What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-05-05 compared with 2020-11-05 · 104 added, 126 removed, 217 unchanged (51% of the section changed)

39 unchanged sentences

Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, whether as a result of new information, future events or otherwise.

Our goal is to discover and develop therapeutics to defeat degeneration.

Our goal is to discover, develop and deliver therapeutics to defeat degeneration.

Our strategy is guided by three overarching principles that we believe will significantly increase the probability of success and will accelerate the timing to bring effective therapeutics to patients with neurodegenerative diseases:

6 unchanged sentences

We discover, develop and utilize biomarkers to select the right patient population and demonstrate target engagement, pathway engagement and impact on disease progression of our product candidates.

We are developing a broad portfolio of targeted therapeutic candidates for neurodegenerative diseases.

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

By executing this strategy with a team of experienced and passionately dedicated scientists and drug developers, we believe we can succeed in a field that has seen limited progress over the past several decades.

We have a focused yet diversified portfolio with five clinical programs and more than fifteen programs in the preclinical development stage.

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

1 unchanged sentence

We are currently optimizing and broadening this platform technology.

Ou r four clinic al-stage programs are:

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

• our eukaryotic translation initiation factor 2B ("EIF2B") activator program to address diseases such as ALS and frontotemporal dementia ("FTD");

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

• our receptor interacting serine/threonine protein kinase 1 ("RIPK1") inhibitor program, partnered with Sanofi, to address peripheral inflammatory diseases such as cutaneous lupus and COVID-19.

Ou r five clinic al-stage programs are:

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

• our eukaryotic initiation factor 2 B ("EIF2B") activator program to address diseases such as amyotrophic lateral sclerosis ("ALS") and frontotemporal dementia ("FTD");

• our ETV:IDS program, our lead brain-penetrant enzyme replacement therapy ("ERT"), enabled by our enzyme transport vehicle ("ETV"), which is designed to restore iduronate 2-sulfatase ("IDS"), and reduce glycosaminoglycans, both peripherally and in the brain, in patients with mucopolysaccharidosis II ("MPS II", or "Hunter syndrome");

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

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

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

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

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

EIF2B DNL343 Ph 1 ALS and FTD Denali

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

ETV:IDS DNL310 Ph1/2 Hunter syndrome (MPS II) Denali

RIPK1 (Peripheral) DNL758 Ph 1b Systemic inflammatory diseases

EIF2B DNL343 Ph 1 ALS and FTD Denali

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

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

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

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

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

We currently do not need commercial manufacturing capacity.

1 unchanged sentence

Key operational and financing milestones in 2021 to date include:

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

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

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

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

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

• In February 2020, we initiated a Phase 1 clinical trial for DNL343 (EIF2B) in healthy volunteers;

• In June 2020, we announced the results from Phase 1b clinical studies with small molecule RIPK1 inhibitor DNL747 in Alzheimer’s disease and ALS, and provided a broad RIPK1 program update including CNS compound DNL788 and peripherally-restricted compound DNL758.

Safety endpoints were met in the Phase 1b patient studies with DNL747 in ALS and Alzheimer’s disease, however further dose escalation to achieve higher levels of target inhibition may be limited by preclinical chronic safety data.

As such, we announced, together with our collaboration partner Sanofi, that we have decided to pause clinical studies with DNL747 and focus our efforts on accelerating development of DNL788, which we believe has superior drug properties and a more rapid path toward proof-of-concept clinical studies in patients in multiple neurological indications;

• In July 2020, we announced that our collaboration partner Sanofi has commenced dosing of DNL758, a peripherally-restricted small molecule inhibitor of RIPK1, in a Phase 1b clinical study in hospitalized adult patients with severe COVID-19 lung disease.

In October, we provided an update that enrollment in the Phase 1b COVID-19 study is complete.

Separately, Sanofi plans to initiate a Phase 2 clinical study of DNL758 in cutaneous lupus first half of 2021;

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

We plan to announce early biomarker data from the study by year end 2020;

• In August 2020, we entered into a binding Provisional Collaboration and License Agreement with Biogen to co-develop and co-commercialize our small molecule inhibitors of LRRK2 for Parkinson’s disease.

