morf-20210930
000167936312-312021Q3false00016793632021-01-012021-09-30xbrli:shares00016793632021-11-01iso4217:USD00016793632021-09-3000016793632020-12-31iso4217:USDxbrli:shares00016793632021-07-012021-09-3000016793632020-07-012020-09-3000016793632020-01-012020-09-300001679363us-gaap:CommonStockMember2020-12-310001679363us-gaap:AdditionalPaidInCapitalMember2020-12-310001679363us-gaap:RetainedEarningsMember2020-12-310001679363us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-310001679363us-gaap:AdditionalPaidInCapitalMember2021-01-012021-03-3100016793632021-01-012021-03-310001679363us-gaap:CommonStockMember2021-01-012021-03-310001679363morf:AtTheMarketOfferingMember2021-01-012021-03-310001679363morf:AtTheMarketOfferingMemberus-gaap:CommonStockMember2021-01-012021-03-310001679363us-gaap:AdditionalPaidInCapitalMembermorf:AtTheMarketOfferingMember2021-01-012021-03-310001679363morf:SecondaryOfferingMember2021-01-012021-03-310001679363morf:SecondaryOfferingMemberus-gaap:CommonStockMember2021-01-012021-03-310001679363us-gaap:AdditionalPaidInCapitalMembermorf:SecondaryOfferingMember2021-01-012021-03-310001679363us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-03-310001679363us-gaap:RetainedEarningsMember2021-01-012021-03-310001679363us-gaap:CommonStockMember2021-03-310001679363us-gaap:AdditionalPaidInCapitalMember2021-03-310001679363us-gaap:RetainedEarningsMember2021-03-310001679363us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-03-3100016793632021-03-310001679363us-gaap:AdditionalPaidInCapitalMember2021-04-012021-06-3000016793632021-04-012021-06-300001679363us-gaap:CommonStockMember2021-04-012021-06-300001679363us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-04-012021-06-300001679363us-gaap:RetainedEarningsMember2021-04-012021-06-300001679363us-gaap:CommonStockMember2021-06-300001679363us-gaap:AdditionalPaidInCapitalMember2021-06-300001679363us-gaap:RetainedEarningsMember2021-06-300001679363us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-06-3000016793632021-06-300001679363us-gaap:AdditionalPaidInCapitalMember2021-07-012021-09-300001679363us-gaap:CommonStockMember2021-07-012021-09-300001679363morf:AtTheMarketOfferingMember2021-07-012021-09-300001679363morf:AtTheMarketOfferingMemberus-gaap:CommonStockMember2021-07-012021-09-300001679363us-gaap:AdditionalPaidInCapitalMembermorf:AtTheMarketOfferingMember2021-07-012021-09-300001679363us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-07-012021-09-300001679363us-gaap:RetainedEarningsMember2021-07-012021-09-300001679363us-gaap:CommonStockMember2021-09-300001679363us-gaap:AdditionalPaidInCapitalMember2021-09-300001679363us-gaap:RetainedEarningsMember2021-09-300001679363us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-09-300001679363us-gaap:CommonStockMember2019-12-310001679363us-gaap:AdditionalPaidInCapitalMember2019-12-310001679363us-gaap:RetainedEarningsMember2019-12-310001679363us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-3100016793632019-12-310001679363us-gaap:AdditionalPaidInCapitalMember2020-01-012020-03-3100016793632020-01-012020-03-310001679363us-gaap:CommonStockMember2020-01-012020-03-310001679363us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-03-310001679363us-gaap:RetainedEarningsMember2020-01-012020-03-310001679363us-gaap:CommonStockMember2020-03-310001679363us-gaap:AdditionalPaidInCapitalMember2020-03-310001679363us-gaap:RetainedEarningsMember2020-03-310001679363us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-03-3100016793632020-03-310001679363us-gaap:AdditionalPaidInCapitalMember2020-04-012020-06-3000016793632020-04-012020-06-300001679363us-gaap:CommonStockMember2020-04-012020-06-300001679363us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-04-012020-06-300001679363us-gaap:RetainedEarningsMember2020-04-012020-06-300001679363us-gaap:CommonStockMember2020-06-300001679363us-gaap:AdditionalPaidInCapitalMember2020-06-300001679363us-gaap:RetainedEarningsMember2020-06-300001679363us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-06-3000016793632020-06-300001679363us-gaap:AdditionalPaidInCapitalMember2020-07-012020-09-300001679363us-gaap:CommonStockMember2020-07-012020-09-300001679363morf:AtTheMarketOfferingMember2020-07-012020-09-300001679363morf:AtTheMarketOfferingMemberus-gaap:CommonStockMember2020-07-012020-09-300001679363us-gaap:AdditionalPaidInCapitalMembermorf:AtTheMarketOfferingMember2020-07-012020-09-300001679363us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-07-012020-09-300001679363us-gaap:RetainedEarningsMember2020-07-012020-09-300001679363us-gaap:CommonStockMember2020-09-300001679363us-gaap:AdditionalPaidInCapitalMember2020-09-300001679363us-gaap:RetainedEarningsMember2020-09-300001679363us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-09-3000016793632020-09-300001679363morf:OpenMarketSaleAgreementMembermorf:AtMarketOfferingProgramMember2020-07-012020-07-31xbrli:pure0001679363morf:OpenMarketSaleAgreementMember2020-07-012020-07-310001679363morf:OpenMarketSaleAgreementMembermorf:AtMarketOfferingProgramMember2021-08-112021-08-110001679363morf:OpenMarketSaleAgreementMember2021-08-112021-08-110001679363morf:AtMarketOfferingProgramMember2021-07-012021-09-300001679363morf:AtMarketOfferingProgramMember2021-01-012021-09-300001679363morf:AtMarketOfferingProgramMember2021-09-300001679363morf:FollowOnPublicOfferingMember2021-03-012021-03-310001679363morf:FollowOnPublicOfferingMember2021-03-31utr:sqft0001679363morf:OfficeAndLaboratorySpaceMember2021-08-310001679363us-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMember2021-09-300001679363us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2021-09-300001679363us-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2021-09-300001679363us-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2021-09-300001679363us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2021-09-300001679363us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2021-09-300001679363us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2021-09-300001679363us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2021-09-300001679363us-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2021-09-300001679363us-gaap:FairValueInputsLevel1Memberus-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2021-09-300001679363us-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2021-09-300001679363us-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2021-09-300001679363us-gaap:FairValueMeasurementsRecurringMember2021-09-300001679363us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2021-09-300001679363us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2021-09-300001679363us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2021-09-300001679363us-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001679363us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001679363us-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2020-12-310001679363us-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2020-12-310001679363us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001679363us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001679363us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2020-12-310001679363us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2020-12-310001679363us-gaap:FairValueMeasurementsRecurringMember2020-12-310001679363us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