SEC Filing – Morphic Therapeutic

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morf-20230930

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, 2023


☐			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: (781) 996-0955

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 class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	MORF	The 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 October 31, 2023 was 49,742,966.

Table of Contents

TABLE OF CONTENTS


			Page

Part I—Financial Information			2
Item 1—Condensed Consolidated Financial Statements (unaudited)			2
Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022			2
Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2023 and 2022			3
Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31 , June 30 and September 30 , 2023 and three months ended March 31 , June 30 and September 30 , 2022			4
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022			6
Notes to Unaudited Condensed Consolidated Financial Statements			7
Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
Item 3—Quantitative and Qualitative Disclosures about Market Risk			27
Item 4—Controls and Procedures			27

Part II—Other Information			28
Item 1—Legal Proceedings			28
Item 1A—Risk Factors			29
Item 2—Unregistered Sales of Equity Securities and Use of Proceeds			75
Item 3—Defaults Upon Senior Securities			75
Item 4—Mine Safety Disclosures			75
Item 5—Other Information			75
Item 6—Exhibits			75
Signatures			76

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,
	2023		2022
Assets
Current assets:
Cash and cash equivalents	$	74,232	$	59,272
Marketable securities	650,835		288,976
Accounts receivable	—		455
Prepaid expenses and other current assets	13,030		13,479
Total current assets	738,097		362,182
Operating lease right-of-use assets	2,487		3,514
Property and equipment, net	2,280		2,119
Restricted cash	560		560
Other assets	178		214
Total assets	$	743,602	$	368,589

Liabilities
Current liabilities:
Accounts payable	$	5,268	$	3,475
Accrued expenses	14,030		13,181
Deferred revenue, current portion	—		470
Total current liabilities	19,298		17,126

Long-term liabilities:
Operating lease liability, net of current portion	1,136		2,344

Total liabilities	20,434		19,470

Commitments and contingencies (Note 10)

Stockholders’ Equity
Preferred shares, $0.0001 par value, 10,000,000 shares authorized, no shares issued and outstanding as of September 30, 2023 and December 31, 2022	—		—
Common shares, $0.0001 par value, 400,000,000 shares authorized, 49,742,966 shares issued and outstanding as of September 30, 2023 and 38,584,678 shares issued and outstanding as of December 31, 2022	5		4
Additional paid‑in capital	1,133,334		649,549
Accumulated deficit	(408,455)		(297,095)
Accumulated other comprehensive loss	(1,716)		(3,339)
Total stockholders’ equity	723,168		349,119
Total liabilities and stockholders’ equity	$	743,602	$	368,589

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

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MORPHIC HOLDING, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited) (In thousands, except share and per share data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Collaboration revenue	$	—	$	2,055	$	521	$	64,673
Operating expenses:
Research and development	34,364		25,245		100,532		77,360
General and administrative	10,384		8,303		29,244		24,128
Total operating expenses	44,748		33,548		129,776		101,488
Loss from operations	(44,748)		(31,493)		(129,255)		(36,815)
Other income:
Interest income, net	8,612		1,657		18,139		2,326
Other income (expense), net	7		(156)		9		(144)
Total other income, net	8,619		1,501		18,148		2,182
Loss before provision for income taxes	(36,129)		(29,992)		(111,107)		(34,633)
Provision for income taxes	(83)		(29)		(253)		(31)
Net loss	$	(36,212)	$	(30,021)	$	(111,360)	$	(34,664)

Net loss per share, basic and diluted	$	(0.73)	$	(0.78)	$	(2.65)	$	(0.91)

Weighted average common shares outstanding, basic and dilutive	49,548,947		38,490,910		41,979,245		37,961,262

Comprehensive loss:
Net loss	$	(36,212)	$	(30,021)	$	(111,360)	$	(34,664)
Other comprehensive income (loss):
Unrealized holding gains (losses) on marketable securities, net of tax	201		(1,680)		1,623		(3,615)
Total other comprehensive income (loss)	201		(1,680)		1,623		(3,615)
Comprehensive loss	$	(36,011)	$	(31,701)	$	(109,737)	$	(38,279)

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

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MORPHIC HOLDING, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) (In thousands, except share data)


	Common Shares			Additional Paid‑in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2022	38,584,678	$	4	$	649,549	$	(297,095)	$	(3,339)	$	349,119
Equity‑based compensation expense	—	—		9,576		—		—		9,576
Vesting of restricted shares	60,060	—		—		—		—		—
Issuance of common shares upon stock option exercises	124,620	—		1,927		—		—		1,927
Issuance of common shares under the Employee Stock Purchase Plan	23,449	—		578		—		—		578
Issuance of pre-funded warrants to purchase common shares through private placement, net of issuance costs of $0.1 million	—	—		69,859		—		—		69,859
Issuance of common shares through private placement, net of issuance costs of $0.1 million	848,655	—		29,940		—		—		29,940
Unrealized holding gains on marketable securities	—	—		—		—		1,651		1,651
Net loss	—	—		—		(36,135)		—		(36,135)
Balance at March 31, 2023	39,641,462	$	4	$	761,429	$	(333,230)	$	(1,688)	$	426,515
Equity‑based compensation expense	—	—		10,315		—		—		10,315
Vesting of restricted shares	1,500	—		—		—		—		—
Issuance of common shares upon stock option exercises	390,490	—		5,511		—		—		5,511
Issuance of common stock upon exercise of pre-funded warrants	499,998	—		—		—		—		—
Issuance of common shares through at-the-market offering, net of issuance costs of $1.4 million	1,216,418	—		67,201		—		—		67,201
Issuance of common shares in secondary offering, net of offering costs of $16.9 million	6,133,334	1		259,060		—		—		259,061
Unrealized holding losses on marketable securities	—	—		—		—		(229)		(229)
Net loss	—	—		—		(39,013)		—		(39,013)
Balance at June 30, 2023	47,883,202	$	5	$	1,103,516	$	(372,243)	$	(1,917)	$	729,361
Equity-based compensation expense		—		10,534		—		—		10,534
Vesting of restricted shares	525	—				—		—		—
Issuance of common shares upon stock option exercises	65,529	—		1,522		—		—		1,522
Issuance of common shares under the Employee Stock Purchase Plan	11,179	—		415		—		—		415
Issuance of common stock upon exercise of warrants	1,480,190	—		—		—		—		—
Issuance of common shares through at-the-market offering, net of issuance costs of $0.4 million	302,341	—		17,347		—		—		17,347
Unrealized holding gains on marketable securities	—	—		—		—		201		201
Net loss	—	—		—		(36,212)		—		(36,212)
Balance at September 30, 2023	49,742,966	$	5	$	1,133,334	$	(408,455)	$	(1,716)	$	723,168

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	Common Shares			Additional Paid‑in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2021	37,085,397	$	4	$	575,231	$	(238,054)	$	(482)	$	336,699
Equity-based compensation expense	—	—		6,765		—		—		6,765
Vesting of restricted shares	1,990	—		—		—		—		—
Issuance of common shares upon stock option exercises	146,237	—		2,127		—		—		2,127
Issuance of common shares under the Employee Stock Purchase Plan	16,845	—		571		—		—		571
Unrealized holding losses on marketable securities	—	—		—		—		(1,310)		(1,310)
Net loss	—	—		—		(31,484)		—		(31,484)
Balance at March 31, 2022	37,250,469	$	4	$	584,694	$	(269,538)	$	(1,792)	$	313,368
Equity-based compensation expense	—	—		7,623		—		—		7,623
Vesting of restricted shares	3,681	—		—		—		—		—
Issuance of common shares upon stock option exercises	194,442	—		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
Unrealized holding losses on marketable securities	—	—		—		—		(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
Equity‑based compensation expense	—	—		7,537		—		—		7,537
Issuance of common shares upon stock option exercises	70,352	—		921		—		—		921
Issuance of common stock under the Employee Stock Purchase Plan	13,426	—		314		—		—		314
Unrealized holding losses on marketable securities	—	—		—		—		(1,680)		(1,680)
Net loss	—	—		—		(30,021)		—		(30,021)
Balance at September 30, 2022	38,532,370	$	4	$	641,872	$	(272,718)	$	(4,097)	$	365,061

