What changed in this filing

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Item 1. Financial Statements

2020-11-05 compared with 2020-08-07 · 190 added, 118 removed, 548 unchanged (36% of the section changed)

3 unchanged sentences

(In thousands, except share amounts)

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Current assets:

15 unchanged sentences

Operating lease liability, current 4,508 3,665

Contract liabilities 34,134 18,739

Related party contract liability 44,854 —

Other contract liabilities 28,015 18,739

Total current liabilities 105,413 45,344

6 unchanged sentences

Convertible preferred stock, $ 0.01 par value;

40,000,000 shares authorized as of June 30, 2020 and December 31, 2019;

0 shares issued and outstanding as of June 30, 2020 and December 31, 2019

40,000,000 shares authorized as of September 30, 2020 and December 31, 2019;

0 shares issued and outstanding as of September 30, 2020 and December 31, 2019

Common stock, $ 0.01 par value;

400,000,000 shares authorized as of June 30, 2020 and December 31, 2019;

105,897,872 shares and 96,189,935 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively

400,000,000 shares authorized as of September 30, 2020 and December 31, 2019;

119,795,216 shares and 96,189,935 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

Additional paid-in capital 1,480,315 818,803

7 unchanged sentences

(In thousands, except share and per share amounts)

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

18 unchanged sentences

Weighted average number of shares outstanding, basic and diluted 107,490,702 95,859,048 105,217,770 95,449,570

105,717,912 95,495,497 104,068,815 95,241,412

See accompanying notes to unaudited condensed consolidated financial statements.

7 unchanged sentences

9,000,000 90 193,858 — — 193,948

Issuance of common stock in connection with the Biogen Stock Purchase Agreement 13,310,243 133 420,013 — — 420,146

Issuances under equity incentive plans

5 unchanged sentences

— — — — ( 173,749 ) ( 173,749 )

Other comprehensive income

— — — 201 — 201

Other comprehensive loss — — — ( 339 ) — ( 339 )

Balance at September 30, 2020 119,795,216 $ 1,524 $ 1,480,315 $ 11 $ ( 599,300 ) $ 882,550

Balance at June 30, 2020 105,897,872 $ 1,385 $ 1,041,303 $ 551 $ ( 541,072 ) $ 502,167

Balance at March 31, 2020 105,541,343 $ 1,382 $ 1,025,408 $ 835 $ ( 482,314 ) $ 545,311

Issuance of common stock in connection with the Biogen Stock Purchase Agreement 13,310,243 133 420,013 — — 420,146

Issuances under equity incentive plans

7 unchanged sentences

— — — ( 540 ) — ( 540 )

Balance at June 30, 2020 105,897,872 $ 1,385 $ 1,041,303 $ 551 $ ( 541,072 ) $ 502,167

Balance at September 30, 2020 119,795,216 $ 1,524 $ 1,480,315 $ 11 $ ( 599,300 ) $ 882,550

Balance at December 31, 2018 94,662,435 $ 1,273 $ 774,158 $ ( 649 ) $ ( 227,937 ) $ 546,845

10 unchanged sentences

— — — 1,211 — 1,211

Balance at September 30, 2019 95,987,607 $ 1,286 $ 807,875 $ 562 $ ( 371,526 ) $ 438,197

Balance at June 30, 2019 95,656,896 $ 1,283 $ 798,277 $ 879 $ ( 325,266 ) $ 475,173

Balance at March 31, 2019 95,257,705 $ 1,279 $ 781,966 $ 332 $ ( 266,929 ) $ 516,648

Issuances under equity incentive plans

7 unchanged sentences

— — — — ( 46,260 ) ( 46,260 )

Other comprehensive income

— — — 547 — 547

Balance at June 30, 2019 95,656,896 $ 1,283 $ 798,277 $ 879 $ ( 325,266 ) $ 475,173

Other comprehensive loss — — — ( 317 ) — ( 317 )

Balance at September 30, 2019 95,987,607 $ 1,286 $ 807,875 $ 562 $ ( 371,526 ) $ 438,197

See accompanying notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

Six Months Ended

Nine Months Ended

September 30,

Operating activities

11 unchanged sentences

Contract liabilities ( 17,920 ) ( 2,797 )

Related party contract liability 44,854 —

Net cash used in operating activities ( 97,763 ) ( 103,933 )

5 unchanged sentences

Financing activities

Proceeds from issuance of common stock in connection with the Biogen Stock Purchase Agreement 420,146 —

Proceeds from public offering of common stock, net of issuance costs 193,948 —

1 unchanged sentence

Net cash provided by financing activities 625,227 4,156

Net increase (decrease) in cash, cash equivalents and restricted cash 57,735 ( 14,187 )

Net increase in cash, cash equivalents and restricted cash 271,598 5,550

Cash, cash equivalents and restricted cash at beginning of period 80,949 78,623

20 unchanged sentences

These interim financial results are not necessarily indicative of results expected for the full fiscal year or for any subsequent interim period.

During the six months ended June 30, 2020, except as discussed below in the sections titled "Marketable Securities" and "Recently Adopted Accounting Pronouncement," there were no material changes to the Company's significant accounting and financial reporting policies from those reflected in the 2019 Annual Report on Form 10-K.

During the nine months ended September 30, 2020, except as discussed below in the sections titled "Marketable Securities" and "Recently Adopted Accounting Pronouncement," there were no material changes to the Company's significant accounting and financial reporting policies from those reflected in the 2019 Annual Report on Form 10-K.

For further information with regard to the Company’s Significant Accounting Policies, please refer to Note 1, "Significant Accounting Policies," to the Company’s Consolidated Financial Statements included in the 2019 Annual Report on Form 10-K.

18 unchanged sentences

The Company is exposed to credit risk in the event of a default by the financial institutions holding its cash, cash equivalents and marketable securities and issuers of marketable securities to the extent recorded on the Condensed Consolidated Balance Sheets.

As of June 30, 2020 and December 31, 2019, the Company had no off-balance sheet concentrations of credit risk.

As of September 30, 2020 and December 31, 2019, the Company has no off balance sheet concentrations of credit risk.

The Company is exposed to counterparty credit risk on all of its derivative financial instruments.

5 unchanged sentences

Credit risk associated with investments in securities may increase if any institution with which the Company has an investment is significantly impacted by the COVID-19 pandemic.

As of June 30, 2020, the Company has not realized any losses on its cash deposits or investments.

As of September 30, 2020, the Company has not realized any losses on its cash deposits or investments.

