What changed in this filing

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Item 1. Financial Statements

2021-05-05 compared with 2020-11-05 · 172 added, 247 removed, 491 unchanged (46% of the section changed)

3 unchanged sentences

(In thousands, except share amounts)

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Current assets:

1 unchanged sentence

Short-term marketable securities 977,827 962,553

Cost sharing reimbursements due from related party 2,511 5,674

Prepaid expenses and other current assets 15,963 20,284

10 unchanged sentences

Accrued clinical costs 5,049 6,497

Accrued manufacturing costs 13,342 7,140

Other accruals and other current liabilities 8,299 8,315

Operating lease liability, current 4,876 4,690

Related party contract liability 44,854 —

Other contract liabilities 28,015 18,739

Related party contract liability, current 3,569 3,569

Contract liabilities, current 12,886 19,914

Total current liabilities 54,610 71,699

Related party contract liability, less current portion 292,956 293,849

Contract liabilities, less current portion 31,322 23,325

5 unchanged sentences

Convertible preferred stock, $ 0.01 par value;

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

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

40,000,000 shares authorized as of March 31, 2021 and December 31, 2020;

0 shares issued and outstanding as of March 31, 2021 and December 31, 2020

Common stock, $ 0.01 par value;

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

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

400,000,000 shares authorized as of March 31, 2021 and December 31, 2020;

121,147,432 shares and 120,531,333 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively

Additional paid-in capital 1,528,504 1,503,660

Accumulated other comprehensive income 11 350

Accumulated other comprehensive loss ( 232 ) ( 245 )

Accumulated deficit ( 424,456 ) ( 354,415 )

5 unchanged sentences

(In thousands, except share and per share amounts)

Three Months Ended September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Collaboration revenue:

Collaboration revenue from customers (1)

$ 7,922 $ 3,552

Other collaboration revenue 1 52

2 unchanged sentences

Research and development (2)

60,207 51,016

General and administrative 18,936 12,555

3 unchanged sentences

Loss before income taxes ( 70,041 ) ( 56,898 )

Income tax benefit (provision) ( 56 ) 113 — 426

Income tax benefit — 135

Net loss ( 70,041 ) ( 56,763 )

Other comprehensive income (loss):

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

( 540 ) ( 317 ) ( 339 ) 1,211

Other comprehensive income:

Net unrealized gain on marketable securities, net of tax 13 485

Comprehensive loss $ ( 70,028 ) $ ( 56,278 )

1 unchanged sentence

Weighted average number of shares outstanding, basic and diluted 120,884,665 102,419,718

__________________________________________________

(1) Includes related party collaboration revenue from customer of $ 0.9 million for the three months ended March 31, 2021.

(2) Includes an offset to expense from related party cost reimbursement of $ 2.5 million for the three months ended March 31, 2021.

See accompanying notes to unaudited condensed consolidated financial statements.

3 unchanged sentences

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

Shares Amount

Three Months Ended March 31, 2021 Shares Amount

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

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

5 unchanged sentences

— — — — ( 70,041 ) ( 70,041 )

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

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

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

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

412,389 4 5,749 — — 5,753

Vesting of restricted stock units

174,712 2 ( 2 ) — — —

Stock-based compensation

— — 13,252 — — 13,252

— — — — ( 58,228 ) ( 58,228 )

Other comprehensive loss

— — — ( 540 ) — ( 540 )

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

Other comprehensive income — — — 13 — 13

Balance at March 31, 2021 121,147,432 $ 1,537 $ 1,528,504 $ ( 232 ) $ ( 424,456 ) $ 1,105,353

Three Months Ended March 31, 2020

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

Issuances under equity incentive plans

781,107 7 4,149 — — 4,156

Vesting of early exercised common stock

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

9,000,000 90 193,858 — — 193,948

Vesting of restricted stock awards and units

Issuances under equity incentive plans

259,569 3 1,963 — — 1,966

Vesting of restricted stock units 91,839 1 ( 1 ) — — —

Stock-based compensation

3 unchanged sentences

— — — 485 — 485

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

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

Issuances under equity incentive plans

233,983 2 677 — — 679

Vesting of early exercised common stock

31,249 — 21 — — 21

Vesting of restricted stock awards and units

65,479 1 ( 1 ) — — —

Stock-based compensation

— — 8,901 — — 8,901

— — — — ( 46,260 ) ( 46,260 )

