Foghorn Therapeutics Inc. (NASDAQ:FHTX) is a clinical-stage biotechnology company at the forefront of a new frontier in precision therapeutics. The company is pioneering the development of a novel class of medicines that target the chromatin regulatory system, an untapped opportunity for therapeutic intervention in oncology and a wide spectrum of other diseases.

Business Overview

Foghorn's proprietary Gene Traffic Control platform provides an integrated and mechanistic understanding of how the various components of the chromatin regulatory system interact. This groundbreaking approach has enabled the company to identify, validate, and potentially drug targets within this system. Foghorn's unique capabilities have yielded new insights and scalability in this previously unexplored area of biology.

The company's current pipeline includes more than eight programs, with one clinical-stage drug candidate, FHD-286, currently in Phase 1 development, and another, FHD-909, expected to enter clinical trials later this year. Foghorn has discovered highly selective chemical matter for some of the most challenging targets in oncology, including BRM, CBP, EP300, and ARID1B, as well as other undisclosed targets. The company believes its pipeline has the potential to help more than 500,000 cancer patients.

Foghorn takes a small molecule modality agnostic approach to drugging targets, including protein degraders, allosteric enzymatic inhibitors, and transcription factor disruptors. The company's biology-first strategy focuses on the underlying genetics and biology of a disease-relevant target before leveraging the most appropriate drugging approach to impact the disease biology.

Financials

For the fiscal year ended December 31, 2023, Foghorn reported annual revenue of $34.2 million, a decrease from the previous year's revenue of $39.7 million. The company's net loss for the year was $98.4 million, compared to a net loss of $92.3 million in the prior year. Operating cash flow for the year was negative $118.1 million, and free cash flow was negative $119.3 million.

In the first quarter of 2024, Foghorn generated collaboration revenue of $5.1 million, compared to $5.3 million in the same period of the prior year. The company reported a net loss of $25.0 million for the quarter, an improvement from the $30.5 million net loss in the first quarter of 2023. Operating cash flow for the quarter was negative $29.3 million, and free cash flow was negative $29.4 million.

Collaboration Agreements

Foghorn has established two significant collaboration agreements that have provided the company with substantial funding and strategic partnerships.

In December 2021, Foghorn entered into a collaboration agreement with Loxo Oncology at Eli Lilly and Company (Lilly) to create novel oncology medicines by applying Foghorn's proprietary Gene Traffic Control platform. The collaboration includes a co-development and co-commercialization agreement for Foghorn's selective BRM oncology target, consisting of two programs, and one additional undisclosed oncology target. The collaboration also includes three additional discovery targets or programs.

Under the terms of the Lilly collaboration, Foghorn received an upfront payment of $300.0 million in cash and a $80.0 million equity investment from Lilly. For the BRM-selective program and the additional undisclosed target program, Foghorn will lead discovery and early research activities, while Lilly will lead development and commercialization activities with participation from Foghorn. Foghorn and Lilly will share 50/50 in the U.S. economics, and Foghorn is eligible to receive royalties on ex-U.S. sales starting in the low double-digit range and escalating into the twenties based on revenue levels.

For the additional discovery programs, Foghorn will lead discovery and early research activities. Foghorn may receive up to a total of $1.3 billion in potential development and commercialization milestones. Additionally, Foghorn will have an option to participate in a percentage of the U.S. economics and is eligible to receive tiered royalties from the mid-single digit to low-double digit range on sales outside the U.S.

In July 2020, Foghorn entered into a Research Collaboration and Exclusive License Agreement with Merck Sharp & Dohme Corp. (Merck), pursuant to which the companies agreed to apply Foghorn's proprietary Gene Traffic Control platform to discover and develop novel therapeutics. On August 9, 2023, Foghorn received notice from Merck that it was terminating the collaboration agreement effective November 7, 2023.

Pipeline and Clinical Development

Foghorn's lead clinical-stage program, FHD-286, is a selective, allosteric ATPase inhibitor of BRM and BRG1 that is currently being evaluated in a Phase 1 dose escalation study in combination with either decitabine or cytarabine in relapsed and/or refractory acute myeloid leukemia patients. As part of the company's collaboration with Lilly, Foghorn anticipates that a Phase 1 dose escalation study will start later this year with FHD-909, a selective ATPase inhibitor of BRM.

During the third quarter of 2023, Foghorn transitioned the BRM Selective inhibitor program to Lilly, which triggered a 50/50 cost-sharing arrangement for the BRM programs. Costs related to this cost-sharing are included in Foghorn's research and development expenses.

Liquidity

As of March 31, 2024, Foghorn had cash, cash equivalents, and marketable securities of $206.7 million. The company expects its current cash resources to be sufficient to fund its operating expenses and capital expenditure requirements for at least the next 12 months.

Foghorn has funded its operations primarily through proceeds from sales of preferred stock, upfront and milestone payments from collaboration agreements, a public offering, and a stock purchase agreement. The company has incurred recurring losses, including a net loss of $25.0 million in the first quarter of 2024 and a net loss of $98.4 million for the full year 2023.

Risks and Challenges

Foghorn faces several risks and challenges common to clinical-stage biotechnology companies, including the need to successfully complete preclinical and clinical studies, obtain regulatory approvals, and commercialize its product candidates. The company's ability to generate revenue and achieve profitability is dependent on the successful development and eventual commercialization of its product candidates.

Additionally, Foghorn's reliance on its collaboration with Lilly, as well as its ability to enter into future collaborations, represents a significant risk factor. The company's financial performance is also subject to the volatility of the broader market and economic conditions, which could impact its ability to raise additional capital as needed.

Outlook

Foghorn Therapeutics is at the forefront of a new frontier in precision medicine, leveraging its proprietary Gene Traffic Control platform to develop a novel class of therapeutics targeting the chromatin regulatory system. The company's robust pipeline, including its clinical-stage programs and strategic collaborations, positions it well to potentially address the unmet needs of a significant number of cancer patients.

Conclusion

While Foghorn has faced financial challenges, with net losses of $98.4 million in 2023 and $25.0 million in the first quarter of 2024, the company's collaboration agreements have provided substantial funding and strategic partnerships that are expected to support its ongoing research and development efforts. As Foghorn continues to advance its pipeline and navigate the complexities of clinical development and commercialization, investors will closely monitor the company's ability to execute on its ambitious goals and deliver on the promise of its innovative approach to drug discovery and development.