Further, COVID-19 may impact the timelines and progress of the Company's preclinical activities and clinical trials, and may impact its ability to raise capital in the near term.

13 unchanged sentences

The Company periodically evaluates the need for an allowance for credit losses.

This evaluation consists of several qualitative and quantitative factors, including whether it has plans to sell the security, whether it is more likely than not it will be required to sell any marketable securities before recovery of its amortized cost basis, and if the entity has the ability and intent to hold the security to maturity, and the portion of any unrealized loss that is the result of a credit loss.

This evaluation includes consideration of several qualitative and quantitative factors, including whether it has plans to sell the security, whether it is more likely than not it will be required to sell any marketable securities before recovery of its amortized cost basis, and if the entity has the ability and intent to hold the security to maturity, and the portion of any unrealized loss that is the result of a credit loss.

Factors considered in making these evaluations include quoted market prices, recent financial results and operating trends, implied values from any recent transactions or offers of investee securities, credit quality of debt instrument issuers, expected cash flows from securities, other publicly available information that may affect the value of the marketable security, duration and severity of the decline in value, and the Company's strategy and intentions for holding the marketable security.

27 unchanged sentences

development, regulatory and commercial milestone payments;

payments for manufacturing supply and research and development services;

and royalties on net sales of licensed products.

payments for manufacturing supply and research and development services and royalties on net sales of licensed products.

Each of these payments results in license, collaboration and other revenue, except for revenues from royalties on net sales of licensed products, which are classified as royalty revenue.

24 unchanged sentences

After contract inception, the transaction price is reassessed at every period end and updated for changes such as resolution of uncertain events.

Any change in the transaction price is allocated to the performance obligations on the same basis as at contract inception.

Any change in the transaction price is allocated to the performance obligations on the same basis as at contract inception, or to a single performance obligation as applicable.

Management may be required to exercise considerable judgment in estimating revenue to be recognized.

6 unchanged sentences

Recently Issued Accounting Pronouncement

In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No.

In December 2019, the Financial Accounting Standards Board ("FASB") issued ASU No.

2019-12 , Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes.

1 unchanged sentence

The guidance is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years, with early adoption permitted, and is required to be adopted prospectively, with the exception of certain specific amendments.

The Company is currently assessing the impact of this ASU on its Condensed Consolidated Financial Statements.

The Company is currently finalizing its assessment of the impact of this ASU, and does not expect it to have a material impact on its Condensed Consolidated Financial Statements.

Recently Adopted Accounting Pronouncement

In June 2016, the FASB issued Accounting Standards Update No.

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments-Credit Losses:

6 unchanged sentences

Assets and liabilities measured at fair value at each balance sheet date are as follows (in thousands):

June 30, 2020

September 30, 2020

Level 1 Level 2 Level 3 Total

3 unchanged sentences

government treasuries 542,637 — — 542,637

government agency securities — 10,111 — 10,111

Corporate debt securities — 43,919 — 43,919

1 unchanged sentence

Long-term marketable securities:

Corporate debt securities — 7,229 — 7,229

government treasuries 5,153 — — 5,153

government agency securities — 15,188 — 15,188

Foreign currency derivative contracts — 109 — 109

Total $ 874,430 $ 82,814 $ — $ 957,244

21 unchanged sentences

The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly.

There were no transfers of assets or liabilities between the fair value measurement levels during the three and six months ended June 30, 2020 or 2019.

There were no transfers of assets or liabilities between the fair value measurement levels during the three and nine months ended September 30, 2020 or 2019.

Cash and Marketable Securities

1 unchanged sentence

A reconciliation of cash, cash equivalents, and restricted cash reported within the Condensed Consolidated Balance Sheets to the amount reported within the Condensed Consolidated Statements of Cash Flows is shown in the table below (in thousands):

June 30, December 31, June 30, December 31,

September 30, December 31, September 30, December 31,

2020 2019 2019 2018

6 unchanged sentences

Marketable securities

All marketable securities were considered available-for-sale at June 30, 2020 and December 31, 2019.

All marketable securities were considered available-for-sale at September 30, 2020 and December 31, 2019.

On a recurring basis, the Company records its marketable securities at fair value using Level 1 or Level 2 inputs as discussed in Note 2, "Fair Value Measurements".

The amortized cost, gross unrealized holding gains or losses, and fair value of the Company’s marketable securities by major security type at each balance sheet date are summarized in the tables below (in thousands):

June 30, 2020

September 30, 2020

Amortized Cost Unrealized Holding Gains Unrealized Holding Losses Aggregate Fair Value

2 unchanged sentences

$ 542,479 $ 161 $ ( 3 ) $ 542,637

government agency securities (2)

10,122 — ( 11 ) 10,111

Corporate debt securities

5 unchanged sentences

Long-term marketable securities:

Corporate debt securities

government treasuries

5,153 — — 5,153

government agency securities (3)

15,189 — ( 1 ) 15,188

Total long-term marketable securities

2 unchanged sentences

__________________________________________________

(1) Immaterial unrealized holding losses on 4 securities.

(1) Unrealized holding losses on 8 securities with an aggregate fair value of $ 73.3 million.

(2) Unrealized holding losses on 2 securities with an aggregate fair value of $ 10.1 million.

(3) Unrealized holding losses on 1 securities with an aggregate fair value of $ 15.2 million.

December 31, 2019

24 unchanged sentences

(4) Unrealized holding losses on 3 securities with an aggregate fair value of $ 17.2 million.

As of December 31, 2019, some of the Company’s marketable securities were in an unrealized loss position, and unrealized losses were immaterial as of June 30, 2020.

The Company has no t recognized an allowance for credit losses as of June 30, 2020 and there was no other-than-temporary impairment as of December 31, 2019.

As of December 31, 2019, some of the Company’s marketable securities were in an unrealized loss position, and unrealized losses were immaterial as of September 30, 2020.

The Company has no t recognized an allowance for credit losses as of September 30, 2020 and there was no other-than-temporary impairment as of December 31, 2019.

The Company determined that it had the ability and intent to hold all marketable securities that have been in a continuous loss position until maturity or recovery.

1 unchanged sentence

All marketable securities with unrealized losses as of each balance sheet date have been in a loss position for less than twelve months or the loss is not material.

The Company recorded unrealized gains on marketable securities as other comprehensive income in the six months ended June 30, 2020 and the three and six months ended June 30, 2019.

There was no unrealized gain on marketable securities in other comprehensive income for the three months ended June 30, 2020.

