morf-20220630
0001679363December 312022Q2false00016793632022-01-012022-06-3000016793632022-08-01xbrli:shares00016793632022-06-30iso4217:USD00016793632021-12-31iso4217:USDxbrli:shares00016793632022-04-012022-06-3000016793632021-04-012021-06-3000016793632021-01-012021-06-300001679363us-gaap:CommonStockMember2021-12-310001679363us-gaap:AdditionalPaidInCapitalMember2021-12-310001679363us-gaap:RetainedEarningsMember2021-12-310001679363us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-12-310001679363us-gaap:AdditionalPaidInCapitalMember2022-01-012022-03-3100016793632022-01-012022-03-310001679363us-gaap:CommonStockMember2022-01-012022-03-310001679363us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-01-012022-03-310001679363us-gaap:RetainedEarningsMember2022-01-012022-03-310001679363us-gaap:CommonStockMember2022-03-310001679363us-gaap:AdditionalPaidInCapitalMember2022-03-310001679363us-gaap:RetainedEarningsMember2022-03-310001679363us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-03-3100016793632022-03-310001679363us-gaap:AdditionalPaidInCapitalMember2022-04-012022-06-300001679363us-gaap:CommonStockMember2022-04-012022-06-300001679363morf:AtTheMarketOfferingMember2022-04-012022-06-300001679363morf:AtTheMarketOfferingMemberus-gaap:CommonStockMember2022-04-012022-06-300001679363morf:AtTheMarketOfferingMemberus-gaap:AdditionalPaidInCapitalMember2022-04-012022-06-300001679363us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-04-012022-06-300001679363us-gaap:RetainedEarningsMember2022-04-012022-06-300001679363us-gaap:CommonStockMember2022-06-300001679363us-gaap:AdditionalPaidInCapitalMember2022-06-300001679363us-gaap:RetainedEarningsMember2022-06-300001679363us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-06-300001679363us-gaap:CommonStockMember2020-12-310001679363us-gaap:AdditionalPaidInCapitalMember2020-12-310001679363us-gaap:RetainedEarningsMember2020-12-310001679363us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-3100016793632020-12-310001679363us-gaap:AdditionalPaidInCapitalMember2021-01-012021-03-3100016793632021-01-012021-03-310001679363us-gaap:CommonStockMember2021-01-012021-03-310001679363morf:AtTheMarketOfferingMember2021-01-012021-03-310001679363morf:AtTheMarketOfferingMemberus-gaap:CommonStockMember2021-01-012021-03-310001679363morf:AtTheMarketOfferingMemberus-gaap:AdditionalPaidInCapitalMember2021-01-012021-03-310001679363morf:SecondaryOfferingMember2021-01-012021-03-310001679363morf:SecondaryOfferingMemberus-gaap:CommonStockMember2021-01-012021-03-310001679363morf:SecondaryOfferingMemberus-gaap:AdditionalPaidInCapitalMember2021-01-012021-03-310001679363us-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:AdditionalPaidInCapitalMember2021-04-012021-06-300001679363us-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:AccumulatedOtherComprehensiveIncomeMember2021-06-3000016793632021-06-300001679363morf:AtTheMarketOfferingMember2022-01-012022-06-300001679363morf:AtTheMarketOfferingMember2021-01-012021-06-300001679363morf:SecondaryOfferingMember2022-01-012022-06-300001679363morf:SecondaryOfferingMember2021-01-012021-06-300001679363morf:AtMarketOfferingProgramMembermorf:OpenMarketSaleAgreementMember2020-07-012020-07-31xbrli:pure0001679363morf:AtMarketOfferingProgramMembermorf:OpenMarketSaleAgreementMember2021-08-112021-08-110001679363morf:AtMarketOfferingProgramMember2022-04-012022-06-300001679363morf:AtMarketOfferingProgramMember2022-06-300001679363morf:FollowOnPublicOfferingMember2021-03-012021-03-310001679363morf:FollowOnPublicOfferingMember2021-03-310001679363us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMember2022-06-300001679363us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMember2022-06-300001679363us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Memberus-gaap:MoneyMarketFundsMember2022-06-300001679363us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel3Member2022-06-300001679363us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2022-06-300001679363us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2022-06-300001679363us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Memberus-gaap:USTreasurySecuritiesMember2022-06-300001679363us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel3Member2022-06-300001679363us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperMember2022-06-300001679363us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperMember2022-06-300001679363us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Memberus-gaap:CommercialPaperMember2022-06-300001679363us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperMemberus-gaap:FairValueInputsLevel3Member2022-06-300001679363us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2022-06-300001679363us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2022-06-300001679363us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Memberus-gaap:CorporateDebtSecuritiesMember2022-06-300001679363us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueInputsLevel3Member2022-06-300001679363us-gaap:FairValueMeasurementsRecurringMember2022-06-300001679363us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2022-06-300001679363us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2022-06-300001679363us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2022-06-300001679363us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMember2021-12-310001679363us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMember2021-12-310001679363us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Memberus-gaap:MoneyMarketFundsMember2021-12-310001679363us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel3Member2021-12-310001679363us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2021-12-310001679363us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2021-12-310001679363us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Memberus-gaap:USTreasurySecuritiesMember2021-12-310001679363us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel3Member2021-12-310001679363us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperMember2021-12-310001679363us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperMember2021-12-310001679363us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Memberus-gaap:CommercialPaperMember2021-12-310001679363us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommercialPaperMemberus-gaap:FairValueInputsLevel3Member2021-12-310001679363us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2021-12-310001679363us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2021-12-310001679363us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Memberus-gaap:CorporateDebtSecuritiesMember2021-12-310001679363us