Foghorn Therapeutics Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Foghorn is a clinical-stage biotechnology company with no approved products and no product-sales revenue; collaboration agreements are its reported revenue source.
Financial results and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Collaboration revenue | $6.6m | $0.04m | $15.0m | $0.6m |
| Research and development expense | $26.9m | $20.5m | $77.4m | $57.9m |
| General and administrative expense | $8.0m | $5.8m | $22.9m | $15.4m |
| Operating loss | $28.3m | $26.3m | $85.3m | $72.7m |
| Net loss | $25.8m | $26.1m | $80.0m | $72.2m |
| Net loss per share | $0.62 | $0.71 | $1.93 | $1.96 |
- At September 30, cash and cash equivalents were $87.6m and marketable securities were $285.9m, totaling $373.5m. Cash, cash equivalents and restricted cash were $89.3m.
- Nine-month operating cash flow was positive $222.5m, primarily reflecting collection of Lilly’s $300.0m collaboration payment recorded as a receivable at year-end 2021. Investing cash outflow was $237.8m, mainly purchases of marketable securities; cash, cash equivalents and restricted cash decreased $13.5m.
- Total liabilities were $409.6m, including $341.0m of deferred revenue. The filing reports no interest expense in 2022 because Oxford debt was repaid in December 2021; it does not report outstanding borrowings at September 30.
- Accumulated deficit was $344.3m and stockholders’ equity was $24.3m. Unrealized marketable-security losses contributed $4.9m of other comprehensive loss for the nine months.
- No product gross margin is reported; the company has no product sales. Management expects continued operating losses and stated cash, cash equivalents and marketable securities should fund expenses and capital needs for at least 12 months from the financial statements’ issuance date.
Material changes and business developments
- Q3 collaboration revenue rose to $6.6m from $0.04m, primarily from $5.3m recognized under the Lilly collaboration and $1.3m under Merck. Nine-month revenue increased to $15.0m from $0.6m.
- R&D expense increased 34% for the quarter and 34% for the nine-month period, reflecting clinical-program costs, increased headcount, platform investment and facilities. G&A expense also increased, primarily from personnel and stock-based compensation.
- Net loss was modestly lower in Q3 year over year, helped by higher collaboration revenue and interest income; nine-month net loss increased by $7.8m.
- In Q3, Foghorn achieved a Merck research milestone and received $5.0m. The payment was included in the collaboration transaction price, with a $0.7m revenue catch-up adjustment recorded.
- The Lilly agreement covers six programs directed at five targets. Its $337.8m initial transaction price is recognized over time; $323.8m remained allocated to unsatisfied performance obligations at quarter-end and is expected to be recognized through 2029. Recognition may vary by period.
Outlook, risks and contingencies
- FHD-286 was being studied in Phase 1 for metastatic uveal melanoma and AML/MDS; the uveal melanoma study was recruiting, while the AML/MDS study was on full FDA clinical hold. The FDA requested review of the safety database, risk-mitigation strategies and clinical activity by dose level. The filing warns the hold may take considerable time to resolve or may never be lifted.
- FHD-609 was in a Phase 1 study for synovial sarcoma. Management expects R&D spending and operating losses to increase as programs and platform research advance; no financial guidance or specific timeline to profitability is provided.
- Management cited reliance on future financing, collaborations or licensing, and risks including clinical and regulatory outcomes, reliance on external research/manufacturing providers, possible pandemic-related disruption, and uncertainty in collaboration cost estimates and revenue timing.
- Potential Lilly and Merck milestones were generally excluded from revenue transaction prices while constrained by uncertainty. Future milestone or royalty receipts are not assured. No material litigation was reported; license agreements may entail limited fees, royalties and milestones.
Important facts for investors to verify
- Updates on the FDA’s full clinical hold for FHD-286 in AML/MDS, including any further requests, resolution timing and effects on enrollment.
- Cash use and runway against management’s stated minimum 12-month funding expectation, including how much liquidity is held in marketable securities.
- Progress, costs and revenue-recognition estimates for Lilly and Merck collaborations, including the remaining deferred revenue, target substitutions and milestone conditions.
- Whether increased clinical and platform spending produces development progress, and the potential funding or dilution required if expenses exceed available resources.