Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and the related notes to those statements included elsewhere in this Quarterly Report on Form 10-Q . This discussion and analysis and other parts of this report contain forward-looking statements based upon current beliefs, plans and expectations related to future events and our future financial performance that involve risks, uncertainties and assumptions, such as statements regarding our intentions, plans, objectives, expectations, forecasts and projections. Our actual results and the timing of selected events coul d differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under the section titled “Risk Factors” included in this Quarterly Report on Form 10-Q.
Forward-looking statements include, but are not limited to, statements about:
• the success, cost and timing of our development activities, preclinical studies and clinical trials, including the enrollment in such trials, and in particular the development of our blood-brain barrier (“BBB”) platform technology, programs and biomarkers;
• the extent to which any dosing limitations that we have been subject to, and/or may be subject to in the future, may affect the success of our product candidates;
• the impact of preclinical findings on our ability to achieve exposures of our product candidates that allow us to explore a robust pharmacodynamic range of these candidates in humans;
• expectations regarding the transaction with Biogen, including all financial aspects of the collaboration and equity investment, the potential benefits and results of the transaction;
• the expected potential benefits and potential revenue resulting from strategic collaborations with third parties and our ability to attract collaborators with development, regulatory and commercialization expertise;
• the timing or likelihood of regulatory filings and approvals;
• our ability to obtain and maintain regulatory approval of our product candidates, and any related restrictions, limitations and/or warnings in the label of any approved product candidate;
• the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology;
• the terms and conditions of licenses granted to us and our ability to license and/or acquire additional intellectual property relating to our product candidates and BBB platform technology;
• our ability to obtain funding for our operations, including funding necessary to develop and commercialize our current and potential future product candidates;
• our plans and ability to establish sales, marketing and distribution infrastructure to commercialize any product candidates for which we obtain approval;
• future agreements with third parties in connection with the commercialization of our product candidates;
• the size and growth potential of the markets for our product candidates, if approved for commercial use, and our ability to serve those markets;
• the rate and degree of market acceptance of our product candidates;
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• existing regulations and regulatory developments in the United States and foreign countries;
• potential claims relating to our intellectual property and third-party intellectual property;
• our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;
• our potential plans and ability to develop our own manufacturing facilities;
• the pricing and reimbursement of our product candidates, if approved and commercialized;
• the success of competing products or platform technologies that are or may become available;
• our ability to attract and retain key managerial, scientific and medical personnel;
• the accuracy of our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
• our ability to enhance operational, financial and information management systems;
• our financial performance; and
• our expectations regarding the impact of the COVID -19 pandemic on our business.
These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in “Risk Factors”. In some cases, you can identify these statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expects,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of those terms, and similar expressions that convey uncertainty of future events or outcomes. These forward-looking statements reflect our beliefs and views with respect to future events and are based on estimates and assumptions as of the date of this Quarterly Report on Form 10-Q and are subject to risks and uncertainties. We discuss many of these risks in greater detail in the section entitled “Risk Factors” included in Part II, Item 1A and elsewhere in this report. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Given these uncertainties, you should not place undue reliance on these forward-looking statements. We qualify all of the forward-looking statements in this Quarterly Report on Form 10-Q by these cautionary statements. 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.
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Overview
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:
• Genetic Pathway Potential : We select our therapeutic targets and disease pathways based on genes that, when mutated, cause, or are major risk factors for, neurodegenerative diseases. We refer to these genes as degenogenes;
• Engineering Brain Delivery : We engineer our product candidates to cross the BBB and act directly in the brain; and
• Biomarker-Driven Development : 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.
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. This technology is designed to engage specific BBB transport receptors, which are ubiquitously expressed in brain capillaries and facilitate transport of proteins into the brain. We are currently optimizing and broadening this platform technology.
Ou r five clinic al-stage programs are:
• our leucine-rich repeat kinase 2 ("LRRK2") inhibitor program, to be developed 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 ("GAGs"), 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"); and
• a second non-CNS penetrant RIPK1 inhibitor, partnered with Sanofi, to address peripheral inflammatory diseases such as cutaneous lupus erythematosus ("CLE").
