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Item 8. Financial Statements and Supplementary Data

2021-02-26 compared with 2020-02-27 · 343 added, 327 removed, 672 unchanged (50% of the section changed)

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Consolidated Balance Sheets

Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit)

Consolidated Statements of Operations and Comprehensive Income (Loss)

Consolidated Statements of Stockholders' Equity

Consolidated Statements of Cash Flows

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We have audited the accompanying consolidated balance sheets of Denali Therapeutics Inc.

(the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”).

(the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S.

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 26, 2021 expressed an unqualified opinion thereon.

Adoption of ASU No.

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for leases in 2019 due to the adoption of Accounting Standards Update (ASU) No.

2016-02, Leases (Topic 842), and the related amendments.

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accounting for Revenue from Collaboration Agreements

Description of the Matter Collaboration revenue recognized from the Company's collaboration and license agreements was $26.7 million for the year ended December 31, 2019.

As discussed in Note 6 to the consolidated financial statements, the Company entered into a Collaboration and License Agreement and a Collaboration and Option Agreement with Genzyme Corporation and Takeda Pharmaceutical Company Limited, respectively, during 2018 to develop and commercialize various research programs.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Accounting for revenue under the Takeda Collaboration & Option Agreement

Description of the Matter Collaboration revenue recognized from the Company’s Collaboration and Option Agreement with Takeda Pharmaceutical Company Limited was $27.2 million for the year ended December 31, 2020.

As discussed in Note 6 to the consolidated financial statements, the Company entered into a Collaboration and Option Agreement with Takeda Pharmaceutical Company Limited during 2018 to develop and commercialize various research programs.

The Company is recognizing the revenue allocated to certain performance obligations using an input method, which involves the measurement of progress toward each performance obligation based on a measurement of the actual costs incurred for the related research and development activities for each program compared to the total costs expected to be incurred to satisfy the respective obligation.

Auditing the Company’s estimated measure of progress was complex.

Auditing the Company’s estimated measure of progress is complex.

The Company’s estimate of costs expected to be incurred in the future requires estimation of the amounts it expects to incur for research and development by project.

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We also tested the amount of historical costs incurred under each project and the calculation of amounts recognized under the revenue recognition model.

Accounting for revenue under the Biogen LRRK2 Collaboration & License Agreements, Right of First Negotiation, Option and License Agreement, and Common Stock Purchase Agreement

Description of the Matter Collaboration revenue recognized under the Company’s LRRK2 Collaboration & License Agreements, Right of First Negotiation, Option and License Agreement, and Common Stock Purchase Agreement (collectively the “Agreements”) with Biogen MA Inc.

and Biogen International GmbH (collectively “Biogen”) was approximately $307.4 million for the year ended December 31, 2020.

Contract liability recognized under the Agreements was $297.4 million.

As discussed in Note 6 to the consolidated financial statements, the Company entered into the Agreements during 2020 pursuant to which the Company granted Biogen a license to co-develop and co-commercialize Denali’s small molecule LRRK2 inhibitor program, options to the Company’s amyloid beta program utilizing the Company’s Transport Vehicle (“TV”) technology platform and one unnamed program using the Company’s TV technology platform, a right of first negotiation to two additional unnamed programs for various indications for total upfront payments of $560.0 million.

In addition, the Company sold 13.3 million shares of its common stock to Biogen for total proceeds of $465.0 million.

Auditing the Company’s revenue recognition for the Agreements is complex and required significant auditor judgement.

Significant judgement is required to apply the authoritative accounting guidance at the outset of the Agreements, including the determination of performance obligations and transaction price, as well as allocation of the transaction price among the performance obligations.

The allocation of the transaction price among the performance obligations involves estimation of the standalone selling price of each performance obligation which is based on various assumptions, which may include projected income, estimated cost, probability of success of the underlying asset, likelihood of exercising an option and discount rate.

Furthermore, the common shares sold to Biogen include certain restrictions, which require the use of a valuation model for purposes of determining the fair value of the shares for financial reporting purposes, with any resulting premium impacting the transaction price.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of the controls over the Company’s process for accounting for revenue recognition of collaboration arrangements with multiple performance obligations.

This included testing management’s controls over the identification of performance obligations, the determination of transaction price, and the allocation of transaction price, including management’s review of the methodologies and significant assumptions utilized in the determination of the standalone selling price of the various performance obligations and fair value of common shares sold.

Our audit procedures included, among others, evaluating the Company’s assessment of the authoritative guidance applied to the Agreements, inspecting the Agreements, evaluating management’s interpretation of certain contract provisions when identifying performance obligations, and allocating transaction price to identified performance obligations.

We also evaluated the Company’s key assumptions and judgements and tested the completeness and accuracy of the underlying data used to determine the standalone selling price of each performance obligation.

We evaluated the significant assumptions by reference to data sources used by management and, where necessary, to information obtained through other independent sources to note whether such information corroborated or contradicted management’s conclusions.

We also performed sensitivity analyses over these assumptions to evaluate the extent of resulting changes to the standalone selling prices of the performance obligations and the allocation of the overall transaction price.

We also involved valuation specialists to test the Company’s valuation methodologies and conclusions, including those related to the standalone selling prices and fair value of the common shares.

/s/ Ernst & Young LLP

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Short-term marketable securities 962,553 335,907

Cost sharing reimbursements due from related party 5,674 —

Prepaid expenses and other current assets 20,284 14,675

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Accrued expenses and other current liabilities 47,145 24,015

Contract liabilities 18,739 11,427

Related party contract liability, current 3,569 —

Contract liabilities, current 19,914 18,739

Total current liabilities 71,699 45,344

Related party contract liability, less current portion 293,849 —

Contract liabilities, less current portion 23,325 43,753

Operating lease liability, less current portion 64,175 68,865

Deferred rent, less current portion — 24,532

Other non-current liabilities 701 379

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Denali Therapeutics Inc.

Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statements of Operations and Comprehensive Income (Loss)

(In thousands, except share and per share amounts)

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Collaboration revenue:

Collaboration revenue from customers (1)

$ 335,561 $ 26,320 $ 129,100

Other collaboration revenue 98 358 60

Total collaboration revenue 335,659 26,678 129,160

Operating expenses:

Research and development (2)

212,615 193,382 143,183

General and administrative 60,326 46,480 32,349

Total operating expenses 272,941 239,862 175,532

Loss from operations ( 213,184 ) ( 46,372 ) ( 90,140 )

Income (loss) from operations 62,718 ( 213,184 ) ( 46,372 )

Interest and other income, net 9,241 15,219 10,132

Loss before income taxes ( 197,965 ) ( 36,240 ) ( 88,185 )

Income tax benefit 351 — —

Net loss ( 197,614 ) ( 36,240 ) ( 88,185 )

Income (loss) before income taxes 71,959 ( 197,965 ) ( 36,240 )

Income tax (expense) benefit ( 823 ) 351 —

Net income (loss) 71,136 ( 197,614 ) ( 36,240 )

Other comprehensive income (loss):

Net unrealized gain (loss) on marketable securities, net of tax ( 595 ) 999 ( 281 )

Comprehensive loss $ ( 196,615 ) $ ( 36,521 ) $ ( 88,180 )

Net loss per share, basic and diluted $ ( 2.07 ) $ ( 0.39 ) $ ( 5.89 )

Weighted average number of shares outstanding, basic and diluted 95,608,208 92,621,991 14,964,144

Comprehensive income (loss) $ 70,541 $ ( 196,615 ) $ ( 36,521 )

Net income (loss) per share:

Basic net income (loss) per share $ 0.65 $ ( 2.07 ) $ ( 0.39 )

Diluted net income (loss) per share $ 0.63 $ ( 2.07 ) $ ( 0.39 )

Weighted-average shares used in calculating:

Basic net income (loss) per share 108,974,137 95,608,208 92,621,991

Diluted net income (loss) per share 112,703,108 95,608,208 92,621,991

__________________________________________________

(1) Includes related party collaboration revenue from customer of $ 307,437 .

(2) Includes an offset to expense from related party cost reimbursement of $ 9,260 .

See accompanying notes to consolidated financial statements.

Denali Therapeutics Inc.