001679363us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2020-12-310001679363us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2020-12-310001679363us-gaap:USTreasurySecuritiesMember2021-09-300001679363us-gaap:CorporateDebtSecuritiesMember2021-09-300001679363us-gaap:USTreasurySecuritiesMember2020-12-3100016793632021-08-310001679363morf:TwoThousandNineteenStockIncentivePlanMember2021-01-010001679363morf:TwoThousandNineteenStockIncentivePlanMember2021-09-300001679363us-gaap:EmployeeStockOptionMember2021-07-012021-09-300001679363us-gaap:EmployeeStockOptionMember2020-07-012020-09-300001679363us-gaap:EmployeeStockOptionMember2021-01-012021-09-300001679363us-gaap:EmployeeStockOptionMember2020-01-012020-09-300001679363us-gaap:RestrictedStockMember2021-07-012021-09-300001679363us-gaap:RestrictedStockMember2020-07-012020-09-300001679363us-gaap:RestrictedStockMember2021-01-012021-09-300001679363us-gaap:RestrictedStockMember2020-01-012020-09-300001679363us-gaap:RestrictedStockUnitsRSUMember2021-07-012021-09-300001679363us-gaap:RestrictedStockUnitsRSUMember2020-07-012020-09-300001679363us-gaap:RestrictedStockUnitsRSUMember2021-01-012021-09-300001679363us-gaap:RestrictedStockUnitsRSUMember2020-01-012020-09-300001679363us-gaap:EmployeeStockMember2021-07-012021-09-300001679363us-gaap:EmployeeStockMember2020-07-012020-09-300001679363us-gaap:EmployeeStockMember2021-01-012021-09-300001679363us-gaap:EmployeeStockMember2020-01-012020-09-300001679363us-gaap:ResearchAndDevelopmentExpenseMember2021-07-012021-09-300001679363us-gaap:ResearchAndDevelopmentExpenseMember2020-07-012020-09-300001679363us-gaap:ResearchAndDevelopmentExpenseMember2021-01-012021-09-300001679363us-gaap:ResearchAndDevelopmentExpenseMember2020-01-012020-09-300001679363us-gaap:GeneralAndAdministrativeExpenseMember2021-07-012021-09-300001679363us-gaap:GeneralAndAdministrativeExpenseMember2020-07-012020-09-300001679363us-gaap:GeneralAndAdministrativeExpenseMember2021-01-012021-09-300001679363us-gaap:GeneralAndAdministrativeExpenseMember2020-01-012020-09-300001679363morf:TwoThousandNineteenStockIncentivePlanMemberus-gaap:RestrictedStockMember2020-12-310001679363morf:TwoThousandNineteenStockIncentivePlanMemberus-gaap:RestrictedStockMember2021-01-012021-09-300001679363morf:TwoThousandNineteenStockIncentivePlanMemberus-gaap:RestrictedStockMember2021-09-300001679363us-gaap:RestrictedStockMember2021-09-300001679363morf:TwoThousandNineteenStockIncentivePlanMemberus-gaap:RestrictedStockUnitsRSUMember2020-12-310001679363morf:TwoThousandNineteenStockIncentivePlanMemberus-gaap:RestrictedStockUnitsRSUMember2021-01-012021-09-300001679363morf:TwoThousandNineteenStockIncentivePlanMemberus-gaap:RestrictedStockUnitsRSUMember2021-09-300001679363us-gaap:RestrictedStockUnitsRSUMember2021-09-300001679363us-gaap:EmployeeStockOptionMember2020-12-310001679363us-gaap:EmployeeStockOptionMember2020-01-012020-12-310001679363us-gaap:EmployeeStockOptionMember2021-09-300001679363morf:EmployeeStockPurchasePlanMember2019-12-310001679363morf:EmployeeStockPurchasePlanMember2021-01-010001679363srt:MaximumMembermorf:EmployeeStockPurchasePlanMember2021-01-012021-09-300001679363morf:EmployeeStockPurchasePlanMember2021-01-012021-09-300001679363morf:AbbVieMembermorf:UpfrontPaymentRevenueMember2021-01-012021-09-300001679363morf:AbbVieMembermorf:UpfrontPaymentRevenueMember2021-07-012021-09-300001679363morf:AbbVieMemberus-gaap:LicenseMember2021-07-012021-09-300001679363morf:AbbVieMemberus-gaap:LicenseMember2020-07-012020-09-300001679363morf:AbbVieMemberus-gaap:LicenseMember2021-01-012021-09-300001679363morf:AbbVieMemberus-gaap:LicenseMember2020-01-012020-09-300001679363morf:AbbVieMember2021-07-012021-09-300001679363morf:AbbVieMember2021-01-012021-09-300001679363morf:AbbVieMemberus-gaap:LicenseMember2021-09-300001679363morf:AbbVieMemberus-gaap:LicenseMember2020-12-310001679363morf:JanssenPharmaceuticalsIncMembermorf:UpfrontPaymentRevenueMember2019-01-012019-12-310001679363morf:JanssenPharmaceuticalsIncMembermorf:UpfrontPaymentRevenueMember2020-12-012020-12-310001679363morf:JanssenPharmaceuticalsIncMembermorf:UpfrontPaymentRevenueMember2021-02-012021-02-280001679363morf:JanssenPharmaceuticalsIncMembermorf:ReimbursementRevenueMember2021-07-012021-09-300001679363morf:JanssenPharmaceuticalsIncMembermorf:ReimbursementRevenueMember2020-07-012020-09-300001679363morf:JanssenPharmaceuticalsIncMembermorf:ReimbursementRevenueMember2021-01-012021-09-300001679363morf:JanssenPharmaceuticalsIncMembermorf:ReimbursementRevenueMember2020-01-012020-09-300001679363morf:JanssenPharmaceuticalsIncMembermorf:UpfrontPaymentRevenueMember2021-07-012021-09-300001679363morf:JanssenPharmaceuticalsIncMembermorf:UpfrontPaymentRevenueMember2020-07-012020-09-300001679363morf:JanssenPharmaceuticalsIncMembermorf:UpfrontPaymentRevenueMember2021-01-012021-09-300001679363morf:JanssenPharmaceuticalsIncMembermorf:UpfrontPaymentRevenueMember2020-01-012020-09-300001679363morf:JanssenPharmaceuticalsIncMemberus-gaap:LicenseMember2021-07-012021-09-300001679363morf:JanssenPharmaceuticalsIncMemberus-gaap:LicenseMember2020-07-012020-09-300001679363morf:JanssenPharmaceuticalsIncMemberus-gaap:LicenseMember2021-01-012021-09-300001679363morf:JanssenPharmaceuticalsIncMemberus-gaap:LicenseMember2020-01-012020-09-300001679363morf:JanssenPharmaceuticalsIncMemberus-gaap:LicenseMember2021-09-300001679363morf:JanssenPharmaceuticalsIncMemberus-gaap:LicenseMember2020-12-310001679363morf:RestrictedCommonStockAndRestrictedStockUnitsMember2021-07-012021-09-300001679363morf:RestrictedCommonStockAndRestrictedStockUnitsMember2020-07-012020-09-300001679363morf:RestrictedCommonStockAndRestrictedStockUnitsMember2021-01-012021-09-300001679363morf:RestrictedCommonStockAndRestrictedStockUnitsMember2020-01-012020-09-300001679363us-gaap:RestrictedStockMember2021-07-012021-09-300001679363us-gaap:RestrictedStockMember2020-07-012020-09-300001679363us-gaap:RestrictedStockMember2021-01-012021-09-300001679363us-gaap:RestrictedStockMember2020-01-012020-09-300001679363us-gaap:RestrictedStockUnitsRSUMember2021-07-012021-09-300001679363us-gaap:RestrictedStockUnitsRSUMember2020-07-012020-09-300001679363us-gaap:RestrictedStockUnitsRSUMember2021-01-012021-09-300001679363us-gaap:RestrictedStockUnitsRSUMember2020-01-012020-09-300001679363us-gaap:EmployeeStockOptionMember2021-07-012021-09-300001679363us-gaap:EmployeeStockOptionMember2020-07-012020-09-300001679363us-gaap:EmployeeStockOptionMember2021-01-012021-09-300001679363us-gaap:EmployeeStockOptionMember2020-01-012020-09-300001679363morf:EmployeeStockPurchasePlanMember2021-01-012021-09-30
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13, OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from           to
Commission file number: 001-38940
MORPHIC HOLDING, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
Incorporation or Organization)
47-3878772
(I.R.S. Employer
Identification No.)
35 Gatehouse Drive, A2
Waltham, MA
(Address of Principal Executive Offices)
02451
(Zip Code)
Registrant’s telephone number, including area code: (781996-0955
Not Applicable
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, par value $0.0001 per shareMORFThe Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐Accelerated filer ☐
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes  No ☒
The number of shares outstanding of the registrant’s Common Stock as of November 1, 2021 was 36,961,618.



