What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2021-02-26 compared with 2020-02-27 · 184 added, 117 removed, 376 unchanged (44% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with the section titled “Selected Financial and Other Data” and our consolidated financial statements and the related notes to those statements included elsewhere in this report.

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and the related notes to those statements included elsewhere in this report.

This discussion and analysis and other parts of this report contain forward-looking statements based upon current beliefs, plans and expectations related to future events and our future financial performance that involve risks, uncertainties and assumptions, such as statements regarding our intentions, plans, objectives, expectations, forecasts and projections.

6 unchanged sentences

• Engineering Brain Delivery :

We engineer our product candidates to cross the blood-brain barrier and act directly in the brain;

We engineer our product candidates to cross the blood-brain barrier ("BBB") and act directly in the brain;

• Biomarker-Driven Development :

2 unchanged sentences

Our programs are at different stages of clinical and preclinical development, including five programs in clinical studies.

We have also developed a proprietary blood-brain barrier ("BBB") platform technology, our transport vehicle ("TV"), which enables multiple modality-based platforms to deliver a wide range of large-molecule therapeutics across the BBB, including enzymes, antibodies, proteins and oligonucleotides.

We have also developed a proprietary BBB platform technology, our transport vehicle ("TV"), which enables multiple modality-based platforms to deliver a wide range of large-molecule therapeutics across the BBB, including enzymes, antibodies, proteins and oligonucleotides.

This technology is designed to engage specific BBB transport receptors, which are ubiquitously expressed in brain capillaries and facilitate transport of proteins into the brain.

We are currently optimizing and broadening this platform technology.

Ou r five clinic al programs are:

• our leucine-rich repeat kinase 2 ("LRRK2") inhibitor program to address Parkinson’s disease;

• our receptor interacting serine/threonine protein kinase 1 ("RIPK1") inhibitor program, partnered with Sanofi, to address neurological diseases such as Alzheimer’s disease and amyotrophic lateral sclerosis ("ALS");

• a second RIPK1 inhibitor that our partner Sanofi is developing to address peripheral inflammatory diseases such as rheumatoid arthritis;

• our EIF2B activator program to address diseases such as ALS and FTD;

• our ETV:IDS program, our most advanced program enabled by our TV technology, which is designed to restore iduronate 2-sulfatase ("IDS"), and reduce glycosaminoglycans ("GAGs"), both peripherally and in the brain, in patients with mucopolysaccharidosis II ("MPS II", or "Hunter syndrome").

Ou r five clinic al-stage programs are:

• our leucine-rich repeat kinase 2 ("LRRK2") inhibitor program, in collaboration with Biogen, to address Parkinson’s disease;

• our Eukaryotic initiation factor 2 B ("EIF2B”) activator program to address diseases such as amyotrophic lateral sclerosis ("ALS") and Frontotemporal Dementia ("FTD”);

• our ETV:IDS program, our most advanced program enabled by our TV technology, which is designed to restore iduronate 2-sulfatase ("IDS"), and reduce glycosaminoglycans, both peripherally and in the brain, in patients with mucopolysaccharidosis II ("MPS II", or "Hunter syndrome");

• a second non-CNS penetrant RIPK1 inhibitor, partnered with Sanofi, to address peripheral inflammatory diseases such as cutaneous lupus.

The following table summarizes key information about our clinical stage programs:

Program Product Candidate(s) Clinical Phase Indication(s) Operational Control

LRRK2 DNL201 Ph 1b (complete) Parkinson's disease Denali

DNL151 Ph 1 and Ph 1b

RIPK1 (CNS) DNL747 Ph 1b Alzheimer's disease Denali

Ph 1b ALS Sanofi

RIPK1 (Peripheral) DNL758 Ph 1 Systemic inflammatory diseases Sanofi

LRRK2 DNL151 (BIIB122) Ph 1 and Ph 1b Parkinson's disease Joint with Biogen

ETV:IDS DNL310 Ph 1/2 Hunter syndrome (MPS II) Denali

EIF2B DNL343 Ph 1 ALS and FTD Denali

ETV:IDS DNL310 Ph 1 (study startup) Hunter syndrome Denali

RIPK1 (Peripheral) DNL758 (SAR443122) Ph 1b Systemic inflammatory diseases Sanofi

RIPK1 (CNS) DNL788 (SAR443820) Ph 1 Neurological diseases Sanofi

To complement our internal capabilities, we have entered into arrangements with biopharmaceutical companies, patient-focused data companies, numerous leading academic institutions and foundations to gain access to new product candidates, enable and accelerate the development of our existing programs and deepen our scientific understanding of certain areas of biology.

We rely on third-party contract manufacturers to manufacture and supply our preclinical and clinical materials to be used during the development of our product candidates.

We currently rely on third-party contract manufacturers to manufacture and supply our preclinical and clinical materials to be used during the development of our product candidates.

We currently do not need commercial manufacturing capacity.

1 unchanged sentence

Key operational and financing milestones for the year ended December 31, 2020 and in 2021 to date include:

• In February 2019, we received a payment of $5.0 million related to a preclinical milestone earned in December 2018 under the Takeda Collaboration Agreement;

• In January 2019, we announced, in collaboration with our partner Sanofi, the first patient dosed in our Phase 1b study of DNL747 in ALS patients, and in February 2019, we announced the first patient dosed in our Phase 1b study of DNL747 in Alzheimer's disease patients;

• In February 2019, DNL310 (ETV:IDS) was granted orphan drug designation and rare pediatric disease designation by the FDA;

• In April 2019, we completed our move to our new headquarters location;

• In July 2019, our partner Sanofi commenced dosing of our partnered small molecule RIPK1 inhibitor, DNL758, in a Phase 1 clinical study in healthy volunteers.

This triggered a milestone payment of $10.0 million, which was received in August 2019;

• In September 2019, we announced the first patient dosed in our Phase 1b study of DNL151 in patients with Parkinson's disease, and the launch of our Engage Parkinson's website;

• In October 2019, we enrolled the first patient in a biomarker study for our ETV:IDS program in Hunter Syndrome.

