Frequency Therapeutics (FREQ -0.32%) is a clinical-stage biotech company currently conducting multiple clinical trials on FX-322, a hearing loss drug that is notably Frequency's only product in clinical development. Although final phase 2a results have yet to be released, interim results released in March were convoluted, and the stock price fell from $36 to $8 as a result. As of April 14, the stock price is currently at about $10.

A doctor checks a woman's ear.

Image source: Getty Images.

A thousand cuts?

The various current clinical trials for FX-322 are examining it as a treatment for different causes of hearing loss. The phase 2a trial focused mainly on two populations: noise-induced sensorineural hearing loss and mild to moderately severe sensorineural hearing loss. Sensorineural hearing loss is caused by damage to inner ear structures of the auditory nerve and accounts for 90% of all cases of hearing loss in adults. In this instance and various others, Frequency hopes to treat the loss of hearing by using FX-322 to stimulate progenitor cells in the cochlea to grow into new hair cells. 

Previous phase 1/2 results were clinically and statistically significant, but as mentioned, investors were irked by the interim phase 2a results. Phase 1 results showed statistically significant and clinically significant improvement in sound clarity, as well as clinically significant improvement in words-in-noise, which measures the participant's ability to discern words while noise is playing in the background.  

In phase 2a, participants were randomized into four trial arms of 24 patients each. One received one dose of FX-322 followed by three doses of placebo, another received two doses of FX-322 followed by two doses of placebo, another received four doses of FX-322, and the final arm received four doses of placebo.  Each dose was injected into the inner ear at weekly intervals. 

Phase 1 testing included only one-time injections; phase 2a was the first to try repeated weekly injections, but interim results showed no improvement to primary outcomes. In fact, there were even instances where the placebo arm performed better than the experimental arms, leading to the possible conclusion that there was no difference between treatment and placebo. Initially, when Frequency released its results, the company claimed that patients may have been biased, but investors were not convinced.

Out of earshot 

Regeneration of hair cells is natural in birds, for which it takes about a month. Mammals currently do not possess this ability. And while FX-322 demonstrated in preclinical studies the ability to regrow hair, it's unknown whether those sensory hair cells -- the kind needed to restore hearing -- can connect to the brain via nerves when regrown.

The company is small, with a market cap of just $324 million and total revenues reaching $37 million as of December 2020. But given the fact that FX-322 is the only product in its pipeline, without further context on efficacy, investors are better off staying on the sidelines. There are massive financial odds to beat; given that a good hearing aid costs between $1,000 and $4,000, and that 3.77 million hearing aids were dispensed in the U.S. in 2017, Frequency is looking to disrupt an industry that brings in $3.7 billion to $15 billion nationwide annually.

Be on the lookout for final phase 2a results emerging late in the second quarter before arriving at a decision. If the results are good, then Frequency could see its market cap increase substantially by the time FDA approval is achieved. However, if not, the company's entire clinical pipeline could be cast in doubt.