Foghorn Therapeutics Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Foghorn is a clinical-stage biopharmaceutical company developing medicines targeting the chromatin regulatory system. It has no approved products and reported no product sales; revenue was from its Merck collaboration.
Key financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Collaboration revenue | $0.041 million | $0.179 million | $0.606 million | $0.179 million |
| Research and development | $20.494 million | $16.113 million | $57.862 million | $41.244 million |
| General and administrative | $5.808 million | $2.555 million | $15.396 million | $6.687 million |
| Operating loss | $26.261 million | $18.489 million | $72.652 million | $47.752 million |
| Net loss | $26.080 million | $18.367 million | $72.177 million | $48.042 million |
| Net loss per share | $0.71 | $3.12 | $1.96 | $8.76 |
| Cash used in operating activities | Not provided for quarter | Not provided for quarter | $62.132 million | $20.631 million |
Loss per share is shown as a loss; the prior-period comparison is affected by the substantially higher weighted-average share count after the October 2020 IPO. Operating margins are not meaningful given minimal collaboration revenue and no product sales.
Liquidity, debt and balance sheet
- At September 30, 2021, cash and cash equivalents were $57.841 million and marketable securities were $63.001 million, totaling $120.842 million of unrestricted cash, cash equivalents and marketable securities. Restricted cash was an additional $1.733 million.
- Total assets were $186.069 million; total liabilities were $105.087 million; stockholders’ equity was $80.982 million. Accumulated deficit was $235.113 million.
- Oxford loan principal outstanding was $20.0 million ($19.914 million net of discount and current portion). The loan bears interest at 8.0% currently, with principal repayments scheduled to begin December 2023 and maturity in November 2025. It is secured by company assets other than intellectual property and includes financial and operational covenants.
- Operating lease liabilities totaled $60.011 million. Nine-month investing cash inflow of $26.5 million primarily reflected net sales of marketable securities, not operating cash generation.
Changes and operating developments
- Nine-month operating expenses rose $25.327 million year over year, driven by increased R&D investment, personnel, facilities and public-company costs. Q3 R&D expense increased $4.381 million and G&A increased $3.253 million year over year.
- FHD-286 was in separate Phase 1 studies for metastatic uveal melanoma and relapsed or refractory AML/MDS; FHD-609 was in a Phase 1 study for synovial sarcoma. Management said FHD-286 costs increased as those trials began. Lower Q3 FHD-609 costs versus the prior year reflected the timing of IND-enabling toxicology work.
- The Merck agreement provided a $15.0 million upfront payment and potential milestone payments of up to $245.0 million for research, development and regulatory achievements, up to $165.0 million in sales milestones per approved product, and tiered royalties. These contingent amounts are not assured. Remaining deferred revenue was $14.0 million, expected to be recognized through 2028 based on progress under the collaboration.
- The company used $77.5 million of IPO proceeds through September 30, 2021, primarily for its clinical programs, pipeline and platform, working capital and general corporate purposes.
Outlook, risks and contingencies
Management expected existing cash, cash equivalents and marketable securities to fund operating expenses, capital expenditures and debt service for at least 12 months from the financial statements’ issuance date. The company expects significant future losses and expense growth and says additional financing will be needed; failure to obtain it could delay, scale back or discontinue programs. There is no specific revenue, earnings or clinical-development guidance in the filing.
Management reported that COVID-19 had not significantly affected operations to date, but could disrupt research, trials or procurement. Revenue timing depends on estimates of collaboration costs and progress, and changes in those estimates could materially affect reported revenue timing. The filing reported no material litigation and no material changes to the risk factors in the 2020 Form 10-K. Disclosure controls were deemed effective; no material change in internal control was reported.
Important facts for investors to verify
- Clinical-trial progress, timing, safety and efficacy for FHD-286 and FHD-609, and the related spending needed to advance them.
- Whether cash burn and planned spending remain consistent with management’s stated minimum 12-month funding outlook, and the timing and terms of any future financing.
- Oxford loan terms and covenant compliance, including the August 2021 amendment referenced in the filing; the amendment’s detailed terms are not provided in the filing text supplied here.
- Merck collaboration progress, any milestone eligibility, and the assumptions behind recognition of the remaining $14.0 million deferred revenue.
- Potential effects of trial, manufacturing, CRO/CDMO, intellectual-property, regulatory and pandemic-related risks on development timelines and costs.