction in force of approximately 55% of our workforce. This reduction in force was to better align our workforce with the needs of our business. The total costs related to this reduction in force are approximately $1.1 million in research and development expense and $22 thousand in general and administrative expense, primarily related to severance costs and related expenses.

On July 14, 2023, we entered into the Merger Agreement. Following the Merger, the business of Korro Bio will be the business of the combined company, and we do not expect any further development of our product candidates or programs.

### Cash flows

The following table summarizes our sources and uses of cash for the periods presented:

*(in thousands)*

|  | Nine Months Ended September 30, 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 |
| Decrease in cash and cash equivalents | $(9,963) | $(35,789) |

### Cash flows for the nine months ended September 30, 2023

### Operating activities

Net cash used in operating activities for the nine months ended September 30, 2023 was $27.4 million, consisting of a net loss of $42.0 million. In addition, we had non-cash charges of $12.8 million for depreciation, stock-based compensation expense, non-cash lease expense, and non-cash gain on investments. Net cash used in operating activities was also impacted by changes in operating assets and liabilities, including a $4.0 million decrease prepaid expenses and other current assets, a

$2.8 million decrease in accounts payable, and a $1.6 million decrease in lease liabilities, partially offset by a $2.2 million increase in accrued expenses.

The decrease in net cash used in operating activities for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 was primarily due to a $22.3 million decrease in net loss. This decrease was partially offset by a $6.2 million decrease in stock based compensation expense and various changes in operating assets and liabilities year over year.

### Investing activities

Net cash provided by investing activities for the nine months ended September 30, 2023 was $31.5 million, which was primarily attributable to $33.5 million in redemptions of marketable securities, partially offset by $2.0 million purchases of marketable securities.

The increase in net cash provided by investing activities for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 was primarily due to a $45.0 million decrease in the purchase of marketable securities partially offset by a $19.9 million decrease in redemptions of marketable securities.

### Financing activities

Net cash used in financing activities for the nine months ended September 30, 2023 was $14.1 million, primarily attributable to term loan repayments. This represents an increase in net cash used in financing activities when compared to the nine months ended September 30, 2022 as no such repayments were made in nine months ended September 30, 2022.

### Cash flows for the nine months ended September 30, 2022

### Operating activities

Net cash used in operating activities for the nine months ended September 30, 2022 was $42.6 million, consisting of a net loss of $64.2 million as we incurred expenses associated with our FX-322 program, FX-345 program, MS program, platform development and early-stage research, and general and administrative expenses. In addition, we had non-cash charges of $19.7 million for depreciation, stock-based compensation expense, non-cash lease expense, and non-cash interest expense. Net cash used in operating activities was also impacted by a net $4.5 million decrease in operating assets and liabilities, including a $3.2 million decrease in prepaid expenses and other current assets, a $1.4 million decrease in lease liabilities, and a $0.4 million decrease in accrued expenses, partially offset by a $0.5 million increase in accounts payable.

### Investing activities

Net cash provided by investing activities for the nine months ended September 30, 2022 was $6.6 million, which was attributable to $53.4 million in redemptions of marketable securities and $18 thousand sales of property and equipment, partially offset by $46.9 million purchases of marketable securities.

### Financing activities

Net cash provided by financing activities for the nine months ended September 30, 2022 was primarily attributable to $0.3 million in proceeds from the issuance of common stock and the sale of shares of common stock under the Employee Stock Purchase Plan.

### Funding requirements

Following the Merger, the business of Korro Bio will be the business of the combined company, and we do not expect any further development of our product candidates or programs that would require additional funding. The funding requirements of the combined company will reflect the funding requirements for the development of Korro Bio’s product candidates and programs. A discussion of Korro Bio’s funding requirements can be found in the section titled “Korro Bio Management’s Discussion and Analysis of Financial Condition and Results of Operations—Funding Requirements” in the prospectus filed pursuant to Rule 424(b)(3) of the Securities Act with the Securities and Exchange Commission on September 29, 2023.

### Critical accounting policies and use of estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our unaudited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events, and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

Our significant accounting policies are described in more detail in the notes to our unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. During the nine months ended September 30, 2023, there were no material changes to our critical accounting policies from those described in our Annual Report on Form 10-K filed with the SEC on March 10, 2023.