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

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

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

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

• In August 2020, we announced the selection of DNL151 to progress into late stage clinical studies in Parkinson’s disease patients with a kinase-activating mutation in LRRK2 and in sporadic Parkinson’s disease patients.

Patient enrollment is planned to commence in 2021 in collaboration with Biogen;

• In October 2020, our collaboration partner Sanofi submitted an IND application for DNL788 (SAR443820), a potent, selective brain-penetrant small molecule inhibitor of RIPK1.

First-in-human dosing is planned to begin in late 2020 or early 2021;

• In December 2020 and January 2021, GLP toxicology studies were initiated for PTV:PGRN (DNL593) and ATV:TREM2 (DNL919), respectively, triggering the second preclinical milestone payments under the Takeda Collaboration Agreement of $8.0 million for each program.

The milestone payment for PTV:PGRN was received in January 2021 and ATV:TREM2 was received in March 2021;

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

In March 2021, we completed our Phase 1 study of DNL151 (BIIB122).

In May 2021, we presented results from both studies at the International Association of Parkinsonism and Related Disorders Virtual Congress held on May 1-4.

DNL151 (BIIB122) was generally well tolerated, and target engagement and pathway engagement biomarker goals were met.

We plan, together with our collaboration partner Biogen, to initiate late-stage clinical development of DNL151 (BIIB122) in patients with Parkinson's disease by year-end 2021.

• In January 2021, following achievement of human biomarker proof of concept with DNL310 for Hunter syndrome, we announced the addition of five new brain-penetrant ERT programs in our ETV portfolio including:

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

(2) ETV:GAA for Pompe disease;

(3) ETV:IDUA for MPS I;

(4) ETV:NAGLU for MPS IIIB;

and (5) ETV:ARSA for metachromatic leukodystrophy ("MLD");

• In February 2021, we announced Sanofi's decision, upon completion of a Phase 1b study in hospitalized adult patients with severe COVID-19 lung disease, to cease further development of DNL758 (SAR443122) in COVID-19 based on the rapidly evolving landscape of treatment and prevention options for COVID-19.

Although the study did not meet its primary endpoint, DNL758 (SAR443122) was generally well tolerated and did generate positive signals of relevant biological effect.

Sanofi plans to commence dosing in a Phase 2 study of DNL758 (SAR443122) in CLE patients in the first half of 2021;

• In February 2021, we reported three-month data from Cohort A (n=5) in a Phase 1/2 study of DNL310 in patients with Hunter syndrome.

The data showed that DNL310 treatment resulted in normalization of glycosaminoglycan ("GAG") levels in cerebrospinal fluid and a safety and tolerability profile consistent with standard of care ERT.

In March 2021, we announced that the U.S.

Food and Drug Administration ("FDA") granted Fast Track designation to DNL310 for the treatment of patients with Hunter syndrome.

Denali plans to report six-month data from Cohort A in mid-2021;

• In May 2021, we announced that based on interim data from the ongoing Phase 1 single- and multiple-ascending-dose study of DNL343 in healthy volunteers, safety and pathway engagement biomarker goals of the study were met.

A maximum tolerated dose was not reached and an additional multiple dose cohort has been added to the study to further explore the therapeutic window.

Based on these data, we plan to initiate a Phase 1b study in patients with ALS in the second half of 2021;

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

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

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

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

1 unchanged sentence

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

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

We have funded our operations primarily from the issuance and sale of convertible preferred stock, the sale of common stock in public offerings, and payments received from our collaboration agreements with Takeda, Sanofi and Biogen.

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

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

Our net losses wer e $58.2 million and $173.7 million for the three and nine months ended September 30, 2020 , respectively, and $46.3 million and $143.6 million for the three and nine months ended September 30, 2019, respectively .

As of September 30, 2020, we had an accumulated deficit o f $599.3 million.

Our net losses wer e $70.0 million and $56.8 million for the three months ended March 31, 2021 and 2020, respectively.

As of March 31, 2021, we had an accumulated deficit o f $424.5 million.

We e xpect to continue to incur significant expenses and operating losses as we advance our current clinical stage programs through healthy volunteer and patient trials;

6 unchanged sentences

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

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

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

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

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

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

18 unchanged sentences

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

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

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

21 unchanged sentences

Allocated expenses consist of rent, depreciation and other expenses related to our office and research and development facility not otherwise included in research and development expenses.

