Foghorn Therapeutics Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Foghorn is a clinical-stage biotechnology company with no approved products and no product-sales revenue; reported collaboration revenue comes from agreements with Lilly and Merck.
Financial performance and liquidity
Amounts below are in millions of dollars except per-share data.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Collaboration revenue | $4.49 | $0.28 | $8.41 | $0.57 |
| Research and development expense | $25.97 | $18.64 | $50.48 | $37.37 |
| General and administrative expense | $7.70 | $4.90 | $14.92 | $9.59 |
| Operating loss | $(29.19) | $(23.26) | $(56.99) | $(46.39) |
| Net loss | $(27.31) | $(23.11) | $(54.23) | $(46.10) |
| Net loss per share, basic and diluted | $(0.66) | $(0.63) | $(1.31) | $(1.25) |
- Cash, cash equivalents and marketable securities totaled $394.7 million at June 30, 2022, compared with $154.3 million at December 31, 2021. This includes $61.2 million of cash and cash equivalents and $333.5 million of marketable securities. The company said these resources should fund operating expenses and capital expenditures for at least 12 months from the financial statement issuance date.
- Six-month operating cash flow was positive $242.5 million, principally reflecting collection of Lilly’s $300 million collaboration receivable. Investing cash outflow was $283.9 million, largely from purchases of marketable securities. Financing provided $1.4 million. Cash, cash equivalents and restricted cash ended the period at $62.9 million.
- No interest expense was recorded in the first half of 2022; management attributed the change from 2021 to repayment of Oxford debt in December 2021. The balance sheet reports no debt line item. Current assets were $400.1 million and current liabilities $48.0 million.
- Deferred revenue was $342.6 million, including $329.2 million related to Lilly, expected to be recognized through 2029, and $13.5 million related to Merck, expected through 2028. Revenue recognition uses a cost-to-cost method and may vary between periods.
- Accumulated deficit was $318.5 million. Comprehensive loss for the first half was $57.4 million, including $3.2 million of unrealized losses on marketable securities. As a pre-revenue development-stage company, conventional operating margins are not meaningful.
Material changes versus the prior comparable period
- First-half collaboration revenue rose $7.8 million year over year, primarily from the Lilly agreement entered into in December 2021; Q2 revenue rose $4.2 million for the same reason.
- First-half operating expenses increased $18.4 million, with R&D up $13.1 million and G&A up $5.3 million. Management cited clinical-program activity, higher headcount and stock-based compensation, platform investment, and increased support costs.
- First-half net loss increased $8.1 million year over year despite higher collaboration revenue, as operating expenses grew. The Lilly upfront payment was collected in January 2022; the company also received $80 million from Lilly’s December 2021 stock purchase.
- Marketable securities increased substantially from year-end as the company invested available funds; unrealized losses reflected in other comprehensive loss increased during the period.
Programs, outlook and risks
- FHD-286 is in Phase 1 studies for metastatic uveal melanoma and relapsed/refractory AML and MDS. The AML/MDS dose-escalation study was placed on partial FDA clinical hold in May 2022: existing patients benefiting from treatment may continue, but new enrollment is paused. FDA requested review of the safety database, risk-mitigation strategies and clinical activity by dose level. Timing of resolution is uncertain, and the hold may not be lifted.
- FHD-609 is being evaluated in a Phase 1 study for synovial sarcoma. Management expects expenses and operating losses to rise as it advances these programs and its research platform; it gave no specific profitability or revenue guidance.
- The Lilly collaboration covers six programs directed at five targets. Its $300 million upfront payment and $37.8 million allocated from Lilly’s $80 million equity purchase were recorded as deferred revenue and are recognized over the performance period. Potential milestones were excluded from transaction price because they were constrained by uncertainty. Future economics depend on program choices and development outcomes.
- In July 2022, Foghorn achieved a Merck research milestone and anticipated a $5 million payment in Q3 2022. The filing also reports that a sublessee planned to vacate by the end of Q3; a replacement sublease was signed August 2, 2022 on substantially similar economic terms.
- Key risks include clinical and regulatory uncertainty, inability to develop or obtain approval for product candidates, dependence on collaborators and external research/manufacturing organizations, potential funding needs beyond the stated runway, and COVID-19 or other disruptions. Management expects continued losses and says additional financing may be needed; financing may be unavailable or require unfavorable terms.
Important facts for investors to verify
- Updates from the FDA on the FHD-286 AML/MDS partial clinical hold, enrollment restrictions and any related safety disclosures.
- Actual cash burn and the assumptions supporting management’s estimate of at least 12 months of runway, particularly as development spending increases.
- Progress and costs under the Lilly and Merck collaborations, including timing of revenue recognition, milestone receipts and any changes to estimated costs or program scope.
- Whether the anticipated $5 million Merck milestone was received in Q3 2022, and whether the replacement sublease became effective as expected.
- Clinical data, trial timing and any future financing or dilution; the filing provides no specific clinical-data timetable or profitability guidance.