Executive Summary / Key Takeaways

• Foghorn Therapeutics is pioneering a new class of precision medicines targeting the chromatin regulatory system, a fundamental driver in approximately 50% of cancers, leveraging its proprietary Gene Traffic Control platform.
• The strategic collaboration with Eli Lilly is a cornerstone of the investment thesis, providing significant funding, validating the platform, and advancing key programs like FHD-909 (SMARCA2 inhibitor) through co-development and cost-sharing.
• Recent financial results for Q1 2025 show decreased operating expenses driven by strategic pipeline prioritization (discontinuing FHD-286 and FHD-609 independent development), partially offset by increased investment in Lilly-partnered programs like FHD-909.
• The company maintains a strong liquidity position with $220.6 million in cash, cash equivalents, and marketable securities as of March 31, 2025, providing a cash runway into 2027, supporting ongoing R&D and reducing near-term financing risk.
• Key catalysts include continued clinical progress for FHD-909, advancement of wholly-owned programs like the selective CBP degrader towards IND filing in 2026, and updates on EP300 and ARID1B degraders in H2 2025.

Unlocking Gene Control: Foghorn's Platform and Strategic Foundation

Foghorn Therapeutics is a clinical-stage biopharmaceutical company focused on a fundamental aspect of cellular biology: the chromatin regulatory system. This intricate system orchestrates gene expression, dictating which genes are turned on or off, a process critical for normal cell function. Aberrations in this system are implicated in a vast array of diseases, most notably in approximately 50% of all cancers. Foghorn's core mission is to develop a new class of precision medicines by selectively targeting these genetically determined dependencies within the chromatin regulatory system.

At the heart of Foghorn's approach is its proprietary Gene Traffic Control platform. The company believes this platform provides unique capabilities to study and target the chromatin regulatory system at scale, in context, and in an integrated way. This technology is designed to identify, validate, and enable the drugging of targets within this complex system. While specific quantitative metrics on the platform's efficiency or superiority compared to traditional drug discovery methods are not detailed, the company emphasizes its ability to yield new insights and scalability in drugging this previously untapped area. The platform has already facilitated the discovery of highly selective chemical matter for challenging oncology targets such as SMARCA2/BRM, CBP, EP300, and ARID1B. Foghorn employs a modality-agnostic approach, pursuing small molecule inhibitors, protein degraders, and transcription factor disruptors based on the specific target biology.

Foghorn's journey began in October 2015, initially funded by preferred stock sales as it built its foundational Gene Traffic Control platform and conducted early research. An important step was its initial public offering in October 2020, which provided significant capital. Early external validation came through a collaboration with Merck in July 2020. However, the most transformative event was the strategic collaboration and equity investment by Eli Lilly in December 2021. This partnership significantly bolstered Foghorn's financial resources with a $300 million upfront payment and an $80 million equity investment, while also validating the potential of its platform and pipeline on a global scale. The Lilly collaboration established a framework for co-development and co-commercialization of key programs, fundamentally shaping Foghorn's strategic path forward by combining internal pipeline advancement with partnered efforts.

Pipeline Evolution and Strategic Prioritization

Foghorn's pipeline, currently comprising more than eight programs, reflects its platform's productivity and strategic focus. The most advanced program, FHD-909, a selective allosteric ATPase inhibitor of SMARCA2, is being developed in collaboration with Lilly. This program transitioned to Lilly in the third quarter of 2023, initiating a 50/50 cost-sharing arrangement for development activities until at least registrational trials. The Phase 1 dose escalation study for FHD-909 in SMARCA4 (BRG1) mutated cancers, with non-small cell lung cancer (NSCLC) as the primary target population, dosed its first patient in October 2024. Recent data presented at AACR demonstrated synergistic activity of FHD-909 in combination with pembrolizumab and KRAS inhibitors, providing clinical rationale for exploring these combinations.

