Foghorn sounds another warning about the class of ‘20

Full clinical hold on Foghorn Therapeutics’ lead asset, a move that yesterday spurred a 25% share price decline, marks another disappointing outcome for the IPO class of 2020. The year was marked by Covid lockdowns and an apparently insatiable investor appetite for biotech.

Foghorn was one of 76 biopharma groups whose flotations collectively raised $12.7bn on western exchanges that year, smashing previous records. But an analysis of those IPOs shows that Foghorn is by no means the worst performer; that joint distinction probably goes to gene therapy companies, many of which – like Foghorn – were launched onto the public markets with little beyond preclinical backing.

Foghorn’s listing document makes this plain. Not only had the company never generated any clinical data, it had never even conducted a study in humans. IND filings for its two lead assets, FHD-286 and FDH-609, were still six months to a year away at the time of the IPO.

And yet investors happily bought into the float, largely on the strength of data in animal xenograft models. The IPO priced at $16 a share, the midpoint of its suggested range, and raised $120m.

Epigenetics

Foghorn's focus is epigenetics – bringing about changes in gene expression by inhibiting small-molecule targets. Two such targets, BRM (SMARCA2) and BRG1 (SMARCA4), are the subject of FHD-286, Foghorn's lead. These targets are ATPases involved in catalysing a chromatin remodelling complex that Foghorn says is mutated in 20% of cancers.

Preclinical data supported taking FHD-286 into trials in uveal melanoma and AML/myelodysplastic syndromes. But it is side effects that have now derailed the compound: in May FHD-286’s AML/MDS trial went on partial hold when a patient died of possible differentiation syndrome, and yesterday this became a full clinical hold after “additional suspected cases of fatal differentiation syndrome believed to be associated with FHD-286”.

Damningly, Foghorn admits that differentiation syndrome could be associated with FHD-286’s proposed mechanism. There appear to be no other industry projects with this pharmacology in the clinic, though Prelude Therapeutics is one company looking at it preclinically.

Epigenetics in general has not delivered any major success stories; Epizyme succeeded in launching Tazverik, an inhibitor of EZH2 (loss of function of SMARCB1, SMARCA4 and SMARCA2 has preclinically been associated with aberrant function of this enzyme), but agreed to a lowball takeover by Ipsen in June.

In terms of share performance Foghorn now trades some 30% below its IPO price.

True, it was not all bad news for the IPO class of 2020: that year’s poster child is undoubtedly Pandion Therapeutics, which just months after floating was acquired by Merck & Co, yielding a 234% return. Other successes include Beam Therapeutics, Legend Biotech and Royalty Pharma, though the last of these is anything but a traditional drug development business.

Unfortunately for enthusiastic investors, however, disappointments clearly outnumber such success stories. Clinical failures abound, and at least one company, Silverback, has effectively thrown in the towel, while broad fears over the current generation of gene therapy approaches have caused share prices in the likes of Taysha, Passage Bio and Freeline to crater.

As an indication of just how bad the class of 2020 was as a whole, Foghorn’s double-digit decline makes the company the 28th best-performing stock of the 76 that floated that year.