Foghorn Therapeutics(FHTX) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents Foghorn Therapeutics Inc.'s unaudited condensed consolidated financial statements and detailed notes for the interim periods ended June 30, 2025 Condensed Consolidated Balance Sheets The condensed consolidated balance sheets show a decrease in total assets and an increase in total stockholders' deficit from December 31, 2024, to June 30, 2025, primarily driven by a reduction in marketable securities and an accumulated deficit | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--------------------------------- | :----------------------------- | :------------------------------- | | Cash and cash equivalents | $72,572 | $55,454 | | Marketable securities | $126,093 | $188,293 | | Total current assets | $203,842 | $249,601 | | Total assets | $226,236 | $283,982 | | Total current liabilities | $77,786 | $66,989 | | Total liabilities | $302,895 | $329,510 | | Total stockholders' deficit | $(76,659) | $(45,528) | Condensed Consolidated Statements of Operations and Comprehensive Loss The company reported a reduced net loss for both the three and six months ended June 30, 2025, compared to the same periods in 2024, driven by lower operating expenses, particularly in research and development, despite a slight increase in collaboration revenue | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :------------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Collaboration revenue | $7,557 | $6,888 | $13,509 | $11,938 | | Research and development | $21,792 | $23,797 | $43,418 | $49,331 | | General and administrative | $6,862 | $7,325 | $14,101 | $15,035 | | Impairment of long-lived assets | $— | $2,398 | $— | $2,398 | | Total operating expenses | $28,654 | $33,520 | $57,519 | $66,764 | | Net loss | $(17,936) | $(22,979) | $(36,770) | $(47,995) | | Net loss per share (basic and diluted) | $(0.28) | $(0.45) | $(0.58) | $(1.02) | Condensed Consolidated Statements of Stockholders' Deficit The statements of stockholders' deficit show an increase in the accumulated deficit from $558.2 million at December 31, 2024, to $595.0 million at June 30, 2025, primarily due to net losses incurred during the period, partially offset by stock-based compensation and common stock issuances | Metric | December 31, 2024 (in thousands) | March 31, 2025 (in thousands) | June 30, 2025 (in thousands) | | :-------------------------------- | :------------------------------- | :---------------------------- | :--------------------------- | | Common Stock (Shares) | 55,594,131 | 55,721,340 | 55,803,195 | | Additional Paid-in Capital | $512,515 | $515,346 | $518,333 | | Accumulated Deficit | $(558,184) | $(577,018) | $(594,954) | | Total Stockholders' Deficit | $(45,528) | $(61,652) | $(76,659) | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2025, net cash provided by investing activities significantly increased, while net cash used in operating activities decreased, and net cash provided by financing activities substantially declined compared to the same period in 2024, leading to an overall net increase in cash, cash equivalents, and restricted cash | Cash Flow Activity | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | | Net cash used in operating activities | $(44,968) | $(54,882) | | Net cash provided by investing activities | $63,235 | $9,120 | | Net cash provided by financing activities | $393 | $104,373 | | Net increase in cash, cash equivalents and restricted cash | $18,660 | $58,611 | | Cash, cash equivalents and restricted cash at end of period | $75,822 | $140,655 | Notes to Unaudited Condensed Consolidated Financial Statements These notes provide detailed explanations and disclosures for the unaudited condensed consolidated financial statements, covering key accounting policies, agreements, and financial positions 1. Nature of Business, Going Concern and Basis of Presentation Foghorn Therapeutics Inc. is a clinical-stage biopharmaceutical company with recurring losses, anticipating current capital to fund operations for at least 12 months, with future funding needs - Foghorn Therapeutics Inc. is a clinical-stage biopharmaceutical company developing medicines targeting the chromatin regulatory system using its proprietary Gene Traffic Control platform[23] - The company has incurred net losses of $36.8 million and $48.0 million for the six months ended June 30, 2025 and 2024, respectively, with an accumulated deficit of $595.0 million as of June 30, 2025[26] - Management expects current cash, cash equivalents, and marketable securities to fund operating expenses and capital expenditure requirements for at least 12 months, but additional funding will be necessary thereafter[26][27] 2. Summary of Significant Accounting Policies The company's interim financial reporting follows GAAP and SEC rules, leveraging the extended transition period for new accounting standards as an emerging