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueInputsLevel3Member2021-12-310001679363us-gaap:FairValueMeasurementsRecurringMember2021-12-310001679363us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2021-12-310001679363us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2021-12-310001679363us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2021-12-310001679363us-gaap:USTreasurySecuritiesMember2022-06-300001679363us-gaap:CommercialPaperMember2022-06-300001679363us-gaap:CorporateDebtSecuritiesMember2022-06-300001679363us-gaap:USTreasurySecuritiesMember2021-12-310001679363us-gaap:CommercialPaperMember2021-12-310001679363us-gaap:CorporateDebtSecuritiesMember2021-12-3100016793632021-08-310001679363morf:TwoThousandNineteenStockIncentivePlanMember2022-01-010001679363morf:TwoThousandNineteenStockIncentivePlanMember2022-06-300001679363us-gaap:EmployeeStockOptionMember2022-04-012022-06-300001679363us-gaap:EmployeeStockOptionMember2021-04-012021-06-300001679363us-gaap:EmployeeStockOptionMember2022-01-012022-06-300001679363us-gaap:EmployeeStockOptionMember2021-01-012021-06-300001679363us-gaap:RestrictedStockMember2022-04-012022-06-300001679363us-gaap:RestrictedStockMember2021-04-012021-06-300001679363us-gaap:RestrictedStockMember2022-01-012022-06-300001679363us-gaap:RestrictedStockMember2021-01-012021-06-300001679363us-gaap:RestrictedStockUnitsRSUMember2022-04-012022-06-300001679363us-gaap:RestrictedStockUnitsRSUMember2021-04-012021-06-300001679363us-gaap:RestrictedStockUnitsRSUMember2022-01-012022-06-300001679363us-gaap:RestrictedStockUnitsRSUMember2021-01-012021-06-300001679363us-gaap:EmployeeStockMember2022-04-012022-06-300001679363us-gaap:EmployeeStockMember2021-04-012021-06-300001679363us-gaap:EmployeeStockMember2022-01-012022-06-300001679363us-gaap:EmployeeStockMember2021-01-012021-06-300001679363us-gaap:ResearchAndDevelopmentExpenseMember2022-04-012022-06-300001679363us-gaap:ResearchAndDevelopmentExpenseMember2021-04-012021-06-300001679363us-gaap:ResearchAndDevelopmentExpenseMember2022-01-012022-06-300001679363us-gaap:ResearchAndDevelopmentExpenseMember2021-01-012021-06-300001679363us-gaap:GeneralAndAdministrativeExpenseMember2022-04-012022-06-300001679363us-gaap:GeneralAndAdministrativeExpenseMember2021-04-012021-06-300001679363us-gaap:GeneralAndAdministrativeExpenseMember2022-01-012022-06-300001679363us-gaap:GeneralAndAdministrativeExpenseMember2021-01-012021-06-300001679363us-gaap:EmployeeStockOptionMember2021-12-310001679363us-gaap:EmployeeStockOptionMember2022-06-300001679363morf:TwoThousandNineteenStockIncentivePlanMemberus-gaap:RestrictedStockUnitsRSUMember2021-12-310001679363morf:TwoThousandNineteenStockIncentivePlanMemberus-gaap:RestrictedStockUnitsRSUMember2022-01-012022-06-300001679363morf:TwoThousandNineteenStockIncentivePlanMemberus-gaap:RestrictedStockUnitsRSUMember2022-06-300001679363morf:AbbVieMember2022-06-012022-06-300001679363morf:AtMarketOfferingProgramMembermorf:OpenMarketSaleAgreementMember2022-01-012022-06-300001679363morf:AbbVieMemberus-gaap:LicenseMember2022-06-30morf:program0001679363morf:AbbVieMemberus-gaap:LicenseMember2022-01-012022-06-300001679363morf:AbbVieMemberus-gaap:LicenseMember2022-04-012022-06-300001679363morf:AbbVieMemberus-gaap:LicenseMember2021-04-012021-06-300001679363morf:AbbVieMemberus-gaap:LicenseMember2021-01-012021-06-300001679363morf:AbbVieMember2022-01-012022-06-300001679363morf:JanssenPharmaceuticalsIncMembermorf:UpfrontPaymentRevenueFirstTwoProgramsMember2022-01-012022-06-300001679363morf:JanssenPharmaceuticalsIncMembermorf:UpfrontPaymentRevenueFirstTwoProgramsMember2022-06-300001679363morf:JanssenPharmaceuticalsIncMembermorf:UpfrontPaymentRevenueMember2021-02-012021-02-280001679363morf:JanssenPharmaceuticalsIncMembermorf:UpfrontPaymentRevenueMember2021-12-012021-12-310001679363morf:JanssenPharmaceuticalsIncMembermorf:UpfrontPaymentRevenueFirstTwoProgramsMember2021-12-310001679363morf:ReimbursementRevenueMembermorf:JanssenPharmaceuticalsIncMember2022-04-012022-06-300001679363morf:ReimbursementRevenueMembermorf:JanssenPharmaceuticalsIncMember2021-04-012021-06-300001679363morf:ReimbursementRevenueMembermorf:JanssenPharmaceuticalsIncMember2022-01-012022-06-300001679363morf:ReimbursementRevenueMembermorf:JanssenPharmaceuticalsIncMember2021-01-012021-06-300001679363morf:JanssenPharmaceuticalsIncMembermorf:UpfrontPaymentRevenueMember2022-04-012022-06-300001679363morf:JanssenPharmaceuticalsIncMembermorf:UpfrontPaymentRevenueMember2021-04-012021-06-300001679363morf:JanssenPharmaceuticalsIncMembermorf:UpfrontPaymentRevenueMember2022-01-012022-06-300001679363morf:JanssenPharmaceuticalsIncMembermorf:UpfrontPaymentRevenueMember2021-01-012021-06-300001679363morf:JanssenPharmaceuticalsIncMemberus-gaap:LicenseMember2022-04-012022-06-300001679363morf:JanssenPharmaceuticalsIncMemberus-gaap:LicenseMember2021-04-012021-06-300001679363morf:JanssenPharmaceuticalsIncMemberus-gaap:LicenseMember2022-01-012022-06-300001679363morf:JanssenPharmaceuticalsIncMemberus-gaap:LicenseMember2021-01-012021-06-300001679363morf:JanssenPharmaceuticalsIncMemberus-gaap:LicenseMember2022-06-300001679363morf:JanssenPharmaceuticalsIncMemberus-gaap:LicenseMember2021-12-310001679363us-gaap:EmployeeStockOptionMember2022-04-012022-06-300001679363us-gaap:EmployeeStockOptionMember2021-04-012021-06-300001679363us-gaap:EmployeeStockOptionMember2022-01-012022-06-300001679363us-gaap:EmployeeStockOptionMember2021-01-012021-06-300001679363morf:RestrictedStockAndRestrictedStockUnitsRSUsMember2022-04-012022-06-300001679363morf:RestrictedStockAndRestrictedStockUnitsRSUsMember2021-04-012021-06-300001679363morf:RestrictedStockAndRestrictedStockUnitsRSUsMember2022-01-012022-06-300001679363morf:RestrictedStockAndRestrictedStockUnitsRSUsMember2021-01-012021-06-300001679363us-gaap:EmployeeStockMember2022-04-012022-06-300001679363us-gaap:EmployeeStockMember2021-04-012021-06-300001679363us-gaap:EmployeeStockMember2022-01-012022-06-300001679363us-gaap:EmployeeStockMember2021-01-012021-06-300001679363us-gaap:RestrictedStockMember2022-04-012022-06-300001679363us-gaap:RestrictedStockMember2021-04-012021-06-300001679363us-gaap:RestrictedStockMember2022-01-012022-06-300001679363us-gaap:RestrictedStockMember2021-01-012021-06-300001679363us-gaap:RestrictedStockUnitsRSUMember2022-04-012022-06-300001679363us-gaap:RestrictedStockUnitsRSUMember2021-04-012021-06-300001679363us-gaap:RestrictedStockUnitsRSUMember2022-01-012022-06-300001679363us-gaap:RestrictedStockUnitsRSUMember2021-01-012021-06-300001679363morf:EmployeeStockPurchasePlanMember2022-01-012022-06-30
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 June 30, 2022
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 August 1, 2022 was 38,477,059.



