Fulcrum Therapeutics(FULC) - 2023 Q3 - Quarterly Report

Preliminary Information Cautionary Note Regarding Forward-Looking Statements This section cautions against undue reliance on forward-looking statements regarding operations, financial performance, and product development due to inherent risks - Forward-looking statements cover ongoing clinical trials (losmapimod, pociredir), impact of organizational streamlining, initiation/timing of R&D programs, commercialization plans, funding expectations, potential advantages of product candidates, market acceptance, intellectual property, and collaborations[6][7] - Readers are cautioned not to place undue reliance on forward-looking statements, as actual results may differ materially due to various risks and uncertainties, particularly those detailed in the 'Risk Factors' and 'Management's Discussion and Analysis of Results of Operations' sections[8][9] Summary Risk Factors This section summarizes principal risks including accumulated losses, funding needs, early development stage, lengthy drug development, adverse events, competition, and third-party reliance Key Financial Risks | Metric | Amount (as of Sep 30, 2023) | Previous (as of Dec 31, 2022) | | :----- | :-------------------------- | :----------------------------- | | Net Loss (9 months) | $72.6 million | $109.9 million (FY2022) | | Accumulated Deficit | $484.9 million | $412.3 million (FY2022) | - The company expects to incur losses for several years and will require substantial additional funding to support product development programs (losmapimod, pociredir) and commercialization efforts[11] - Key operational risks include the early stage of development with only two clinical candidates, the lengthy and uncertain nature of clinical drug development (e.g., recent clinical hold on pociredir), potential for serious adverse events, and reliance on contract manufacturing organizations (CMOs) and third parties for clinical trials[11][12] - Other risks include substantial competition, challenges in intellectual property protection, adverse developments in the financial services industry, and potential impacts from pandemics or geopolitical events[11][12] PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents unaudited consolidated financial statements for Q3 2023 and 2022, covering balance sheets, operations, equity, cash flows, and detailed accounting notes Consolidated Balance Sheets Consolidated balance sheets show total assets increased to $278.9 million (Sep 30, 2023) from $226.7 million (Dec 31, 2022), driven by marketable securities and paid-in capital Consolidated Balance Sheet Highlights (in thousands) | Item | Sep 30, 2023 | Dec 31, 2022 | Change ($) | Change (%) | | :-------------------------------- | :----------- | :----------- | :--------- | :--------- | | Total Assets | $278,879 | $226,685 | $52,194 | 23.0% | | Cash and cash equivalents | $30,080 | $35,098 | $(5,018) | -14.3% | | Marketable securities | $227,011 | $167,823 | $59,188 | 35.3% | | Total Liabilities | $23,417 | $27,743 | $(4,326) | -15.6% | | Total Stockholders' Equity | $255,462 | $198,942 | $56,520 | 28.4% | | Accumulated Deficit | $(484,917) | $(412,338) | $(72,579) | 17.6% | - The increase in total assets is primarily due to a significant rise in marketable securities, while cash and cash equivalents saw a decrease[15] - Stockholders' equity increased substantially, mainly driven by additional paid-in capital from common stock issuances, despite an increase in accumulated deficit[15] Consolidated Statements of Operations and Comprehensive Loss Consolidated statements show a net loss of $24.0 million (Q3 2023) and $72.6 million (YTD Sep 2023), with nine-month loss decreasing despite lower collaboration revenue and R&D expenses Consolidated Statements of Operations Highlights (in thousands) | Item | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Collaboration revenue | $759 | $1,183 | $1,934 | $5,657 | | Research and development | $18,238 | $15,366 | $52,802 | $58,216 | | General and administrative | $9,961 | $9,707 | $31,804 | $31,564 | | Total operating expenses | $28,199 | $25,538 | $84,606 | $90,245 | | Loss from operations | $(27,440) | $(24,355) | $(82,672) | $(84,588) | | Other income, net | $3,423 | $617 | $10,093 | $852 | | Net loss | $(24,017) | $(23,738) | $(72,579) | $(83,736) | | Net loss per share (basic & diluted) | $(0.39) | $(0.51) | $(1.19) | $(1.97) | - Collaboration revenue decreased by 35.8% for the three months and 65.8% for the nine months ended September 30, 2023, primarily due to the