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

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

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

See accompanying notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

Nine Months Ended

September 30,

Three Months Ended

Operating activities

17 unchanged sentences

Maturities and sales of marketable securities 440,500 140,701

Net cash provided by (used in) investing activities ( 255,866 ) 105,327

Net cash used in investing activities ( 25,405 ) ( 13,333 )

Financing activities

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

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

1 unchanged sentence

Net cash provided by financing activities 3,822 195,913

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

Net increase (decrease) in cash, cash equivalents and restricted cash ( 71,823 ) 128,088

Cash, cash equivalents and restricted cash at beginning of period 508,644 80,949

Cash, cash equivalents and restricted cash at end of period $ 436,821 $ 209,037

Supplemental disclosures of cash flow information

Tenant improvements provided by the landlord $ — $ 11,343

Property and equipment purchases accrued but not yet paid $ 32 $ 1,500

See accompanying notes to unaudited condensed consolidated financial statements.

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These unaudited condensed consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission on February 26, 2021 (the "2020 Annual Report on Form 10-K").

The Condensed Consolidated Balance Sheet as of December 31, 2019 was derived from the audited annual consolidated financial statements as of the period then ended.

The Condensed Consolidated Balance Sheet as of December 31, 2020 was derived from the audited annual consolidated financial statements as of and for the period then ended.

Certain information and footnote disclosures typically included in the Company's annual consolidated financial statements have been condensed or omitted.

The accompanying unaudited condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary for a fair statement of the results of the interim periods presented.

All such adjustments are of a normal recurring nature except for the impacts of adopting new accounting standards discussed below.

All such adjustments are of a normal recurring nature except for the impacts of adopting new accounting standards, if any, discussed below.

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

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

During the three months ended March 31, 2021, except as discussed below in the section titled "Recently Adopted Accounting Pronouncement," there were no material changes to the Company's significant accounting and financial reporting policies from those reflected in the 2020 Annual Report on Form 10-K.

For further information with regard to the Company’s Significant Accounting Policies, please refer to Note 1, "Significant Accounting Policies," to the Company’s Consolidated Financial Statements included in the 2020 Annual Report on Form 10-K.

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The preparation of financial statements in conformity with U.S.

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

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 condensed 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 Condensed Consolidated Balance Sheets and Statements of Operations and Comprehensive Loss.

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

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

As of March 31, 2021 and December 31, 2020, the Company had no off balance sheet concentrations of credit risk.

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

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

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

As of March 31, 2021, the Company has not realized any losses on its cash deposits or investments.

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.

The Company has one operating segment.

3 unchanged sentences

Cash equivalents are reported 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 Condensed Consolidated Balance Sheets.

Cash, cash equivalents, and restricted cash reported within the Condensed Consolidated Statements of Cash Flows is composed of Cash and Cash equivalents reported in the Condensed 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 Condensed Consolidated Balance Sheets.

Marketable Securities

12 unchanged sentences

Derivatives and Hedging Activities

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

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 Other accruals and other current liabilities, respectively, on the Condensed Consolidated Balance Sheets.

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

The Company adopted Accounting Standards Update ("ASU") No.

2016-02, Leases as of January 1, 2019.

The Company leases real estate, and certain equipment for use in its operations.

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

1 unchanged sentence

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

Certain amounts for the three months ended March 31, 2020 were reclassified to conform to the current period presentation.

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.

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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.

12 unchanged sentences

Judgment is required in identifying performance obligations, estimating the transaction price, estimating the SSP of identified performance obligations, which may include forecasted revenue, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success, and estimating the progress towards satisfaction of performance obligations.