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)
June 30,December 31,
20222021
Assets
Current assets:
Cash and cash equivalents$141,183 $171,434 
Marketable securities256,377 236,701 
Accounts receivable1,036 2,307 
Prepaid expenses and other current assets8,023 7,892 
Total current assets406,619 418,334 
Operating lease right-of-use assets4,170 4,806 
Property and equipment, net2,372 2,583 
Restricted cash560 560 
Other assets154 7 
Total assets$413,875 $426,290 
Liabilities
Current liabilities:
Accounts payable$3,885 $4,798 
Accrued expenses11,347 12,838 
Deferred revenue, current portion4,452 20,628 
Total current liabilities19,684 38,264 
Long-term liabilities:
Operating lease liability, net of current portion3,110 3,838 
Deferred revenue, net of current portion3,091 47,489 
Total liabilities25,885 89,591 
Commitments and contingencies (Note 9)
Stockholders’ Equity
Preferred shares, $0.0001 par value, 10,000,000 shares authorized, no shares issued and outstanding as of June 30, 2022 and December 31, 2021
  
Common shares, $0.0001 par value, 400,000,000 shares authorized, 38,448,592 shares issued and outstanding as of June 30, 2022 and 37,085,397 shares issued and outstanding as of December 31, 2021
4 4 
Additional paid‑in capital633,100 575,231 
Accumulated deficit(242,697)(238,054)
Accumulated other comprehensive loss(2,417)(482)
Total stockholders’ equity387,990 336,699 
Total liabilities and stockholders’ equity$413,875 $426,290 


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 LOSS (Unaudited)
(In thousands, except share and per share data)
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Collaboration revenue$60,236 $3,848 $62,618 $7,114 
Operating expenses:
     Research and development25,652 24,552 52,115 43,165 
     General and administrative8,234 7,139 15,825 13,091 
          Total operating expenses33,886 31,691 67,940 56,256 
Income (loss) from operations26,350 (27,843)(5,322)(49,142)
Other income:
     Interest income, net482 35 669 63 
     Other income (expense), net11 (7)12 (20)
          Total other income, net493 28 681 43 
Income (loss) before provision for income taxes26,843 (27,815)(4,641)(49,099)
     Provision for income taxes(2) (2) 
Net income (loss)$26,841 $(27,815)$(4,643)$(49,099)
Net income (loss) per share, basic$0.70 $(0.77)$(0.12)$(1.41)
Net income (loss) per share, diluted$0.68 $(0.77)$(0.12)$(1.41)
Weighted average common shares outstanding, basic38,244,547 36,179,085 37,692,049 34,863,056 
Weighted average common shares outstanding, diluted39,554,651 36,179,085 37,692,049 34,863,056 
Comprehensive income (loss):
     Net income (loss)$26,841 $(27,815)$(4,643)$(49,099)
Other comprehensive (loss) income:
     Unrealized holding (losses) gains on marketable securities, net of tax(625)(4)(1,935)1 
          Total other comprehensive (loss) income(625)(4)(1,935)1 
Comprehensive income (loss)$26,216 $(27,819)$(6,578)$(49,098)







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, 202137,085,397 $4 $575,231 $(238,054)$(482)$336,699 
Equity‑based compensation expense— — 6,765 — — 6,765 
Vesting of restricted shares1,990     — 
Issuance of common shares upon stock option exercises146,237 — 2,127 — — 2,127 
Issuance of common shares under the Employee Stock Purchase Plan16,845 — 571 — — 571 
Other comprehensive loss— — — — (1,310)(1,310)
Net loss— — — (31,484)— (31,484)
Balance at March 31, 202237,250,469 $4 $584,694 $(269,538)$(1,792)$313,368 
Equity‑based compensation expense— — 7,623 — — 7,623 
Vesting of restricted shares3,681 — — — — — 
Issuance of common shares upon stock option exercises194,442 — 1,573 — — 1,573 
Issuance of common shares through at-the-market offering, net of issuance costs of $1.3 million
1,000,000 — 39,210 — — 39,210 
Other comprehensive loss— — — — (625)(625)
Net income— — — 26,841 — 26,841 
Balance at June 30, 2022 38,448,592 $4 $633,100 $(242,697)$(2,417)$387,990 

4

Table of Contents

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 stock 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 
Other comprehensive income— — — — 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 
Other comprehensive loss— — — — (4)(4)
Offering costs incurred— — (49)— — (49)
Net loss— — — (27,815)— (27,815)
Balance at June 30, 202136,277,511 $4 $539,536 $(191,611)$(20)$347,909 

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)
Six Months Ended June 30,
20222021
Cash flows from operating activities:
Net loss$(4,643)$(49,099)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization511 508 
Premium amortization and discount accretion on marketable securities1,133 205 
Equity‑based compensation14,388 9,750 
Loss on disposal of equipment 4 
Change in operating assets and liabilities:
Accounts receivable1,271 6,000 
Prepaid expenses and other current assets(89)(57)
Other assets(147)35 
Operating lease right-of-use assets636 505 
Accounts payable(1,017)1,376 
Accrued expenses(1,926)(2,467)
Deferred revenue(60,574)(4,477)
Operating lease liabilities(508)(581)
Net cash used in operating activities(50,965)(38,298)
Cash flows from investing activities:
Purchases of marketable securities(77,294)(12,200)
Proceeds from maturities of marketable securities54,550 106,000 
Purchase of property and equipment(52)(205)
Net cash (used in) provided by investing activities(22,796)93,595 
Cash flows from financing activities:
Proceeds from issuance of common shares under Employee Stock Purchase Plan571 613 
Proceeds from at-the-market offering, net of issuance costs39,281 7,231 
Proceeds from secondary offering, net of issuance costs 229,982 
Proceeds from issuance of common shares upon stock option exercises3,658 4,234 
Net cash provided by financing activities43,510 242,060 
Net (decrease) increase in cash, cash equivalents and restricted cash(30,251)297,357 
Cash and cash equivalents and restricted cash, beginning of period171,994 102,322 
Cash and cash equivalents and restricted cash, end of period$141,743 $399,679 
Non-cash activities:
Purchases of property and equipment included in accounts payable and accrued expenses$248 $41 
Amounts from exercise of stock options included in prepaid expenses and other current assets$42 $ 
Unpaid issuance costs for at-the-market offering included in accounts payable and accrued expenses$71 $ 

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 offering program (the “Previous ATM”) under which the Company could offer and sell, from time to time at its sole discretion, shares of our common stock, having an aggregate offering amount of up to $75.0 million, 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 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 program (the “New ATM”) with an aggregate offering amount of up to $150.0 million, 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 June 30, 2022, the Company issued and sold 1,000,000 shares under the New ATM for net proceeds of approximately $39.2 million after deducting offering commissions and expenses. As of June 30, 2022, the Company had approximately $97.2 million of common stock remaining available for sale under the New 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.
On March 2, 2022, the Company incorporated Morphic Therapeutic UK Ltd in London, United Kingdom (the "U.K."), to support Company functions outside of the United States.
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., Morphic Therapeutic UK Ltd, and a Massachusetts Security Corporation, organized in December 2019. 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 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 June 30, 2022 and 2021.
7

Table of Contents

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, 2021, 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 February 24, 2022.
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 six months ended June 30, 2022 are consistent with those discussed in Note 2 to the consolidated financial statements in the Company’s 2021 Annual Report on Form 10-K, except as described below.
As disclosed in Note 1, on March 2, 2022, the Company incorporated Morphic Therapeutic UK Ltd in London, U.K., to support Company functions outside of the United States. The geographic location of all long-lived assets of the Company continues to be the United States.
The functional reporting currency of Morphic Therapeutic UK Ltd is the United States Dollar. Foreign currency remeasurement is included in other income (expense) in the Company's consolidated statement of operations.
Reclassification
Certain amounts have been reclassified for the six months ended June 30, 2021 in the current Form 10-Q to conform with current year presentation. As disclosed in Note 2 to the Company's 2021 Annual Report on Form 10-K, in February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), with guidance regarding the accounting for and disclosure of leases. As the Company adopted Topic 842 in the annual period ended December 31, 2021 effective January 1, 2021, the Company reclassified certain amounts in the Company's cash flows from operating activities in the current Form 10-Q. Amounts for the six months ended June 30, 2021 from the change in deferred rent were reclassified as changes in operating lease right-of-use assets and changes in operating lease liabilities. There were no changes to total cash flows or to cash flows from operating activities, investing activities or financing activities as a result of this reclassification.
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 June 30, 2022, investments include U.S. Treasury securities and corporate debt securities, including corporate bonds and commercial paper, 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 June 30, 2022 and December 31, 2021 (in thousands) and indicate the level within the fair value hierarchy where each measurement is classified.
8