Recent strategic decisions have streamlined Foghorn's independent development efforts. In December 2024, the company discontinued the independent development of FHD-286 in combination with decitabine for relapsed/refractory AML and as a monotherapy in uveal melanoma, leading to the wind-down of its Phase 1 trial. Similarly, the Phase 1 clinical trial for FHD-609 in synovial sarcoma and SMARCAB1-loss tumors was shut down. These decisions, while resulting in decreased near-term R&D spend on these specific programs, allow Foghorn to focus resources on its most promising candidates and partnered programs.

Looking ahead, Foghorn is advancing several wholly-owned programs leveraging its platform. A selective CBP degrader is progressing towards IND-enabling studies, with an IND filing targeted for 2026. Updates on the selective EP300 degrader and selective ARID1B degrader programs are anticipated in the second half of 2025. These programs represent the continued output of the Gene Traffic Control platform and potential future value drivers beyond the Lilly partnership.

Financial Performance and Capital Position

As a clinical-stage company, Foghorn has consistently incurred operating losses as it invests heavily in research and development. For the three months ended March 31, 2025, the company reported a net loss of $18.834 million, an improvement compared to the $25.016 million net loss for the same period in 2024.

Collaboration revenue, derived entirely from the Eli Lilly agreement, increased to $5.952 million in Q1 2025 from $5.050 million in Q1 2024. This increase is attributed to the continued advancement of programs under the Eli Lilly collaboration, leading to higher revenue recognition based on the percentage of completion method.

Total operating expenses decreased to $28.865 million in Q1 2025 from $33.244 million in Q1 2024. This reduction was primarily driven by a $3.908 million decrease in research and development expenses. The decrease in R&D spend reflects the strategic decision to discontinue independent development of FHD-286 ($2.5 million decrease) and the shutdown of the FHD-609 trial ($1.8 million decrease in early development and other research external costs). These reductions were partially offset by a $0.7 million increase in costs for Eli Lilly partnered programs, primarily due to the initiation and increasing enrollment in the FHD-909 Phase 1 study. General and administrative expenses also saw a modest decrease of $0.471 million, mainly due to lower professional and consulting costs. Other income, net, contributed positively, increasing to $4.079 million in Q1 2025 from $3.178 million in Q1 2024, driven by increased sublease income and higher interest income from invested cash balances.

Foghorn maintains a solid liquidity position. As of March 31, 2025, the company held $220.6 million in cash, cash equivalents, and marketable securities. Net cash used in operating activities decreased to $23.968 million in Q1 2025 from $29.345 million in Q1 2024, reflecting the smaller net loss and favorable changes in operating assets and liabilities. The company's funding sources include its IPO, prior preferred stock sales, the significant upfront payment and equity investment from Eli Lilly , and net proceeds of $102.8 million from a public offering in May 2024. Based on its current plans and resources, Foghorn expects its cash, cash equivalents, and marketable securities to be sufficient to fund its operating expenses and capital expenditure requirements into 2027. While this provides a substantial runway, the company acknowledges the need for additional future funding to support the continued advancement of its pipeline and potential commercialization efforts.

Competitive Landscape and Positioning

The oncology therapeutic market is highly competitive, with numerous companies vying for market share, many of which are significantly larger and better capitalized than Foghorn. Key competitors include global pharmaceutical giants like Eli Lilly , Merck (MRK), and AstraZeneca (AZN), as well as smaller biotechnology firms like Syndax Pharmaceuticals (SNDX) that also focus on epigenetic therapies.

Compared to large pharmaceutical companies like Lilly, Merck, and AstraZeneca, Foghorn operates at a much smaller scale. These larger players boast multi-billion dollar revenues, established global commercial infrastructures, and extensive, diversified pipelines. Their financial metrics, such as gross, operating, and net margins, are significantly positive, reflecting mature, profitable businesses, in stark contrast to Foghorn's current negative margins as an R&D-focused entity. While Foghorn's recent revenue growth rate from its collaboration may appear high in percentage terms due to its low base, the absolute revenue figures are dwarfed by the sales of established oncology drugs from its larger competitors.

Foghorn's competitive edge lies primarily in its specialized Gene Traffic Control platform and its deep focus on the chromatin regulatory system. The company believes its platform offers a differentiated approach to identifying and drugging targets within this complex space, potentially leading to therapies with novel mechanisms of action and improved specificity. This technological advantage is crucial for competing with larger players who may have broader R&D capabilities but lack Foghorn's specialized expertise and integrated platform for chromatin control. The Lilly partnership itself is a testament to the perceived value of Foghorn's platform and pipeline, providing resources and expertise that Foghorn would otherwise lack.

Against smaller biotechs like Syndax, which also target epigenetic mechanisms, Foghorn's platform may offer advantages in the breadth and depth of targets it can pursue within the chromatin system. While direct, quantifiable comparisons of platform efficiency or drug performance are often proprietary, the strategic decisions by major pharma like Lilly to partner with Foghorn suggest a belief in the unique capabilities of the Gene Traffic Control platform. However, smaller competitors may also possess clinical agility and focus in specific niches, presenting direct rivalry for patient populations.

Indirect competition comes from alternative treatment modalities like immunotherapy (prominently featured in the pipelines of companies like Merck and AstraZeneca) and advancements in AI-driven drug discovery platforms (like those offered by Schrödinger (SDGR)). These could potentially offer alternative or more cost-effective ways to treat cancers that Foghorn is targeting, though Foghorn's platform is specifically designed to address the unique challenges of the chromatin system. Foghorn's strategic partnerships help mitigate some competitive pressures by providing access to broader development capabilities and potential commercial reach that it could not achieve independently.

Risks and Challenges

Investing in a clinical-stage biopharmaceutical company like Foghorn Therapeutics carries significant risks. The most prominent risk is the inherent uncertainty of drug development. The success of FHD-909 and other pipeline candidates depends heavily on the outcomes of ongoing and future preclinical studies and clinical trials, which may not yield positive results or support regulatory approval. Even if successful, obtaining regulatory approval from agencies like the FDA is a lengthy and uncertain process.

Foghorn has incurred recurring losses and expects to continue doing so for the foreseeable future. While the current cash position provides a runway into 2027, the company will require substantial additional funding to complete the development and potentially commercialize its product candidates. There is no guarantee that Foghorn will be able to raise this capital on acceptable terms, or at all, particularly given volatility in the biotech market. Failure to secure funding could force the company to significantly delay, scale back, or abandon its research and development programs.

The reliance on the collaboration with Lilly, while strategically beneficial, also presents risks. Lilly has significant control over the development and commercialization of partnered programs like FHD-909. The collaboration agreement can be terminated by Lilly under certain conditions, including for convenience, which would significantly impact Foghorn's financial position and pipeline prospects. Furthermore, the terms of the collaboration involve cost-sharing and potential profit splits or royalties, which may be less favorable than retaining full rights to a successful program.

Competition from larger, better-capitalized companies with more extensive resources and established market presence poses a continuous challenge. These competitors may develop competing therapies more quickly or effectively. Additionally, protecting intellectual property rights covering its platform and product candidates is critical but challenging in the complex biopharmaceutical landscape.

Conclusion

Foghorn Therapeutics represents an investment opportunity centered on its innovative Gene Traffic Control platform and its potential to unlock a new class of precision medicines targeting the chromatin regulatory system. The strategic collaboration with Eli Lilly (LLY) provides crucial financial support and external validation, significantly de-risking the development path for key programs like FHD-909 while allowing Foghorn to pursue additional proprietary targets.

Recent financial results for Q1 2025 demonstrate strategic pipeline prioritization, focusing resources on the most promising opportunities, including the advancing Lilly-partnered FHD-909 program. The company's cash position, extended into 2027 by recent financing, provides a solid foundation for executing its near-term development plans. While substantial risks remain, particularly regarding clinical trial success, future funding needs, and dependence on the Lilly partnership, Foghorn's differentiated technological platform and targeted pipeline offer a compelling narrative for investors focused on the potential of precision oncology. The successful execution of clinical trials, particularly for FHD-909, and the continued advancement of its wholly-owned pipeline candidates will be critical determinants of Foghorn's long-term value creation.