Dianthus Therapeutics, Inc. /DE/ 10-K

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are a smaller reporting company, as defined in Rule 12b-2 under the Exchange Act , for this reporting period and are not required to provide the information required under this item. 131 Table of Contents ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA MAGENTA THERAPEUTICS, INC. Index to Consolidated Financial Statements Page(s) Report of Independent Registered Public Accounting Firm ( KPMG LLP , PCAOB ID 185 ) 133 Consolidated Balance Sheets 134 Consolidated Statements of Operations and Comprehensive Loss 135 Consolidated Statements of Stockholders’ Equity 136 Consolidated Statements of Cash Flows 137 Notes to Consolidated Financial Statements 138 132 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Magenta Therapeutics, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Magenta Therapeutics, Inc. and subsidiary (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ KPMG LLP We have served as the Company’s auditor since 2017. Boston, Massachusetts March 8 , 2022 13 3 Table of Contents MAGENTA THERAPEUTICS, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) December 31, 2021 2020 Assets Current assets: Cash and cash equivalents $ 131,650 $ 58,152 Marketable securities 45,276 90,683 Prepaid expenses and other current assets 3,767 2,692 Total current assets 180,693 151,527 Restricted cash 1,780 1,780 Property and equipment, net 7,461 8,312 Total assets $ 189,934 $ 161,619 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 3,040 $ 3,760 Accrued expenses and other current liabilities 7,823 7,670 Total current liabilities 10,863 11,430 Deferred rent 6,399 6,283 Total liabilities 17,262 17,713 Commitments and contingencies (Note 8) Stockholders’ Equity: Preferred stock, $ 0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding — — Common stock, $ 0.001 par value; 150,000,000 shares authorized; 58,799,157 shares issued and outstanding as of December 31, 2021 and 48,541,601 shares issued and 48,533,135 shares outstanding as of December 31, 2020 59 49 Additional paid-in capital 498,210 398,311 Accumulated other comprehensive loss ( 30 ) ( 23 ) Accumulated deficit ( 325,567 ) ( 254,431 ) Total stockholders’ equity 172,672 143,906 Total liabilities and stockholders’ equity $ 189,934 $ 161,619 The accompanying notes are an integral part of these consolidated financial statements. 13 4 Table of Contents MAGENTA THERAPEUTICS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In thousands, except share and per share amounts) Year Ended December 31, 2021 2020 Operating expenses: Research and development $ 46,766 $ 50,615 General and administrative 27,926 28,087 Total operating expenses 74,692 78,702 Loss from operations ( 74,692 ) ( 78,702 ) Interest and other income, net 3,556 3,766 Net loss $ ( 71,136 ) $ ( 74,936 ) Net loss per share, basic and diluted $ ( 1.29 ) $ ( 1.71 ) Weighted average common shares outstanding, basic and diluted 54,948,808 43,920,121 Comprehensive loss: Net loss $ ( 71,136 ) $ ( 74,936 ) Other comprehensive loss: Unrealized losses on marketable securities ( 7 ) ( 31 ) Total other comprehensive loss ( 7 ) ( 31 ) Total comprehensive loss $ ( 71,143 ) $ ( 74,967 ) The accompanying notes are an integral part of these consolidated financial statements. 13 5 Table of Contents MAGENTA THERAPEUTICS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands, except share amounts) Common Stock Additional Paid-in Accumulated Other Comprehensive Accumulated Total Stockholders’ Shares Amount Capital Income (Loss) Deficit Equity Balances at December 31, 2019 39,260,532 $ 39 $ 320,641 $ 8 $ ( 179,495 ) $ 141,193 Issuance of common stock upon public offering net of underwriting discounts, commissions and offering costs 8,625,000 9 64,554 — — 64,563 Vesting of restricted stock 184,500 — — — — — Issuance of common stock upon exercise of stock options 447,402 1 3,071 — — 3,072 Issuance of common stock under Employee Stock Purchase Plan 15,701 — 104 — — 104 Stock-based compensation expense — — 9,941 — — 9,941 Unrealized losses on marketable securities — — — ( 31 ) — ( 31 ) Net loss — — — — ( 74,936 ) ( 74,936 ) Balances at December 31, 2020 48,533,135 49 398,311 ( 23 ) ( 254,431 ) 143,906 Issuance of common stock upon private investment, net of offering costs 9,599,998 10 86,087 — — 86,097 Vesting of restricted stock 218,464 — — — — — Issuance of common stock upon exercise of stock options 421,997 — 3,363 — — 3,363 Issuance of common stock under Employee Stock Purchase Plan 25,563 — 141 — — 141 Stock-based compensation expense — — 10,308 — — 10,308 Unrealized losses on marketable securities — — — ( 7 ) — ( 7 ) Net loss — — — — ( 71,136 ) ( 71,136 ) Balances at December 31, 2021 58,799,157 $ 59 $ 498,210 $ ( 30 ) $ ( 325,567 ) $ 172,672 The accompanying notes are an integral part of these consolidated financial statements. 136 Table of Contents MAGENTA THERAPEUTICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year ended December 31, 2021 2020 Cash flows from operating activities: Net loss $ ( 71,136 ) $ ( 74,936 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation expense 10,308 9,941 Depreciation and amortization expense 2,020 1,978 Loss on disposal of property and equipment 95 1 Net amortization of premiums on marketable securities 708 179 Changes in operating assets and liabilities: Prepaid expenses and other current assets ( 1,075 ) 1,422 Accounts payable ( 720 ) 948 Accrued expenses and other current liabilities 153 ( 3,633 ) Deferred rent 116 77 Net cash used in operating activities ( 59,531 ) ( 64,023 ) Cash flows from investing activities: Purchases of property and equipment ( 1,264 ) ( 400 ) Purchases of marketable securities ( 45,308 ) ( 95,735 ) Maturities of marketable securities 90,000 85,500 Net cash provided by (used in) investing activities 43,428 ( 10,635 ) Cash flows from financing activities: Proceeds from private investment 86,400 — Proceeds from public offerings, net of underwriting discounts and commissions — 64,860 Payments of offering costs ( 303 ) ( 297 ) Proceeds from exercise of common stock options 3,363 3,072 Proceeds from issuance of common stock under Employee Stock Purchase Plan 141 104 Net cash provided by financing activities 89,601 67,739 Net increase (decrease) in cash, cash equivalents and restricted cash 73,498 ( 6,919 ) Cash, cash equivalents and restricted cash at beginning of period 59,932 66,851 Cash, cash equivalents and restricted cash at end of period $ 133,430 $ 59,932 The accompanying notes are an integral part of these consolidated financial statements. 