Fair Value Measurements at June 30, 2022
TotalLevel 1Level 2Level 3
Assets:
Money market funds, included in cash and cash equivalents$140,807 $140,807 $ $ 
Marketable securities:
U.S. Treasury securities64,708  64,708  
Commercial paper75,983  75,983  
Corporate bonds115,686  115,686  
Total assets$397,184 $140,807 $256,377 $ 
Fair Value Measurements at December 31, 2021
TotalLevel 1Level 2Level 3
Assets:
Money market funds, included in cash and cash equivalents$171,142 $171,142 $ $ 
Marketable securities:
U.S. Treasury securities16,212  16,212  
Commercial paper99,898  99,898  
Corporate bonds120,591  120,591  
Total assets$407,843 $171,142 $236,701 $ 
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 June 30, 2022 and December 31, 2021. Marketable securities included in the tables above consist of U.S. Treasury securities, commercial paper and corporate bonds, and these securities are categorized as Level 2 as of June 30, 2022 and December 31, 2021. The Company had no liabilities measured at fair value on a recurring basis at June 30, 2022 and December 31, 2021.
The Company believes that the carrying amounts of the Company’s 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 June 30, 2022
MaturityAmortized
cost
Gross
unrealized
holding gains
Gross
unrealized
holding losses
Aggregate
estimated
fair value
Marketable securities:
U.S. Treasury securitieswithin 2 years$65,342 $ $(634)$64,708 
Commercial paperless than 1 year75,985  (2)75,983 
Corporate bondswithin 2 years117,442  (1,756)115,686 
Total marketable securities$258,769 $ $(2,392)$256,377 

9


As of December 31, 2021
Maturity
Amortized
cost
Gross
unrealized
holding gains
Gross
unrealized
holding losses
Aggregate
estimated
fair value
Marketable securities:
U.S. Treasury securitiesless than 1 year$16,224 $ $(12)$16,212 
Commercial paperless than 1 year99,900  (2)99,898 
Corporate bondswithin 2 years121,034  (443)120,591 
Total marketable securities$237,158 $ $(457)$236,701 
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 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 available-for-sale securities as current assets.
The Company determined that there was no material change in the credit risk of the above investments during the three and six months ended June 30, 2022. As such, an allowance for credit losses was not recognized. As of June 30, 2022, the Company does not intend to sell such securities and it is not more likely than not that the Company will be required to sell the securities before recovery of its amortized cost basis.
Accrued interest receivable on the Company's available-for-sale debt securities totaled $1.3 million and $1.2 million as of June 30, 2022 and December 31, 2021, respectively.
5.Cash, Cash Equivalents and Restricted Cash
Restricted cash consists of cash collateralizing a letter of credit in the amount of $560,000 issued to the landlord of the Company’s facility lease. The letter of credit and cash collateralizing it increased from $275,000 in August 2021 due to the operating lease extension. 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):
June 30,December 31,June 30,December 31,
2022202120212020
Cash and cash equivalents$141,183 $171,434 $399,404 $102,047 
Restricted cash560 560 275 275 
Total cash, cash equivalents, and restricted cash$141,743 $171,994 $399,679 $102,322 
6.Accrued Expenses
At June 30, 2022 and December 31, 2021 accrued expenses consist of the following (in thousands):
June 30,December 31,
20222021
Payroll and related expenses$3,664 $6,396 
Research and development activities4,768 4,268 
Current portion of operating lease liability1,431 1,211 
Other expenses1,484 963 
Total$11,347 $12,838 
10

Table of Contents

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 “Original 2019 Plan”) in June 2019, which replaced the 2018 Stock Incentive Plan. The board of directors adopted the Amended and Restated 2019 Equity Incentive Plan (the “A&R 2019 Plan” and, together with the Original 2019 Plan, the “2019 Plan”) on April 27, 2022, which was subsequently approved by the Company's stockholders on June 8, 2022, to revise the total annual compensation that may be awarded to the Company's non-employee directors thereunder. The A&R 2019 Plan provides for the grant of stock options, restricted stock awards, stock bonus awards, cash awards, stock appreciation right, restricted stock units, 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 A&R 2019 Plan increased by 1.5 million shares in January 2022. As of June 30, 2022, there were a total of 1.7 million shares available for future award grants under the A&R 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 June 30,Six Months Ended June 30,
2022202120222021
Stock options$6,825 $4,906 $12,785 $9,045 
Restricted common stock 72 5 153 
Restricted stock units706 159 1,395 222 
ESPP92 171 203 330 
Total$7,623 $5,308 $14,388 $9,750 
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 June 30,Six Months Ended June 30,
2022202120222021
Research and development expense$3,421 $2,542 $6,893 $4,807 
General and administrative expense4,202 2,766 7,495 4,943 
Total$7,623 $5,308 $14,388 $9,750 
Stock Options
The following table summarizes the Company’s stock option activity during the six months ended June 30, 2022:
Number of
Shares
Weighted
Average
Exercise Price
Outstanding as of December 31, 20214,781,565 $20.03 
Granted1,419,718 40.22 
Exercised(340,679)10.86 
Forfeited or expired(378,865)32.11 
Outstanding as of June 30, 20225,481,739 $25.00 
Options exercisable as of June 30, 20222,413,738 $17.84 
11

Table of Contents

Restricted Stock Units
The following table summarizes the restricted stock units activity during the six months ended June 30, 2022:
Number of SharesWeighted
Average Fair
Value per Share
at Issuance
Unvested restricted stock units as of December 31, 20217,000 $57.73 
Granted289,870 44.12 
Vested(3,500)57.73 
Forfeited(26,160)44.75 
Unvested restricted stock units as of June 30, 2022267,210 $44.24 
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.
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 June 30, 2022, the Company forecasts an ordinary pre-tax loss for the year ended December 31, 2022 and, since it maintains a full valuation allowance on its deferred tax assets, the Company did not record an income tax benefit in 2022.
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 other key employees, in addition to the indemnification provided for in the restated certificate of incorporation and restated bylaws, as amended. These agreements, among other things, require the Company to indemnify directors, officers, and certain other 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 June 30, 2022, 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.
During the six months ended June 30, 2022, there were no material changes to our contractual obligations and commitments previously disclosed in Note 11 to the consolidated financial statements appearing in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 24, 2022.
Legal Proceedings
The Company is not currently a party to any material legal proceedings.
12