As a result, the Company recorded a tax benefit of $ 0.1 million for the six months ended June 30, 2020, and a tax benefit of $ 0.3 million for the three and six months ended June 30, 2019 on the Condensed Consolidated Statements of Operations and Comprehensive Loss and a corresponding tax charge in other comprehensive income.

The Company recorded unrealized gains on marketable securities in other comprehensive income for the three and nine months ended September 30, 2019.

The Company recorded a tax benefit of $ 0.1 million and $ 0.4 million for the three and nine months ended September 30, 2019 on the Condensed Consolidated Statements of Operations and Comprehensive Loss and a corresponding tax charge in other comprehensive income.

There was no unrealized gain on marketable securities in other comprehensive income for the three and nine months ended September 30, 2020.

All of the Company’s marketable securities have an effective maturity of less than two years .

7 unchanged sentences

Information regarding the specific instruments used by the Company to hedge its exposure to foreign currency exchange rate fluctuations is provided below.

The following table summarizes the Company’s forward foreign currency exchange contracts outstanding as of June 30, 2020 and December 31, 2019, respectively (notional amounts in thousands):

The following table summarizes the Company’s forward foreign currency exchange contracts outstanding as of September 30, 2020 and December 31, 2019, respectively (notional amounts in thousands):

Foreign Exchange Contracts Number of Contracts Aggregate Notional (1) Amount in Foreign Currency

26 3,535 July 2020 - May 2021

24 3,630 Oct 2020 - Aug 2021

British Pounds

19 2,868 July 2020 - May 2021

2 21 July 2020 - Aug 2020

Total at June 30, 2020

26 3,736 Oct 2020 - Aug 2021

Total at September 30, 2020

23 1,500 Jan 2020 - Nov 2020

19 unchanged sentences

To date, the Company has paid consideration of $ 19.8 million in the aggregate, consisting of up-front and contingent consideration, all of which was recorded as research and development expense as incurred.

The Company recognized $ 1.5 million of contingent consideration as research and development expense for the three and six months ended June 30, 2019.

There has been no contingent consideration recognized for the three and six months ended June 30, 2020.

The Company recognized $ 1.5 million of contingent consideration as research and development expense for the three and nine months ended September 30, 2019.

There has been no contingent consideration recognized for the three and nine months ended September 30, 2020.

Any future contingent consideration is expected to be recognized as incurred in research and development expense on the Condensed Consolidated Statements of Operations and Comprehensive Loss.

2 unchanged sentences

The responsibility for costs under the second development plan related to an undisclosed Fcab target commenced in February 2019.

The Company recognized $ 0.3 million and $ 0.6 million in research and development expense related to the funding of F-star Ltd activities under this development plan during the three and six months ended June 30, 2020, respectively, and $ 0.3 million and $ 0.5 million for the three and six months ended June 30, 2019, respectively.

The Company recognized $ 0.3 million and $ 0.9 million in research and development expense related to the funding of F-star Ltd activities under this development plan during the three and nine months ended September 30, 2020, respectively, and $ 0.3 million and $ 0.8 million for the three and nine months ended September 30, 2019, respectively.

Collaboration Agreements

Provisional Biogen Collaboration Agreement and Common Stock Purchase Agreement

On August 5, 2020, the Company entered into a binding Provisional Collaboration and License Agreement (“Provisional Biogen Collaboration Agreement”) with Biogen Inc.’s subsidiaries, Biogen MA Inc.

(“BIMA”) and Biogen International GmbH (“BIG”) (BIMA and BIG, collectively, “Biogen”) pursuant to which the Company granted Biogen a license to co-develop and co-commercialize Denali’s small molecule LRRK2 inhibitor program (the “LRRK2 Program”), an option in respect of each of (i) the Company’s amyloid beta program utilizing the Company's Transport Vehicle ("TV") technology platform to cross the blood-brain barrier and (ii) one other unnamed program also utilizing the Company's TV technology platform (the “Option Programs”), and a right of first negotiation with respect to two additional unnamed programs for indications within Alzheimer’s disease, Parkinson’s disease, amyotrophic lateral sclerosis ("ALS") and multiple sclerosis utilizing the Company's TV technology platform (the “ROFN Programs”) should the Company decide to seek a collaboration with a third party for such programs.

The Provisional Biogen Collaboration Agreement is a binding agreement, which became effective on the closing of the Common Stock Purchase Agreement ("SPA"), as described further below.

The Provisional Biogen Collaboration Agreement expired in October 2020 upon the execution of a Definitive LRRK2 Collaboration and License Agreement (“LRRK2 Agreement”) with Biogen on October 4, 2020 and a Right of First Negotiation, Option and License Agreement (the “ROFN and Option Agreement”) on October 6, 2020 (collectively, the "Definitive Biogen Collaboration Agreement").

Under the terms of the Provisional Biogen Collaboration Agreement, Biogen was obligated to pay the Company a $ 560.0 million upfront payment, payable upon execution of the Definitive Biogen Collaboration Agreement, which occurred in October 2020.

With respect to the LRRK2 Program, Biogen will make milestone payments up to approximately $ 1.1 billion upon achievement of certain development and commercial events.

Such milestone payments include $ 375.0 million in development, $ 375.0 million upon first commercial sale, and $ 375.0 million in net sales-based milestones.

The Company will share 50 % of the profits and losses with Biogen for LRRK2 Products in the United States, and 40 % of such profits and losses in China.

The Company will be entitled to receive royalties in the high teens to low twenties percentages on net sales for LRRK2 Products outside of the United States and China.

Under the terms of the Provisional Biogen Collaboration Agreement, through the effective date of the Definitive Biogen Collaboration Agreement, the Company conducted and controlled LRRK2 clinical development.

Subsequently, the Company and Biogen will jointly develop LRRK2 Products pursuant to a clinical development plan set forth within the LRRK2 Agreement.

The parties will share responsibility and costs for global development of LRRK2 Products pursuant to a mutually agreed development plan and budget, with Biogen funding 60 % and the Company funding 40 % of such costs.

The Company has the ability to opt out of the development cost sharing arrangement, as further described below.

The Company may opt out of development cost sharing worldwide and upon such election, from any further profit sharing from the LRRK2 Program.

The Company also has the right to opt-out of the profit sharing arrangement for the LRRK2 Program or for only those LRRK2 Products that do not penetrate the blood-brain barrier (“Peripheral LRRK2 Products”), in each of the United States and China.

After such an opt out, the Company will no longer be obligated to share in the development and commercialization costs for, or be entitled to share in the applicable revenues from, such LRRK2 Program (or from the LRRK2 Peripheral Products).