growth company - The company's accounting policies for interim financial reporting are consistent with its 2024 Annual Report on Form 10-K[30] - As an 'emerging growth company,' Foghorn has elected the extended transition period for complying with new or revised accounting standards[31] - The company is evaluating the impact of ASU 2024-03, 'Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures,' effective for annual periods beginning after December 15, 2026[32] 3. Marketable Securities and Fair Value Measurements The company's marketable securities, primarily U.S. treasury notes, commercial paper, and corporate notes and bonds, decreased from $188.3 million at December 31, 2024, to $126.1 million at June 30, 2025, with fair value measurements predominantly classified as Level 2 | Security Type | Estimated Fair Value (June 30, 2025, in thousands) | Estimated Fair Value (December 31, 2024, in thousands) | | :------------------------------------ | :--------------------------------------------- | :----------------------------------------------- | | U.S. treasury notes (due within one year) | $11,468 | $35,394 | | Commercial paper (due within one year) | $27,048 | $44,994 | | Corporate notes and bonds (due within one year) | $87,577 | $100,744 | | Corporate notes and bonds (due after one year through two years) | $— | $7,161 | | Total marketable securities | $126,093 | $188,293 | - The majority of the company's marketable securities and cash equivalents are measured at fair value using Level 2 inputs (observable inputs other than quoted prices)[34] 4. Property and Equipment, Net Net property and equipment decreased slightly from $9.96 million at December 31, 2024, to $9.51 million at June 30, 2025, with depreciation and amortization expense increasing for both the three and six months ended June 30, 2025, compared to the prior year | Category | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------- | :--------------------------- | :------------------------------- | | Laboratory equipment | $8,326 | $7,119 | | Leasehold improvements | $17,023 | $17,023 | | Total property and equipment, net | $9,514 | $9,964 | - Depreciation and amortization expense was $0.9 million for the three months ended June 30, 2025 (vs. $0.8 million in 2024) and $1.7 million for the six months ended June 30, 2025 (vs. $1.6 million in 2024)[35] 5. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities remained relatively stable, increasing slightly from $8.53 million at December 31, 2024, to $8.56 million at June 30, 2025, with an increase in accrued external research and development expenses and a decrease in accrued employee compensation and benefits | Category | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :------------------------------------ | :--------------------------- | :------------------------------- | | Accrued external research and development expenses | $4,562 | $3,076 | | Accrued employee compensation and benefits | $2,922 | $4,742 | | Total accrued expenses | $8,564 | $8,531 | 6. Common Stock and Net Loss Per Share The number of common shares outstanding increased to 55,803,195 as of June 30, 2025, with net loss per share improving to $(0.28) for the three months and $(0.58) for the six months ended June 30, 2025, compared to $(0.45) and $(1.02) for the respective periods in 2024 - As of July 28, 2025, the registrant had 56,529,969 shares of common stock outstanding[4] - In May 2024, the company issued 12,743,039 shares of common stock and pre-funded warrants for 7,220,794 shares, generating net proceeds of $102.8 million[38][90] | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss per share attributable to common stockholders— basic and diluted | $(0.28) | $(0.45) | $(0.58) | $(1.02) | | Weighted average common shares outstanding—basic and diluted | 62,978,219 | 51,580,310 | 62,913,804 | 47,004,561 | 7. Stock-Based Compensation Stock-based compensation expense decreased for both the three and six months ended June 30, 2025, compared to the prior year, with the 2020 Equity Incentive Plan and 2020 Employee Stock Purchase Plan (ESPP) seeing automatic annual increases in reserved shares | Expense Category | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Research and development expenses | $1,129 | $1,324 | $2,279 | $2,666 | | General and administrative expenses | $1,604 | $1,844 | $3,146 | $3,726 | | Total Stock-based compensation expense | $2,733 | $3,168 | $5,425 | $6,392 | - As of June 30, 2025, total unrecognized compensation cost related to unvested options was $18.2 million, to be recognized over a weighted average period of 2.3 years[48] - The 2020 Equity Incentive Plan and 2020 Employee Stock Purchase Plan (ESPP) had automatic annual increases in reserved shares effective January 1, 2025[44][46] 8. Collaboration Agreement The collaboration agreement with Eli Lilly and Company (Lilly) involves co-development and co-commercialization