Table of Contents

10.Option and License Agreements
A detailed description of contractual terms and the Company’s accounting for agreements described below was included in the Company’s audited financial statements and notes in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on February 24, 2022.
AbbVie Agreement
During the three and six months ended June 30, 2022 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. In June 2022, AbbVie informed the Company that it had decided to exercise its right to terminate the AbbVie Agreement for convenience, subject to a 180 day notification period. The AbbVie Agreement will terminate effective December 2022 or earlier if agreed to by the Company and AbbVie.
The Company recognizes the $100.0 million up-front payment paid to the Company under the AbbVie Agreement as revenue as work is performed in proportion to the costs incurred. Upon receipt of notification of the exercise of the right to terminate the AbbVie Agreement, the Company concluded that there was a contract modification to an existing contract under ASC 606 because the notification of termination of the AbbVie Agreement resulted in a reduction in scope of the Company’s responsibilities for the three remaining research programs thereunder. The terms of the AbbVie Agreement termination notification did not include any additional promised goods or services. As a result of the notification from AbbVie, the Company recognized revenue of $57.7 million on a cumulative catch-up basis using an updated measure of progress towards satisfying the research and development services performance obligations thereunder. These research and development performance obligations will be completed through the effective date of the termination in December 2022.
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 six months ended June 30, 2022 and 2021 (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Revenue recognized$58,441 $2,070 $59,250 $3,567 
Costs incurred188 1,847 601 3,168 
In August 2020, pursuant to the AbbVie Agreement, AbbVie exercised its option to exclusively license and control further development and commercialization of the Company's αvβ6–specific integrin program for the treatment of fibrotic diseases including IPF and additional fibrosis-related indications. In connection with the exercise of the option, AbbVie paid the Company $20.0 million. Under this license, AbbVie controls and is responsible for the development and commercialization of this program. AbbVie has informed the Company that it does not intend to advance any of its selective oral αvβ6-specific integrin inhibitors due to a suspected on-target / αvβ6-mediated safety signal that has been observed in pre-clinical testing. Details about these observations are planned to be released in an upcoming scientific publication. As a result, the Company does not expect to receive additional payments for this program under the AbbVie Agreement.
As of June 30, 2022, as a result of recognizing $58.4 million of revenue during the current quarter, the Company had $1.2 million of remaining deferred revenue, which is classified as current 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 June 30, 2022.
Janssen Agreement
During the three and six months ended June 30, 2022, 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 Janssen 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 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 under the Janssen Agreement through 2024.
In December 2021, Janssen informed the Company that it had decided not to exercise its options on the first two integrin targets, thus also discontinuing those two research programs. The Company has focused efforts on the third integrin research program which includes the potential development of integrin antibody activators.
13

Table of Contents

The following table summarizes research and development costs incurred and revenue recognized in connection with Company's performance under the Janssen Agreement during the three and six months ended June 30, 2022 and 2021 (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Reimbursement revenue$1,034 $1,313 $2,042 $2,638 
Upfront payment revenue761 465 1,326 909 
Total revenue recognized$1,795 $1,778 $3,368 $3,547 
Costs incurred$873 $1,131 $1,728 $2,270 
The Company had $1.0 million and $2.3 million due from Janssen included in accounts receivable on the condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021, respectively.
As of June 30, 2022, $6.3 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 June 30, 2022.
11.Net Income (Loss) 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 and per share data):
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Net income (loss)$26,841 $(27,815)$(4,643)$(49,099)
Weighted average common shares outstanding, basic38,244,547 36,179,085 37,692,049 34,863,056 
Net income (loss) per share, basic$0.70 $(0.77)$(0.12)$(1.41)

Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Net income (loss)$26,841 $(27,815)$(4,643)$(49,099)
Weighted average common shares outstanding, basic38,244,547 36,179,085 37,692,049 34,863,056 
Dilutive impact from:
Stock options1,305,630    
Restricted common stock and stock units1,204    
ESPP3,270    
Weighted average common shares outstanding, diluted39,554,651 36,179,085 37,692,049 34,863,056 
Net income (loss) per share, diluted$0.68 $(0.77)$(0.12)$(1.41)
14

Table of Contents

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 income (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 June 30,Six Months Ended June 30,
2022202120222021
Restricted common stock 48,719  48,719 
Restricted stock units260,050 51,473 267,210 51,473 
Stock options2,667,691 5,399,807 5,481,739 5,399,807 
2,927,741 5,499,999 5,748,949 5,499,999 
In addition to the securities listed in the table above, as of June 30, 2022 the Company had reserved 1,155,630 shares of common stock for sale under the ESPP, which, if issued, would be anti-dilutive if included in calculation of diluted net income (loss) per share for the six months ended June 30, 2022.
15