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

Consolidated Statements of Stockholders’ Equity

(In thousands, except share amounts)

Preferred Stock

Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Stockholders' Equity (Deficit)

Shares Amount Shares Amount

Balance at December 31, 2016 58,600,315 $ 348,673 8,597,316 $ 344 $ 9,387 $ ( 373 ) $ ( 103,512 ) $ ( 94,154 )

Issuance of series B-2 convertible preferred stock for cash, net of issuance costs of $ 73

1,764,705 29,927 — — — — — —

Conversion of Series A and B convertible preferred stock into common stock

( 60,365,020 ) ( 378,600 ) 60,365,020 604 377,996 — — 378,600

Issuance of common stock upon initial public offering, net of issuance costs of $ 23,612

— — 15,972,221 160 264,101 — — 264,261

Issuance of common stock upon exercise of stock options

— — 648,317 25 708 — — 733

Issuance of reserved common stock as consideration in asset acquisition

— — 81,164 1 ( 1 ) — — —

Vesting of early exercised common stock

— — 187,500 6 121 — — 127

Vesting of restricted stock awards

— — 1,628,824 61 ( 61 ) — — —

Stock-based compensation

— — — — 4,409 — — 4,409

— — — — — — ( 88,185 ) ( 88,185 )

Other comprehensive income

— — — — — 5 — 5

Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders' Equity

Shares Amount

Balance at December 31, 2017 87,480,362 $ 1,201 $ 656,660 $ ( 368 ) $ ( 191,697 ) $ 465,796

Issuance of common stock in connection with the Takeda Collaboration Agreement 4,214,559 42 94,364 — — 94,406

— — 4,214,559 42 94,364 — — 94,406

Issuances under equity incentive plans 792,939 8 3,991 — — 3,999

— — 792,939 8 3,991 — — 3,999

Vesting of early exercised common stock 234,372 3 371 — — 374

— — 234,372 3 371 — — 374

Vesting of restricted stock awards 1,940,203 19 ( 19 ) — — —

Stock-based compensation — — 18,791 — — 18,791

— — — — 18,791 — — 18,791

Net loss — — — — ( 36,240 ) ( 36,240 )

Other comprehensive loss — — — ( 281 ) — ( 281 )

— — — — — ( 281 ) — ( 281 )

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

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Other comprehensive income — — — 999 — 999

Balance at December 31, 2019 96,189,935 1,288 818,803 350 ( 425,551 ) 394,890

Issuance of common stock in follow-on offering, net of issuance costs of $ 632

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

1,722,058 17 20,638 — — 20,655

Vesting of restricted stock units 309,097 3 ( 3 ) — — —

Stock-based compensation

— — 50,351 — — 50,351

Net Income — — — — 71,136 71,136

Other comprehensive loss — — — ( 595 ) — ( 595 )

Balance at December 31, 2020 120,531,333 $ 1,531 $ 1,503,660 $ ( 245 ) $ ( 354,415 ) $ 1,150,531

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Operating activities

Net loss $ ( 197,614 ) $ ( 36,240 ) $ ( 88,185 )

Net income (loss) $ 71,136 $ ( 197,614 ) $ ( 36,240 )

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

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Stock-based compensation expense 50,351 38,378 18,791

Net amortization of (discounts) and premiums on marketable securities ( 5,019 ) ( 2,705 ) 753

Non-cash operating lease expense 864 — —

Net amortization of premiums and (discounts) on marketable securities 55 ( 5,019 ) ( 2,705 )

Non-cash adjustment to operating lease expense ( 2,360 ) 2,117 —

Other non-cash items 38 ( 351 ) ( 36 )

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Accounts payable ( 1,623 ) 1,033 ( 526 )

Accrued and other current liabilities 1,500 9,113 3,578

Contract liability ( 6,286 ) 68,777 —

Accruals and other current liabilities 22,106 1,500 9,113

Contract liabilities ( 19,253 ) ( 6,286 ) 68,777

Related party contract liability 297,418 — —

Deferred rent — — 3,438

Operating lease liability 1,253 — —

Other non-current liabilities 322 — 379

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Investing activities

Purchase of marketable securities ( 369,696 ) ( 557,930 ) ( 179,789 )

Purchase of property and equipment ( 17,919 ) ( 3,393 ) ( 2,875 )

Purchases of marketable securities ( 1,285,468 ) ( 369,696 ) ( 557,930 )

Purchases of property and equipment ( 3,095 ) ( 17,919 ) ( 3,393 )

Maturities and sales of marketable securities 665,357 535,327 273,901

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Financing activities

Proceeds from issuance of common stock in connection with Collaboration Agreements 420,146 — 94,406

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

Payments of issuance costs related to issuance for common stock — — ( 1,342 )

Payments of issuance costs related to issuance for preferred stock — — ( 44 )

Issuance of common stock in connection with the Takeda Collaboration Agreement

Proceeds from exercise of awards under equity incentive plans 20,655 6,190 3,999

Proceeds from issuance of common stock, net of issuance costs — — 265,619

Proceeds from issuance of convertible preferred stock, net of issuance costs

Net cash provided by financing activities 634,749 6,190 97,019

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Property and equipment purchases accrued but not yet paid $ 67 $ — $ 335

Deferred IPO costs incurred but not yet paid $ — $ — $ 1,358

Convertible preferred stock issuance costs incurred but not yet paid $ — $ — $ 44

See accompanying notes to consolidated financial statements.

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GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).

Reverse Stock Split

In November 2017, the Company’s board of directors and stockholders approved an amendment to the Company’s amended and restated certificate of incorporation to effect a reverse split of shares of its common stock and convertible preferred stock on a 4 -to-1 basis (the “Reverse Stock Split”).

The par values and the authorized shares of the common and convertible preferred stock were not adjusted as a result of the Reverse Stock Split.

The Reverse Stock Split became effective on November 28, 2017.

All issued and outstanding common stock and convertible preferred stock and related per share amounts contained in the financial statements have been retroactively adjusted to reflect this Reverse Stock Split for all periods presented.

Initial Public Offering

On December 7, 2017, the Company's Registration Statement on Form S-1 was declared effective by the SEC for our initial public offering ("IPO") of common stock.

The Company's shares started trading on the NASDAQ Global Select Market on December 8, 2017, and the transaction formally closed on December 12, 2017.

In connection with the IPO, the Company sold an aggregate of 15,972,221 shares of common stock, including 2,083,333 shares sold pursuant to the underwriters’ full exercise of their option to purchase additional shares, at a price to the public of $ 18.00 per share.

The aggregate net proceeds received by the Company from the offering, net of underwriting discounts and commissions and offering expenses, were $ 264.3 million.

Upon the closing of the IPO, all then-outstanding shares of the Company's convertible preferred stock converted into 60,365,020 shares of common stock.

The related carrying value of $ 378.6 million was reclassified to common stock and additional paid-in capital.

Additionally, the Company amended and restated its certificate of incorporation effective December 7, 2017 to, among other things, change the authorized number of shares of common stock to 400,000,000 shares and the authorized number of shares of preferred stock to 40,000,000 shares.

Principles of Consolidation

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Non-monetary assets and liabilities denominated in foreign currencies are remeasured at historical rates.

Foreign currency transaction gains and losses resulting from remeasurement are recognized in interest and other income, net in the Consolidated Statements of Operations and Comprehensive Loss.

Foreign currency transaction gains and losses resulting from remeasurement are recognized in interest and other income, net in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Use of Estimates

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GAAP requires the Company to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported amounts of expenses during the reporting period.

Actual results could differ from those estimates, and such differences could be material to the Consolidated Balance Sheets and Statements of Operations and Comprehensive Loss.

Actual results could differ from those estimates, and such differences could be material to the Consolidated Balance Sheets and Consolidated Statements of Operations and Comprehensive Income (Loss).

Concentration of Credit Risk and Other Risks and Uncertainties

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The Company maintains its cash with accredited financial institutions and accordingly, such funds are subject to minimal credit risk.

The Company has not experienced any losses on its cash deposits.

The Company’s investment policy limits investments to certain types of securities issued by the U.S.

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If the Company does not successfully commercialize or partner any of its product candidates, it will be unable to generate product revenue or achieve profitability.

The COVID-19 pandemic has caused increased risk and uncertainty for the Company.

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 December 31, 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.

Convertible Preferred Stock

The Company is authorized to issue 40.0 million shares of preferred stock in one or more series and to fix the powers, designations, preferences and relative participating option or other rights thereof, including dividend rights, conversion rights, voting rights, redemption terms, liquidation preferences and the number of shares constituting any series, without any further vote or action by the Company’s shareholders.

As of December 31, 2020 and 2019, the Company had no shares of preferred stock issued or outstanding.

The Company has one operating segment.

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The Company considers all highly liquid investments with original maturities of 90 days or less at the date of purchase to be cash and cash equivalents.

Cash equivalents are stated at fair value.

The Company’s restricted cash consists of the letter of credit for the Company’s headquarters building lease, and is included within other non-current assets on the accompanying Consolidated Balance Sheets.

Cash equivalents are reported at fair value.

Cash, cash equivalents, and restricted cash reported within the Consolidated Statements of Cash Flows is composed of Cash and Cash equivalents reported in the Consolidated Balance Sheets and $ 1.5 million of restricted cash for the letter of credit for the Company’s headquarters building lease which is included within other non-current assets in the Consolidated Balance Sheets.

