Foghorn Therapeutics Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Foghorn is a clinical-stage biopharmaceutical company developing medicines targeting the chromatin regulatory system. It has no approved products and generated no product-sales revenue; reported revenue was from its Merck collaboration.
Financial highlights
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Collaboration revenue | $0.279 million | $0 | $0.565 million | $0 |
| Research and development | $18.642 million | $13.628 million | $37.368 million | $25.131 million |
| General and administrative | $4.898 million | $1.911 million | $9.588 million | $4.132 million |
| Net loss | $23.111 million | $15.723 million | $46.097 million | $29.675 million |
| Operating cash used | Not separately reported | Not separately reported | $41.630 million | $23.357 million |
Q2 basic and diluted net loss per share was $0.63; six-month loss per share was $1.25. The filing does not provide a meaningful product gross margin; the company had no product sales. Revenue is recognized over time from Merck’s upfront payment using a cost-to-cost method.
At June 30, 2021, cash and cash equivalents were $125.166 million and marketable securities were $16.107 million, or $141.273 million combined unrestricted liquidity. Total assets were $208.526 million; total liabilities were $104.336 million; stockholders’ equity was $104.190 million. The company had $20.0 million of Oxford loan principal outstanding (carrying value, net of discount, $19.826 million), plus operating lease liabilities of $61.643 million. The loan’s stated rate was 8.1% at quarter-end; principal payments were scheduled to begin in December 2023, with maturity in November 2025.
Material changes versus the prior comparable periods
- Q2 operating expenses rose $8.001 million year over year, driven by higher R&D ($5.014 million increase) and G&A ($2.987 million increase). Management cited higher headcount, facility and research costs, and public-company expenses.
- Six-month operating expenses increased $17.693 million. Management attributed the increase in program costs partly to initiating two Phase 1 studies for FHD-286 and a Phase 1 study for FHD-609.
- Six-month net loss widened by $16.422 million, and operating cash use increased by $18.273 million year over year.
- Cash, cash equivalents and restricted cash increased $32.371 million during the first half. Investing cash inflow reflected sales of marketable securities, rather than operating cash generation; financing cash inflow was only $0.173 million.
Business, collaboration, outlook and risks
- FHD-286 was in separate Phase 1 studies for metastatic uveal melanoma and relapsed/refractory AML and MDS; FHD-609 was in a Phase 1 study for synovial sarcoma. These programs remain subject to clinical and regulatory uncertainty.
- The Merck agreement provided a nonrefundable $15 million upfront payment. Foghorn may receive up to $245 million in research, development and regulatory milestones, up to $165 million in sales-based milestones per approved product, and tiered royalties. These amounts are contingent; milestones were excluded from the transaction price at June 30 because they were constrained by uncertainty. The remaining transaction price was $14.0 million, expected to be recognized through 2028, with timing dependent on work performed and estimates.
- Management expects substantial expenses and operating losses for the foreseeable future and says additional funding will be needed. It estimated that IPO proceeds and existing cash, cash equivalents and marketable securities would fund operations, capital expenditures and debt service into at least Q4 2022; the filing cautions that this estimate depends on assumptions and funds could be used sooner. The financial statement note also states liquidity was expected to cover at least 12 months from issuance.
- Risks include clinical-development and approval failure, future financing availability and terms, reliance on CROs and CDMOs, intellectual-property protection, and possible COVID-19-related disruption. Management reported no significant operational impact from COVID-19 to date but could not predict future effects. Risk factors were reported as unchanged from the 2020 Form 10-K.
- The filing reported no material litigation and no material change in internal control over financial reporting; management concluded disclosure controls were effective at the reasonable-assurance level.
Investor facts to verify
- Whether the stated cash runway remains supported by actual spending, trial costs and capital needs.
- Clinical-trial progress, safety and efficacy evidence for FHD-286 and FHD-609, and timing of future development milestones.
- Merck collaboration progress, cost-to-complete assumptions, revenue recognition, and whether any contingent milestones or royalties become achievable.
- Oxford loan terms and covenant compliance, including the secured-asset provisions, alongside substantial operating lease commitments.
- Potential financing needs and the effect of any future equity, debt, collaboration or licensing arrangements on existing shareholders and program rights.