Comprehensive Income (Loss)

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

Comprehensive Loss

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

Net Loss per Share

1 unchanged sentence

Diluted net loss per share is the same as basic net loss per share, since the effects of potentially dilutive securities are antidilutive given the net loss for each period presented.

Recently Issued Accounting Pronouncement

Recently Adopted Accounting Pronouncement

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

1 unchanged sentence

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 Condensed Consolidated Financial Statements.

Recently Adopted Accounting Pronouncement

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments-Credit Losses:

Measurement of Credit Losses on Financial Instruments .

ASU 2016-13 requires measurement and recognition of expected credit losses for financial assets.

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 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 Condensed Consolidated Financial Statements.

The Company adopted this standard as of January 1, 2021 using a prospective approach.

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

Fair Value Measurements

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

September 30, 2020

March 31, 2021

Level 1 Level 2 Level 3 Total

8 unchanged sentences

government treasuries 4,050 — — 4,050

government agency securities — 15,188 — 15,188

Corporate debt securities — 34,835 — 34,835

Foreign currency derivative contracts — 45 — 45

22 unchanged sentences

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

There were no transfers of assets or liabilities between the fair value measurement levels during the three and nine months ended September 30, 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 Condensed Consolidated Balance Sheets to the amount reported within the Condensed Consolidated Statements of Cash Flows is shown in the table below (in thousands):

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

2020 2019 2019 2018

Cash and cash equivalents

$ 351,047 $ 79,449 $ 82,673 $ 77,123

Restricted cash included within other non-current assets

1,500 1,500 1,500 1,500

Total cash, cash equivalents, and restricted cash

$ 352,547 $ 80,949 $ 84,173 $ 78,623

The company has not transferred any assets or liabilities between the fair value measurement levels.

Marketable Securities

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

All marketable securities were considered available-for-sale at March 31, 2021 and December 31, 2020.

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

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

September 30, 2020

March 31, 2021

Amortized Cost Unrealized Holding Gains Unrealized Holding Losses Aggregate Fair Value

13 unchanged sentences

4,049 1 — 4,050

government agency securities (3)

Corporate debt securities (3)

34,854 — ( 19 ) 34,835

31 unchanged sentences

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

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

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

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

As of March 31, 2021 and December 31, 2020, some of the Company's marketable securities were in an unrealized loss position.

The Company has no t recognized an allowance for credit losses as of March 31, 2021 or December 31, 2020.

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

1 unchanged sentence

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

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

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

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

The Company recorded unrealized gains on marketable securities in other comprehensive income for the three months ended March 31, 2020.

As a result, the Company recorded a tax benefit of $ 0.1 million for the three months ended March 31, 2020 on the Condensed Consolidated Statements of Operations and Comprehensive Loss and a corresponding tax charge in other comprehensive income.

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

7 unchanged sentences

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

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

The following table summarizes the Company’s forward foreign currency exchange contracts outstanding as of March 31, 2021 and December 31, 2020, respectively (notional amounts in thousands):

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

24 3,630 Oct 2020 - Aug 2021

26 4,305 Apr 2021- Mar 2022

British Pounds

26 3,736 Oct 2020 - Aug 2021

Total at September 30, 2020

11 963 Apr 2021- Nov 2021

Total at March 31, 2021

26 3,855 Jan 2021 - Nov 2021

British Pounds

15 2,285 Jan 2020 - Jun 2020

10 129 Jan 2020 - Aug 2020

21 2,658 Jan 2021 - Nov 2021

Total at December 31, 2020

1 unchanged sentence

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

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.

Under the F-star Collaboration Agreement, the Company made payments to F-star totaling $ 11.5 million.

In connection with the entry into the F-star Collaboration Agreement, the Company also purchased an option for an upfront option fee of $ 0.5 million (the “buy-out-option”), to acquire all of the outstanding shares of F-star Gamma pursuant to a pre-negotiated buy-out option agreement (the “Option Agreement”).

In May 2018, the Company exercised the Option Agreement and entered into a Share Purchase Agreement (the “Purchase Agreement”) with the shareholders of F-star Gamma and Shareholder Representative Services LLC, pursuant to which the Company acquired all of the outstanding shares of F-star Gamma (the “Acquisition”).