Marketable Securities

The Company generally invests its excess cash in money market funds and investment grade short to intermediate-term fixed income securities.

Such investments are included in cash and cash equivalents, short-term marketable securities, or long-term marketable securities on the balance sheets, are considered available-for-sale, and reported at fair value with unrealized gains and losses included as a component of stockholders’ equity (deficit).

We classify investments in securities with remaining maturities of less than one year, or where our intent is to use the investments to fund current operations or to make them available for current operations, as short-term investments.

We classify investments in securities with remaining maturities of over one year as long-term investments.

The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity, which is included in interest and other income, net in the Consolidated Statements of Operations and Comprehensive Loss.

Realized gains and losses and declines in value judged to be other-than-temporary, if any, on marketable securities are included in interest and other income, net.

The cost of securities sold is determined using specific identification.

The Company periodically evaluates whether declines in fair values of its marketable securities below their book value are other-than-temporary.

This evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the unrealized loss as well as the Company’s ability and intent to hold the marketable security until a forecasted recovery occurs.

Additionally, the Company assesses whether it has plans to sell the security or it is more likely than not it will be required to sell any marketable securities before recovery of its amortized cost basis.

Factors considered 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, other publicly available information that may affect the value of the marketable security, duration and severity of the decline in value, and our strategy and intentions for holding the marketable security.

Such investments are included in cash and cash equivalents, short-term marketable securities, or long-term marketable securities on the Consolidated Balance Sheets, are considered available-for-sale, and reported at fair value with net unrealized gains and losses included as a component of stockholders’ equity.

The Company classifies investments in securities with remaining maturities of less than one year, or where its intent is to use the investments to fund current operations or to make them available for current operations, as short-term investments.

The Company classifies investments in securities with remaining maturities of over one year as long-term investments.

Realized gains and losses and declines in value determined to be due to credit losses on marketable securities, if any, are included in interest and other income, net.

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

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.

Accounts Receivable

Accounts receivable are included within prepaid expenses and other current assets in the Consolidated Balance Sheets.

The accounts receivable balance represents amounts receivable from the Company's collaboration partners.

The Company estimates the allowance for doubtful accounts based on existing contractual payment terms, actual payment patterns of its partners, and individual partner circumstances.

To date, an allowance for doubtful accounts has not been required.

Accounts receivable are included within prepaid expenses and other current assets on the Consolidated Balance Sheets.

The accounts receivable balance represents amounts receivable from the Company's collaboration partners, net of an allowance for credit losses, if required.

Derivatives and Hedging Activities

The Company accounts for its derivative instruments as either assets or liabilities on the Consolidated Balance Sheets and measures them at fair value.

Derivatives are adjusted to fair value through interest and other income, net in the Consolidated Statements of Operations and Comprehensive Loss.

The Company measures its derivative instruments at fair value, and accounts for them as either assets or liabilities included within prepaid expenses and other current assets and accruals and other current liabilities, respectively, on the Consolidated Balance Sheets.

Derivatives are adjusted to fair value through interest and other income, net in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Property and Equipment, Net

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A determination is made as to whether an arrangement is a lease at inception.

A right-of-use (“ROU”) asset and operating lease liability is recognized for identified operating leases in the Consolidated Balance Sheets.

A right-of-use

(“ROU”) asset and operating lease liability is recognized for identified operating leases in the Consolidated Balance Sheets.

The changes in operating lease ROU assets and operating lease liabilities are presented net within non-cash adjustment to operating lease expense in the Consolidated Statements of Cash Flows.

ROU assets represent the Company’s right to use the underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments due over the lease term, with the ROU assets adjusted for lease incentives received.

When determining the present value of lease payments, the Company uses its incremental borrowing rate (“IBR”) on the date of lease commencement, or the rate implicit in the lease, if known.

When determining the present value of lease payments, the Company uses its incremental borrowing rate on the date of lease commencement, or the rate implicit in the lease, if known.

The Company does not assume renewals in its determination of the lease term unless the renewals are deemed by management to be reasonably certain at lease inception.

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The Company has leases with lease and non-lease components, which the Company has elected to account for as a single lease component.

The current operating lease liability is included within accrued expenses and other current liabilities on the Consolidated Balance Sheet.

Revenue Recognition

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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.

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.

The Company 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 the Company fulfills its obligations under each of its agreements, the Company performs the following steps:

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At contract inception, the Company assesses the goods or services promised in a contract with a customer and identifies 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.

The Company considers the terms of the contract to determine the transaction price.

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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.

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Research and development costs consist of salaries and other personnel related expenses, including associated stock–based compensation, consulting fees, lab supplies, and facility costs, as well as fees paid to other entities that conduct certain research, development and manufacturing activities on behalf of the Company.

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

Nonrefundable advance payments for goods and services that will be used or received in future research and development activities are deferred and recognized as expense in the period in which the related goods are delivered or services are performed.

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Grants are awarded to employees, including directors, and non-employees.

The Company measures employee and director stock-based compensation expense for all stock-based awards at the grant date based on the fair value measurement of the award.

Subsequent to the adoption of ASU No.

The Company measures 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.

The expense is recorded on a straight-line basis over the requisite service period, which is generally the vesting period, for the entire award.

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Comprehensive Income (Loss)

Comprehensive income (loss) is composed of net loss and certain changes in stockholders’ equity (deficit) that are excluded from net loss, primarily unrealized gains or losses on the Company’s marketable securities.

Comprehensive income (loss) is composed of net income (loss) and certain changes in stockholders’ equity that are excluded from net income (loss), primarily unrealized gains or losses on the Company’s marketable securities.

Net Income (Loss) per Share

Basic net income (loss) per share is calculated by dividing the net income (loss) by the weighted-average number of shares of common stock outstanding during the period, without consideration for common stock equivalents.

Diluted net income per ordinary share is computed by giving effect to all dilutive potential ordinary shares including options.

However, where there is a diluted net loss per ordinary share, no adjustment is made for potentially issuable ordinary shares since their effect would be anti-dilutive.

Diluted net income (loss) per share is computed based on the treasury stock method by dividing net income by the weighted-average number of common shares outstanding during the period plus potentially dilutive common equivalent shares outstanding.

However, where there is a net loss per ordinary share, no adjustment is made for potentially issuable ordinary shares since their effect would be anti-dilutive.

In this case, diluted net loss per share is equal to basic net loss per share.

Recently Issued Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No.

Recently Issued Accounting Pronouncement

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

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

2019-12 modifies ASC 740 to simplify several aspects of accounting for income taxes, including eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation.

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 finalizing its assessment of the impact of this ASU and does not expect it to have a material impact on its Consolidated Financial Statements.

Recently Adopted Accounting Pronouncement

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments-Credit Losses:

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In April 2019, the FASB issued clarification to ASU 2016-13 within ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging , and Topic 825, Financial Instruments .

The guidance will become effective as of January 1, 2020, and must be adopted using a modified retrospective approach, with certain exceptions.

The Company plans to adopt this standard on January 1, 2020, and is substantially complete with its evaluation of the effect that the adoption of this ASU will have on its Consolidated Financial Statements.

The Company does not expect any impact to the Consolidated Financial Statements.

The only impact is expected to be in the applicable disclosures included in the Significant Accounting Policies and Cash and Marketable Securities footnotes.

In December 2019, the FASB issued Accounting Standards Update No.

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

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

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU No.

2016-02, Leases (Topic 842) , which supersedes the guidance in former ASC 840, Leases .

The FASB issued further updates to this guidance in July 2018 through ASU 2018-10, C odification Improvements to Topic 842, Leases and ASU 2018-11, Leases (Topic 842):

Targeted Improvements , in December 2018 through ASU 2018-20, Leases (Topic 842):

Narrow-Scope Improvements for Lessors and in March 2019 through ASU 2019-01 Leases (Topic 842):

Codification Improvements .

The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee.

This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease.

A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification.

The standard was effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted, and was required to be adopted using a modified retrospective approach.

The Company adopted this standard as of January 1, 2019 , applying the optional transition method such that it is not required to adjust prior period presentations.

ASU 2016-02 has impacted the Company’s Consolidated Balance Sheet as the Company has certain operating lease arrangements for which the Company is the lessee and one operating lease arrangement for which the Company is the lessor.

The Compan y has no financing leases.

Management has elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows the Company to carryforward the historical lease classification.

The impact of adoption of the standard is that as of January 1, 2019, the Company recognized a ROU asset of $ 46.1 million and operating lease liability of $ 71.3 million.