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

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MORPHIC HOLDING, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)


	Nine Months Ended September 30,
	2023		2022
Cash flows from operating activities:
Net loss	$	(111,360)	$	(34,664)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	811		762
Discount accretion and premium amortization on marketable securities	(6,684)		1,137
Equity‑based compensation	30,425		21,925
Loss on sale of marketable securities	—		154

Change in operating assets and liabilities:
Accounts receivable	455		1,645
Prepaid expenses and other current assets	445		(2,031)
Other assets	36		(189)
Operating lease right-of-use assets	1,027		961
Accounts payable	1,936		(519)
Accrued expenses	749		(2,215)
Deferred revenue	(470)		(61,968)
Operating lease liability	(1,108)		(857)
Net cash used in operating activities	(83,738)		(75,859)
Cash flows from investing activities:
Purchases of marketable securities	(579,197)		(235,773)
Proceeds from maturities of marketable securities	225,645		173,623
Proceeds from sale of marketable securities	—		7,146
Purchases of property and equipment	(1,148)		(301)
Net cash used in investing activities	(354,700)		(55,305)
Cash flows from financing activities:

Proceeds from issuance of common shares and pre-funded warrants through the private placement	99,799		—
Proceeds from issuance of common shares under Employee Stock Purchase Plan	993		885
Proceeds from at-the-market offering, net of issuance costs	84,581		39,250
Proceeds from secondary offering, net of issuance costs	259,061		—
Proceeds from issuance of common shares upon stock option exercises	8,964		4,556
Net cash provided by financing activities	453,398		44,691
Net increase (decrease) in cash, cash equivalents and restricted cash	14,960		(86,473)
Cash and cash equivalents and restricted cash, beginning of period	59,832		171,994
Cash and cash equivalents and restricted cash, end of period	$	74,792	$	85,521

Non-cash activities:
Purchases of property and equipment included in accounts payable and accrued expenses	$	—	$	48

Amounts from exercise of stock options included in prepaid expenses and other current assets	$	—	$	65
Unpaid issuance costs for the at-the-market offering included in accounts payable and accrued expenses	$	33	$	40

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

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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 potentially 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, to the Company’s knowledge no oral small molecule integrin therapies have been approved by the U.S. Food and Drug Administration (“FDA”) or any European regulatory authority. 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 under which the Company could offer and sell, from time to time at its sole discretion, shares of its 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 on 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 Original Agreement with Jefferies, establishing a new at-the-market offering (“New ATM”) with an aggregate offering amount of up to $150.0 million, also subject to a commission on the gross sales proceeds from shares of its common stock, referred to as Placement Shares, sold through Jefferies. Under the New ATM, the Company may offer and sell, from time to time at its sole discretion, Placement Shares through Jefferies as its sales agent.

During the nine months ended September 30, 2023, the Company issued and sold 1,518,759 shares under the New ATM for net proceeds of approximately $84.5 million after deducting offering commissions and expenses. As of September 30, 2023, the Company had approximately $10.9 million of common stock remaining available for sale under the New ATM.

In February 2023, the Company entered into a securities purchase agreement with existing investors, consisting of a board member and holder of more than 5% of the Company’s common stock and a holder of more than 5% of the Company’s common stock, pursuant to which the Company sold to the investors, in a private placement, 848,655 shares of common stock at a price of $35.35 per share (the “PIPE Shares”) and pre-funded warrants to purchase up to 1,980,198 shares of common stock at a purchase price of $35.3499 per pre-funded warrant where each pre-funded warrant has an exercise price of $0.0001 per share (the “Pre-Funded Warrants”). The Company received aggregate net proceeds of approximately $100.0 million, before deducting costs and offering expenses payable by the Company, as discussed further in Note 7.

In May 2023, the Company completed an underwritten public offering of 6,133,334 shares of its common stock, which includes 800,000 shares sold upon the exercise in full of the underwriters’ option to purchase additional shares of common stock, at a price to the public of $45.00 per share. Gross proceeds from the secondary offering were approximately $276.0 million, before deducting underwriting discounts, commissions and other offering expenses payable by the Company of approximately $16.9 million, resulting in net proceeds of approximately $259.1 million.

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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 Morphic Security Corporation. 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 September 30, 2023 and 2022.

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, 2022, 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 23, 2023.

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 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, 2023 are consistent with those discussed in Note 2 to the consolidated financial statements in the Company’s 2022 Annual Report on Form 10-K, except as described below.

Common stock warrants

The Company’s common stock warrants are evaluated pursuant to ASC 480, Distinguishing Liabilities from Equity (“ASC 480”), and ASC 815, Derivatives and Hedging (“ASC 815”). The Company classifies its freestanding warrants as (i) liabilities, if the warrant terms allow settlement of the warrant exercise in cash, or (ii) equity, if the warrant terms only allow settlement in shares of common stock. Please refer to Note 7 below for the application to the Company’s pre-funded warrants.

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, 2023, investments include U.S. Treasury securities, U.S. government-sponsored enterprise securities and corporate debt securities, including corporate bonds, 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 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.

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, 2023 and December 31, 2022 (in thousands) and indicate the level within the fair value hierarchy where each measurement is classified.



	Fair Value Measurements at September 30, 2023
	Total		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	73,708	$	73,708	$	—	$	—
Marketable securities:
U.S. Treasury securities	575,681		—		575,681		—
U.S. government-sponsored enterprise securities	54,725		—		54,725		—

Corporate bonds	20,429		—		20,429		—


Total assets	$	724,543	$	73,708	$	650,835	$	—



	Fair Value Measurements at December 31, 2022
	Total		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	58,814	$	38,942	$	19,872	$	—
Marketable securities:
U.S. Treasury securities	177,932		—		177,932		—
U.S. government-sponsored enterprise securities	12,396		—		12,396		—
Commercial paper	9,860		—		9,860		—
Corporate bonds	88,788		—		88,788		—
Total assets	$	347,790	$	38,942	$	308,848	$	—

Cash equivalents consist of money market funds as of September 30, 2023 and money market funds and U.S. Treasury securities as of December 31, 2022. 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, 2023 and December 31, 2022. The U.S. Treasury securities included in cash equivalents as of December 31, 2022 are considered highly liquid investments and mature within three months from the date of purchase. Marketable securities included in the tables above consist of U.S. Treasury securities, U.S. government-sponsored enterprise securities, commercial paper and corporate bonds, and these securities are categorized as Level 2 as of September 30, 2023 and December 31, 2022. The Company had no liabilities measured at fair value on a recurring basis at September 30, 2023 and December 31, 2022.

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, 2023
	Maturity	Amortized cost		Gross unrealized holding gains		Gross unrealized holding losses		Aggregate estimated fair value
Marketable securities:
U.S. Treasury securities	within 3 years	$	576,989	$	4	$	(1,312)	$	575,681
U.S. government-sponsored enterprise securities	less than 1 year	54,995		—		(270)		54,725

Corporate bonds	less than 1 year	20,542		—		(113)		20,429
Total marketable securities		$	652,526	$	4	$	(1,695)	$	650,835


	As of December 31, 2022
	Maturity	Amortized cost		Gross unrealized holding gains		Gross unrealized holding losses		Aggregate estimated fair value
Marketable securities:
U.S. Treasury securities	less than 1 year	$	179,854	$	—	$	(1,922)	$	177,932
U.S. government-sponsored enterprise securities	within 2 years	12,500		—		(104)		12,396
Commercial paper	less than 1 year	9,860		—		—		9,860
Corporate bonds	within 2 years	90,076		—		(1,288)		88,788
Total marketable securities		$	292,290	$	—	$	(3,314)	$	288,976

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 securities during the three and nine months ended September 30, 2023 and 2022. As such, an allowance for credit losses was not recognized. As of September 30, 2023, 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 $3.1 million as of September 30, 2023 and $1.4 million as of December 31, 2022.