As a result of the Acquisition, F-star Gamma became a wholly-owned subsidiary of the Company and the Company changed the entity’s name to Denali BBB Holding Limited.

In addition, the Company became a direct licensee of certain intellectual property of F-star Ltd by way of the Company’s assumption of F-star Gamma’s license agreement with F-star Ltd, dated August 24, 2016, (the “F-star Gamma License”).

The Company made initial exercise payments under the Purchase Agreement and the F-star Gamma License, in the aggregate, of $ 17.8 million.

In addition, the Company is required to make future contingent payments, to F-star Ltd and the former shareholders of F-star Gamma, up to a maximum amount of $ 447.0 million in the aggregate upon the achievement of certain defined preclinical, clinical, regulatory and commercial milestones.

These include up to $ 27.0 million in preclinical contingent payments, $ 50.0 million in clinical contingent payments, $ 120.0 million in regulatory contingent payments and $ 250.0 million in commercial contingent payments.

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 30, 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.

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.

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

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

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

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

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.

The Company's responsibility for research costs under the first development plan related to an Fcab that targets the transferrin receptor was completed during the year ended December 31, 2018.

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

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

A derivative liability balance of $ 0.2 million is recorded on the Condensed Consolidated Balance Sheets as of March 31, 2021 and an immaterial derivative liability balance is recorded on the Condensed Consolidated Balance Sheets as of December 31, 2020.

An immaterial derivative asset balance is recorded in prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets as of March 31, 2021 and a derivative asset balance of $ 0.2 million is recorded in prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets as of December 31, 2020.

A net loss of $ 0.2 million associated with the Company's derivative instruments is recognized in interest and other income, net on the Condensed Consolidated Statements of Operations and Comprehensive Loss for each of the three months ended March 31, 2021 and March 31, 2020.

Collaboration Agreements

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

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

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

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

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

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

(“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.

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.

1 unchanged sentence

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

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

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

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

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

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

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 blood-brain barrier (“Peripheral LRRK2 Products”), in each of the United States and China.

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

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

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.

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).

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

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

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

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.

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

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

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

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

Since the shares of common stock owned by Biogen as of March 31, 2021 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 Biogen was $ 420.1 million, based on the closing stock price of $ 35.87 on the date of issuance adjusted by a discount for lack of marketability due to certain holding period restrictions, which was valued using an option pricing model.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Definitive Biogen Collaboration Agreement

The 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 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 Definitive Biogen Collaboration Agreement, the material terms of which are consistent with, and supersede, the Provisional Biogen Collaboration Agreement discussed above.

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 Definitive Biogen Collaboration Agreement.

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

In October 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 was 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 Arrangements.

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 March 31, 2021, 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 $ 296.5 million was recorded on the Consolidated Balance Sheet as of March 31, 2021.

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 $ 7.6 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 $ 2.5 million of cost sharing reimbursements for LRRK2 Development Activities as an offset to research and development expenses in the Consolidated Statement of Operations and Comprehensive Income for the three months ended March 31, 2021.

The Company recorded cost sharing reimbursements due from Biogen on the Condensed Consolidated Balance Sheet as of March 31, 2021 and December 31, 2020 of $ 2.5 million and $ 5.7 million, respectively.

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 March 31, 2021, 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 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 when the Hart-Scott-Rodino ("HSR") requirements were satisfied at which time Sanofi paid the Company an upfront payment of $ 125.0 million.

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.

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

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

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

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

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

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.

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the CNS program license, the Peripheral program license, the Phase 1 and Phase 2 trials for CNS Products for Alzheimer’s disease ("Alzheimer's Disease Services"), and the Phase 1b trial for DNL747 for ALS and associated activities ("Retained Activities").

The Company believes that the Sanofi Collaboration Agreement is a collaboration arrangement as defined in ASC 808.

The Company believes that the Sanofi Collaboration Agreement is a collaboration arrangement as defined in ASC 808, Collaborative Arrangements.