This non-interventional study is expected to yield critical biomarker and clinical data in patients to inform future clinical studies with DNL310 (ETV:IDS) and facilitate patient recruitment into these studies;

• In November 2019, we announced progress of our DNL747 Phase 1b trials in Alzheimer's disease and ALS, commencement of enrollment of an ALS open label extension in the Netherlands and expansion of sites for the Phase 1b ALS study into the United States.

We intend, together with our partner Sanofi, to evaluate the full data set from the ongoing clinical and preclinical studies to inform decisions on further clinical testing for our RIPK1 program.

The timing of such decisions is mid-2020;

• In January 2020, the IND for DNL310 (ETV:IDS) was accepted.

We plan to initiate a Phase 1/2 study for DNL310 in Hunter syndrome patients in the first half of 2020.

◦ In January 2020, we announced positive results from our LRRK2 program.

Phase 1b results with DNL201 in patients with Parkinson’s disease demonstrated high levels of target and pathway engagement and improvement of lysosomal biomarkers.

Phase 1 results with DNL151 in more than 150 healthy volunteers also met all safety and biomarker goals.

We plan to select one of these two molecules for Phase 2/3 studies in patients with and without the LRRK2 mutation in mid-2020.

• In January 2020, we sold 9.0 million shares of common stock (inclusive of shares sold pursuant to an overallotment option granted to the underwriters in connection with the offering) through an underwritten public offering at a price of $23.00 per share for aggregate net proceeds of approximately $194.1 million .

Interim Phase 1 results with DNL151 (BIIB122) in more than 150 healthy volunteers also met all safety and biomarker goals.

Both clinical trials showed dose-dependent target engagement, improvement in biomarkers of lysosomal function and demonstrated safety profiles supporting progression to further development;

◦ In August 2020, we entered into a binding Provisional Collaboration and License Agreement with Biogen Inc.’s subsidiaries, Biogen MA Inc.

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

Under the Provisional Collaboration and License Agreement, Biogen also received rights to opt into two programs and a right of first negotiation for two additional programs, in each case for neurodegenerative diseases leveraging our TV technology platform to cross the BBB and excluding small molecules, AAVs and oligonucleotides.

In October 2020, the Provisional Collaboration and License Agreement expired upon the execution of the Definitive LRRK2 Collaboration and License Agreement and Right of First Negotiation, Option and License Agreement with Biogen (collectively the "Biogen Collaboration Agreement").

In connection with the Biogen Collaboration Agreement, we received an equity investment of $465.0 million in September 2020 and an aggregate of $560.0 million in upfront payments in October 2020.

We may be eligible to receive up to $1.1 billion in potential milestone payments plus profit sharing and royalties for the LRRK2 program;

◦ In August 2020, we announced, together with our collaboration partner Biogen, the selection of DNL151 (BIIB122) to progress into late-stage development.

We expect to initiate late-stage clinical development of DNL151 (BIIB122) in Parkinson's patients in the second half of 2021.

Two clinical studies are planned:

one in patients who carry LRRK2 mutations and the other in Parkinson's patients independent of mutation status;

◦ In January 2021, we announced completion of the DNL151 (BIIB122) Phase 1b trial in Parkinson’s patients.

Target engagement and pathway engagement goals were met.

We are currently completing further dose escalation cohorts in an expanded Phase 1 trial to define the full therapeutic window of DNL151 (BIIB122);

In August 2020, we commenced dosing in a Phase 1/2 clinical trial of DNL310 in Hunter syndrome patients.

In November 2020, we announced biomarker proof of concept was achieved in the Phase 1/2 trial after four weekly doses of DNL310, and in February 2021, we announced additional positive interim results after three months of dosing.

Based on strong proof-of-concept data, we are expanding our DNL310 development program in the ongoing Phase 1/2 trial, which will enable further exploration of clinical endpoints related to neuronopathic manifestations in patients.

We plan to initiate a Phase 2/3 trial in the first half of 2022;

In February 2020, we initiated a Phase 1 clinical trial for DNL343 in healthy volunteers.

Results from this trial are expected to be available in the first half of 2021.

We plan to initiate a Phase 1b trial of DNL343 in patients with ALS in the second half of 2021;

◦ In December 2020, our collaboration partner Sanofi commenced dosing of DNL788 (SAR443820), a potent, selective brain-penetrant small molecule inhibitor of RIPK1, in a Phase 1 clinical trial in healthy volunteers.

Earlier in 2020, we decided, together with our collaboration partner Sanofi, to pause clinical studies with DNL747 and focus our efforts on accelerating development of DNL788 (SAR443820), the backup molecule, which we believe has superior drug properties and a more rapid path toward proof-of-concept clinical studies in patients in multiple neurological indications;

◦ Separately, in July 2020, Sanofi commenced dosing of DNL758 (SAR443122), a peripherally-restricted small molecule inhibitor of RIPK1, in a Phase 1b clinical trial in hospitalized adult patients with severe COVID-19 lung disease.

The Phase 1b trial was completed and DNL758 (SAR443122) was found to be generally well tolerated and resulted in changes in disease relevant biomarkers and clinical outcome trends consistent with the proof of mechanism.

Based on the rapidly evolving landscape of treatment and prevention options for COVID-19, Sanofi has made a sponsor decision to hold further development in COVID-19 at this time.

Sanofi plans to initiate a Phase 2 clinical trial of DNL758 (SAR443122) in patients with cutaneous lupus in the first half of 2021;

◦ In January 2020, we sold 9.0 million shares of common stock (inclusive of shares sold pursuant to an overallotment option granted to the underwriters in connection with the offering) through an underwritten public offering at a price of $23.00 per share for aggregate net proceeds of $193.9 million;

◦ In December 2020 and January 2021, GLP toxicology studies were initiated for PTV:PGRN and ATV:TREM2, respectively, triggering the second preclinical milestone payments under the Takeda Collaboration Agreement of $8.0 million for each program.

