Foghorn Therapeutics Inc. — Q1 2021 Form 10-Q
Business context and reporting period. Unaudited results for the three months ended March 31, 2021, compared with the same period in 2020. Foghorn is a clinical-stage biopharmaceutical company developing medicines using its Gene Traffic Control platform. It reported no product sales; collaboration revenue was its only reported revenue.
Financial performance and position
- Revenue: $0.286 million, versus none in Q1 2020, recognized under the Merck collaboration agreement.
- Operating expenses: $23.416 million, up $9.692 million (71%) year over year. Research and development was $18.726 million, up $7.223 million; general and administrative expense was $4.690 million, up $2.469 million.
- Losses and margins: Operating loss was $23.130 million versus $13.724 million; net loss was $22.986 million versus $13.952 million. Net loss per share was $0.62, compared with $2.71, with weighted-average shares rising to 36.8 million from 5.2 million after the IPO. As a pre-revenue company, a meaningful product gross margin is not reported.
- Cash flow: Operating activities used $23.147 million, versus $10.762 million in Q1 2020. Investing activities used $3.261 million; financing activities provided $0.062 million. Cash, cash equivalents and restricted cash decreased $26.346 million to $68.182 million.
- Liquidity: Cash and cash equivalents plus marketable securities totaled $160.917 million at March 31, 2021; current assets were $165.315 million and current liabilities $16.332 million.
- Debt and leases: $20.0 million principal outstanding under the Oxford term loan, reported at $19.739 million net of discount. The loan bears interest at 8.0% at quarter-end; principal payments begin December 2023 and maturity is November 2025. Operating lease liabilities totaled $62.331 million.
Material changes and business developments
- R&D spending increased with FHD-286 clinical trial start-up, FHD-609 IND-enabling work, higher headcount, and facility and research costs. FHD-286 was in separate Phase 1 studies for metastatic uveal melanoma and relapsed/refractory AML and MDS. The FDA accepted the FHD-609 IND in May 2021, after the reporting period.
- G&A growth reflected increased staffing, public-company costs and facility expenses. Interest and other income included $0.6 million of sublease income.
- Merck collaboration deferred revenue was $14.3 million at quarter-end, expected to be recognized through 2028 as research services are performed; timing can vary. The agreement provides eligibility for up to $245 million in research, development and regulatory milestones, up to $165 million in sales milestones per approved product, and tiered royalties. These payments are contingent, not assured.
Outlook, risks and contingencies
Management expects substantial ongoing losses and increased expenses as it advances its programs. The filing states that existing cash, cash equivalents and marketable securities were expected to fund operations and capital needs for at least 12 months from issuance; the MD&A estimates funding into the third quarter of 2022, including debt service. These are estimates based on assumptions, and the company may need additional financing. Failure to obtain funding could require program delays, reductions or discontinuation. No formal revenue or earnings guidance was provided.
Risks include clinical and regulatory uncertainty, dependence on external research and manufacturing organizations, intellectual-property protection, financing needs, and potential COVID-19-related disruption. The company said operations had not been significantly impacted by COVID-19 to date, while noting future effects were uncertain. It reported no material litigation and no material changes to the risk factors in its 2020 Form 10-K. The Oxford loan is secured by company assets other than intellectual property and carries covenants and events of default; management considered default remote.
Important facts for investors to verify
- Whether the stated cash runway remains adequate as clinical, R&D and capital spending evolve; the runway estimate depends on assumptions.
- Clinical progress, safety and regulatory milestones for FHD-286 and FHD-609, including developments after quarter-end.
- Merck collaboration research progress, estimates used in cost-to-cost revenue recognition, and whether contingent milestones or royalties become achievable.
- Oxford loan interest, covenants and repayment obligations, alongside lease commitments and future financing requirements.