The standa rd did not have a material impact on the Company’s Consolidated Statements of Operations and Comprehensive Loss, Convertible Preferred Stock and Stockholders's Equity (Deficit) or Consolidated Statements of Cash Flows.

The Company adopted this standard as of January 1, 2020 using a modified retrospective approach.

Adoption of the standard did not have a material impact on the Consolidated Financial Statements.

Fair Value Measurements

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government treasuries 15,989 — — 15,989

Commercial paper — 9,979 — 9,979

Short-term marketable securities:

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government treasuries 13,869 — — 13,869

government agency securities — 1,977 — 1,977

Corporate debt securities — 26,017 — 26,017

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Total $ — $ 8 $ — $ 8

The carrying amounts of prepaid expenses and other current assets, accounts payable and accrued liabilities approximate their fair values due to their short-term maturities.

The Company’s Level 2 securities are valued using third-party pricing sources.

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There were no transfers of assets or liabilities between the fair value measurement levels during the years ended December 31, 2020 or 2019.

Cash and Marketable Securities

Cash, cash equivalents and restricted cash

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

December 31, 2019 December 31, 2018 December 31, 2017

Cash and cash equivalents $ 79,449 $ 77,123 $ 218,375

Restricted cash included within prepaid expenses and other current assets

Restricted cash included within other non-current assets

1,500 1,500 451

Total cash, cash equivalents, and restricted cash $ 80,949 $ 78,623 $ 218,910

Marketable Securities

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government treasuries (1)

$ 878,906 $ 44 $ ( 12 ) $ 878,938

government agency securities (2)

25,214 5 ( 2 ) 25,217

Corporate debt securities 27,101 79 — 27,180

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Corporate debt securities (3)

30,147 2 ( 11 ) 30,138

Total long-term marketable securities 32,708 2 ( 11 ) 32,699

Total $ 995,147 $ 130 $ ( 25 ) $ 995,252

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(1) Unrealized holding losses on 19 securities with an aggregate fair value of $ 369.9 million.

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

(3) Unrealized holding loss on 1 security with an aggregate fair value of $ 20.1 million.

December 31, 2019

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government treasuries (1)

$ 249,478 $ 594 $ ( 2 ) $ 250,070

government agency securities 1,999 1 — 2,000

Corporate debt securities (2)

53,396 94 ( 11 ) 53,479

Commercial paper 30,358 — — 30,358

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government treasuries (3)

government agency securities 1,975 2 — 1,977

13,865 6 ( 2 ) 13,869

Corporate debt securities (4)

25,998 34 ( 15 ) 26,017

Total long-term marketable securities 39,863 40 ( 17 ) 39,886

Total $ 375,094 $ 729 $ ( 30 ) $ 375,793

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(1) Unrealized holding losses on 2 securities with an aggregate fair value of $ 9.3 million.

(2) Unrealized holding losses on 4 securities with an aggregate fair value of $ 25.9 million.

(3) Unrealized holding loss on 1 security with an aggregate fair value of $ 10.1 million.

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

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

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, thus there was no recognition of any other-than-temporary impairment as of December 31, 2019 or 2018.

The Company has no t recognized an allowance for credit losses as of December 31, 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.

Further, these marketable securities were initially, and continue to be, held with investment grade, high credit quality institutions.

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 year ended December 31, 2019.

As a result, the Company recorded a tax benefit of $ 0.4 million for the year ended December 31, 2019 on the Consolidated Statements of Operations and Comprehensive Loss and a corresponding tax charge in other comprehensive income.

There were no unrealized gains in other comprehensive income during in the years ended 2018, or 2017, and as such there was no tax benefit recorded for the years ended December 31, 2018 and 2017 on the Consolidated Statements of Operations and Comprehensive Loss.

The Company recorded unrealized gains on marketable securities in other comprehensive income for the year ended December 31, 2019.

As a result, the Company recorded a tax benefit of 0.4 million for the year ended December 31, 2019 on the Consolidated Statements of Operations and Comprehensive Income (Loss) and a corresponding tax charge in other comprehensive income.

There was no unrealized gain on marketable securities in other comprehensive income for the years ended December 31, 2020, or 2018, and as such there was no tax benefit recorded for the years ended December 31, 2020 and 2018 on the Consolidated Statements of Operations and Comprehensive Income (Loss) .

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

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dollar, primarily the Euro and British Pound.

The derivative instruments the Company uses to hedge this exposure are not designated as cash flow hedges, and as a result, changes in their fair value are recorded in interest and other income, net, on the Company's Consolidated Statements of Operations and Comprehensive Loss.

The fair values of forward foreign currency exchange contracts are estimated using current exchange rates and interest rates and take into consideration the current creditworthiness of the counterparties.

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

The Company did not have foreign currency exchange contracts prior to June 2018.

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

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

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

23 1,500 Jan 2020 - Nov 2020

British Pounds

15 2,285 Jan 2020 - Jun 2020

10 129 Jan 2020 - Aug 2020

Euros 26 3,855 Jan 2021 - Nov 2021

British Pounds 21 2,658 Jan 2021 - Nov 2021

Total at December 31, 2020

Euros 23 1,500 Jan 2020 - Nov 2020

British Pounds 15 2,285 Jan 2020 - Jun 2020

Swiss Francs 10 129 Jan 2020 - Aug 2020

Total at December 31, 2019

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(1) The notional amount represents the net amount of foreign currency that will be received upon maturity of the forward contracts.

An immaterial derivative liability balance is recorded in other current liabilities on the Consolidated Balance Sheet as of December 31, 2019, and a derivative liability balance of $ 0.2 million is recorded in other current liabilities on the Consolidated Balance Sheet as of December 31, 2018.

Immaterial derivative asset balances are recorded in prepaid assets and other current assets on the Consolidated Balance Sheets as of December 31, 2019 and 2018.

A net gain of $ 0.2 million, and a net loss of $ 0.2 million, each associated with the Company's derivative instruments, are recognized in interest and other income, net on the Consolidated Statement of Operations and Comprehensive Loss for the years ended December 31, 2019 and 2018, respectively.

Immaterial derivative liabilities are recorded on the Consolidated Balance Sheets as of December 31, 2020, and 2019.

A derivative asset balance of $ 0.2 million is recorded in prepaid expenses and other current assets on the Consolidated Balance Sheets as of December 31, 2020 and an immaterial derivative asset balance is recorded in prepaid expenses and other current assets on the Consolidated Balance Sheets as of December 31, 2019.

Net gains of $ 0.1 million and $ 0.2 million, and a net loss of $ 0.2 million, each associated with the Company's derivative instruments, are recognized in interest and other income, net on the Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2020, 2019 and 2018, respectively.

In August 2016, the Company 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”) to leverage F-star’s modular antibody technology and the Company’s expertise in the development of therapies for neurodegenerative diseases.

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The amount of the contingent payments will vary based on whether F-star delivers an Fcab (constant Fc-domains with antigen-binding activity) that meets pre-defined criteria and whether the Fcab has been identified solely by the Company or solely by F-star or jointly by the Company and F-star.

In June 2019, the Company made a payment of $ 1.5 million to F-star Ltd upon the achievement of a specified preclinical milestone in the Company's ETV:IDS program.

The Company concluded that the assets acquired and liabilities assumed upon the exercise of the Option Agreement did not meet the accounting definition of a business, and as such, the acquisition was accounted for as an asset purchase.

The Company 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.

As the transaction was accounted for as an asset purchase rather than a business combination, the Company did no t recognize any contingent consideration on the acquisition date.

Further future contingent consideration is expected to be recognized in research and development expense as incurred.

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 year ended December 31, 2019.

There was no contingent consideration recognized for the year ended December 31, 2020.

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

Under the F-star Collaboration Agreement, the Company is responsible for certain research costs incurred by F-star Ltd in conducting activities under an agreed development plan for each Fcab, for up to 24 months after the target Fcab is accepted.

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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 ("BBB") 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") or 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 was 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 "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 Biogen Collaboration Agreement, which occurred 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.

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 Biogen Collaboration Agreement, the Company conducted and controlled LRRK2 clinical development.

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

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

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 BBB (“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 Peripheral LRRK2 Products) for such country, as applicable.

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 or 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 or 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 December 31, 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 was 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 BIMA 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 forms part of the transaction price for the Provisional Biogen Collaboration Agreement.

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.

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 through execution of the Biogen Collaboration Agreement since they were all contingent on the execution of the Biogen Collaboration Agreement.

Through execution of the Biogen Collaboration Agreement, management determined that no performance obligation was satisfied or delivered to Biogen.

Since no performance obligation had been satisfied, no related party revenue was recognized under ASC 606 prior to execution of the Biogen Collaboration Agreement.

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 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 Biogen Collaboration Agreement.