The milestone payment for PTV:PGRN was received in January 2021;

◦ In January 2021, following achievement of human biomarker proof of concept with DNL310 for Hunter syndrome, we announced the addition of five new brain-penetrant enzyme replacement therapy programs in its ETV portfolio including:

(1) ETV:GBA for Gaucher disease and Parkinson’s disease;

(2) ETV:GAA for Pompe disease;

(3) ETV:IDUA for MPS I;

(4) ETV:NAGLU for MPS IIIB;

and (5) ETV:ARSA for Metachromatic Leukodystrophy ("MLD");

◦ To address risks posed by the COVID-19 pandemic, we have implemented policies that enable some of our employees to work remotely.

For all on-site personnel, we have implemented several safety protocols, including regular, mandatory COVID-19 testing procedures and compliance measures for social distancing and use of personal protective equipment.

After initial COVID-19 pandemic shutdown restrictions were put into place in March 2020, we experienced a pause in patient recruitment in several clinical trials.

Recruitment has since resumed for all affected clinical trials.

We do not have any products approved for sale and have not generated any product revenue since our inception.

We have funded our operations primarily from the issuance and sale of convertible preferred stock, the proceeds from our IPO and our follow on offering, and payments received from our collaboration agreements with Takeda and Sanofi.

We have funded our operations primarily from the issuance and sale of convertible preferred stock, and the proceeds from our IPO, follow-on offering, and payments received from our collaboration agreements with Takeda, Sanofi and Biogen.

We have incurred significant operating losses to date and expect to continue to incur operating losses for the foreseeable future.

Our ability to generate product revenue will depend on the successful development and eventual commercialization of one or more of our product candidates.

Our net losses were $197.6 million, $36.2 million and $88.2 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Due to revenue recognized from our collaboration arrangement with Biogen, we had net income of $71.1 million for the year ended December 31, 2020.

Our net losses were $197.6 million and $88.2 million for the years ended December 31, 2019 and 2018, respectively.

As of December 31, 2020, we had an accumulated deficit of $354.4 million .

6 unchanged sentences

In January 2018, we entered into the Collaboration Agreement with Takeda (“Takeda Collaboration Agreement”) pursuant to which we granted Takeda an option with respect to three of our programs to develop and commercialize, jointly with us, certain biologic products that are enabled by our BBB delivery technology and intended for the treatment of neurodegenerative disorders.

The three programs were Denali’s ATV:BACE1/Tau, ATV:TREM2 and PTV:PGRN programs.

The three programs were our ATV:BACE1/Tau, ATV:TREM2 and PTV:PGRN programs.

The Takeda Collaboration Agreement became effective in February 2018 when the requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR") were satisfied.

12 unchanged sentences

Takeda may also be obligated to pay us 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.

We have recognized collaboration revenue of $5.9 million and $5.7 million associated with the Takeda Collaboration Agreement in the years ended December 31, 2019 and 2018, respectively, and recorded a receivable from Takeda of $5.0 million on the consolidated balance sheet as of December 31, 2018.

We did not have a receivable from Takeda as of December 31, 2019.

We have recognized collaboration revenue of $27.2 million, $5.9 million and $5.7 million associated with the Takeda Collaboration Agreement in the years ended December 31, 2020, 2019 and 2018, respectively.

We recorded a receivable of $8.0 million from Takeda as of December 31, 2020, payment for which was received in January 2021, and no receivable as of December 31, 2019.

Through December 31, 2020, we have received $15.0 million in preclinical milestone payments from Takeda and have not recorded any product sales under the Takeda Collaboration Agreement.

In October 2018, we entered into the Sanofi Collaboration Agreement with Sanofi pursuant to which certain small molecule CNS and peripheral RIPK1 inhibitors contributed by Sanofi and by Denali will be developed and commercialized.

The Sanofi Collaboration Agreement became effective in November 2018 when the HSR requirements were satisfied.

4 unchanged sentences

Through December 31, 2020, we have received milestone payments of $10.0 million under the Sanofi Collaboration Agreement.

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

We will share profits and losses equally with Sanofi for CNS Products sold in the United States and China, and receive royalties on net sales for CNS Products outside of the United States and China and for Peripheral Products sold worldwide, each as further described below.

RIPK1 Inhibitors contributed by Sanofi and developed and commercialized under the Sanofi Collaboration Agreement will be subject to lower milestone and royalty payments to us compared to RIPK1 Inhibitors contributed by us.

We will also retain responsibility for certain payment obligations under our agreement with an academic institution which licensed certain intellectual property to us that we are sublicensing to Sanofi under the Sanofi Collaboration Agreement.

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

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

We will be responsible, at our cost, for the conduct of Phase 1 and Phase 2 trials for CNS Products for Alzheimer’s disease and any activities required to support such clinical trials and specific for Alzheimer’s disease.

We will also conduct, at Sanofi’s cost, a Phase 1b trial for DNL747 for ALS.

Sanofi will be 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 funding 70% of such costs and Denali funding 30% of such costs.

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

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

We have the ability to opt out of the cost-profit sharing provisions of the Sanofi Collaboration Agreement, as further described below.

9 unchanged sentences

We will be entitled to receive tiered royalties in the low- to mid- teen percentages on net sales of Peripheral Products.

We have recognized collaboration revenue of $20.8 million and $123.5 million associated with the Sanofi Collaboration Agreement in the years ended December 31, 2019 and 2018, respectively, and recorded a receivable from Sanofi of $1.2 million and $2.3 million on the consolidated balance sheet as of December 31, 2019 and 2018, respectively.

We have recognized collaboration revenue of $1.1 million, $20.8 million and $123.5 million associated with the Sanofi Collaboration Agreement in the years ended December 31, 2020, 2019 and 2018, respectively, and recorded a receivable from Sanofi of $44,303 and $1.2 million on the Consolidated Balance Sheets as of December 31, 2020 and 2019, respectively.

Through December 31, 2020, we have received milestone payments of $10.0 million and have not recorded any product sales under the Sanofi Collaboration Agreement.