13 7 Table of Contents MAGENTA THERAPEUTICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of the Business and Basis of Presentation Magenta Therapeutics, Inc. (the “Company”) is a clinical-stage biotechnology company developing novel medicines designed to bring the curative power of stem cell transplants to more patients with blood cancers, genetic diseases and autoimmune diseases. The Company was incorporated under the laws of the State of Delaware in June 2015 as HSCTCo Therapeutics, Inc. In February 2016, the Company changed its name to Magenta Therapeutics, Inc. and in June 2018 the Company completed its initial public offering. 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, the continuing impact of the novel coronavirus (“COVID-19”) pandemic 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 development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales. The Company has incurred recurring losses since inception, including net losses of $ 71.1 million and $ 74.9 million for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, the Company had an accumulated deficit of $ 325.6 million. The Company expects to continue to generate operating losses 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 12 months from the issuance date of these consolidated financial statements. The future viability of the Company beyond that point is dependent on its ability to raise additional capital to fund its operations. The Company expects its expenses to increase substantially in connection with ongoing activities, particularly as the Company advances its preclinical activities and clinical trials for its product candidates in development. Accordingly, the Company will need to obtain substantial additional funding in connection with continuing operations. If the Company is unable to raise capital when needed, or on attractive terms, it could be forced to delay, reduce or eliminate its research or drug development programs or any future commercialization efforts. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All intercompany balances and transactions have been eliminated. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). 2. Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and 1 38 Table of Contents liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, the accrual for research and development expenses and the valuation of stock-based awards. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates. Concentrations of Credit Risk and of Significant Suppliers Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents and marketable securities. The Company maintains all cash, cash equivalents and marketable securities at two accredited financial institutions in amounts that exceed federally insured limits. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. The Company is dependent on third-party manufacturers to supply products for research and development activities in its programs. In particular, the Company relies and expects to continue to rely on a small number of manufacturers to supply it with its requirements for the active pharmaceutical ingredients and formulated drugs related to these programs. These programs could be adversely affected by a significant interruption in the supply of active pharmaceutical ingredients and formulated drugs. Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents. Marketable Securities The Company’s marketable securities are classified as available-for-sale and are carried at fair value with the unrealized gains and losses reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Realized gains and losses and declines in value judged to be other than temporary are included as a component of interest and other income, net based on the specific identification method. The Company classifies its marketable securities with maturities beyond one year as short-term, based on their highly liquid nature and because such marketable securities are available for current operations. Property and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization expense is recognized using the straight-line method over the estimated useful life of each asset as follows: Estimated Useful Life Lab equipment 5 years Computer equipment 3 years Furniture and fixtures 5 years Leasehold improvements Shorter of life of lease or estimated useful life Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is included in loss from operations. Expenditures for repairs and maintenance are charged to expense as incurred. 1 39 Table of Contents Impairment of Long-Lived Assets Long-lived assets consist of property and equipment. Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset group for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset group to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset group are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset group over its fair value, determined based on discounted cash flows. The Company did no t record any impairment losses on long-lived assets during the years ended December 31, 2021 or 2020. Fair Value Measurements Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable: • Level 1—Quoted prices in active markets for identical assets or liabilities. • Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. • Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. The Company’s cash equivalents and marketable securities are carried at fair value, determined according to the fair value hierarchy described above (see Note 3). The carrying values of the Company’s accounts payable and accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities. Deferred Rent The Company’s lease agreements include payment escalations and lease incentives, which are accrued or deferred as appropriate such that rent expense for each lease is recognized on a straight-line basis over the respective lease term. Adjustments for such items, consisting primarily of tenant improvement allowances and payment escalations, are recorded as deferred rent and amortized over the lease term. Segment Information The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions. All of the Company’s tangible assets are held in the United States. Research and Development Costs Research and development costs are expensed as incurred. Research and development expenses are comprised of costs incurred in performing research and development activities, including salaries, stock-based 1 4 0 Table of Contents compensation and benefits, facilities costs, depreciation, manufacturing expenses and external costs of outside vendors engaged to conduct preclinical development activities and clinical trials as well as the cost of licensing technology. Upfront payments and milestone payments made for the licensing of technology are expensed as research and development in the period in which they are incurred. Advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed. Research, Development and Manufacturing Contract Costs Accruals The Company has entered into various research, development and manufacturing contracts with research institutions and other companies both inside and outside of the United States. These agreements are generally cancelable, and related costs are recorded as research and development expenses as incurred. The Company records accruals for estimated ongoing research, development and manufacturing costs. When evaluating the adequacy of any accrual estimate, the Company analyzes a number of factors, including the Company’s knowledge of the progress of the studies or trials, including the phase or completion of events; invoices received to date under the contracts; communication from the third parties of any actual costs incurred during the period that have not yet been invoiced; and the costs included in the contracts. Significant judgments and estimates may be made in determining the accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates. The Company’s historical accrual estimates have not been materially different from the actual costs. Patent Costs All patent-related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to the uncertainty about the recovery of the expenditure. Amounts incurred are classified as general and administrative expenses. Stock-Based Compensation The Company measures all stock-based awards granted to employees, directors and non-employees based on the fair value on the date of grant. Compensation expense of those awards is recognized over the requisite service period, which is generally the vesting period of the respective award. Generally, the Company issues awards with either service-only vesting conditions and records the expense using the straight-line method or service and performance vesting conditions and records the expense when achievement of the performance condition becomes probable using the graded-vesting method. The Company accounts for forfeitures as they occur. The fair value of stock option grants is estimated using the Black-Scholes option-pricing model. The Company historically has been a private company and lacks company-specific historical and implied volatility information. Therefore, the Company estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies along with the volatility of its own stock and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. For options with service-based vesting conditions, the expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future. The Company classifies stock-based compensation expense in its statements of operations and comprehensive loss in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified. 1 4 1 Table of Contents Income Taxes The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements or in the Company’s tax returns. Deferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies. The Company accounts for uncertainty in income taxes recognized in its consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the consolidated financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties. Comprehensive Loss Comprehensive loss includes net loss as well as other changes in stockholders’ equity that result from transactions and economic events other than those with stockholders. For the years ended December 31, 2021 and 2020, the Company’s only element of other comprehensive income (loss) was unrealized gains (losses) on marketable securities. Net Loss per Share Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period, including potential dilutive common shares assuming the dilutive effect of outstanding stock options. For periods in which the Company has reported net losses, diluted net loss per common share is the same as basic net loss per common share, since dilutive common shares are not assumed to have been issued if their affect is anti-dilutive. The Company reported a net loss