5.Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents are primarily maintained with three financial institutions located in the U.S. Deposits balances with financial institutions may exceed the Federal Deposit Insurance Corporation insurance limit of $250,000 on such deposits. The Company has not experienced losses on these accounts and does not believe it is exposed to any significant credit risk with respect to these accounts. 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 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,		September 30,
	2023		2022
Cash and cash equivalents	$	74,232	$	84,961
Restricted cash	560		560
Total cash, cash equivalents, and restricted cash	$	74,792	$	85,521

6.Accrued Expenses

At September 30, 2023 and December 31, 2022 accrued expenses consisted of the following (in thousands):


	September 30,		December 31,
	2023		2022
Payroll and related expenses	$	5,593	$	6,569
Research and development activities	5,832		4,265
Current portion of operating lease liability	1,594		1,494
Other expenses	1,011		853
Total	$	14,030	$	13,181

7.Stockholders’ Equity

Sale of PIPE Shares and Pre-Funded Warrants

In February 2023, the Company entered into a securities purchase agreement with existing investors, pursuant to which it sold, in a private placement, the PIPE Shares and the Pre-Funded Warrants. The Pre-Funded Warrants were immediately exercisable upon issuance at an exercise price of $0.0001 per share. The Company received aggregate net proceeds of approximately $99.8 million after deducting offering expenses.

The Pre-Funded Warrants generally could not be exercised if the holder’s aggregate beneficial ownership would be more than 9.99% of the total issued and outstanding shares of the Company’s common stock following such exercise. The exercise price and number of shares of common stock issuable upon the exercise of the Pre-Funded Warrants were subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described in the Pre-Funded Warrants. In connection with the issuance and sale of the PIPE Shares and the Pre-Funded Warrants, the Company granted the investors certain registration rights with respect to the PIPE Shares and the shares issuable upon exercise of the Pre-Funded Warrants.

The Pre-Funded Warrants were evaluated pursuant to ASC 480 and ASC 815. The Company classified the Pre-Funded Warrants as a component of permanent stockholders’ equity within additional paid-in capital and were recorded at the issuance date using a relative fair value allocation method. The Pre-Funded Warrants were equity classified because they were freestanding financial instruments that are legally detachable and separately exercisable, were immediately exercisable, did not embody an obligation for the Company to repurchase its common shares, permitted the holders to receive a fixed number of common shares upon exercise, were indexed to the Company’s common stock and met the equity classification criteria. The Company valued the Pre-Funded Warrants at issuance, concluding their sales price approximated their fair value, and allocated net proceeds from the sale proportionately to the PIPE Shares and Pre-Funded Warrants, of which $29.9 million and $69.9 million, respectively, net of issuance costs, was recorded as a component of additional paid-in capital.

Common Stock Warrants

During the three months ended September 30, 2023, 1,480,190 shares of common stock were issued upon the net exercise of 1,480,198 Pre-Funded Warrants. During the nine months ended September 30, 2023, 1,980,188 shares of common stock were issued upon the net exercise of 1,980,198 Pre-Funded Warrants.

As of September 30, 2023, there were no Pre-Funded Warrants to purchase shares of the Company’s common stock outstanding.

8.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 A&R 2019 Plan, the number of shares of common stock available for issuance thereunder increased by 1.5 million shares in January 2023. As of September 30, 2023, there were a total of 1.2 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 September 30,			Nine Months Ended September 30,
		2023		2022		2023		2022
Stock options		$	7,935	$	6,674	$	22,866	$	19,459
Restricted stock units		2,539		—		7,282		5
Employee Stock Purchase Plan		60		756		277		2,151
Restricted common stock		—		107		—		310
Total		$	10,534	$	7,537	$	30,425	$	21,925

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,
		2023		2022		2023		2022
Research and development expense		$	4,988	$	3,423	$	14,568	$	10,316
General and administrative expense		5,546		4,114		15,857		11,609
Total		$	10,534	$	7,537	$	30,425	$	21,925

Stock Options

The following table summarizes the Company’s stock option activity during the nine months ended September 30, 2023:


	Number of Shares	Weighted Average Exercise Price
Outstanding as of December 31, 2022	5,263,553	$	24.94
Granted	1,195,004	36.27
Exercised	(580,639)	15.43
Forfeited or expired	(27,323)	48.02
Outstanding as of September 30, 2023	5,850,595	$	28.09
Options exercisable as of September 30, 2023	3,507,521	$	22.63

Restricted Stock Units

The following table summarizes the Company’s restricted stock unit activity during the nine months ended September 30, 2023:


	Number of Shares	Weighted Average Fair Value per Share at Issuance
Unvested restricted stock units as of December 31, 2022	249,090	$	43.85
Granted	929,080	31.85
Vested	(62,085)	43.92
Forfeited	(5,790)	33.41
Unvested restricted stock units as of September 30, 2023	1,110,295	$	33.86

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9.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.

Beginning in 2022, the Tax Cuts and Jobs Act (“TCJA”) amended Section 174 and now requires U.S.-based and non-U.S.-based research and experimental expenditures to be capitalized and amortized over a period of five and 15 years, respectively, for amounts paid in tax years starting after December 31, 2021. 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 September 30, 2023, the Company forecasts an ordinary pre-tax loss for the year ended December 31, 2023 and, since it maintains a full valuation allowance on its deferred tax assets, the Company did not record an income tax benefit in 2023.

10.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 September 30, 2023, 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 nine months ended September 30, 2023, there were no material changes to the Company’s 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, 2022, filed with the SEC on February 23, 2023.

Legal Proceedings

The Company is not currently a party to any material legal proceedings.

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11.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, 2022 filed with the SEC on February 23, 2023.

AbbVie Agreement

In June 2022, AbbVie Biotechnology, Ltd. (“AbbVie”) informed the Company that it had decided to exercise its right to terminate its collaboration agreement with the Company (the “AbbVie Agreement”) for convenience. The AbbVie Agreement terminated effective December 2022. Effective upon the termination of the AbbVie Agreement, all rights and licenses granted thereunder immediately terminated and were returned to the Company. The Company recognized the $100.0 million up-front payment paid to the Company under the AbbVie Agreement as revenue as work was performed in proportion to the costs incurred. These research and development performance obligations were recognized as revenue and completed through the effective date of the termination in December 2022.

No research and development costs were incurred or revenue was recognized in connection with the AbbVie Agreement during the three and nine months ended September 30, 2023. 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, 2022 (in thousands):


	Three Months Ended September 30,	Nine Months Ended September 30,
		2022		2022
Revenue recognized		$	890	$	60,140
Costs incurred		30		631

Janssen Agreement

In February 2019, the Company entered into a research collaboration and option agreement with Janssen Pharmaceuticals, Inc. (the “Janssen Agreement”), a subsidiary of Johnson & Johnson (“Janssen”), to discover and develop novel integrin therapeutics for patients with conditions not adequately addressed by current therapies. The Janssen Agreement focused on three integrin targets, each target the subject of a research program, with a limited ability to substitute integrin targets for others, not explored by the Company, if research results were not favorable.