Additionally, following a change of control of the Company, Biogen may, within a specified period of time, elect to terminate the Company’s right to share commercialization costs and revenues from the LRRK2 Program in China.

If the Company chooses to exercise its opt out rights, the Company will be entitled to receive tiered royalties on net sales of the applicable LRRK2 Program in the relevant country (or countries).

The royalty rates for the applicable LRRK2 Program will be a percentage in the high teens to low twenties, but may increase to the mid-twenties if the Company has met certain co-funding thresholds or there has been a first commercial sale at the time of the Company's election.

In addition to the LRRK2 Program, Biogen received an exclusive option to license two preclinical programs enabled by the Company's TV technology platform, which platform aims to improve brain uptake of biotherapeutics, including its Antibody Transport Vehicle ("ATV"):

Abeta program ("ATV enabled anti-amyloid beta program") and a second program utilizing the Company's TV technology for an unnamed target ("TV program"), excluding small molecules, Adeno-associated viruses ("AAV") and oligonucleotides.

Biogen’s option may be exercised up to initiation of investigational new drug ("IND")-enabling studies for each program and continues for each program until a specified period of time after delivery of an option data package, or thirty business days after the 5th anniversary of the effective date of the Provisional Biogen Collaboration Agreement, whichever is earlier.

Further, Biogen will have the right of first negotiation ("ROFN") on two additional TV-enabled therapeutics within Alzheimer’s disease, Parkinson’s disease, ALS and multiple sclerosis should the Company decide to seek a collaboration with a third party for such programs, but this does not include any of the Company’s small molecule, AAV and oligonucleotide programs.

The ROFN period continues until seven years after the effective date of the Provisional Biogen Collaboration Agreement or the date on which the Company has offered Biogen two ROFN Programs, whichever is earlier.

However, if the Company does not execute an agreement with a third party with respect to a particular ROFN Program offered to Biogen within a specified amount of time, Biogen will have one additional right to exercise the ROFN again with respect to such ROFN Program.

In connection with the Provisional Biogen Collaboration Agreement, the Company entered into a common stock purchase agreement (the "Stock Purchase Agreement") with BIMA on August 5, 2020, pursuant to which the Company agreed to issue and sell, and BIMA agreed to purchase, 13,310,243 shares of the Company’s common stock (the “Shares”) for an aggregate purchase price of $ 465.0 million pursuant to the terms and conditions thereof.

Since the shares of common stock owned by Biogen as of September 30, 2020 represent more than 10% of the voting interest of the Company, Biogen is considered a related party as defined in ASC 850.

Management determined that it is appropriate to account for the Provisional Biogen Collaboration Agreement and the SPA as one arrangement because they were entered into at the same time with interrelated financial terms.

On September 22, 2020, the Company closed the sale of the Shares to BIMA pursuant to the Stock Purchase Agreement.

The estimated fair market value of the Shares issued to Biogen was $ 420.1 million, based on the closing stock price of $ 35.87 on the date of issuance adjusted by a discount for lack of marketability due to certain holding period restrictions, which was valued using an option pricing model.

This stock issuance resulted in a $ 44.9 million premium paid to the Company above the estimated fair value of the Company's common stock (the "Stock Premium"), which was recorded as a related party contract liability in the Condensed Consolidated Balance Sheets.

The Stock Premium was the only consideration allocated to the Provisional Biogen Collaboration Agreement as of September 30, 2020

Upon inception, the Company identified the LRRK2 license as the only distinct performance obligation under ASC 606 associated with the Provisional Biogen Collaboration Agreement.

No performance obligations were identified related to the Option or ROFN Programs since the relevant financial and operational terms were not considered to be sufficiently defined in the Provisional Biogen Collaboration Agreement to allow the Company to determine its obligations.

Further, the Company was required to perform interim LRRK2 development activities subject to cost sharing in the period prior to finalization of the clinical development plan set forth within the LRRK2 Agreement.

The Company believes that the Provisional Biogen Collaboration Agreement is a collaboration arrangement as defined in ASC 808, Collaborative Agreements.

The Company also believes that Biogen meets the definition of a customer as defined in ASC 606, Revenue From Contracts With Customers, for the LRRK2 license, but does not meet the definition of a customer for the interim LRRK2 development activities for which the Company will fund 40 % of total costs.

Since ASC 808 does not address recognition and measurement, the Company looked to other accounting literature for guidance where the unit of account does not fall under ASC 606, and determined that for the interim LRRK2 development activities subject to cost sharing provisions, the guidance in ASC 730, Research and Development should be applied.

At inception, there was no transaction price for the Provisional Biogen Collaboration Agreement.

On September 22, 2020, as noted above, the $ 44.9 million Stock Premium was included in the transaction price.

All other potential future payments were considered constrained at inception and through September 30, 2020 since they were all contingent on the execution of the Definitive Biogen Collaboration Agreement.

For this reason, and due to the uncertainty surrounding the execution of the Definitive Biogen Collaboration Agreement as of September 30, 2020, the Company did not conclude it was probable that a significant reversal in the amount recognized would not occur.

As of September 30, 2020, management determined that no performance obligation had been satisfied or delivered to Biogen.

License delivery is contingent on transfer of control to Biogen, which had not occurred as of September 30, 2020.

Since no performance obligation had been satisfied as of September 30, 2020, no related party revenue was recognized under ASC 606 in the three and nine months ended September 30, 2020.

The entire transaction price was recorded within related party contract liability on the Condensed Consolidated Balance Sheet as of September 30, 2020.

Further, since cost sharing reimbursement related to the interim LRRK2 development activities performed prior to September 30, 2020 was contingent upon execution of the Definitive Biogen Collaboration Agreement, no offset to research and development expense from a related party was included in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020, and no related party receivable was recorded on the Condensed Consolidated Balance Sheet as of September 30, 2020.

In assessing the Provisional Biogen Collaboration Agreement, management exercised considerable judgment in estimating revenue to be recognized, specifically related to determining the separate performance obligations under the Agreement and estimating the timing of delivery of those performance obligations.

As of September 30, 2020, the Company had no t achieved any milestones or recorded any product sales under the Provisional Biogen Collaboration Agreement.

Definitive Biogen Collaboration Agreement

The Company entered into the LRRK2 Agreement with Biogen on October 4, 2020 and the ROFN and Option Agreement on October 6, 2020.

Collectively these are known as the Definitive Biogen Collaboration Agreement, the material terms of which are consistent with, and supersede, the Provisional Biogen Collaboration Agreement discussed above.