Table of Contents

TABLE OF CONTENTS
Page
1

Table of Contents

PART I—FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except share and per share data)
September 30,December 31,
20212020
Assets
Current assets:
Cash and cash equivalents$184,159 $102,047 
Short-term marketable securities243,417 126,217 
Accounts receivable2,618 7,314 
Prepaid expenses and other current assets5,210 3,857 
Total current assets435,404 239,435 
Property and equipment, net2,584 2,606 
Restricted cash560 275 
Other assets15 66 
Total assets$438,563 $242,382 
Liabilities
Current liabilities:
Accounts payable$3,176 $3,845 
Accrued expenses8,417 10,160 
Deferred revenue, current portion30,148 25,266 
Deferred rent, current portion23 167 
Total current liabilities41,764 39,438 
Long-term liabilities:
Deferred revenue, net of current portion46,495 57,672 
Deferred rent, net of current portion139 75 
Total liabilities88,398 97,185 
Stockholders’ Equity
Preferred shares, $0.0001 par value, 10,000,000 shares authorized, no shares issued and outstanding as of September 30, 2021 and December 31, 2020
  
Common shares, $0.0001 par value, 400,000,000 shares authorized, 36,892,411 shares issued and outstanding as of September 30, 2021 and 32,037,686 shares issued and outstanding as of December 31, 2020
4 3 
Additional paid‑in capital566,906 287,727 
Accumulated deficit(216,652)(142,512)
Accumulated other comprehensive loss(93)(21)
Total stockholders’ equity350,165 145,197 
Total liabilities and stockholders’ equity$438,563 $242,382 



The accompanying notes are an integral part of these condensed consolidated financial statements.
2

Table of Contents

MORPHIC HOLDING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (Unaudited)
(In thousands, except share and per share data)
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Collaboration revenue$3,124 $25,757 $10,238 $39,044 
Operating expenses:
Research and development20,966 15,998 64,131 54,877 
General and administrative7,276 4,751 20,367 13,368 
Total operating expenses28,242 20,749 84,498 68,245 
(Loss) Income from operations(25,118)5,008 (74,260)(29,201)
Other income:
Interest income, net77 237 140 1,536 
Other expense (6)(20)(12)
Total other income, net77 231 120 1,524 
(Loss) Income before benefit from income taxes(25,041)5,239 (74,140)(27,677)
Benefit from income taxes 115  427 
Net (loss) income$(25,041)$5,354 $(74,140)$(27,250)
Net (loss) income per share, basic $(0.69)$0.18 $(2.09)$(0.90)
Net (loss) income per share, diluted$(0.69)$0.17 $(2.09)$(0.90)
Weighted average common shares outstanding, basic36,547,222 30,533,847 35,392,153 30,368,437 
Weighted average common shares outstanding, diluted36,547,222 32,366,141 35,392,153 30,368,437 
Comprehensive (loss) income:
Net (loss) income$(25,041)$5,354 $(74,140)$(27,250)
Other comprehensive loss:
Unrealized holding losses on marketable securities(73)(190)(72)(10)
Total other comprehensive loss(73)(190)(72)(10)
Comprehensive (loss) income$(25,114)$5,164 $(74,212)$(27,260)






The accompanying notes are an integral part of these condensed consolidated financial statements.
3