termination of the Acceleron collaboration agreement[17] - Research and development expenses increased by 18.7% for the three months but decreased by 9.3% for the nine months ended September 30, 2023, reflecting shifts in clinical trial activities[17] - Other income, net, significantly increased for both periods, driven by higher returns on cash, cash equivalents, and marketable securities[17] Consolidated Statements of Stockholders' Equity Stockholders' equity increased from $198.9 million (Dec 31, 2022) to $255.5 million (Sep 30, 2023), driven by common stock offerings and stock-based compensation, despite accumulated losses Stockholders' Equity Changes (in thousands) | Item | Dec 31, 2022 | Sep 30, 2023 | Change ($) | | :-------------------------- | :----------- | :----------- | :--------- | | Common Stock (Amount) | $52 | $62 | $10 | | Additional Paid-In Capital | $612,025 | $741,203 | $129,178 | | Accumulated Deficit | $(412,338) | $(484,917) | $(72,579) | | Total Stockholders' Equity | $198,942 | $255,462 | $56,520 | - The increase in additional paid-in capital is largely attributable to $117.3 million in net proceeds from a public offering of common stock in January 2023[20] - Stock-based compensation expense contributed $11.4 million to additional paid-in capital for the nine months ended September 30, 2023[20] Consolidated Statements of Cash Flows Cash flows show a net decrease of $5.0 million (YTD Sep 2023), a shift from a $55.5 million increase (prior year), primarily due to increased net cash used in investing activities Consolidated Cash Flow Highlights (in thousands) | Activity | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------------------------------ | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(67,807) | $(77,354) | | Net cash (used in) provided by investing activities | $(55,046) | $48,775 | | Net cash provided by financing activities | $117,835 | $84,105 | | Net (decrease) increase in cash, cash equivalents, and restricted cash | $(5,018) | $55,526 | | Cash, cash equivalents, and restricted cash, end of period | $31,172 | $92,030 | - Net cash used in operating activities decreased by $9.6 million, mainly due to a lower net loss and increased interest income[23] - Net cash used in investing activities increased by $103.8 million, primarily driven by net purchases of marketable securities in 2023 compared to net maturities in 2022[23] - Net cash provided by financing activities increased by $33.7 million, largely from $117.3 million in net proceeds from a January 2023 public offering of common stock[23] Notes to Consolidated Financial Statements These notes detail business nature, accounting policies, fair value, cash, marketable securities, property, equity, stock compensation, collaborations, leases, commitments, contingencies, and net loss per share 1. Nature of the Business and Basis of Presentation Fulcrum Therapeutics is a clinical-stage biopharmaceutical company focused on rare diseases, with $484.9 million accumulated deficit and ongoing need for additional funding - Fulcrum Therapeutics, Inc. was incorporated in Delaware on August 18, 2015, and focuses on developing small molecules for genetically-defined rare diseases[25] - The company has incurred recurring losses and negative cash flows from operations since inception, with an accumulated deficit of $484.9 million as of September 30, 2023[31] - In January 2023, the company completed a public offering, issuing 9,615,384 shares of common stock at $13.00 per share, generating net proceeds of $117.3 million[29] - Management expects existing cash, cash equivalents, and marketable securities to fund operations for at least 12 months from the financial statement issuance date, but acknowledges the need for future financing through equity, debt, or collaborations[32] 2. Summary of Significant Accounting Policies This note outlines significant accounting policies, including consolidation, estimates, and off-balance sheet risk, and details the adoption of new accounting pronouncements with no material impact - The consolidated financial statements include Fulcrum Therapeutics, Inc. and its wholly-owned subsidiary, Fulcrum Therapeutics Securities Corp., with all intercompany transactions eliminated[33] - Key estimates in financial statement preparation include revenue recognition, accrued expenses, stock-based compensation, and income taxes[35] - The company adopted ASU No. 2016-13 (Credit Losses) and ASU No. 2019-12 (Income Taxes) effective January 1, 2023, with no material impact on its financial position or results