for SMARCA2 oncology targets and additional discovery programs, with increased collaboration revenue for the periods ended June 30, 2025, and $266.6 million in deferred revenue remaining - The Lilly Collaboration Agreement, entered in December 2021, focuses on creating novel oncology medicines using Foghorn's Gene Traffic Control platform, including co-development for SMARCA2 and other targets, and three discovery programs[49][97] - For Joint Programs, Foghorn and Lilly share 50/50 in U.S. profits and Foghorn receives royalties on ex-U.S. sales; for Discovery Programs, Foghorn is eligible for up to $1.3 billion in milestones and tiered royalties[51][52][98][99] | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :-------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Collaboration revenue | $7,557 | $6,888 | $13,509 | $11,938 | | Deferred revenue (as of period end) | $266,600 (June 30, 2025) | $337,800 (initial) | $266,600 (June 30, 2025) | $337,800 (initial) | 9. Leases The company entered into a new 10-year lease for laboratory and office space in Watertown, MA, and amended its existing Cambridge Office Lease to reduce fixed payments and shorten the term for a portion of the space, resulting in an $8.8 million reduction to the ROU asset and lease liability due to remeasurement - In June 2025, Foghorn entered a new 10-year lease for 72,846 square feet in Watertown, MA, with estimated minimum lease payments of $61.0 million[60] - The existing Office Lease in Cambridge was amended, reducing fixed lease payments by $8.5 million and shortening the term for a portion of the space to December 31, 2026[61] - A remeasurement of the Office Lease due to the amendment resulted in an $8.8 million reduction to the Right-of-Use (ROU) asset and lease liability[62] 10. Commitments and Contingencies The company has commitments under its leases and various license agreements, which may require royalty payments and annual maintenance fees, and provides indemnification agreements in the ordinary course of business but is not currently a party to any material litigation - The company has license agreements that may require sales-based royalties (low single-digit), annual maintenance fees (less than $0.3 million), and regulatory milestones (up to $1.1 million per licensed product)[72] - Foghorn provides indemnification to vendors, lessors, and officers, with potential unlimited future payments, but has not incurred material costs from such indemnifications[73] - The company is not currently a party to any material litigation or legal proceedings[74][141] 11. Related Parties Related party transactions include payments to a scientific founder and payments to Eli Lilly and Company, which is a 5% or greater shareholder, with payments to Lilly increasing for the three months ended June 30, 2025, but decreasing for the six months ended June 30, 2025, compared to the prior year - Eli Lilly and Company is a related party, holding 5% or more of the company's shares since December 2021[76] | Payments to Lilly | Three Months Ended June 30, 2025 (in millions) | Three Months Ended June 30, 2024 (in millions) | Six Months Ended June 30, 2025 (in millions) | Six Months Ended June 30, 2024 (in millions) | | :------------------ | :--------------------------------------------- | :--------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Total Payments | $1.4 | $1.2 | $2.0 | $2.9 | 12. Segment Reporting The company manages its operations as a single segment, focusing on the discovery and development of medicines targeting the chromatin regulatory system, with revenue derived entirely from the Lilly collaboration agreement - Foghorn Therapeutics Inc. operates as a single segment, focused on discovering and developing medicines targeting the chromatin regulatory system[78] - The segment's revenue is entirely derived from the recognition of deferred revenue related to the collaboration agreement with Eli Lilly and Company[78] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and operational results, detailing revenue, expenses, and liquidity, and highlighting future funding requirements Overview Foghorn is a clinical-stage biotechnology company with FHD-909 in Phase 1 development, having discontinued FHD-286, and requires substantial additional funding due to significant operating losses - Foghorn is a clinical-stage biotechnology company pioneering medicines targeting the chromatin regulatory system for oncology and other diseases[81][82] - The company discontinued independent development of FHD-286 in AML and uveal melanoma in December 2024[85][119] - FHD-909, a selective allosteric ATPase inhibitor of SMARCA2, developed in collaboration with Eli Lilly, dosed its first patient in a Phase 1 study in October 2024[85] - Foghorn reported net losses of $36.8 million for the six months ended June 30, 2025, and $86.6 million for the year ended December 31, 2024, with an accumulated deficit of $595.0 million[91] Components of Our Results of Operations This section details the company's financial results, including collaboration revenue, operating expenses (R&D, G&A), other income, and income taxes, noting net operating loss carryforwards - Collaboration revenue increased to $7.6 million for the three months and $13.5 million for the six months ended June 30, 2025, due to continued advancement of programs under the Lilly Collaboration Agreement[116][117] - Research and development expenses decreased by $2.0 million for the three months and $5.9 million for the six months ended June 30, 2025, primarily due to the discontinuation of FHD-286 development and reduced preclinical research costs, partially offset by increased costs for Lilly partnered programs (FHD-909)[118][119] - General and administrative expenses decreased by $0.5 million for the three months and $0.9 million for the six months ended June 30, 2025, mainly due to lower professional and consulting costs and facilities/IT expenses[120][121] - Other income, net, was $3.2 million for the three months ended June 30, 2025 (down from $3.7 million in 2024) and $7.2 million for the six months ended June 30, 2025 (up from $6.8 million in 2024), influenced by changes in interest income and increased sublease income[123][124] Results of Operations The company's net loss decreased by $5.0 million for the three months and $11.2 million for the six months ended June 30, 2025, compared to the prior year, primarily driven by reduced operating expenses, particularly in R&D, and the absence of long-lived asset impairment charges | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Change (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | Change (in thousands) | | :-------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | | Collaboration revenue | $7,557 | $6,888 | $669 | $13,509 | $11,938 | $1,571 | | Research and development | $21,792 | $23,797 | $(2,005) | $43,418 | $49,331 | $(5,913) | | General and administrative | $6,862 | $7,325 | $(463) | $14,101 | $15,035 | $(934) | | Impairment of long-lived assets | $— | $2,398 | $(2,398) | $— | $2,398 | $(2,398) | | Net loss | $(17,936) | $(22,979) | $5,043 | $(36,770) | $(47,995) | $11,225 | Liquidity and Capital Resources As of June 30, 2025, the company held $198.7 million in cash and marketable securities, expecting to fund operations for at least 12 months, but requiring substantial additional capital for future activities - As of June 30, 2025, the company had $198.7 million in cash, cash equivalents, and marketable securities[125] - Management expects current capital to fund operations for at least 12 months, but substantial additional funding will be needed for future clinical activities and growth[132] | Cash Flow Activity | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | | Net cash used in operating activities | $(44,968) | $(54,882) | | Net cash provided by investing activities | $63,235 | $9,120 | | Net cash provided by financing activities | $393 | $104,373 | Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Foghorn Therapeutics Inc. is not required to provide quantitative and qualitative disclosures about market risk - Foghorn Therapeutics Inc. is a smaller reporting company and is exempt from providing quantitative and qualitative disclosures about market risk[137] Item 4. Controls and Procedures Management, including the Principal Executive Officer and Principal Financial Officer, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - As of June 30, 2025, the company's disclosure controls and procedures were deemed effective at the reasonable assurance level[138] - No material changes to internal control over financial reporting occurred during the three months ended June 30, 2025[139] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any material litigation or legal proceedings that are expected to have a material adverse effect on its business - The company is not currently a party to any material litigation or legal proceedings[141] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2024 - No material changes to the risk factors disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2024, have occurred[142] Item 5. Other Information During the three months ended June 30, 2025, no directors or officers entered into, modified, or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - No directors or officers entered into, modified, or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2025[143] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including lease agreements, certifications from executive officers, and XBRL taxonomy documents - Exhibits include a Lease Agreement and a Lease Termination Agreement dated June 27, 2025[145] - Certifications of the Principal Executive Officer and Principal Financial Officer pursuant to the Sarbanes-Oxley Act of 2002 are filed/furnished[145] SIGNATURES