Table of Contents

MORPHIC HOLDING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited)
(In thousands, except share data)
Common SharesAdditional
Paid‑in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive Income (Loss)
Total
Stockholders’
Equity
SharesAmount
Balance at December 31, 202032,037,686 $3 $287,727 $(142,512)$(21)$145,197 
Equity‑based compensation expense— — 4,442 — — 4,442 
Vesting of restricted shares46,893 — — — — — 
Issuance of common shares upon stock option exercises279,431 — 2,657 — — 2,657 
Issuance of common shares under the Employee Stock Purchase Plan26,561 — 613 — — 613 
Issuance of common shares through at-the-market offering, net of issuance costs of $0.2 million
240,704 — 7,231 — — 7,231 
Issuance of common shares in secondary offering, net of offering costs of $15.0 million
3,500,000 1 230,030 — — 230,031 
Unrealized holding gains on marketable securities— — — — 5 5 
Net loss— — — (21,284)— (21,284)
Balance at March 31, 202136,131,275 $4 $532,700 $(163,796)$(16)$368,892 
Equity‑based compensation expense— — 5,308 — — 5,308 
Vesting of restricted shares24,080 — — — — — 
Issuance of common shares upon stock option exercises122,156 — 1,577 — — 1,577 
Unrealized holding losses on marketable securities— — — — (4)(4)
Offering costs incurred— — (49)— — (49)
Net loss— — — (27,815)— (27,815)
Balance at June 30, 2021 36,277,511 $4 $539,536 $(191,611)$(20)$347,909 
Equity‑based compensation expense— — 5,791 — — 5,791 
Vesting of restricted shares34,204 — — — — — 
Issuance of common shares upon stock option exercises273,624 — 3,683 — — 3,683 
Issuance of common stock under the Employee Stock Purchase Plan9,002 — 482 — — 482 
Issuance of common shares through at-the-market offering, net of issuance costs of $0.9 million
298,070 — 17,414 — — 17,414 
Unrealized holding losses on marketable securities— — — — (73)(73)
Net loss— — — (25,041)— (25,041)
Balance at September 30, 202136,892,411 $4 $566,906 $(216,652)$(93)$350,165 

The accompanying notes are an integral part of these condensed consolidated financial statements.
4

Table of Contents

MORPHIC HOLDING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) (Continued)
(In thousands, except share data)
Common SharesAdditional
Paid‑in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive Income
Total
Stockholders’
Equity
SharesAmount
Balance at December 31, 201930,110,251 $3 $238,384 $(97,513)$44 $140,918 
Equity-based compensation expense— — 2,544 — — 2,544 
Vesting of restricted shares84,247 — — — — — 
Issuance of common shares upon stock option exercises35,822 — 167 — — 167 
Issuance of common stock under the Employee Stock Purchase Plan53,405 — 681 — — 681 
Unrealized holding gains on marketable securities— — — — 571 571 
Net loss— — — (16,746)— (16,746)
Balance at March 31, 202030,283,725 $3 $241,776 $(114,259)$615 $128,135 
Equity-based compensation expense— — 2,489 — — 2,489 
Vesting of restricted shares57,490 — — — — — 
Issuance of common shares upon stock option exercises80,560 — 542 — — 542 
Unrealized holding gains on marketable securities— — — — (391)(391)
Net loss— — — (15,858)— (15,858)
Balance at June 30, 202030,421,775 $3 $244,807 $(130,117)$224 $114,917 
Equity-based compensation expense— — 2,996 — — 2,996 
Vesting of restricted shares56,991 — — — — 
Issuance of common shares through at-the-market offering, net of issuance costs of $0.6 million
256,879 — 6,319 — — 6,319 
Issuance of common shares upon stock option exercises60,115 — 477 — — 477 
Issuance of common shares under the Employee Stock Purchase Plan31,893 — 431 — — 431 
Unrealized holding losses on marketable securities— — — — (190)(190)
Net income— — — 5,354 — 5,354 
Balance at September 30, 202030,827,653 3 $255,030 $(124,763)$34 $130,304 

The accompanying notes are an integral part of these condensed consolidated financial statements.
5

Table of Contents

MORPHIC HOLDING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Nine Months Ended September 30,
20212020
Cash flows from operating activities:
Net loss$(74,140)$(27,250)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization754 852 
Premium amortization and discount accretion on marketable securities531 429 
Equity‑based compensation15,541 8,029 
Loss on disposal of equipment4  
Change in operating assets and liabilities:
Accounts receivable4,696 1,832 
Prepaid expenses and other current assets(1,353)(530)
Other assets51 55 
Accounts payable(842)(1,893)
Accrued expenses(1,743)818 
Deferred revenue(6,295)(13,878)
Deferred rent(80)(36)
Net cash used in operating activities(62,876)(31,572)
Cash flows from investing activities:
Purchases of marketable securities(223,803)(95,049)
Proceeds from maturities of marketable securities106,000 115,000 
Purchase of property and equipment(563)(475)
Net cash (used in) provided by investing activities(118,366)19,476 
Cash flows from financing activities:
Proceeds from issuance of common shares under Employee Stock Purchase Plan1,095 1,112 
Proceeds from at-the-market offering, net of issuance costs24,645 6,319 
Proceeds from secondary offering, net of issuance costs229,982  
Proceeds from issuance of common shares upon stock option exercises7,917 1,186 
Net cash provided by financing activities263,639 8,617 
Net increase (decrease) in cash, cash equivalents and restricted cash82,397 (3,479)
Cash, cash equivalents and restricted cash, beginning of period102,322 101,834 
Cash, cash equivalents and restricted cash, end of period$184,719 $98,355 
Non-cash investing activities:
Purchases of property and equipment included in accounts payable and accrued expenses$173 $15 
Supplemental cash flow information:
Cash paid for taxes$130 $480 




The accompanying notes are an integral part of these condensed consolidated financial statements.
6

Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1.Nature of the Business and Basis of Presentation
Organization and Liquidity
Morphic Holding, Inc. (the “Company”) was formed under the laws of the State of Delaware in August 2014. The Company is a biopharmaceutical company applying proprietary insights into integrin medicine to discover and develop first-in-class oral small molecule integrin therapeutics. Integrins are a validated target class with multiple approved drugs for the treatment of serious chronic diseases. Despite significant biopharmaceutical industry investment, no oral integrin therapies have been approved. The Company has created the Morphic integrin technology platform, or MInT Platform, by leveraging its unique understanding of integrin structure and biology, to develop a pipeline of novel product candidates designed to achieve potency, high selectivity, and the pharmaceutical properties required for oral administration.
The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s drug development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales. The Company expects to continue to incur losses from operations for the foreseeable future. The Company expects that its cash, cash equivalents and marketable securities will be sufficient to fund its operating expenses and capital expenditure requirements through at least the next 12 months from the date these financial statements were issued.