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

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

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

Interest and Other Income, Net

1 unchanged sentence

Results of Operations

Comparison of the three and nine months ended September 30, 2020 and 2019

Comparison of the three months ended March 31, 2021 and 2020

The following table sets forth the significant components of our results of operations (in thousands):

Three Months Ended September 30, Change

2020 2019 $ %

Collaboration revenue:

Collaboration revenue from customers

$ 9,388 $ 13,508 $ (4,120) (31) %

Other collaboration revenue

5 96 (91) (95)

Total collaboration revenue

9,393 13,604 (4,211) (31)

Operating expenses:

Research and development

53,704 52,544 1,160 2

General and administrative

15,805 11,215 4,590 41

Total operating expenses

69,509 63,759 5,750 9

Loss from operations (60,116) (50,155) (9,961) 20

Interest and other income, net

1,944 3,782 (1,838) (49)

Loss before income taxes (58,172) (46,373) (11,799) 25

Income tax benefit (provision) (56) 113 (169) (150)

Net loss $ (58,228) $ (46,260) $ (11,968) 26 %

Nine Months Ended September 30, Change

Three Months Ended March 31, Change

2021 2020 $ %

19 unchanged sentences

Net loss $ (70,041) $ (56,763) $ (13,278) 23 %

__________________________________________________

* Percentage is not meaningful.

Collaboration revenue.

Collaboration revenue was $9.4 million and $18.8 million for the three and nine months ended September 30, 2020, respectively, and $13.6 million and $22.0 million for the three and nine months ended September 30, 2019, respectively.

The decreases in collaboration revenue of $4.2 million and $3.2 million for the three and nine months ended September 30, 2020, respectively, compared to the comparative period in the prior year were due to a decrease in revenue from our collaboration with Sanofi driven by a $10.0 million milestone recognized in the three and nine months ended September 30, 2019 related to the Peripheral program, and the winding down of revenue for retained activities as activities are transferred to Sanofi.

These decreases are partially offset by an increase in revenue from our collaboration with Takeda, driven by increased costs incurred in the programs partnered with Takeda.

Collaboration revenue was $7.9 million and $3.6 million for the three months ended March 31, 2021 and 2020, respectively.

The increase in collaboration revenue of $4.3 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 was due to an increase in revenue from our collaboration with Takeda of $4.0 million driven by increased costs incurred in the underlying partnered programs, and revenue of $0.9 million from our collaboration with Biogen, partially offset by a decrease of $0.6 million in revenue from our collaboration with Sanofi driven by the termination of revenue for retained activities which have been transferred to Sanofi.

Research and development expen ses.

Research and development expenses were $53.7 million and $157.9 million for the three and nine months ended September 30, 2020, compared to $52.5 million and $141.8 million for the three and nine months ended September 30, 2019.

Research and development expenses were $60.2 million and $51.0 million for the three months ended March 31, 2021 and 2020, respectively.

The following table summarizes our research and development expenses by program and category (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

LRRK2 program external expenses

3 unchanged sentences

TV platform and other program external expenses

5,902 3,911 12,088 11,180

Other external research and development expenses

5,638 8,868 20,812 23,476

Personnel-related expenses (1)

1 unchanged sentence

Other unallocated research and development expenses

8,272 8,839 24,536 24,429

Cost sharing reimbursements from related party (2)

Total research and development expenses

1 unchanged sentence

__________________________________________________

(1) Personnel-related expenses include stock-based compensation expense of $7.8 million and $21.0 million for the three and nine months ended September 30, 2020, respectively, and $4.9 million and $14.2 million for the three and nine months ended September 30, 2019 , respectively, reflecting an increase of $2.9 million and $6.8 million, respectively.

There was an increase in total research and development expenses of $1.2 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019.

This increase was a result of a $4.8 million increase in personnel-related expenses, consisting of a $1.9 million increase in salaries and related expenses attributable to an increase in our research and development headcount, and a $2.9 million increase in stock-based compensation expense primarily attributable to new equity award grants.

Additionally, there were increases in external expenses related to progression of our portfolio, including an increase of $1.9 million in EIF2B program external expenses reflecting the cost of the Phase 1 clinical trial, and an increase of $2.0 million in TV platform and other program external expenses.