In August 2020, we entered into the Provisional Biogen Collaboration Agreement with Biogen pursuant to which we granted Biogen a license to co-develop and co-commercialize our LRRK2 Program, an option in respect of two Option Programs, and a right of first negotiation with respect to the ROFN Programs should we decide to seek a collaboration with a third party for such programs.

In October 2020, we entered into the LRRK2 Agreement and the ROFN and Option Agreement with Biogen.

The material terms of the LRRK2 Agreement and the ROFN and Option Agreement were consistent with, and superseded, the Provisional Biogen Collaboration Agreement.

The LRRK2 Agreement

The LRRK2 Agreement includes our LRRK2 Products that penetrate the BBB, including DNL201 and DNL151 (BIIB122), as well as those that do not penetrate the BBB.

Based on the totality of preclinical and clinical data to date, both DNL201 and DNL151 (BIIB122) (two chemically distinct LRRK2 inhibitors) have met our requirements to proceed into further late-stage clinical testing, however, DNL151 (BIIB122) has been selected to proceed due to pharmacokinetic properties that provide additional dosing regimen flexibility.

Under the terms of the LRRK2 Agreement, Biogen paid us a $400 million upfront payment in October 2020.

With respect to the LRRK2 Program, Biogen is required to make milestone payments up to approximately $1.125 billion upon achievement of certain development and sales milestone 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.

We will share profits and losses equally with Biogen for LRRK2 Products in the United States and will share profits and losses in China with Biogen sharing 60% of such profits and losses and us sharing 40% of such profits and losses.

We 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.

We and Biogen will jointly develop LRRK2 Products pursuant to a clinical development plan set forth in the LRRK2 Agreement.

We and Biogen will share responsibility and costs for global development of LRRK2 Products, with Biogen funding 60% of such costs and us funding 40% of such costs.

We have the ability to opt out of the development cost sharing arrangement, as further described below.

Biogen will lead commercialization activities globally for LRRK2 Products.

We will co-commercialize the LRRK2 Products with Biogen in the United States and China, provided that the profit-sharing arrangement for the LRRK2 Products is still in effect, as further described below.

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

We also have 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 BBB (“Peripheral LRRK2 Products”), in each of the United States and China.

After such an opt out, we will no longer be obligated to share in the development and commercialization costs for, and we will not share in the applicable revenues from, such LRRK2 Program (or from the Peripheral LRRK2 Products) in such country, as applicable.

In such cases, we 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 low twenties to mid-twenties, if we have met certain co-funding thresholds or there has been a first commercial sale at the time of our election.

The ROFN and Option Agreement

In addition to the LRRK2 Program, Biogen also received an exclusive option to license two preclinical programs from our TV technology platform, including our ATV:Abeta program and a second program utilizing our TV technology for an unnamed target, excluding small molecules, AAVs and oligonucleotides.

Biogen’s option may be triggered up to initiation of 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 30 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 on two additional TV-enabled therapeutics in the field of Alzheimer’s disease, Parkinson’s disease, ALS or multiple sclerosis should we decide to seek a collaboration with a third party for such programs, but this does not include any of our small molecule, AAVs 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 we have offered Biogen two ROFN Programs and for which Biogen has agreed to trigger a ROFN for such program, whichever is earlier.

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

Under the ROFN and Option Agreement, Biogen paid us a $160 million upfront payment in October 2020.

With respect to the options granted by us to Biogen, Biogen is obligated to pay to us an aggregate of up to $270 million in option exercise and development milestone payments and an aggregate of up to $615 million in commercial milestone payments, following the achievement of certain prespecified milestone events and if Biogen exercises both of its options.

Furthermore, Biogen is obligated to pay us 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 addition, if Biogen exercises its ROFN with respect to an eligible Denali program, the parties are obligated to negotiate in good faith for a specified period of time regarding the financial and other terms of an agreement pursuant to which Biogen would obtain rights to such program.

Common Stock Purchase Agreement

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

The sale of the Shares closed, and payment was received, in September 2020.

We have recognized related party collaboration revenue o f $307.4 million and a related party offset to research and development expense of $9.3 million in the year ended December 31, 2020 associated with the Biogen Collaboration Agreement.

We have recorded cost sharing reimbursements due from Biogen of $5.7 million on the consolidated balance sheet as of December 31, 2020.

Through December 31, 2020, we have not received any milestone payments from Biogen and have not recorded any product sales under the Biogen Collaboration Agreement.

In August 2016, we entered into a License and Collaboration Agreement ("F-star Collaboration Agreement") with F-star Gamma Limited (“F-star Gamma”), F-star Biotechnologische Forschungs-und Entwicklungsges m.b.H ("F-star GmbH") and F-star Biotechnology Limited ("F-star Ltd") (collectively, “F-star”) .

13 unchanged sentences

Upon entering into the F-star Collaboration Agreement, we selected transferrin receptor (“TfR”) as the first Accepted Fcab Target and paid F-star Gamma an upfront fee of $5.5 million, which included selection of the first Accepted Fcab Target.

In May 2018, we exercised its right to nominate two additional Fcab Targets and identified a second Accepted Fcab Target.

We are obligated to make a one-time payment for the two additional Accepted Fcab Targets of $6.0 million in the aggregate and have extended the time period for our selection of the third Accepted Fcab Target until approximately the fourth anniversary of the date of the original F-star Collaboration Agreement, or August 2020.

We recognized $1.5 million and $18.3 million of contingent consideration as research and development expense in the years ended December 31, 2019 and 2018, respectively.

A further $6.0 million for the nomination of two additional Accepted Fcab Targets under the F-star Collaboration Agreement was recognized as research and development expense in the year ended December 31, 2018, along with the upfront option fee of $0.5 million previously included within other non-current assets.

In May 2018, we exercised our right to nominate two additional Fcab Targets and identified a second Accepted Fcab Target.

We made a one-time payment for the two additional Accepted Fcab Targets of $6.0 million in the aggregate and extended the time period for our selection of the third Accepted Fcab Target until approximately the fourth anniversary of the date of the original F-star Collaboration Agreement, or August 2020.