In July 2020, the Company entered into an Open Market Sale Agreement (“the Original Agreement”) with Jefferies LLC (“Jefferies”) with respect to an at-the-market (“ATM”) offering program under which the Company may offer and sell, from time to time at its sole discretion, shares of our common stock, having an aggregate offering price of up to $75,000,000, referred to as Placement Shares, through Jefferies as its sales agent. The Company paid Jefferies a commission equal to 3.0% of the gross sales proceeds of any Placement Shares sold through Jefferies under the Original Agreement, and also has provided Jefferies with customary indemnification and contribution rights. On August 11, 2021, the Company entered into an Amendment No. 1 to the Open Market Sale Agreement with Jefferies, establishing a new at-the-market offering (“New ATM”) with an aggregate offering price of up to $150,000,000, also subject to a commission equal to 3.0% of gross sales proceeds from Placement Shares sold through Jefferies. Under the New ATM, the Company may offer and sell, from time to time at its sole discretion, shares of its common stock, referred to as Placement Shares, through Jefferies as its sales agent.

During the three months ended September 30, 2021, 298,070 shares under the ATM were sold for net proceeds of $17.4 million after deducting offering commissions and offering expenses paid by the Company. During the nine months ended September 30, 2021, the Company issued and sold 538,774 shares for net proceeds of $24.6 million after deducting offering commissions and offering expenses paid by the Company. As of September 30, 2021, the Company had approximately $138.9 million of common stock remaining available for sale under the ATM.
In March 2021, the Company completed an underwritten follow-on public offering of 3,500,000 shares of its common stock at a price to the public of $70.00 per share. Gross proceeds from the secondary offering were approximately $245.0 million, before deducting underwriting discounts, commissions and other offering expenses of approximately $15.0 million, paid by the Company, resulting in net proceeds of approximately $230.0 million.
2.Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The unaudited interim condensed consolidated financial statements include the accounts of Morphic Holding, Inc. and its wholly owned subsidiaries, Morphic Therapeutic, Inc. and a Massachusetts Security Corporation, organized in December 2019 to take advantage of the favorable tax treatment of income earned on securities held within such entity. All intercompany balances have been eliminated in consolidation.
The accompanying condensed consolidated financial statements are unaudited and have been prepared by the Company in accordance with accounting principles generally accepted in the United States (“GAAP”) as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). Certain information and footnote disclosures normally included in the Company’s annual financial statements have been
7

Table of Contents

condensed or omitted. These unaudited interim condensed consolidated financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of the Company’s financial position and results of operations for the interim periods ended September 30, 2021 and 2020.
The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2020, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 1, 2021.
Use of Estimates and Summary of Significant Accounting Policies
The preparation of financial statements in accordance with GAAP requires management to make estimates and judgments that may affect the reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the date of the financial statements and the related reporting of revenues and expenses during the reporting period. Significant estimates of accounting reflected in these consolidated financial statements include, but are not limited to, estimates related to revenue recognition, accrued research and development expenses, the valuation of equity-based compensation, and income taxes. Actual results could differ from those estimates.
Significant accounting policies
The significant accounting policies used in preparation of these condensed consolidated financial statements as of and for the three and nine months ended September 30, 2021 are consistent with those discussed in Note 2 to the consolidated financial statements in the Company’s 2020 Annual Report on Form 10-K, except as described below.
Recently Issued Accounting Pronouncements not yet Adopted
At IPO, as an “emerging growth company,” or EGC, under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, the Company has made an election under Section 107 of the JOBS Act to take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards and has been following requirements applicable to the private companies for adopting new and updated accounting standards. Based on the value of the Company's common stock held by non-affiliates on June 30, 2021, the Company will become a large accelerated filer for the year ending December 31, 2021 and will follow adoption guidance mandated for non-EGC entities.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments Credit Losses (Topic 326) (“ASU 2016-13”), which requires consideration of a broader range of reasonable and supportable information in developing credit loss estimates. In April 2019, the FASB issued ASU 2019-04, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (“ASU 2019-04”). Certain provisions of ASU 2019-04 amend the guidance of ASU 2016-13, are applicable to the Company’s investments portfolio, and allow the Company to make certain accounting policy elections regarding establishing allowance for credit losses for the accrued interest receivable and the corresponding disclosures. In November 2019, the FASB issued ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses (“ASU 2019-11”), which clarifies certain areas of the guidance to ensure all companies and organizations can make a smoother transition to the standard.
As of December 31, 2021, the Company will become a large accelerated filer and as a result, the guidance under ASU 2019-04, ASU 2016-13 and ASU 2019-11 is effective for the Company's Annual Report on Form 10-K to be filed for the year ended December 31, 2021. The Company will record a cumulative effect adjustment to retained earnings retroactive to January 1, 2021, the date of adoption. The Company is currently evaluating the impact of ASU 2019-11 and the related ASU 2019-04 and ASU 2016-13 on its consolidated financial statements, including the impact of the available accounting policy elections. The Company does not expect this guidance to have a material impact on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), with guidance regarding the accounting for and disclosure of leases. In general, for lease arrangements exceeding a twelve-month term, these arrangements must now be recognized as assets and liabilities on the balance sheet of the lessee. Under ASU 2016-02, a right-of-use asset and lease obligation will be recorded for all leases, whether operating or financing, while the income statement will reflect lease expense for operating leases and amortization/interest expense for financing leases. The balance sheet amount recorded for existing leases at the date of adoption of ASU 2016-02 must be calculated using the applicable incremental borrowing rate at the date of adoption. This update also requires lessees and lessors to disclose key information about their leasing transactions. In July 2018, the FASB issued ASU 2018-11, Leases - Targeted Improvements, intended to ease the implementation of the new lease
8