for the years ended December 31, 2021 and 2020. The following potential dilutive securities, presented based on amounts outstanding at each period end, have been excluded from the calculation of diluted net loss per share because including them would have had an anti-dilutive impact: As of December 31, 2021 2020 Stock options to purchase common stock 6,248,675 5,622,868 Unvested restricted common stock and units 479,918 373,466 Shares of common stock issuable under Employee Stock Purchase Plan 42,634 15,443 6,771,227 6,011,777 Recently Issued Accounting Pronouncements In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 requires lessees to recognize most leases on their balance sheet as a right-of-use asset and a lease liability. Leases will be 142 Table of Contents classified as either operating or finance, and classification will be based on criteria similar to current lease accounting, but without explicit bright lines. For public entities, the guidance was effective for annual reporting periods beginning after December 15, 2018 and for interim periods within those fiscal years. For nonpublic entities and emerging growth companies that choose to take advantage of the extended transition period, the guidance was effective for annual reporting periods beginning after December 15, 2019. In June 2020, the FASB issued ASU No. 2020-05, which further deferred the effective date for nonpublic entities to annual reporting periods beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted for all entities. ASU 2016-02 initially required adoption using a modified retrospective approach, under which all years presented in the financial statements would be prepared under the revised guidance. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842) Targeted Improvements , which added an optional transition method to the existing requirements whereby an entity could adopt the provisions of ASU 2016-02 by recognizing a cumulative-effective adjustment to the opening balance of retained earnings in the period of adoption without adjustment to the financial statements for periods prior to adoption. The Company expects that the adoption of the new leasing standards will result in the recognition of material right-of-use assets and lease liabilities on the consolidated balance sheets but does not expect it to have a material impact on its results of operations or cash flows. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) . The new standard adjusts the accounting for assets held at amortized costs basis, including marketable securities accounted for as available for sale. The standard eliminates the probable initial recognition threshold and requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For public entities, the guidance was effective for annual reporting periods beginning after December 15, 2019 and for interim periods within those fiscal years. For nonpublic entities and emerging growth companies that choose to take advantage of the extended transition period, the guidance is effective for annual reporting periods beginning after December 15, 2020. Early adoption is permitted for all entities. In November 2019, the FASB issued ASU No. 2019-10, which deferred the effective date for nonpublic entities to annual reporting periods beginning after December 15, 2022 , including interim periods within those fiscal years. The Company does not believe the guidance will have a material impact on its consolidated financial statements. 3. Marketable Securities and Fair Value Measurements As of December 31, 2021, marketable securities by security type consisted of (in thousands): Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value U.S. treasury notes (due within one year) $ 30,213 $ — $ ( 20 ) $ 30,193 U.S. treasury Notes (due after one year through two years) 15,093 — ( 10 ) 15,083 Total $ 45,306 $ — $ ( 30 ) $ 45,276 As of December 31, 2020, marketable securities by security type consisted of (in thousands): Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value U.S. treasury notes (due within one year) $ 90,706 $ — $ ( 23 ) $ 90,683 Total $ 90,706 $ — $ ( 23 ) $ 90,683 14 3 Table of Contents The following tables present information about the Company’s financial assets measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values (in thousands): Fair Value Measurements at December 31, 2021 Using: Level 1 Level 2 Level 3 Total Cash equivalents: Money market funds $ 131,542 $ — $ — $ 131,542 Marketable securities: U.S. treasury notes — 45,276 — 45,276 Total $ 131,542 $ 45,276 $ — $ 176,818 Fair Value Measurements at December 31, 2020 Using: Level 1 Level 2 Level 3 Total Cash equivalents: Money market funds $ 43,182 $ — $ — $ 43,182 U.S. treasury notes — 14,999 — 14,999 Marketable securities: U.S. treasury notes — 90,683 — 90,683 Total $ 43,182 $ 105,682 $ — $ 148,864 4. Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): December 31, 2021 2020 Laboratory and computer equipment $ 6,397 $ 5,477 Furniture and fixtures 826 837 Leasehold improvements 6,905 6,905 14,128 13,219 Less: Accumulated depreciation and amortization ( 6,667 ) ( 4,907 ) $ 7,461 $ 8,312 Depreciation and amortization expense was $ 2.0 million for each of the years ended December 31, 2021 and 2020, respectively. 5. Accrued Expenses Accrued expenses consisted of the following (in thousands): December 31, 2021 2020 Accrued payroll and related expenses $ 3,346 $ 3,107 Accrued external research and development expenses 2,813 2,662 Deferred rent, current portion 555 555 Accrued professional fees 477 693 Accrued other 632 653 $ 7,823 $ 7,670 14 4 Table of Contents 6. Common Stock In May 2021, the Company issued and sold 9,599,998 shares of its common stock in a private placement at a purchase price of $ 9.00 per share, resulting in net proceeds of $ 86.1 million, after deducting offering expenses. In connection with the private placement, the Company filed a resale registration statement with the Securities and Exchange Commission (the “SEC”) in June 2021 to register the resale of these shares by the purchasers in the private placement. In June 2020, the Company issued and sold 8,625,000 shares of its common stock, including the underwriters’ exercise in full of their option to purchase additional shares of common stock, in a follow-on public offering at a public offering price of $ 8.00 per share, resulting in net proceeds of $ 64.6 million after deducting underwriting discounts and commissions and other offering expenses. The Company has a shelf registration statement on Form S-3 (the “Shelf”) on file with the SEC, which covers the offering, issuance and sale of up to an aggregate of $ 350.0 million of common stock, preferred stock, debt securities, warrants and/or units of any combination thereof. The Company simultaneously entered into a sales agreement with Cowen and Company, LLC, as sales agent, to provide for the issuance and sale by the Company of up to $ 100.0 million of common stock from time to time in “at-the-market” offerings under the Shelf (the “ATM Program”). The Shelf was declared effective by the SEC on August 19, 2019. As of December 31, 2021, no sales have been made pursuant to the ATM Program. Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Common stockholders are not entitled to receive dividends unless declared by the board of directors. 7. Stock-Based Compensation 2018 Stock Option and Incentive Plan The Magenta Therapeutics, Inc. 2018 Stock Option and Incentive Plan (the “2018 Plan”) provides for the grant of incentive stock options, non-statutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units and performance shares to employees, directors and consultants. Shares of common stock underlying any awards under the 2018 Plan and the Magenta Therapeutics, Inc. 2016 Stock Option and Grant Plan (the “2016 Plan”) that are forfeited, cancelled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without any issuance of stock, expire or are otherwise terminated (other than by exercise) will be available for future awards under the 2018 Plan. As of December 31, 2021, 3,001,271 shares remained available for future grants under the 2018 Plan. The 2018 Plan provides that the number of shares reserved and available for issuance under the 2018 Plan will automatically increase each January 1 by 4 % of the outstanding number of shares of the Company’s common stock on the immediately preceding December 31 or such lesser number of shares as determined by the Company’s compensation committee. This number is subject to adjustment in the event of a stock split, stock dividend or other change in capitalization. The number of shares reserved for issuance under the 2018 Plan was increased by 2,351,966 shares effective January 1, 2022. 2016 Stock Option and Grant Plan The Company also has outstanding stock options and restricted stock awards under the 2016 Plan, but is no longer granting awards under this plan. The 2018 Plan is administered by the board of directors, or at the discretion of the board of directors, by a committee of the board. The exercise prices, vesting and other restrictions are determined at the discretion of the 14 5 Table of Contents board of directors, or their committee if so delegated, except that the term of awards may not be greater than ten years . Vesting periods are determined at the discretion of the board of directors. Awards typically vest over three or four years . The exercise price for stock options granted may not be less than the fair value of common stock as of the date of grant. The fair value of common stock is based on quoted market prices. 2019 Employee Stock Purchase Plan Employees may elect to participate in t he Magenta Therapeutics, Inc. 2019 Employee Stock Purchase Plan (the “ESPP”). The purchase price of common stock under the ESPP is equal to 85 % of the lower of the fair market value of the common stock on the offering date or the exercise date. The six-month offering periods begin in December and June of each year. During the year ended December 31, 2021, 25,563 shares of common stock were purchased under the ESPP at a weighted average purchase price of $ 5.53 per share. During the year ended December 31, 2020, 15,701 shares of common stock were purchased under the ESPP at a weighted average purchase price of $ 6.59 per share. The Company recognized less than $ 0.1 million of stock-based compensation during each of the years ended December 31, 2021 and 2020 related to the ESPP. As of December 31, 2021, 125,261 shares remained available for issuance under the ESPP. The ESPP provides that the number of shares reserved and available for issuance under the ESPP will automatically increase each January 1 through January 1, 2029, by the lesser of (i) 1 % of the number of shares issued and outstanding on the immediately preceding December 31, (ii) 1,000,000 shares and (iii) such number of shares as determined by the compensation committee of the Company’s board of directors. The number of shares reserved for issuance under the ESPP was increased by 587,991 shares on January 1, 2022. Common Stock Option Valuation The assumptions that the Company used to determine the fair value of options granted were as follows, presented on a weighted average basis: Year Ended December 31, 2021 2020 Risk-free interest rate 0.9 % 1.0 % Expected term (in years) 6.0 6.0 Expected volatility 80.5 % 80.4 % Expected dividend yield 0 % 0 % Common Stock Option Activity The following table summarizes the Company’s option activity since Decembe r 31, 2020: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value (in years) (in thousands) Outstanding as of December 31, 2020 5,622,868 $ 9.54 8.3 $ 2,136 Granted 3,095,759 $ 9.24 Exercised ( 421,997 ) $ 7.97 Forfeited ( 2,047,955 ) $ 10.58 Outstanding as of December 31, 2021 6,248,675 $ 9.15 8.2 $ — Options vested and expected to vest as of December 31, 2021 6,248,675 $ 9.15 8.2 $ — Options exercisable as of December 31, 2021 2,693,874 $ 9.34 7.1 $ — 146 Table of Contents The aggregate intrinsic value of options is calculated as the difference between the exercise price of the options and the fair value of the Company’s common stock for those options that had exercise prices lower than the fair value of the Company’s common stock. The aggregate intrinsic value of options exercised during the years ended December 31, 2021 and 2020 was $ 1.3 million and $ 1.1 million, respectively. The weighted average grant-date fair value per share of stock options granted during the years ended December 31, 2021 and 2020 was $ 6.32 and $ 6.90 , respectively. Restricted Stock Activity Unvested shares of restricted stock may not be sold or transferred by the holder. These restrictions lapse according to the time-based vesting conditions of each award. The table below summarizes the Company’s restricted stock activity for grants issued under the 2016 Plan since December 31, 2020: Number of Shares Weighted Average Grant Date Fair Value Outstanding as of December 31, 2020 8,466 $ 4.84 Vested ( 8,466 ) $ 4.84 Forfeited — Outstanding as of December 31, 2021 — The total fair value of restricted stock vested during the years ended December 31, 2021 and 2020 was less than $ 0.1 million and $ 1.7 million, respectively. Restricted Stock Units The Company granted service-based restricted stock units to certain employees which vests over three years . Upon vesting, each restricted stock unit entitles the holder to a specified number of shares of common stock. The table below summarizes the Company’s restricted stock unit activity since December 31, 2020: Number of Shares Weighted Average Grant Date Fair Value Outstanding as of December 31, 2020 205,000 $ 6.80 Granted 275,625 $ 8.07 Vested ( 39,998 ) $ 6.80 Forfeite d ( 150,709 ) $ 7.22 Outstanding as of December 31, 2021 289,918 $ 7.79 The total fair value of restricted stock units vested during the year ended December 31, 2021 was $ 0.3 million. Performance Restricted Stock Units The Company grants performance-based restricted stock units to certain senior employees which vest upon the occurrence of certain operational and financial events. At the achievement of the performance-based vesting criteria, each performance-based restricted stock unit entitles the holder to a specified number of shares of common stock. 147 Table of Contents The table below summarizes the Company’s performance restricted stock unit activity since December 31, 2020: Number of Shares Weighted Average Grant Date Fair Value Outstanding as of December 31, 2020 160,000 $ 6.75 Granted 320,000 $ 10.45 Vested ( 170,000 ) $ 10.19 Forfeited ( 120,000 ) $ 6.75 Outstanding as of December 31, 2021 190,000 $ 9.91 The total fair value of performance restricted stoc k units vested during the year ended December 31, 2021 was $ 1.0 million. Stock-Based Compensation Stock-based compensation expense was classified in the consolidated statements of operations and comprehensive loss as follows (in thousands): Year Ended December 31, 2021 2020 Research and development expenses $ 3,836 $ 3,542 General and administrative expenses 6,472 6,399 $ 10,308 $ 9,941 As of December 31, 2021, unrecognized compensation expense related to unvested share-based awards with service-based vesting conditions was $ 20.7 million, which is expected to be recognized over a weighted average period of 2.8 years. Additionally, the Company had unrecognized compensation cost of $ 1.9 million related to the unvested performance restricted stock units for which the performance conditions were not considered probable of achievement as of December 31, 2021. 8. Commitments and Contingencies Leases In May 2018, the Company entered into a sublease, as amended, for up to approximately 69,000 square feet of office and laboratory space in Cambridge, Massachusetts. The sublease is subject and subordinate to a prime lease between the sublandlord and the prime landlord. The term of the sublease commenced in June 2018 and expires in February 2028 . The sublandlord has the right to terminate the sublease after five years . The Company is obligated to pay real estate taxes and other costs related to the premises, including costs of operations and management of the leased premises. In connection with the sublease, as amended, the sublandlord funded $ 5.2 million in tenant improvements to the leased facility during 2019. The Company is required to maintain a cash balance of $ 1.8 million to secure a letter of credit associated with the sublease. This amount was classified as noncurrent restricted cash in the consolidated balance sheets at December 31, 2021 and 2020. As of December 31, 2021 and 2020, the Company had long-term deferred rent of $ 6.4 million and $ 6.3 million, respectively, related to lease incentives and payment escalations. As of December 31, 2021 and 2020, the short-term portion of deferred rent of $ 0.6 million for each period was included in accrued expenses and other current liabilities. The Company recorded rent expense of $ 6.2 million during each of the years ended December 31, 2021 and 2020. 