We have not identified a third Fcab Target.

We did not recognize any contingent consideration on the acquisition date.

We recognized $1.5 million and $18.3 million of consideration as research and development expense in the years ended December 31, 2019 and 2018, respectively.

No research and development expense was recognized for consideration under the F-star Purchase Agreement in the year ended December 31, 2020.

$6.0 million for the nomination of two additional Accepted Fcab Targets under the F-star Collaboration Agreement was reco gnized as research and development expense in the year ended December 31, 2018, along with the upfront option fee of $0.5 million previously included within other non-current assets.

We recognized an additional $1.2 million, $1.1 million and $0.8 million of research and development expense related to the funding of F-star research costs for the years ended December 31, 2020, 2019 and 2018 , respectively.

8 unchanged sentences

We also have the right to credit a certain amount of third-party royalty and milestone payments against royalty and milestone payments owed to Genentech, up to a maximum reduction of fifty percent.

Under the terms of our LRRK2 Agreement with Biogen, Biogen is responsible for 50% of any payment obligation to Genentech under this agreement accruing after October 2020.

Unless earlier terminated, the agreement with Genentech will continue in effect until all of our royalty and milestone payment obligations to Genentech expire.

3 unchanged sentences

To date, we have not generated any revenue from product sales and do not expect to generate any revenue from product sales for the foreseeable future.

All revenue recognized to date has been collaboration revenue from our collaboration agreements with Takeda and Sanofi.

In the future, we will continue to recognize revenue from the Takeda Collaboration Agreement and Sanofi Collaboration Agreement and may generate revenue from product sales or milestones, royalties and cost reimbursement from other collaboration agreements, strategic alliances and licensing arrangements.

All revenue recognized to date has been collaboration and license revenue from our collaboration agreements with Takeda, Sanofi and Biogen.

In the future, we will continue to recognize revenue from the Takeda Collaboration Agreement, Sanofi Collaboration Agreement, and Biogen Collaboration Agreement, and may generate revenue from product sales or milestones, royalties and cost reimbursement from other collaboration agreements, strategic alliances and licensing arrangements.

We expect that our revenue will fluctuate from quarter-to-quarter and year-to-year as a result of the timing and amount of license fees, milestones, reimbursement of costs incurred and other payments and product sales, to the extent any are successfully commercialized.

13 unchanged sentences

Program expenses include expenses associated with our most advanced product candidates and the discovery and development of backup or next-generation molecules.

We also track external expenses associated with our BBB platform technology.

These expenses include those incurred by us relating to our Takeda Collaboration Agreement and Sanofi Collaboration Agreement.

We also track external expenses associated with our TV platform.

These expenses include those incurred by us relating to our Takeda Collaboration Agreement, Sanofi Collaboration Agreement and Biogen Collaboration Agreement.

All external costs associated with earlier stage programs, or that benefit the entire portfolio, are tracked as a group.

1 unchanged sentence

These expenses primarily relate to salaries and benefits, stock-based compensation, facility expenses including rent and depreciation, and lab consumables.

Where we share costs with our collaboration partners, such as in our Biogen Collaboration Agreement, research and development expenses may include cost sharing reimbursements from or payments to our partner, respectively.

It is challenging to predict the nature, timing and estimated long-range costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our product candidates.

This is made more challenging by events outside of our control, such as the recent COVID-19 pandemic.

We are also unable to predict when, if ever, material net cash inflows will commence from sales or licensing of our product candidates.

20 unchanged sentences

We expect to continue to incur certain expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC and those of any national securities exchange on which our securities are traded, insurance expenses, investor relations activities and other administrative and professional services.

We also expect to increase our administrative headcount as we advance our product candidates through clinical development, which will also increase our general and administrative expenses.

We expect to increase our administrative headcount as we advance our product candidates through clinical development, which will increase our general and administrative expenses.

Interest and Other Income, Net

5 unchanged sentences

Collaboration revenue:

Collaboration revenue from customers

335,561 26,320 309,241 *

Other collaboration revenue 98 358 (260) (73)

Total Collaboration revenue 335,659 26,678 308,981 *

Operating expenses:

2 unchanged sentences

Total operating expenses 272,941 239,862 33,079 14

Loss from operations (213,184) (46,370) (166,812) 360

Income (loss) from operations 62,718 (213,184) 275,902 *

Interest and other income, net 9,241 15,219 (5,978) (39)

Loss before income taxes (197,965) (36,240) (161,725) 446

Income tax benefit 351 — 351 100

Net loss $ (197,614) $ (36,240) $ (161,374) 445 %

Income (loss) before income taxes 71,959 (197,965) 269,924 *

Income tax (expense) benefit (823) 351 (1,174) *

Net income (loss) $ 71,136 $ (197,614) $ 268,750 * %

__________________________________________________

* Percentage is not meaningful.

Collaboration revenue.

Collaboration revenue was $335.7 million for the year ended December 31, 2020 compared to $26.7 million recognized for the year ended December 31, 2019.

The decrease of $102.5 million was primarily due to a decrease of $102.7 million of revenue recognized under our Sanofi Collaboration Agreement in 2019.

The increase of $309.0 million was primarily due to $307.4 million of revenue recognized under our Biogen Collaboration Agreement in 2020.

There was also an increase in revenue from our collaboration with Takeda of $21.2 million driven by increased costs incurred in the programs partnered with Takeda, partially offset by a decrease of $19.6 million in revenue from our collaboration with Sanofi driven by a $10.0 million milestone recognized in the year ended December 30, 2019 related to the Peripheral program and the winding down of revenue for retained activities as activities are transferred to Sanofi.

Research and development expenses.