of operations[37][38] - The company has no significant off-balance sheet risk and manages credit risk primarily through diversified investments in cash, cash equivalents, and marketable securities held at large financial institutions[36] 3. Fair Value Measurements This note details fair value measurements of financial assets, primarily cash equivalents and marketable securities, totaling $257.1 million (Sep 30, 2023), mostly classified as Level 2 Fair Value Measurements at September 30, 2023 (in thousands) | Item | Total | Level 1 | Level 2 | Level 3 | | :---------------------- | :------ | :------ | :------ | :------ | | Cash equivalents: | | | | | | Money market funds | $17,336 | $17,336 | — | — | | U.S. Treasury securities | $1,991 | — | $1,991 | — | | Commercial paper | $10,753 | — | $10,753 | — | | Marketable securities: | | | | | | U.S. Treasury securities | $19,516 | — | $19,516 | — | | Government agency securities | $69,690 | — | $69,690 | — | | Commercial paper | $32,552 | — | $32,552 | — | | Corporate bonds | $105,253 | — | $105,253 | — | | Total | $257,091 | $17,336 | $239,755 | — | - The majority of marketable securities and a portion of cash equivalents are classified as Level 2, indicating fair value derived from observable inputs other than quoted prices[39] - There were no transfers between fair value levels during the three and nine months ended September 30, 2023[39] 4. Cash Equivalents and Marketable Securities This note details cash equivalents and marketable securities, with a total fair value of $257.1 million (Sep 30, 2023) and a net accumulated other comprehensive loss of $886 thousand from unrealized losses Cash Equivalents and Marketable Securities (in thousands) | Item | Amortized Cost (Sep 30, 2023) | Fair Value (Sep 30, 2023) | Gross Unrealized Losses (Sep 30, 2023) | | :-------------------------- | :---------------------------- | :------------------------ | :------------------------------------- | | Total cash equivalents | $30,084 | $30,080 | $(4) | | Total marketable securities | $227,893 | $227,011 | $(882) | | Total | $257,977 | $257,091 | $(886) | - As of September 30, 2023, the company held 83 debt securities in an unrealized loss position for less than 12 months ($216.6 million fair value) and 5 debt securities for greater than 12 months ($10.4 million fair value)[40] - The company has the intent and ability to hold its debt securities until recovery and did not record any credit-related impairment charges[41] 5. Property and Equipment, Net Property and equipment, net, decreased to $5.6 million (Sep 30, 2023) from $6.9 million (Dec 31, 2022), primarily due to accumulated depreciation Property and Equipment, Net (in thousands) | Item | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------- | :----------- | :----------- | | Total property and equipment | $17,973 | $17,568 | | Less: accumulated depreciation | $(12,327) | $(10,662) | | Property and equipment, net | $5,646 | $6,906 | - Depreciation expense was $0.5 million for the three months and $1.7 million for the nine months ended September 30, 2023[42] 6. Additional Balance Sheet Detail This note details prepaid expenses and other current assets, increasing to $4.8 million, and accrued expenses and other current liabilities, decreasing to $7.8 million (Sep 30, 2023) Prepaid Expenses and Other Current Assets (in thousands) | Item | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------------- | :----------- | :----------- | | Prepaid expenses | $3,466 | $3,425 | | Prepaid sign-on bonuses subject to vesting provisions | $254 | $92 | | Interest income receivable | $1,099 | $852 | | Total | $4,819 | $4,369 | Accrued Expenses and Other Current Liabilities (in thousands) | Item | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------- | :----------- | :----------- | | External research and development | $3,107 | $4,700 | | Payroll and benefits | $4,023 | $4,211 | | Professional services | $422 | $535 | | Other | $265 | $105 | | Total | $7,817 | $9,551 | 7. Preferred Stock The company authorized 5,000,000 preferred shares, but none were issued or outstanding as of September 30, 2023, and no dividends have been declared since inception - 5,000,000 shares of preferred stock were authorized, but none were issued or outstanding as of September 30, 2023, and December 31, 2022[44] - No dividends have been declared on preferred stock since inception[45] 8. Common Stock This note details common stock, with 200,000,000 shares authorized and 61,822,554 outstanding (Sep 30, 2023), plus shares reserved for employee