Under the ROFN and Option Agreement, with respect to the options granted by the Company to Biogen, Biogen is obligated to pay to the Company an aggregate of up to $ 270.0 million in option exercise and development milestone payments, up to $ 325.0 million upon first commercial sale, and up to $ 290.0 million of net sales-based milestone payments, following the achievement of certain prespecified milestone events and if Biogen exercises both of its options.

Furthermore, Biogen is obligated to pay to the Company royalties in the mid-single digit to mid-teens percentages, depending on the program for which Biogen exercises its option and upon the achievement of certain sales thresholds.

In October 2020, the Company received upfront payments totaling $ 560.0 million pursuant to the Definitive Biogen Collaboration Agreement.

Management is in the process of assessing the accounting impact of the execution of the Definitive Biogen Collaboration Agreement.

In October 2018, the Company entered into a Collaboration and License Agreement ("Sanofi Collaboration Agreement") with Genzyme Corporation, a wholly owned subsidiary of Sanofi S.A.

("Sanofi") pursuant to which certain small molecule CNS and peripheral receptor interacting serine/threonine protein kinase 1 (" RIPK1") inhibitors contributed by Sanofi and by Denali will be developed and commercialized.

The Sanofi Collaboration Agreement became effective in November 2018 when the Hart-Scott-Rodino ("HSR") requirements were satisfied at which time Sanofi paid the Company an upfront payment of $ 125.0 million.

Under the Sanofi Collaboration Agreement, Denali is eligible to receive milestone payments from Sanofi up to approximately $ 1.1 billion upon achievement of certain clinical, regulatory and sales milestone events.

Under the Sanofi Collaboration Agreement, the Company is eligible to receive milestone payments from Sanofi up to approximately $ 1.1 billion upon achievement of certain clinical, regulatory and sales milestone events.

Such milestone payments include $ 215.0 million in clinical milestone payments and $ 385.0 million in regulatory milestone payments for CNS Products, as defined, that are developed and approved in the United States, by the European Medicines Agency ("EMA") and in Japan for three indications, including Alzheimer's disease.

These milestones also include $ 120.0 million in clinical milestone payments, $ 175.0 million in regulatory milestone payments and $ 200.0 million in commercial milestone payments for Peripheral Products, as defined, that are developed and approved in the United States, by the EMA and Japan for three indications.

Denali will share profits and losses equally with Sanofi for CNS Products sold in the United States and China, and receive variable royalties on net sales for CNS Products sold outside of the United States and China and for Peripheral Products sold worldwide.

Denali and Sanofi will jointly develop CNS Products pursuant to a global development plan.

The Company will share profits and losses equally with Sanofi for CNS Products sold in the United States and China, and receive variable royalties on net sales for CNS Products sold outside of the United States and China and for Peripheral Products sold worldwide.

The Company and Sanofi will jointly develop CNS Products pursuant to a global development plan.

The Company will be responsible, at its own cost, for conducting Phase 1 and Phase 2 trials for CNS Products in Alzheimer’s disease and any activities required to support such clinical trials and specific for Alzheimer’s disease.

Denali conducted, at Sanofi’s cost, a Phase 1b trial for the initial lead CNS penetrant RIPK1 inhibitor, DNL747, in ALS.

In June 2020, Denali announced that clinical activities on DNL747 would be paused and efforts focused on the development of the backup preclinical candidate, DNL788.

The Company conducted, at Sanofi’s cost, a Phase 1b trial for the initial lead CNS penetrant RIPK1 inhibitor, DNL747 (SAR443060), in ALS.

In June 2020, the Company announced that clinical activities on DNL747 would be paused and efforts focused on the development of the backup preclinical candidate, DNL788.

Sanofi is responsible, at its cost, for all other Phase 1 and Phase 2 trials for CNS Products, including for multiple sclerosis.

Sanofi will lead the conduct of all Phase 3 and later stage development trials for CNS Products, with Sanofi and Denali funding 70 % and 30 % of such costs, respectively.

Sanofi will also lead the commercialization activities globally for CNS Products, subject to certain options that Denali has to conduct co-commercialization activities with respect to each CNS Product in the United States and China.

Sanofi will lead the conduct of all Phase 3 and later stage development trials for CNS Products, with Sanofi and the Company funding 70 % and 30 % of such costs, respectively.

Sanofi will also lead the commercialization activities globally for CNS Products, subject to certain options that the Company has to conduct co-commercialization activities with respect to each CNS Product in the United States and China.

Sanofi will be responsible, at its cost, for conducting activities relating to the development and commercialization of all Peripheral Products.

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The Company also believes that Sanofi meets the definition of a customer as defined in ASC 606, Revenue From Contracts With Customers for three of the performance obligations identified at inception, but does not meet the definition of a customer for the Alzheimer's Disease Services.

Further, Sanofi does not meet the definition of a customer for all Phase 3 and later stage development trials for CNS Products led by Sanofi for which Denali will fund 30 % of total costs.

Further, Sanofi does not meet the definition of a customer for all Phase 3 and later stage development trials for CNS Products led by Sanofi for which the Company will fund 30 % of total costs.

Since ASC 808 does not address recognition and measurement, the Company looked to other accounting literature for guidance where the performance obligation does not fall under ASC 606, and determined that for the Alzheimer's Disease Services, the guidance in ASC 606 should be analogized for the recognition, measurement and reporting of this performance obligation, and for the cost sharing provisions, the Company determined that the guidance in ASC 730, Research and Development should be applied.

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All potential future milestones and other payments were considered constrained at the inception of the Sanofi Collaboration Agreement since the Company could not conclude it was probable that a significant reversal in the amount recognized would not occur.

From inception through June 30, 2020, the transaction price increased by $ 23.5 million, consisting of $ 13.5 million related to costs incurred for Retained Activities that were no longer constrained, and $ 10.0 million related to a milestone triggered in July 2019.

The transaction price increased by $ 0.3 million and $ 0.8 million for the three and six months ended June 30, 2020, respectively, and $ 3.4 million and $ 6.8 million for the three and six months ended June 30, 2019, respectively, related entirely to costs incurred for Retained Activities that were determined to no longer be constrained during these periods.

From inception through September 30, 2020, the transaction price increased by $ 21.3 million, consisting of $ 11.3 million related to costs incurred for Retained Activities that were no longer constrained, and $ 10.0 million related to a milestone triggered in July 2019.

The transaction price increased by $ 0.1 million and $ 0.9 million for the three and nine months ended September 30, 2020, respectively, related entirely to costs incurred for Retained Activities that were determined to no longer be constrained during these periods.