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the related notes included as part of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 24, 2022.
In addition to historical financial information, this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as statements of our plans, objectives, expectations, intentions and belief. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled “Risk Factors” under Part II, Item 1A below. These forward-looking statements may include, but are not limited to, statements regarding our future results of operations and financial position, the impact of the COVID-19 pandemic, our business strategy, market size, potential growth opportunities, our preclinical and clinical development activities, the efficacy and safety profile of our product candidates, use of net proceeds from our offerings, our ability to maintain and recognize the benefits of certain designations received by product candidates, the timing and results of preclinical studies and clinical trials, commercial collaborations with third parties and the receipt and timing of potential regulatory designations, approvals and commercialization of product candidates. The words “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “predict,” “target,” “intend,” “could,” “would,” “should,” “project,” “plan,” “expect,” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.
Overview
We are a biopharmaceutical company applying our proprietary insights into integrins to discover and develop a pipeline of potentially first-in-class oral small molecule integrin therapeutics. Integrins are a target class with multiple approved injectable blockbuster drugs for the treatment of serious chronic diseases, including autoimmune, cardiovascular and metabolic diseases, fibrosis and cancer. To date, no oral small molecule integrin therapies have been approved by the U.S. Food and Drug Administration, or FDA. Despite this, we believe our unique platform can unlock the potential to reliably generate high-quality oral molecules against specific integrin targets. The Morphic integrin technology platform, or MInT Platform, was created leveraging our unique understanding of integrin structure and function to develop novel product candidates designed to achieve the potency, high selectivity, and pharmaceutical properties required for oral administration. We are advancing our pipeline, including our lead product candidate, MORF-057, an α4β7-specific integrin inhibitor affecting inflammation, into clinical development for the treatment of inflammatory bowel disease, or IBD. We submitted an investigational new drug application, or IND, for MORF-057 in July 2020, and the FDA permitted the study submitted under the IND to proceed in August 2020. In September 2020, we initiated a Phase 1 clinical trial of MORF-057 in healthy volunteers comprised of single-ascending dose, or SAD, food effect, or FE, and multiple-ascending dose, or MAD, cohorts to establish our clinical program and select doses for our Phase 2 program in IBD with an initial focus on ulcerative colitis, or UC.
The MORF-057 Phase 1 study included SAD, MAD, and FE cohorts evaluating MORF-057 safety, pharmacokinetics, or PK, and pharmacodynamics, or PD. Healthy subjects were randomized 3:1 to receive a single dose of MORF-057 at 25, 50, 100, 150 and 400 mg or matching placebo in the SAD cohorts; or twice daily (BID) doses of 25, 50 and 100 mg MORF-057 or matching placebo for a total of 14 days in the MAD cohorts. A total of 67 eligible healthy subjects were enrolled into the studies, with 36 in the SAD, nine in the FE and 22 in the MAD cohorts. 66 subjects completed study treatment and one from the 50 mg BID MAD cohort withdrew consent for personal reasons.
MORF-057 was well tolerated in all cohorts and no safety signals were identified. MORF-057 demonstrated a favorable PK profile, where target engagement was confirmed, and a clear PK and PD relationship was established. MORF-057 was rapidly absorbed and systemic exposure was confirmed to increase approximately dose proportionally. A slight reduction in exposure without effect on trough concentrations was observed upon administration with a high fat meal in the FE study. The results suggest food intake has no impact on trough MORF-057 levels and that MORF-057 can be administered without regard to food in planned studies in patients.
α4β7 receptor occupancy increased with dose and study day, achieving saturation (>99% RO) in individual patients from all cohorts above 25 mg by day 14. In the 100 mg BID cohort, MORF-057 saturated the α4β7 receptor (mean RO >99%). Dose-and time-dependent changes in biomarkers including specific α4β7 high expressing immune cell populations were observed,
16

Table of Contents

adding to evidence of proof of biology for MORF-057. These changes were consistent with those reported with other integrin inhibitors including the antibody drug vedolizumab which is approved for the treatment of IBD.
Based on the results from the Phase 1 studies, we initiated a Phase 2 clinical trial of MORF-057 in March 2022. EMERALD-1 (MORF-057-201), which is an open-label multi-center Phase 2a trial designed to evaluate the efficacy, safety and tolerability of MORF-057 in adults with moderate to severe UC, is actively enrolling in the United States and Poland. The EMERALD-1 study is planned to enroll up to 35 patients with moderate to severe UC who will be treated with 100 mg BID (twice daily) at sites in the United States and Poland. The primary endpoint of the trial is the change in Robarts Histopathology Index (RHI), a validated instrument that measures histological disease activity in ulcerative colitis at 12 weeks compared to baseline. Patients will then continue for an additional 40 weeks of maintenance therapy followed by a 52-week assessment. Secondary and additional outcome measures in the EMERALD-1 study include change in the modified Mayo clinic score, safety, PK parameters and key PD measures including α4β7 receptor occupancy and lymphocyte subset trafficking. We believe that we will achieve completion of the primary endpoint from the EMERALD-1 Phase 2a trial of MORF-057 in patients with moderate to severe UC in the third quarter of 2023. EMERALD-2 (MORF-057-202) which is a global Phase 2b randomized controlled trial of MORF-057 is expected to begin in the fourth quarter of 2022. We believe that we will achieve completion of the primary endpoint from the EMERALD-2 Phase 2b trial of MORF-057 in patients with moderate to severe UC in the first half of 2025. We have positioned additional α4β7 small molecule development candidates for clinical studies in eosinophilic diseases. Given the progress achieved with MORF-057, we will pause and not advance an additional development candidate into clinical studies during 2022, focusing on the advancement of MORF-057 through Phase 2 clinical programs.
In August 2020, AbbVie exercised its option under the AbbVie Agreement to license certain product candidates and now controls and is responsible for the development and commercialization of our αvβ6-specific integrin inhibitor program. In connection with the option exercise, AbbVie made a one-time $20.0 million payment to us. Under this license, AbbVie controls and is responsible for the development and commercialization of this program. AbbVie has informed us that it does not intend to advance any of our selective oral αvβ6-specific integrin inhibitors due to a suspected on-target/ αvβ6-mediated safety signal that has been observed in pre-clinical testing. Details about these observations are planned to be released in an upcoming scientific publication. As a result, we do not expect to receive additional payments for this program under the AbbVie Agreement. In June 2022, AbbVie informed us that it had decided to exercise its right to terminate the AbbVie Agreement for convenience, subject to a 180-day notification period. The AbbVie Agreement will terminate effective December 2022 or earlier if agreed to by us and AbbVie. We continue to advance additional discovery programs with AbbVie as a part of this collaboration through the effective date of the AbbVie Agreement’s termination.
In February 2019, we entered into an agreement with Janssen Pharmaceuticals, Inc., or Janssen, to develop novel integrin therapeutics, or the Janssen Agreement. In February 2021 Janssen paid us $5.0 million to commence work on a third research program. We are entitled to additional payments upon the achievement of certain milestones and royalties in accordance with the Janssen Agreement. In December 2021, Janssen informed us that they have decided not to exercise the options on the first two integrin targets. We have focused efforts on the third integrin research program which includes the potential development of integrin antibody activators. The first two integrin targets have been returned to us due to a lack of target validation in the specific disease of Janssen's interest.
Beyond these lead targets, we are using our MInT Platform to advance a broad pipeline of preclinical programs across a variety of therapeutic areas, all of which aim to harness the potential of inhibition or activation of an integrin receptor. Additional wholly-owned programs have advanced near to or into lead optimization phase of discovery. We presented positive preclinical data from our αvβ8 program at the American Association for Cancer Research Annual Meeting in April 2021, demonstrating anti-tumor activity in checkpoint refractory cancer models and continue our focus on advancing our αvβ8 program. We also have additional research stage programs ongoing against integrin targets in pulmonary arterial hypertension (PAH) and other therapeutic areas. Integrins are known to promote cell proliferation, survival, hypertrophic growth and fibrosis, which are key elements in the progression of PAH.
In March 2021, we announced an upsized underwritten public offering of 3,500,000 shares of our common stock at a price to the public of $70.00 per share, resulting in net proceeds of approximately $230.0 million, after deducting underwriting discounts, commissions and other offering expenses paid by us.
In July 2020, we entered into an Open Market Sale Agreement, or the Original Agreement, with Jefferies LLC, or Jefferies, with respect to an at-the-market offering program, or the Previous ATM, under which we may offer and sell, from time to time at our sole discretion, shares of our common stock, having an aggregate offering amount of up to $75,000,000, referred to as Placement Shares, through Jefferies as sales agent. In August 2021, we entered into Amendment No. 1 to the Original Agreement with Jefferies with respect to an at-the-market offering program, or the New ATM, increasing the amount of Placement Shares, under the Original Agreement, which we may offer and sell, from time to time at its sole discretion, through Jefferies as sales agent, up to an aggregate offering amount of up to $150,000,000. We refer to the Previous ATM and the New ATM, collectively, as the ATM. During the three months ended June 30, 2022, 1,000,000 shares were issued under the New ATM for net proceeds of $39.2 million, after deducting offering commissions and expenses. As of June 30, 2022, we had
17

