Foghorn Therapeutics Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The audited consolidated financial statements received an unqualified opinion. Foghorn is a clinical-stage biotechnology company developing medicines that target the chromatin regulatory system; it has no approved products and has not generated product-sale revenue.
Financial performance and liquidity
| Metric | 2021 | 2020 |
|---|---|---|
| Collaboration revenue | $1.3 million | $0.4 million |
| Research and development expense | $80.3 million | $57.7 million |
| General and administrative expense | $21.7 million | $11.2 million |
| Net loss | $101.3 million | $68.8 million |
| Net loss per share, basic and diluted | $2.73 | $6.23 |
| Cash, cash equivalents and marketable securities at year-end | $154.3 million | $185.8 million |
| Cash used in operating activities | $50.3 million | $31.3 million |
At year-end, the company also reported a $300.0 million collaboration receivable from Lilly, collected in January 2022. The balance sheet showed $459.6 million of current assets, $422.9 million of total liabilities and $96.9 million of stockholders’ equity. The $322.7 million long-term and $28.3 million current deferred-revenue balances principally reflect collaboration consideration to be recognized as services are performed; they are not debt.
Foghorn repaid its Oxford Finance term loan in December 2021, leaving no notes payable at year-end. The early repayment resulted in a $1.2 million debt-extinguishment loss. Management expected cash, cash equivalents and marketable securities to fund operating and capital requirements for at least 12 months from the financial-statement issuance date, while cautioning that estimates could prove inaccurate and further financing may be needed.
Business developments and comparison with 2020
- FHD-286 was in two Phase 1 studies: metastatic uveal melanoma and relapsed or refractory AML/MDS. FHD-609 was in a Phase 1 study for synovial sarcoma. Other programs remained preclinical.
- December 2021’s Lilly collaboration covers six programs directed at five oncology targets, including selective BRM and an undisclosed target, plus three discovery programs. Lilly agreed to a $300 million upfront payment and separately invested $80 million for 4 million shares at $20 per share. The upfront cash arrived in January 2022. Foghorn reported $337.8 million of transaction consideration, including $37.8 million allocated from the stock purchase, with most remaining deferred at year-end.
- Foghorn expects to share U.S. economics equally on the two joint programs, subject to agreement terms, and may receive ex-U.S. royalties. For discovery programs, potential milestone payments can reach approximately $1.3 billion in aggregate if Foghorn does not opt into U.S. economics; these are contingent, not guaranteed revenue.
- Revenue increased year over year but remained modest and collaboration-based. Net loss grew by $32.5 million as operating expenses rose $33.1 million, reflecting clinical-trial initiation, platform investment, increased staffing and facility costs. Operating cash use also increased; reported 2021 cash flow benefited materially from collaboration-related deferred revenue and other working-capital movements.
- The company recorded just $0.6 million of Lilly collaboration revenue in 2021 and $0.7 million under the Merck collaboration. Merck consideration includes a $15 million upfront payment already received, potential research, development and regulatory milestones of up to $245 million, sales milestones up to $165 million per approved product, and royalties, all subject to conditions.
Outlook, risks and unusual items
- Management expected initial clinical data for FHD-286 and FHD-609 as early as the first half of 2022. The filing provides no formal revenue, earnings or clinical-success guidance.
- Management expects significant expenses and operating losses for the foreseeable future and additional funding needs. The company may raise capital or pursue collaborations; financing may be unavailable or dilute stockholders.
- Clinical programs are early-stage and depend on safety, efficacy, regulatory clearance, patient enrollment and manufacturing. Novel mechanisms may bring unknown safety or regulatory challenges. Preclinical results may not predict clinical outcomes.
- Foghorn relies on third-party manufacturers, CROs and other vendors. COVID-19, supply disruptions, trial delays and geopolitical developments could affect operations, although the company stated its operations had not been significantly impacted by the pandemic to date.
- Intellectual-property protection is an important uncertainty: as of the filing’s stated March 1, 2022 position, the company reported no issued patents covering its lead candidates or platform and relied substantially on pending applications, trade secrets and know-how.
- The company reported no material litigation. Management judged disclosure controls and internal control over financial reporting effective as of year-end; the auditor did not attest to internal-control effectiveness because Foghorn qualified for emerging-growth-company relief.
Important facts for investors to verify
- Whether FHD-286 and FHD-609 clinical data, safety findings and enrollment progress support the stated development plans.
- Receipt and use of the $300 million Lilly upfront payment, and the pace and assumptions behind recognition of the $337.8 million collaboration transaction price.
- Cash burn, spending plans and runway after the Lilly payment, including the timing and terms of any future financing.
- Specific Lilly and Merck collaboration milestones, opt-in or opt-out decisions, cost-sharing obligations and the conditions attached to potential milestones and royalties.
- Progress in converting pending patent applications into enforceable protection and any changes to material risks, contingencies or clinical timelines in later filings.