SCHEDULE: Flagship Funds Boost Foghorn Therapeutics Stake

Flagship Pioneering and its affiliates increased their beneficial ownership in Foghorn Therapeutics Inc. to 27.2% following a $50 million registered direct offering of common stock and warrants.

Summary

• Flagship Pioneering and its affiliated funds (Flagship Funds) have increased their beneficial ownership in Foghorn Therapeutics Inc.
• Noubar B. Afeyan, Ph.D., as the ultimate control person of Flagship Pioneering, beneficially owns 20,774,885 shares, representing 27.2% of the Common Stock.
• Flagship Pioneering, LLC beneficially owns 9,952,566 shares, representing 10.0% of the Common Stock.
• The increase stems from a registered direct offering (the "January 2026 Offering") that closed on January 13, 2026.
• In this offering, Foghorn Therapeutics issued 2,030,314 shares of Common Stock and 5,421,250 2026 Pre-Funded Warrants, along with Series 1 and Series 2 Warrants to purchase an aggregate of 7,451,564 shares.
• Flagship Fund VII acquired warrants to purchase 4,470,936 shares of Common Stock for an aggregate purchase price of $14,999,990.28.
• The offering generated approximately $50.0 million in gross proceeds for Foghorn Therapeutics, excluding potential proceeds from warrant exercises.
• The offering price for Common Stock was $6.71 per share, or $6.7099 for each 2026 Pre-Funded Warrant.

Sentiment

Score: 6

Explanation: The capital raise provides necessary funding for the company, which is positive. However, the issuance of warrants and potential for future dilution, especially with a downward adjustment mechanism for Series Warrants, introduces some negative sentiment regarding shareholder value.

Positives

• Foghorn Therapeutics successfully raised approximately $50.0 million in gross proceeds through a registered direct offering, strengthening its capital position.
• A significant existing investor, Flagship Pioneering, demonstrated continued confidence by participating substantially in the offering, acquiring warrants for 4,470,936 shares.
• The 2026 Pre-Funded Warrants have a long 20-year term, providing flexibility for future exercise.

Negatives

• The offering involved the issuance of new shares and warrants, which could lead to dilution for existing shareholders upon exercise of the warrants.
• The Series Warrants include an exercise price adjustment mechanism that could reduce the exercise price if the company conducts future capital raises at a lower Weighted-Average Price, potentially leading to further dilution at a lower effective price.

Risks

• Dilution Risk: The issuance of 2026 Pre-Funded Warrants, Series 1 Warrants, and Series 2 Warrants means a substantial number of additional shares could be issued upon exercise, potentially diluting the ownership percentage of current shareholders.
• Beneficial Ownership Limitations: Exercise of 2024 Pre-Funded Warrants is subject to a 9.99% beneficial ownership limitation, and 2026 Pre-Funded Warrants and Series Warrants are subject to a 19.99% limitation (if it triggers a Nasdaq change of control rule), which could restrict the immediate conversion of all underlying shares by large holders.
• Warrant Exercise Price Adjustment: The Series Warrants have an anti-dilution provision where the exercise price can be reset downwards (not below $6.71) if the company sells capital stock at a lower Weighted-Average Price before June 30, 2027, potentially leading to more shares being issued at a lower price.

Future Outlook

The filing primarily details a completed capital raise and changes in beneficial ownership. It does not provide explicit forward-looking statements or guidance regarding the company's operational or financial performance, beyond the terms of the warrants which extend into the future.

Industry Context

This capital raise by Foghorn Therapeutics, a biotechnology company, is consistent with the industry's reliance on equity financing to fund research, development, and clinical trials. The participation of a prominent life sciences investor like Flagship Pioneering suggests continued investor interest in the biotech sector, particularly in companies with promising therapeutic pipelines, despite the inherent risks.

Comparison to Industry Standards

• NA

Related Party Transactions

• Flagship Fund VII, an affiliate of Flagship Pioneering (a significant beneficial owner and ultimate control person through Dr. Afeyan), participated in the January 2026 Offering by acquiring warrants for 4,470,936 shares for $14,999,990.28. This constitutes a transaction between the Issuer and a related party.

Stakeholder Impact

• Shareholders: Existing shareholders face potential dilution from the exercise of the newly issued warrants. However, the capital raise strengthens the company's financial position, which could support ongoing operations and development.
• Company (Foghorn Therapeutics): Receives approximately $50.0 million in gross proceeds, enhancing liquidity and funding for its operations.
• Investors (Flagship Funds): Increased their stake and influence in Foghorn Therapeutics through the acquisition of additional warrants.

Next Steps

• Potential future exercise of 2024 Pre-Funded Warrants, 2026 Pre-Funded Warrants, Series 1 Warrants, and Series 2 Warrants by the holders.
• Monitoring for any future capital raises by the Company that could trigger the exercise price adjustment for Series Warrants before June 30, 2027.

Key Dates

Recommendation

The capital raise provides essential funding for Foghorn Therapeutics, which is a positive for its operational runway. However, the significant dilution potential from the newly issued warrants, coupled with the anti-dilution provisions that could lower warrant exercise prices, creates uncertainty regarding future share value. While the participation of a major investor like Flagship Pioneering signals confidence, the immediate impact of dilution and the structure of the warrants suggest a 'hold' position until there is clearer visibility on how this capital will translate into tangible progress and value creation, and how the warrant exercise dynamics will play out.

Keywords

Foghorn Therapeutics, Flagship Pioneering, SEC Filing, Schedule 13D, Beneficial Ownership, Capital Raise, Registered Direct Offering, Warrants, Pre-Funded Warrants, Common Stock, Biotechnology, Pharmaceuticals, Investment, Equity Financing