benefit plans - 200,000,000 shares of common stock, $0.001 par value, were authorized[46] Common Shares Issued and Outstanding | Date | Shares Issued and Outstanding | | :---------------- | :---------------------------- | | Sep 30, 2023 | 61,822,554 | | Dec 31, 2022 | 52,099,211 | - Common stockholders are not entitled to receive dividends unless declared by the board of directors, and no dividends have been declared or paid since inception[47] Shares Reserved for Future Issuance | Item | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------------------ | :----------- | :----------- | | Shares reserved for exercises of outstanding stock options | 10,108,766 | 6,504,080 | | Shares reserved for vesting of restricted stock units | 78,142 | 76,718 | | Shares reserved for future issuance under the 2019 Stock Incentive Plan | 2,896,782 | 1,941,054 | | Shares reserved for future issuance under the 2019 Employee Stock Purchase Plan | 1,438,938 | 1,061,279 | | Shares reserved for future issuance under the 2022 Inducement Stock Incentive Plan | 1,003,472 | 329,880 | | Total | 15,526,100 | 9,913,011 | 9. Stock-based Compensation Expense This note details stock-based compensation plans, summarizing stock option and restricted stock unit activity, and total stock-based compensation expense recognized - The 2019 Stock Incentive Plan and 2022 Inducement Stock Incentive Plan have seen increases in shares reserved for issuance, with 2,896,782 and 1,003,472 shares available, respectively, as of September 30, 2023[50][52] Stock Option Activity (9 months ended Sep 30, 2023) | Item | Number of Shares | Weighted Average Exercise Price | | :-------------------------- | :--------------- | :------------------------------ | | Outstanding at Dec 31, 2022 | 6,504,080 | $11.99 | | Granted | 5,790,673 | $5.92 | | Exercised | (38,903) | $8.96 | | Cancelled | (2,147,084) | $11.96 | | Outstanding at Sep 30, 2023 | 10,108,766 | $8.53 | | Exercisable at Sep 30, 2023 | 2,890,946 | $12.74 | Stock-based Compensation Expense (in thousands) | Category | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | General and administrative | $2,734 | $2,597 | $8,533 | $7,138 | | Research and development | $1,003 | $756 | $2,820 | $2,941 | | Total | $3,737 | $3,353 | $11,353 | $10,079 | - As of September 30, 2023, the company had $35.2 million of unrecognized stock-based compensation expense, to be recognized over a weighted average period of 3.07 years[58] 10. Collaboration Agreements This note details collaboration agreements with Acceleron (terminated Oct 2022) and MyoKardia, the latter involving an exclusive worldwide license for cardiomyopathies with upfront, research, milestone, and royalty payments - The Acceleron Collaboration Agreement, focused on pulmonary disease targets, terminated effective October 1, 2022, resulting in no collaboration revenue from this agreement in 2023[61][62] - The MyoKardia Collaboration Agreement grants an exclusive worldwide license for genetically defined cardiomyopathies, including assay screening and research services[64][65] - Under the MyoKardia agreement, the company received a $10.0 million upfront payment and $2.5 million in prepaid research funding, with potential for up to $298.5 million in aggregate milestone payments per target and tiered royalties[67] MyoKardia Collaboration Revenue (in thousands) | Period | Collaboration Revenue | | :-------------------------- | :-------------------- | | 3 Months Ended Sep 30, 2023 | $759 | | 3 Months Ended Sep 30, 2022 | $1,183 | | 9 Months Ended Sep 30, 2023 | $1,934 | | 9 Months Ended Sep 30, 2022 | $4,700 | - As of September 30, 2023, deferred revenue from MyoKardia was $0.3 million, and unbilled accounts receivable was $0.6 million[79] 11. License Agreements This note describes key license agreements: GSK for losmapimod (FSHD) and CAMP4 for the Diamond Blackfan Anemia (DBA) program, both granting exclusive worldwide rights - Under the GSK Agreement, the company has an exclusive worldwide license to develop and commercialize losmapimod, with potential milestone payments up to $37.5 million (including $7.5 million achieved) and tiered royalties on net sales[80][81] - The CAMP4 Agreement, entered in July 2023, grants an exclusive worldwide license for the Diamond Blackfan Anemia (DBA) program, including small molecule compounds and patent rights[84] - The CAMP4 Agreement includes an undisclosed upfront payment and potential development, regulatory, and sales milestone payments of up to $35.0 million each, plus tiered royalties on worldwide net sales[85] 12. Leases This note details operating lease agreements for corporate headquarters at 26 Landsdowne Street and office space at 125 Sidney Street, outlining terms, commitments, and expenses - The lease for 26 Landsdowne Street (28,731 sq ft) commenced December 2017 and ends June 30, 2028, with a total commitment of $25.1 million over ten years[89] Future Minimum Lease Payments (26 Landsdowne Street, in thousands) | Year | Amount | | :--- | :----- | | 2023 | $633 | | 2024 | $2,572 | | 2025 | $2,649 | | 2026 | $2,729 | | 2027 | $2,811 | | Thereafter | $1,426 | | Total minimum lease payments | $12,820 | - Operating lease expense for 26 Landsdowne Street was approximately $0.5 million for the three months and $1.3 million for the nine months ended September 30, 2023[89] - An additional lease for 125 Sidney Street (12,196 sq ft) commenced November 2021 and ends March 31, 2024, with a total commitment of $1.7 million over the initial term[91] 13. Commitments and Contingencies This note addresses commitments and contingencies, including indemnification agreements and a securities class action lawsuit related to a clinical hold on pociredir - The company provides indemnification to vendors, lessors, business partners, directors, and senior management, with potential unlimited future payments, but has not incurred material costs to date[93] - A class action complaint (Celano v. Fulcrum Therapeutics, Inc., et al.) was filed on April 28, 2023, alleging violations of Section 10(b) and 20(a) of the Exchange Act related to a clinical hold on pociredir[94] - The lawsuit seeks compensatory damages for an allegedly inflated stock price between March 3, 2022, and March 8, 2023, and attorneys' fees and costs. The company intends to vigorously defend against this litigation[94] 14. Defined Contribution Plan This note describes the company's 401(k) defined contribution savings plan, with contributions of $0.2 million (Q3) and $0.6 million (YTD Sep) for both 2023 and 2022 - The company has a 401(k) defined contribution savings plan for eligible employees[96] 401(k) Plan Contributions (in millions) | Period | 2023 | 2022 | | :-------------------------- | :--- | :--- | | 3 Months Ended Sep 30 | $0.2 | $0.2 | | 9 Months Ended Sep 30 | $0.6 | $0.6 | 15. Net Loss per Share This note provides the calculation of basic and diluted net loss per share, listing anti-dilutive common stock equivalents excluded from the diluted calculation Net Loss Per Share (Basic and Diluted) | Period | 2023 | 2022 | | :-------------------------- | :----- | :----- | | 3 Months Ended Sep 30 | $(0.39) | $(0.51) | | 9 Months Ended Sep 30 | $(1.19) | $(1.97) | Anti-Dilutive Common Stock Equivalents Excluded (in thousands) | Item | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Outstanding stock options | 10,108,766 | 5,929,065 | 10,108,766 | 5,929,065 | | Unvested restricted stock units | 78,142 | 95,174 | 78,142 | 95,174 | | Total | 10,186,908 | 6,024,239 | 10,186,908 | 6,024,239 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses financial condition and results, focusing on clinical-stage candidates, operating losses, funding needs, revenue, expenses, and cash flow changes, emphasizing drug development risks Overview Fulcrum is a clinical-stage biopharmaceutical company developing small molecules for rare diseases, with lead candidates losmapimod (FSHD) and pociredir (SCD), facing significant losses and requiring additional funding - Fulcrum is a clinical-stage biopharmaceutical company focused on genetically defined rare diseases[99] - Losmapimod (FSHD) is in a Phase 3 clinical trial (REACH), with enrollment completed in September 2023 and topline data expected in Q4 2024[99] - Pociredir (SCD) is in a Phase 1b clinical trial; a clinical hold was placed in February 2023 and lifted in August 2023. The trial is re-initiating at 12 mg and 20 mg dose levels, targeting patients with higher disease severity[100] - The company has incurred net losses of $24.0 million (Q3 2023) and $72.6 million (YTD Sep 2023), with an accumulated deficit of $484.9 million[103] - Existing cash, cash equivalents, and marketable securities of $257.1 million are expected to fund operations into 2026, but substantial additional funding will be needed for ongoing R&D and potential commercialization[105][107] Components of Results of Operations This section breaks down revenue and operating expenses, with collaboration revenue from MyoKardia, fluctuating R&D expenses, general and administrative costs, and other income from investments [Revenue](index=25&type=section&id=