In January 2023, Janssen informed the Company that it had decided to exercise its right to terminate the Janssen Agreement for convenience. Certain remaining research and development performance obligations under the Janssen Agreement were completed, including the termination of the third integrin research program thereunder, through the effective date of the termination in March 2023. In March 2023, the Company recognized the remaining deferred revenue allocated to the material right upon expiration of the Janssen license option.

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 nine months ended September 30, 2023 and 2022 (in thousands):


	Three Months Ended September 30,			Nine Months Ended September 30,
		2023		2022		2023		2022
Reimbursement revenue		$	—	$	662	$	51	$	2,704
Upfront payment revenue		—		503		470		1,829
Total revenue recognized		$	—	$	1,165	$	521	$	4,533
Costs incurred		$	—	$	530	$	51	$	2,258

The Company had no amounts and $0.5 million due from Janssen included in accounts receivable on the condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022, respectively.

As of September 30, 2023, the Company had no remaining deferred revenue related to the Janssen Agreement, as all of the performance obligations thereunder were satisfied as of March 31, 2023.

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12.Net Loss per Share

Basic net loss per share is calculated by dividing net 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 September 30,			Nine Months Ended September 30,
		2023		2022		2023		2022
Net loss		$	(36,212)	$	(30,021)	$	(111,360)	$	(34,664)
Weighted average common shares outstanding, basic and diluted		49,548,947		38,490,910		41,979,245		37,961,262
Net loss per share, basic and diluted		$	(0.73)	$	(0.78)	$	(2.65)	$	(0.91)

In February 2023, the Company sold and issued the Pre-Funded Warrants (see Note 7). The shares of common stock into which the Pre-Funded Warrants may be exercised are considered outstanding for the purposes of computing basic earnings per share because the shares may be issued for little or no consideration, and because the Pre-Funded Warrants were fully vested and immediately exercisable upon issuance.

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 and Nine Months Ended September 30,
	2023	2022
Restricted stock units	1,110,295	263,270
Stock options	5,850,595	5,398,968
Total	6,960,890	5,662,238

In addition to the securities listed in the table above, as of September 30, 2023 the Company had reserved 1,493,422 shares of common stock for sale under the Company’s Employee Stock Purchase Plan, which, if issued, would be anti-dilutive if included in calculation of diluted net loss per share for the three and nine months ended September 30, 2023.

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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, 2022, filed with the SEC on February 23, 2023.

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, 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, the receipt and timing of potential regulatory designations, approvals and commercialization of product candidates, and the impact of risks and uncertainties in connection with the current macroeconomic and geopolitical environments, including related to the remaining impact of COVID-19, supply chain disruptions, increases in consumer prices, inflation, market volatility, the rise in interest rates, recent instability in the banking sector, the federal debt ceiling and budget, the potential for government shutdowns, labor shortages, cybersecurity events, and ongoing regional conflicts around the world. 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 FDA or any European regulatory authority. 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 to proceed in August 2020. In September 2020, we initiated a Phase 1 clinical trial of MORF-057 in healthy volunteers 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 single-ascending dose, or SAD, food effect, or FE, and multiple-ascending dose, or MAD 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, or 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 significant effect on trough MORF-057 levels and that MORF-057 can be administered without regard to food in planned studies in patients.

α4β7 receptor occupancy, or RO, 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, 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.

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In an additional MORF-057 Phase 1 study, subjects were dosed up to 200 mg BID and those receiving MORF-057 at 100 BID or 200 mg BID demonstrated α4β7 receptor saturation and statistically significant increases in circulating central memory, effector memory T lymphocyte and switched memory B lymphocyte populations compared with placebo. At the 25 mg and 50 mg BID exploratory doses, directionally increasing trends were also observed in key PD measures. All doses were well tolerated, no safety signals were identified, and a favorable PK profile was observed. In both single doses of 200 mg MORF-057 and 200 mg BID over the 14 days, MORF-057 demonstrated α4β7 receptor saturation at Ctrough. Statistically significant changes in lymphocyte subset populations and CCR9 mRNA were observed, consistent with previous studies.

Based on the results from the Phase 1 studies, we initiated a Phase 2 clinical program of MORF-057 in March 2022. EMERALD-1, which is an open-label, single-arm multi-center Phase 2a trial designed to evaluate the efficacy, safety and tolerability of MORF-057 in adults with moderate to severe UC, completed targeted enrollment in October 2022, with 30 patients enrolled in the study. Additionally, patients that were undergoing screening at the time the study completed targeted enrollment were enrolled in the study for a total of 35 patients enrolled in the main cohort. We have elected to stop enrollment of an exploratory cohort at four patients who have previously failed treatment with vedolizumab. Patients enrolled in the EMERALD-1 study are being treated with 100 mg BID at sites in the United States and Poland. The primary endpoint of the trial was the change in Robarts Histopathology Index, or RHI, a validated instrument that measures histological disease activity in ulcerative colitis at 12 weeks compared to baseline. Additional outcome measures in the EMERALD-1 study include change in the modified Mayo clinic score, safety, PK parameters and key PD measures. Patients will then continue for an additional 40 weeks of maintenance therapy followed by a 52-week assessment. In April 2023, we announced topline results from the main cohort of the EMERALD-1 Phase 2a clinical trial of MORF-057, which met the primary endpoint and demonstrated a statistically significant reduction of 6.4 points (p=0.002) from baseline at week 12 in the RHI score. In the study, 25.7% of patients achieved clinical remission by modified Mayo Clinic Score, or mMCS. MORF-057 was generally well tolerated at the dose of 100 mg BID with no serious adverse events and no safety signal observed. Additionally, MORF-057 achieved saturation of α4β7 receptor and demonstrated changes in α4β7 lymphocyte subsets that are consistent with Phase 1 MORF-057 data. In August 2023, we announced the acceptance of a moderated poster presentation describing the EMERALD-1 study at UEG Week 2023 in October in Copenhagen. In October 2023, we presented additional data from the EMERALD-1 trial including 44 weeks of safety, PK parameters and key PD measures compared to baseline. In October 2023, we presented the moderated poster presentation at UEG Week 2023 for the EMERALD-1 trial including 12 weeks of safety, PK parameters and key PD measures compared to baseline.

EMERALD-2 which is a global Phase 2b randomized controlled trial of MORF-057 began dosing patients in November 2022. Patients enrolled in the EMERALD-2 study are randomized to receive one of three active arms or a placebo arm: 100 mg BID, 200 mg BID, and a QD (once daily) arm, or a placebo arm which will cross over to MORF-057 after the 12-week induction phase. The primary endpoint of the trial is the clinical remission rate as measured by the mMCS at 12 weeks. The secondary endpoints will include the change in RHI, PK and PD measures, as well as safety parameters. Following the 12-week induction phase, patients will move to a 40-week maintenance phase. 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 expect to initiate the Phase 2b study for MORF-057 in Crohn’s Disease in the first half of 2024. We continue to expand our α4β7 portfolio and have positioned next-generation α4β7 small molecule development candidates for clinical studies in the future.

Beyond our lead molecule, MORF-057, 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 to the 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. Based on the data we have generated to date and the potential role of TGF-β in treating myelofibrosis, we have nominated MORF-088, a selective small molecule inhibitor of αvβ8, as a development candidate for myelofibrosis. We expect to initiate clinical trials of MORF-088 in the first half of 2024. We also have additional research stage programs ongoing against fibronectin integrin targets in pulmonary hypertensive diseases including 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.

Since June 2015 we have had exclusive integrin focused collaboration agreements in place with Schrödinger, a leader in chemical simulation and in silico drug discovery. We have successfully used its technology platform to perform virtual screens of members of the target class of human integrins, and we and Schrödinger collaborate to facilitate prioritization of integrin targets, perform target validation and analysis, identify leads, and perform lead optimization to establish a portfolio of integrin programs. We believe the Schrödinger Agreement enables us to undertake accelerated drug discovery through design, iteration and optimization of leads using a variety of next-generation physics-based computational and machine learning technologies.

With our internal proven capabilities in structural biology, medicinal chemistry and screening, the Schrödinger platform accelerates our ability to design molecules with atomic precision utilizing our significant expertise in advanced structure-guided drug design technology, and machine learning protocols. In December 2022, we expanded our access as a special Schrödinger software customer enabling utilization of their full software suite beyond the scope of integrins. As a result, in 2023, we have begun advancing additional clinically validated targets with a focus in the inflammation and immunology therapeutic areas, which are highly complementary to our current assets within the integrin space.

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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 could offer and sell, from time to time at our sole discretion, shares of our common stock, having an aggregate offering amount of up to $75.0 million, 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, or the New ATM, to increase the total value of Placement Shares subject to offer and sale to up to an aggregate offering amount of up to $150.0 million. We refer to the Previous ATM and the New ATM, collectively, as the ATM. During the nine months ended September 30, 2023, 1,518,759 shares were issued under the New ATM for net proceeds of $84.5 million, after deducting offering commissions and expenses. As of September 30, 2023, we had approximately $10.9 million of common stock remaining available for sale under the New ATM. We may not sell any Placement Shares under the Previous ATM.

In February 2023, we entered into a securities purchase agreement with existing investors pursuant to which we agreed to sell and issue, in a private placement, the PIPE Shares and the Pre-Funded Warrants. We received aggregate net proceeds of approximately $100.0 million before deducting costs and offering expenses payable by us. The Pre-Funded Warrants are exercisable at any time after their original issuance and will not expire. Per their terms, the Pre-Funded Warrants generally may not be exercised if the holder’s aggregate beneficial ownership would be more than 9.99% of the total issued and outstanding shares of our common stock following such exercise. The exercise price per share and number of shares of common stock issuable upon the exercise of the Pre-Funded Warrants are subject to adjustment in the event of any stock dividends and splits, recapitalization, reorganization or similar transaction, as described in the Pre-Funded Warrants. During the nine months ended September 30, 2023 1,980,188 shares of common stock were issued upon the net exercise of 1,980,198 Pre-Funded Warrants. As of September 30, 2023 there were no Pre-Funded Warrants outstanding.

In May 2023, we completed an underwritten public offering of shares of our common stock, which included the exercise in full of the underwriters’ option to purchase additional shares of common stock. We received gross proceeds from the secondary offering of approximately $276.0 million, before deducting underwriting discounts, commissions and other offering expenses payable by us of approximately $16.9 million, resulting in net proceeds of approximately $259.1 million.

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 11 of the accompanying condensed 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 September 30, 2023, we raised an aggregate of approximately $1.2 billion of gross proceeds primarily through the issuance of equity, including our convertible preferred equity securities, through our initial public offering, our underwritten public offering in March 2021, our private issuance of common stock and pre-funded warrants in February 2023, our underwritten public offering in May 2023 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 September 30, 2023, we had an accumulated deficit of $408.5 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.

As of September 30, 2023, we had cash, cash equivalents, and marketable securities of $725.1 million. Based on our current operating plan, we believe that our existing cash, cash equivalents and marketable securities will be sufficient to fund our operating expenses and capital expenditure requirements into the second half of 2027.

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Risks and Uncertainties

We are subject to continuing risks and uncertainties in connection with the current macroeconomic and geopolitical environments, including risks related to the remaining impact of COVID-19, supply chain disruptions, increases in consumer prices, inflation, market volatility, the rise in interest rates, recent instability in the banking sector, the federal debt ceiling and budget, the potential for government shutdowns, labor shortages, cybersecurity events and ongoing regional conflicts around the world. We are closely monitoring the impact of these factors on all aspects of our operational and financial performance. To date, we have not experienced much of an impact on our business, excluding minor changes to our development timelines. Our future results of operations and liquidity could be adversely impacted by a variety of factors, including those discussed in the section titled “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q. As of the date of issuance of these condensed consolidated financial statements, the extent to which the current macroeconomic and geopolitical environments and the remaining impact of the COVID-19 pandemic may materially impact our financial condition, liquidity, or results of operations remains uncertain.

Financial Operations Overview

Collaboration Revenue

We do not have any products approved for sale, and as a result, we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the foreseeable future.

To date, all of our collaboration revenue has been derived from collaboration agreements with AbbVie and Janssen. Our collaborations with AbbVie and Janssen are now concluded, and prospectively we remain open to opportunistically evaluating and entering into strategic partnerships around certain therapeutic candidates, geographic markets or disease areas. We expect that our revenue, until we have a marketed product, will be derived primarily from payments under collaboration and license agreements that we may enter into in the future, if any.

Expenses

Research and Development

Research and development expenses consist primarily of costs incurred for our research and development activities, including our product candidate discovery efforts and preclinical studies under our research programs, which include:

•employee-related expenses, including salaries, benefits, and equity-based compensation expense for our research and development personnel;

•costs of funding research performed by third parties that conduct research and development and preclinical activities on our behalf;

•costs of manufacturing clinical supply related to any of our current or future product candidates;

•expenses incurred under agreements with contract research organizations, or CROs and investigative sites that conduct our clinical trials;

•costs of conducting preclinical studies of any of our current or future product candidates;

•consulting and professional fees related to research and development activities, including equity-based compensation to non-employees;

•costs of purchasing laboratory supplies and non-capital equipment used in our preclinical studies;

•costs related to compliance with clinical regulatory requirements;

•facility costs and other allocated expenses, which include expenses for rent and maintenance of facilities, insurance, depreciation and other supplies; and

•fees for maintaining licenses and other amounts due under our third-party licensing agreements.

Research and development costs are expensed as incurred. Costs for certain activities are recognized based on an evaluation of the progress to completion of specific tasks using data such as information provided to us by our vendors and analyzing the progress of our preclinical studies or other services performed. Significant judgment and estimates are made in determining the accrued expense balances at the end of any reporting period. Non-refundable advance payments for research and development goods or services to be received in the future from third parties are capitalized and expensed as the related goods are delivered or the services are performed.

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The successful development of our product candidates is highly uncertain. As such, at this time, we cannot reasonably estimate or know the nature, timing, and costs of the efforts that will be necessary to complete our future product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from the sale of our product candidates, if approved. This is due to the numerous risks and uncertainties associated with developing product candidates, including the uncertainty of:

•the scope, rate of progress, and expenses of our ongoing research activities as well as any additional preclinical studies and clinical trials and other research and development activities;

•establishing an appropriate safety profile;

•successful enrollment in and completion of clinical trials;

•whether our product candidates show safety and efficacy in our clinical trials;

•receipt of marketing approvals from applicable regulatory authorities, if any;

•establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;

•obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;

•commercializing the product candidates, if and when approved, whether alone or in collaboration with others; and

•continued acceptable safety profile of the products following any regulatory approval.

A change in the outcome of any of these variables with respect to the development of our current and future product candidates would significantly change the costs and timing associated with the development of those product candidates.

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect research and development costs to increase significantly for the foreseeable future as we continue the development of our product candidates. However, we do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will impact our clinical development programs and plans.

General and Administrative

General and administrative expenses consist primarily of employee-related expenses, including salaries, benefits, and equity-based compensation expenses for personnel in executive, finance, accounting, business development, legal, information technology and human resources functions. Other significant general and administrative expenses include facility costs not otherwise included in research and development expenses, legal fees relating to patent and corporate matters, and fees for accounting and consulting services.

We anticipate that our general and administrative expenses will increase in the future as our business expands to support expected growth in research and development activities, including our future clinical programs. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, among other expenses. We also incur expenses associated with being a public company, including costs for audit, legal, regulatory, and tax-related services related to compliance with the rules and regulations of the SEC, and listing standards applicable to companies listed on Nasdaq, director and officer compensation and insurance premiums, and investor relations costs. In addition, if we obtain regulatory approval for any of our product candidates and do not enter into a third-party commercialization collaboration, we expect to incur significant general and administrative expenses related to supporting product sales, marketing and distribution activities.

Interest Income, Net

Interest income, net consists primarily of interest income earned on our cash, cash equivalents and marketable securities.

Provision for Income Tax Expense

We record a provision or benefit for income taxes on pre-tax income or loss based on our effective tax rate for the year. For additional details about the current year tax provision, refer to the Notes to the Condensed Consolidated Financial Statements appearing elsewhere in this Quarterly Report on Form 10-Q.

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Results of Operations

Comparison of the Three Months Ended September 30, 2023 and 2022

The following table summarizes our results of operations for the three months ended September 30, 2023 and 2022:


	Three Months Ended September 30,				Change
	2023		2022		$		%

	(in thousands, except percentages)
Collaboration revenue	$	—	$	2,055	$	(2,055)	(100)	%
Operating expenses:
Research and development	34,364		25,245		9,119		36	%
General and administrative	10,384		8,303		2,081		25	%
Total operating expenses	44,748		33,548		11,200		33	%
Loss from operations	(44,748)		(31,493)		(13,255)		42	%
Other income:
Interest income, net	8,612		1,657		6,955		*
Other income (expense), net	7		(156)		163		(104)	%
Total other income, net	8,619		1,501		7,118		*
Loss before provision for income taxes	(36,129)		(29,992)		(6,137)		20	%
Provision for income taxes	(83)		(29)		(54)		*
Net loss	$	(36,212)	$	(30,021)	$	(6,191)	21	%

* Percentage not meaningful

Collaboration Revenue

The decrease in collaboration revenue of $2.1 million is primarily attributable the conclusion of the AbbVie Agreement and Janssen Agreement in December 2022 and March 2023, respectively. There were no outstanding revenue generating collaboration agreements during three months ended September 30, 2023.

Research and Development Expenses

Research and development expense increased by $9.1 million, or 36%, from $25.2 million for the three months ended September 30, 2022 to $34.4 million for the three months ended September 30, 2023. A significant portion of our research and development costs have been external clinical and preclinical contract research organization (“CRO”) costs, which we track on a program-by-program basis related to a clinical product candidate, once the candidate has been identified. Our internal research and development costs are primarily personnel-related costs, depreciation, and other indirect costs. The following table summarizes our research and development expense for three months ended September 30, 2023 and 2022:

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	Three Months Ended September 30,				Change
	2023		2022		$		%

	(in thousands, except percentages)
External costs by program:
MORF-057	$	11,772	$	9,245	$	2,527	27	%
MORF-088	1,894		3,038		(1,144)		(38)	%
Janssen Agreement programs	—		180		(180)		(100)	%
AbbVie Agreement programs	—		22		(22)		(100)	%
Other early development candidates and unallocated costs	6,113		2,356		3,757		159	%
Total external costs	19,779		14,841		4,938		33	%
Internal costs:
Employee compensation and benefits	13,269		9,422		3,847		41	%
Facility and other	1,316		982		334		34	%
Total internal costs	14,585		10,404		4,181		40	%
Total research and development expense	$	34,364	$	25,245	$	9,119	36	%

The changes in research and development expense were primarily attributable to the following:

•The $4.9 million increase in external costs from the three months ended September 30, 2022 to the three months ended September 30, 2023 primarily related to costs associated with the ongoing Phase 2 clinical studies and other development activities for MORF-057, as well as other external research costs to support our early development candidates. These increases were partially offset by decreases in activity under the AbbVie Agreement, the Janssen Agreement and for MORF-088. The decrease in activity under MORF-088 is primarily a result of the timing of incurring manufacturing costs and other development activities.

▪The $4.2 million increase in internal costs from the three months ended September 30, 2022 to the three months ended September 30, 2023 was primarily driven by an increase in non-cash equity-based compensation expense and headcount to support the ongoing clinical activity for MORF-057 as well as our early-stage pipeline candidates.

General and Administrative Expenses

General and administrative expense increased by $2.1 million, or 25%, from $8.3 million for the three months ended September 30, 2022 to $10.4 million for the three months ended September 30, 2023. The increase in general and administrative expense was primarily attributable to a $1.4 million increase in non-cash equity-based compensation expense and a $0.6 million increase in other costs which included an increase in information technology and bank fees.

Interest Income, Net

Interest income increased by $7.0 million due to an increase in effective interest rates on cash equivalents and marketable securities and an increase in invested marketable securities during the three months ended September 30, 2023 compared to the three months ended September 30, 2022.

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Comparison of the Nine Months Ended September 30, 2023 and 2022

The following table summarizes our results of operations for the nine months ended September 30, 2023 and 2022:



	Nine Months Ended September 30,				Change
	2023		2022		$		%
	(in thousands, except percentages)
Collaboration revenue	$	521	$	64,673	$	(64,152)	(99)	%
Operating expenses:
Research and development	$	100,532	$	77,360	23,172		30	%
General and administrative	29,244		24,128		5,116		21	%
Total operating expenses	129,776		101,488		28,288		28	%
Loss from operations	(129,255)		(36,815)		(92,440)		*
Other income:
Interest income, net	18,139		2,326		15,813		*
Other income (expense), net	9		(144)		153		(106)	%
Total other income, net	18,148		2,182		15,966		*
Loss before provision for income taxes	(111,107)		(34,633)		(76,474)		*
Provision for income taxes	(253)		(31)		(222)		*
Net loss	$	(111,360)	$	(34,664)	$	(76,696)	*

* Percentage not meaningful

Collaboration Revenue

Collaboration revenue decreased by $64.2 million, or 99%, from $64.7 million for the nine months ended September 30, 2022 to $0.5 million for the nine months ended September 30, 2023. The decrease is primarily attributable the conclusion of the AbbVie Agreement and Janssen Agreement in December 2022 and March 2023, respectively.

Research and Development Expenses

Research and development expense increased by $23.2 million, or 30%, from $77.4 million for the nine months ended September 30, 2022 to $100.5 million for the nine months ended September 30, 2023. A significant portion of our research and development costs have been external preclinical CRO costs, which we track on a program-by-program basis related to a clinical product candidate, once the candidate has been identified. Our internal research and development costs are primarily personnel-related costs, depreciation, and other indirect costs.

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The following table summarizes our research and development expense for nine months ended September 30, 2023 and 2022:


	Nine Months Ended September 30,				Change
	2023		2022		$		%
	(in thousands, except percentages)
External costs by program:
MORF-057	$	38,720	$	26,141	$	12,579	48	%
MORF-088	5,518		10,552		(5,034)		(48)	%
Janssen Agreement programs	51		1,090		(1,039)		(95)	%
AbbVie Agreement programs	—		155		(155)		(100)	%
Other early development candidates and unallocated costs	14,018		6,990		7,028		101	%
Total external costs	58,307		44,928		13,379		30	%
Internal costs:
Employee compensation and benefits	38,769		29,389		9,380		32	%
Facility and other	3,456		3,043		413		14	%
Total internal costs	42,225		32,432		9,793		30	%
Total research and development expense	$	100,532	$	77,360	$	23,172	30	%

The increase in research and development expense was primarily attributable to the following:

▪The $13.4 million increase in external costs from the nine months ended September 30, 2022 to the nine months ended September 30, 2023 was primarily related to costs associated with the Phase 2 clinical study which commenced in the fourth quarter of 2022 and other development activities for MORF-057, as well as other external research costs to support our early development candidates. These increases were partially offset by decreases in activity under the AbbVie Agreement, the Janssen Agreement and for MORF-088. The decrease in activity under MORF-088 is primarily a result of the timing of incurring manufacturing costs and other development activities.

▪The $9.8 million increase in internal costs from the nine months ended September 30, 2022 to the nine months ended September 30, 2023 was primarily driven by an increase in non-cash equity-based compensation expense and headcount to support the ongoing clinical activity for MORF-057 as well as our early-stage pipeline candidates.

General and Administrative Expenses

General and administrative expense increased by $5.1 million, or 21%, from $24.1 million for the nine months ended September 30, 2022 to $29.2 million for the nine months ended September 30, 2023. The increase in general and administrative expense was primarily attributable to a $4.2 million increase in non-cash equity-based compensation expense and a $0.6 million increase in personnel-related costs, an increase in other costs of $0.6 million which included an increase in information technology and bank fees, offset by a $0.4 million decrease in insurance costs.

Interest Income, Net

Interest income increased by $15.8 million due to an increase in effective interest rates on cash equivalents and marketable securities and an increase in invested marketable securities during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

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Liquidity and Capital Resources

Sources of Liquidity

From inception through September 30, 2023, we raised an aggregate of approximately $1.2 billion of gross proceeds primarily through the issuance of equity, including our convertible preferred equity securities, our initial public offering and secondary equity offerings, our private placement of common stock and pre-funded warrants, and sales of shares of our common stock under our at-the-market equity facilities, along with payments received under our collaboration agreements.

The following table provides information regarding our total cash, cash equivalents, and marketable securities, each of which are stated at their respective fair values as of September 30, 2023 and December 31, 2022:


	September 30, 2023		December 31, 2022

	(in thousands)
Cash	$	524	$	458
Cash equivalents	73,708		58,814
Marketable securities	650,835		288,976
Total cash, cash equivalents and marketable securities	$	725,067	$	348,248

Cash Flows

The following table provides information regarding our cash flows for the nine months ended September 30, 2023 and 2022:


	Nine Months Ended September 30,
	2023		2022

	(in thousands)
Net cash used in operating activities	$	(83,738)	$	(75,859)
Net cash used in investing activities	(354,700)		(55,305)
Net cash provided by financing activities	453,398		44,691
Net increase (decrease) in cash, cash equivalents and restricted cash	$	14,960	$	(86,473)

Net Cash Used in Operating Activities

The use of cash in all periods presented resulted primarily from our net losses adjusted for non-cash charges and changes in components of working capital. Net cash used in operating activities was $83.7 million for the nine months ended September 30, 2023 compared to $75.9 million in cash used in operating activities for the nine months ended September 30, 2022. The increase in cash used in operating activities was primarily driven by a $28.3 million increase in operating expenses, offset by increases in interest income and non-cash items recorded as operating expenses and a decrease in cash outflows from changes in operating assets and liabilities in 2023.

Net Cash Used in Investing Activities

Net cash used in investing activities was $354.7 million for the nine months ended September 30, 2023 compared to $55.3 million used in investing activities for the nine months ended September 30, 2022. The change in cash used in investing activities is primarily based on the timing of purchases or maturities in marketable securities in the period. During the nine months ended September 30, 2023, the cash used in investing activities was primarily from the deployment of the proceeds from the private issuance of common stock and pre-funded warrants that was completed in February 2023, the proceeds from the secondary equity offering completed in May 2023 and the proceeds from the sale of common stock under the at-the-market equity facility during the nine months ended September 30, 2023. During the nine months ended September 30, 2022, the cash used in investing activities was primarily based on the timing of purchases or maturities in marketable securities in the period.

Net Cash Provided by Financing Activities

Net cash provided by financing activities of $453.4 million for the nine months ended September 30, 2023 resulted from $99.8 million in net proceeds received from our private issuance of common stock and pre-funded warrants completed in February 2023, the $259.1 million in net proceeds from the underwritten public offering of common stock completed in May 2023, $84.6 million in net proceeds from the sale of common stock under the at-the-market equity facility and $10.0 million in proceeds received from the issuance of common shares under the ESPP and stock option exercises. Net cash provided by financing activities during the nine months ended September 30, 2022 of $44.7 million resulted from $39.3 million in net proceeds received from the sale of common stock through the at-the-market equity facility in the nine months ended September 30, 2022 and from the $5.4 million in proceeds from the issuance of common shares under the ESPP and stock option exercises.

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Funding Requirements

We expect our expenses to increase in connection with our ongoing activities, particularly as we continue research and development, conduct clinical trials, and seek marketing approval for our current and any of our future product candidates. In addition, if we obtain marketing approval for any of our current or our future product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution, which costs we might offset through entry into collaboration agreements with third parties. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed on acceptable terms, or at all, including, but not limited to, as a result macroeconomic factors relating to the remaining impacts of COVID-19, ongoing regional conflicts around the world, inflation and market volatility, rising interest rates, recent instability in the global banking sector, the federal debt ceiling and budget, or the potential for government shutdowns, we would be forced to delay, reduce, or eliminate our research and development programs or future commercialization efforts. Based on our current operating plan, we believe that our existing cash, cash equivalents and marketable securities will be sufficient to fund our operating expenses and capital expenditure requirements into the second half of 2027.

We have based this estimate on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Our future capital requirements will depend on many factors, including:

•the costs of conducting additional clinical and preclinical studies and future clinical trials;

•the costs of future manufacturing;

•the scope, progress, results and costs of discovery, preclinical development, laboratory testing, and clinical trials for other potential product candidates we may develop, if any;

•the costs, timing, and outcome of regulatory review of our product candidates;

•our ability to establish and maintain collaborations on favorable terms, if at all;

•the achievement of milestones or occurrence of other developments that trigger payments under any collaboration agreements we might have at such time;

•the costs and timing of future commercialization activities, including product sales, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval;

•the amount of revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval;

•the costs of preparing, filing and prosecuting patent applications, obtaining, maintaining and enforcing our intellectual property rights, and defending intellectual property-related claims;

•our ability to file and prosecute patent applications, obtain, maintain, and enforce our intellectual property rights, and defend intellectual property-related claims in certain countries that are subject to economic sanctions and/or hostile to U.S. and international companies;

•our headcount growth and associated costs as we expand our business operations and research and development activities;

•the potential delays in our preclinical studies, our development programs and our current and planned clinical trials due to the remaining effects of the COVID-19 pandemic (including supply chain interruptions), geo-political actions, including war and regional conflicts around the world (such as the current armed conflicts in Ukraine and Israel) or cybersecurity events;

•general economic conditions and trends, including inflation and market volatility, rising interest rates, the ongoing labor shortage, recent instability in the global banking sector, the federal debt ceiling and budget and the potential for government shutdowns; and

•the cost of operating as a public company.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements.

Critical Accounting Policies and Significant Estimates

Our critical accounting policies are those policies which require the most significant judgments and estimates in the preparation of our condensed consolidated financial statements.

During the quarter ended September 30, 2023, there were no material changes to our critical accounting policies as detailed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the SEC on February 23, 2023.

For detailed information regarding recently issued accounting pronouncements and the actual and expected impact on our condensed consolidated financial statements, see Note 2 in the accompanying condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.

Contractual Obligations

In August 2021, the Company exercised its one-time extension right for its existing lease for 32,405 square feet of office and laboratory space through May 2025, as provided for under the terms of the lease, and with future rent payments of $2.9 million at September 30, 2023. As of September 30, 2023, our contractual obligations remain consistent with those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 23, 2023.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

There were no material changes in our exposure to market risk from December 31, 2022 to September 30, 2023.