148 Table of Contents As of December 31, 2021, the future minimum lease payments due under the noncancelable operating lease is as follows (in thousands): 2022 $ 6,375 2023 6,734 2024 7,100 2025 7,455 2026 7,828 Thereafter 9,617 $ 45,109 In 2018, the Company entered into two sub-subleases of approximately 27,000 square feet of office space in Cambridge, Massachusetts. One of the sub-subleases, as amended, expired in December 2021. The remaining sub-sublease, as amended, would have expired in April 2022. In January 2022, the remaining sub-sublease was further amended to increase the square footage from 13,643 square feet to 26,114 square feet and to extend the expiration to April 2023. Total base rent payments due under the further amended sub-sublease was $ 3.4 million . The Company recorded other income of $ 3.5 million and $ 2.9 million during the years ended December 31, 2021 and 2020, respectively, related to its sub-subleases. Collaboration Agreement In March 2018, the Company entered into a collaboration agreement with Heidelberg Pharma Research GmbH (“HDPR”) whereby the parties agreed to combine the Company’s stem cell platform with proprietary antibodies across up to four exclusive targets with HDPR’s proprietary Antibody Targeted Amanitin Conjugates platform. Under the agreement, the Company may pay upfront technology access fees, research exclusivity fees and payment for research support. Additionally, upon the exercise of certain license rights, the Company may be obligated to pay HDPR development, regulatory and commercial milestone payments of up to $ 83.5 million per target as well as royalties on net sales of products licensed under the agreement. During the years ended December 31, 2021 and 2020, the Company recorded $ 0.4 million and $ 0.7 million, respectively, of research and development expense related to this agreement for upfront technology access fees, research exclusivity fees and research support. Intellectual Property Licenses The Company has a license agreement with the President and Fellows of Harvard College (“Harvard”), entered into in November 2016, for an exclusive, worldwide, royalty-bearing license for certain technologies related to conditioning and mobilization. The Company is obligated to pay Harvard maintenance fees of $ 0.1 million annually and to reimburse qualified expenses related to the patents. The Company is also obligated to pay milestone payments of up to $ 7.4 million for the first two licensed products upon the achievement of certain development and regulatory milestones and to pay royalties on a product-by-product and country-by-country basis on net sales of products licensed under the agreement. During each of the years ended December 31, 2021 and 2020, the Company recorded $ 0.1 million of research and development expenses related to the achievement of two of these milestones. The Company has a license agreement with Novartis International Pharmaceutical Ltd. (“Novartis”), entered into in April 2017, to use and develop certain patent rights (the “Novartis License”). Under the Novartis License, the Company was granted an exclusive, worldwide, sublicensable license to research, develop and commercialize certain licensed products that contain Novartis compounds for the expansion of cord blood derived non-gene-edited/-modified hematopoietic stem cells. The Company is obligated to make payments of up to $ 177.0 million upon the achievement of specified clinical and regulatory milestones and up to $ 125.0 million upon the achievement of specified commercial milestones and to pay tiered royalties, on a product-by-product and 149 Table of Contents country-by-country basis, up to a maximum of 20 % on net sales of products licensed under the agreement. On December 13, 2021, the Company notified Novartis of its termination of the Novartis License which becomes effective 90 days from the date of notification. Prior to the notice of termination, no milestones related to the Novartis License had been met. The Company has agreements with third parties in the normal course of business, under which it can license certain developed technologies. If the Company exercises its rights to license the respective technologies, it may be subject to additional fees and milestone payments. During the year ended December 31, 2021, the Company did no t incur any expense related to these licenses. During the year ended December 31, 2020, the Company recorded research and development expense of $ 0.8 million related to the license of certain developed technologies under these agreements. Indemnification Agreements In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its board of directors and senior management that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company is not aware of any claims under indemnification arrangements, and it has not accrued any liabilities related to such obligations in its consolidated financial statements as of December 31, 2021 or 2020. Legal Proceedings The Company is not currently a party to any material legal proceedings. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company expenses the costs related to its legal proceedings as they are incurred. 9. 401(k) Savings Plan The Company has a 401(k) available for participating employees who meet certain eligibility requirements. Eligible employees may defer a portion of their salary as defined by the plan. Company contributions to the plan may be made at the discretion of the board of directors of the Company. Effective August 2021, the Company began making matching contributions of up to 2 % of eligible wages. During the year ended December 31, 2021, the Company recorded $ 0.1 million of expense related to this matching contribution. 10. Income Taxes During the years ended December 31, 2021 and 2020, the Company recorded no income tax benefits for the net operating losses incurred or for the research and orphan drug tax credits generated in each year, due to its uncertainty of realizing a benefit from those items. 