These increases were partially offset by a $3.2 million decrease in other external research and development expenses, primarily attributable to a decrease in DNL747 costs after completion of the Phase 1b trials, a $2.4 million decrease in LRRK2 program expenses, reflecting completion of DNL201 clinical activities, a $1.3 million decrease in ETV:IDS program external expenses primarily due to significant CMC activity in 2019, and a decrease in other unallocated research and development expenses of $0.6 million primarily attributable to decreased lab consumables costs and reductions in associated expenses related to COVID-19.

There was an increase in total research and development expenses of $16.0 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

This increase was a result of a $14.9 million increase in personnel-related expenses, consisting of a $8.1 million increase in salaries and related expenses attributable to an increase in our research and development headcount, and a $6.8 million increase in stock-based compensation expense primarily attributable to new equity award grants.

Additionally, there were increases in external expenses related to progression of our portfolio, including an increase of $3.0 million in EIF2B program external expenses reflecting the cost of the Phase 1 clinical trial, an increase of $0.9 million in TV platform and other program external expenses, an increase of $0.7 million in LRRK2 program external expenses driven by DNL151 progress in the clinic, and an increase in other unallocated research and development expenses of $0.1 million.

These increases were partially offset by a decrease of $0.9 million in ETV:IDS program external expenses due to the $1.5 million contingent consideration payment to F-star and significant CMC activity, both in 2019, and a $2.7 million decrease in other external research and development expenses, primarily attributable to a decrease in DNL747 costs after completion of the Phase 1b trials.

(1) Personnel-related expenses include stock-based compensation expense of $12.3 million and $6.1 million for the three months ended March 31, 2021 and 2020, respectively, reflecting an increase of $6.2 million.

(2) Cost sharing reimbursements from Biogen during the three months ended March 31, 2021 for LRRK2 program external expenses, and LRRK2 program internal expenses which are included within Personnel-related expenses.

The increase in research and development expenses of approximately $9.2 million for three months ended March 31, 2021 and 2020, respectively, was primarily attributable to the following:

• An increase of $8.9 million in personnel-related expenses, consisting of a $2.7 million increase in salaries and related expenses attributable to an increase in our research and development headcount, and a $6.2 million increase in stock-based compensation expense primarily attributable to additional equity award grants and our increasing market price;

• $4.8 million of increased TV platform and other program external expenses, reflecting our increased investment in our pipeline, including the progress in our PTV:PGRN and ATV:TREM2 programs as well our continued investment in developing a robust pipeline;

• Increases of $3.0 million and $3.7 million in EIF2B and ETV:IDS program external expenses, respectively, reflecting the progress of these programs in clinical trials during 2021;

• $0.4 million of increased other unallocated research and development expenses, which is primarily due to an increase in facilities-related expenses of $0.6 million including depreciation expense and certain costs associated with COVID-19 safety protocols and an increase in lab consumable expenses of $0.1 million, partially offset by a $0.3 million decrease in other general costs, primarily due to a decrease in travel related expenses attributable to our research and development departments due to the COVID-19 pandemic.

These increases were partially offset by a decrease of $7.2 million in the LRRK2 program external expenses primarily due to completion of the phase 1 and 1b trials of DNL151 (BIIB122), cost sharing reimbursements from Biogen of $2.5 million, and a $1.9 million decrease in other external research and development expenses.

General and administrative expenses.

General and administrative expenses were $15.8 million for the three months ended September 30, 2020 compared to $11.2 million for the three months ended September 30, 2019.

The increase of approximately $4.6 million was primarily attributable to a $2.0 million increase in personnel-related expenses, primarily driven by higher stock-based compensation expense in the three months ended September 30, 2019 primarily attributable to new equity award grants.

Additionally, there was an increase of $2.0 million in professional services costs, primarily due to costs associated with the execution of the Biogen Collaboration Agreement, an increase of $0.5 million in other general and administrative costs related to other miscellaneous costs such as insurance and taxes, and a $0.1 million increase in facilities-related expenses.

General and administrative expenses were $42.3 million for the nine months ended September 30, 2020 compared to $35.6 million for the nine months ended September 30, 2019.

