Shares of Frequency Therapeutics FREQ surged 77.48% on Friday, after management announced that the company entered into a definitive agreement with RNA editing company, Korro Bio, to merge in an all-stock transaction.

Per the terms of the agreement, pre-merger FREQ shareholders will own approximately 8% of the combined entity while the remaining 92% stake will be owned by pre-merger Korro Bio shareholders. Prior to the merger, Korro Bio has secured commitments from a syndicate of investors for a planned concurrent $117 million financing.

In addition, pre-merger FREQ shareholders will also be eligible to receive a contingent value right for each outstanding share, provided that the company has not monetized its remyelination program for Multiple Sclerosis (MS) prior to the closing of the merger.

This combined entity will focus on advancing Korro Bio’s portfolio of RNA editing programs, which is developed using the latter’s RNA editing proprietary platform. Korro Bio’s platform enables a breadth of indications with an initial focus on six potential programs all of which are wholly owned. The lead program is a disease modifying therapy for alpha-1 antitrypsin deficiency for which a regulatory filing is expected in the second half of 2024.

Post-merger, the newly formed entity will operate under Korro Bio and will apply to trade on the NASDAQ under the ticker symbol KRRO. The combined company will be headquartered in Cambridge, MA and led by the existing management team of Korro Bio. The combined entity is expected to have cash balance of around $170 million, which is expected to provide cash runway into 2026.

The board of directors of both Frequency Therapeutics and Korro Bio have given their approval to thistransaction. The merger, which is subject to customary closing conditions and clearance from the regulatory authorities, is expected to be completed by fourth-quarter 2023.

Year to date, shares of FREQ have plunged 81.6% compared with the industry’s 10.0% decline.

Image Source: Zacks Investment Research

Currently, Frequency does not have any pipeline candidate in clinical development. In February, the company suffered a major setback when it decided to discontinue the development of FX-322 as a potential treatment for sensorineural hearing loss. The decision was based on data from a mid-stage study which failed to achieve its primary efficacy endpoint of improving speech perception. Alongside the results, the company also announced restructuring activities and decision to reduce its headcount by around 55% in order to curb cash burn.