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.

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

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

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

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

The transaction price did no t increase in the three months ended March 31, 2021, and increased by $ 0.5 million for the three months ended March 31, 2020 related to costs incurred for Retained Activities that were no longer constrained.

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

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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.

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.

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

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 is being 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 is being recognized over time using the output method, based on amounts invoiced to Sanofi, since this is believed to directly correlate to the value of the services performed.

A contract liability of $ 3.4 million was recorded on the Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020.

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 Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019 of $ 0.1 million and $ 1.2 million, respectively.

The Company recorded no receivable associated with the Sanofi Collaboration Agreement on the Condensed Consolidated Balance Sheets as of March 31, 2021, and a receivable of $ 44,303 as of December 31, 2020.

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

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

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

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

Through March 31, 2021, 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.

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

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

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 fair market value of the common stock sold to Takeda was $ 94.4 million, based on the closing stock price of $ 22.40 on the date of issuance, resulting in a $ 15.6 million premium paid to the Company above the fair value of the Company's common stock which was credited to contract liability in the Company's Condensed Consolidated Balance Sheets.

The Company believes that the Takeda Collaboration Agreement is a collaboration arrangement as defined in ASC 808.

The Company believes that the Takeda Collaboration Agreement is a collaboration arrangement as defined in ASC 808, Collaborative Arrangements.

Further, during the research period, the Company believes that the arrangement is a contract with a customer as defined in ASC 606, Revenue From Contracts With Customers .

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The transaction price at inception included fixed consideration consisting of the upfront 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.

It also included variable consideration of $ 26.0 million relating to future milestones that were not constrained.

The amount of variable consideration was estimated using the most likely amount method.

It also included variable consideration of $ 26.0 million relating to future milestones that were not constrained, and have since all been met and received.

The remaining $ 44.0 million of preclinical milestones were considered constrained at the inception of the Takeda Collaboration Agreement since the Company could not conclude it is probable that a significant reversal in the amount recognized will not occur.

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

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

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

There were no material changes in estimates during the three months ended March 31, 2021 or March 31, 2020.

A contract liability of $ 40.8 million and $ 39.8 million was recorded on the Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020, respectively.

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

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

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

In 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, which were received in January and March 2021, respectively.

There was no receivable as of March 31, 2021 and a receivable of $ 8.0 million for the PTV:PGRN milestone as of December 31, 2020.

In assessing the Takeda 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 the research period, estimating variable consideration, and estimating total future costs when using the input method.

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

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 Condensed Consolidated Balance Sheet in the future.

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

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

Through March 31, 2021, the Company had received $ 31.0 million in preclinical milestone payments from Takeda which are included in the transaction price described above, and had no t recorded any product sales under the Takeda Collaboration Agreement.

Collaboration Revenue

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Takeda Collaboration Agreement (1)

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Sanofi Collaboration Agreement

Peripheral Program License — 10,000 — 10,000

Retained Activities — 534

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Total Sanofi Collaboration Revenue 1 586

Biogen Collaboration Agreement

Option Research Services (2)

Total Collaboration Revenue $ 7,923 $ 3,604

_________________________________________________

(1) Amounts represent revenue recognized during the period that was included in the contract liability balance at the beginning of the period.

(1) $ 5.7 million of revenue for the three months ended March 31, 2021 and all of revenue for the three months ended March 31, 2020 was included in the contract liability balance at the beginning of the period.

(2) Revenue for the three months ended March 31, 2021 and March 31, 2020, where applicable, represent amounts that were included in the contract liability balance at the beginning of the respective period.

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.

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

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 expenses were recorded in the three and nine months ended September 30, 2020 or 2019.

No expenses were recorded in the three months ended March 31, 2021 or 2020.

Commitments and Contingencies

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The Company determined that this renewal was not reasonably certain at lease inception.

The remaining lease term was 8.1 years at March 31, 2021.

The Headquarters Lease Amendment provides for monthly base rent amounts escalating over the term of the lease.

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

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

This is recorded as leasehold improvement assets and an offset to the lease ROU asset on the Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020.