4 unchanged sentences

$ 19,668 $ 32,498 $ (12,830) (39) %

RIPK1 program external expenses

12,344 13,452 (1,108) (8)

EIF2B program external expenses 9,424 5,411 4,013 74

ETV:IDS program external expenses 16,331 14,144 2,187 15

Other BBB program external expenses 14,303 5,448 8,855 163

BBB platform external expenses

TV platform and other program external expenses

18,668 16,087 2,581 16

7 unchanged sentences

__________________________________________________

(1) Includes an offset to expense due to related party cost reimbursement of $9.3 million.

(2) Personnel-related expenses include stock-based compensation expense of $29.0 million and $19.3 million for the years ended December 31, 2020 and 2019, respectively, reflecting an increase of $ 9.7 million.

There was an increase in total research and development expenses of $50.2 million for the year ended December 31, 2019 compared to the year ended December 31, 2018.

This reflects increases in external expenses related to progression of our portfolio, including the following:

(i) an increase of $19.3 million in the LRRK2 program;

(ii) an increase of $9.7 million in the ETV:IDS program;

(iii) an increase of $8.9 million in other BBB delivery platform programs;

(iv) an increase of $2.9 million in the EIF2B program;

and (v) an increase of $8.8 million in other external research and development expenses.

These increases were partially offset by a decrease of $1.1 million in RIPK1 program external expenses.

Further, there was a $20.6 million increase in personnel-related expenses, consisting of a $11.4 million increase in salaries and related expenses attributable to an increase in our research and development headcount, and a $9.2 million increase in stock-based compensation expense primarily attributable to additional equity award grants and certain performance and market-based awards.

There was also a $9.1 million increase in other unallocated research and development expenses, which was primarily due to an increase in facilities-related expenses of $5.4 million resulting from increased rent expense associated with the new headquarters lease, a $2.5 million increase in lab consumable expenses, and a $1.2 million increase in other general costs, such as travel and IT related expenses attributable to our research and development departments.

These increases were partially offset by a $28.0 million decrease in BBB platform external expense, the majority of which related to expenses incurred in 2018 associated with the acquisition of F-star Gamma Limited, and the nomination of two additional Fcab targets under the F-star Collaboration Agreement, both of which occurred in May 2018.

The increase in research and development expenses of approximately $19.2 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily attributable to the following:

• an increase of $26.4 million in personnel-related expenses, consisting of a $16.7 million increase in salaries and related expenses attributable to an increase in our research and development headcount, and a $9.7 million increase in stock-based compensation expense primarily attributable to additional equity award grants and our increasing market price;

• increases of $4.0 million and $2.2 million in EIF2B and ETV:IDS program external expenses, respectively, reflecting the progress of these programs in clinical trials during 2020;

• $2.6 million of increased TV platform and other program external expenses, reflecting our increased investment in our pipeline, including the progress in our PTV:PGRN and ATV:Trem2 programs as well our continued investment in developing a deep pipeline;

• $0.3 million of increased other unallocated research and development expenses, which was primarily due to an increase in facilities-related expenses of $1.7 million resulting from increased rent expense associated with the new headquarters lease, partially offset by a $0.7 million decrease in lab consumable expenses, and a $0.7 million decrease in other general costs, such as travel and IT related expenses attributable to our research and development departments, both due to the impact of the COVID-19 pandemic.

These increases were partially offset by a decrease of $12.8 million in the LRRK2 program external expenses primarily due to cost sharing reimbursements from Biogen, and a $3.5 million decrease in other external research and development expenses.

General and administrative expenses .

General and administrative expenses were $60.3 million for the year ended December 31, 2020 compared to $46.5 million for the year ended December 31, 2019.

The increase of $14.1 million was primarily attributable to the $12.3 million increase in personnel-related expenses, driven by higher general and administrative headcount and stock-based compensation expense associated with additional equity award grants and certain performance and market-based awards.

Additionally, there was a $1.0 million increase in facilities related expenses, including increased rent expense associated with the new headquarters lease and a $1.3 million increase in other general costs, such as travel, insurance, taxes and IT related expenses attributable to our general and administrative departments.

These increases were partially offset by a $0.5 million decrease in legal and other professional service expenses.

The increase of $13.8 million was primarily attributable to the following:

• $8.5 million of increased personnel-related expenses, driven by higher general and administrative headcount and stock-based compensation expense associated with additional equity award grants and our increasing market price;

• $3.4 million of increased legal and other professional services expenses, primarily associated with the execution of the Biogen Collaboration Agreement;

• $1.5 million of increased other general costs, primarily attributable to insurance, tax and IT related expenses;

• $0.4 million of increased facilities related expenses, including increased rent expense associated with the new headquarters lease.

Interest and other income, net.

Interest and other income, net was $9.2 million for the year ended December 31, 2020 compared to $15.2 million for the year ended December 31, 2019.

The increase of $5.1 million reflects higher interest income due to a higher average cash balance in the year ended December 31, 2019 compared to the year ended December 31, 2018 .

Further, we received $2.6 million of sublease income in the year ended December 31, 2019 but no sublease income for the year ended December 31, 2018.

Income tax benefit .

Income tax benefit was $0.4 million for the year ended December 31, 2019 due to the tax benefit associated with an unrealized gain on marketable securities in other comprehensive income.

There was no income tax benefit for the year ended December 31, 2018.

The decrease of $6.0 million was primarily due to a $7.0 million decrease in interest income earned on our investments due to declining interest rates, partially offset by an increase of $1.0 million in sublease income received in the year ended December 31, 2020 compared to the year ended December 31, 2019.

Income tax (expense) benefit .

There was $0.8 million income tax expense for the year ended December 31, 2020 due to taxable income resulting from the Biogen Collaboration Agreement , compared to $0.4 million income tax benefit for the year ended December 31, 2019 associated with an unrealized gain on marketable securities in other comprehensive income for the year ended December 31, 2019 .

Comparison of the years ended December 31, 2019 and 2018

3 unchanged sentences

Sources of Liquidity

We have funded our operations primarily from the issuance and sale of convertible preferred stock, proceeds from our IPO, our follow on offering, and payments received from our collaboration agreements with Takeda and Sanofi.