The increase of approximately $6.7 million was primarily attributable to increases of $3.0 million in personnel-related expenses primarily driven by higher headcount, $2.8 million in professional services costs, primarily due to costs associated with the execution of the Biogen Collaboration Agreement, $0.6 million in other general and administrative costs related to other miscellaneous costs such as insurance and taxes, and $0.3 million in facilities-related expenses.

General and administrative expenses were $18.9 million and $12.6 million three months ended March 31, 2021 and 2020, respectively.

The increase of $6.3 million was primarily attributable to the following:

• $4.8 million of increased personnel-related expenses, driven by higher general and administrative headcount and stock-based compensation expense associated with additional equity award grants and our increasing market price;

• $0.7 million of increased legal and other professional services expenses, primarily due to accounting and tax fees associated with assessment of the Biogen Collaboration Agreement;

• $0.6 million of increased other general costs, including insurance, tax and IT related expenses;

• $0.2 million of increased facilities related expenses, including depreciation expense and certain costs associated with COVID-19 safety protocols.

Interest and other income, net.

Interest and other income, net was $1.9 million for the three months ended September 30, 2020 compared to $3.8 million for the three months ended September 30, 2019.

Interest and other income, net was $1.2 million and $3.1 million for the three months ended March 31, 2021 and 2020, respectively.

The decrease of $1.9 million was primarily due to decreased interest income earned on our investments due to declining interest rates.

Interest and other income, net was $7.6 million for the nine months ended September 30, 2020 compared to $11.4 million for the nine months ended September 30, 2019.

The decrease of $3.8 million was primarily due to a $5.0 million decrease in interest income earned on our investments due to declining interest rates, partially offset by an increase of $1.2 million in sublease income and reimbursements received in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

Income tax benefit (provision)

Income tax provision associated with a decrease in unrealized gains on marketable securities in other comprehensive income was $0.1 million for the three months ended September 30, 2020 compared to an income tax benefit of $0.1 million for the three months ended September 30, 2019 associated with unrealized gains on marketable securities in other comprehensive income.

There was no income tax benefit associated with an unrealized gain on marketable securities in other comprehensive income for the nine months ended September 30, 2020 compared to $0.4 million for the nine months ended September 30, 2019.

Comparison of the three and nine months ended September 30, 2019 and 2018

Income tax benefit.

Income tax benefit was $0.1 million for the three months ended March 31, 2020 due to the tax benefit associated with an unrealized gain on marketable securities in other comprehensive income.

There was no income tax benefit for the three months ended March 31, 2021.

Comparison of the three months ended March 31, 2020 and 2019

Refer to “Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations” in our Form 10-Q for the three and nine months ended September 30, 2019 for a discussion of the results of operations for the three and nine months ended September 30, 2019 compared to the three and nine months ended September 30, 2018.

Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations” in our Form 10-Q for the three months ended March 31, 2020 for a discussion of the results of operations for the three months ended March 31, 2020 compared to the three months ended March 31, 2019.

Liquidity and Capital Resources

Sources of Liquidity

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

We received net proceeds of $264.3 million from our IPO in December 2017.

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

Pursuant to the Takeda Collaboration Agreement, we have received $55.0 million related to upfront and milestone payments through September 30, 2020 .

We fund our operations primarily with the proceeds from the sale of common stock in public offerings and payments received from our collaboration agreements with Takeda, Sanofi, and Biogen.

Pursuant to the Takeda Collaboration Agreement, we have received $71.0 million related to upfront and milestone payments through March 31, 2021 .

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

Pursuant to the Sanofi Collaboration Agreement, we have received $135.0 million related to upfront and milestone payments, and further payments of $11.2 million for performance of Retained Activities through September 30, 2020.

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

Pursuant to the Sanofi Collaboration Agreement, we received an upfront payment of $125.0 million in November 2018 and a milestone payment of $10.0 million in August 2019, which was triggered by the commencement of a DNL758 (SAR443122) Phase 1 clinical trial in healthy volunteers.

W e have received further payments of $13.7 million for performance of Retained Activities through March 31, 2021.

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

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

As of September 30, 2020, we had cash, cash equivalents and marketable securities in the amount of $981.5 million.

We have received cost sharing reimbursements of $9.3 million from Biogen through March 31, 2021.