Table of Contents

approximately $97.2 million of common stock remaining available for sale under the New ATM. We may not sell any Placement Shares under the Previous ATM.
Since inception, our operations have focused on organizing and staffing our company, business planning, raising capital, establishing our intellectual property portfolio, and performing research to discover and develop oral small-molecule integrin therapeutics. Revenue generation activities to date have been limited to payments received from our collaboration agreements with AbbVie and Janssen, discussed further in Note 10 of the accompanying consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. We do not have any products approved for sale and have not generated any revenue from product sales to date. From inception through June 30, 2022, we raised an aggregate of approximately $741.3 million of gross proceeds primarily through the issuance of equity, including our convertible preferred equity securities, our initial public offering, our underwritten public offering in March 2021, and sales of shares of our common stock pursuant to the ATM, along with payments received under our collaboration agreements.
Since inception, we have incurred significant operating losses. As of June 30, 2022, we had an accumulated deficit of $242.7 million. We expect to continue to incur significant and increasing expenses and operating losses for the foreseeable future, as we advance our current and future product candidates through preclinical and clinical development, seek regulatory approval for them, maintain and expand our intellectual property portfolio, hire additional research and development and business personnel, and operate as a public company.
We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. In addition, if we obtain regulatory approval for our product candidates and do not enter into a third-party commercialization partnership, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing, manufacturing, and distribution activities.
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 public or private equity offerings and debt financings or other sources, such as additional collaboration agreements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on acceptable terms, or at all. Our failure to raise capital or enter into such agreements as, and when, needed, could have a material adverse effect on our business, results of operations, and financial condition.
We have updated our current operating plan as a result of: the receipt of significant cash proceeds raised under the New ATM; the reduction in the scope of our partnered programs; a proactive pipeline prioritization and the implementation of increased operational efficiencies. As of June 30, 2022, we had cash, cash equivalents, and marketable securities of $397.6 million. We believe that our existing cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditure requirements into the second half of 2025.
Impact of the COVID-19 Pandemic
The current COVID-19 pandemic continues to present a substantial public health and economic challenge around the world and is affecting our employees, patients, communities and business operations, as well as the U.S. economy and financial markets. The extent of the ongoing impact of the novel strain of coronavirus, SARS-CoV-2, or COVID-19, on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, the rise of variants that may be less responsive to existing vaccines, the impact on our clinical and preclinical studies, employee or industry events, and the effect on our suppliers and manufacturers, all of which are uncertain and cannot be predicted. Although we currently have not experienced much of an impact on our business, excluding minor changes to our development timelines, if there are closures or other restrictions in places where we or our vendors work or transport supply that may result in constrained supply of our product candidates or delays in our clinical and preclinical studies or planned clinical trials, our business, results of operations and overall financial performance in future periods could be materially adversely impacted. In addition, we have experienced impacts from changes in how we and companies worldwide conduct business due to the COVID-19 pandemic, including but not limited to restrictions on travel and in-person meetings, delays in future site activations and future enrollment of clinical trials, prioritization of hospital resources toward the COVID-19 pandemic effort, and delays in review by the FDA and comparable foreign regulatory agencies. As of the filing date of this Form 10-Q, the extent to which COVID-19 may impact our financial condition, results of operations or guidance is uncertain. The effects of the COVID-19 pandemic will not be fully reflected in our results of operations and overall financial performance until future periods. See “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q for further discussion of the possible impact of the COVID-19 pandemic on our business.
Financial Operations Overview
Collaboration Revenue