Table of Contents

standard for financial statement preparers by, among other things, allowing for an additional transition method. In lieu of presenting transition requirements to comparative periods, as previously required, an entity may now elect to show a cumulative effect adjustment on the date of adoption without the requirement to recast prior period financial statements or disclosures presented in accordance with ASU 2016-02.
The Company currently expects to elect the available package of practical expedients which allows the Company to not reassess previous accounting conclusions around whether arrangements are or contain leases, the classification of leases, and the treatment of initial direct costs. The Company also expects it will make an accounting policy election to keep leases with an initial term of 12 months or less off of the balance sheet.
In August 2021, the Company exercised its one-time extension right for its existing lease for 35,000 square feet of office and laboratory space through May 2025, as provided for under the terms of the lease. The Company is currently evaluating the effect of adopting the requirements of ASU 2016-02 as it relates to its facility lease, as amended in August 2021, and discussed in Note 10 to the consolidated financial statements appearing in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020. The Company is also performing an evaluation of other material contracts to determine if any contain embedded leases, and has not identified any to date. As of December 31, 2021, the Company will become a large accelerated filer and as a result, the guidance under ASU 2016-02 is effective for the Company's Annual Report on Form 10-K to be filed for the year ended December 31, 2021, with an effective date of adoption of January 1, 2021.
3.Fair Value of Financial Assets and Liabilities
The Company has certain financial assets and liabilities that are recorded at fair value which have been classified as Level 1, 2 or 3 within the fair value hierarchy as described in the accounting standards for fair value measurements:
Level 1 — Quoted market prices in active markets for identical assets or liabilities.
Level 2 — Inputs other than Level 1 inputs that are either directly or indirectly observable, such as quoted market prices, interest rates and yield curves.
Level 3 — Unobservable inputs developed using estimates of assumptions developed by the Company, which reflect those that a market participant would use.
At September 30, 2021, investments also include corporate debt securities which are valued either based on recent trades of securities in inactive markets or based on quoted market prices of similar instruments and other significant inputs derived from or corroborated by observable market data.
To the extent the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair values requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized as Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
The tables below present information about the Company’s financial assets that are measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020 (in thousands) and indicate the level within the fair value hierarchy where each measurement is classified.
Fair Value Measurements at September 30, 2021
TotalLevel 1Level 2Level 3
Assets:
Money market funds, included in cash and cash equivalents$143,883 $143,883 $ $ 
Marketable securities:
U.S. Treasury securities32,087  32,087  
Corporate debt securities211,330  211,330  
Total assets$387,300 $143,883 $243,417 $ 
9


Fair Value Measurements at December 31, 2020
TotalLevel 1Level 2Level 3
Assets:
Money market funds, included in cash and cash equivalents$101,760 $101,760 $ $ 
Marketable securities:
U.S. Treasury securities126,217  126,217  
Total assets$227,977 $101,760 $126,217 $ 
The money market funds included in the tables above invest in U.S. government securities that are valued using quoted market prices. Accordingly, money market funds are categorized as Level 1 as of September 30, 2021 and December 31, 2020. Marketable securities included in the tables above consist of U.S. Treasury securities and corporate debt securities, and these securities are categorized as Level 2 as of September 30, 2021 and December 31, 2020. During the nine months ended September 30, 2021, no assets were transferred between the fair value hierarchy categories. The Company had no liabilities measured at fair value on a recurring basis at September 30, 2021 or December 31, 2020.
The Company believes that the carrying amounts of the Company’s condensed consolidated financial instruments, including prepaid expenses and other current assets, accounts receivable, accounts payable, and accrued expenses approximate fair value due to the short-term nature of those instruments.
4.Marketable securities
The following tables summarize the Company’s investments in marketable securities classified as available for sale (in thousands):
As of September 30, 2021
MaturityAmortized
cost
Gross
unrealized
holding gains
Gross
unrealized
holding losses
Aggregate
estimated
fair value
Marketable securities:
U.S. Treasury securitiesless than 1 year$32,084 $3 $ $32,087 
Corporate debt securitieswithin 2 years211,400 13 (83)211,330 
Total marketable securities$243,484 $16 $(83)$243,417 

As of December 31, 2020
MaturityAmortized
cost
Gross
unrealized
holding gains
Gross
unrealized
holding losses
Aggregate
estimated
fair value
Marketable securities:
U.S. Treasury securitiesless than 1 year$126,212 $7 $(2)$126,217 
Total marketable securities$126,212 $7 $(2)$126,217 

All of the Company’s investments are classified as available-for-sale and are carried at fair value with unrealized gains and losses recorded as a component of accumulated other comprehensive income (loss). The Company considers all available-for-sale securities, including those with maturity dates beyond 12 months, as available to support current operational liquidity needs and therefore classifies all securities with maturity dates beyond 90 days at the date of purchase as current assets.
5.Cash, Cash Equivalents and Restricted Cash
Restricted cash consists of a letter of credit in the amount of $560,000 issued to the landlord of the Company’s facility lease as of September 30, 2021. The letter of credit increased from $275,000 in August 2021 due to the operating lease extension discussed further in Note 2. The terms of the letter of credit extend beyond one year. The following table reconciles cash, cash equivalents and restricted cash per the balance sheet to the statements of cash flows (in thousands):



September 30,December 31,September 30,December 31,
2021202020202019
Cash and cash equivalents$184,159 $102,047 $98,080 $101,559 
Restricted cash560 275 275 275 
Total cash, cash equivalents and restricted cash$184,719 $102,322 $98,355 $101,834 
6.Accrued Expenses
At September 30, 2021 and December 31, 2020 accrued expenses consist of the following (in thousands):
September 30,December 31,
20212020
Payroll and related expenses$4,390 $5,148 
Research and development activities3,019 4,335 
Other expenses1,008 677 
$8,417 $10,160 
7.Equity Based Compensation
In connection with the Company’s initial public offering in July 2019, the Company adopted the 2019 Equity Incentive Plan (the “2019 Plan”) in June 2019, which replaced the 2018 Stock Incentive Plan. The 2019 Plan provides for the grant of stock options, restricted stock awards, stock bonus awards, cash awards, stock appreciation right, RSUs, and performance awards to directors, officers and employees of the Company, as well as consultants and advisors of the Company. As a result of the automatic increase provision of the 2019 Plan, the number of shares of common stock available for issuance under the 2019 Plan increased by 1.3 million shares on January 2021. As of September 30, 2021, there were a total of 1.3 million shares available for future award grants under the 2019 Plan.
The Company recognized equity-based compensation expense in the condensed consolidated statements of operations and comprehensive loss, by award type, as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Stock options$5,403 $2,672 $14,448 $6,734 
Restricted common stock71 147 224 832 
Restricted stock units163 55 385 124 
ESPP154 122 484 339 
Total$5,791 $2,996 $15,541 $8,029 
The following table summarizes the allocation of equity-based compensation expense in the condensed consolidated statements of operations and comprehensive loss, by expense category (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Research and development expense$2,599 $1,480 $7,406 $4,623 
General and administrative expense3,192 1,516 8,135 3,406 
Total$5,791 $2,996 $15,541 $8,029 