We fund our operations primarily with the proceeds from our IPO, our follow-on offering, and payments received from our collaboration agreements with Takeda, Sanofi and Biogen.

On December 7, 2017, we completed our IPO pursuant to which we issued 15,972,221 shares of our common stock, including 2,083,333 shares sold pursuant the underwriters' full exercise of their option to purchase additional shares, at a price of $18.00 per share.

We received $264.3 million from our IPO, net of underwriting discounts and commissions, and offering expenses incurred by us.

We received net proceeds of $264.3 million from our IPO in December 2017, net of underwriting discounts and commissions, and offering expenses incurred by us.

Pursuant to the Takeda Collaboration Agreement, we have received $55.0 million related to upfront and milestone payments through December 31, 2020.

Further, under the associated Purchase Agreement we received $110.0 million in February 2018 for the sale and issuance of 4,214,559 shares of our common stock.

Pursuant to the Sanofi Collaboration Agreement, we received an upfront payment of $125.0 million in November 2018, and a milestone payment of $10.0 million in August 2019, which was triggered by the commencement of a DNL758 Phase 1 clinical trial in healthy volunteers.

We have received further paym ents of $13.7 million f or performance of Retained Activities through December 31, 2020.

As of December 31, 2019, we had cash, cash equivalents and marketable securities in the amount of $455.2 million .

In January 2020, we sold 9.0 million shares of common stock (inclusive of shares sold pursuant to an overallotment option granted to the underwriters in connection with the offering) through an underwritten public offering at a price of $23.00 per share for aggregate net proceeds of approximately $193.9 million.

Pursuant to the common stock purchase agreement between us and BIMA (the "Biogen Stock Purchase Agreement"), we received $465.0 million on September 22, 2020 for the sale and issuance of 13,310,243 shares of our common stock.

In October 2020, we received $560.0 million from Biogen in upfront payments associated with the Biogen Collaboration Agreement.

In December 2020, we received $3.6 million of cost sharing reimbursements from Biogen.

As of December 31, 2020, we had cash, cash equivalent s and marketable securities in the amount of $1.5 billion .

Future Funding Requirements

12 unchanged sentences

Any of the foregoing could significantly harm our business, financial condition and prospects.

Since our inception, we have incurred significant losses and negative cash flows from operations.

We have an accumulated deficit of $425.6 million through December 31, 2019.

We have incurred significant net losses in every year since our inception until the year ended December 31, 2020, including net losses $197.6 million, and $36.2 million for the years ended December 31, 2019 and 2018, respectively.

We had net income of $71.1 million for the year ended December 31, 2020, as a result of revenue recognized associated with our collaboration arrangement with Biogen.

We have also experienced negative cash flow from operations in every year since our inception, excluding the years ended December 31, 2020 and 2018, in which we received significant cash inflows from collaboration partners.

As of December 31, 2020, we had an accumulated deficit of $354.4 million.

We expect to incur substantial additional losses in the future as we conduct and expand our research and development activities.

We believe that our existing cash, cash equivalents and marketable securities will be sufficient to enable us to fund our projected operations through at least the next 12 months.

We believe that our existing cash, cash equivalents and marketable securities will be sufficient to enable us to fund our projected operations through at least the 12 months following the filing date of this Form 10-K.

We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.

4 unchanged sentences

• our ability to maintain our current research and development programs and to establish new research and development, license or collaboration arrangements;

• our ability and success in securing manufacturing relationships with third parties or, in the future, in establishing and operating a manufacturing facility;

• our ability and success in securing manufacturing relationships with third parties or in establishing and operating a manufacturing facility;

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

4 unchanged sentences

Furthermore, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plans.

The following table summarizes our cash flow activity (in thousands):

The following table sets forth a summary of the primary sources and uses of cash for each of the periods presented below (in thousands):

Year Ended December 31,

4 unchanged sentences

Net increase (decrease) in cash, cash equivalents and restricted cash $ 427,695 $ 2,326 $ (140,287)

Net Cash Provided By (Used In) Operating Activities

During the year ended December 31, 2019, cash used in operating activities was $151.6 million , which consisted of a net loss of $197.6 million, adjusted by non-cash items primarily related to stock-based compensation, depreciation, and non-cash rent expenses, partially offset by net amortization of discounts on marketable securities.

Cash used in operating activities was also driven by changes in our operating assets and liabilities.

Net Cash Provided By (Used In) Investing Activities

During the year ended December 31, 2019, cash provided by investing activities was $147.7 million, which consisted of $535.3 million in proceeds from the maturity of marketable securities, partially offset by $369.7 million of purchases of marketable securities and $17.9 million of capital expenditures to purchase property and equipment.

Net Cash Provided By Operating Activities

During the year ended December 31, 2020, cash provided by operating activities was $416.2 million, which consisted of net income of $71.1 million, adjusted by non-cash items primarily related to stock-based compensation and depreciation, partially offset by net amortization of discounts on marketable securities and non-cash rent expenses.

Cash used in operating activities was also driven by changes in our operating assets and liabilities, including most significantly an increase in related party contract liability of $297.4 million associated with the Biogen Collaboration Agreement.

Net Cash Used In Investing Activities

During the year ended December 31, 2020, cash used in investing activities was $623.2 million, which primarily consisted of $1.3 billion of purchases of marketable securities partially offset by $665.4 million in proceeds from the maturity of marketable securities.

Net Cash Provided By Financing Activities

During the year ended December 31, 2019, cash provided by financing activities was $6.2 million, which consisted entirely of proceeds from the exercise of options to purchase common stock and issuance of shares pursuant to our employee stock purchase plan ("ESPP") shares.

During the year ended December 31, 2020, cash provided by financing activities was $634.7 million, which consisted of $420.1 million associated with the issuance of 13,310,243 shares of our common stock to BIMA in September 2020 under the Biogen Stock Purchase Agreement, $193.9 million in net cash proceeds from our follow-on offering completed in January 2020, and $20.7 million the proceeds from the exercise of options to purchase common stock and issuance of shares pursuant to our employee stock purchase plan ("ESPP") shares.