As of March 31, 2021, we had cash, cash equivalents and marketable securities in the amount of $1.45 billion.

Future Funding Requirements

13 unchanged sentences

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

We have an accumulated deficit of $599.3 million through September 30, 2020.

We have an accumulated deficit of $424.5 million through March 31, 2021.

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

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

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

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

4 unchanged sentences

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

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

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

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

5 unchanged sentences

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

Nine Months Ended September 30,

Three Months Ended March 31,

Net cash used in operating activities $ (50,240) $ (54,492)

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

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

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

Net Cash Used In Operating Activities

During the nine months ended September 30, 2020, cash used in operating activities was $97.8 million, which consisted of a net loss of $173.7 million, adjusted by non-cash items primarily related to stock-based compensation and depreciation, partially offset by net amortization of discounts on marketable securities and non-cash rent expenses.

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

Net Cash Provided By (Used In) Investing Activities

During the nine months ended September 30, 2020, cash used in investing activities was $255.9 million, which consisted of $687.5 million of purchases of marketable securities and $1.9 million of capital expenditures to purchase property and equipment, partially offset by $433.6 million in proceeds from the maturity of marketable securities.

During the three months ended March 31, 2021, cash used in operating activities was $50.2 million, which consisted of a net loss of $70.0 million, adjusted by non-cash items primarily related to stock-based compensation and depreciation, net amortization of discounts on marketable securities and non-cash rent expenses.

Cash used in operating activities was also driven by changes in our operating assets and liabilities, including a decrease to Accruals and other current liabilities attributable to the payout of the bonus accrual in the three months ended March 31, 2021.

Net Cash Used In Investing Activities

During the three months ended March 31, 2021, cash used in investing activities was $25.4 million, which consisted of $463.1 million of purchases of marketable securities and $2.8 million of capital expenditures to purchase property and equipment, partially offset by $440.5 million in proceeds from the maturity of marketable securities.

Net Cash Provided By Financing Activities

During the nine months ended September 30, 2020, cash provided by financing activities was $625.2 million, which consisted of $420.1 million associated with the issuance of 13,310,243 shares of our common stock to Biogen in September 2020 under the Biogen Stock Purchase Agreement, $193.9 million in net cash proceeds from our follow-on offering completed in January 2020, and $11.1 million in proceeds from the exercise of options to purchase common stock and issuance of ESPP shares.

Discussion of the nine months ended September 30, 2019

During the three months ended March 31, 2021, cash provided by financing activities was $3.8 million in proceeds from the exercise of options to purchase common stock.

Discussion of the three months ended March 31, 2020

Refer to “Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” in our Form 10-Q for the nine months ended September 30, 2019 for a discussion of the cash flows for that period.

Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” in our Form 10-Q for the three months ended March 31, 2020 for a discussion of the cash flows for that period.

Off-Balance Sheet Arrangements

8 unchanged sentences

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 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 Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020.

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

2 unchanged sentences

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

As of September 30, 2020 and December 31, 2019, we 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, we 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, we 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, we 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, we 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, we had total non-refundable purchase commitments of $28.5 million and $27.1 million, respectively, under the DMSA.

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

Other than those detailed above, there have been no other material changes from the contractual obligations and commitments previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on February 26, 2021.

4 unchanged sentences

Actual results may differ from these estimates under different assumptions or conditions.

There have been no material changes to our critical accounting policies and estimates during the nine months ended September 30, 2020 from those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on February 27, 2020 .

There have been no material changes to our critical accounting policies and estimates during the three months ended March 31, 2021 from those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on February 26, 2021 .

Recent Accounting Pronouncements

Except as described in Note 1 to the condensed consolidated financial statements under the headings "Recently Issued Accounting Pronouncement" and "Recently Adopted Accounting Pronouncement," there have been no new accounting pronouncements or changes to accounting pronouncements during the nine months ended September 30, 2020 , as compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on February 27, 2020, that are of significance or potential significance to us.

Except as described in Note 1 to the Condensed Consolidated Financial Statements under the heading "Recently Adopted Accounting Pronouncement," there have been no new accounting pronouncements or changes to accounting pronouncements during the three months ended March 31, 2021 , as compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on February 26, 2021, that are of significance or potential significance to us.

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 2. Management’s Discussion and Analysis