### Recent accounting pronouncements

A description of recent accounting pronouncements that may potentially impact our financial position, results of operations, or cash flows is disclosed in Note 2 to our unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

### Emerging growth company status

The Jumpstart Our Business Startups Act of 2012 permits an “emerging growth company,” such as us, to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected to take advantage of this extended transition period.

## Controls and procedures

As filed, 1,526 characters.

### Limitations on Effectiveness of Controls and Procedures

Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their control objectives.

### Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Vice President of Finance and Operations (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2023. Based on that evaluation, our Chief Executive Officer and Vice President of Finance and Operations concluded that, as of September 30, 2023, our disclosure controls and procedures were effective at the reasonable assurance level.

### Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 4,952 characters.

Except as set forth below, the risk factors set forth under the caption “Risk Factors” in our prospectus filed pursuant to Rule 424(b)(3) of the Securities Act with the SEC on September 29, 2023 (File No. 333-273490) are incorporated by reference in this section.

### Risks related to Frequency’s financial position and need for additional capital

***Frequency has incurred significant losses since inception and anticipates that Frequency will continue to incur losses for the foreseeable future. Frequency is not currently profitable, and Frequency may never achieve or sustain profitability. If Frequency is unable to achieve or sustain profitability, the market value of Frequency common stock will likely decline.***

Frequency is a preclinical-stage biotechnology company with a limited operating history. As a result, Frequency is not profitable and has incurred significant losses since the formation. Frequency had net losses of $11.6 million, $42.0 million and $81.6 million for the three and nine months ended September 30, 2023 and year ended December 31, 2022, respectively. As of September 30, 2023, Frequency had an accumulated deficit of $303.6 million. Investment in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to gain regulatory approval and become commercially viable. Frequency has not commercialized any products and has never generated revenue from the commercialization of any product. To date, Frequency has devoted most of its financial resources to licensing technologies and research and development, including its preclinical platform development activities and clinical trials.

Frequency expects to incur significant additional operating losses to advance any product candidate, including a potential therapeutic candidate for MS, through clinical development, clinical trials, regulatory approval and commercialization. The costs of advancing product candidates into each clinical phase tend to increase substantially over the duration of the clinical development process. Therefore, the total costs to advance any product candidate to marketing approval in even a single jurisdiction are substantial. Because of the numerous risks and uncertainties associated with pharmaceutical product development, Frequency is unable to accurately predict the timing or amount of increased expenses or when, or if, Frequency will be able to begin generating revenue from the commercialization of any product candidates or achieve or maintain profitability. Frequency’s expenses will also increase substantially if Frequency:

- develops and commences clinical trials for any product candidate, including for its MS Program;
- expands its development programs based on its PCA approach;
- further develops its PCA approach;
- seeks regulatory approvals for any other product candidates;
- secures a commercial manufacturing source and supply chain capacity sufficient to produce commercial quantities of any product candidate for which Frequency obtains regulatory approval;
- establishes a sales, marketing and distribution infrastructure to commercialize any product candidates, if approved;
- maintains, expands, and protects its intellectual property portfolio; and
- acquires or in-licenses other product candidates or technologies.

Furthermore, Frequency’s ability to successfully develop, commercialize and license any product candidates and generate product revenue is subject to substantial additional risks and uncertainties, as described under “Risks related to development, clinical testing, manufacturing, and regulatory approval” and “Risks related to commercialization.” As a result, Frequency expects to continue to incur net losses and negative cash flows for the foreseeable future. These net losses and negative cash flows have had, and will continue to have, an adverse effect on Frequency’s stockholders’ equity and working capital. The amount of its future net losses will depend, in part, on the rate of future growth of its expenses and its ability to generate revenues. If Frequency is unable to develop and commercialize one or more product candidates, either alone or through collaborations, or if revenues from any product that receives marketing approval are insufficient, Frequency will not achieve profitability. Even if Frequency successfully commercializes any product candidates, Frequency may continue to incur substantial research and development and other expenses to identify and develop other product candidates. Even if Frequency does achieve profitability, Frequency may not be able to sustain profitability or meet outside expectations for its profitability. If Frequency is unable to achieve or sustain profitability or to meet outside expectations for its profitability, the value of Frequency common stock will be materially adversely affected.

Filed Nov 2, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-058171. Last ingested by Listed: Oct 27, 2026, 17:32 ET. No prices; not investment advice.