The Biogen Collaboration Agreement is considered a contract modification to the Provisional Biogen Collaboration Agreement and will be accounted for as a termination of the provisional agreement and commencement of a new contract.

The Company identified the following distinct performance obligations associated with the Biogen Collaboration Agreement that had not yet been delivered under the original contract:

the LRRK2 Program license, the research services for the ATV:Abeta and TV programs (“Option Research Services”) which include option joint steering committee ("JSC") participation, and a material right for an option under the ROFN and Option Agreement.

Further, the LRRK2 Development Activities which includes LRRK2 JSC and joint development committee (“JDC”) participation was identified as a unit of account under ASC 808.

The LRRK2 Development Activities, JSC and JDC participation are considered to be a single unit of account since the development activities are highly interrelated with the JSC and JDC involvement and these are not distinct in the context of the contract.

Further, the same was considered to be true for the option research services and option JSC participation performance obligation.

The Company believes that the 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 all of the performance obligations identified at inception except for the LRRK2 Development Activities.

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 interim LRRK2 development activities subject to cost sharing provisions, the guidance in ASC 730, Research and Development should be applied.

The transaction price at inception included fixed consideration consisting of the upfront fee of $ 560.0 million and the $ 44.9 million premium on the sale of common stock.

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

From inception of the Biogen Collaboration Agreement through December 31, 2020 , there was no change to the transaction price.

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

The Company used an adjusted market assessment approach to estimate the selling price for the LRRK2 Program license, an expected cost plus margin approach for estimating the Option Research Services and estimated the intrinsic value of the material right for the option, taking into account the likelihood that an option would be exercised.

The LRRK2 Program license was delivered on or around the effective date of the Biogen Collaboration Agreement and the revenue allocated to this performance obligation was recognized during the year ended December 31, 2020 .

The Option Research Services are expected to be delivered over time as the services are performed, with revenue being recognized over time based on costs incurred to perform the services, since the level of costs incurred over time is thought to best reflect the transfer of services to Biogen.

Revenue allocated to the material right for an option under the ROFN and Option Agreement is deferred as a contract liability until the option opt in period ends, expiration or ROFN and Option Agreement termination.

The LRRK2 Development Activities cost sharing reimbursements or expenses will be recognized over time as earned or incurred, since this is believed to directly correlate to the value of the services performed.

A related party contract liability of $ 297.4 million was recorded on the Consolidated Balance Sheet as of December 31, 2020 .

Approximately $ 288.9 million of this contract liability relates to the revenue allocated to the material right for an option under the ROFN and Option Agreement which is being deferred until resolution of the option which is expected to be several years from the balance sheet date, and $ 8.5 million of this contract liability relates to the portion of the Option Research Services performance obligation yet to be satisfied, with such amount to be recognized over the estimated period of the services, which is expected to be several years.

The Company recorded $ 9.3 million of cost sharing reimbursements for interim LRRK2 development activities and LRRK2 Development Activities as an offset to research and development expenses in the Consolidated Statement of Operations and Comprehensive Income for the year ended December 31, 2020, of which $ 5.7 million was recorded as cost sharing reimbursements due from Biogen on the Consolidated Balance Sheet as of December 31, 2020 .

In assessing the Biogen Collaboration Agreement, management exercised considerable judgment in estimating revenue to be recognized, specifically related to estimating the discount for lack of marketability associated with the stock issuance, determining the separate performance obligations under the Biogen Collaboration Agreement, and estimating the standalone selling price of those performance obligations.

As of December 31, 2020 , the Company had no t achieved any milestones or recorded any product sales under the 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 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 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.

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

The Sanofi Collaboration Agreement became effective in November 2018 at which time Sanofi paid the Company an upfront payment of $ 125.0 million.

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

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.

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 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 (SAR443820).

Other than with the Denali CNS Development Activities, Sanofi is 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 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.

During the years ended December 31, 2019 and 2018 , the transaction price increased by $ 20.4 million and $ 2.3 million, respectively, with increases of $ 10.4 million and $ 2.3 million, respectively, related to costs incurred for Retained Activities that were no longer constrained.

Additionally, the $ 10.0 million milestone triggered by the commencement of a DNL758 Phase 1 clinical trial in healthy volunteers, as described below, was included in the increase in transaction price for the year ended December 31, 2019.

The respective standalone value for each of the performance obligations has been 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.

The transaction price increased by $ 1.0 million, $ 10.4 million and $ 2.3 million, for the years ended December 31, 2020, 2019 and 2018, respectively, related to costs incurred for Retained Activities that were no longer constrained.

Additionally, the $ 10.0 million milestone triggered by the commencement of a DNL758 (SAR443122) Phase 1 clinical trial in healthy volunteers was included in the increase in transaction price for the year ended December 31, 2019.

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.

The Company used an adjusted market assessment approach to estimate the selling price for the program licenses, and an expected cost plus margin approach for estimating the Alzheimer’s Disease Services and the Retained Activities.

The program licenses and existing know-how were delivered on the effective date of the Sanofi Collaboration Agreement.

The Alzheimer’s Disease Services and the Retained Activities are expected to be delivered over time as the services are performed.

The Alzheimer’s Disease Services and the Retained Activities were expected to be delivered over time as the services are performed.

For the Alzheimer's Disease Services, revenue will be recognized over time using the input method, based on costs incurred to perform the services, since the level of costs incurred over time is thought to best reflect the transfer of services to Sanofi.

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.

In July 2019, Sanofi commenced a DNL758 Phase 1 clinical trial in healthy volunteers, which triggered a milestone payment of $ 10.0 million , which the Company received in August 2019.

The entire milestone payment was recognized in collaboration revenue in the year ended December 31, 2019.

There were no milestones received or recognized in the year ended December 31, 2018.

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

These contract liabilities relate 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 $ 1.2 million and $ 2.3 million as of December 31, 2019 and 2018, respectively, associated with the Sanofi Collaboration Agreement.

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.

The Company recorded a receivable associated with the Sanofi Collaboration Agreement on the Consolidated Balance Sheets as of December 31, 2020 and 2019 of $ 44,303 and $ 1.2 million, respectively.

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

Management 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 December 31, 2019, Denali has received milestone payments of $ 10.0 million and has no t recorded any product sales 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 ATV:BACE1/Tau, ATV:TREM2 and PTV:PGRN programs.

Through December 31, 2020, the Company has received milestone payments of $ 10.0 million and has no t recorded any product sales 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 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 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-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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The performance obligations under each of the three programs are separate since the activities and risks under the programs are distinct.

The Company has determined that all other goods or services which are contingent upon Takeda exercising its option for each program are not considered performance obligations at the inception of the Takeda Collaboration Agreement.

The Company determined that all other goods or services which are contingent upon Takeda exercising its option for each program were not considered performance obligations at the inception of the Takeda Collaboration Agreement.

The transaction price at inception included fixed consideration consisti ng of the upfron t fee of $ 40.0 million, the $ 15.6 million premium on the sale of common stock, and the first preclinical milestone payment of $ 5.0 million .

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There were no material changes in estimates during the years ended December 31, 2020 and 2019.

A contract liability of $ 59.0 million and $ 64.9 million is recorded on the Consolidated Balance Sheets as of December 31, 2019 and 2018, respectively.

These contract liabilities relate 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 December 31, 2019, and there was a receivable of $ 5.0 million as of December 31, 2018, related to the Takeda Collaboration Agreement.

A contract liability of $ 39.8 million and $ 59.0 million was recorded on the Consolidated Balance Sheets as of December 31, 2020 and 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.

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

There was a receivable of $ 8.0 million for the PTV:PGRN milestone as of December 31, 2020 and no receivable as of December 31, 2019, related to the Takeda Collaboration Agreement.

The second preclinical milestone payment for PTV:PGRN was received in January 2021.

Revenue recognized relating to future milestone payments of $ 4.6 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 Consolidated Balance Sheets as of December 31, 2020 and 2019, respectively.

1 unchanged sentence

Management applies judgment in determining the separate performance obligations in the research period, estimating variable consideration, and estimating total future costs when using the input method.

Through December 31, 2019, 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.

There is some increase in the judgment required in estimating the timing of future costs due to the COVID-19 pandemic.

This is because it is challenging to predict the duration and extent of the impact of the COVID-19 pandemic on the third-party service providers assisting with the Company's ATV:Tau, ATV:TREM2 and PTV:PGRN programs.

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

Through December 31, 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

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Year Ended December 31,

2020 2019 2018

Takeda Collaboration Agreement (1)

6 unchanged sentences

Total Sanofi Collaboration Revenue 1,067 20,752 123,483

Biogen Collaboration Agreement:

LRRK2 Program License 306,545 — —

Option Research Services 892 — —

Total Biogen Collaboration Revenue 307,437 — —

Total Collaboration Revenue $ 335,659 $ 26,678 $ 129,160

_________________________________________________

(1) Amounts for the year ended December 31, 2019 represent revenue recognized that was included in the contract liability balance at the beginning of the year.

(1) $ 19.6 million of revenue for the year ended December 31, 2020 was included in the contract liability balance at the beginning of the year.

All of the revenue recognized in the year ended December 31, 2019 was included in the contract liability balance at the beginning of the year.

There was no deferred revenue at the beginning of the year ended December 31, 2018.

There was no collaboration revenue in the year ended December 31, 2017.

(2) Revenue for the years ended December 31, 2020 and 2019 represent amounts that were included in the contract liability balance at the beginning of the respective year.

There was no deferred revenue at the beginning of the year ended December 31, 2018.

License Agreements

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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.

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 4, 2020.

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 years ended December 31, 2019 or 2018.

The first clinical milestone payment of $ 2.5 million was recorded as research and development expense during the year ended December 31, 2017.

No expenses were recorded in the years ended December 31, 2020, 2019 or 2018.

Balance Sheet Components

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Accrued clinical costs 6,497 5,042

Accrued manufacturing and other research & development costs 5,251 4,179

Accrued general, administrative and shared costs 1,310 2,250

Deferred rent, current — 616

Accrued manufacturing costs 7,140 2,027

Accrued other research & development costs 5,278 3,224

Accrued general and administrative, shared costs, and other current liabilities 3,037 1,318

Operating lease liability, current 4,690 3,665

Other current liabilities 8 380

Total accrued expenses and other current liabilities $ 47,145 $ 24,015

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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 Consolidated Balance Sheet as of December 31, 2019.

This is recorded as leasehold improvement assets and an offset to the lease ROU asset on the Consolidated Balance Sheets.

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.

As of December 31, 2019, the carrying value of the ROU asset was $ 33.9 million.

The related current and non-current liabilities as of December 31, 2019 were $ 3.7 million and $ 68.9 million, respectively.

The current and non-current lease liabilities are included in accrued expenses and other current liabilities and operating lease liability, less current portion, respectively, in the Consolidated Balance Sheet.

Management exercised judgment in applying the requirements of ASC 842, including the determination as to whether certain contracts contain a lease and for the Headquarters Lease Amendment, the discount rate used to determine the measurement of the lease liability.

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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, was $ 10.2 million for the year ended December 31, 2019.

Rent expense excluding amortization of leasehold improvements was $ 6.0 million and $ 2.2 million for the years ended December 31, 2018 and 2017, respectively.

Total operating lease costs, including variable and short-term lease costs, was $ 11.1 million and $ 10.2 million for the year ended December 31, 2020 and 2019, respectively.

Rent expense excluding amortization of leasehold improvements was $ 6.0 million for the year ended December 31, 2018.

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, we use our incremental borrowing rate based on the information available at the lease commencement date.

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 December 31, 2020, the weighted average remaining lease term is 8.3 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 year ended December 31, 2019 was $ 5.4 million and was included in net cash used in operating activities in our Consolidated Statements of Cash Flows.

Cash paid for amounts included in the measurement of lease liabilities for the year ended December 31, 2020 was $ 9.7 million and was included in net cash used in operating activities in the Company's 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 Consolidated Balance Sheet as of December 31, 2020 (in thousands):

Year Ended December 31:

2021 $ 10,391

Thereafter 42,250

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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 $ 2.6 million for the year ended December 31, 2019.

There was no sublease income for the years ended December 31, 2018 or 2017.

Total sublease income, including rent and variable sublease cost reimbursements, was $ 3.6 million and $ 2.6 million for the year ended December 31, 2020 and 2019, respectively.

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

The following table details the future undiscounted cash inflows relating to the Company's Sublease Agreement as of December 31, 2020 (in thousands):

Year Ended December 31:

2025 and thereafter —

Total undiscounted sublease receipts $ 9,906

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In addition, the Company has entered into indemnification agreements with directors and certain officers and employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees.

No demands have been made upon the Company to provide indemnification under such agreements, and thus, there are no claims that the Company is aware of that could have a material effect on the Company’s Consolidated Balance Sheets, Consolidated Statements of Operations and Comprehensive Loss, or Consolidated Statements of Cash Flows.

No demands have been made upon the Company to provide indemnification under such agreements, and thus, there are no claims that the Company is aware of that could have a material effect on the Company’s Consolidated Balance Sheets , Consolidated Statements of Operations and Comprehensive Income (Loss), or Consolidated Statements of Cash Flows.

Effective September 2017, the Company entered into a Development and Manufacturing Services Agreement as amended (“DMSA”) with Lonza Sales AG (“Lonza”) for the development and manufacture of biologic products.

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

As of December 31, 2019 and 2018, the Company 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, 2019 and 2018, the Company had total non-refundable purchase commitments of $ 11.2 million and $ 14.0 million, respectively, under the DMSA.

During the years ended December 31, 2019 and 2018, the Company incurred costs of $ 12.7 million and $ 3.9 million, and made payments of $ 12.5 million and $ 3.4 million, respectively, for the development and manufacturing services rendered under the DMSA.

The Company had no t incurred any costs or made any payments for the development and manufacturing services rendered under the DMSA for the year ended December 31, 2017 .

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

During the years ended December 31, 2020, 2019 and 2018, the Company incurred costs of $ 10.8 million, $ 12.7 million, and $ 3.9 million, respectively, and made payments of $ 7.3 million, $ 12.5 million, and $ 3.4 million respectively, for the development and manufacturing services rendered under the DMSA.

In the normal course of business, the Company enters into various firm purchase commitments primarily related to research and development activities.

The Company had contractual obligations under license and other agreements of $ 4.8 million and $ 1.1 million as of December 31, 2020 and 2019, respectively.

Convertible Preferred Stock

The Company entered into a preferred stock purchase agreement (“Preferred Stock Purchase Agreement”), with certain investors in May 2015 (the “Initial Closing”), under which the Company agreed to sell up to 45,223,970 shares of Series A-1 convertible preferred stock and 4,361,530 shares of Series A-2 convertible preferred stock.

Additionally, at the Initial Closing, the Company concurrently issued 6,295,810 shares of Series A-1 convertible preferred stock for net proceeds of $ 24.8 million.

The Preferred Stock Purchase Agreement provided that, upon Board of Directors approval, each investor would purchase its pro-rata portion of the shares to be issued in one or more additional Series A-1 closings, and in any Series A-2 closings.

Further, the Company agreed to sell and issue said shares of Series A-1 convertible preferred stock on the same terms as the first tranche, and to issue said shares of Series A-2 convertible preferred stock on the terms included in the Preferred Stock Purchase Agreement.

The second and third Series A-1 closings added further obligations for new investors to participate in the Series A-2 tranches.

The Company did not separately account for tranche purchase rights described above as they were not freestanding from the associated shares of convertible preferred stock.

In May 2015 (the “First Additional Closing”) the Company and the Series A convertible preferred stock shareholders amended the Preferred Stock Purchase Agreement pursuant to which the Company agreed to sell up to an additional 456,250 shares of Series A-1 convertible preferred stock.

Additionally, at the First Additional Closing, the Company issued 3,481,250 shares of Series A-1 convertible preferred stock for net proceeds of $ 13.9 million and in July 2015 (“Second Additional Closing”), the Company issued an additional 2,420,830 shares of Series A-1 convertible preferred stock for net proceeds of $ 9.6 million.

In January 2016 (the “Third Additional Closing”), the Company issued 500,000 shares of Series A-1 convertible preferred stock, for net proceeds of $ 2.0 million, and also issued 11,250,000 shares of Series A-1 convertible preferred stock (the “first Tranche Closing”), for net proceeds of $ 45.0 million.

In June 2016 (the “Second Tranche Closing and Series A-2 Closing”), the Company issued 22,166,550 shares of Series A-1 convertible preferred stock and 4,361,530 shares of Series A-2 convertible preferred stock, for net proceeds of $ 88.7 million and $ 34.9 million, respectively.

All of these shares were sold under the Preferred Stock Purchase Agreement.

In June 2016 (the “First Series B-1 Closing”), the Company entered into a preferred stock purchase agreement (“Series B Preferred Stock Purchase Agreement”) with certain investors, under which the Company sold 7,646,240 shares of Series B-1 convertible preferred stock at a price of $ 16.00 per share for net proceeds of $ 122.2 million.

In connection with this financing, the Company amended and restated its certificate of incorporation to increase the authorized shares of its common stock to 81,787,360 shares and the authorized shares of its preferred stock to 63,288,470 shares, each with a par value of $ 0.01 per share.

