Filing Overview
Foghorn Therapeutics Inc. filed a Form 8-K relating to transactions effective December 10, 2021, with the report signed and filed on December 13, 2021. The filing announces a strategic collaboration with Eli Lilly and Company and a concurrent private placement of Foghorn common stock. This filing does not provide a quarterly or annual financial update.
Material Transaction and Key Financial Terms
- Collaboration scope: Foghorn and Lilly will research, discover and develop therapies using Foghorn’s platform against the selective BRM target, one additional undisclosed oncology target and three additional discovery programs.
- Upfront payment: Lilly will pay Foghorn a non-refundable, non-creditable upfront payment of $300 million.
- Equity investment: Lilly purchased 4.0 million shares at $20.00 per share, for aggregate gross proceeds of $80 million. The shares were issued in an unregistered private placement under Section 4(a)(2) of the Securities Act.
- Potential milestones: For the three discovery programs, Foghorn may receive development and commercialization milestones totaling approximately $1.3 billion if it does not exercise its option to participate in U.S. economics for any of those programs. These payments are contingent and are not guaranteed.
- Economics: Lilly and Foghorn will share U.S. economics 50/50 for the BRM-selective program and one other undisclosed target, subject to specified conditions. Foghorn may elect to participate in a percentage of U.S. economics for the three discovery programs after successful dose-finding toxicity studies.
- Royalties: Lilly will pay tiered royalties on applicable ex-U.S. sales, ranging from low-double digits to the twenties for the BRM-selective program and one other undisclosed target, and from mid-single digits to low-double digits for the discovery programs, subject to royalty step-down provisions.
- Registration and participation rights: Lilly received certain Form S-3 and piggyback registration rights and, subject to limitations, rights to participate pro rata in future Foghorn equity offerings.
Changes, Outlook and Risk Considerations
- The agreements materially expand Foghorn’s relationship with Lilly and provide $380 million of aggregate upfront and equity funding before transaction expenses.
- The filing does not provide a revised revenue forecast, earnings guidance, cash runway, liquidity outlook, debt balance or other operating guidance. It also does not state how the upfront payment will be recognized for accounting purposes.
- Lilly may terminate the collaboration for convenience, in whole or with respect to a target, project or product, on 60 days’ written notice.
- Either party may terminate for an uncured material breach. In certain cases of material breach by Foghorn, Lilly may terminate Foghorn’s co-development, co-commercialization and economics-sharing rights instead of terminating the agreement.
- Foghorn may terminate if Lilly or a sublicensee pursues a patent challenge against a licensed Foghorn patent.
- Lilly agreed to restrictions on acquiring Foghorn until the earlier of 540 days after the stock-purchase closing or the date Lilly holds less than 2% of outstanding common stock. Lilly also agreed generally not to transfer the shares for one year, subject to exceptions.
- Key execution risks include successful discovery and development, dose-finding toxicity studies, clinical and regulatory outcomes, commercialization, achievement of milestones, continued collaboration and the parties’ ability to realize shared U.S. economics.
- The filing incorporates general risk factors from Foghorn’s 2020 Form 10-K and 2021 Forms 10-Q and cautions that forward-looking statements may not be achieved.
Financial Information Not Provided
The filing does not report revenue, net income or loss, operating cash flow, free cash flow, gross or operating margins, debt, cash balance, liquidity, share count after issuance, dilution percentage or pro forma financial statements. The filing text does not provide a clear value for these items.
Investor Verification Checklist
- Verify the definitive Collaboration Agreement, including target-specific rights, economics, milestones, royalty terms, termination provisions and accounting treatment of the upfront payment.
- Confirm the number of shares outstanding after the 4.0 million-share issuance and the resulting ownership and dilution attributable to Lilly.
- Review subsequent SEC filings for cash balances, cash runway, revenue recognition and use of the $300 million upfront payment and $80 million equity proceeds.
- Assess the conditions and timing required for Foghorn to exercise U.S. economics participation rights.
- Track clinical, regulatory and development milestones because the approximately $1.3 billion milestone opportunity is contingent and may not be received.
- Review Lilly’s termination rights and the amended investor rights agreement, including registration, transfer and future financing participation provisions.