Foghorn Therapeutics Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparative period is the three months ended March 31, 2022. Foghorn is a clinical-stage biotechnology company developing medicines targeting the chromatin regulatory system. It had no approved products and generated no product sales; reported revenue came from collaborations.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Collaboration revenue | $5.3 million | $3.9 million; up $1.4 million |
| Research and development expense | $30.0 million | $24.5 million; up $5.5 million |
| General and administrative expense | $8.6 million | $7.2 million; up $1.4 million |
| Total operating expenses | $38.6 million | $31.7 million |
| Loss from operations | $33.3 million | $27.8 million |
| Net loss | $30.5 million | $26.9 million |
| Net loss per share, basic and diluted | $0.73 | $0.65 |
| Operating cash flow | $(31.2) million | $271.5 million provided |
Interest income rose to $2.7 million from $0.2 million, reflecting higher average interest rates. The filing does not present a meaningful product gross margin; revenue is collaboration revenue and the company has no product sales.
At March 31, 2023, cash and cash equivalents were $50.6 million and marketable securities were $265.3 million, totaling $316.0 million. Including restricted cash, cash, cash equivalents and restricted cash were $52.3 million. Total assets were $372.9 million; total liabilities were $397.5 million, including $331.5 million of deferred revenue and $49.8 million of operating lease liabilities. Stockholders’ equity was a deficit of $24.6 million. No borrowings are reported on the balance sheet. The company reported no material off-balance-sheet arrangements.
Changes versus the prior period
- Revenue increased as recognition under the Lilly and Merck collaborations rose; management attributed the increase primarily to work on Lilly’s BRM-selective program and continued Merck research.
- R&D expense increased mainly from higher personnel costs, platform and early-stage research spending, and facility-related costs. FHD-286 costs declined due partly to reduced AML/MDS trial spending while that study was on FDA full clinical hold.
- G&A expense increased mainly due to added personnel and related stock-based compensation.
- Q1 2022 operating cash flow included receipt of the $300 million Lilly collaboration payment, so the periods’ operating cash flows are not directly comparable.
- Accumulated deficit increased to $403.6 million from $373.1 million at year-end 2022; stockholders’ equity moved from $0.1 million to a $24.6 million deficit.
Outlook, developments and risks
- Management expects cash, cash equivalents and marketable securities to fund operating expenses and capital expenditure requirements for at least 12 months from the issuance of the interim financial statements. It expects continuing operating losses and says additional funding will be needed; financing may be unavailable or require unfavorable terms.
- FHD-286 is being studied in metastatic uveal melanoma and AML/MDS. The AML/MDS study remained on FDA full clinical hold due to potential differentiation syndrome; the company expected to provide a regulatory update in Q2 2023 and anticipated initial uveal melanoma data in Q2 2023.
- In an April 24, 2023 update, the company reported pausing enrollment in the FHD-609 Phase 1 study after a grade 4 QTc prolongation event. FDA placed the study on partial clinical hold but allowed enrolled patients benefiting from therapy to continue. The company was not then planning to pursue a dose-expansion study independently.
- Lilly-related unsatisfied transaction price was $315.1 million at quarter-end, expected to be recognized through 2029 or beyond depending on clinical development timing. Merck-related unsatisfied transaction price was $16.4 million, expected to be recognized through approximately 2028. Potential collaboration milestones are contingent and are not assured.
- The company recorded a $0.6 million income tax provision, primarily related to the Lilly upfront payment and required capitalization of R&D costs. It maintained a full valuation allowance against net deferred tax assets.
- Management reported no material changes to the risk factors in its 2022 Form 10-K and no material litigation. Key risks include clinical and regulatory uncertainty, financing needs, and dependence on successful development and collaboration programs.
Important facts for investors to verify
- Regulatory status and subsequent clinical updates for the FHD-286 AML/MDS study and FHD-609 program, as well as timing and results of FHD-286 uveal melanoma data.
- Cash burn, investment balances and whether the stated minimum 12-month runway remains supported as R&D programs progress.
- Revenue recognition assumptions and the timing and conditions for future Lilly and Merck milestones, royalties and other collaboration economics.
- Progression of operating losses, deferred revenue, lease obligations and the reported stockholders’ equity deficit.
- Potential dilution or economic trade-offs from future financing, collaborations or licensing arrangements.