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

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

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

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

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

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

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

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

Total operating lease costs, including variable and short-term lease costs, were $ 2.8 million and $ 2.6 million for the three months ended March 31, 2021 and 2020, respectively.

Cash paid for amounts included in the measurement of lease liabilities for the three months ended March 31, 2021 and March 31, 2020 of $ 2.5 million and $ 2.2 million, respectively, was included in net cash used in operating activities in the Company's Condensed Consolidated Statements of Cash Flows.

Year Ended December 31:

2020 (three months) $ 2,536

2021 (nine months) $ 7,855

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 $ 0.9 million and $ 2.8 million for the three and nine months ended September 30, 2020, respectively, and $ 0.9 million and $ 1.7 million for the three and nine months ended September 30, 2019, respectively.

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

Total sublease income, including rent and variable sublease cost reimbursements, was $ 0.9 million for both the three months ended March 31, 2021 and 2020.

The following table details the future undiscounted cash inflows relating to the Sublease Agreement as of March 31, 2021 (in thousands):

Year Ended December 31:

2020 (three months) $ 715

2021 (nine months) $ 2,209

Total undiscounted sublease receipts $ 9,190

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

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

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

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

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

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

As of March 31, 2021 and December 31, 2020, the Company had open purchase orders for biological product development and manufacturing costs totaling $ 33.4 million and $ 33.0 million, respectively.

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

As of March 31, 2021 and December 31, 2020, the Company had total non-cancellable purchase commitments under the DMSA of $ 28.5 million and $ 27.1 million, respectively, under the DMSA.

During the three months ended March 31, 2021 and 2020, the Company incurred costs of $ 5.2 million and $ 1.0 million, respectively, and made payments of $ 0.7 million and $ 3.2 million, respectively, for the development and manufacturing services rendered under the DMSA.

Contingencies

1 unchanged sentence

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

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

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

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

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

On January 13, 2021, the parties to the derivative action entered into a settlement agreement, the terms of which were disclosed in a Form 8-K filed on February 5, 2021.

The settlement agreement was approved by the Court on April 16, 2021.

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

Stock-Based Awards

1 unchanged sentence

Stock Option Activity

The following table summarizes option award activity under the Company's 2017 Equity Incentive Plan and the 2015 Stock Incentive Plan:

The following table summarizes stock option activity for the three months ended March 31, 2021:

Number of Options

Weighted-Average

Exercise Price

3 unchanged sentences

( 34,056 ) 26.77

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

Vested and expected to vest at September 30, 2020

11,775,333 $ 18.00

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

Balance at March 31, 2021 14,230,277 $ 23.22

Vested and expected to vest at March 31, 2021 13,357,914 $ 24.69

Exercisable at March 31, 2021 7,013,040 $ 14.01

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

Nine Months Ended September 30,

Three Months Ended March 31,

Expected term (in years)

6 unchanged sentences

Restricted Stock Activity

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

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

The following table summarizes restricted stock unit ("RSU") activity for the three months ended March 31, 2021:

Number of RSU shares Weighted-Average Fair Value at Date of Grant per Share

Unvested at December 31, 2020 2,301,679 $ 27.08

2 unchanged sentences

Forfeited ( 17,377 ) 61.97

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

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

Unvested at March 31, 2021 2,699,107 $ 40.24

Expected to vest at March 31, 2021 2,699,107 $ 40.24

Stock-Based Compensation Expense

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Research and development

2 unchanged sentences

$ 21,028 $ 10,785

$ 13,252 $ 8,901 $ 36,521 $ 29,489

Net Loss Per Share

1 unchanged sentence

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

Three and Nine Months Ended September 30,

Three Months Ended March 31,

Options issued and outstanding and ESPP shares issuable

2 unchanged sentences

2,699,107 1,637,984

Early exercised common stock subject to future vesting

17,022,363 16,168,362

2 unchanged sentences

Refer to Note 5, "Collaboration Agreements" for further information.

Subsequent Events

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

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

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

What changed 10-Q

Item 1. Financial Statements