Years ended December 31, 2019 and 2018

33 unchanged sentences

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

As of December 31, 2019 and 2018, we had open non-cancellable purchase orders for biological product development and manufacturing costs totaling $21.2 million and $24.7 million, respectively.

The activities under these purchase orders are expected to be completed by November 2024.

As of December 31, 2020 and 2019, we had open purchase orders for biological product development and manufacturing costs totaling $33.0 million and $21.2 million, respectively.

The activities under these purchase orders are expected to be completed by February 2028.

As of December 31, 2020 and 2019, we had total non-refundable purchase commitments of $27.1 million and $11.2 million, respectively, under the DMSA.

During the years ended December 31, 2020 and 2019, w e incurred costs of $10.8 million and $12.7 million, and made payments of $7.3 million and $12.5 million, respectively, for the development and manufacturing services rendered under the DMSA.

We had not incurred any costs or made any payments for the development and manufacturing services rendered under the DMSA for the year ended December 31, 2017.

Pursuant to certain license agreements, including our agreement with Genentech, we have obligations to make future milestone and royalty payments to other parties.

Additionally, we have certain contingent payments to F-star and former shareholders of F-star Gamma related to the acquisition of F-star Gamma, up to a maximum amount of $447.0 million in the aggregate.

However, we are unable to estimate the timing or likelihood of achieving the milestones and, therefore, any related payments are not included in the table above.

However, we are unable to estimate the timing or likelihood of these payments and, therefore, they are not included in the estimates detailed above.

Critical Accounting Policies and Significant Judgments and Estimates

6 unchanged sentences

License and Collaboration Revenue

Effective January 1, 2018, we adopted Accounting Standards Codification (“ASC”), Topic 606, Revenue from Contracts with Customers (“Topic 606”), using a full retrospective application.

There was no impact to the consolidated financial statements upon adoption of Accounting Standards Update ("ASU") 2014-09 as we had not recognized any revenue through December 31, 2017.

This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as collaboration arrangements and leases.

We analyze our collaboration arrangements to assess whether they are within the scope of ASC 808, Collaborative Arrangements (“ASC 808”) to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities.

This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement.

For collaboration arrangements within the scope of ASC 808 that contain multiple elements, we first determine which elements of the collaboration are deemed to be within the scope of ASC 808 and those that are more reflective of a vendor-customer relationship and, therefore, within the scope of Topic 606.

For elements of collaboration arrangements that are accounted for pursuant to ASC 808, an appropriate recognition method is determined and applied consistently, generally by analogy to Topic 606.

7 unchanged sentences

The core principle of Topic 606 is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received in exchange for those goods or services.

We may also receive reimbursement or make payments to a collaboration partner to satisfy cost sharing requirements.

These payments are accounted for pursuant to ASC 808 and are recorded as an offset or increase to research and development expenses, respectively.

In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under each of our agreements, we perform the following steps:

(i) identification of the promised goods or services in the contract;

(ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract;

(iii) measurement of the transaction price, including the constraint on variable consideration;

(iv) allocation of the transaction price to the performance obligations based on estimated selling prices;

and (v) recognition of revenue when (or as) we satisfy each performance obligation.

(i) identify the promised goods or services in the contract;

(ii) determine whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract;

(iii) measure the transaction price, including the constraint on variable consideration;

(iv) allocate the transaction price to the performance obligations based on estimated selling prices;

and (v) recognize revenue when (or as) we satisfy each performance obligation.

We record amounts received prior to satisfying the revenue recognition criteria as contract liabilities in our Consolidated Balance Sheets .

4 unchanged sentences

At contract inception, we assess the goods or services promised in a contract with a customer and identify those distinct goods and services that represent a performance obligation.

A promised good or service may not be identified as a performance obligation if it is immaterial in the context of the contract with the customer, if it is not separately identifiable from other promises in the contract (either because it is not capable of being separated or because it is not separable in the context of the contract), or if the performance obligation does not provide the customer with a material right.

A promised good or service may not be identified as a performance obligation if it is immaterial in the context of the contract with the customer, if it is not separately identifiable from other promises in the contract (either because it is not capable of being separated or because it is not separable in the context of the contract), or if the promised good or service does not provide the customer with a material right.

We consider the terms of the contract to determine the transaction price.

9 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 .

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

8 unchanged sentences

and other expenses, which include direct and allocated expenses for laboratory, facilities and other costs.

As part of the process of preparing financial statements, we are required to estimate and accrue expenses.

2 unchanged sentences

These services include the conduct of preclinical studies and clinical trials, contract manufacturing activities and consulting services.

If the costs have been prepaid, this expense reduces the prepaid expenses in the balance sheet, and if not yet invoiced, the costs are included in accrued liabilities in the balance sheet.

If the costs have been prepaid, this expense reduces the prepaid expenses in the balance sheets, and if not yet invoiced, the costs are included in accrued liabilities in the balance sheets.

These costs are a significant component of our research and development expenses.

10 unchanged sentences

We have granted stock-based awards, consisting of stock options, restricted stock units, restricted stock awards, and shares issued under its employee stock purchase plan to our employees, certain non-employee consultants and certain members of our board of directors.

We measure stock-based compensation expense for restricted stock and stock options granted to our employees and directors on the date of grant.

Subsequent to the adoption of ASU No.

We measure compensation expense for all stock-based awards at the grant date based on the fair value measurement of the award, which for non-employee stock-based awards became effective subsequent to the adoption of ASU No.

2018-07, Stock C ompensation (Topic 718):

Improvements to Nonemployee Share-Based Payment Accounting on September 30, 2018, future stock-based compensation expense for non-employee stock-based awards is measured based on the fair value on the date of adoption.

Improvements to Nonemployee Share-Based Payment Accounting on September 30, 2018.

We recognize the corresponding compensation expense of awards over the requisite service period, which is generally the vesting period of the respective award, and we adjust for actual forfeitures as they occur.

50 unchanged sentences

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-K

Item 7. Management’s Discussion and Analysis