The transaction price increased by $ 12.4 million and $ 19.2 million for the three and nine months ended September 30, 2019, respectively, related to the $ 10.0 million milestone triggered in July 2019, as well as $ 2.4 million and $ 9.2 million, respectively, for Retained Activities that were determined to no longer be constrained during these periods.

The respective standalone value for each of the performance obligations was determined by applying the SSP method and the transaction price allocated based on the relative SSP method with revenue recognition timing to be determined either by delivery or the provision of services.

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For the Retained Activities, revenue will be recognized over time using the output method, based on amounts invoiced to Sanofi, since this is believed to directly correlate to the value of the services performed.

A contract liability of $ 3.4 million and $ 3.5 million was recorded on the Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019, respectively.

A contract liability of $ 3.4 million and $ 3.5 million was recorded on the Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019, respectively.

This contract liability relates to the portion of the Alzheimer's Disease Services performance obligation yet to be satisfied, with such amounts to be recognized over the estimated period of the services, which is expected to be several years.

There was a receivable of $ 0.3 million and $ 1.2 million at June 30, 2020 and December 31, 2019, respectively, associated with the Sanofi Collaboration Agreement.

The Company recorded a receivable associated with the Sanofi Collaboration Agreement on the Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019 of $ 0.1 million and $ 1.2 million, respectively.

In assessing the Sanofi Collaboration Agreement, management is required to exercise considerable judgment in estimating revenue to be recognized.

Managem ent applies judgment in determining the separate performance obligations, in estimating the selling price, in determining when control was transferred to Sanofi for the licenses, and in estimating total future costs when using the input method.

Through June 30, 2020, Denali has received milestone payments of $ 10.0 million and has no t recorded any product sales recorded under the Sanofi Collaboration Agreement.

In January 2018, the Company entered into a Collaboration and Option Agreement ("Takeda Collaboration Agreement") with Takeda Pharmaceutical Company Limited ("Takeda"), pursuant to which the Company granted Takeda an option to develop and commercialize, jointly with the Company, certain biologic products that are enabled by Denali's blood-brain barrier ("BBB") delivery technology and intended for the treatment of neurodegenerative disorders.

The programs were Denali’s Antibody Transport Vehicle (“ATV”):BACE1/Tau and ATV:TREM2 and PTV:PGRN programs.

Through September 30, 2020, the Company has received milestone payments of $ 10.0 million and has no t recorded any product sales recorded under the Sanofi Collaboration Agreement.

In January 2018, the Company entered into a Collaboration and Option Agreement ("Takeda Collaboration Agreement") with Takeda Pharmaceutical Company Limited ("Takeda"), pursuant to which the Company granted Takeda an option to develop and commercialize, jointly with the Company, certain biologic products that are enabled by the Company's blood-brain barrier ("BBB") delivery technology and intended for the treatment of neurodegenerative disorders.

The programs were the Company’s ATV:BACE1/Tau and ATV:TREM2 and PTV:PGRN programs.

The Takeda Collaboration Agreement became effective in February 2018, at which time Takeda paid the Company an upfront payment of $ 40.0 million.

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The amendment did not have a material impact to the condensed consolidated financial statements.

Under the Takeda Collaboration Agreement and unless otherwise agreed jointly between both parties, Denali will be responsible, at its cost, for conducting activities relating to pre-IND development of biologic products directed to the three identified targets and enabled by its BBB delivery technology targeting TfR during the applicable research period.

Under the Takeda Collaboration Agreement and unless otherwise agreed jointly between both parties, the Company will be responsible, at its cost, for conducting activities relating to pre-Investigational New Drug ("IND") development of biologic products directed to the three identified targets and enabled by its BBB delivery technology targeting TfR during the applicable research period.

The period through which the option can be exercised continues for each target until the first biologic product directed to the relevant target is IND-ready or approximately five years after selection of the target, whichever is earlier.

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The Company will grant to Takeda a co-exclusive license under the intellectual property the Company controls related to those biologic products.

Takeda is obligated to pay Denali a $ 5.0 million option fee for each target for which Takeda exercises its option, up to $ 15.0 million in total.

In addition, if Takeda exercises its option for all three collaboration programs, Takeda may be obligated to pay Denali up to an aggregate of $ 407.5 million upon achievement of certain clinical milestone events and up to an aggregate of $ 300.0 million in regulatory milestone events relating to receipt of regulatory approval in the United States, certain European countries and Japan.

Takeda may also be obligated to pay Denali up to $ 75.0 million per biologic product upon achievement of a certain sales-based milestone, or an aggregate of $ 225.0 million if one biologic product from each program achieves this milestone.

If Takeda exercises its option for a particular target, Denali and Takeda will share equally the development and commercialization costs, and, if applicable, the profits, for each collaboration program.

Pursuant to the terms of the Takeda Collaboration Agreement, the Company entered into a common stock purchase agreement (the "Stock Purchase Agreement") with Takeda on January 3, 2018, pursuant to which Takeda purchased 4,214,559 shares of Denali’s common stock (the "Shares") for an aggregate purchase price of $ 110.0 million.

Takeda is obligated to pay the Company a $ 5.0 million option fee for each target for which Takeda exercises its option, up to $ 15.0 million in total.

In addition, if Takeda exercises its option for all three collaboration programs, Takeda may be obligated to pay the Company up to an aggregate of $ 407.5 million upon achievement of certain clinical milestone events and up to an aggregate of $ 300.0 million in regulatory milestone events relating to receipt of regulatory approval in the United States, certain European countries and Japan.

Takeda may also be obligated to pay the Company up to $ 75.0 million per biologic product upon achievement of a certain sales-based milestone, or an aggregate of $ 225.0 million if one biologic product from each program achieves this milestone.

If Takeda exercises its option for a particular target, the Company and Takeda will share equally in the development and commercialization costs, and, if applicable, the profits, for each collaboration program.

Pursuant to the terms of the Takeda Collaboration Agreement, the Company entered into a common stock purchase agreement (the "Stock Purchase Agreement") with Takeda on January 3, 2018, pursuant to which Takeda purchased 4,214,559 shares of the Company's common stock (the "Shares") for an aggregate purchase price of $ 110.0 million.

The sale of the Shares closed on February 23, 2018.

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Revenue is being recognized over time using the input method, based on costs incurred to perform the research services, since the level of costs incurred over time is thought to best reflect the transfer of services to Takeda.

There were no material changes in estimates during the three and six months ended June 30, 2020 or June 30, 2019.

A contract liability of $ 50.4 million and $ 59.0 million is recorded on the Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019, respectively.