Table of Contents

Restricted Common Stock
The following table summarizes the restricted stock awards activity during the nine months ended September 30, 2021:
Number of SharesWeighted
Average Fair
Value per Share
at Issuance
Unvested restricted common stock as of December 31, 2020100,989 $4.32 
Granted  
Vested(73,056)4.32 
Forfeited(3,540)4.32 
Unvested restricted common stock as of September 30, 202124,393 $4.32 
As of September 30, 2021, the Company had unrecognized equity-based compensation expense of $0.1 million related to the restricted stock awards, which is expected to be recognized over a weighted average period of 0.3 years.
Restricted Stock Units
The following table summarizes the restricted stock units activity during the nine months ended September 30, 2021:
Number of SharesWeighted
Average Fair
Value per Share
at Issuance
Unvested restricted stock units as of December 31, 202066,216 $10.84 
Granted7,000 57.73 
Vested(32,121)10.84 
Forfeited  
Unvested restricted stock units as of September 30, 202141,095 $18.83 
As of September 30, 2021, the Company had unrecognized equity-based compensation expense of $0.5 million related to the restricted stock units, which is expected to be recognized over a weighted average period of 2.2 years.
Stock Options
The following table summarizes the Company’s stock option activity during the nine months ended September 30, 2021:
Number of
Shares
Weighted
Average
Exercise Price
Weighted
Average
Remaining
Contractual Term
Aggregate
Intrinsic Value
(in years)(in thousands)
Outstanding as of December 31, 20204,352,095 $12.22 8.68
Granted1,550,333 35.36 — — 
Exercised(675,211)11.73 — — 
Forfeited(140,722)17.09 — — 
Outstanding as of September 30, 20215,086,495 $19.20 8.38$191,512 
Options exercisable as of September 30, 20211,729,711 $12.98 7.97$75,513 
As of September 30, 2021, the Company had unrecognized equity-based compensation expense of $50.3 million related to stock options issued to employees and non-employees, which is expected to be recognized over a weighted average period of 2.4 years.
ESPP
In 2019, the Company adopted the 2019 Employee Stock Purchase Plan (“ESPP”), which became effective on June 26, 2019. The Company initially reserved 300,000 shares of common stock for sale under the ESPP. As a result of the automatic increase provision of the ESPP, the number of shares of common stock available for issuance under the ESPP increased by 0.3 million
12

Table of Contents

shares on January 1, 2021. The ESPP is a qualified, compensatory plan under Section 423 of the Internal Revenue Code and offers substantially all employees opportunity to purchase up to $25,000 of common stock per year at 15% discount to the lower of the beginning of the offering period price or the end of the offering period price.
Compensation expense for discounted purchases under the ESPP is measured using the Black-Scholes model to compute the fair value of the lookback provision plus the purchase discount and is recognized as compensation expense over the course of the offering period.
8. Income Taxes
Deferred tax assets and deferred tax liabilities are recognized based on temporary differences between the financial reporting and tax basis of assets and liabilities using statutory rates. A valuation allowance is recorded against deferred tax assets if it is more likely than not that some or all of the deferred tax assets will not be realized.
The Company’s ability to use its operating loss carryforwards and tax credits to offset future taxable income is subject to restrictions under Sections 382 and 383 of the United States Internal Revenue Code, or the Internal Revenue Code. Net operating loss and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50 percent, as defined under Sections 382 and 383 of the Internal Revenue Code. Such changes would limit the Company’s use of its operating loss carryforwards and tax credits. In such a situation, the Company may be required to pay income taxes, even though significant operating loss carryforwards and tax credits exist.
On March 27, 2020, the Coronavirus Aid Relief and Economic Security (“CARES”) Act was signed into law. The CARES Act included several income tax changes, included allowing for the carryback of net operating losses, expanding interest deductibility, and allowing for accelerated expensing of certain capital improvements. 
The Company records a provision or benefit for income taxes on ordinary pre-tax income or loss based on its estimated effective tax rate for the year. As of September 30, 2021, the Company forecasts an ordinary pre-tax loss for the year ended December 31, 2021 and, since it maintains a full valuation allowance on its deferred tax assets, the Company did not record an income tax benefit in 2021. Based on the carryback allowance under the CARES Act, the Company recorded an income tax benefit of $0.1 million and $0.4 million for the three and nine months ended September 30, 2020, respectively.
9.Commitments and Contingencies
Guarantees and Indemnifications
The Company entered, and intends to continue to enter, into separate indemnification agreements with directors, officers, and certain of key employees, in addition to the indemnification provided for in the restated certificate of incorporation and restated bylaws. These agreements, among other things, require the Company to indemnify directors, officers, and key employees for certain expenses, including attorneys' fees, judgments, penalties, fines, and settlement amounts actually incurred by these individuals in any action or proceeding arising out of their service to the Company or any of its subsidiaries or any other company or enterprise to which these individuals provide services at the Company’s request. Subject to certain limitations, the indemnification agreements also require the Company to advance expenses incurred by directors, officers, and key employees for the defense of any action for which indemnification is required or permitted.
The Company has standard indemnification arrangements in its leases for laboratory and office space that require it to indemnify the landlord against any liability for injury, loss, accident, or damage from any claims, actions, proceedings, or costs resulting from certain acts, breaches, violations, or non-performance under the Company’s lease.
Through September 30, 2021, the Company had not experienced any losses related to these indemnification obligations, and no material claims were outstanding. The Company does not expect significant claims related to these indemnification obligations and, consequently, concluded that the fair value of these obligations is negligible, and no related reserves were established.
In August 2021, the Company exercised its one-time extension right for its existing lease for 35,000 square feet of office and laboratory space through May 2025, as provided for under the terms of the lease. During the three and nine months ended September 30, 2021, there were no other material changes to our contractual obligations and commitments previously disclosed in Note 10 to the consolidated financial statements appearing in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
13