The authorized preferred shares consisted of 46,114,433 designated as Series A-1 convertible preferred stock, 4,361,533 designated as Series A-2 convertible preferred stock, 8,125,000 designated Series B-1 convertible preferred stock and 4,687,500 designated Series B-2 convertible preferred stock.

In August 2016, (the “Second Series B-1 Closing”), the Company sold 478,120 shares of Series B-1 convertible preferred stock at a price of $ 16.00 per share for net proceeds of $ 7.6 million.

In November 2017, the Company sold 1,764,710 shares of Series B-2 convertible preferred stock at a price of $ 17.00 per share for net proceeds of $ 29.9 million.

Prior to the conversion of the convertible preferred stock upon closing of the IPO, the rights, preferences and privileges of the convertible preferred stock were as follows:

Dividend Rights

The holders of preferred stock were entitled to receive dividends, if and when declared by the Board of Directors, at the rate of $ 0.08 per share per annum for Series A-1, $ 0.16 per share per annum for Series A-2, $ 0.32 per share per annum for Series B-1, and $ 0.34 per share per annum for Series B-2, from and after the date of issuance of such shares.

As of December 31, 2016, and through the date of conversion, no such dividends were declared or accrued.

Dividends on any other class of capital stock could not be paid unless the holders of the preferred stock first received, or simultaneously received, the preferred stock dividend.

The holders of preferred stock also participated in dividends paid on common stock as if the shares of preferred stock had been converted into shares of common stock and were considered participating securities.

Conversion Rights

The holders of preferred stock had right to convert at any time into shares of common stock initially at a one -for- one ratio.

All shares of the preferred stock would have been automatically converted into shares common stock (i) upon the consent of the holders of at least a majority of the outstanding preferred stock, or (ii) upon the closing of a firmly underwritten initial public offering of common stock at a price of at least $ 5.00 per share resulting in at least $ 50.0 million of gross proceeds.

The conversion price for each series of preferred stock was subject to an adjustment in the event of stock split, combination, common stock dividend or distribution, reclassification, exchange, substitution, or reorganization.

Liquidation Rights

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or a deemed liquidation event, the holders of shares of preferred stock then outstanding were entitled to be paid out of the assets of the Company available for distribution to its stockholders, before any payment could have been made to the holders of common stock, an amount per share equal to the greater of (i) the original issue price for the Series of preferred stock held plus any dividends accrued but unpaid, whether or not declared;

or (ii) such amount per share as would have been paid if all shares of preferred stock had been converted to common stock immediately prior to such liquidation, dissolution, winding up or deemed liquidation event.

If assets of the Company available were insufficient to pay holders of Preferred Stock the full amount they are entitled to, the holders of preferred stock would have shared ratably in any distribution of the assets available for distribution in proportion to the amounts due such holders.

After the payment of all preferential amounts required to be paid to the holders of shares of preferred stock, the remaining assets of the Company would have been distributed among the holders of the shares of common stock, pro rata based on the number of shares held by each such holder.

The Company classified its convertible preferred stock outside of stockholders’ deficit as certain change in control events are outside the Company’s control.

Upon certain change in control events that were outside of the Company’s control, including liquidation, sale or transfer of control of the Company, holders of the convertible preferred stock could have caused its redemption.

Shares of preferred stock could have been redeemed by the Company at the original issue price for each series of preferred stock plus any dividends accrued but unpaid, whether or not declared, in three annual installments, upon a written request from the holders of a majority of the then outstanding shares of preferred stock, which request could have been made at any time after the fifth anniversary of the Series B-1 original issue date (on or after June 22, 2021).

On each of the three annual redemption dates the Company could have redeemed the number of outstanding shares of preferred stock determined by dividing the total number of outstanding shares of preferred stock by the number of remaining redemption dates.

Voting Rights

Each share of preferred stock had voting rights equal to the number of shares of common stock into which the preferred stock could have been converted immediately after the close of business on the record date.

As long as certain investors in Series A convertible preferred stock held 100,000 or more shares of convertible preferred stock purchased pursuant to the Preferred Stock Purchase Agreement, they were entitled to elect individually one member of the Board totaling five Series A Directors.

Series B convertible preferred stockholders were entitled to elect one member of the Board by majority vote of the Series B convertible preferred stockholders.

Together, Series A and Series B convertible preferred stock investors were entitled to elect two additional members of the Board that were not otherwise an affiliate of the Company or of any investor.

Upon the closing of the IPO, all outstanding shares of convertible preferred stock converted into 60,365,020 shares of common stock.

As of December 31, 2019 and 2018 , the Company did no t have any convertible preferred stock issued or outstanding.

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.

On January 13, 2021, the parties to the derivative action entered into a settlement agreement, subject to Court approval and certain other closing conditions, the terms of which were disclosed via Form 8-K filed on February 5, 2021.

Amounts owed by the Company pursuant to the settlement agreement are not material to the Company.

Stock-Based Awards

1 unchanged sentence

In December 2017, the Company adopted the 2017 Equity Incentive Plan (the “2017 Plan”), which initially reserved approximately 6.4 million shares of common stock for the issuance of stock options, restricted stock and other stock awards, to employees, non-employee directors, and consultants under terms and provisions established by the Board of Directors and approved by the stockholders.

The 2017 Plan provides that the number of shares reserved and available for issuance under the 2017 Plan will automatically increase each January 1, beginning on January 1, 2019, by the least of (i) 10.0 million shares, (ii) 5 % of the outstanding shares on the last day of the immediately preceding fiscal year, or (iii) such number of shares determined by the administrator of the 2017 Plan.

The 2017 Plan provides that the number of shares reserved and available for issuance under the 2017 Plan will automatically increase each January 1, beginning on January 1, 2019, by the lesser of (i) 10.0 million shares, (ii) 5 % of the outstanding shares on the last day of the immediately preceding fiscal year, or (iii) such number of shares determined by the administrator of the 2017 Plan.

In January 2020, common stock available for issuance under the 2017 Plan was increased by approximately 4.8 million shares as a result of this automatic increase provision.

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Volatility 65.2 % - 67.1 %

65.5 % - 77.8 %

79.4 % - 87.4 %

Risk-free interest rate 0.3 % - 1.7 %

1.5 % - 2.6 %

2.6 % - 3.1 %

Dividend yield — — —

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In the event that neither of these market triggers are achieved by the specified timelines, such awards will terminate with respect to that portion of the shares.

The expense recognized associated with these performance- and market- contingent awards was $ 5.2 million and $ 0.5 million of general and administrative and research and development expense, respectively, during the year ended December 31, 2019.

The remaining expense for these awards, to be recognized using the accelerated attribution method, is $ 0.3 million, which will be recognized over the remaining derived service period of approximately nine months .

The expense recognized associated with these performance- and market- contingent awards was $ 0.3 million of general and administrative expense during the year ended December 31, 2020, and $ 5.2 million and $ 0.5 million of general and administrative expense and research and development expense, respectively, for the year ended December 31, 2019.

The Company used a lattice model with a Monte Carlo simulation to value these stock options.

This valuation methodology utilized the estimated fair value of the Company’s common stock on grant date and several key assumptions, including expected volatility of the Company’s stock price based on comparable public companies, risk-free rates of return and expected dividend yield.

Stock Options Granted to Non-Employees with Service-Based Vesting Valuation Assumptions

Stock-based compensation related to stock options granted to non-employees is recognized as the stock options are earned.

Prior to the adoption of ASU 2018-07 during the third quarter of 2018, the unvested options granted to non-employees were revalued using the Company's estimate of fair value on each reporting date.

Subsequent to the adoption of ASU 2018-07, existing stock options granted to non-employees are no longer revalued, and the estimated fair value of new stock options granted to non-employees is calculated on the date of grant and not remeasured, similar to stock options granted to employees.

Restricted Stock Activity

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The fair value of restricted stock underlying the RSAs and RSUs is determined based on the closing market price of the Company's common stock on the date of grant.

Aggregated information regarding RSAs and RSUs granted under the Plan for the year ended December 31, 2019 is summarized below:

Aggregated information regarding RSUs granted under the Plan for the year ended December 31, 2020 is summarized below:

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

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The total intrinsic value of RSUs expected to vest was $ 192.8 million as of December 31, 2020.

During the year ended December 31, 2018, the weighted-average grant-date fair value of RSUs granted was $ 15.92 .

No RSAs or RSUs were granted in the year ended December 31, 2017.

The total fair value of RSAs and RSUs that vested during the years ended December 31, 2019, 2018, and 2017 (measured on the date of vesting) was $ 8.8 million , $ 37.0 million and $ 14.3 million , respectively.

There was $ 13.7 million of total unrecognized stock-based compensation related to unvested RSUs at December 31, 2019 , all of which is expected to be recognized over a remaining weighted-average period of 3.2 years.

During the years ended December 31, 2019 and 2018 the weighted-average grant-date fair value of RSUs granted was $ 18.86 and $ 15.92 , respectively.

The total fair value of RSUs that vested during the year ended December 31, 2020 was $ 8.7 million , and of RSUs and RSAs that vested during the years ended December 31, 2019, and 2018 (measured on the date of vesting) was $ 8.8 million , and $ 37.0 million , respectively.

Employee Stock Purchase Plan

In December 2017, the Company adopted the 2017 Employee Stock Purchase Plan (the “2017 ESPP”), which initially reserved 1.0 million shares of common stock for employee purchases under terms and provisions established by the Board of Directors.

The 2017 ESPP provides that the number of shares reserved and available for issuance under the 2017 ESPP will automatically increase each January 1, beginning on January 1, 2019, by the least of (i) 2.0 million shares, (ii) 1 % of the outstanding shares on the last day of the immediately preceding fiscal year, or (iii) such number of shares determined by the administrator of the 2017 Plan.

The 2017 ESPP provides that the number of shares reserved and available for issuance under the 2017 ESPP will automatically increase each January 1, beginning on January 1, 2020, by the lesser of (i) 2.0 million shares, (ii) 1 % of the outstanding shares on the last day of the immediately preceding fiscal year, or (iii) such number of shares determined by the administrator of the 2017 Plan.

In January 2020, common stock available for issuance under the 2017 ESPP was increased by approximately 1.0 million shares as a result of this automatic increase provision.

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The 2017 ESPP provides for consecutive, overlapping 12-month offering periods.

The offering periods are scheduled to start on the first trading day on or after May 31 or November 30 of each year, except for the first offering period which commenced on December 8, 2017, the first trading day after the effective date of the Company’s registration statement.

Contributions under the 2017 ESPP are limited to a maximum of 15 % of an employee's eligible compensation.

We issued 0.2 million and 0.1 million shares of common stock under the 2017 ESPP during the years ended December 31, 2019 and 2018 , respectively.

The estimated fair value of stock purchase rights granted under the ESPP were calculated using the Black-Scholes option-pricing model using the following assumptions:

Year Ended December 31,

2019 2018 2017

Expected term (in years) 0.50 - 1.00 0.50 - 1.00 0.48 - 0.98

Volatility 47.6% - 59.1% 61.0% - 64.3% 50.0% - 51.3%

Risk-free interest rate 1.6% - 2.4% 2.1% - 2.7% 1.5% - 1.7%

Dividend yield — — —

We issued 0.2 million shares of common stock under the 2017 ESPP during each of the years ended December 31, 2020, 2019 , and 2018.

Stock-Based Compensation Expense

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The weighted-average period over which such stock-based compensation expense will be recognized is approximately 2.8 years.

For the year ended December 31, 2020 , tax benefit realized related to awards vested or exercised during the period was $ 1.0 million.

There was no tax benefit realized related to awards vested or exercised during the years ended December 31, 2019 and 2018.

There is no tax benefit on total stock-based compensation expense for the years ended December 31, 2020 , 2019 and 2018 since the company has recorded a full valuation allowance on all deferred tax assets.

Defined Contribution Plan

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The Company made contributions to the Plan for eligible participants, and recorded contribution expenses o f $ 1.9 million , $ 1.6 million, and $ 0.9 million for the years ended December 31, 2020, 2019, and 2018 , respectively.

The Company has reported pre-tax operating losses for all periods presented.

The Company has not reflected any benefit for corresponding tax net operating loss carryforwards in the accompanying consolidated financial statements.

The Company has established a full valuation allowance against its deferred tax assets due to the uncertainty surrounding the realization of such assets.

The effective tax rate for the years ended December 31, 2019, 2018, and 2017 is different from the federal statutory tax rate primarily due to the valuation allowance against deferred tax assets.

The Company's effective tax rate differs from the federal statutory rate as follows:

The provision for income taxes consisted of the following (in thousands):

Year Ended December 31,

Federal $ — $ —

Total Current $ 823 $ —

Federal $ — $ ( 338 )

State — ( 13 )

Total deferred $ — $ ( 351 )

The reconciliation of federal statutory income tax rate to our effective income tax rate is as follows:

Year Ended December 31,

2020 2019 2018

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Research tax credits

( 9.2 ) 3.5 10.2

Stock-based compensation

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1.1 % 0.1 % — %

The effective tax rate for the year ended December 31, 2020 is different from the federal statutory tax rate primarily due to research tax credits, stock-based compensation deductions and the valuation allowance against deferred tax assets.

For the years ended December 31, 2019 and 2018, the difference is primarily due to the valuation allowance against deferred tax assets.

Deferred Income Taxes

The components of the Company’s net deferred tax assets are as follows (in thousands):

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Net deferred tax assets

17,466 13,562

Deferred tax liabilities:

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$ 8,139 $ 5,299 $ 2,642

If recognized, none of the unrecognized tax benefits would reduce the annual effective tax rate, primarily due to corresponding adjustments to the valuation allowance.

If recognized, $ 0.3 million of the unrecognized tax benefits would reduce the annual effective tax rate for the year ended December 31, 2020, primarily due to corresponding adjustments to the valuation allowance.

If recognized, no ne of the unrecognized tax benefits would reduce the annual effective tax rate for the year ended December 31, 2019.

The Company will recognize both accrued interest and penalties related to unrecognized benefits in income tax expense.

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federal, state and local income tax authorities for all tax years in which a loss carryforward is available.

Net Loss and Net Loss Per Share

Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share as the inclusion of all potential dilutive securities would have been anti-dilutive.

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

Net Income (Loss) and Net Income (Loss) Per Share

The following table sets forth the computation of the basic and diluted net income (loss) per share (in thousands, except share and per share data):

Year Ended December 31,

2020 2019 2018

Options issued and outstanding and ESPP shares issuable 11,921,434 9,789,594 6,835,313

Restricted shares subject to future vesting 882,636 503,243 2,293,788

Early exercised common stock subject to future vesting — 135,424 369,796

Total 12,804,070 10,428,261 9,498,897

Subsequent event

In January 2020, the Company 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.

Selected Quarterly Financial Data (Unaudited)

The following tables provide the selected quarterly financial data for the years ended December 31, 2019 and 2018 (in thousands, except per share amounts):

Quarter Ended

December 31, 2019 September 30, 2019 June 30, 2019 March 31, 2019

Collaboration revenue $ 4,672 $ 13,604 $ 4,197 $ 4,205

Loss from operations ( 57,758 ) ( 50,155 ) ( 62,763 ) ( 42,508 )

Net loss ( 54,025 ) ( 46,260 ) ( 58,337 ) ( 38,992 )

Net loss per share, basic and diluted (1)

$ ( 0.56 ) $ ( 0.48 ) $ ( 0.61 ) $ ( 0.41 )

_________________________________________________

(1) Basic and diluted net income per share for the quarter ended December 31, 2019 is calculated using 96,078,950 shares.

Quarter Ended

December 31, 2018 September 30, 2018 June 30, 2018 March 31, 2018

Collaboration revenue $ 125,676 $ 1,195 $ 1,648 $ 641

Income (loss) from operations 74,722 ( 37,964 ) ( 57,382 ) ( 25,748 )

Net income (loss) $ 71,136 $ ( 197,614 ) $ ( 36,240 )

Weighted average number of shares outstanding, basic 108,974,137 95,608,208 92,621,991

Dilutive effect of outstanding common stock options, ESPP shares issuable, and restricted shares 3,728,971 — —

Weighted average number of shares outstanding, diluted 112,703,108 95,608,208 92,621,991

Net income (loss) per share, basic $ 0.65 $ ( 2.07 ) $ ( 0.39 )

$ 0.82 $ ( 0.38 ) $ ( 0.59 ) $ ( 0.26 )

Net income (loss) per share, diluted $ 0.63 $ ( 2.07 ) $ ( 0.39 )

$ 0.79 $ ( 0.38 ) $ ( 0.59 ) $ ( 0.26 )

Potentially dilutive securities that were not included in the diluted per share calculations for the years ended December 31, 2020, 2019 and 2018 because they would be anti-dilutive were as follows:

Year Ended December 31,

2020 2019 2018

(1) Basic and diluted net income per share for the quarter ended December 31, 2018 is calculated using 94,299,096 and 97,746,224 shares, respectively, the latter of which is computed by giving effect to all dilutive potential ordinary shares including options.

Options issued and outstanding and ESPP shares issuable 3,286,045 11,921,434 9,789,594

Restricted shares subject to future vesting 879,792 882,636 503,243

Early exercised common stock subject to future vesting — — 135,424

Total 4,165,837 12,804,070 10,428,261

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.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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 8. Financial Statements and Supplementary Data