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Foghorn Therapeutics(FHTX) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited financial statements, management's analysis of financial condition, market risk disclosures, and internal controls Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, highlighting a net loss increase and a decrease in total assets, supported by significant deferred revenue Condensed Consolidated Balance Sheets (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $372,883 | $404,883 | | Cash and cash equivalents | $50,641 | $52,214 | | Marketable securities | $265,329 | $293,584 | | Total Liabilities | $397,469 | $404,771 | | Deferred revenue (Current & Non-current) | $331,511 | $336,820 | | Total Stockholders' Equity (Deficit) | ($24,586) | $112 | Condensed Consolidated Statements of Operations (in thousands) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Collaboration revenue | $5,309 | $3,920 | | Total operating expenses | $38,626 | $31,724 | | Loss from operations | ($33,317) | ($27,804) | | Net loss | ($30,488) | ($26,914) | | Net loss per share | ($0.73) | ($0.65) | Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | ($31,180) | $271,534 | | Net cash provided by (used in) investing activities | $29,505 | ($159,409) | | Net cash provided by financing activities | $102 | $384 | | Net decrease in cash, cash equivalents and restricted cash | ($1,573) | $112,509 | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail the company's basis of presentation, significant accounting policies, and financial arrangements, including collaboration agreements and the establishment of a full valuation allowance against deferred tax assets - The company has incurred recurring net losses, totaling $30.5 million for the three months ended March 31, 2023, and had an accumulated deficit of $403.6 million. Management expects current cash reserves to fund operations for at least the next 12 months74 - The Lilly Collaboration Agreement involves co-development and co-commercialization for two programs and includes three additional discovery programs. As of March 31, 2023, the unsatisfied performance obligation was $315.1 million, expected to be recognized as revenue through 2029 or beyond112139 - Under the Merck Collaboration Agreement, the company received a $15.0 million upfront payment and is eligible for up to $410.0 million in milestones plus royalties. As of March 31, 2023, the unsatisfied performance obligation was $16.4 million, expected to be recognized through approximately 202842 - A full valuation allowance has been established against the company's net deferred tax assets due to a history of cumulative net losses and uncertainty about future profitability116 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion attributes Q1 2023 results to increased collaboration revenue and rising operating expenses, leading to a wider net loss, with sufficient cash reserves for the next twelve months Overview Foghorn is a clinical-stage biotechnology company focused on gene expression, with two clinical-stage candidates and $316.0 million in cash, cash equivalents, and marketable securities - The company is a clinical-stage biopharmaceutical firm pioneering medicines that target the chromatin regulatory system to correct abnormal gene expression121 - As of March 31, 2023, the company had $316.0 million in cash, cash equivalents, and marketable securities, funded primarily through an IPO, stock sales, and collaboration upfront payments from Merck ($15.0 million) and Lilly ($300.0 million)15 - The company's lead candidate, FHD-286, is in Phase 1 studies for metastatic uveal melanoma and AML/MDS, though the AML/MDS study is on a full clinical hold by the FDA. Enrollment in the FHD-609 study has been paused121 Results of Operations Collaboration revenue increased while total operating expenses rose significantly, resulting in a higher net loss for the three months ended March 31, 2023 Comparison of Results for the Three Months Ended March 31 (in thousands) | Metric | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Collaboration revenue | $5,309 | $3,920 | $1,389 | | Research and development | $29,985 | $24,508 | $5,477 | | General and administrative | $8,641 | $7,216 | $1,425 | | Loss from operations | ($33,317) | ($27,804) | ($5,513) | | Net loss | ($30,488) | ($26,914) | ($3,574) | - Collaboration revenue increased by $1.4 million YoY, driven by a $0.9 million increase from the Lilly collaboration and a $0.5 million increase from the Merck collaboration due to continued program advancements12 - R&D expenses increased by $5.5 million YoY, primarily due to a $2.5 million increase in personnel costs from higher headcount, a $1.9 million increase in platform research, and a $1.2 million increase in facility-related expenses184 - G&A expenses increased by $1.4 million YoY, mainly attributed to a $1.7 million rise in personnel-related costs, including stock-based compensation, due to increased headcount18513 Liquidity and Capital Resources The company holds $316.0 million in cash, cash equivalents, and marketable securities, expecting it to fund operations for at least the next twelve months, but acknowledges future funding needs Sources and Uses of Cash (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | ($31,180) | $271,534 | | Net cash provided by (used in) investing activities | $29,505 | ($159,409) | | Net cash provided by financing activities | $102 | $384 | - The company expects its cash, cash equivalents, and marketable securities of $316.0 million (as of March 31, 2023) to be sufficient to fund operating expenses and capital expenditure requirements for at least the next twelve months15191 - The company will require further funding through equity offerings, debt financings, or collaborations to advance its research and development programs. Failure to raise capital could force delays or discontinuation of programs1915 Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Foghorn Therapeutics Inc. is exempt from providing quantitative and qualitative disclosures about market risk - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk192 Item 4. Controls and Procedures The company's disclosure controls and procedures were deemed effective as of March 31, 2023, with no material changes to internal control over financial reporting - Management concluded that as of March 31, 2023, the company's disclosure controls and procedures were effective at a reasonable assurance level22193 - No changes occurred in the company's internal control over financial reporting during the three months ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, these controls29 PART II. OTHER INFORMATION This section covers legal proceedings, updates on risk factors, and a comprehensive list of exhibits filed with the report Item 1. Legal Proceedings The company is not currently involved in any material litigation or legal proceedings that would significantly impact its business - The company is not currently a party to any material litigation or legal proceedings16943 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, 2022 - There have been no material changes to the risk factors disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022196 Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including required certifications and XBRL-related documents List of Exhibits | Exhibit Number | Description | | :--- | :--- | | 31.1 | Certification of Principal Executive Officer (Sec. 302) | | 31.2 | Certification of Principal Financial Officer (Sec. 302) | | 32.1 | Certification of Principal Executive Officer (Sec. 906) | | 32.2 | Certification of Principal Financial Officer (Sec. 906) | | 101.INS | XBRL Instance Document | | 101.SCH | XBRL Taxonomy Extension Schema Document | | 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | | 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | | 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | | 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |