Foghorn Therapeutics Inc. (FHTX)

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes to those statements included elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Some of the numbers included herein have been rounded for the convenience of presentation. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Risk Factors” and elsewhere in this Annual Report on Form 10-K.

Overview

Foghorn is a clinical stage, precision therapeutics biotechnology company pioneering a new class of medicines that treat serious diseases by correcting abnormal gene expression through selectively targeting the chromatin regulatory system, an untapped opportunity for therapeutic intervention in oncology and with potential in a wide spectrum of other diseases including immunology and inflammation.

The chromatin regulatory system orchestrates gene expression—the turning on and off of genes—which is fundamental to how all our cells function. The chromatin regulatory system is implicated in approximately 50 percent of all cancers, and understanding how this system works could lead to an entirely new class of precision medicines. To our knowledge, we are the only company with the ability to study and target the chromatin regulatory system at scale, in context, and in an integrated way.

Our proprietary Gene Traffic Control platform provides an integrated and mechanistic understanding of how the various components of the chromatin regulatory system interact, allowing us to identify, validate and potentially drug targets within this system. We have developed unique capabilities that have yielded new insights and scalability in drugging this new, previously untapped and promising area.

At present, we are working on more than eight programs with one clinical-stage drug candidate currently in Phase 1 development. We have discovered highly selective chemical matter for some of the most challenging targets in oncology including SMARCA2 (BRM), CBP, EP300 and ARID1B, as well as other undisclosed targets. We believe our current pipeline has the potential to help more than 500,000 cancer patients. We take a small molecule modality agnostic approach to drugging

62

Table of Contents

targets which includes protein degraders, allosteric enzymatic inhibitors, and transcription factor disruptors. We are a biology first company which means we focus first on the underlying genetics and biology of a disease relevant target and then leverage the most appropriate drugging approach to impact the disease biology.

In December 2024, we announced our decision to discontinue the independent development of FHD-286 in combination with decitabine in patients with relapsed and/or refractory acute myeloid leukemia.

As part of our collaboration with Eli Lilly and Company (“Lilly”), a Phase 1 dose escalation study dosed its first patient in October of 2024 with FHD-909, a selective allosteric ATPase inhibitor of SMARCA2.

During the third quarter of 2023, we transitioned FHD-909 to Lilly which triggered the 50/50 cost share for the SMARCA2 programs. Costs related to the cost-share are included in research and development expenses on the consolidated statements of operations and comprehensive loss.

Since our inception, we have focused substantially all of our resources on building our Gene Traffic Control platform, organizing and staffing our company, business planning, raising capital, conducting discovery and research activities, protecting our trade secrets, filing patent applications, identifying potential product candidates, undertaking preclinical studies and clinical trial activities, establishing arrangements with third parties for the manufacture of initial quantities of our product candidates and component materials and initiating two strategic collaborations. We do not have any products approved for sale and have not generated any revenue from product sales.

On December 10, 2021, we entered into a collaboration agreement (the “Lilly Collaboration Agreement”) with Lilly, for which we received an upfront payment of $300.0 million in January 2022 (see Note 8 to our notes to consolidated financial statements included elsewhere in this Annual Report on Form 10-K). Concurrent with the Lilly Collaboration Agreement, we also entered into a stock purchase agreement (the “Lilly SPA”) with Lilly whereby we issued and sold Lilly 4,000,000 shares of our common stock at a price of $20.00 per share, resulting in net proceeds of $80.0 million, of which $42.2 million was allocated to equity upon the issuance of our common stock.

In May 2024, the Company entered into an underwriting agreement with Jefferies LLC, TD Securities (USA) LLC and Evercore Group LLC relating to the issuance and sale of an aggregate of 12,743,039 shares of its common stock at a public offering price of $5.51 per share to certain investors. In addition, the Company issued and sold to certain investors in lieu of common stock pre-funded warrants to purchase 7,220,794 shares of its common stock (the “Pre-funded Warrants”) at a public offering price of $5.5099 per pre-funded warrant, which represents the public offering price per share of the common stock less the $0.0001 exercise price per share of each pre-funded warrant. The offering (the “May 2024 Offering”) closed on May 22, 2024, resulting in net proceeds of $102.8 million, after deducting underwriting discounts, commissions and other offering expenses.

We have incurred significant operating losses since our inception. For the years ended December 31, 2024 and 2023, we reported net losses of $86.6 million and $98.4 million, respectively. As of December 31, 2024, we had an accumulated deficit of $558.2 million. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. Our ability to generate any product revenue or product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more product candidates we are developing or may develop.

We expect that our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly if and as we:

•advance FHD-909 and other product candidates partnered with Lilly, and continue preclinical and clinical development of product candidates from our current portfolio;

•identify and advance additional research programs and additional product candidates;

•initiate preclinical testing for any new product candidates we identify and develop;

•obtain, maintain, expand, enforce, defend and protect our trade secrets and intellectual property portfolio and provide reimbursement of third-party expenses related to our patent portfolio;

•hire additional research and development personnel;

•add operational, legal, compliance, financial and management information systems and personnel to support our research, product development and operations;

•expand the capabilities of our platform;

•acquire or in-license product candidates, intellectual property and technologies;

•operate as a public company;

63

Table of Contents

•seek marketing approvals for any product candidates that successfully complete clinical trials; and

•ultimately establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval.

We will not generate revenue from product sales unless and until we successfully commercialize one of our product candidates, after completing clinical development and obtaining regulatory approval. If we obtain regulatory approval for any of our product candidates, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing, manufacturing and distribution. Further, we expect to incur additional costs associated with operating as a public company.

As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings and collaborations or licensing arrangements and the Lilly Collaboration Agreement. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back our development or commercialization plans for one or more of our product candidates.

Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

Components of Our Results of Operations

Collaboration Revenue

To date, we have not generated any revenue from product sales and do not expect to do so in the near future. If our development efforts for our product candidates are successful and result in regulatory approval or licenses with third parties, we may generate revenue in the future from product sales, milestone payments under our existing collaboration agreements or payments from other license agreements that we may enter into with third parties.

In December of 2021, we entered into a strategic collaboration with 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 the aforementioned selective SMARCA2 oncology program and an additional undisclosed oncology target. In addition, the collaboration includes three additional discovery programs using Foghorn’s proprietary Gene Traffic Control platform. Under the terms of the collaboration, Foghorn received upfront consideration of $300.0 million in cash pursuant to the Lilly Collaboration Agreement, together with an equity investment by Lilly of $80.0 million in shares of Foghorn common stock pursuant to the Lilly SPA.

For the SMARCA2 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 in operational activities and cost sharing. 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. that may be exercised after the successful completion of the dose-finding toxicity studies.

We cannot provide assurances as to the timing of future milestones, royalty payments and economics associated with the strategic collaboration with Lilly, if any.

In the third quarter of 2023, we transitioned the SMARCA2 Selective inhibitor, FHD-909, to Lilly, for which Lilly will lead and we will participate and share in 50% of the costs until at least registrational trials. Costs incurred will continue to be included in research and development expenses on the consolidated statements of operations and comprehensive loss.

We recognized total deferred revenue of $337.8 million related to the Lilly Collaboration Agreement and the Lilly SPA, which included the $300.0 million upfront payment under the Lilly Collaboration Agreement as well as $37.8 million allocated to deferred revenue from the gross proceeds of the Lilly SPA to be recognized over the performance period. For the years ended December 31, 2024 and 2023, we recognized $22.6 million and $17.1 million, respectively, of revenue under the Lilly Collaboration Agreement and, as of December 31, 2024, we had $280.1 million of deferred revenue related to the above

64

Table of Contents

mentioned upfront payment and revenue allocation remaining on our consolidated balance sheets. In September 2023 we re-evaluated our estimates related to the Lilly Collaboration Agreement. As a result of this re-evaluation, expected future costs increased over the course of the Lilly Collaboration Agreement, resulting in an adjustment that decreased revenue by $3.2 million for the year ended December 31, 2023.

In July 2020, we entered into a Research Collaboration and Exclusive License Agreement with Merck Sharp & Dohme Corp. (“Merck”) (the “Merck Collaboration Agreement”), pursuant to which we agreed to apply our proprietary Gene Traffic Control platform to discover and develop novel therapeutics. Under the Merck Collaboration Agreement, we granted Merck exclusive global rights to develop and commercialize drugs that target dysregulation of a single transcription factor. Under the terms of the Merck Collaboration Agreement, we received a nonrefundable upfront payment of $15.0 million from Merck. In the third quarter of 2022, we achieved a research milestone related to the Merck Collaboration Agreement and received a $5.0 million milestone payment from Merck.

On August 9, 2023 we received notice from Merck that it was terminating the Merck Collaboration Agreement effective November 7, 2023. At the time of notice, no material obligations remained under the Merck Collaboration Agreement. As such, we recognized the remaining $16.1 million of deferred revenue, related to the original $15.0 million upfront payment and $5.0 million milestone payment received from Merck, as revenue, for year ended December 31, 2023.

For the year ended December 31, 2023, we recognized $17.0 million of revenue under the Merck Collaboration Agreement. As of December 31, 2024 and 2023, we had no deferred revenue related to the upfront payment and milestone achievement remaining on our consolidated balance sheets.

Operating Expenses

Our operating expenses are comprised of research and development expenses and general and administrative expenses.

Research and Development Expenses

Research and development expenses consist primarily of costs incurred to progress our proprietary and partnered pipeline, including our discovery efforts, which include:

•personnel-related costs, including salaries, benefits, and stock-based compensation expense, for employees engaged in research and development functions;

•expenses incurred in connection with our research programs and preclinical and clinical development of our product candidates, including under agreements with third parties, such as consultants and contractors, contract research organizations (“CROs”), and our collaboration partner;

•the cost of manufacturing drug substance and drug product for use in our research and preclinical studies and clinical trials under agreements with third parties, such as consultants and contractors and contract development and manufacturing organizations (“CDMOs”);

•laboratory supplies and research materials;

•facilities, depreciation and amortization and other expenses, which include direct and allocated expenses for rent and maintenance of facilities and insurance; and

•payments made under third-party licensing agreements.

We track our direct external research and development expenses on a program-by-program basis. These consist of costs that include fees, reimbursed materials, and other costs paid to consultants, contractors, CDMOs, and CROs in connection with our preclinical, clinical and manufacturing activities. We do not allocate employee costs, costs associated with our discovery efforts, laboratory supplies, and facilities expenses, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple programs and our platform and, as such, are not separately classified.

We expect that our research and development expenses may increase in the future as we advance our programs into clinical development and continue our discovery, research and preclinical activities in the near term and in the future. At this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any product candidates we may develop. A change in the outcome of any number of variables with respect to product candidates we may develop could significantly change the costs and timing associated with the development of that product candidate. We may never succeed in obtaining regulatory approval for any product candidates we may develop.

65

Table of Contents

General and Administrative Expenses

General and administrative expenses consist primarily of personnel-related costs, including salaries, benefits, and stock-based compensation, for employees engaged in executive, legal, finance and accounting and other administrative functions. General and administrative expenses also include professional fees for legal, patent, consulting, investor and public relations, human resources, and accounting and audit services as well as direct and allocated facility-related costs.

We anticipate that our general and administrative expenses may increase in the future as we continue to support our continued research activities and development of our programs and platform. We also anticipate that we will continue to incur increased accounting, audit, legal, regulatory, compliance, director and officer insurance costs and investor and public relations expenses associated with operating as a public company.

Other Income, Net

Interest Income

Interest income consists of interest earned on our invested cash balances.

Other Income, Net

Other income, net consists of sublease income and miscellaneous expense unrelated to our core operations.

Provision for Income Taxes

Since our inception, we have not recorded any federal or state income tax benefits for the net losses we have incurred in any year or for our federal or state earned research and development tax credits, due to our uncertainty of realizing a benefit from those items. During the year ended December 31, 2023, we recorded a provision for income taxes related to the $300.0 million upfront payment from the Lilly Collaboration Agreement which was recognized as taxable income during that year, and the required capitalization of research and development costs pursuant to Internal Revenue Code Section 174. As of December 31, 2024, we had federal net operating loss carryforwards of $52.3 million, which may be available to offset future taxable income. The federal net operating loss can be carried forward indefinitely but are limited to offset 80% of annual taxable income. As of December 31, 2024, we also had U.S. federal and state research and development tax credit carryforwards of $7.2 million and $3.7 million, respectively, which may be available to reduce future tax liabilities and expire at various dates beginning in 2043 and 2037, respectively. Due to our history of cumulative net losses since inception and uncertainties surrounding our ability to generate future taxable income, we have recorded a full valuation allowance against our net deferred tax assets at each balance sheet date. We do not expect to have taxable income in the current year.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States, (“GAAP”). The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

We received significant non-refundable upfront payments under our collaboration agreements with Lilly, from which we recognize revenue over time using the cost-to-cost method. Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified single performance obligation. In estimating the total costs to satisfy our performance obligation, we are required to make significant estimates including an estimate of the expected time and expected internal and external costs to fulfill the performance obligation. In developing these estimates we consider historical experience, relevant entity-specific factors, known market trends and conditions, and a variety of other factors we believe are relevant to estimating the total cost to fulfill the performance obligation. We periodically evaluate estimates against the actual time and costs incurred as well as any anticipated changes to the timing or estimated costs. Any cumulative effect of revisions to the total estimated costs to complete our performance obligation will be recorded in the period in which the changes are identified, and amounts can be reasonably

66

Table of Contents

estimated. While such revisions will have no impact on our cash flows, a significant change in these assumptions and estimates could have a material impact on the timing and amount of revenue recognized in future periods and the classification of deferred revenue between short-term and long-term.

Accrued Research and Development Expenses

As part of the process of preparing our consolidated financial statements, we are required to estimate certain accrued research and development expenses. This process involves estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of the estimates with the service providers and make adjustments if necessary. Examples of estimated accrued research and development expenses include those related to fees paid to:

•vendors in connection with discovery, preclinical and clinical development activities;

•CROs in connection with preclinical studies and testing and clinical trials; and

•CDMOs in connection with the process development and scale up activities and the production and manufacturing of materials.

We base the expense recorded related to contract research and manufacturing on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple CROs and CDMOs that conduct services and produce and supply materials. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. While the majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met, some require advance payments. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. We record these as prepaid expenses on our consolidated balance sheets.

Results of Operations

Comparison of the Years Ended December 31, 2024 and 2023

The following table summarizes our results of operations for the years ended December 31, 2024 and 2023:

67

Table of Contents

Collaboration Revenue

Under our collaboration agreements, revenue is recognized based on the work performed during the period. Collaboration revenue was $22.6 million for the year ended December 31, 2024, compared to $34.2 million for the year ended December 31, 2023. The decrease in collaboration revenue is attributed to:

•a decrease in Merck collaboration revenue recognition of $17.0 million, driven by the termination of the Merck Collaboration Agreement in 2023 and the subsequent recognition of the remaining deferred revenue, partially offset by an increase in Lilly collaboration revenue recognition of $5.5 million due to continued advancement of programs under the Lilly Collaboration Agreement.

Research and Development Expenses

The following table summarizes our research and development expenses for the years ended December 31, 2024 and 2023:

Research and development expenses were $94.5 million for the year ended December 31, 2024, compared to $109.7 million for the year ended December 31, 2023. The decrease is attributed to the following:

•a decrease in personnel-related costs of $9.0 million, including a $1.9 million decrease in stock-based compensation expense, due to decreased headcount in our research and development function compared to prior year;

•a decrease in early development and other research external costs of $7.0 million; which was entirely driven by decreased FHD-609 spend due to the shutdown of the Phase 1 clinical trial in synovial sarcoma and SMARCAB1-loss tumors;

•a decrease in facilities and IT related expenses of $2.4 million due to decreased headcount in our research and development function compared to prior year; and

•an increase in Lilly partnered programs of $3.3 million, primarily driven by initiation of the Phase 1 dose escalation study of FHD-909. We expect these costs to continue to increase with increasing enrollment and potential future clinical advancement of FHD-909;

General and Administrative Expenses

The following table summarizes our general and administrative expenses for the years ended December 31, 2024 and 2023:

General and administrative expenses were $28.4 million for the year ended December 31, 2024, compared to $32.4 million for the year ended December 31, 2023. The decrease is attributed to the following:

•a decrease in personnel-related costs of $3.4 million, including a $2.4 million decrease in stock-based compensation expense, due to decreased headcount in our general and administrative function compared to prior year;

68

Table of Contents

•a decrease in professional and consulting costs of $0.9 million, primarily due to decreased legal and consultant fees compared to prior year; and

•an increase in facility and IT related expense of $0.3 million, primarily due to increased repair and maintenance costs compared to prior year.

Impairment of Long-Lived Assets

For the year ended December 31, 2024, we recorded a non-cash impairment of long-lived assets charge of $2.4 million related to the sublease of office space at the Company’s main office in Cambridge, MA (see Note 10 to our notes to consolidated financial statements included elsewhere in this Annual Report on Form 10-K). There were no impairment charges for the year ended December 31, 2023.

Other Income, net

Total other income, net was $16.1 million for the year ended December 31, 2024, compared to $13.7 million for the year ended December 31, 2023. The increase in total other income, net was primarily due to sublease income related to the new sublease entered into in 2024 of 15,700 square feet at the Company’s main office in Cambridge, MA (see Note 10) and higher average cash balances during the year.

Provision for income taxes

For the year ended December 31, 2024, we did not record an income tax provision. For the year ended December 31, 2023, we recorded an income tax provision of $4.2 million. The income tax provision is primarily driven by the current federal and state taxes related to the $300.0 million upfront payment for Lilly Collaboration Agreement, which will be recognized as taxable income in the related year, and the required capitalization of research and development costs pursuant to Internal Revenue Code Section 174.

Liquidity and Capital Resources

Since our inception in October 2015, we have incurred significant operating losses. We expect to incur significant expenses and operating losses for the foreseeable future as we support our continued research activities and development of our programs and platform. Through December 31, 2024, we have funded our operations with proceeds from our initial public offering (“IPO”) in October 2020, sales of preferred stock, term loans, an upfront payment of $15.0 million we received in July 2020 under the Merck Collaboration Agreement, proceeds we received in December 2021 under the Lilly SPA of $80.0 million; an upfront payment of $300.0 million received in January 2022 under the Lilly Collaboration Agreement; a payment of $5.0 million received from Merck under the Merck Collaboration Agreement in the third quarter of 2022 for the achievement of a research milestone; and net proceeds of $102.8 million, after deducting underwriting discounts, commissions and other offering expenses, from the May 2024 Offering. As of December 31, 2024, we had cash, cash equivalents and marketable securities of $243.7 million.

Cash Flows

The following table summarizes our sources and uses of cash for each of the periods presented:

Operating Activities

For the year ended December 31, 2024, operating activities used $100.4 million of cash, resulting from our net loss of $86.6 million to fund our operations and by changes in our operating assets and liabilities of $32.3 million partially offset by net non-cash charges of $18.5 million. Net cash provided by changes in our operating assets and liabilities for the year ended December 31, 2024 consisted primarily of a decrease of $22.6 million in deferred revenue resulting from the recognition of revenue on the upfront payments received in connection with our collaboration agreements, a $7.9 million decrease in operating lease liabilities and a $1.7 million net decrease in working capital.

69

Table of Contents

For the year ended December 31, 2023, operating activities used $118.1 million of cash, resulting from our net loss of $98.4 million to fund our operations and by changes in our operating assets and liabilities of $41.9 million partially offset by net non-cash charges of $22.2 million. Net cash provided by changes in our operating assets and liabilities for the year ended December 31, 2023 consisted primarily of a decrease of $34.2 million in deferred revenue resulting from the recognition of revenue on the upfront payments received in connection with our collaboration agreements, a $7.5 million decrease in operating lease liabilities and a $0.2 million net decrease in working capital.

Investing Activities

For the year ended December 31, 2024, net cash used in investing activities was $29.9 million primarily due to $261.5 million of purchases of marketable securities and $0.9 million in purchases of property and equipment offset by $232.5 million of marketable securities maturing.

For the year ended December 31, 2023, net cash provided by investing activities was $144.5 million primarily due to $219.6 million of marketable securities maturing, offset by $73.9 million of purchases of marketable securities and $1.2 million in purchases of property and equipment.

Financing Activities

For the year ended December 31, 2024, net cash provided by financing activities was $105.4 million, consisting of net proceeds from the offering of our common stock and pre-funded warrants of $102.8 million, after deducting underwriting discounts, commissions and other offering expenses that have been paid in during the twelve months ended December 31, 2024 and $2.6 million net proceeds from the exercise of common stock options and the employee stock purchase plan.

For the year ended December 31, 2023, net cash provided by financing activities was $1.8 million, consisting of proceeds from the exercise of common stock options and the employee stock purchase plan.

Funding Requirements

We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we continue to fund on-going and potential future clinical activities, including the Phase 1 clinical trial of FHD-909 partnered with Lilly, advance preclinical activities, and initiate clinical trials for our product candidates in development, including those partnered with Lilly. As of the issuance date of the consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we expect that our cash, cash equivalents and marketable securities will be sufficient to fund our operating expenses and capital expenditure requirements for at least twelve months. We have based this estimate on assumptions that may prove to be inaccurate. We could use our available capital resources sooner than we currently expect, in which case we would be required to obtain additional financing sooner than planned, which may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our long-term business strategy. We will be required to obtain further funding through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources.

If we are unable to raise sufficient capital as and when needed, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any product candidate we may develop, or be unable to expand our operations or otherwise capitalize on our business opportunities. If we raise additional funds through collaborations or licensing arrangements with third parties, we may have to relinquish valuable rights to future revenue streams or product candidates or grant licenses on terms that may not be favorable to us.

Off-balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission.

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes to those statements included elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Some of the numbers included herein have been rounded for the convenience of presentation. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Risk Factors” and elsewhere in this Annual Report on Form 10-K.

Overview

Foghorn is a clinical stage, precision therapeutics biotechnology company pioneering a new class of medicines that treat serious diseases by correcting abnormal gene expression through selectively targeting the chromatin regulatory system, an untapped opportunity for therapeutic intervention in oncology and with potential in a wide spectrum of other diseases including virology, autoimmune diseases and neurology.

The chromatin regulatory system orchestrates gene expression—the turning on and off of genes—which is fundamental to how all our cells function. The chromatin regulatory system is implicated in approximately 50 percent of all cancers, and understanding how this system works could lead to an entirely new class of precision medicines. To our knowledge, we are the only company with the ability to study and target the chromatin regulatory system at scale, in context, and in an integrated way.

Our proprietary Gene Traffic Control® platform provides an integrated and mechanistic understanding of how the various components of the chromatin regulatory system interact, allowing us to identify, validate and potentially drug targets within this system. We have developed unique capabilities that have yielded new insights and scalability in drugging this new, previously untapped and promising area.

At present, we are working on more than 10 programs with one clinical-stage drug candidate currently in Phase 1 development and one drug candidate anticipated to begin clinical development this year. We have 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. We believe our current pipeline has the potential to help more than 500,000 cancer patients. We take a

64

Table of Contents

small molecule modality agnostic approach to drugging targets which includes protein degraders, allosteric enzymatic inhibitors, and transcription factor disruptors. We are a biology first company which means we focus first on the underlying genetics and biology of a disease relevant target and then leverage the most appropriate drugging approach to impact the disease biology.

We are currently conducting a Phase 1 dose escalation study of FHD-286, a selective, allosteric ATPase inhibitor of BRM and BRG1, in combination with either decitabine or cytarabine in relapsed and/or refractory acute myeloid leukemia (“AML”) patients. As part of our collaboration with Loxo Oncology at Eli Lilly and Company (“Lilly”), we anticipate 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, we transitioned the BRM Selective inhibitor program to Lilly which triggered the 50/50 cost share for the BRM programs. Costs related to the cost-share are included in research and development expenses on the consolidated statements of operations and comprehensive loss.

Since our inception, we have focused substantially all of our resources on building our Gene Traffic Control platform, organizing and staffing our company, business planning, raising capital, conducting discovery and research activities, protecting our trade secrets, filing patent applications, identifying potential product candidates, undertaking preclinical studies and clinical trial activities, establishing arrangements with third parties for the manufacture of initial quantities of our product candidates and component materials and initiating two strategic collaborations. We do not have any products approved for sale and have not generated any revenue from product sales.

On December 10, 2021, we entered into a collaboration agreement (the “Lilly Collaboration Agreement”) with Lilly, for which we received an upfront payment of $300.0 million in January 2022 (see Note 8 to our notes to consolidated financial statements included elsewhere in this Annual Report on Form 10-K). Concurrent with the Lilly Collaboration Agreement, we also entered into a stock purchase agreement (the “Lilly SPA”) and issued and sold Lilly 4,000,000 shares of our common stock at a price of $20.00 per share, resulting in net proceeds of $80.0 million, of which $42.2 million was allocated to equity upon the issuance of our common stock.

In the third quarter of 2022, we achieved a research milestone related to a Research Collaboration and Exclusive License Agreement (the “Merck Collaboration Agreement”) with Merck Sharp & Dohme Corp. (“Merck”) and received a $5.0 million milestone payment from Merck.

We have incurred significant operating losses since our inception. For the years ended December 31, 2023 and 2022, we reported net losses of $98.4 million and $108.9 million, respectively. As of December 31, 2023, we had an accumulated deficit of $471.6 million. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. Our ability to generate any product revenue or product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more product candidates we are developing and may develop.

We expect that our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly if and as we:

•advance FHD-286 and continue preclinical and clinical development of product candidates from our current portfolio, including those partnered with Lilly;

•identify and advance additional research programs and additional product candidates;

•initiate preclinical testing for any new product candidates we identify and develop;

•obtain, maintain, expand, enforce, defend and protect our trade secrets and intellectual property portfolio and provide reimbursement of third-party expenses related to our patent portfolio;

•hire additional research and development personnel;

•add operational, legal, compliance, financial and management information systems and personnel to support our research, product development and operations;

•expand the capabilities of our platform;

•acquire or in-license product candidates, intellectual property and technologies;

•operate as a public company;

•seek marketing approvals for any product candidates that successfully complete clinical trials; and

•ultimately establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval.

65

Table of Contents

We will not generate revenue from product sales unless and until we successfully commercialize one of our product candidates, after completing clinical development and obtaining regulatory approval. If we obtain regulatory approval for any of our product candidates, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing, manufacturing and distribution. Further, we expect to incur additional costs associated with operating as a public company.

As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings and collaborations or licensing arrangements and the Lilly Collaboration Agreement. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back our development or commercialization plans for one or more of our product candidates.

Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

Components of Our Results of Operations

Collaboration Revenue

To date, we have not generated any revenue from product sales and do not expect to do so in the near future. If our development efforts for our product candidates are successful and result in regulatory approval or licenses with third parties, we may generate revenue in the future from product sales, milestone payments under our existing collaboration agreements or payments from other license agreements that we may enter into with third parties.

In December of 2021, we entered into a strategic collaboration with 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 the aforementioned selective BRM oncology program and an additional undisclosed oncology target. In addition, the collaboration includes three additional discovery programs using Foghorn’s proprietary Gene Traffic Control platform. Under the terms of the collaboration, Foghorn received upfront consideration of $300.0 million in cash pursuant to the Lilly Collaboration Agreement, together with an equity investment by Lilly of $80.0 million in shares of Foghorn common stock pursuant to the Lilly SPA.

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 in operational activities and cost sharing. 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. that may be exercised after the successful completion of the dose-finding toxicity studies.

We cannot provide assurances as to the timing of future milestones, royalty payments and economics associated with the strategic collaboration with Lilly, if any.

In the third quarter of 2023, we transitioned the BRM Selective inhibitor program to Lilly, for which Lilly will lead and we will participate and share in 50% of the costs until registrational trials. Costs incurred will continue to be included in research and development expenses on the consolidated statements of operations and comprehensive loss.

We recognized total deferred revenue of $337.8 million related to the Lilly Collaboration Agreement and the Lilly SPA, which included the $300.0 million upfront payment under the Lilly Collaboration Agreement as well as $37.8 million allocated to deferred revenue from the gross proceeds of the Lilly SPA to be recognized over the performance period. For the years ended December 31, 2023 and 2022, we recognized $17.1 million and $17.4 million, respectively, of revenue under the Lilly Collaboration Agreement and, as of December 31, 2023, we had $302.7 million of deferred revenue related to the above mentioned upfront payment and revenue allocation remaining on our consolidated balance sheets. In September 2023 we re-evaluated our estimates related to the Lilly Collaboration Agreement. As a result of this re-evaluation, expected future costs increased over the course of the Lilly Collaboration Agreement, resulting in an adjustment that decreased revenue by $3.2 million for the year ended December 31, 2023.

66

Table of Contents

In July 2020, we entered into the Merck Collaboration Agreement, pursuant to which we agreed to apply our proprietary Gene Traffic Control platform to discover and develop novel therapeutics. Under the Merck Collaboration Agreement, we granted Merck exclusive global rights to develop and commercialize drugs that target dysregulation of a single transcription factor. Under the terms of the Merck Collaboration Agreement, we received a nonrefundable upfront payment of $15.0 million from Merck. In the third quarter of 2022, we achieved a research milestone related to the Merck Collaboration Agreement and received a $5.0 million milestone payment from Merck.

On August 9, 2023 we received notice from Merck that it was terminating the Merck Collaboration Agreement effective November 7, 2023. At the time of notice, no material obligations remained under the Merck Collaboration Agreement. As such, we recognized the remaining $16.1 million of deferred revenue, related to the original $15.0 million upfront payment and $5.0 million milestone payment received from Merck, as revenue, for year ended December 31, 2023.

For the years ended December 31, 2023 and 2022, we recognized $17.0 million and $1.8 million, respectively, of revenue under the Merck Collaboration Agreement. As of December 31, 2023, we had no deferred revenue related to the upfront payment and milestone achievement remaining on our consolidated balance sheets.

Operating Expenses

Our operating expenses are comprised of research and development expenses and general and administrative expenses.

Research and Development Expenses

Research and development expenses consist primarily of costs incurred to progress our proprietary and partnered pipeline, including our discovery efforts, which include:

•personnel-related costs, including salaries, benefits and stock-based compensation expense, for employees engaged in research and development functions;

•expenses incurred in connection with our research programs and preclinical and clinical development of our product candidates, including under agreements with third parties, such as consultants and contractors and CROs;

•the cost of manufacturing drug substance and drug product for use in our research and preclinical studies and clinical trials under agreements with third parties, such as consultants and contractors and CDMOs;

•laboratory supplies and research materials;

•facilities, depreciation and amortization and other expenses, which include direct and allocated expenses for rent and maintenance of facilities and insurance; and

•payments made under third-party licensing agreements.

We track our direct external research and development expenses on a program-by-program basis. These consist of costs that include fees, reimbursed materials, and other costs paid to consultants, contractors, CDMOs, and CROs in connection with our preclinical, clinical and manufacturing activities. We do not allocate employee costs, costs associated with our discovery efforts, laboratory supplies, and facilities expenses, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple programs and our platform and, as such, are not separately classified.

We expect that our research and development expenses may increase in the future as we advance our programs into clinical development and continue our discovery, research and preclinical activities in the near term and in the future. At this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any product candidates we may develop. A change in the outcome of any number of variables with respect to product candidates we may develop could significantly change the costs and timing associated with the development of that product candidate. We may never succeed in obtaining regulatory approval for any product candidates we may develop.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel-related costs, including salaries, benefits and stock-based compensation, for employees engaged in executive, legal, finance and accounting and other administrative functions. General and administrative expenses also include professional fees for legal, patent, consulting, investor and public relations, human resources, and accounting and audit services as well as direct and allocated facility-related costs.

We anticipate that our general and administrative expenses may increase in the future as we continue to support our continued research activities and development of our programs and platform. We also anticipate that we will continue to incur increased accounting, audit, legal, regulatory, compliance, director and officer insurance costs and investor and public relations expenses associated with operating as a public company.

67

Table of Contents

Other Income (Expense)

Interest Income

Interest income consists of interest earned on our invested cash balances.

Other Income, Net

Other income (expense), net consists of sublease income and miscellaneous expense unrelated to our core operations.

Provision for Income Taxes

Since our inception, we have not recorded any federal or state income tax benefits for the net losses we have incurred in any year or for our federal or state earned research and development tax credits, due to our uncertainty of realizing a benefit from those items. During the year ended December 31, 2023, we recorded a provision for income taxes related to the $300.0 million upfront payment from the Lilly Collaboration Agreement which will be recognized as taxable income in the current year, and the required capitalization of research and development costs pursuant to Internal Revenue Code Section 174. As of December 31, 2023, the Company had U.S. federal net operating loss carryforwards of $3.0 million which can be carried forward indefinitely but limited to offset 80% of annual taxable income. As of December 31, 2023, the Company also had U.S. federal and state research and development tax credit carryforwards of $3.7 million and $2.6 million, respectively, which may be available to offset future tax liabilities and expire at various dates beginning in 2041 and 2037, respectively.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States, (“GAAP”). The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

We received significant non-refundable upfront payments under our collaboration agreements with Merck and Lilly, from which we recognize revenue over time using the cost-to-cost method. Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified single performance obligation. In estimating the total costs to satisfy our performance obligation, we are required to make significant estimates including an estimate of the expected time and expected internal and external costs to fulfill the performance obligation. In developing these estimates we consider historical experience, relevant entity-specific factors, known market trends and conditions, and a variety of other factors we believe are relevant to estimating the total cost to fulfill the performance obligation. We periodically evaluate estimates against the actual time and costs incurred as well as any anticipated changes to the timing or estimated costs. Any cumulative effect of revisions to the total estimated costs to complete our performance obligation will be recorded in the period in which the changes are identified, and amounts can be reasonably estimated. While such revisions will have no impact on our cash flows, a significant change in these assumptions and estimates could have a material impact on the timing and amount of revenue recognized in future periods and the classification of deferred revenue between short-term and long-term.

Accrued Research and Development Expenses

As part of the process of preparing our consolidated financial statements, we are required to estimate certain accrued research and development expenses. This process involves estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of the estimates with the service providers and make adjustments if necessary. Examples of estimated accrued research and development expenses include those related to fees paid to:

•vendors in connection with discovery, preclinical and clinical development activities;

68

Table of Contents

•CROs in connection with preclinical studies and testing and clinical trials; and

•CDMOs in connection with the process development and scale up activities and the production and manufacturing of materials.

We base the expense recorded related to contract research and manufacturing on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple CROs and CDMOs that conduct services and produce and supply materials. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. While the majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met, some require advance payments. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. We record these as prepaid expenses on our consolidated balance sheets.

Results of Operations

Comparison of the Years Ended December 31, 2023 and 2022

The following table summarizes our results of operations for the years ended December 31, 2023 and 2022:

Collaboration Revenue

Under our collaboration agreements, revenue is recognized based on the work performed during the period. Collaboration revenue was $34.2 million for the year ended December 31, 2023, compared to $19.2 million for the year ended December 31, 2022. The increase in collaboration revenue is attributed to:

•an increase in Merck collaboration revenue recognition of $15.2 million, driven by the termination of the Merck Collaboration Agreement in 2023 and the subsequent recognition of the remaining deferred revenue; and

•a decrease in Lilly collaboration revenue recognition of $0.3 million due to a change in estimated total costs to satisfy the remaining performance obligation during 2023 offset by increased work performed on Lilly partnered targets.

69

Table of Contents

Research and Development Expenses

The following table summarizes our research and development expenses for the years ended December 31, 2023 and 2022:

Research and development expenses were $109.7 million for the year ended December 31, 2023, compared to $105.6 million for the year ended December 31, 2022. The increase is attributed to the following:

•an increase in platform and other early stage research costs of $10.2 million, including an increase of $2.4 million related to the advancement of Lilly partnered targets, which was due to continued investment and development of our platform and early research pipeline;

•an increase in personnel-related costs of $4.1 million, including a $0.4 million increase in stock-based compensation expense, due to higher average headcount in our research and development functions compared to prior year, and $1.4 million in one-time separation costs; and

•an increase in facility-related and other expenses of $1.1 million due to the increased costs of supporting our research and development organization and their research efforts;

Partially offset by:

•a decrease in our FHD-286 program costs of $7.7 million, driven by a decline in development spend in 2023 as the Company’s Phase 1 study in AML/MDS was on clinical hold until June 2023 and the shutdown of the Phase 1 uveal melanoma study beginning in the second quarter of 2023; and

•a decrease in our FHD-609 program costs of $3.7 million associated with the partial clinical hold and subsequent shutdown of the Phase 1 clinical trial for FHD-609 in synovial sarcoma and SMARCAB1-loss tumors, which started in the second quarter of 2023.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for the years ended December 31, 2023 and 2022:

General and administrative expenses were $32.4 million for the year ended December 31, 2023, compared to $30.7 million for the year ended December 31, 2022. The increase is attributed to the following:

•an increase in personnel-related costs of $2.3 million, including a $1.4 million increase in stock-based compensation expense, due to higher average headcount in our general and administrative function to support our business; and

•a decrease in facility related and other expense of $0.9 million, which was primarily due to a decrease in insurance related expense and less overall purchases of non-capital equipment in 2023.

70

Table of Contents

Other Income (Expense)

Total other income, net was $13.7 million for the year ended December 31, 2023, compared to $8.3 million for the year ended December 31, 2022. The increase in total other income, net was primarily due to an increase in interest income driven by an increase in the average interest rate partially offset by lower average cash balances throughout the year ended December 31, 2023 compared to the year ended December 31, 2022.

Provision for income taxes

For the year ended December 31, 2023, we recorded an income tax provision of $4.2 million. The income tax provision is primarily driven by the current federal and state taxes related to the $300.0 million upfront payment for Lilly Collaboration Agreement, which will be recognized as taxable income in the current year, and the required capitalization of research and development costs pursuant to Internal Revenue Code Section 174. We did not record a provision for income taxes for the year ended December 31, 2022.

Liquidity and Capital Resources

Since our inception in October 2015, we have incurred significant operating losses. We expect to incur significant expenses and operating losses for the foreseeable future as we support our continued research activities and development of our programs and platform. Through December 31, 2023, we have funded our operations with proceeds from our initial public offering (“IPO”) in October 2020, sales of preferred stock, term loans, an upfront payment of $15.0 million we received in July 2020 under the Merck Collaboration Agreement, proceeds we received in December 2021 under the Lilly SPA of $80.0 million, an upfront payment of $300.0 million received in January 2022 under the Lilly Collaboration Agreement and a payment of $5.0 million received from Merck under the Merck Collaboration Agreement for the achievement of a research milestone. As of December 31, 2023, we had cash, cash equivalents and marketable securities of $234.1 million.

Cash Flows

The following table summarizes our sources and uses of cash for each of the periods presented:

Operating Activities

For the year ended December 31, 2023, operating activities used $118.1 million of cash, resulting from our net loss of $98.4 million to fund our operations and by changes in our operating assets and liabilities of $41.9 million partially offset by net non-cash charges of $22.2 million. Net cash provided by changes in our operating assets and liabilities for the year ended December 31, 2023 consisted primarily of a decrease of $34.2 million in deferred revenue resulting from the recognition of revenue on the upfront payments received in connection with our collaboration agreements, a $7.5 million decrease in operating lease liabilities and a $0.2 million net decrease in working capital.

For the year ended December 31, 2022, operating activities provided $193.6 million of cash, resulting from net cash provided by changes in our operating assets and liabilities of $281.5 million and by net non-cash charges of $20.9 million partially offset by a net loss of $108.9 million to fund our operations. Net cash provided by changes in our operating assets and liabilities for the year ended December 31, 2022 consisted primarily of a $302.7 million net increase in working capital. This was primarily driven by to the $300.0 million of cash received related to our collaboration receivable from Lilly and an increase of $4.3 million in deferred revenue related to the $5.0 million milestone payment from Merck, partially offset by a $18.5 million decrease in deferred revenue resulting from the recognition of revenue on the upfront and milestone payments received in connection with our collaboration agreements and a $7.0 million decrease in operating lease liabilities.

Investing Activities

For the year ended December 31, 2023, net cash provided by investing activities was $144.5 million primarily due to $219.6 million of marketable securities maturing, offset by $73.9 million of purchases of marketable securities and $1.2 million in purchases of property and equipment.

71

Table of Contents

For the year ended December 31, 2022, net cash used in investing activities was $244.3 million primarily due to $409.3 million of purchases of marketable securities and $1.2 million in purchases of property and equipment partially offset by $166.2 million of maturities of marketable securities.

Financing Activities

For the year ended December 31, 2023 and 2022, net cash provided by financing activities was $1.8 million, consisting of net proceeds from the exercise of common stock options and the employee stock purchase plan.

Funding Requirements

We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities, initiate clinical trials for our product candidates in development, including those partnered with Lilly, and continue to fund on-going clinical activities. As of the issuance date of the consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we expect that our cash, cash equivalents and marketable securities will be sufficient to fund our operating expenses and capital expenditure requirements for at least twelve months. We have based this estimate on assumptions that may prove to be inaccurate. We could use our available capital resources sooner than we currently expect, in which case we would be required to obtain additional financing sooner than planned, which may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our long-term business strategy. We will be required to obtain further funding through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources.

If we are unable to raise sufficient capital as and when needed, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any product candidate we may develop, or be unable to expand our operations or otherwise capitalize on our business opportunities. If we raise additional funds through collaborations or licensing arrangements with third parties, we may have to relinquish valuable rights to future revenue streams or product candidates or grant licenses on terms that may not be favorable to us.

Off-balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission.

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes to those statements included elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Some of the numbers included herein have been rounded for the convenience of presentation. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Risk Factors” and elsewhere in this Annual Report on Form 10-K.

Overview

Foghorn is a clinical stage, precision therapeutics biotechnology company pioneering a new class of medicines that treat serious diseases by correcting abnormal gene expression through selectively targeting the chromatin regulatory system, an untapped opportunity for therapeutic intervention in oncology and in a wide spectrum of other diseases including virology, autoimmune diseases and neurology.

The chromatin regulatory system orchestrates gene expression—the turning on and off of genes—which is fundamental to how all our cells function. The chromatin regulatory system is implicated in approximately 50% of all cancers, and understanding how this system works could lead to an entirely new class of precision medicines. To our knowledge, we are the only company with the ability to study and target the chromatin regulatory system at scale, in context, and in an integrated way.

Our proprietary Gene Traffic Control® platform provides an integrated and mechanistic understanding of how the various components of the chromatin regulatory system interact, allowing us to identify, validate and potentially drug targets within this system. We have developed unique capabilities that have yielded new insights and scalability in drugging this new, previously untapped and promising area.

Since our inception in 2015, our platform has generated a broad pipeline of more than 15 programs with two clinical-stage drug candidates currently in phase 1 development across multiple indications. We have 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. We believe our current pipeline has the potential to help more than 500,000 cancer patients. We take a small molecule

70

Table of Contents

modality agnostic approach to drugging targets which includes protein degraders, allosteric enzymatic inhibitors, and transcription factor disruptors. We are a biology first company which means we focus first on the underlying genetics and biology of a disease relevant target and then leverage the most appropriate drugging approach to impact the disease biology.

Our two clinical-stage candidates are being studied across multiple indications and are supported by compelling science and preclinical data. We are developing FHD-286, a selective, allosteric ATPase inhibitor with two separate Phase 1 studies in (i) metastatic uveal melanoma and (ii) relapsed and/or refractory acute myeloid leukemia (“AML”), and myelodysplastic syndrome (“MDS”). We expect initial clinical data for metastatic uveal melanoma in the first half of 2023. The relapsed and/or refractory AML and MDS study has been placed on full clinical hold by the FDA due to potential differentiation syndrome and potential linkages to grade 5 safety events. We are developing FHD-609, a targeted protein degrader, and are currently enrolling a Phase 1 study in synovial sarcoma and SMARCB1-loss tumors. We anticipate initial clinical data in mid-2023.

We believe Foghorn has the potential to be a major biopharmaceutical company with our current pipeline addressing more than 20 tumor types impacting more than 500,000 new patients annually. We believe we have the potential to file at least six new INDs over the next four years.

Since our inception, we have focused substantially all of our resources on building our Gene Traffic Control platform, organizing and staffing our company, business planning, raising capital, conducting discovery and research activities, protecting our trade secrets, filing patent applications, identifying potential product candidates, undertaking preclinical studies and clinical trial activities, establishing arrangements with third parties for the manufacture of initial quantities of our product candidates and component materials and initiating two strategic collaborations. We do not have any products approved for sale and have not generated any revenue from product sales.

On December 10, 2021, we entered into a collaboration agreement (the “Lilly Collaboration Agreement”) with Eli Lilly and Company (“Lilly”), for which we received an upfront payment of $300.0 million in January 2022 (see Note 8 to our notes to consolidated financial statements included elsewhere in this Annual Report on Form 10-K). Concurrent with the Lilly Collaboration Agreement, we also entered into a stock purchase agreement (the “Lilly SPA”) and issued and sold Lilly 4,000,000 shares of our common stock at a price of $20.00 per share, resulting in net proceeds of $80.0 million, of which $42.2 million was allocated to equity upon the issuance of the Company’s common stock.

In the third quarter of 2022, the Company achieved a research milestone related to a Research Collaboration and Exclusive License Agreement (the “Merck Collaboration Agreement”) with Merck Sharp & Dohme Corp. (“Merck”) and received a $5.0 million milestone payment from Merck.

We have incurred significant operating losses since our inception. For the years ended December 31, 2022 and 2021, we reported net losses of $108.9 million and $101.3 million, respectively. As of December 31, 2022, we had an accumulated deficit of $373.1 million. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. Our ability to generate any product revenue or product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more product candidates we are developing and may develop.

We expect that our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly if and as we:

•advance our FHD-286 and FHD-609 product candidates and continue our preclinical development of product candidates from our current research programs;

•identify and advance additional research programs and additional product candidates;

•initiate preclinical testing for any new product candidates we identify and develop;

•obtain, maintain, expand, enforce, defend and protect our trade secrets and intellectual property portfolio and provide reimbursement of third-party expenses related to our patent portfolio;

•hire additional research and development personnel;

•add operational, legal, compliance, financial and management information systems and personnel to support our research, product development and operations;

•expand the capabilities of our platform;

•acquire or in-license product candidates, intellectual property and technologies;

•operate as a public company;

•seek marketing approvals for any product candidates that successfully complete clinical trials; and

71

Table of Contents

•ultimately establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval.

We will not generate revenue from product sales unless and until we successfully commercialize one of our product candidates, after completing clinical development and obtaining regulatory approval. If we obtain regulatory approval for any of our product candidates, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing, manufacturing and distribution. Further, we expect to incur additional costs associated with operating as a public company.

As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings and collaborations or licensing arrangements and our collaboration agreements with Merck and Lilly. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back our development or commercialization plans for one or more of our product candidates.

Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

Components of Our Results of Operations

Collaboration Revenue

To date, we have not generated any revenue from product sales and do not expect to do so in the near future. If our development efforts for our product candidates are successful and result in regulatory approval or licenses with third parties, we may generate revenue in the future from product sales, milestone payments under our existing collaboration agreements or payments from other license agreements that we may enter into with third parties.

In December of 2021, we entered into a strategic collaboration with 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 the aforementioned selective BRM oncology program and an additional undisclosed oncology target. In addition, the collaboration includes three additional discovery programs using Foghorn’s proprietary Gene Traffic Control platform. Under the terms of the collaboration, Foghorn received upfront consideration of $300.0 million in cash pursuant to the Lilly Collaboration Agreement, together with an equity investment by Lilly of $80.0 million in shares of Foghorn common stock pursuant to the Lilly SPA.

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 in operational activities and cost sharing. 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. that may be exercised after the successful completion of the dose-finding toxicity studies.

We cannot provide assurances as to the timing of future milestones, royalty payments and economics associated with the strategic collaboration with Loxo Oncology at Lilly.

We recognized total deferred revenue of $337.8 million related to the Lilly Collaboration Agreement and the Lilly SPA, which included the $300.0 million upfront payment under the Lilly Collaboration Agreement as well as $37.8 million allocated to deferred revenue from the gross proceeds of the Lilly SPA to be recognized over the performance period. For the year ended December 31, 2022 and 2021, we recognized $17.4 million and $0.6 million, respectively, of revenue under the Lilly Collaboration Agreement and, as of December 31, 2022, we had $319.8 million of deferred revenue related to the above mentioned upfront payment and revenue allocation remaining on our consolidated balance sheets.

In July 2020, we entered into the Merck Collaboration Agreement, pursuant to which we will apply our proprietary Gene Traffic Control platform to discover and develop novel therapeutics. Under the Merck Collaboration Agreement, we granted Merck exclusive global rights to develop and commercialize drugs that target dysregulation of a single transcription factor. Under the terms of the Merck Collaboration Agreement, we received a nonrefundable upfront payment of $15.0 million from

72

Table of Contents

Merck, and are eligible to receive up to $245.0 million upon achievement of specified research, development and regulatory milestones by any product candidate generated by the collaboration, and up to $165.0 million upon achievement of specified sales-based milestones per approved product from the collaboration, if any, as well as royalties on sales of any approved product from the collaboration. We cannot provide assurance as to the timing of future milestone or royalty payments or that we will receive any of these payments at all.

For the years ended December 31, 2022 and 2021, we recognized $1.8 million and $0.7 million, respectively, of revenue under the Merck Collaboration Agreement. In the third quarter of 2022, the Company achieved a research milestone related to the Merck Collaboration Agreement and received a $5.0 million milestone payment from Merck. As of December 31, 2022, we had $17.0 million of deferred revenue related to the upfront payment and milestone achievement remaining on our consolidated balance sheets.

Operating Expenses

Our operating expenses are comprised of research and development expenses and general and administrative expenses.

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts, and progressing our programs, which include:

•personnel-related costs, including salaries, benefits and stock-based compensation expense, for employees engaged in research and development functions;

•expenses incurred in connection with our research programs and preclinical and clinical development of our product candidates, including under agreements with third parties, such as consultants and contractors and contract research organizations (“CROs”);

•the cost of manufacturing drug substance and drug product for use in our research and preclinical studies and clinical trials under agreements with third parties, such as consultants and contractors and contract development and manufacturing organizations (“CDMOs”);

•laboratory supplies and research materials;

•facilities, depreciation and amortization and other expenses, which include direct and allocated expenses for rent and maintenance of facilities and insurance; and

•payments made under third-party licensing agreements.

We track our direct external research and development expenses on a program-by-program basis. These consist of costs that include fees, reimbursed materials, and other costs paid to consultants, contractors, CDMOs, and CROs in connection with our preclinical, clinical and manufacturing activities. We do not allocate employee costs, costs associated with our discovery efforts, laboratory supplies, and facilities expenses, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple programs and our platform and, as such, are not separately classified.

We expect that our research and development expenses will increase substantially as we advance our programs into clinical development and expand our discovery, research and preclinical activities in the near term and in the future. At this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any product candidates we may develop. A change in the outcome of any number of variables with respect to product candidates we may develop could significantly change the costs and timing associated with the development of that product candidate. We may never succeed in obtaining regulatory approval for any product candidates we may develop.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel-related costs, including salaries, benefits and stock-based compensation, for employees engaged in executive, legal, finance and accounting and other administrative functions. General and administrative expenses also include professional fees for legal, patent, consulting, investor and public relations, human resources, and accounting and audit services as well as direct and allocated facility-related costs.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our programs and platform. We also anticipate that we will continue to incur increased accounting, audit, legal, regulatory, compliance, director and officer insurance costs and investor and public relations expenses associated with operating as a public company.

73

Table of Contents

Other Income (Expense)

Interest Income

Interest income consists of interest earned on our invested cash balances.

Other Income (Expense), Net

Other income (expense) ,net consists of sublease income and miscellaneous expense unrelated to our core operations.

Interest Expense

Interest expense consists of interest expense associated with previously outstanding borrowings under our prior loan agreements as well as the amortization of debt discount associated with such agreements.

Income Taxes

Since our inception, we have not recorded any income tax benefits for the net losses we have incurred or for the research and development tax credits earned in each period, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our net operating loss carryforwards and tax credit carryforwards will not be realized.

As of December 31, 2022, we had federal and state net operating loss carryforwards of $221.7 million and $203.3 million, respectively, which may be available to offset future taxable income. The federal net operating loss carryforwards include $5.3 million which expire in 2037 and $216.4 million which carryforward indefinitely but in some circumstances may be limited to offset 80% of annual taxable income. The state net operating loss carryforwards expire at various dates beginning in 2036. As of December 31, 2022, we also had federal and state research and development tax credit carryforwards of $9.6 million and $5.7 million, respectively, which may be available to reduce future tax liabilities and expire at various dates beginning in 2036 and 2031, respectively. Due to our history of cumulative net losses since inception and uncertainties surrounding our ability to generate future taxable income, we have recorded a full valuation allowance against our net deferred tax assets at each balance sheet date.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

We received significant non-refundable upfront payments under our collaboration agreements with Merck and Lilly, from which we recognize revenue over time using the cost-to-cost method. Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified single performance obligation. In estimating the total costs to satisfy our performance obligation, we are required to make significant estimates including an estimate of the expected time and expected internal and external costs to fulfill the performance obligation. In developing these estimates we consider historical experience, relevant entity-specific factors, known market trends and conditions, and a variety of other factors we believe are relevant to estimating the total cost to fulfill the performance obligation. We periodically evaluate estimates against the actual time and costs incurred as well as any anticipated changes to the timing or estimated costs. Any cumulative effect of revisions to the total estimated costs to complete our performance obligation will be recorded in the period in which the changes are identified, and amounts can be reasonably estimated. While such revisions will have no impact on our cash flows, a significant change in these assumptions and estimates could have a material impact on the timing and amount of revenue recognized in future periods and the classification of deferred revenue between short-term and long-term.

74

Table of Contents

Accrued Research and Development Expenses

As part of the process of preparing our consolidated financial statements, we are required to estimate certain accrued research and development expenses. This process involves estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of the estimates with the service providers and make adjustments if necessary. Examples of estimated accrued research and development expenses include those related to fees paid to:

•vendors in connection with discovery, preclinical and clinical development activities;

•CROs in connection with preclinical studies and testing and clinical trials; and

•CDMOs in connection with the process development and scale up activities and the production and manufacturing of materials.

We base the expense recorded related to contract research and manufacturing on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple CROs and CDMOs that conduct services and produce and supply materials. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. While the majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met, some require advance payments. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. We record these as prepaid expenses on our consolidated balance sheets.

Results of Operations

Comparison of the Years Ended December 31, 2022 and 2021

The following table summarizes our results of operations for the years ended December 31, 2022 and 2021:

Collaboration Revenue

Collaboration revenue was $19.2 million for the year ended December 31, 2022, compared to $1.3 million for the year ended December 31, 2021. The increase in collaboration revenue is attributed to the following:

•an increase in Lilly collaboration revenue recognition of $16.8 million due to work performed pursuant to the Lilly Collaboration Agreement entered into in December 2021; and

75

Table of Contents

•an increase in Merck collaboration revenue recognition of $1.1 million was primarily driven by the $0.7 million revenue catch-up adjustment related to the $5.0 million research milestone achievement in 2022, which is no longer considered constrained (see Note 8), and increased work completed under the Merck agreement in the year ended December 31, 2022 compared to the year ended December 31, 2021.

Research and Development Expenses

The following table summarizes our research and development expenses for the years ended December 31, 2022 and 2021:

Research and development expenses were $105.6 million for the year ended December 31, 2022, compared to $80.3 million for the year ended December 31, 2021. The increase is attributed to the following:

•an increase in our FHD-286 program costs of $8.6 million is associated with continued advancement of our Phase 1 clinical trial in uveal melanoma and activities to address FDA's full clinical hold on the Phase 1 study in AML/MDS;

•an increase in personnel-related costs of $7.2 million, including a $2.1 million increase in stock-based compensation expense, due primarily to increased headcount in our research and development function;

•an increase in platform and other early stage research costs of $3.3 million, which was due to continued investment and development of our platform and early research pipeline;

•an increase in facility-related and other expenses of $3.1 million was due to the increased costs of supporting a growing research and development organization and their research efforts; and

•an increase in our FHD-609 program cost of $3.1 million is associated with continued advancement of our Phase 1 clinical trial in synovial sarcoma.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for the years ended December 31, 2022 and 2021:

General and administrative expenses were $30.7 million for the year ended December 31, 2022, compared to $21.7 million for the year ended December 31, 2021. The increase is attributed to the following:

•an increase in personnel-related costs of $6.2 million, including a $3.8 million increase in stock-based compensation expense, which was a result of an increase in headcount in our general and administrative function to support our business;

•an increase in professional and consulting costs of $2.1 million, which was due to additional external costs required to support growing operations; and

76

Table of Contents

•an increase in facility related and other expense of $0.8 million was primarily due to increased corporate expenses to support our business.

Other Income (Expense)

Interest income was $5.7 million for the year ended December 31, 2022, compared to $0.1 million for the year ended December 31, 2021. The increase in interest income was primarily due to larger average cash balances and an increase in the average interest rate throughout the year ended December 31, 2022 compared to the year ended December 31, 2021.

Other income (expense), net was $2.6 million for the year ended December 31, 2022 compared to $2.5 million for the year ended December 31, 2021. The increase in interest and other income (expense), net for the year ended December 31, 2022 was primarily due to an increase of $0.1 million sublease income compared to the year ended December 31, 2021.

The Company did not record any interest expense for the year ended December 31, 2022, compared to $1.9 million for the year ended December 31, 2021. The decrease in interest expense for the year ended December 31, 2022 was due to the payoff of the Company's debt with Oxford Finance LLC in December 2021, resulting in no interest expense compared to the year ended December 31, 2021.

We recorded a loss on debt extinguishment of $1.2 million for the year ended December 31, 2021. We used cash on hand to repay early the balance of our loan outstanding at the time, including a final payment fee and a prepayment fee.

Liquidity and Capital Resources

Since our inception in October 2015, we have incurred significant operating losses. We expect to incur significant expenses and operating losses for the foreseeable future as we support our continued research activities and development of our programs and platform. Through December 31, 2022, we have funded our operations with proceeds from our initial public offering (“IPO”) in October 2020, sales of preferred stock, term loans, an upfront payment of $15.0 million we received in July 2020 under the Merck Collaboration Agreement and proceeds we received in December 2021 under the Lilly SPA of $80.0 million, an upfront payment of $300.0 million received in January 2022 under the Lilly Collaboration Agreement and a payment of $5.0 million received from Merck under the Merck Collaboration Agreement for the achievement of a research milestone. As of December 31, 2022, we had cash, cash equivalents and marketable securities of $345.8 million.

Cash Flows

The following table summarizes our sources and uses of cash for each of the periods presented:

Operating Activities

For the year ended December 31, 2022, operating activities provided $193.6 million of cash, resulting from net cash provided by changes in our operating assets and liabilities of $281.5 million and by net non-cash charges of $20.9 million partially offset by our net loss of $108.9 million. Net cash provided by changes in our operating assets and liabilities for the year ended December 31, 2022 consisted primarily of a $302.7 million net increase in working capital. This was primarily driven by to the $300.0 million of cash received related to our collaboration receivable from Lilly and an increase of $4.3 million in deferred revenue related to the $5.0 million milestone payment from Merck, partially offset by a $18.5 million decrease in deferred revenue primarily associated with the recognition of revenue on the upfront and milestone payments received in connection with our collaboration agreements and a $7.0 million decrease in operating lease liabilities.

For the year ended December 31, 2021, operating activities used $50.3 million of cash, resulting from our net loss of $101.3 million partially offset by net cash provided by changes in our operating assets and liabilities of $33.4 million and by net non-cash charges of $17.6 million. Net cash provided by changes in our operating assets and liabilities for the year ended December 31, 2021 consisted primarily of $37.8 million of proceeds from the Lilly SPA partially offset by a $4.0 million decrease in operating lease liabilities and a $0.3 million net increase in working capital.

77

Table of Contents

Investing Activities

For the year ended December 31, 2022, net cash used in investing activities was $244.3 million primarily due to $409.3 million of purchases of marketable securities and $1.2 million in purchases of property and equipment partially offset by $166.2 million of maturities of marketable securities.

For the year ended December 31, 2021, net cash provided by investing activities was $36.2 million primarily due to the maturity of marketable securities of $139.5 million partially offset by the purchases of marketable securities of $100.0 million and the acquisition of property and equipment of $3.3 million. Property and equipment purchases for the year ended December 31, 2021 were primarily related to leasehold improvements for our facility in Cambridge, Massachusetts.

Financing Activities

For the year ended December 31, 2022, net cash provided by financing activities was $1.8 million, consisting of net proceeds from the exercise of common stock options and the employee stock purchase plan.

For the year ended December 31, 2021, net cash provided by financing activities was $22.4 million, consisting primarily of proceeds from the Lilly SPA of $42.2 million and proceeds from the exercise of common stock options of $1.4 million partially offset by the repayment of notes payable of $21.2 million.

Funding Requirements

We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities, initiate clinical trials for our product candidates in development and continue to fund on-going clinical trials. As of the issuance date of the consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we expect that our cash, cash equivalents and marketable securities will be sufficient to fund our operating expenses and capital expenditure requirements for at least twelve months. We have based these estimates as to how long we expect we will be able to fund our operations on assumptions that may prove to be inaccurate. We could use our available capital resources sooner than we currently expect, in which case we would be required to obtain additional financing sooner than planned, which may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We will be required to obtain further funding through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources.

If we are unable to raise sufficient capital as and when needed, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any product candidate we may develop, or be unable to expand our operations or otherwise capitalize on our business opportunities. If we raise additional funds through collaborations or licensing arrangements with third parties, we may have to relinquish valuable rights to future revenue streams or product candidates or grant licenses on terms that may not be favorable to us.

Off-balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission.

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes to those statements included elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Some of the numbers included herein have been rounded for the convenience of presentation. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Risk Factors” and elsewhere in this Annual Report on Form 10-K.

Overview

We are a clinical stage biotechnology company pioneering a new class of medicines that modulate gene expression through selectively targeting the chromatin regulatory system, an untapped opportunity for therapeutic intervention. Our proprietary Gene Traffic Control platform gives us an integrated, mechanistic understanding of how the various components of the chromatin regulatory system interact, allowing us to identify, validate and potentially drug targets within the system. Breakdowns in the chromatin regulatory system are associated with over 50 percent of all cancers. Addressing these breakdowns could potentially provide therapies for over 2.5 million patients globally. Consequently, we are initially focused in oncology. We are developing FHD-286, a selective, allosteric ATPase inhibitor that is currently being evaluated in two separate Phase 1 studies in (i) metastatic uveal melanoma and (ii) relapsed and/or refractory AML and MDS. We are developing FHD-609, a targeted protein degrader that is currently being evaluated in a Phase 1 study in synovial sarcoma. Our vision is to use our Gene Traffic Control platform to discover and develop drugs in oncology and other therapeutic areas, including virology, autoimmune disease and neurology.

Since our inception in October 2015, we have focused substantially all of our resources on building our Gene Traffic Control platform, organizing and staffing our company, business planning, raising capital, conducting discovery and research activities, protecting our trade secrets, filing patent applications, identifying potential product candidates, undertaking preclinical studies and clinical trial activities, establishing arrangements with third parties for the manufacture of initial quantities of our product candidates and component materials and initiating two strategic collaborations. We do not have any products approved for sale and have not generated any revenue from product sales.

On October 27, 2020, we completed our initial public offering, or IPO, pursuant to which we issued and sold 7,500,000 shares of our common stock at a public offering price of $16.00 per share, resulting in net proceeds of $107.9 million, after deducting underwriting discounts and commissions and other offering expenses. On November 19, 2020, we issued and sold an additional 951,837 shares of common stock at the IPO price of $16.00 per share pursuant to the underwriters’ partial exercise of their option to purchase additional shares of common stock, resulting in additional net proceeds of $14.2 million after deducting underwriting discounts and commissions. Prior to our IPO, we funded our operations with proceeds from sales of preferred stock, term loans and an upfront payment of $15.0 million we received in July 2020 under our collaboration agreement with Merck Sharp & Dohme Corp., or Merck.

On December 10, 2021, we entered into a collaboration agreement, or the Lilly Collaboration Agreement, with Eli Lilly and Company, or Lilly, for which we received an upfront payment of $300.0 million in January 2022 (see Note 9 to our notes to consolidated financial statements included elsewhere in this Annual Report on Form 10-K). Concurrent with the Lilly Collaboration Agreement, we also entered into the Lilly SPA and issued and sold Lilly 4,000,000 shares of our common stock at a price of $20.00 per share, resulting in net proceeds of $80.0 million, of which $42.2 million was allocated to equity upon the issuance of the Company’s common stock.

We have incurred significant operating losses since our inception. For the years ended December 31, 2021 and 2020, we reported net losses of $101.3 million and $68.8 million, respectively. As of December 31, 2021, we had an accumulated deficit of $264.3 million. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. Our ability to generate any product revenue or product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more product candidates we are developing and may develop.

We expect that our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly if and as we:

76

Table of Contents

•advance our FHD-286 and FHD-609 product candidates and continue our preclinical development of product candidates from our current research programs;

•identify additional research programs and additional product candidates;

•initiate preclinical testing for any new product candidates we identify and develop;

•obtain, maintain, expand, enforce, defend and protect our trade secrets and intellectual property portfolio and provide reimbursement of third-party expenses related to our patent portfolio;

•hire additional research and development personnel;

•add operational, legal, compliance, financial and management information systems and personnel to support our research, product development and operations;

•expand the capabilities of our platform;

•acquire or in-license product candidates, intellectual property and technologies;

•operate as a public company;

•seek marketing approvals for any product candidates that successfully complete clinical trials; and

•ultimately establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval.

We will not generate revenue from product sales unless and until we successfully commercialize one of our product candidates, after completing clinical development and obtaining regulatory approval. If we obtain regulatory approval for any of our product candidates, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing, manufacturing and distribution. Further, we expect to incur additional costs associated with operating as a public company.

As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings and collaborations or licensing arrangements and our collaboration agreements with Merck and Lilly. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back our development or commercialization plans for one or more of our product candidates.

Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

COVID-19

In March 2020, COVID-19 was declared a global pandemic by the World Health Organization, and to date the COVID-19 pandemic continues to present a substantial public health and economic challenge around the world. The length of time and full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain, subject to change and are difficult to predict. While we continue to conduct our research and development activities, the COVID-19 pandemic may cause disruptions that affect our ability to initiate and complete preclinical studies, ongoing and future clinical trials or to procure items that are essential for our research and development activities.

We plan to continue to closely monitor the ongoing impact of the COVID-19 pandemic on our employees and our business operations. In an effort to provide a safe work environment for our employees, we have, among other things, increased the cadence of sanitization of our office and lab facilities, implemented various social distancing measures in our office and labs including replacing in-person meetings with virtual interactions, and are providing personal protective equipment for our employees present in our office and lab facilities. We expect to continue to take actions as may be required or recommended by government authorities or as we determine are in the best interests of our employees and other business partners in light of the pandemic.

77

Table of Contents

Components of Our Results of Operations

Collaboration Revenue

To date, we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the near future. If our development efforts for our product candidates are successful and result in regulatory approval or licenses with third parties, we may generate revenue in the future from product sales, milestone payments under our existing collaboration agreements or payments from other license agreements that we may enter into with third parties.

In December of 2021, we entered into a strategic collaboration with Loxo Oncology at Lilly, a research and development group of Eli Lilly and Company, 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 the aforementioned selective BRM oncology program and an additional undisclosed oncology target. In addition, the collaboration includes three additional discovery programs using Foghorn’s proprietary Gene Traffic Control platform. Under the terms of the collaboration, Foghorn received upfront consideration of $300.0 million in cash pursuant to the Lilly Collaboration Agreement, together with an equity investment by Lilly of $80.0 million in shares of Foghorn common stock pursuant to the Lilly SPA.

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 in operational activities and cost sharing. 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. that may be exercised after the successful completion of the dose-finding toxicity studies.

We cannot provide assurances as to the timing of future milestones, royalty payments and economics associated with the strategic collaboration with Loxo Oncology at Lilly.

The Company recognized total deferred revenue of $337.8 million related to the Lilly Collaboration Agreement and the Lilly SPA, which included the $300.0 million upfront payment as well as $37.8 million allocated to deferred revenue from the gross proceeds of the Lilly SPA to be recognized over the performance period. During the years ended December 31, 2021 , we recognized $0.6 million of revenue under the Lilly Collaboration Agreement and, as of December 31, 2021, we had $337.2 million of deferred revenue related to the above mentioned upfront payment and revenue allocation from the Lilly SPA remaining on our consolidated balance sheets.

In July 2020, we entered into a strategic research collaboration and license agreement, or the Merck Collaboration Agreement, with Merck, pursuant to which we will apply our proprietary Gene Traffic Control platform to discover and develop novel therapeutics. Under the Merck Collaboration Agreement, we granted Merck exclusive global rights to develop and commercialize drugs that target dysregulation of a single transcription factor. Under the terms of the Merck Collaboration Agreement, we received a nonrefundable upfront payment of $15.0 million from Merck, and are eligible to receive up to $245.0 million upon achievement of specified research, development and regulatory milestones by any product candidate generated by the collaboration, and up to $165.0 million upon achievement of specified sales-based milestones per approved product from the collaboration, if any, as well as royalties on sales of any approved product from the collaboration. We cannot provide assurance as to the timing of future milestone or royalty payments or that we will receive any of these payments at all.

We record revenue over the research term as we satisfy our performance obligation under the Merck Collaboration Agreement. Accordingly, the upfront payment of $15.0 million is being recognized as revenue using the cost-to-cost method, which we believe best depicts the transfer of control to the customer over time. Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified single performance obligation. We expect revenue to fluctuate as the achievement of milestones becomes probable and as our efforts to satisfy our performance obligation vary from period to period. In estimating the total costs to satisfy our performance obligation pursuant to the Merck Collaboration Agreement, we are required to make significant estimates including an estimate of the number of transcription factor substitutions and the expected time and expected costs to fulfill the performance obligation. The cumulative effect of revisions to the total estimated costs to complete our performance obligation will be recorded in the period in which the changes are identified, and amounts can be reasonably estimated. While such revisions will have no impact on our cash flows, a significant change in these assumptions and estimates could have a material impact on the timing and amount of revenue recognized in future periods. In June 2021, we re-evaluated our estimates related to the Merck Collaboration Agreement resulting in a reclassification of $1.9 million from short-term deferred revenue to long-term deferred revenue, net of current portion on the Company's consolidated balance sheets. During the years ended December 31, 2021 and 2020, we recognized $0.7 million and $0.4 million, respectively, of revenue under the Merck

78

Table of Contents

Collaboration Agreement and, as of December 31, 2021, we had $13.9 million of deferred revenue related to the upfront payment remaining on our consolidated balance sheets.

Operating Expenses

Our operating expenses are comprised of research and development expenses and general and administrative expenses.

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts, and progressing our programs, which include:

•personnel-related costs, including salaries, benefits and stock-based compensation expense, for employees engaged in research and development functions;

•expenses incurred in connection with our research programs and preclinical and clinical development of our product candidates, including under agreements with third parties, such as consultants and contractors and contract research organizations, or CROs;

•the cost of manufacturing drug substance and drug product for use in our research and preclinical studies and clinical trials under agreements with third parties, such as consultants and contractors and contract development and manufacturing organizations, or CDMOs;

•laboratory supplies and research materials;

•facilities, depreciation and amortization and other expenses, which include direct and allocated expenses for rent and maintenance of facilities and insurance; and

•payments made under third-party licensing agreements.

We track our direct external research and development expenses on a program-by-program basis. These consist of costs that include fees, reimbursed materials, and other costs paid to consultants, contractors, CDMOs, and CROs in connection with our preclinical, clinical and manufacturing activities. We do not allocate employee costs, costs associated with our discovery efforts, laboratory supplies, and facilities expenses, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple programs and our platform and, as such, are not separately classified.

We expect that our research and development expenses will increase substantially as we advance our programs into clinical development and expand our discovery, research and preclinical activities in the near term and in the future. At this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any product candidates we may develop. A change in the outcome of any number of variables with respect to product candidates we may develop could significantly change the costs and timing associated with the development of that product candidate. We may never succeed in obtaining regulatory approval for any product candidates we may develop.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel-related costs, including salaries, benefits and stock-based compensation, for employees engaged in executive, legal, finance and accounting and other administrative functions. General and administrative expenses also include professional fees for legal, patent, consulting, investor and public relations and accounting and audit services as well as direct and allocated facility-related costs.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our programs and platform. We also anticipate that we will continue to incur increased accounting, audit, legal, regulatory, compliance, director and officer insurance costs and investor and public relations expenses associated with operating as a public company.

Other Income (Expense)

Interest Expense

Interest expense consists of interest expense associated with outstanding borrowings under our loan agreements as well as the amortization of debt discount associated with such agreements.

79

Table of Contents

Interest Income and Other Income (Expense), Net

Interest income consists of interest earned on our invested cash balances. Other income (expense) consists of sublease income and miscellaneous expense unrelated to our core operations.

Income Taxes

Since our inception, we have not recorded any income tax benefits for the net losses we have incurred or for the research and development tax credits earned in each period, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our net operating loss carryforwards and tax credit carryforwards will not be realized.

As of December 31, 2021, we had federal and state net operating loss carryforwards of $228.9 million and $206.0 million, respectively, which may be available to offset future taxable income. The federal net operating loss carryforwards include $12.5 million which expire at various dates beginning in 2035 and $216.4 million which carryforward indefinitely but in some circumstances may be limited to offset 80% of annual taxable income. The state net operating loss carryforwards expire at various dates beginning in 2036. As of December 31, 2021, we also had federal and state research and development tax credit carryforwards of $6.1 million and $4.1 million, respectively, which may be available to reduce future tax liabilities and expire at various dates beginning in 2036 and 2031, respectively. Due to our history of cumulative net losses since inception and uncertainties surrounding our ability to generate future taxable income, we have recorded a full valuation allowance against our net deferred tax assets at each balance sheet date.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

We received significant non-refundable upfront payments under our collaboration agreements with Merck and Lilly, from which we recognize revenue over time using the cost-to-cost method. Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified single performance obligation. In estimating the total costs to satisfy our performance obligation, we are required to make significant estimates including an estimate of the expected time and expected internal and external costs to fulfill the performance obligation. In developing these estimates we consider historical experience, relevant entity-specific factors, known market trends and conditions, and a variety of other factors we believe are relevant to estimating the total cost to fulfill the performance obligation. We periodically evaluate estimates against the actual time and costs incurred as well as any anticipated changes to the timing or estimated costs. Any cumulative effect of revisions to the total estimated costs to complete our performance obligation will be recorded in the period in which the changes are identified, and amounts can be reasonably estimated. While such revisions will have no impact on our cash flows, a significant change in these assumptions and estimates could have a material impact on the timing and amount of revenue recognized in future periods and the classification of deferred revenue between short-term and long-term.

Accrued Research and Development Expenses

As part of the process of preparing our consolidated financial statements, we are required to estimate certain accrued research and development expenses. This process involves estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of the estimates with the service providers and make adjustments if necessary. Examples of estimated accrued research and development expenses include those related to fees paid to:

•vendors in connection with discovery, preclinical and clinical development activities;

80

Table of Contents

•CROs in connection with preclinical studies and testing and clinical trials; and

•CDMOs in connection with the process development and scale up activities and the production and manufacturing of materials.

We base the expense recorded related to contract research and manufacturing on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple CROs and CDMOs that conduct services and produce and supply materials. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. While the majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met, some require advance payments. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. We record these as prepaid expenses on our consolidated balance sheets.

Results of Operations

Comparison of the Years Ended December 31, 2021 and 2020

The following table summarizes our results of operations for the years ended December 31, 2021 and 2020:

Collaboration Revenue

Collaboration revenue was $1.3 million for the year ended December 31, 2021, compared to $0.4 million for the year ended December 31, 2020. The increase in collaboration revenue is attributed to the following:

•an increase in Merck collaboration revenue recognition of $0.3 million due primarily to more work completed under the Merck Collaboration Agreement in 2021 compared to the work completed in 2020; and

•an increase in Lilly collaboration revenue recognition of $0.6 million due to work performed pursuant to the Lilly Collaboration Agreement entered into in December 2021.

81

Table of Contents

Research and Development Expenses

The following table summarizes our research and development expenses for the years ended December 31, 2021 and 2020:

Research and development expenses were $80.3 million for the year ended December 31, 2021, compared to $57.7 million for the year ended December 31, 2020. The increase is attributed to the following:

•an increase in personnel-related costs of $7.6 million, including a $2.6 million increase in stock-based compensation expense, due primarily to increased headcount in our research and development function;

•an increase in platform and other early stage research costs of $5.2 million, which was due to continued investment and development of our platform and early research pipeline;

•an increase in facility-related and other expenses of $4.7 million was due to the increased costs of supporting a growing research and development organization and their research efforts, including increased rent and maintenance expense related to our new facility lease, and purchases of lab supplies, consumables, and equipment;

•an increase in FHD-286 program costs of $4.7 million as the Company initiated Phase 1 clinical trials in Uveal Melanoma and AML and MDS in the first half of 2021; and

•an increase in FHD-609 program cost of $0.5 million as the Company initiated enrollment in a Phase 1 clinical trial in the second half of 2021 in Synovial Sarcoma.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for the years ended December 31, 2021 and 2020:

General and administrative expenses were $21.7 million for the year ended December 31, 2021, compared to $11.2 million for the year ended December 31, 2020. The increase is attributed to the following:

•an increase in personnel-related costs of $6.0 million, including a $2.8 million increase in stock-based compensation expense, which was a result of an increase in headcount in our general and administrative function to support our business;

•an increase in facility related and other expense of $3.0 million was primarily due to including increased rent, maintenance, and non-capital equipment expense related to our new facility lease; and

82

Table of Contents

•an increase in professional and consulting costs of $1.5 million, which was due to increased audit, tax, and consulting services associated with being a publicly traded company.

Other Income (Expense)

Interest expense was $1.9 million for the year ended December 31, 2021, compared to $1.0 million for the year ended December 31, 2020. The increase was due to the increased outstanding debt balance and higher interest rates on our borrowings throughout 2021 compared to 2020.

Interest income and other income (expense), net was $2.6 million for the year ended December 31, 2021 and consisted primarily of sublease income of $2.5 million related to the sublease that began in July 2020 and $0.1 million of interest income. Interest income and other income (expense), net of $1.0 million for the year ended December 31, 2020 consisted primarily of sublease income of $1.0 million related to the sublease that began in July 2020 and $0.1 million of interest income.

We recorded a loss on debt extinguishment of $1.2 million for the year ended December 31, 2021 compared to $0.2 million for the year ended December 31, 2020. We used cash on hand to repay early the balance of our loan outstanding at the time, including a final payment fee and a prepayment fee during December 31, 2021. During the year ended December 31, 2020, we repaid our then outstanding loan in November 2020, which was contractually lower than the prepayment costs incurred in 2021.

Liquidity and Capital Resources

Since our inception in October 2015, we have incurred significant operating losses. We expect to incur significant expenses and operating losses for the foreseeable future as we support our continued research activities and development of our programs and platform. Through December 31, 2021, we have funded our operations with proceeds from our IPO in October 2020, sales of preferred stock, term loans, an upfront payment of $15.0 million we received in July 2020 under the Merck Collaboration Agreement and proceeds we received in December 2021 under the Lilly SPA of $80.0 million, of which $42.2 million was allocated to equity upon the issuance of the Company’s common stock. As of December 31, 2021, we had cash, cash equivalents and marketable securities of $154.3 million.

Cash Flows

The following table summarizes our sources and uses of cash for each of the periods presented:

Operating Activities

During the year ended December 31, 2021, operating activities used $50.3 million of cash, resulting from our net loss of $101.3 million partially offset by net cash provided by changes in our operating assets and liabilities of $33.4 million and by net non-cash charges of $17.6 million . Net cash provided by changes in our operating assets and liabilities for the year ended December 31, 2021 consisted primarily of $37.8 million of proceeds from the Lilly SPA partially offset by a $4.0 million decrease in operating lease liabilities and a $0.3 million net increase in working capital.

During the year ended December 31, 2020, operating activities used $31.3 million of cash, resulting from our net loss of $68.8 million, partially offset by net non-cash charges of $8.8 million and net cash provided by changes in our operating assets and liabilities of $28.7 million. Net cash provided by changes in our operating assets and liabilities for the year ended December 31, 2020 consisted primarily of a $15.1 million increase in operating lease liabilities resulting from our landlord incentives received, a $14.6 million increase in deferred revenue resulting from the upfront payment received in connection with the Merck Collaboration Agreement and an increase of $3.7 million in accounts payable and accrued expenses and other current liabilities, partially offset by an increase of $4.7 million in prepaid expenses and other assets.

Investing Activities

83

Table of Contents

During the year ended December 31, 2021, net cash provided by investing activities was $36.2 million primarily due to the maturity of marketable securities of $139.5 million partially offset by the purchases of marketable securities of $100.0 million and the acquisition of property and equipment of $3.3 million. Property and equipment purchases for the year ended December 31, 2021 were primarily related to leasehold improvements for our new facility in Cambridge, Massachusetts.

During the year ended December 31, 2020, net cash used in investing activities was $108.9 million primarily due to the purchases of marketable securities of $93.0 million and the acquisition of property and equipment of $16.2 million. Property and equipment purchases for the year ended December 31, 2020 were primarily related to leasehold improvements for our new facility in Cambridge, Massachusetts.

Financing Activities

During the year ended December 31, 2021, net cash provided by financing activities was $22.4 million, consisting primarily of proceeds from the Lilly SPA of $42.2 million and proceeds from the exercise of common stock options of $1.4 million partially offset by the repayment of notes payable of $21.2 million.

During the year ended December 31, 2020, net cash provided by financing activities was $217.5 million, consisting primarily of proceeds from our IPO, net of underwriting discounts and commissions and other offering expenses of $122.1 million, net proceeds from the sale of our Series B preferred stock of $89.9 million, net borrowings of $4.3 million and proceeds from the exercise of common stock options of $1.2 million.

Funding Requirements

We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities, initiate clinical trials for our product candidates in development and continue to fund on-going clinical trials. As of the issuance date of the consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we expect that our cash, cash equivalents and marketable securities will be sufficient to fund our operating expenses and capital expenditure requirements for at least twelve months. We have based these estimates as to how long we expect we will be able to fund our operations on assumptions that may prove to be inaccurate. We could use our available capital resources sooner than we currently expect, in which case we would be required to obtain additional financing sooner than planned, which may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We will be required to obtain further funding through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources.

If we are unable to raise sufficient capital as and when needed, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any product candidate we may develop, or be unable to expand our operations or otherwise capitalize on our business opportunities. If we raise additional funds through collaborations or licensing arrangements with third parties, we may have to relinquish valuable rights to future revenue streams or product candidates or grant licenses on terms that may not be favorable to us.

Off-balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission.

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.