Foghorn Therapeutics Inc. — Q3 2023 Form 10-Q
Business context and reporting period. Clinical-stage biotechnology company developing medicines targeting the chromatin regulatory system. This unaudited report covers the three and nine months ended September 30, 2023. Foghorn had no approved products or product-sales revenue.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Collaboration revenue | $17.5 million | $6.6 million | $28.4 million | $15.0 million |
| Research and development expense | $26.3 million | $26.9 million | $85.5 million | $77.4 million |
| General and administrative expense | $8.3 million | $8.0 million | $25.4 million | $22.9 million |
| Net loss | $14.3 million | $25.8 million | $74.3 million | $80.0 million |
| Net loss per share, basic and diluted | $0.34 | $0.62 | $1.77 | $1.93 |
At September 30, 2023, cash and cash equivalents were $70.3 million and marketable securities were $189.6 million, totaling $259.9 million; restricted cash was an additional $1.7 million. Total assets were $313.4 million and total liabilities were $370.8 million, resulting in a $57.4 million stockholders’ deficit. Liabilities included $308.4 million of deferred collaboration revenue. The balance sheet reported no borrowings or other debt.
For the first nine months, operating activities used $90.6 million of cash; investing activities provided $107.1 million, largely from marketable-security maturities; financing activities provided $1.6 million. Cash, cash equivalents and restricted cash increased $18.1 million. The prior-year operating cash inflow of $222.5 million was substantially affected by collection of the $300.0 million Lilly collaboration receivable. No gross or operating margin measure is presented.
Material changes and notable items
- Q3 revenue included $16.1 million from recognizing Merck-related deferred revenue after Merck notified Foghorn in August that it was terminating the collaboration, effective November 7, 2023. Foghorn reported no remaining performance obligation under that agreement at quarter-end.
- Lilly revenue was $1.4 million in Q3 and $11.3 million for the nine-month period. A September reassessment of estimated future Lilly collaboration costs reduced revenue by $3.2 million. The remaining $308.4 million transaction price is expected to be recognized through 2029 or later, depending on development activity; recognition is not expected to be even across periods.
- During Q3, the Lilly-partnered BRM selective inhibitor program moved into development led by Lilly, with Foghorn sharing 50% of costs until registrational trials. Those costs remain in research and development expense.
- Year-to-date R&D expense rose $8.1 million, reflecting higher platform and early-research spending and personnel costs, partly offset by lower FHD-286 clinical costs. FHD-286’s AML/MDS Phase 1 study had been on clinical hold until June 2023; the uveal melanoma study was wound down in Q2. FHD-609 study costs also declined as its Phase 1 study was wound down.
- Foghorn announced first-patient dosing on August 31, 2023 in a Phase 1 study of FHD-286 combined with decitabine or cytarabine in relapsed or refractory AML. Management also cited previously observed blast-count reductions and neutrophil-count recovery in a subset of patients in the monotherapy study; these are early clinical observations, not established efficacy.
- The company recorded income-tax provisions of $0.7 million in Q3 and $2.2 million year to date, primarily related to the Lilly upfront payment and capitalization of R&D costs under Section 174.
Outlook, risks and contingencies
Management expected cash, cash equivalents and marketable securities to fund operating expenses and capital expenditures for at least 12 months from the financial-statement issuance date. Foghorn expects continuing losses and substantial expenses, and says it will need additional funding; financing may be unavailable or dilutive, while collaborations or licenses could require relinquishing rights. Failure to obtain funding could delay, reduce or eliminate programs. The filing provides no specific earnings or revenue guidance.
Key risks include clinical and regulatory uncertainty, the need to finance continued development, reliance on collaborators and external research and manufacturing organizations, and the possibility that collaboration revenue timing changes with estimates and work performed. Foghorn reported no material litigation and no material changes to the risk factors in its 2022 Form 10-K. Management concluded disclosure controls were effective at the reasonable-assurance level.
Important facts for investors to verify
- Progress, enrollment and safety findings in the FHD-286 combination study, and the status of other clinical programs.
- Whether the stated minimum 12-month funding runway remains current, given cash use and planned R&D spending.
- Future Lilly collaboration activity, cost-sharing obligations and the assumptions behind revenue recognition and the $308.4 million remaining transaction price.
- Impact of Merck’s termination on Foghorn’s programs and any follow-on costs or rights.
- Cash and marketable-security balances, deferred revenue, and any subsequent financing or material developments.