Table of Contents

Minimum annual rent payments after the exercise of the lease extension right, excluding operating expenses and taxes, which are not fixed for future periods, are as follows (in thousands):
Year ending December 31,Total Minimum Lease Payments
Remainder of 2021$316 
20221,507 
20231,700 
20241,733 
2025727 
Total minimum lease payments$5,983 
Legal Proceedings
The Company is not currently a party to any material legal proceedings.
10.Option and License Agreements
Detailed description of contractual terms and the Company’s accounting for agreements described below were included in the Company’s audited financial statements and notes in the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2021.
AbbVie Agreement
During the three and nine months ended September 30, 2021, the Company continued to perform under its agreement with AbbVie, (the “AbbVie Agreement”) pursuant to which the Company recognizes revenues in proportion to the costs incurred. As a result, the Company recognizes as revenue the $100.0 million up-front payment as research and development services are performed, which is expected to be completed through 2024. The following table summarizes research and development costs incurred and revenue recognized in connection with Company's performance under the AbbVie Agreement during the three and nine months ended September 30, 2021 and 2020 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Revenue recognized$1,476 $23,647 $5,043 $32,328 
Costs incurred1,206 2,480 4,374 10,150 
On August 25, 2020, AbbVie exercised its option to license and control further development and commercialization of Morphic’s αvβ6–specific integrin inhibitors for the treatment of fibrotic diseases including idiopathic pulmonary fibrosis (IPF) and additional indications. In connection with the exercise of the option, AbbVie paid the Company $20.0 million, which was recognized as revenue during the three and nine months ended September 30, 2021. The Company is eligible to receive potential milestones and royalties on future development and commercialization of Morphic’s αvβ6–specific integrin inhibitors, as further described in the Company’s audited financial statements and notes in the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2021, all of which have been fully constrained as of September 30, 2021.
As of September 30, 2021, the Company had $66.7 million of deferred revenue, which is classified as either current or long-term deferred revenue in the accompanying condensed consolidated balance sheets based on the period over which the revenue is expected to be recognized. This deferred revenue balance represents the aggregate amount of the transaction price allocated to the performance obligations that are partially unsatisfied as of September 30, 2021. The Company had $29 thousand and $0.9 million recorded as accounts receivable from AbbVie on the condensed consolidated balance sheet as of September 30, 2021 and December 31. 2020, respectively.
As the Company progresses towards satisfaction of performance obligations under the AbbVie Agreement, the estimated costs associated with the remaining effort required to complete the performance obligations may change, which may materially impact revenue recognition. The Company regularly evaluates and, when necessary, updates the costs associated with the remaining effort pursuant to each performance obligation under the AbbVie Agreement. Accordingly, revenue may fluctuate from period to period due to revisions to estimated costs, resulting in a change in the measure of progress for a performance
14

Table of Contents

obligation. Such changes can also impact the allocation of deferred revenue between current and long term based on changes in expected timing of the satisfaction of performance obligations.
Janssen Agreement
During the three and nine months ended September 30, 2021, the Company continued to perform under its agreement with Janssen (the "Janssen Agreement"), pursuant to which the Company recognizes revenue in proportion to the costs incurred to date.
Under the terms of the agreement, Janssen paid the Company an upfront fee of $10.0 million for the first two research programs in 2019 and in December 2020 the Company reached an agreement with Janssen to commence work on the third research program, and Janssen paid to the Company $5.0 million for the third research program commencement fee in February 2021. The Company expects to provide research services and recognize revenue through 2024.
The following table summarizes research and development costs incurred and revenue recognized in connection with Company's performance under the Janssen Agreement during three and nine months ended September 30, 2021 and 2020 (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Reimbursement revenue$1,276 $1,634 $3,914 $5,165 
Upfront payment revenue372 476 1,281 1,551 
Total revenue recognized$1,648 $2,110 $5,195 $6,716 
Costs incurred$1,118 $1,439 $3,388 $4,540 
The Company had $2.6 million and $6.4 million due from Janssen included in accounts receivable on the condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020, respectively.
As of September 30, 2021, $10.0 million of deferred revenue is classified as either current or long-term deferred revenue in the accompanying condensed consolidated balance sheet based on the period over which the revenue is expected to be recognized. This deferred revenue balance represents the portion of the upfront payment received allocated to the performance obligations that are partially unsatisfied as of September 30, 2021.
11.Net (Loss) Income per Share
Basic net income (loss) per share is calculated by dividing net income (loss) allocable to common stockholders by the weighted-average common shares outstanding during the period, without consideration of common stock equivalents.
For periods with net income, diluted net income per share is calculated by adjusting the weighted-average shares outstanding for the dilutive effect of common stock equivalents, including stock options and restricted common stock and stock units outstanding for the period as determined using the treasury stock method.
For purposes of the diluted net loss per share calculation, common stock equivalents are excluded from the calculation if their effect would be anti-dilutive. As such, basic and diluted net loss per share applicable to common stockholders are the same for periods with a net loss.
The following tables illustrate the determination of basic and diluted loss per share for each period presented (in thousands, except share data):
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Net (loss) income$(25,041)$5,354 $(74,140)$(27,250)
Weighted average common shares outstanding, basic36,547,222 30,533,847 35,392,153 30,368,437 
Net (loss) income per share, basic$(0.69)$0.18 $(2.09)$(0.90)

15

Table of Contents

Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Net (loss) income$(25,041)$5,354 $(74,140)$(27,250)
Weighted average common shares outstanding, basic36,547,222 30,533,847 35,392,153 30,368,437 
Dilutive impact from:
Stock options 1,605,663   
Restricted common stock and stock units 226,631   
Weighted average common shares outstanding, diluted36,547,222 32,366,141 35,392,153 30,368,437 
Net (loss) income per share, diluted$(0.69)$0.17 $(2.09)$(0.90)
The following table sets forth the outstanding common stock equivalents, presented based on amounts outstanding at each period end, that have been excluded from the calculation of diluted net loss per share for the periods indicated because their inclusion would have been anti-dilutive (in common stock equivalent shares, as applicable):
Three Months Ended September 30,Nine Months Ended September 30,