There were no material changes in estimates during the three and nine months ended September 30, 2020 or September 30, 2019.

A contract liability of $ 41.1 million and $ 59.0 million was recorded on the Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019, respectively.

This contract liability relates to the three performance obligations identified, with such amounts to be recognized over the estimated period of the pre-IND research services, which is expected to be several years.

There was no receivable as of June 30, 2020 or December 31, 2019, related to the Takeda Collaboration Agreement.

Revenue recognized relating to future milestone payments of $ 4.9 million and $ 2.4 million, which the Company concluded is probable that a significant reversal in the amount recognized will not occur, is presented net in the contract liability on the Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019, respectively.

There was no receivable related to the Takeda Collaboration Agreement as of September 30, 2020 or December 31, 2019, respectively.

Revenue recognized relating to future milestone payments of $ 7.5 million and $ 2.4 million, which the Company concluded is probable that a significant reversal in the amount recognized will not occur, is presented net in the contract liability on the Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019, respectively.

In assessing the Takeda Collaboration Agreement, management is required to exercise considerable judgment in estimating revenue to be recognized.

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This may impact the split between current and non-current contract liability on the Condensed Consolidated Balance Sheet in the future.

Through June 30, 2020, Denali has received $ 15.0 million in preclinical milestone payments from Takeda and has no t recorded any product sales under the Takeda Collaboration Agreement.

Through September 30, 2020, the Company had received $ 15.0 million in preclinical milestone payments from Takeda and had no t recorded any product sales under the Takeda Collaboration Agreement.

Collaboration Revenue

Revenue disaggregated by collaboration agreement and performance obligation is as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

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Sanofi Collaboration Agreement

Alzheimer's Disease Services (1)

Peripheral Program License — 10,000 — 10,000

Retained Activities 117 2,423 925 9,210

Alzheimer's Disease Services (1)

Total Sanofi Collaboration Revenue 122 12,519 1,018 19,499

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(“Genentech”).

The agreement gives the Company access to Genentech’s leucine-rich repeat kinase 2 (“LRRK2”) inhibitor small molecule program for Parkinson’s disease.

The agreement gives the Company access to Genentech’s LRRK2 inhibitor small molecule program for Parkinson’s disease.

Under the agreement, Genentech granted the Company (i) an exclusive, worldwide, sublicensable license under Genentech’s rights to certain patents and patent applications directed to small molecule compounds which bind to and inhibit LRRK2 and (ii) a non-exclusive, worldwide, sublicensable license to certain related know-how, in each case, to develop and commercialize certain compounds and licensed products incorporating any such compound.

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In addition, the Company may owe royalties on net sales of licensed products ranging from low to high single-digit percentages.

Effective October 4, 2020, Biogen is responsible for 50 % of any payment obligation to Genentech under this agreement.

To date, the Company has paid Genentech $ 12.5 million in the aggregate, including an upfront fee, a technology transfer fee and a clinical milestone payment, all of which was recorded as research and development expense as incurred.

No amounts were recorded in the three and six months ended June 30, 2020 or 2019.

No expenses were recorded in the three and nine months ended September 30, 2020 or 2019.

Commitments and Contingencies

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In addition, the Headquarters Lease Amendment provided a tenant improvement allowance ("TIA") of up to $ 25.9 million, which was fully utilized, of which $ 4.4 million will be repaid to the landlord in the form of additional monthly rent.

This is recorded as leasehold improvement assets and an offset to the lease ROU asset on the Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019.

This is recorded as leasehold improvement assets and an offset to the lease ROU asset on the Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019.

The Company is also required to pay the operating expenses for the New Premises, such as taxes and insurance, which are treated as variable lease payments.

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To estimate the incremental borrowing rate, management considered observable debt yields of comparable market instruments, as well as benchmarks within the Headquarters Lease Amendment that may be indicative of the rate implicit in the lease.

Total operating lease costs, including variable and short-term lease costs, were $ 2.9 million and $ 5.5 million for the three and six months ended June 30, 2020, respectively, and $ 2.5 million and $ 4.8 million for the three and six months ended June 30, 2019, respectively.

Total operating lease costs, including variable and short-term lease costs, were $ 2.8 million and $ 8.3 million for the three and nine months ended September 30, 2020, respectively, and $ 2.6 million and $ 7.4 million for the three and nine months ended September 30, 2019, respectively.

Operating lease liabilities are calculated as the net present value of the remaining lease payments over the remaining lease term.

In determining the present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date.

As of June 30, 2020, the weighted average remaining lease term was 8.8 years and the weighted average discount rate used to determine the operating lease liability was 9.0 %.

Cash paid for amounts included in the measurement of lease liabilities for the six months ended June 30, 2020 and June 30, 2019 of $ 4.7 million and $ 1.9 million, respectively, was included in net cash used in operating activities in the Company's Condensed Consolidated Statements of Cash Flows.

The following table reconciles the undiscounted cash flows for the next five years and total of the remaining years to the operating lease liabilities recorded in the Condensed Consolidated Balance Sheet as of June 30, 2020 (in thousands):

As of September 30, 2020, the weighted average remaining lease term was 8.6 years and the weighted average discount rate used to determine the operating lease liability was 9.0 %.

Cash paid for amounts included in the measurement of lease liabilities for the nine months ended September 30, 2020 and September 30, 2019 of $ 7.2 million and $ 3.4 million, respectively, was included in net cash used in operating activities in the Company's Condensed Consolidated Statements of Cash Flows.

Year Ended December 31:

2020 (six months) $ 5,071

2020 (three months) $ 2,536

Thereafter 54,074

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The Company also passes through a portion of the operating expenses, such as taxes and insurance for the New Premises to the sublessee, which are treated as variable sublease income.

Total sublease income, including rent and variable sublease cost reimbursements, was $ 1.0 million and $ 1.9 million for the three and six months ended June 30, 2020, respectively, and $ 0.8 million for the three and six months ended June 30, 2019, respectively.

The following table details the future undiscounted cash inflows relating to the Sublease Agreement as of June 30, 2020 (in thousands):

Total sublease income, including rent and variable sublease cost reimbursements, was $ 0.9 million and $ 2.8 million for the three and nine months ended September 30, 2020, respectively, and $ 0.9 million and $ 1.7 million for the three and nine months ended September 30, 2019, respectively.

The following table details the future undiscounted cash inflows relating to the Sublease Agreement as of September 30, 2020 (in thousands):

Year Ended December 31:

2020 (six months) $ 1,431

2020 (three months) $ 715

Total undiscounted sublease receipts $ 10,621

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Unless earlier terminated, the DMSA will expire on September 6, 2022.