Item 4. Controls and Procedures

Management’s Evaluation of our Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our President and our Chief Financial Officer (our principal executive officer and principal financial officer, respectively), we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under Exchange Act as of September 30, 2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on our management’s evaluation (with the participation of our President and our Chief Financial Officer), as of the end of the period covered by this report, our President and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended September 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may be involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, in the opinion of management, would have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity and reputational harm, and other factors.

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Item 1A. Risk Factors

Investing in our common stock involves a high degree of risk. Before making your decision to invest in shares of our common stock, you should carefully consider the risks described below, together with the other information contained in this Quarterly Report on Form 10-Q, including our condensed, consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that affect us. We cannot assure you that any of the events discussed below will not occur. These events could have a material and adverse impact on our business, financial condition, results of operations and prospects. If that were to happen, the trading price of our common stock could decline, and you could lose all or part of your investment.

Summary of Risk Factors

The below summary risks provide an overview of many of the risks we are exposed to in the normal course of our business activities. As a result, the below summary risks do not contain all of the information that may be important to you, and you should read the summary risks together with the more detailed discussion of risks set forth following this section under the heading “Risk Factors,” as well as elsewhere in this Quarterly Report on Form 10-Q under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Additional risks, beyond those summarized below or discussed in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” may apply to our activities or operations as currently conducted or as we may conduct them in the future or in the markets in which we operate or may in the future operate. Consistent with the foregoing, we are exposed to a variety of risks, including risks associated with:

•We are a clinical stage biopharmaceutical company with a limited operating history and no products approved for commercial sale. We have a history of significant losses and expect to continue to incur significant losses for the foreseeable future.

•We will need substantial additional funds to advance development of our product candidates, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our product development programs, commercialization efforts or other operations.

•Our product candidates are in various stages of development and may fail in development or suffer delays that materially adversely affect their commercial viability. If we or our collaborators are unable to complete development of, or commercialize, our product candidates or experience significant delays in doing so, our business will be materially harmed.

•Our current and future clinical trials or those of any collaborators may reveal significant adverse events not seen in our preclinical studies and may result in a safety profile that could inhibit regulatory approval or market acceptance of any of our product candidates.

•We have historically entered into collaborations and may, in the future, seek to enter into collaborations with third parties for the discovery and development of our therapeutic candidates. If our future collaborators cease development efforts under collaboration agreements, or if those agreements are terminated, the collaborations may fail to lead to commercial products, and we may never receive milestone payments or future royalties under the agreements.

•We and/or our collaborators may be unable to obtain, or may be delayed in obtaining, U.S. or foreign regulatory approval and, as a result, unable to commercialize our product candidates.

•Any inability to attract and retain qualified key management and technical personnel would impair our ability to implement our business plan.

•Our principal stockholders and management own a significant percentage of our stock and will be able to control matters subject to stockholder approval.

•We face competition from entities that have developed or may develop product candidates for autoimmune, cardiovascular and metabolic diseases, fibrosis and cancer, including companies developing novel treatments and technology platforms. If these companies develop technologies or product candidates more rapidly than we do or their technologies are more effective, our ability to develop and successfully commercialize product candidates may be adversely affected.

•Anti-takeover provisions in our charter documents and under Delaware law could prevent or delay an acquisition of us, which may be beneficial to our stockholders, and may prevent attempts by our stockholders.

•The exclusive forum provision in our restated certificate of incorporation may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, or other employees, which may discourage lawsuits with respect to such claims.

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Risks Relating to our Business and Operations

We will need to grow our organization, and we may experience difficulties in managing our growth and expanding our operations, which could adversely affect our business.

As of September 30, 2023, we had 115 full time employees. As our development and commercialization plans and strategies develop, we expect to expand our employee base for managerial, operational, financial and other resources. In addition, we have limited experience in product development. As our product candidates enter and advance through preclinical studies and clinical trials, we will need to expand our development and regulatory capabilities and contract with other organizations to provide manufacturing and other capabilities for us. In the future, we expect to have to manage additional relationships with collaborators or partners, suppliers and other organizations. Our ability to manage our operations and future growth will require us to continue to improve our operational, financial and management controls, reporting systems and procedures. We may not be able to implement improvements to our management information and control systems in an efficient or timely manner and may discover deficiencies in existing systems and controls. Our inability to successfully manage our growth and expand our operations could have a material and adverse effect on our business, financial condition, results of operations and prospects.

Any inability to attract and retain qualified key management and technical personnel would impair our ability to implement our business plan.

Our success largely depends on the continued service of Praveen P. Tipirneni, M.D., our chief executive officer, as well as other members of our management team, and other key employees and advisors. We currently do not maintain key person insurance on these individuals. On September 26, 2023, we announced that Dr. Tipirneni had experienced an unexpected medical event. He is actively recovering and is taking a temporary medical leave of absence. Our Chief Financial Officer and Chief Operating Officer, Marc Schegerin, M.D., and our President, Bruce N. Rogers, Ph.D., have assumed day-to-day operational responsibilities in the near-term, and Dr. Rogers has been appointed our principal executive officer for this period. The loss of one or more members of our management team or other key employees or advisors could delay our research and development programs and have a material and adverse effect on our business, financial condition, results of operations and prospects. The relationships that our key managers have cultivated within our industry make us particularly dependent upon their continued employment with us. We are dependent on the continued service of our technical personnel, and personnel involved with crystallization of integrins in particular, because of the highly technical nature of our product candidates and technologies related to our MInT Platform, and the specialized nature of the regulatory approval process. Because our management team and key employees are not obligated to provide us with continued service, they could terminate their employment with us at any time without penalty.

We conduct our operations at our facility in Waltham, Massachusetts. This region is headquarters to many other biopharmaceutical companies and many academic and research institutions. Competition for skilled personnel in our market is intense and may limit our ability to hire and retain highly qualified personnel on acceptable terms or at all. We face competition for personnel from other companies, universities, public and private research institutions, government entities and other organizations. Our future success will depend in large part on our continued ability to attract and retain other highly qualified scientific, technical and management personnel, as well as personnel with expertise in clinical testing, manufacturing, governmental regulation and commercialization. If we are unable to continue to attract and retain high-quality personnel, the rate at and success with which we can discover and develop product candidates will be limited, which could have a material and adverse effect on our business, financial condition, results of operations and prospects.

Our future growth may depend, in part, on our ability to operate in foreign markets, where we would be subject to additional regulatory burdens and other risks and uncertainties.

Our future growth may depend, in part, on our ability to develop and commercialize and/or promote our product candidates in foreign markets, for which we may rely on collaboration with third parties. We are not permitted to market or promote any of our product candidates in a foreign market before we receive regulatory approval from the applicable regulatory authority in that foreign market, and may never receive such regulatory approval for any of our product candidates. To obtain separate regulatory approval in many other countries, we must comply with numerous and varying regulatory requirements of such countries regarding safety and efficacy and governing, among other things, clinical trials and commercial sales, pricing and distribution of our product candidates, and we cannot predict success in these jurisdictions. If we fail to comply with the regulatory requirements in international markets and receive applicable marketing approvals, our target market will be reduced, our ability to realize the full market potential of our product candidates will be harmed and our business will be adversely affected. We may not obtain foreign regulatory approvals on a timely basis, or at all. Our failure to obtain approval of any of our product candidates by regulatory authorities in another country may significantly diminish the commercial prospects of that product candidate and our business, financial condition, results of operations and prospects could be materially and adversely affected. Moreover, even if we obtain approval of our product candidates and ultimately commercialize our

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product candidates in foreign markets, we would be subject to the risks and uncertainties, including the burden of complying with complex and changing foreign regulatory, tax, accounting and legal requirements and reduced protection of intellectual property rights in some foreign countries.

Our business entails a significant risk of product liability a