150 Table of Contents A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as follows: Year Ended December 31, 2021 2020 Federal statutory income tax rate 21.0 % 21.0 % State taxes, net of federal benefit 5.8 5.8 Research and orphan drug tax credits 3.3 3.4 Other 0.5 ( 1.7 ) Increase in deferred tax asset valuation allowance ( 30.6 ) ( 28.5 ) Effective income tax rate — % — % Net deferred tax assets as of December 31, 2021 and 2020 consisted of the following (in thousands): December 31, 2021 2020 Deferred tax assets: Net operating loss carryforwards $ 67,236 $ 49,958 Capitalized research and development expenses 8,665 9,506 Research and orphan drug tax credit carryforwards 12,370 9,988 Stock compensation expense 5,430 2,832 Accrued expense 936 828 Other 1,891 1,867 Total deferred tax assets 96,528 74,979 Valuation allowance ( 95,367 ) ( 73,600 ) Net deferred tax assets 1,161 1,379 Deferred tax liabilities: Depreciation and amortization ( 1,161 ) ( 1,379 ) Total deferred tax liabilities ( 1,161 ) ( 1,379 ) Net deferred tax assets and liabilities $ — $ — As of December 31, 2021, the Company had net operating loss carryforwards for federal income tax purposes of $ 247.2 million, of which $ 17.5 million begin to expire in 2035 and $ 229.7 million can be carried forward indefinitely. As of December 31, 2021, the Company had net operating loss carryforwards for state income tax purposes of $ 247.4 million which begin to expire in 2035 . As of December 31, 2021, the Company also had available research and orphan drug tax credit carryforwards for federal and state income tax purposes of $ 10.3 million and $ 2.7 million, respectively, which begin to expire in 2035 and 2030 , respectively. Utilization of the net operating loss carryforwards and research and orphan drug tax credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”) due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income. The Company has not conducted a formal study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to the significant complexity and cost associated with such a study. If the Company has experienced a change of control, as defined by Section 382 and 383 of the Code, at any time since inception, utilization of the net operating loss carryforwards or research and orphan drug tax credit carryforwards may be subject to an annual limitation under Section 382 and 383 of the Code, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required. Any 151 Table of Contents limitation may result in expiration of a portion of the net operating loss carryforwards or research and orphan drug tax credit carryforwards before utilization. The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. The Company considered its history of cumulative net losses incurred since inception and its lack of commercialization of any products since inception and has concluded that it is more likely than not that the Company will not realize the benefits of the deferred tax assets. Accordingly, a full valuation allowance has been established against the deferred tax assets as of December 31, 2021 and 2020. The Company reevaluates the positive and negative evidence at each reporting period. Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2021 and 2020 related primarily to the increase in net operating loss carryforwards, capitalized research and development expenses and research and orphan drug tax credit carryforwards and were as follows (in thousands): Year Ended December 31, 2021 2020 Valuation allowance as of beginning of year $ 73,600 $ 52,248 Net increases recorded to income tax provision 21,767 21,352 Valuation allowance as of end of year $ 95,367 $ 73,600 The Company has no t recorded any amounts for unrecognized tax benefits as of December 31, 2021 or 2020. The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending income tax examinations. The Company’s tax years are open under statute from 2018 to the present. The Company’s policy is to record interest and penalties related to income taxes as part of its income tax provision. 11. Related Parties National Marrow Donor Program (as successor in interest to Be The Match BioTherapies Collection Services, LLC (formerly known as Be The Match BioTherapies, LLC)) Effective March 2018, Amy Lynn Ronneberg, the then serving President of Be The Match BioTherapies, LLC, became a member of the Company’s board of directors and subsequently was appointed Chief Executive Officer of the National Marrow Donor Program/Be The Match, or NMDP/Be The Match, organization in June 2020. The Company has collaboration agreements with the National Marrow Donor Program (as successor in interest to Be The Match BioTherapies Collection Services, LLC (formerly known as Be The Match BioTherapies, LLC)) and a research agreement with an affiliated organization, Center for International Blood and Marrow Transplant Research. In addition, in June 2020, the Company entered into a clinical collaboration agreement with NMDP/Be The Match to evaluate the potential utility of MGTA-145 for mobilizing and collecting hematopoietic stem cells from donors in a single day and then using them for allogeneic transplants in patients. Under the terms of this agreement, the Company shall fund up to fifty percent of NMDP/Be The Match clinical trial costs and provide the trial drugs which will be included in research and development expense. For the years ended December 31, 2021 and 2020, the Company recorded expense of $ 0.7 million and $ 0.4 million, respectively, related to these agreements. As of December 31, 2021 and 2020, amounts on the consolidated balance sheets related to these agreements were $ 0.2 million and less than $ 0.1 million, respectively, which amounts were included in accounts payable and accrued expenses and other current liabilities and less than $ 0.1 million, which amounts were included in prepaid expenses and other current assets. 1 5 2 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.