As of June 30, 2020 and December 31, 2019, the Company had open non-cancellable purchase orders for biological product development and manufacturing costs totaling $ 18.0 million and $ 21.2 million, respectively.

As of September 30, 2020 and December 31, 2019, the Company had open non-cancellable purchase orders for biological product development and manufacturing costs totaling $ 17.6 million and $ 21.2 million, respectively.

The activities under these purchase orders are expected to be completed by May 2027.

As of June 30, 2020 and December 31, 2019, the Company had total non-cancellable purchase commitments under the DMSA of $ 12.1 million and $ 11.2 million, respectively.

During the three months ended June 30, 2020 and 2019, the Company incurred costs of $ 3.8 million and $ 3.1 million, respectively, and made payments of $ 2.0 million and $ 3.9 million, respectively, for the development and manufacturing services rendered under the DMSA.

During the six months ended June 30, 2020 and 2019, the Company incurred costs of $ 4.8 million and $ 6.7 million, respectively, and made payments of $ 5.2 million and $ 6.5 million, respectively, for the development and manufacturing services rendered under the DMSA.

As of September 30, 2020 and December 31, 2019, the Company had total non-cancellable purchase commitments under the DMSA of $ 12.0 million and $ 11.2 million, respectively.

During the three months ended September 30, 2020 and 2019, the Company incurred costs of $ 1.4 million and $ 3.0 million, respectively, and made payments of $ 0.8 million and $ 2.5 million, respectively, for the development and manufacturing services rendered under the DMSA.

During the nine months ended September 30, 2020 and 2019, the Company incurred costs of $ 6.2 million and $ 9.7 million, respectively, and made payments of $ 6.0 million and $ 9.0 million, respectively, for the development and manufacturing services rendered under the DMSA.

Contingencies

From time to time, the Company may be involved in lawsuits, arbitration, claims, investigations and proceedings consisting of intellectual property, employment and other matters which arise in the ordinary course of business.

The Company records accruals for loss contingencies to the extent that the Company concludes that it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated.

On September 10, 2020, the Company and all Directors were named in a shareholder derivative action filed in the Delaware Court of Chancery challenging the compensation paid to the Company's Directors since the IPO in December 2017.

This derivative complaint is in the early stages and therefore the Company cannot reasonably estimate a potential future loss or a range of potential future losses.

However, the Company does not believe that an unfavorable resolution would have a material adverse effect on the Company's business, financial condition, and results of operations or prospects.

No liability has been recorded relating to this matter in the Condensed Consolidated Balance Sheet at September 30, 2020.

Stock-Based Awards

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( 617,360 ) 20.60

Balance at June 30, 2020 14,190,971 $ 15.74

Vested and expected to vest at June 30, 2020

Balance at September 30, 2020 13,520,065 $ 15.77

Vested and expected to vest at September 30, 2020

11,775,333 $ 18.00

Exercisable at June 30, 2020 5,318,846 $ 13.52

Exercisable at September 30, 2020 5,437,269 $ 13.80

The estimated fair value of stock options granted to employees were calculated using the Black-Scholes option-pricing model using the following assumptions:

Six Months Ended June 30,

Nine Months Ended September 30,

Expected term (in years)

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Restricted Stock Activity

Aggregated information regarding restricted stock for the six months ended June 30, 2020 is summarized below:

Aggregated information regarding restricted stock for the nine months ended September 30, 2020 is summarized below:

Share Awards & Units Weighted-Average Fair Value at Date of Grant per Share

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Forfeited ( 139,230 ) 26.54

Unvested at June 30, 2020 1,673,052 $ 21.98

Expected to vest at June 30, 2020 1,673,052 $ 21.98

Unvested at September 30, 2020 2,269,897 $ 25.82

Expected to vest at September 30, 2020 2,269,897 $ 25.82

Stock-Based Compensation Expense

The Company’s results of operations include expenses relating to stock-based compensation as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

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Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows:

Three and Six Months Ended June 30,

Three and Nine Months Ended September 30,

Options issued and outstanding and ESPP shares issuable

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15,950,786 12,818,053

Subsequent Event

On August 5, 2020, the Company entered into a binding Provisional Collaboration and License Agreement (“Provisional Collaboration Agreement”) with Biogen Inc.’s subsidiaries Biogen MA, Inc.

and Biogen International GmbH (collectively “Biogen”), to co-develop and co-commercialize Denali’s small molecule inhibitors of LRRK2 for Parkinson’s disease.

In addition to the LRRK2 program, Biogen will also receive an exclusive option to license two preclinical programs from our TV platform, which aims to improve brain uptake of biotherapeutics, including our Antibody Transport Vehicle (“ATV”):

Abeta program (ATV enabled anti-amyloid beta program) and a second program utilizing our TV technology.

Further, Biogen will have right of first negotiation on two additional TV-enabled therapeutics, currently at a preclinical stage, should we decide to seek a collaboration for such programs.

Under the terms of the agreement, Biogen will make an upfront payment to Denali of $ 560 million.

Should the LRRK2 program achieve certain development and commercial milestones, Denali will be eligible to receive milestone payments exceeding $ 1.1 billion as well as profit sharing and royalties.

Biogen and Denali will share responsibility and costs for global development ( 60 percent Biogen;

40 percent Denali), and will share responsibility and costs as well as profits and losses for commercialization in the U.S.

( 50 percent Biogen;

50 percent Denali) and China ( 60 percent Biogen and 40 percent Denali).

Outside the U.S.

and China, Biogen will be responsible for commercialization and pay Denali tiered royalties.

Further, under an associated common stock purchase agreement, Denali will receive proceeds of $ 465 million for the sale of approximately 13.3 million newly issued shares of Denali common stock at $ 34.94 per share, representing approximately 11.2 percent of Denali’s outstanding stock.

Closing of the transaction is contingent on satisfaction of requirements under applicable antitrust laws, including the HSR Antitrust Improvements Act of 1976, as amended, in the U.S., and other customary closing conditions, and with respect to the collaboration, execution of a definitive collaboration agreement.

Related Party Transactions

On September 22, 2020, upon becoming an owner of record of more than 10% of the voting interest in the Company, Biogen became a related party under ASC 850.

Refer to Note 6, "Collaboration Agreements" for further information.

Subsequent Events

On October 4, 2020, the Company entered into the LRRK2 Agreement, and on October 6, 2020, the Company entered into the ROFN and Option Agreement, both with Biogen.

Refer to Note 6 and Note 7, "Collaboration Agreements" for further information.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements