Morphic Holding, Inc. [MORF] Filings

10-Q 1 morf-20240630.htm 10-Q morf-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


(Mark One)
☒			QUARTERLY REPORT PURSUANT TO SECTION 13, OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024


☐			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 Stock Market LLC

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 July 23, 2024 was 50,224,699.

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 June 30 , 2024 and December 31, 2023			2
Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30 , 2024 and 2023			3
Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31 and June 30, 2024 and three months ended March 31 and June 30, 2023			4
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 202 4 and 202 3			6
Notes to Unaudited Condensed Consolidated Financial Statements			7
Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations			15
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			80
Item 3—Defaults Upon Senior Securities			80
Item 4—Mine Safety Disclosures			80
Item 5—Other Information			80
Item 6—Exhibits			80
Signatures			81

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PART I—FINANCIAL INFORMATION


Item 1. Condensed Consolidated Financial Statements (unaudited)

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands, except share and per share data)


	June 30,		December 31,
	2024		2023
Assets
Current assets:
Cash and cash equivalents	$	50,771	$	58,577
Marketable securities	577,595		645,772
Prepaid expenses and other current assets	11,132		12,579
Total current assets	639,498		716,928
Operating lease right-of-use assets	3,160		2,133
Property and equipment, net	2,485		2,767
Restricted cash	616		560
Other assets	331		126
Total assets	$	646,090	$	722,514

Liabilities
Current liabilities:
Accounts payable	$	7,046	$	7,698
Accrued expenses	19,459		17,078
Total current liabilities	26,505		24,776

Long-term liabilities:
Operating lease liability, net of current portion	1,155		716
Total liabilities	27,660		25,492

Commitments and contingencies (Note 9)

Stockholders’ Equity
Preferred shares, $0.0001 par value, 10,000,000 shares authorized, no shares issued and outstanding as of June 30, 2024 and December 31, 2023	—		—
Common shares, $0.0001 par value, 400,000,000 shares authorized, 50,100,692 shares issued and outstanding as of June 30, 2024 and 49,747,286 shares issued and outstanding as of December 31, 2023	5		5
Additional paid‑in capital	1,171,510		1,143,919
Accumulated deficit	(552,069)		(449,190)
Accumulated other comprehensive (loss) income	(1,016)		2,288
Total stockholders’ equity	618,430		697,022
Total liabilities and stockholders’ equity	$	646,090	$	722,514

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 June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Collaboration revenue	$	—	$	—	$	—	$	521
Operating expenses:
Research and development	49,271		35,719		91,712		66,168
General and administrative	15,962		9,583		27,125		18,860
Total operating expenses	65,233		45,302		118,837		85,028
Loss from operations	(65,233)		(45,302)		(118,837)		(84,507)
Other income:
Interest income, net	7,903		6,427		16,293		9,527
Other (expense) income, net	(15)		—		(15)		2
Total other income, net	7,888		6,427		16,278		9,529
Loss before provision for income taxes	(57,345)		(38,875)		(102,559)		(74,978)
Provision for income taxes	(240)		(138)		(320)		(170)
Net loss	$	(57,585)	$	(39,013)	$	(102,879)	$	(75,148)

Net loss per share, basic and diluted	$	(1.15)	$	(0.92)	$	(2.06)	$	(1.82)

Weighted average common shares outstanding, basic and diluted	50,095,534		42,373,407		50,052,283		41,249,157

Comprehensive loss:
Net loss	$	(57,585)	$	(39,013)	$	(102,879)	$	(75,148)
Other comprehensive (loss) income:
Unrealized holding (losses) gains on marketable securities, net of tax	(785)		(229)		(3,304)		1,422
Total other comprehensive (loss) income	(785)		(229)		(3,304)		1,422
Comprehensive loss	$	(58,370)	$	(39,242)	$	(106,183)	$	(73,726)

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, 2023	49,747,286	$	5	$	1,143,919	$	(449,190)	$	2,288	$	697,022
Equity‑based compensation expense	—	—		13,375		—		—		13,375
Vesting of restricted shares	292,320	—		—		—		—		—
Issuance of common shares upon stock option exercises	34,721	—		391		—		—		391
Issuance of common shares under the Employee Stock Purchase Plan	19,261	—		605		—		—		605
Unrealized holding losses on marketable securities	—	—		—		—		(2,519)		(2,519)
Net loss	—	—		—		(45,294)		—		(45,294)
Balance at March 31, 2024	50,093,588	$	5	$	1,158,290	$	(494,484)	$	(231)	$	663,580
Equity-based compensation expense		—		13,174		—		—		13,174
Vesting of restricted shares	1,500	—				—		—		—
Issuance of common shares upon stock option exercises	5,604	—		46		—		—		46
Unrealized holding losses on marketable securities	—	—		—		—		(785)		(785)
Net loss	—	—		—		(57,585)		—		(57,585)
Balance at June 30, 2024	50,100,692	$	5	$	1,171,510	$	(552,069)	$	(1,016)	$	618,430

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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, 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 warrant 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

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)


	Six Months Ended June 30,
	2024		2023
Cash flows from operating activities:
Net loss	$	(102,879)	$	(75,148)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	557		525
Discount accretion and premium amortization on marketable securities	(5,775)		(2,907)
Equity‑based compensation	26,549		19,891


Change in operating assets and liabilities:
Accounts receivable	—		455
Prepaid expenses and other current assets	1,461		2,280
Other assets	(205)		18
Operating lease right-of-use assets	883		678
Accounts payable	22		334
Accrued expenses	1,847		584
Deferred revenue	—		(470)
Operating lease liability	(937)		(728)
Net cash used in operating activities	(78,477)		(54,488)
Cash flows from investing activities:
Purchases of marketable securities	(172,352)		(348,125)
Proceeds from maturities of marketable securities	243,000		127,350

Purchases of property and equipment	(949)		(843)
Net cash provided by (used in) investing activities	69,699		(221,618)
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	605		578
Proceeds from at-the-market offering, net of issuance costs	—		67,201
Proceeds from secondary offering, net of issuance costs	—		259,160
Proceeds from issuance of common shares upon stock option exercises	423		7,372
Net cash provided by financing activities	1,028		434,110
Net (decrease) increase in cash, cash equivalents and restricted cash	(7,750)		158,004
Cash and cash equivalents and restricted cash, beginning of period	59,137		59,832
Cash and cash equivalents and restricted cash, end of period	$	51,387	$	217,836

Non-cash activities:
Right-of-use assets obtained in exchange for operating lease liabilities	$	1,910	$	—
Purchases of property and equipment included in accounts payable and accrued expenses	$	—	$	246
Amounts from exercise of stock options included in prepaid expenses and other current assets	$	14	$	70
Unpaid issuance costs for the at-the-market and secondary offerings included in accounts payable and accrued expenses	$	—	$	99

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

Description of Business

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 target class with multiple approved injectable blockbuster drugs for the treatment of serious chronic diseases, including autoimmune, cardiovascular and metabolic diseases, fibrosis and cancer. To date, no oral small molecule integrin therapies have been approved by the U.S. Food and Drug Administration (“FDA”). The Company believes its unique platform can unlock the potential to reliably generate high-quality oral molecules against specific integrin targets. The Morphic integrin technology platform (“MInT Platform”) was created by leveraging the Company’s 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.

Pending Transaction with Eli Lilly and Company

On July 7, 2024, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Eli Lilly and Company, an Indiana corporation (“Lilly” or “Parent”), and Rainier Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of Lilly (“Merger Sub”). On the terms and subject to the conditions of the Merger Agreement, on July 19, 2024, Merger Sub commenced a cash tender offer (the “Offer”) to purchase all of the outstanding shares of the Company’s common stock at a price of $57.00 per share, net to the stockholder in cash, without interest thereon and subject to applicable tax withholding. Following consummation of the Offer, Merger Sub will merge with and into the Company, with the Company surviving as a wholly owned subsidiary of Parent (the “Merger”). If the Merger Agreement is terminated under specified circumstances, the Company will be required to pay Parent a termination fee of $118.0 million. The Offer and the Merger are subject to customary closing conditions. The Merger is anticipated to close in the third quarter of 2024, assuming satisfaction or waiver of all of the conditions of the Offer and the Merger. If the Merger is consummated, the Company will cease to be a publicly traded company.

Concurrently with the execution of the Merger Agreement, Parent entered into tender and support agreements (collectively, the “Support Agreements”) with certain stockholders of the Company (collectively, the “Supporting Stockholders”), who in the aggregate beneficially owned approximately 20.5% of the Company’s common stock as of July 3, 2024, pursuant to which each Supporting Stockholder has agreed, among other things, to (i) tender all of the shares of the Company’s common stock held by such Supporting Stockholder in the Offer, subject to certain exceptions (including the valid termination of the Merger Agreement), (ii) vote against other proposals to acquire the Company and (iii) certain other restrictions on its ability to take actions with respect to the Company and the shares of the Company’s common stock held by such Supporting Stockholder.

Liquidity and Capital Resources

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, which was amended by Amendment No. 1 thereto in August 2021, with Jefferies LLC (“Jefferies”) with respect to an at-the-market offering program (the “Jefferies ATM”), 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 $150.0 million, referred to as Jefferies Placement Shares, through Jefferies as sales agent. The Company paid Jefferies a commission on the gross sales proceeds of any Jefferies Placement Shares sold through Jefferies under the Jefferies ATM, and also provided Jefferies with customary indemnification and contribution rights. In connection with the Company’s entry into a new at-the-market offering program, on April 25, 2024, the Company terminated the Jefferies ATM. The Company was not subject to any termination penalties related to the termination of the Jefferies ATM. During the six months ended June 30, 2024, no shares were issued under the Jefferies ATM. The Company may not sell any additional Jefferies Placement Shares under the Jefferies ATM.

On April 26, 2024, the Company entered into a Sales Agreement with TD Securities (USA) LLC (“TD Cowen”), under which the Company may offer and sell, from time to time at its sole discretion, shares of its common stock having an aggregate offering amount of up to $350.0 million, referred to as Cowen Placement Shares, through TD Cowen as sales agent pursuant to an at-the-market offering program (the “TD Cowen ATM”). The Company agreed to pay TD Cowen a commission on the gross sales proceeds of any Cowen Placement Shares sold through TD Cowen and also provided TD Cowen with customary indemnification and contribution rights. In conjunction with its entry into the TD Cowen ATM, the Company terminated the Jefferies ATM. During the six months ended June 30, 2024, no shares were issued under the TD Cowen ATM. At June 30, 2024, $350.0 million of common stock remained available for sale under the TD Cowen ATM.

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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 then 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.

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.

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 June 30, 2024 and 2023.

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, 2023, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K, for the fiscal year ended December 31, 2023, filed with the Securities and Exchange Commission (the “SEC”) on February 22, 2024.

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. Actual results could differ from those estimates.

Significant accounting policies

The significant accounting policies used in preparation of these condensed consolidated financial statements as of and for the three and six months ended June 30, 2024 are consistent with those discussed in Note 2 to the consolidated financial statements in the Company’s 2023 Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on February 22, 2024.

3.Fair Value of Financial Assets and Liabilities

The Company has certain financial assets and liabilities that are recorded at fair value which have been classified as Level 1, 2 or 3 within the fair value hierarchy as described in the accounting standards for fair value measurements:

•Level 1 — Quoted market prices in active markets for identical assets or liabilities.

•Level 2 — Inputs other than Level 1 inputs that are either directly or indirectly observable, such as quoted market prices, interest rates and yield curves.

•Level 3 — Unobservable inputs developed using estimates of assumptions developed by the Company, which reflect those that a market participant would use.

At June 30, 2024, investments include U.S. Treasury securities and U.S. government-sponsored enterprise securities, which are valued either based on recent trades of securities in inactive markets or based on quoted market prices of similar instruments and other significant inputs derived from or corroborated by observable market data.

To the extent the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair values requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized as Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The 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 June 30, 2024 and December 31, 2023 (in thousands) and indicate the level within the fair value hierarchy where each measurement is classified.



	Fair Value Measurements at June 30, 2024
	Total		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	50,208	$	35,352	$	14,856	$	—
Marketable securities:
U.S. Treasury securities	570,102		—		570,102		—
U.S. government-sponsored enterprise securities	7,493		—		7,493		—




Total assets	$	627,803	$	35,352	$	592,451	$	—



	Fair Value Measurements at December 31, 2023
	Total		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	57,988	$	57,988	$	—	$	—
Marketable securities:
U.S. Treasury securities	573,394		—		573,394		—
U.S. government-sponsored enterprise securities	54,906		—		54,906		—
Corporate bonds	17,472		—		17,472		—
Total assets	$	703,760	$	57,988	$	645,772	$	—

Cash equivalents consist of money market funds and U.S. Treasury securities as of June 30, 2024 and money market funds as of December 31, 2023. The money market funds included in the tables above invest in U.S. government securities that are valued using quoted market prices. Accordingly, money market funds are categorized as Level 1 as of June 30, 2024 and December 31, 2023. The U.S. Treasury securities included in cash equivalents as of June 30, 2024 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 and U.S. government-sponsored enterprise securities as of June 30, 2024 and U.S. Treasury securities, U.S. government-sponsored enterprise securities and corporate bonds as of December 31, 2023, and these securities are categorized as Level 2 as of June 30, 2024 and December 31, 2023. The Company had no liabilities measured at fair value on a recurring basis at June 30, 2024 and December 31, 2023.

4.Marketable securities

The following tables summarize the Company’s investments in marketable securities classified as available-for-sale (in thousands):


	As of June 30, 2024
	Maturity	Amortized cost		Gross unrealized holding gains		Gross unrealized holding losses		Aggregate estimated fair value
Marketable securities:
U.S. Treasury securities	within 3 years	$	571,085	$	74	$	(1,057)	$	570,102
U.S. government-sponsored enterprise securities	less than 1 year	7,501		—		(8)		7,493


Total marketable securities		$	578,586	$	74	$	(1,065)	$	577,595


	As of December 31, 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	$	570,964	$	2,499	$	(69)	$	573,394
U.S. government-sponsored enterprise securities	less than 1 year	54,997		—		(91)		54,906

Corporate bonds	less than 1 year	17,498		—		(26)		17,472
Total marketable securities		$	643,459	$	2,499	$	(186)	$	645,772

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 six months ended June 30, 2024. As such, an allowance for credit losses was not recognized. As of June 30, 2024, 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 $4.2 million as of June 30, 2024 and $4.4 million as of December 31, 2023.

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 letters of credit in the amount of $616,030, which includes a letter of credit issued to the landlord of the Company’s facility lease and a letter of credit issued to the Company’s sublease landlord for the sublease that commenced on April 1, 2024. The terms of the letters of credit extend beyond one year. The following table reconciles cash, cash equivalents and restricted cash per the balance sheet to the statements of cash flows (in thousands):


	June 30,
	2024		2023
Cash and cash equivalents	$	50,771	$	217,276
Restricted cash	616		560
Total cash, cash equivalents, and restricted cash	$	51,387	$	217,836

6.Accrued Expenses

At June 30, 2024 and December 31, 2023 accrued expenses consisted of the following (in thousands):


	June 30,		December 31,
	2024		2023
Payroll and related expenses	$	5,223	$	8,528
Research and development activities	7,184		5,818
Current portion of operating lease liability	2,162		1,628
Other expenses	4,890		1,104
Total	$	19,459	$	17,078

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7.Equity-Based Compensation

In connection with the Company’s initial public offering in July 2019, the Company adopted the 2019 Equity Incentive Plan (the “Original 2019 Plan”) in June 2019, which replaced the 2018 Stock Incentive Plan.

The board of directors adopted the Amended and Restated 2019 Equity Incentive Plan (the “A&R 2019 Plan” and, together with the Original 2019 Plan, the “2019 Plan”) on April 27, 2022, which was subsequently approved by the Company’s stockholders on June 8, 2022, to revise the total annual compensation that may be awarded to the Company’s non-employee directors thereunder. The A&R 2019 Plan provides for the grant of stock options, restricted stock awards, stock bonus awards, cash awards, stock appreciation right, restricted stock units, and performance awards to directors, officers and employees of the Company, as well as consultants and advisors of the Company. As a result of the automatic increase provision of the A&R 2019 Plan, the number of shares of common stock available for issuance thereunder increased by 2.0 million shares in January 2024. As of June 30, 2024, there were a total of 0.5 million shares available for future award grants under the A&R 2019 Plan.

On February 17, 2024, the Company's board of directors adopted the 2024 Equity Inducement Plan (the “Inducement Plan”). The Inducement Plan provides for the grant of stock options and restricted stock awards to persons who were not previously an employee or director of the Company, as an inducement material to such person’s entry into employment with the Company and in accordance with the requirements of the Nasdaq Stock Market Rule 5635(c)(4). As of June 30, 2024, there were a total of 0.3 million shares available for future award grants under the Inducement Plan.

The Company recognized equity-based compensation expense in the condensed consolidated statements of operations and comprehensive loss, by award type, as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Stock options	$	8,447	$	7,684	$	17,397	$	14,931
Restricted stock units	4,588		2,523		8,898		4,743
Employee Stock Purchase Plan	139		108		254		217

Total	$	13,174	$	10,315	$	26,549	$	19,891

The following table summarizes the allocation of equity-based compensation expense in the condensed consolidated statements of operations and comprehensive loss, by expense category (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Research and development expense	$	6,806	$	4,962	$	13,602	$	9,580
General and administrative expense	6,368		5,353		12,947		10,311
Total	$	13,174	$	10,315	$	26,549	$	19,891

Restricted Stock Units

The following table summarizes the Company’s restricted stock unit activity during the six months ended June 30, 2024:


	Number of Shares	Weighted Average Fair Value per Share at Issuance
Unvested restricted stock units as of December 31, 2023	1,110,295	$	33.86
Granted	1,232,660	27.90
Vested	(293,820)	34.44
Forfeited	(24,850)	28.68
Unvested restricted stock units as of June 30, 2024	2,024,285	$	30.21

Stock Options

The following table summarizes the Company’s stock option activity during the six months ended June 30, 2024:


	Number of Shares	Weighted Average Exercise Price
Outstanding as of December 31, 2023	5,887,257	$	28.04
Granted	1,767,276	28.79
Exercised	(40,325)	10.82
Forfeited or expired	(65,317)	43.11
Outstanding as of June 30, 2024	7,548,891	$	28.18
Options exercisable as of June 30, 2024	4,504,317	$	25.34

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8.Income Taxes

Deferred tax assets and deferred tax liabilities are recognized based on temporary differences between the financial reporting and tax basis of assets and liabilities using statutory rates. A valuation allowance is recorded against deferred tax assets if it is more likely than not that some or all of the deferred tax assets will not be realized.

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 (“Internal Revenue Code”). Net operating loss and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50 percent, as defined under Sections 382 and 383 of the Internal Revenue Code. Such changes would limit the Company’s use of its operating loss carryforwards and tax credits. In such a situation, the Company may be required to pay income taxes, even though significant operating loss carryforwards and tax credits exist.

The Company records a provision or benefit for income taxes on ordinary pre-tax income or loss based on its estimated effective tax rate for the year. As of June 30, 2024, the Company forecasts an ordinary pre-tax loss for the year ended December 31, 2024 and, since it maintains a full valuation allowance on its deferred tax assets, the Company did not record an income tax benefit in 2024.

9.Commitments and Contingencies

Guarantees and Indemnifications

The Company entered, and intends to continue to enter, into separate indemnification agreements with directors, officers, and certain other key employees, in addition to the indemnification provided for in the restated certificate of incorporation and restated bylaws, as amended. These agreements, among other things, require the Company to indemnify directors, officers, and certain other key employees for certain expenses, including attorneys’ fees, judgments, penalties, fines, and settlement amounts actually incurred by these individuals in any action or proceeding arising out of their service to the Company or any of its subsidiaries or any other company or enterprise to which these individuals provide services at the Company’s request. Subject to certain limitations, the indemnification agreements also require the Company to advance expenses incurred by directors, officers, and key employees for the defense of any action for which indemnification is required or permitted.

The Company has standard indemnification arrangements in its leases for laboratory and office space that require it to indemnify the landlord against any liability for injury, loss, accident, or damage from any claims, actions, proceedings, or costs resulting from certain acts, breaches, violations, or non-performance under the Company’s lease.

Through June 30, 2024, 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.

On March 29, 2024, the Company entered into a lease extension with its current landlord for its existing leased office and laboratory space to extend the lease through December 31, 2025. The future rent payments for the leased space increased by $1.0 million as a result of the lease extension. As part of the lease modification, which was not accounted for as a separate contract, the Company reassessed and concluded that the classification of the lease continues to be an operating lease, remeasured, using the discount rate at the effective date of the modification, the remaining rent payments to increase the lease liability and right of use asset.

On March 26, 2024, the Company entered into a sublease agreement for additional office space in the same building as the Company’s corporate headquarters. The sublease agreement is for the Company to occupy 7,257 square feet of office space from April 1, 2024, the date the Company gained access to the space, through December 30, 2025. The rent payments total $0.6 million, which does not include operating expenses, taxes or other non-lease component payments that are not fixed.

There were no additional 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, 2023, filed with the SEC on February 22, 2024.

Legal Proceedings

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

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10.Option and License Agreements

A detailed description of contractual terms and the Company’s accounting for the agreement 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, 2023, filed with the SEC on February 22, 2024.

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. 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 six months ended June 30, 2023 (in thousands):


	Six Months Ended June 30,
	2023
Reimbursement revenue	$	51
Upfront payment revenue	470
Total revenue recognized	$	521
Costs incurred	$	51

As of June 30, 2024, 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.

11.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 June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Net loss	$	(57,585)	$	(39,013)	$	(102,879)	$	(75,148)
Weighted average common shares outstanding, basic and diluted	50,095,534		42,373,407		50,052,283		41,249,157
Net loss per share, basic and diluted	$	(1.15)	$	(0.92)	$	(2.06)	$	(1.82)

In February 2023, the Company sold and issued the Pre-Funded Warrants (see Note 1). The shares of common stock into which the Pre-Funded Warrants were exercisable were considered outstanding for the purposes of computing basic earnings per share because the shares could be issued for little or no consideration, and because the Pre-Funded Warrants were fully vested and immediately exercisable upon issuance. The Pre-Funded Warrants were net exercised in their entirety during the year-ended December 31, 2023.

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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 Six Months Ended June 30,
	2024	2023
Restricted stock units	2,024,285	1,115,610
Stock options	7,548,891	5,867,650
Total	9,573,176	6,983,260

In addition to the securities listed in the table above, as of June 30, 2024 the Company had reserved 1,971,633 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 six months ended June 30, 2024.

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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, 2023, filed with the SEC on February 22, 2024.

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. These forward-looking statements may include, but are not limited to, statements regarding our expectations related to the Merger Agreement (as defined below), including our ability to consummate the Offer (as defined below), the Merger (as defined below) and the other transactions contemplated by the Merger Agreement (the “Transactions”), the parties’ ability to satisfy the conditions to the consummation of the Offer and the other conditions set forth in the Merger Agreement, the expected timetable for consummating the Transactions, and the potential benefits of the Transactions for us and our stockholders; our future results of operations and financial position; our business strategy, market size and, potential growth opportunities; our preclinical and clinical development activities; the efficacy and safety profile of our product candidates; the, use of net proceeds from any 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, increases in inflation, interest rate fluctuations, uncertainty with respect to the federal debt ceiling and budget and the related potential for government shutdowns, the ongoing labor shortage, disruptions to global supply chains, and 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.

Pending Transaction with Eli Lilly and Company

On July 7, 2024, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Eli Lilly and Company, an Indiana corporation (“Parent” or “Lilly”), and Rainier Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of Lilly (“Merger Sub”). On the terms and subject to the conditions of the Merger Agreement, on July 19, 2024 Merger Sub commenced a cash tender offer (the “Offer”) to purchase all of the outstanding shares of our common stock at a price of $57.00 per share, net to the stockholder in cash, without interest thereon and subject to applicable tax withholding. Following consummation of the Offer, Merger Sub will merge with and into us, with us surviving as a wholly owned subsidiary of Parent (the “Merger”). If the Merger Agreement is terminated under specified circumstances, we will be required to pay Parent a termination fee of $118.0 million. The Offer and the Merger are subject to customary closing conditions. The Merger is anticipated to close in the third quarter of 2024, assuming satisfaction or waiver of all of the conditions of the Offer and the Merger. The Merger Agreement contemplates that the Merger will be effected pursuant to Section 251(h) of the General Corporation Law of Delaware (the “DGCL”), which permits completion of the Merger without a vote of the holders of our common stock upon the acquisition by Merger Sub of a majority of the aggregate number of our issued and outstanding common stock. If the Merger is consummated, we will cease to be a publicly traded company. This is not a recommendation and is neither an offer to purchase nor a solicitation of an offer to sell any securities, nor is it a substitute for the tender offer materials that Lilly and Merger Sub have filed with the SEC in connection with the Offer.

Overview

We are a biopharmaceutical company applying our proprietary insights into integrins to discover and develop a pipeline of potentially first-in-class oral small molecule integrin therapeutics. Integrins are a target class with multiple approved injectable blockbuster drugs for the treatment of serious chronic diseases, including autoimmune, cardiovascular and metabolic diseases, fibrosis and cancer. To date, no oral small molecule integrin therapies have been approved by the U.S. Food and Drug Administration (“FDA”). 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 (“MInT Platform”) was created by 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 orally administered α4β7-specific integrin inhibitor affecting inflammation, into clinical development for the treatment of inflammatory bowel disease (“IBD”) an indication for which there is significant unmet need. Only about one in five patients achieve clinical remission with approved

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advanced therapies, and approximately half of those patients lose response over time. As such, even newer biologic and oral agents may not adequately control tissue inflammation or symptoms for many of the sicker patients, and some will therefore develop complications that require surgical removal of the colon and rectum. In addition, many patients with moderate-severe IBD do not receive adequate treatment for their disease due to the inconvenience and fear of injectable biologics, or the safety profile of systemically immunosuppressive therapies. We believe that MORF-057 has the potential to address these unmet needs in the IBD treatment landscape as an orally administered agent with gastrointestinal (“GI”) targeted immunosuppression that may be able to avoid some of the concerns associated with other approved drug classes. Furthermore, as the IBD treatment landscape evolves from monotherapy to combination therapy in order to increase therapeutic response rates in certain patient populations, we believe that MORF-057’s profile is promising as a foundational backbone for next generation therapeutic regimens. We submitted an investigational new drug application (“IND”) for MORF-057 in July 2020, and the FDA permitted the study submitted under the IND to proceed in August 2020. In September 2020, we initiated a Phase 1 clinical trial of MORF-057 in healthy volunteers to establish our clinical program and select doses for our Phase 2 program in IBD with an initial focus on ulcerative colitis (“UC”).

The MORF-057 Phase 1 study included single ascending dose (“SAD”), multiple ascending dose (“MAD”), and food effect (“FE”) cohorts evaluating MORF-057 safety, pharmacokinetics (“PK”) and pharmacodynamics (“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.

The α4β7 receptor occupancy (“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.

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 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 (“RHI”), a validated instrument that measures histological disease activity in UC at 12 weeks compared to baseline. Patients will then continue for an additional 40 weeks of maintenance therapy followed by a 52-week assessment. Additional outcome measures in the EMERALD-1 study include change in the modified Mayo clinic score (“mMCS”), safety, PK parameters and key PD measures. 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 mMCS. MORF-057 was generally well tolerated at the dose of 100 mg BID with no serious adverse events (“SAEs”) 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. We presented the moderated poster presentation for the EMERALD-1 trial at UEG Week 2023, including 12 weeks of safety, PK parameters and key PD measures compared to baseline. On October 12, 2023, we presented

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additional data from the EMERALD-1 trial including 44 weeks of safety, PK parameters and key PD measures compared to baseline. Data from the 52-week readout of the EMERALD-1 trial, including the 40-week maintenance phase of the main cohort and the 12-week induction phase of the exploratory cohort of four patients of secondary non-responders to vedolizumab, have been collected and analyzed. No safety signals have been identified in either cohort. We believe the data from the 52-week readout, including safety, clinical efficacy and PK/PD measures, are substantially consistent with data trends from the 12-week induction phase and the 44-week readout that we reported in October 2023 for EMERALD-1. We are preparing a manuscript for submission and intend to publish the EMERALD-1 data set in an appropriate medical journal or forum.

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 doses or a placebo: 100 mg BID, 200 mg BID, QD (once daily), or a placebo that will crosses 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 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 complete analysis of the data for 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.

GARNET, which is a global Phase 2b randomized controlled trial of MORF-057 in Crohn’s disease, is actively enrolling and has randomized its first patient. Patients enrolled in the GARNET study will be randomized to receive one of two active doses or a placebo: 200 mg BID, 100 mg BID or a placebo that will cross over to MORF-057 after the 14-week induction phase. The primary endpoint of the trial is the proportion of participants in endoscopic response (>=50% reduction) at week 14 as determined using Simple Endoscopic Score for Crohn’s Disease (“SES-CD”). The secondary endpoints will include the change in Crohn’s Disease Activity Index (“CDAI”) measures, as well as safety parameters. Following the 14-week induction phase, patients will move to a 38-week maintenance phase. 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. Further pre-clinical research is ongoing with MORF-088 in the treatment of myelofibrosis to create a robust translational plan to efficiently measure if this mechanism will be effective in patients. We also have an additional research stage program ongoing against α5β1 in pulmonary hypertensive diseases, including pulmonary arterial hypertension (“PAH”). We have determined that α5β1 promotes cell proliferation, survival, hypertrophic growth and fibrosis, which are key elements in the progression of PAH.

Since June, 2015 we have had an exclusive integrin focused collaboration agreement in place with Schrödinger, a leader in chemical simulation, machine learning models and in silico drug discovery. We have successfully used their technology platform to perform virtual screens on 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 that our collaboration with Schrödinger 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 began 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. Specifically, we have initiated projects targeting the IL23 and TL1A pathways, among others. Injectable inhibitors of these targets have been shown to provide significant clinical benefits to IBD patients. Utilizing our expertise in small molecule drug design and optimization, we are pursuing inhibitors against these targets. If we are successful, we believe these agents could be important monotherapy agents as well as optimal to combine with MORF-057 to achieve enhanced clinical efficacy in IBD patients.

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, which was amended by Amendment No. 1 thereto in August 2021, with Jefferies LLC (“Jefferies”), with respect to an at-the-market offering program (the “Jefferies 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 $150.0 million, referred to as Jefferies Placement Shares, through Jefferies as sales agent. We paid Jefferies a

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commission on the gross sales proceeds of any Jefferies Placement Shares sold through Jefferies under the Jefferies ATM, and also provided Jefferies with customary indemnification and contribution rights. In connection with our entry into a new at-the-market offering program, on April 25, 2024 we terminated the Jefferies ATM. We were not subject to any termination penalties related to the termination of the Jefferies ATM. During the six months ended June 30, 2024, no shares were issued under the Jefferies ATM. We may not sell any additional Jefferies Placement Shares under the Jefferies ATM.

On April 26, 2024, we entered into a Sales Agreement with TD Securities (USA) LLC (“TD Cowen”), under which we may offer and sell, from time to time at our sole discretion, shares of our common stock having an aggregate offering amount of up to $350.0 million, referred to as Cowen Placement Shares, through TD Cowen as sales agent pursuant to an at-the-market offering program (the “TD Cowen ATM”). We agreed to pay TD Cowen a commission on the gross sales proceeds of any Cowen Placement Shares sold through TD Cowen and also provided TD Cowen with customary indemnification and contribution rights. In conjunction our entry into the TD Cowen ATM, we terminated the Jefferies ATM. During the six months ended June 30, 2024, no shares were issued under the TD Cowen ATM. At June 30, 2024, we had $350.0 million of common stock remaining available for sale under the TD Cowen 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 were 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 year ended December 31, 2023, 1,980,188 shares of common stock were issued upon the net exercise of 1,980,198 Pre-Funded Warrants. As of June 30, 2024, 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 Biotechnology Ltd. (“AbbVie”) and Janssen Pharmaceuticals, Inc. (“Janssen”) discussed further in Note 10 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 June 30, 2024, 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 our at-the-market offering programs, along with payments received under our collaboration agreements.

Since inception, we have incurred significant operating losses. As of June 30, 2024, we had an accumulated deficit of $552.1 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 June 30, 2024, we had cash, cash equivalents, and marketable securities of $628.4 million. If we are unable to timely complete the Offer and the Merger, based on our current operating plan, we believe our available cash and cash equivalents and marketable securities, will be sufficient to fund our planned level of operations for at least the next 12 months.

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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 supply chain disruptions, increases in consumer prices, inflation, market volatility, interest rate fluctuations, instability in the banking sector, uncertainty with respect to the federal debt ceiling and budget and the related 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 consolidated financial statements, the extent to which the current macroeconomic and geopolitical environments 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 (“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. Judgments 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 the clinical development process for our 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, 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 June 30, 2024 and 2023

The following table summarizes our results of operations for the three months ended June 30, 2024 and 2023:


	Three Months Ended June 30,				Change
	2024		2023		$		%

	(in thousands, except percentages)
Operating expenses:
Research and development	$	49,271	$	35,719	$	13,552	38	%
General and administrative	15,962		9,583		6,379		67	%
Total operating expenses	65,233		45,302		19,931		44	%
Loss from operations	(65,233)		(45,302)		(19,931)		44	%
Other income:
Interest income, net	7,903		6,427		1,476		23	%
Other expense, net	(15)		—		(15)		*
Total other income, net	7,888		6,427		1,461		23	%
Loss before provision for income taxes	(57,345)		(38,875)		(18,470)		48	%
Provision for income taxes	(240)		(138)		(102)		74	%
Net loss	$	(57,585)	$	(39,013)	$	(18,572)	48	%

* Percentage not meaningful

Research and Development Expenses

Research and development expense increased by $13.6 million, or 38%, from $35.7 million for the three months ended June 30, 2023 to $49.3 million for the three months ended June 30, 2024. A significant portion of our research and development costs have been external clinical and 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. The following table summarizes our research and development expense for three months ended June 30, 2024 and 2023:


	Three Months Ended June 30,				Change
	2024		2023		$		%

	(in thousands, except percentages)
External costs by program:
MORF-057	$	20,536	$	15,433	$	5,103	33	%
MORF-088	827		1,719		(892)		(52)	%
Other early development candidates and unallocated costs	8,598		4,452		4,146		93	%
Total external costs	29,961		21,604		8,357		39	%
Internal costs:
Employee compensation and benefits	17,645		13,100		4,545		35	%
Facility and other	1,665		1,015		650		64	%
Total internal costs	19,310		14,115		5,195		37	%
Total research and development expense	$	49,271	$	35,719	$	13,552	38	%

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

•The $8.4 million increase in external costs from the three months ended June 30, 2023 to the three months ended June 30, 2024 was 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 for MORF-088, which is primarily a result of the timing of incurring manufacturing costs and other development activities.

▪The $5.2 million increase in internal costs from the three months ended June 30, 2023 to the three months ended June 30, 2024 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 $6.4 million, or 67%, from $9.6 million for the three months ended June 30, 2023 to $16.0 million for the three months ended June 30, 2024. The increase in general and administrative expense was primarily attributable to a $1.0 million increase in non-cash equity-based compensation expense and $4.2 million related to acquisition related expenses.

Interest Income, Net

Interest income increased by $1.5 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 June 30, 2024 compared to the three months ended June 30, 2023.

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Comparison of the Six Months Ended June 30, 2024 and 2023

The following table summarizes our results of operations for the six months ended June 30, 2024 and 2023:



	Six Months Ended June 30,				Change
	2024		2023		$		%
	(in thousands, except percentages)
Collaboration revenue	$	—	$	521	$	(521)	(100)	%
Operating expenses:
Research and development	91,712		66,168		25,544		39	%
General and administrative	27,125		18,860		8,265		44	%
Total operating expenses	118,837		85,028		33,809		40	%
Loss from operations	(118,837)		(84,507)		(34,330)		41	%
Other income:
Interest income, net	16,293		9,527		6,766		71	%
Other income (expense), net	(15)		2		(17)		*
Total other income, net	16,278		9,529		6,749		71	%
Loss before provision for income taxes	(102,559)		(74,978)		(27,581)		37	%
Provision for income taxes	(320)		(170)		(150)		88	%
Net loss	$	(102,879)	$	(75,148)	$	(27,731)	37	%

* Percentage not meaningful

Collaboration Revenue

The decrease in collaboration revenue of $0.5 million is attributable to the conclusion of the Janssen Agreement in March 2023. There were no outstanding revenue generating collaboration agreements during the six months ended June 30, 2024.

Research and Development Expenses

Research and development expense increased by $25.5 million, or 39%, from $66.2 million for the six months ended June 30, 2023 to $91.7 million for the six months ended June 30, 2024. 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 six months ended June 30, 2024 and 2023:


	Six Months Ended June 30,				Change
	2024		2023		$		%
	(in thousands, except percentages)
External costs by program:
MORF-057	$	37,858	$	26,948	$	10,910	40	%
MORF-088	2,054		3,624		(1,570)		(43)	%
Janssen Agreement programs	—		51		(51)		(100)	%
Other early development candidates and unallocated costs	13,646		7,905		5,741		73	%
Total external costs	53,558		38,528		15,030		39	%
Internal costs:
Employee compensation and benefits	34,914		25,500		9,414		37	%
Facility and other	3,240		2,140		1,100		51	%
Total internal costs	38,154		27,640		10,514		38	%
Total research and development expense	$	91,712	$	66,168	$	25,544	39	%

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

▪The $15.0 million increase in external costs from the six months ended June 30, 2023 to the six months ended June 30, 2024 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 MORF-088, which is primarily a result of the timing of incurring manufacturing costs and other development activities.

▪The $10.5 million increase in internal costs from the six months ended June 30, 2023 to the six months ended June 30, 2024 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 $8.3 million, or 44%, from $18.9 million for the six months ended June 30, 2023 to $27.1 million for the six months ended June 30, 2024. The increase in general and administrative expense was primarily attributable to a $2.6 million increase in non-cash equity-based compensation expense and a $5.4 million increase in other costs of which included an increase in acquisition related costs of $4.2 million.

Interest Income, Net

Interest income increased by $6.8 million due to an increase in effective interest rates on cash equivalents and marketable securities and an increase in invested marketable securities during the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

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Liquidity and Capital Resources

Sources of Liquidity

From inception through June 30, 2024, 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 offering programs, 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 June 30, 2024 and December 31, 2023:


	June 30, 2024		December 31, 2023

	(in thousands)
Cash	$	563	$	589
Cash equivalents	50,208		57,988
Marketable securities	577,595		645,772
Total cash, cash equivalents and marketable securities	$	628,366	$	704,349

Cash Flows

The following table provides information regarding our cash flows for the six months ended June 30, 2024 and 2023:


	Six Months Ended June 30,
	2024		2023

	(in thousands)
Net cash used in operating activities	$	(78,477)	$	(54,488)
Net cash provided by (used in) investing activities	69,699		(221,618)
Net cash provided by financing activities	1,028		434,110
Net (decrease) increase in cash, cash equivalents and restricted cash	$	(7,750)	$	158,004

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 $78.5 million for the six months ended June 30, 2024 compared to $54.5 million in cash used in operating activities for the six months ended June 30, 2023. The increase in cash used in operating activities was primarily driven by a $33.8 million increase in operating expenses and decrease in cash outflows from changes in operating assets and liabilities in the first half of 2024, offset by increases in interest income and non-cash items recorded as operating expenses.

Net Cash Provided by (Used in) Investing Activities

Net cash provided by investing activities was $69.7 million for the six months ended June 30, 2024 compared to $221.6 million used in investing activities for the six months ended June 30, 2023. The change in cash provided by or used in investing activities is primarily based on the timing of purchases or maturities in marketable securities in the period. During the six months ended June 30, 2024, the cash provided by investing activities was primarily based on the timing of maturities and purchases in marketable securities during the six months ended June 30, 2024. During the six months ended June 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 Jefferies ATM offering program.

Net Cash Provided by Financing Activities

Net cash provided by financing activities of $1.0 million for the six months ended June 30, 2024 resulted from $1.0 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 six months ended June 30, 2023 of $434.1 million 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 $259.2 million in net proceeds from the underwritten public offering of common stock completed in May 2023, $67.2 million in net proceeds from the sale of common stock under the Jefferies ATM offering program and from the $8.0 million in proceeds received 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 of macroeconomic factors related to ongoing regional conflicts around the world, inflation and market volatility, interest rate fluctuations, instability in the global banking sector, uncertainty with respect to the federal debt ceiling and budget and the related 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 plans and strategies, we anticipate our operating expenses will decrease as we do not plan to invest in commercializing our product candidates and plan to complete the Offer and the Merger. We do not intend to pursue further funding and, instead, are seeking to complete the Offer and the Merger with Lilly and Merger Sub. If we are unable to timely complete the Offer and the Merger, based on our current operating plan, we believe our available cash and cash equivalents and marketable securities, will be sufficient to fund our planned level of operations for at least the next 12 months.

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:

•our ability to complete the Offer and the Merger;

•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;

•potential delays in our preclinical studies, our development programs and our current and planned clinical trials due to geo-political actions, including war and regional conflicts around the world (such as the current armed conflicts in Ukraine and Israel), the ongoing labor shortage, global supply chain disruptions, or cybersecurity events;

•general economic conditions and trends, including inflation and market volatility, interest rate fluctuations, the ongoing labor shortage, instability in the global banking sector, uncertainty with respect to the federal debt ceiling and budget and the related potential for government shutdowns or the weakening of the global and U.S. economies; 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.

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Contractual Obligations

On March 29, 2024, we modified the lease for our 32,405 square feet of office and laboratory space of corporate headquarters to extend the expiration date of the lease from May 2025 through December 31, 2025, which increased the future rental payments through the end of the term of the lease by $1.0 million.

On March 26, 2024, we entered into a sublease agreement for additional office space in the same building as our corporate headquarters. The sublease agreement is for 7,257 square feet of office space commencing April 1, 2024, the date we gained access to the space, through December 30, 2025 with future rental payments totaling $0.6 million.

For additional information about our lease commitments, see Note 9 of the accompanying condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.

As of June 30, 2024, our lease and sublease was for 39,662 square feet of office and laboratory space and separate vivarium, all through the end of December 2025, have an aggregate of $4.1 million in future rent payments.

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 June 30, 2024, 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, 2023, filed with the SEC on February 22, 2024.

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.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There were no material changes in our exposure to market risk from December 31, 2023 to June 30, 2024.

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 Chief Executive Officer 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 June 30, 2024. 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 Chief Executive Officer and our Chief Financial Officer), as of the end of the period covered by this report, our Chief Executive Officer 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 June 30, 2024 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. Except as otherwise indicated, the following risk factors do not take into account the proposed Merger and assume that we will remain a stand-alone company.

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:

•The completion of the Offer and the Merger is subject to conditions, some or all of which may not be satisfied or completed on a timely basis, if at all. Failure to complete the Offer and the Merger within the timeframe we anticipate or at all could have material adverse effects on our company.

•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.

•Even if we are able to commercialize any product candidate, such product candidate may become subject to unfavorable pricing regulations or third-party coverage and reimbursement policies, which would harm our business.

•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.

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•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.

Risks Related to the Pending Transaction with Eli Lilly and Company

The completion of the Offer and the Merger is subject to conditions, some or all of which may not be satisfied or completed on a timely basis, if at all. Failure to complete the Offer and the Merger within the timeframe we anticipate or at all could have material adverse effects on the Company.

As described above, on July 7, 2024, we entered into the Merger Agreement with Lilly and Merger Sub, pursuant to which Merger Sub commenced the Offer on July 19, 2024. The Offer is initially scheduled to expire at one minute after 11:59 p.m., Eastern time, on August 15, 2024 (the “Expiration Time”).

Consummation of the Offer is subject to the satisfaction or waiver of various conditions set forth in the Merger Agreement, including (1) a majority of shares of our common stock then outstanding being validly tendered and not validly withdrawn in the Offer prior to the Expiration Time (as defined in the Merger Agreement); (2) the expiration or termination of the waiting period under the HSR Act; (3) the accuracy of our representations and warranties contained in the Merger Agreement (except, generally, for any inaccuracies that have not had, individually or in the aggregate, a Company Material Adverse Effect (as defined in the Merger Agreement)); (4) our performance in all material respects of our obligations under the Merger Agreement; and (5) the other conditions set forth in Exhibit A to the Merger Agreement. There is no financing condition to the Offer or the Merger. There can be no assurance that the conditions to the completion of the Offer and the Merger will be satisfied or waived, that the Offer and the Merger will be completed or that the Offer and the Merger will be consummated as contemplated by the Merger Agreement.

If one or more of these conditions are not satisfied, and as a result, we do not complete the Offer and the Merger, we would remain liable for significant transaction costs, and the focus of our management would have been diverted from seeking other potential strategic opportunities, in each case without realizing any benefits of the Offer and the Merger. We could be required to pay Lilly a termination fee of approximately $118.0 million if the Merger Agreement is terminated under specific circumstances described in the Merger Agreement. Certain costs associated with the Offer and the Merger have already been incurred or may be payable even if the Offer and the Merger are not consummated. Finally, any disruptions to our business resulting from the announcement and pendency of the Offer and the Merger, including any adverse changes in our relationships with our partners, suppliers and employees, could continue or accelerate in the event that we fail to consummate the Offer and the Merger. We may also be required to devote significant time and resources to litigation related to any failure to complete the Merger or related to any enforcement proceeding commenced against us to perform our obligations under the Merger Agreement.

The price of our common stock may also fluctuate significantly based on announcements by Parent, other third parties, or us regarding the Offer and the Merger or based on market perceptions and other conditions to the consummation of the Offer and the Merger. Such announcements may lead to perceptions in the market that the Offer and the Merger may not be completed, which could cause our share price to fluctuate or decline.

If we do not consummate the Offer and the Merger, the price of our common stock may decline significantly from the current market price, which may reflect a market assumption that the Offer and the Merger will be consummated. Any of these events could have a material adverse effect on our business, operating results and financial condition and could cause a decline in the price of our common stock.

The Offer and the Merger will involve substantial costs and will require substantial management resources.

In connection with the consummation of the Offer and the Merger, management and financial resources have been diverted and will continue to be diverted towards the completion of the Offer and the Merger. We expect to incur substantial costs and expenses relating to, as well as the direction of management resources towards, the Offer and the Merger. Such costs, fees and expenses include fees and expenses payable to financial advisors, other professional fees and expenses, fees and costs relating to regulatory filings and filings with the SEC and notices and other transaction-related costs, fees and expenses. Further, if the Merger Agreement is terminated by us under specified circumstances, we will be required to pay Parent a termination fee of $118.0 million. If the Offer and the Merger are not completed, we will have incurred substantial expenses and expended substantial management resources for which we will have received little or no benefit if the closing of the Offer and the Merger does not occur.

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If the Merger occurs, our stockholders will not be able to participate in any financial upside to our business after the Merger.

Pursuant to the Merger Agreement, on July 19, 2024, Merger Sub commenced the Offer to purchase, subject to the satisfaction or waiver of certain conditions set forth in the Merger Agreement, any and all of the issued and outstanding shares of our common stock, at the Offer Price, net to the stockholder in cash, without interest thereon and subject to any applicable tax withholding, upon the terms and subject to the conditions set forth in the Merger Agreement. In the Merger, each share of our common stock issued and outstanding immediately prior to the effective time of the Merger that is not tendered and accepted pursuant to the Offer (other than the shares of our common stock owned by us or any of our wholly-owned subsidiaries, the shares of our common stock held by Lilly, Merger Sub or any other subsidiary of Lilly, and shares of our common stock as to which appraisal rights have been perfected in accordance with applicable law, if any) will be canceled and the holder of such share of our common stock will be entitled to receive the Offer Price in cash without interest, less any applicable tax withholding. Our stockholders will not receive any shares of Lilly or Merger Sub common stock in connection with the Offer or the Merger. As a result, if our business following the consummation of the Merger performs well, our current stockholders will not receive any benefit from the performance of our business following the consummation of the Merger.

In certain instances, the Merger Agreement requires us to pay a termination fee to Lilly, which could require us to use available cash that would have otherwise been available for general corporate purposes.

Under the terms of the Merger Agreement, we will be required to pay Lilly a termination fee of approximately $118.0 million if the Merger Agreement is terminated under specific circumstances, as described in the Merger Agreement. If the Merger Agreement is terminated under such circumstances, the termination fee we may be required to pay under the Merger Agreement may require us to use available cash that would have otherwise been available for general corporate purposes and other uses.

The consideration payable to holders of our common stock that validly tender and do not validly withdraw their shares of common stock in the Offer will not be adjusted for changes in our business, assets, liabilities, prospects, outlook, financial condition or results of operations, or changes in the market price of, analyst estimates of, or projections relating to, our common stock. For example, if we experienced an improvement in our business, assets, liabilities, prospects, outlook, financial condition or results of operations prior to the consummation of the Offer and Merger, there would be no adjustment to the amount of consideration payable to holders of our common stock that validly tender and do not validly withdraw their shares of common stock in the Offer.

The Merger Agreement contains provisions that could discourage a potential competing acquirer.

The Merger Agreement provides that, upon the terms and subject to the conditions thereof, we and our representatives cannot solicit or initiate discussions with third parties regarding other proposals to acquire us and we are subject to restrictions on our ability to respond to any such proposal, except as permitted under the terms of the Merger Agreement. In the event that we receive an acquisition proposal from a third party, we must notify Parent of such proposal and negotiate in good faith with Parent prior to terminating the Merger Agreement or effecting a change in the recommendation of our board of directors to our stockholders with respect to the Offer and the Merger. The Merger Agreement also contains certain termination rights for Parent and us and further provides that, upon termination of the Merger Agreement under specified circumstances, including certain terminations in connection with an alternative business combination transaction as permitted by the terms of the Merger Agreement, we will be required to pay Parent a termination fee of $118.0 million. These provisions could discourage a potential third-party acquirer that might have an interest in acquiring all or a significant portion of us from considering or proposing such acquisition, even if it were prepared to pay consideration with a higher per share cash or market value than the market value proposed to be received or realized in the Offer and the Merger. These provisions also might result in a potential third-party acquirer proposing to pay a lower price to our stockholders than it might otherwise have proposed to pay due to the added expense of the $118.0 million termination fee that may become payable in certain circumstances. If the Merger Agreement is terminated and we determine to seek another business combination, we may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the Offer and the Merger.

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Review under the HSR Act could prevent or delay the consummation of the Offer and Merger.

Under the HSR Act, and the related rules and regulations that have been issued by the FTC, certain transactions having a value above specified thresholds may not be consummated until specified information and documentary material, or Premerger Notification and Report Forms, have been furnished to the FTC and the Antitrust Division of the Department of Justice, or the Antitrust Division, and certain waiting period requirements have been satisfied.

It is a condition to Merger Sub’s obligation to accept for payment and pay for shares of our common stock tendered pursuant to the Offer that the waiting period (and any extension of the waiting period) applicable to the Offer under the HSR Act shall have expired or been terminated. Under the HSR Act, the purchase of shares of our common stock in the Offer may not be undertaken until the expiration of a 15 calendar day waiting period following the filing by Parent of a Premerger Notification and Report Form concerning the Offer with the FTC and the Antitrust Division, unless the waiting period is earlier terminated by the FTC and the Antitrust Division. If within the 15 calendar day waiting period either the FTC or the Antitrust Division were to issue a request for additional information and documentary material, or a Second Request, the waiting period with respect to the Transactions would be extended until 10 calendar days following the date of substantial compliance by Parent with that request, unless the FTC and the Antitrust Division terminated the additional waiting period before its expiration. The 10 calendar day waiting period can be extended with the consent of Parent and us. If either the 15 calendar day or 10 calendar day waiting period expires on a Saturday, Sunday or federal holiday, then such waiting period will be extended until 11:59 p.m. Eastern Time of the next day that is not a Saturday, Sunday or federal holiday. After that time, the waiting period may be extended only by court order or with Parent’s and our consent. The FTC and the Antitrust Division may terminate the additional 10-day waiting period before its expiration. In practice, complying with a Second Request can take a significant period of time.

The FTC and the Antitrust Division may scrutinize the legality under U.S. federal antitrust laws of transactions such as Merger Sub’s proposed acquisition of us. At any time before or after Merger Sub’s acceptance for payment of shares of our common stock pursuant to the Offer, notwithstanding the termination or expiration of the applicable waiting period under the HSR Act, if the Antitrust Division or the FTC believes that the Offer would violate the U.S. federal antitrust laws by substantially lessening competition in any line of commerce affecting U.S. consumers, the FTC and the Antitrust Division could take such action as they deem necessary under the applicable statutes, including seeking to enjoin the completion of the Transactions, seeking divestiture of substantial assets of the parties, or requiring the parties to license, or hold separate, assets, to terminate existing relationships and contractual rights, or to take other actions or agree to other restrictions limiting the freedom of action of the parties. At any time before or after consummation of the Transactions, notwithstanding the termination or expiration of the applicable waiting period under the HSR Act, U.S. state attorneys general and private persons may also bring legal action under the antitrust laws seeking similar relief or seeking conditions to the completion of the Offer. There can be no assurance that a challenge to the Offer on antitrust grounds will not be made or, if a challenge is made, what the result will be. If any such action is threatened or commenced by the FTC, the Antitrust Division or any state or any other person, Merger Sub may not be obligated to consummate the Offer or the Merger.

We and Parent filed our respective Premerger Notification and Report Forms with the FTC and Antitrust Division on July 16, 2024.

Stockholder litigation could prevent or delay the consummation of the Offer and the Merger or otherwise negatively impact our business, operating results and financial condition.

We may incur additional costs in connection with the defense or settlement of existing and any future stockholder litigation in connection with the Offer and the Merger. These demands, lawsuits or other future litigation may adversely affect our ability to complete the Offer and the Merger. We could incur significant costs in connection with any such litigation, including costs associated with the indemnification of our directors and officers.

Furthermore, one of the conditions to the consummation of the Offer and the Merger is the absence of any governmental order or law preventing the consummation of the Offer and the Merger or making the consummation of the Offer and the Merger illegal. Consequently, if a plaintiff were to secure injunctive or other relief prohibiting, delaying or otherwise adversely affecting our ability to complete the consummation of the Offer and the Merger, then such injunctive or other relief may prevent the Offer and the Merger from becoming effective within the expected time frame or at all.

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Our executive officers and directors may have interests in the Offer and the Merger that are different from, or in addition to, those of our stockholders generally.

Our executive officers and directors may have interests in the Offer and the Merger that are different from, or are in addition to, those of our stockholders generally. These interests include direct or indirect ownership of our common stock and equity awards, the acceleration of equity awards upon consummation of the Merger and other interests. Such interests of our directors and executive officers are set forth in further detail in the Schedule 14D-9 that we filed with the SEC on July 19, 2024.

While the Offer and the Merger are pending, we are subject to business uncertainties and contractual restrictions that could disrupt our business, and the Offer and the Merger may impair our ability to attract and retain qualified employees or retain and maintain relationships with our suppliers and other business partners.

Whether or not the Offer and the Merger are consummated, the Offer and the Merger may disrupt our current plans and operations, which could have an adverse effect on our business and financial results. The pendency of the Offer and the Merger may also divert management’s attention and our resources from ongoing business and operations and our employees and other key personnel may have uncertainties about the effect of the Offer and the Merger, and the uncertainties may impact our ability to retain, recruit and hire key personnel while the Offer and the Merger are pending or if the Offer and the Merger fail to close. Furthermore, if key personnel depart because of such uncertainties, or because they do not wish to remain with the combined company after the consummation of the Offer and the Merger, our business and results of operations may be adversely affected. In addition, we cannot predict how our suppliers and other business partners will view or react to the Offer and the Merger upon consummation. If we are unable to reassure our suppliers and other business partners to continue their business with us, our financial condition and results of operations may be adversely affected.

In addition, the Merger Agreement generally requires us to operate in the ordinary course of business consistent with past practice, pending consummation of the Offer and the Merger, and restricts us from taking certain actions with respect to our business and financial affairs without Parent’s consent. Such restrictions will be in place until either the Offer and the Merger are consummated or the Merger Agreement is terminated. These restrictions could restrict our ability to, or prevent us from, pursuing attractive business opportunities (if any) that arise prior to the consummation of the Offer and the Merger. For these and other reasons, the pendency of the Offer and the Merger could adversely affect our business, operating results and financial condition.

We have incurred, and will continue to incur, direct and indirect costs as a result of the pending transactions with Lilly.

We have incurred, and will continue to incur, significant costs and expenses, including fees for professional services and other transaction costs, in connection with the transactions contemplated by the Merger Agreement. We are obligated to pay these costs and expenses whether or not the transactions are completed. There are a number of factors beyond our control that could affect the total amount or the timing of these costs and expenses, any of which could materially and adversely affect our business, financial condition, results of operations and prospects.

If the Offer and the Merger are not consummated, we may need to raise additional capital to continue our operations and execute our operating plans.

If the Offer and the Merger are not consummated, we may need to raise additional capital or we may need to delay, scale back or eliminate some planned operations or reduce expenses to remain a going concern, any of which would have a significant negative impact on our prospects and financial condition, as well as the trading price of our common stock. There can be no assurance that we can raise capital when needed or on terms favorable to us and our stockholders. Macroeconomic conditions and heightened global uncertainties may adversely affect general commercial activity and the U.S. and global economies and financial markets, which increases uncertainty around our ability to access the capital markets when needed and on acceptable terms.

Risks Related to Our Financial Position and Need for Capital

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 are a clinical stage biopharmaceutical company with a limited operating history. Biopharmaceutical product development is a highly speculative undertaking because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory approval or become commercially viable.

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Our lead product candidate, MORF-057, has completed a Phase 1 clinical trial in healthy volunteers. We continue our Phase 2 program for MORF-057, initially in UC, and in April 2023 presented positive data from the main cohort (n=35) of the EMERALD-1 open-label, single-arm Phase 2a trial of MORF-057 at a dose of 100 mg BID in patients with moderate to severe UC. We began dosing patients with moderate to severe UC under our EMERALD-2 global Phase 2b randomized controlled trial of MORF-057 in November 2022, and randomized our first patient in our Phase 2b study for MORF-057 in Crohn’s disease. We have no products approved for commercial sale and have not generated any revenue from commercial product sales to date, and we will continue to incur significant research and development and other expenses related to our clinical development and ongoing operations. For the six months ended June 30, 2024, we reported a net loss of $102.9 million. As of June 30, 2024, we had an accumulated deficit of approximately $552.1 million. Substantially all of our losses have resulted from expenses incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We expect to incur significant losses for the foreseeable future, and we expect these losses to increase as we continue our research and development of our product candidates.

We anticipate that our expenses will increase substantially if, and as, we:

•conduct clinical trials for our current and any future product candidates;

•discover and develop new product candidates, and conduct research and development activities, preclinical studies and clinical trials on those candidates;

•manufacture, or have manufactured, preclinical, clinical and commercial supplies of our product candidates;

•seek regulatory approvals for our product candidates or any future product candidates;

•commercialize our current product candidates or any future product candidates, if approved;

•attempt to transition from a company with a research focus to a company capable of supporting commercial activities, including establishing sales, marketing and distribution infrastructure;

•hire additional clinical, scientific and management personnel;

•add operational, financial and management information systems and personnel, including international operations;

•identify additional compounds or product candidates and acquire rights from third parties to those compounds or product candidates through licenses; and

•experience any delays in our preclinical or clinical studies and efforts to obtain regulatory approval for our product candidates, whether as a result of regional conflicts around the world, instability in the banking sector, inflation and market volatility, interest rate fluctuations, uncertainty with respect to the federal debt ceiling and budget and the related potential for government shutdowns, cybersecurity events, the ongoing labor shortage, global supply chain disruptions, the weakening of the global and U.S. economies, or otherwise.

Even if we succeed in commercializing one or more product candidates, we may continue to incur substantial research and development and other expenditures to develop and market additional product candidates. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital.

We have never generated revenue from product sales and may never be profitable.

Our ability to become and remain profitable depends on our ability to generate revenue. We do not expect to generate significant revenue unless and until we, either alone or with a collaborator, are able to obtain regulatory approval for, and successfully commercialize, our lead product candidate for our α4β7 program, or any other product candidates we may develop. Successful commercialization will require achievement of many key milestones, including demonstrating safety and efficacy in clinical trials, obtaining regulatory, including marketing, approval for these product candidates, manufacturing, marketing and selling those products for which we, or any of our current or future collaborators, may obtain regulatory approval, satisfying any post-marketing requirements and obtaining reimbursement for our products from private insurance or government payors. Because of the uncertainties and risks associated with these activities, we are unable to accurately and precisely predict the timing and amount of any future revenue, the extent of any further losses or if or when we might achieve profitability. We and any current or future collaborators may never succeed in these activities and, even if we do, or any collaborators do, we may never generate revenues that are large enough for us to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.

Our failure to become and remain profitable may depress the market price of our common stock and could impair our ability to raise capital, expand our business or continue our operations. If we continue to suffer losses as we have in the past, investors may not receive any return on their investment and may lose their entire investment.

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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.

The development of biopharmaceutical product candidates is capital-intensive. As our product candidates enter and advance through preclinical studies and clinical trials, we will need substantial additional funds to expand or create our development, regulatory, manufacturing, marketing and sales capabilities. We have used substantial funds to develop our technology and product candidates to date, and will require significant funds to conduct further research and development and preclinical testing and clinical trials of our product candidates, to seek regulatory approvals for our product candidates and to manufacture and market products, if any, which are approved for commercial sale.

Since our inception, we have invested a significant portion of our efforts and financial resources in research and development activities and preclinical testing and clinical trials of our product candidates. As of June 30, 2024, we had $628.4 million in cash, cash equivalents and marketable securities. Based on our current operating plan, we believe that our existing cash, cash equivalents and marketable securities as of June 30, 2024 will be sufficient to fund our operating expenses and capital expenditure requirements for at least twelve months from the issuance date of these unaudited condensed consolidated financial statements. However, our future capital requirements and the period for which we expect our existing resources to support our operations and future capital requirements may vary significantly from what we expect and we may need to seek additional funds sooner than planned. Because the length of time and activities associated with successful research and development of our product candidates is highly uncertain, we are unable to estimate the actual funds we will require for development and any marketing and commercialization activities for approved products. Our future funding requirements, both near- and long-term, will depend on many factors, including, but not limited to:

•the timing, cost and progress of preclinical and clinical development activities;

•the number and scope of preclinical and clinical programs we decide to pursue;

•the progress of the development efforts of parties with whom we have entered or may in the future enter into collaborations and/or research and development agreements;

•the timing and amount of milestone and other payments we may receive or make under any collaboration agreements;

•our ability to maintain our current licenses and research and development programs and to establish new collaboration arrangements;

•the costs involved in prosecuting and enforcing patent and other intellectual property claims;

•the costs of manufacturing our product candidates by third parties;

•the cost of regulatory submissions and timing of regulatory approvals;

•the cost of commercialization activities if our product candidates or any future product candidates are approved for sale, including marketing, sales and distribution costs;

•our efforts to enhance operational systems and hire additional personnel, including personnel to support development of our product candidates; and

•our need to implement additional internal systems and infrastructure, including financial and reporting systems to satisfy our obligations as a public company.

Our ability to raise additional funds may be adversely impacted by worsening global economic conditions, including as a result of disruptions to and volatility in the credit and financial markets in the United States and worldwide, increases in inflation, interest rate fluctuations, uncertainty with respect to the federal debt ceiling and budget and the related potential for government shutdowns, the ongoing labor shortage, disruptions to global supply chains, and regional conflicts around the world. Moreover, there has been recent turmoil in the global banking system. For example, on March 10, 2023, Silicon Valley Bank (“SVB”), was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (“FDIC”) as receiver for SVB. Similarly, on March 12, 2023, Silvergate Capital Corp. and Signature Bank were each swept into receivership. While the FDIC took steps to make depositors of SVB whole, First-Citizens Bank & Trust Company assumed our deposits from SVB, and we regained access to those funds, there is no guarantee that the federal government would similarly guarantee all depositors in the event of future bank closures. Any further instability in the global banking system may adversely impact our business and financial condition. Moreover, events such as the closure of SVB, in addition to global macroeconomic conditions discussed above, may cause further turbulence and uncertainty in the capital markets. Further deterioration of the macroeconomic environment and any regulatory action taken in response

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thereto may adversely affect our business, operating results, and financial condition. If we are unable to obtain funding on a timely basis or on acceptable terms, we may have to delay, reduce or terminate our research and development programs and preclinical studies or clinical trials, limit strategic opportunities or undergo reductions in our workforce or other corporate restructuring activities. To date, we have primarily financed our operations through payments received under our collaboration agreements, the sale of equity securities and debt financing.

We will be required to seek additional funding in the future and currently intend to do so through public or private equity offerings or debt financings, additional collaborations and/or licensing agreements, credit or loan facilities, or a combination of one or more of these funding sources. If we raise additional funds by issuing equity securities, including pursuant to our currently effective registration statement on Form S-3ASR and any shelf registration statement on Form S-3ASR that we may file in the future, our stockholders may suffer dilution and the terms of any financing may adversely affect the rights of our stockholders.

In addition, as a condition to providing additional funds to us, future investors may demand, and may be granted, rights superior to those of existing stockholders. Our future debt financings, if any, are likely to involve restrictive covenants limiting our flexibility in conducting future business activities, and, in the event of insolvency, debt holders would be repaid before holders of our equity securities received any distribution of our corporate assets. If we raise additional funds through licensing or collaboration arrangements with third parties, we may have to relinquish valuable rights to our product candidates, or grant licenses on terms that are not favorable to us. We also could be required to seek collaborators for product candidates at an earlier stage than otherwise would be desirable or relinquish our rights to product candidates or technologies that we otherwise would seek to develop or commercialize ourselves. Failure to obtain capital when needed on acceptable terms or at all may force us to delay, limit or terminate our product development and commercialization of our current or future product candidates, which could have a material and adverse effect on our business, financial condition, results of operations and prospects.

Risks Related to Discovery, Development and Commercialization

Our business is heavily dependent on the success of our current and future product candidates, including our lead product candidate for our α4β7 program. Existing and future preclinical studies and clinical trials of these product candidates may not be successful, and if we are unable to commercialize these product candidates or experience significant delays in doing so, our business will be materially harmed.

We have invested a significant portion of our efforts and financial resources in the development of our α4β7- specific integrin inhibitors program. Our ability to generate commercial product revenues, which we do not expect will occur for many years, if ever, will depend heavily on the successful development and eventual commercialization of our lead product candidate for our α4β7 program. We have not previously submitted a new drug application (“NDA”) to the FDA, or similar regulatory approval filings to comparable foreign authorities, for any product candidate, and we cannot be certain that our product candidates will be successful in clinical trials or receive regulatory approval. Further, our product candidates may not receive regulatory approval even if they are successful in clinical trials. In addition, regulatory authorities may not complete their review processes in a timely manner, or additional delays may result if an FDA Advisory Committee or other regulatory authority recommends non-approval or restrictions on approval. In addition, we may experience delays or rejections based upon additional government regulation from future legislation or administrative action, or changes in regulatory authority policy during the period of product development, clinical trials and the review process. Regulatory authorities also may approve a product candidate for more limited indications than requested or with labeling that includes warnings, contraindications or precautions with respect to conditions of use. Regulatory authorities may also require Risk Evaluation and Mitigation Strategies (“REMS”) or the performance of costly post-marketing clinical trials. If we do not receive regulatory approvals for our product candidates, we may not be able to continue our operations. Even if we successfully obtain regulatory approvals to market our product candidates, our revenues will be dependent, in part, upon the size of the markets in the territories for which we gain regulatory approval and have commercial rights. If the markets for patient subsets that we are targeting are not as significant as we estimate, we may not generate significant revenues from sales of such products, if approved.

We plan to seek regulatory approval to commercialize our product candidates both in the United States and in selected foreign countries. In order to obtain separate regulatory approvals in other countries, we must comply with numerous and varying regulatory requirements of such countries regarding safety and efficacy. Other countries also have their own regulations governing, among other things, clinical trials and commercial sales, as well as pricing and distribution of our product candidates, and we may be required to expend significant resources to obtain regulatory approval, which may not be successful, and to comply with ongoing regulations in these jurisdictions.

The success of our current and future product candidates will depend on many factors, including the following actions to be taken by us or our collaborators, as applicable:

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•successful completion of necessary preclinical studies to enable the initiation of clinical trials;

•successful enrollment of patients in, and the completion of, our clinical trials with favorable results;

•receiving required regulatory authorizations for the development and approvals for the commercialization of our product candidates;

•establishing and maintaining arrangements with third-party manufacturers;

•obtaining and maintaining patent and trade secret protection and non-patent exclusivity for our product candidates and their components;

•enforcing and defending our intellectual property rights and claims;

•achieving desirable therapeutic properties for our product candidates’ intended indications;

•launching commercial sales of our product candidates, if and when approved, whether alone or in collaboration with third parties;

•acceptance of our product candidates, if and when approved, by patients, the medical community and third-party payors;

•effectively competing with other therapies; and

•maintaining an acceptable safety profile of our product candidates through clinical trials and following regulatory approval.

If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize our product candidates, which would materially harm our business, financial condition, results of operations and prospects.

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.

We have no products on the market and our product candidates are in various stages of development. Additionally, we have a portfolio of targets and programs that are in earlier stages of discovery and preclinical development and may never advance to clinical-stage development. Our ability to achieve and sustain profitability depends on obtaining regulatory approvals for and successfully commercializing our product candidates, either alone or with third parties, and we cannot guarantee you that we will ever obtain regulatory approval for any of our product candidates. We have limited experience in conducting and managing the clinical trials necessary to obtain regulatory approvals, including approval by the FDA. Before obtaining regulatory approval for the commercial distribution of our product candidates, we or any existing or future collaborator must conduct extensive preclinical tests and clinical trials to demonstrate the safety and efficacy in humans of our product candidates.

We may not have the financial resources to continue development of, or to modify existing or enter into new collaborations for, a product candidate if we experience any issues that delay or prevent regulatory approval of, or our ability to commercialize, product candidates, including:

•preclinical study results may show the product candidate to be less effective than desired or to have harmful or problematic side effects;

•preclinical studies conducted outside of the United States may be affected by tariffs or import/export restrictions imposed by the United States or other governments;

•negative or inconclusive results from our clinical trials or the clinical trials of others for product candidates similar to ours, leading to a decision or requirement to conduct additional preclinical testing or clinical trials or abandon a program;

•product-related side effects experienced by patients in our clinical trials or by individuals using drugs or therapeutic biologics similar to our product candidates;

•our third-party manufacturers’ inability to successfully manufacture our products;

•inability of any third-party contract manufacturer to scale up manufacturing of our product candidates and those of our collaborators to supply the needs of clinical trials or commercial sales;

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•delays in submitting INDs or comparable foreign applications or delays or failures in obtaining the necessary approvals from regulators to commence a clinical trial, or a suspension or termination of a clinical trial once commenced;

•conditions imposed by the FDA or comparable foreign authorities regarding the scope or design of our clinical trials;

•delays in enrolling patients in our clinical trials;

•high drop-out rates of our clinical trial patients;

•inadequate supply or quality of product candidate components or materials or other supplies necessary for the conduct of our clinical trials;

•inability to obtain alternative sources of supply for which we have a single source for product candidate components or materials;

•harmful side effects or inability of our product candidates to meet efficacy endpoints during clinical trials;

•failure to demonstrate a benefit-risk profile acceptable to the FDA or other regulatory agencies;

•unfavorable FDA or other regulatory agency inspection and review of one or more clinical trial sites or manufacturing facilities used in the testing and manufacture of any of our product candidates;

•failure of our third-party contractors or investigators to comply with regulatory requirements or otherwise meet their contractual obligations in a timely manner, or at all;

•delays and changes in regulatory requirements, policy and guidelines, including the imposition of additional regulatory oversight around clinical testing generally or with respect to our trials in particular; or

•varying interpretations of our data by the FDA and similar foreign regulatory agencies.

Our or any of our collaborators’ inability to complete development of or commercialize our product candidates, or significant delays in doing so due to one or more of these factors, could have a material and adverse effect on our business, financial condition, results of operations and prospects.

If we do not achieve our projected development goals in the time frames we announce and expect, the commercialization of our products may be delayed and, as a result, our stock price may decline.

From time to time, we estimate the timing of the anticipated accomplishment of various scientific, clinical, regulatory and other product development goals, which we sometimes refer to as milestones. These milestones may include the commencement or completion of scientific studies and clinical trials and the submission of regulatory filings. From time to time, we may publicly announce the expected timing of some of these milestones. All of these milestones are and will be based on numerous assumptions and estimates that may prove to be incorrect. The actual timing of these milestones can vary dramatically compared to our estimates, in some cases for reasons beyond our control. If we do not meet these milestones as publicly announced, or at all, the commercialization of our products may be delayed or never achieved and, as a result, our stock price may decline.

Our approach to the discovery and development of our therapeutic treatments is based on novel technologies that are unproven and may not result in marketable products.

We are developing a pipeline of product candidates using our MInT Platform. Historically, dozens of integrin-targeted oral small molecule candidates of other companies that entered late-stage clinical trials have failed to result in FDA or EMA approved medicines. Development efforts and clinical results of other companies exploring oral approaches to integrins may be unsuccessful, resulting in a negative perception of oral integrins and negatively impacting the regulatory approval process of our product candidates, which would have a material and adverse effect on our business. We believe that product candidates identified with our MInT Platform may offer an optimized therapeutic approach by taking advantage of conformational targeting next-generation physics-based technologies augmented with machine learning and artificial intelligence, which allow us to design, iterate and optimize leads in our discovery process. However, the scientific research that forms the basis of our efforts to develop product candidates using our MInT Platform is ongoing and may not result in viable product candidates.

We may ultimately discover that our MInT Platform and any product candidates resulting therefrom do not possess certain properties required for therapeutic effectiveness, including the ability to lock specific integrin conformations. Our product candidates may also be unable to remain stable in the human body for the period of time required for the drug to reach the target tissue or they may trigger immune responses that inhibit the ability of the product candidate to reach the target tissue or that cause adverse side effects in humans. In addition, product candidates based on our

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MInT Platform may demonstrate different chemical and pharmacological properties in patients than they do in laboratory studies. Our MInT Platform and any product candidates resulting therefrom may not demonstrate the same chemical and pharmacological properties in humans and may interact with human biological systems in unforeseen, ineffective or harmful ways. For example, AbbVie Biotechnology Ltd. (“AbbVie”) informed us that it did not intend to advance any of its selective oral αvβ6-specific integrin inhibitors under our collaboration agreement, or the AbbVie Agreement, due to a suspected on-target / αvβ6-mediated safety signal that was observed in pre-clinical testing, and subsequently exercised its right to terminate the AbbVie Agreement for convenience, which termination became effective in December 2022.

The regulatory approval process for novel product candidates such as ours can be more expensive and take longer than for other, better known or extensively studied product candidates. To our knowledge, no regulatory authority in the United States or Europe has granted approval for an oral small-molecule integrin inhibitor. We believe the FDA has limited experience with integrin-based therapeutics, which may increase the complexity, uncertainty and length of the regulatory approval process for our product candidates. We and our existing or future collaborators may never receive approval to market and commercialize any product candidate. Even if we or an existing or future collaborator obtains regulatory approval, the approval may be for targets, disease indications or patient populations that are not as broad as we or they intended or desired or may require labeling that includes significant use or distribution restrictions or safety warnings. We or an existing or future collaborator may be required to perform additional or unanticipated clinical trials to obtain approval or be subject to post-marketing testing requirements to maintain regulatory approval. If the products resulting from our MInT Platform and research programs prove to be ineffective, unsafe or commercially unviable, our MInT Platform and pipeline would have little, if any, value, which would have a material and adverse effect on our business, financial condition, results of operations and prospects.

Preclinical and clinical development involve a lengthy and expensive process, with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our current product candidates or any future product candidates.

All of our product candidates are in preclinical or clinical development, and the risk of failure is high for all programs. It is impossible to predict accurately when or if any of our product candidates will receive regulatory approval. To obtain the requisite regulatory approvals to commercialize any product candidates, we must demonstrate through extensive preclinical studies and lengthy, complex and expensive clinical trials that our product candidates are safe and effective in humans. Clinical testing can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. We may be unable to establish clinical endpoints that applicable regulatory authorities would consider clinically meaningful, and a clinical trial can fail at any stage of testing. Differences in trial design between early-stage clinical trials and later-stage clinical trials make it difficult to extrapolate the results of earlier clinical trials to later clinical trials. Additionally, comparing the results from different trials may be unreliable due to different protocol designs, trial designs, patient selection and populations, number of patients, trial endpoints, trial objectives and other parameters that may not be the same between trials. Therefore, cross-study comparisons provide very limited information about the efficacy or safety of a drug. Moreover, clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in clinical trials have nonetheless failed to obtain marketing approval of their products. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or to unfavorable safety profiles, notwithstanding promising results in earlier trials. There is typically a high rate of failure of product candidates proceeding through clinical trials. Most product candidates that commence clinical trials are never approved as products and there can be no assurance that any of our future clinical trials will ultimately be successful or support clinical development of our current or any of our future product candidates.

Commencement of clinical trials is subject to finalizing the trial design and submitting an IND or similar submission to the FDA or similar foreign regulatory authority. Even after we submit our IND or comparable submissions in other jurisdictions, the FDA or other regulatory authorities could disagree that we have satisfied their requirements to commence our clinical trials or disagree with our study design, which may require us to complete additional preclinical studies or amend our protocols or impose stricter conditions on the commencement of clinical trials.

We or our collaborators may experience delays in initiating or completing clinical trials. We or our collaborators also may experience numerous unforeseen events during, or as a result of, current or future clinical trials that we could conduct that could delay or prevent our ability to receive marketing approval or commercialize our integrin inhibitor programs or any future product candidates, including:

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•regulators or institutional review boards (“IRBs”), the FDA or ethics committees may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;

•we may experience delays in reaching, or fail to reach, agreement on acceptable terms with prospective trial sites and prospective CROs, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

•clinical trial sites may deviate from a trial’s protocol or drop out of a trial;

•clinical trials of any product candidates may fail to show safety or efficacy, produce negative or inconclusive results and we may decide, or regulators may require us, to conduct additional preclinical studies or clinical trials or we may decide to abandon product development programs;

•the number of subjects required for clinical trials of any product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate, or subjects may drop out of these clinical trials or fail to return for post-treatment follow-up at a higher rate than we anticipate;

•our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all, or may deviate from the clinical trial protocol or drop out of the trial, which may require that we add new clinical trial sites or investigators;

•we may elect to, or regulators, IRBs, or ethics committees may require that we or our investigators, suspend or terminate clinical research or trials for various reasons, including noncompliance or perceived noncompliance with regulatory requirements or a finding that the participants in our trials are being exposed to unacceptable health risks;

•the cost of clinical trials of any of our product candidates may be greater than we anticipate;

•the quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be inadequate to initiate or complete a given clinical trial;

•we or our third-party contract manufacturers may be unable to manufacture sufficient quantities of our product candidates for use in clinical trials;

•reports from clinical testing of other therapies may raise safety or efficacy concerns about our product candidates;

•we may fail to establish an appropriate safety profile for a product candidate based on clinical or preclinical data for such product candidate as well as data emerging from other molecules in the same class as our product candidate; and

•the FDA, EMA or other regulatory authorities may require us to submit additional data such as long-term toxicology studies or impose other requirements before permitting us to initiate a clinical trial.

Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors including the size and nature of the patient population, the number and location of clinical sites we enroll, the proximity of patients to clinical sites, the eligibility and exclusion criteria for the trial, the design of the clinical trial, the inability to obtain and maintain patient consents, the risk that enrolled participants will drop out before completion, competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any new drugs or therapeutic biologics that may be approved for the indications being investigated by us. Furthermore, we expect to rely on our collaborators, CROs and clinical trial sites to ensure the proper and timely conduct of our current or future clinical trials, including the patient enrollment process, and we have limited influence over their performance. Additionally, we could encounter delays if treating physicians encounter unresolved ethical issues associated with enrolling patients in current or future clinical trials of our product candidates in lieu of prescribing existing treatments that have established safety and efficacy profiles.

We could also encounter delays if a clinical trial is suspended or terminated by us, the IRBs of the institutions in which such trials are being conducted, or the FDA, EMA or other regulatory authorities, or if a clinical trial is recommended for suspension or termination by the Data Safety Monitoring Board (the “DSMB”) for such trial. A suspension or termination may be imposed due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA, EMA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a product or treatment, failure to establish or achieve clinically meaningful trial endpoints, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. Clinical studies may also be delayed or terminated as a result of ambiguous or negative interim results. Many of the factors that cause, or lead to, a delay in the commencement or

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completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates. Further, the FDA, EMA or other regulatory authorities may disagree with our clinical trial design and our interpretation of data from clinical trials or may change the requirements for approval even after they have reviewed and commented on the design for our clinical trials.

Our product development costs will increase if we experience delays in clinical testing or marketing approvals. We do not know whether any of our clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates and may allow our competitors to bring products to market before we do, potentially impairing our ability to successfully commercialize our product candidates and harming our business and results of operations. Any delays in our clinical development programs may harm our business, financial condition and results of operations significantly.

Results of preclinical studies and early clinical trials may not be predictive of results of later clinical trials.

The outcome of preclinical studies and early clinical trials may not be predictive of the success of later clinical trials, and interim results of clinical trials. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in earlier development, and we could face similar setbacks. As is common for early trials, we may examine a number of efficacy measures without accounting for multiplicity, and positive results in early clinical trials, including nominally statistically significant results, may not be replicated in future trials with a different design or in other future trials. The design of a clinical trial can determine whether its results will support approval of a product, and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. We have limited experience in designing clinical trials and may be unable to design and execute a clinical trial to support marketing approval. In addition, preclinical and clinical data are often susceptible to varying interpretations and analyses. Many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for the product candidates. Even if we, or future collaborators, believe that the results of clinical trials for our product candidates warrant marketing approval, the FDA or comparable foreign regulatory authorities may disagree and may not grant marketing approval of our product candidates.

In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including differences in trial procedures set forth in protocols, including endpoints, differences in the size and characteristics of the patient populations, differences in and adherence to the dosing regimen and other clinical trial protocols and the rate of dropout among clinical trial patients. If we fail to receive positive results in clinical trials of our product candidates, the development timeline and regulatory approval and commercialization prospects for our product candidates, and, correspondingly, our business and financial prospects would be negatively impacted.

Interim and preliminary or topline data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.

From time to time, we may publish interim and preliminary or topline data from our anticipated clinical trials. Data from prespecified interim analyses from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Preliminary or topline data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary or topline data we previously published. As a result, interim and preliminary or topline data should be viewed with caution until the final data are available. Adverse differences between interim, preliminary or topline data and final data could significantly harm our reputation and business prospects.

Our current and future clinical trials or those of our current and future 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.

If significant adverse events or other side effects are observed in any of our clinical trials or the clinical trials of our collaborators, we may have difficulty recruiting patients to our clinical trials, patients may drop out of our trials, or we may be required to abandon the trials or our development efforts of one or more product candidates altogether. For example, progressive multifocal leukoencephalopathy (“PML”), has been observed by others as an adverse effect during late-stage clinical development of infusible antibody inhibitor of α4β1 integrin, natalizumab. This adverse effect was not observed in the preclinical studies or during early clinical development of natalizumab. We, the FDA, EMA or other applicable regulatory authorities, or an IRB may suspend clinical trials of a product candidate at any time for various reasons, including a belief that subjects or patients in such trials are being exposed to unacceptable

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health risks or adverse side effects. Some potential therapeutics developed in the biotechnology industry that initially showed therapeutic promise in early-stage trials have later been found to cause side effects that prevented their further development. Even if the side effects do not preclude the product candidate from obtaining or maintaining marketing approval, undesirable side effects may inhibit market acceptance of the approved product due to its tolerability versus other therapies. Any of these developments could materially harm our business, financial condition and prospects.

We may not be successful in our efforts to use our MInT Platform to expand our pipeline of product candidates and develop marketable products.

The success of our business depends in part upon our ability to discover, develop and commercialize products based on our MInT Platform. Our lead program for α4β7 and our research programs, or those of any collaborators, may fail to identify other potential product candidates for clinical development for a number of reasons. Our research methodology may be unsuccessful in identifying potential product candidates or our potential product candidates may be shown to have harmful side effects or may have other characteristics that may make the products unmarketable or unlikely to receive marketing approval. If any of these events occur, we may be forced to abandon our development efforts for a program or for multiple programs, which would materially harm our business and could potentially cause us to cease operations. Research programs to identify new product candidates require substantial technical, financial and human resources.

We may expend our limited resources to pursue a particular product candidate and fail to capitalize on product candidates that may be more profitable or for which there is a greater likelihood of success.

Because we have limited financial and managerial resources, we focus our research and development efforts on certain selected product candidates. For example, we are initially focused on our lead product candidate, MORF-057, in our α4β7-specific integrin inhibitor program. As a result, we may forgo or delay pursuit of opportunities with other product candidates that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable product candidates. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.

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 or product candidates are more effective, our ability to develop and successfully commercialize product candidates may be adversely affected.

The development and commercialization of drugs is highly competitive. Our product candidates, if approved, will face significant competition and our failure to effectively compete may prevent us from achieving significant market penetration. Most of our competitors have significantly greater resources than we do, and we may not be able to successfully compete. We compete with a variety of multinational biopharmaceutical companies, specialized biotechnology companies and emerging biotechnology companies, as well as with technologies and product candidates being developed at universities and other research institutions. Our competitors have developed, are developing or will develop product candidates and processes competitive with our product candidates and processes. Competitive therapeutic treatments include those that have already been approved and accepted by the medical community and any new treatments, including those based on novel technology platforms that enter the market. We believe that a significant number of products are currently under development, and may become commercially available in the future, for the treatment of conditions for which we are trying, or may try, to develop product candidates. There is intense and rapidly evolving competition in the biotechnology, biopharmaceutical and integrin and immunoregulatory therapeutics fields. Competition from many sources exists or may arise in the future. Our competitors include larger and better funded biopharmaceutical, biotechnological and therapeutics companies, including companies focused on therapeutics for autoimmune, cardiovascular and metabolic diseases, fibrosis and cancer, as well as numerous small companies. Moreover, we also compete with current and future therapeutics developed at universities and other research institutions. Some of these companies and institutions are well-capitalized and, in contrast to us, have significant clinical experience, and may include our existing or future collaborators. In addition, these companies and institutions compete with us in recruiting scientific and managerial talent.

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Our success will depend partially on our ability to develop and commercialize therapeutics that are safer and more effective than competing products. Our commercial opportunity and success will be reduced or eliminated if competing products are safer, more effective, or less expensive than the therapeutics we develop.

Despite significant biopharmaceutical industry investment, no oral integrin therapies have been approved in the United States or Europe. We are developing MORF-057, an oral small molecule α4β7-specific integrin inhibitor, for the treatment of IBD. Currently approved IBD therapies include Entyvio (vedolizumab), an injectable α4β7 monoclonal antibody marketed by Takeda Pharmaceutical Company Limited, as well as therapies with different mechanisms of action marketed by AbbVie, Johnson & Johnson, UCB, Biogen Inc., Pfizer Inc., and Bristol-Myers Squibb, in addition to other pharmaceutical companies, against which our product candidate may compete, if approved. Further, we are aware of oral α4β7 therapies in clinical development for IBD by Gilead Sciences, Inc, EA Pharma Co. LTD and Ensho Therapeutics, as well as therapies with different mechanisms of action in clinical development by AbbVie, Johnson & Johnson, Pfizer, Inc., Eli Lilly and Company, and Bristol-Myers Squibb, in addition to other pharmaceutical companies.

Our αvβ8-specific small molecule integrin inhibitor program is under development for the treatment of myelofibrosis and solid tumors. Currently approved myelofibrosis therapies include the oral JAK inhibitors Jakafi (ruxolitinib), marketed by Incyte Corp and Novartis International AG, Inrebic (fedratinib), marketed by Bristol-Myers Squibb, Vonjo (pacritinib), marketed by Swedish Orphan Biovitrum AB, and Ojjaara (momelotinib), marketed by GlaxoSmithKline plc. We are aware of myelofibrosis therapies in clinical development by MorphoSys AG, Incyte Corp, Geron Corporation, AbbVie, and Bristol-Myers Squibb in addition to other pharmaceutical companies. There are currently no approved αvβ8 inhibitors for any indication. We are aware of an anti-αvβ8 monoclonal antibody in clinical development for the treatment of solid tumors by Pfizer, Inc. In addition, we are aware of preclinical stage anti-αvβ8 monoclonal antibody programs for solid tumors from Corbus Pharmaceuticals Holdings, Inc., and a small molecule program from Pliant Therapeutics. Furthermore, there are multiple antibody and small molecule therapeutics targeting the TGF-β pathway for the treatment of solid tumors in development by Novartis International AG, AbbVie, Roche Holding AG, Merck & Co., Inc., Bristol-Myers Squibb, and Scholar Rock, in addition to other pharmaceutical companies.

Many of these competitors have significantly greater financial, technical, manufacturing, marketing, sales, and supply resources or experience than we have. If we successfully obtain approval for any product candidate, we will face competition based on many different factors, including the safety and effectiveness of our products, the ease with which our products can be administered and the extent to which patients accept relatively new routes of administration, the timing and scope of regulatory approvals for these products, the availability and cost of manufacturing, marketing and sales capabilities, price, reimbursement coverage and patent position. Competing products could present superior treatment alternatives, including by being more effective, safer, less expensive or marketed and sold more effectively than any products we may develop. Competitive products may make any products we develop obsolete or noncompetitive before we recover the expense of developing and commercializing our product candidates. Such competitors could also recruit our employees, which could negatively impact our level of expertise and our ability to execute our business plan.

Our current product candidates or any future product candidates may not achieve adequate market acceptance among physicians, patients, healthcare third-party payors and others in the medical community necessary for commercial success, if approved, and we may not generate any future revenue from the sale or licensing of product candidates.

Even if regulatory approval is obtained for a product candidate, we may not generate or sustain revenue from sales of the product due to factors such as whether the product can be sold at a competitive cost and whether it will otherwise be accepted in the market. Historically, several injectable integrin inhibitors have been approved by the FDA for treatment of inflammatory bowel disease, multiple sclerosis, psoriasis, acute coronary syndrome and dry eye disease. However, our product candidates are based on a novel approach to oral integrin therapies, and while integrins are a well-understood receptor family, to date, no oral small molecule integrin therapies have been approved by the FDA. Market participants with significant influence over acceptance of new treatments, such as physicians and third-party payors, may not adopt an orally bioavailable product based on our novel technologies, and we may not be able to convince the medical community and third-party payors to accept and use, or to provide favorable reimbursement for, any product candidates developed by us or our existing or future collaborators. Market acceptance of our product candidates will depend on, among other factors:

•the timing of our receipt of any marketing and commercialization approvals;

•the terms of any approvals and the countries in which approvals are obtained;

•the safety and efficacy of our product candidates as demonstrated in clinical trials;

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•the prevalence and severity of any adverse side effects associated with our product candidates;

•limitations or warnings contained in any labeling approved by the FDA or other regulatory authority;

•relative convenience and ease of administration of our product candidates;

•the willingness of patients to accept any new methods of administration;

•unfavorable publicity relating to our current product candidates or any future product candidates;

•the success of our physician education programs;

•the effectiveness of sales and marketing efforts;

•the availability of coverage and adequate reimbursement from government and third-party payors;

•the pricing of our products, particularly as compared to alternative treatments; and

•the availability of alternative effective treatments for the disease indications our product candidates are intended to treat and the relative risks, benefits and costs of those treatments.

Sales of medical products also depend on the willingness of physicians to prescribe the treatment, which is likely to be based on a determination by these physicians that the products are safe, therapeutically effective and cost effective. In addition, the inclusion or exclusion of products from treatment guidelines established by various physician groups and the viewpoints of influential physicians can affect the willingness of other physicians to prescribe the treatment. We cannot predict whether physicians, physicians’ organizations, hospitals, other healthcare providers, government agencies or private insurers will determine that our product is safe, therapeutically effective and cost effective as compared with competing treatments. If any product candidate is approved but does not achieve an adequate level of acceptance by such parties, we may not generate or derive sufficient revenue from that product candidate and may not become or remain profitable.

Because our product candidates are based on new technology, we expect that they will require extensive research and development and have substantial manufacturing and processing costs. In addition, our estimates regarding potential market size for any indication may be materially different from what we discover to exist at the time we commence commercialization, if any, for a product, which could result in significant changes in our business plan and have a material adverse effect on our business, financial condition, results of operations and prospects. Moreover, if any product candidate we commercialize fails to achieve market acceptance, it could have a material and adverse effect on our business, financial condition, results of operations and prospects.

If in the future we are unable to establish U.S. or global sales and marketing capabilities or enter into agreements with third parties to sell and market any of our product candidates that are approved, we may not be successful in commercializing such product candidates and may not be able to generate any revenue.

We currently do not have a marketing or sales team for the marketing, sales and distribution of any of our product candidates that are able to obtain regulatory approval. To commercialize any product candidates after approval, we will need to build, on a territory-by-territory basis, marketing, sales, distribution, managerial and other non-technical capabilities or arrange with third parties to perform these services, and we may not be successful in doing so. If our product candidates receive regulatory approval, we may decide to establish an internal sales or marketing team with technical expertise and supporting distribution capabilities to commercialize our product candidates, which would be expensive and time consuming and would require significant attention of our executive officers to manage. For example, some state and local jurisdictions have licensing and continuing education requirements for pharmaceutical sales representatives, which requires time and financial resources. Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of any of our product candidates that we obtain approval to market.

With respect to the commercialization of our product candidates that obtain regulatory approval, if any, we may choose to collaborate, either globally or on a territory-by-territory basis, with third parties that have direct sales forces and established distribution systems, either to augment our own sales force and distribution systems or in lieu of our own sales force and distribution systems. If we are unable to enter into such arrangements when needed on acceptable terms, or at all, we may not be able to successfully commercialize any of our product candidates that receive regulatory approval, or any such commercialization may experience delays or limitations. If we are not successful in commercializing our product candidates, either on our own or through collaborations with one or more third parties, our future product revenue will suffer, and we may incur significant additional losses.

If any of our product candidates receives marketing approval and we or others later identify undesirable side effects caused by the product candidate, our ability to market and derive revenue from the product candidates could be compromised.

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Undesirable side effects caused by our product candidates could cause regulatory authorities to interrupt, delay or halt clinical trials and could result in more restrictive labeling or the delay or denial of regulatory approval by the FDA or other regulatory authorities. Results of our clinical trials could reveal a high and unacceptable severity and prevalence of side effects. In such an event, our future clinical trials could be suspended or terminated, and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of our product candidates for any or all targeted indications. Such side effects could also affect patient recruitment or the ability of enrolled patients to initiate or complete the clinical trial or result in potential product liability claims. Any of these occurrences may materially and adversely affect our business, financial condition, results of operations and prospects.

Further, clinical trials by their nature utilize a sample of the potential patient population. With a limited number of patients and limited duration of exposure, rare and severe side effects of our product candidates may only be uncovered with a significantly larger number of patients exposed to the product candidate.

If any of our product candidates receive regulatory approval and we or others identify undesirable side effects caused by such product, any of the following adverse events could occur:

•regulatory authorities may withdraw their approval of the product or seize the product;

•we may be required to recall the product or change the way the product is administered to patients;

•additional restrictions may be imposed on the marketing of the particular product or the manufacturing processes for the product or any component thereof;

•we may be subject to fines, injunctions or the imposition of civil or criminal penalties;

•regulatory authorities may require the addition of labeling statements, such as a boxed warning or a contraindication;

•we may be required to create a Medication Guide outlining the risks of such side effects for distribution to patients;

•we could be sued and held liable for harm caused to patients;

•the product may become less competitive; and

•our reputation may suffer.

Any of these occurrences could have a material and adverse effect on our business, financial condition, results of operations and prospects.

We anticipate that some of our product candidates may be studied in combination with third-party drugs, some of which may still be in development, and we have limited or no control over the supply, regulatory status, or regulatory approval of such drugs.

Some of our product candidates may be studied in combination with third-party drugs. The development of product candidates for use in combination with another product or product candidate may present challenges that are not faced for single agent product candidates. The FDA or other regulatory authorities may require us to use more complex clinical trial designs in order to evaluate the contribution of each product and product candidate to any observed effects. It is possible that the results of these trials could show that any positive previous trial results are attributable to the combination therapy and not our product candidates. Moreover, following product approval, the FDA or other regulatory authorities may require that products used in conjunction with each other be cross labeled for combined use. To the extent that we do not have rights to the other product, this may require us to work with a third party to satisfy such a requirement. Moreover, developments related to the other product may impact our clinical trials for the combination as well as our commercial prospects should we receive marketing approval. Such developments may include changes to the other product’s safety or efficacy profile, changes to the availability of the approved product, and changes to the standard of care.

If we pursue such combination therapies, we cannot be certain that a steady supply of such drugs will be commercially available. Any failure to enter into such commercial relationships, or the expense of purchasing therapies in the market, may delay our development timelines, increase our costs and jeopardize our ability to develop our product candidates as commercially viable combination therapies. The occurrence of any of these could adversely affect our business, results of operations and financial condition.

In the event that any future collaborator or supplier becomes unable or unwilling to supply their products on commercially reasonable terms or at all, we would need to identify alternatives for accessing such products. Additionally, should the supply of products of any collaborator or supplier be interrupted, delayed or otherwise be

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unavailable to us, our clinical trials may be delayed. In the event we are unable to source a supply of any alternative therapy, or are unable to do so on commercially reasonable terms, our business, results of operations and financial condition may be adversely affected.

Risks Related to Our Reliance on Third Parties

Morphic Holding, Inc. [MORF] Filings
10-Q	[2024-07-25]
10-Q	[2024-04-25]
10-K	[2024-02-22]
10-Q	[2023-11-03]
10-Q	[2023-08-03]
10-Q	[2023-04-25]
10-K	[2023-02-23]
10-Q	[2022-11-02]
10-Q	[2022-08-03]
10-Q	[2022-05-04]
10-K	[2022-02-24]
10-Q	[2021-11-04]
10-Q	[2021-08-04]
10-Q	[2021-04-29]
10-K	[2021-03-01]
10-Q	[2020-11-09]
10-Q	[2020-08-10]
10-Q	[2020-05-06]
10-K	[2020-02-27]
10-Q	[2019-11-12]
10-Q	[2019-08-13]
S-1	[2019-05-30]