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The following table summarizes key information about our clinical stage programs:
Program Product Candidate(s) Clinical Phase Indication(s) Operational Control
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
EIF2B DNL343 Ph 1 ALS and FTD Denali
RIPK1 (Peripheral) DNL758 (SAR443122) Ph 2 CLE
Sanofi
RIPK1 (CNS) DNL788 (SAR443820) Ph 1 Neurological diseases
Sanofi
To complement our internal capabilities, we have entered into arrangements with biopharmaceutical companies, patient-focused data companies, numerous leading academic institutions and foundations to gain access to new product candidates, enable and accelerate the development of our existing programs and deepen our scientific understanding of certain areas of biology. We 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.
Since we commenced operations, we have devoted substantially all of our resources to discovering, acquiring and developing product candidates, building our BBB platform technology and assembling our core capabilities in understanding key neurodegenerative disease pathways.
Key operational and financing milestones in 2021 to date include:
• 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 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 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;
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• 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;
• In May 2021, we presented results from two studies of its small molecule LRRK2 inhibitor, DNL151 (BIIB122), in a Phase 1 study in healthy volunteers and a Phase 1b study in patients with Parkinson's disease, at the International Association of Parkinsonism and Related Disorders Virtual Congress. DNL151 (BIIB122) was generally well tolerated, and target engagement and pathway engagement biomarker goals were met. We plan to initiate late-stage clinical development of DNL151 (BIIB122) in Parkinson's disease by year-end 2021 with Biogen;
• In June 2021, we announced that our partner Sanofi commenced dosing in a Phase 2 study of DNL758 (SAR443122), a peripherally-restricted small molecule inhibitor of RIPK1, in patients with CLE, triggering a $15.0 million milestone which was received in July 2021; and
• In July 2021, we reported positive interim data from the Phase 1/2 study of ETV:IDS (DNL310) in patients with Hunter syndrome (MPS II). The data demonstrated durability of effect with CNS impact, improved peripheral activity after switching from standard of care, and a safety profile consistent with standard of care enzyme replacement therapy. Furthermore, initial indications of improved clinical symptoms and function, assessed as exploratory endpoints, were reported by investigators and parents in all five patients enrolled in Cohort A. We also shared data from Cohort B, which is designed to inform dose selection; exploratory biomarker data demonstrated activity of DNL310 across all dose regimens. Based on these data, we plan to begin enrolling Cohort C in the Phase 1/2 study to further investigate clinical endpoints and initiate a pivotal Phase 2/3 study of DNL310 in the first half of 2022.
We do not have any products approved for sale and have not generated any product revenue since our inception. We have funded our operations primarily from the issuance and sale of convertible preferred stock, the 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 $60.7 million and $130.7 million for the three and six months ended June 30, 2021 , respectively, and $58.8 million and $115.5 million for the three and six months ended June 30, 2020, respectively. As of June 30, 2021, we had an accumulated deficit o f $485.1 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; broaden and improve our BBB platform technology; acquire, discover, validate and develop additional product candidates; obtain, maintain, protect and enforce our intellectual property portfolio; and hire additional personnel.
Components of Operating Results
Collaboration Revenue
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 and license revenue from our collaboration agreements with Takeda, Sanofi and Biogen.
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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. If we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.
Operating Expenses
Research and Development
Research and development activities account for a significant portion of our operating expenses. We record research and development expenses as incurred. Research and development expenses incurred by us for the discovery and development of our product candidates and BBB platform technology include:
• external research and development expenses, including:
– expenses incurred under arrangements with third parties, such as contract research organizations ("CROs"), preclinical testing organizations, contract development and manufacturing organizations ("CDMOs"), academic and non-profit institutions and consultants;
– expenses to acquire technologies to be used in research and development that have not reached technological feasibility and have no alternative future use;
– fees related to our license and collaboration agreements;
• personnel related expenses, including salaries, benefits and stock-based compensation expense; and
• other expenses, which include direct and allocated expenses for laboratory, facilities and other costs.
A portion of our research and development expenses are direct external expenses, which we track on a program-specific basis once a program has commenced late-stage IND-enabling studies.
Program expenses include expenses associated with our most advanced product candidates and the discovery and development of backup or next-generation molecules. We also track external expenses associated with our TV platform. These expenses include those incurred by us relating to our Takeda Collaboration Agreement, Sanofi Collaboration Agreement a nd Biogen Collaboration Agreement. Al l external costs associated with earlier stage programs, or that benefit the entire portfolio, are tracked as a group. We do not track personnel or other operating expenses incurred for our research and development programs on a program-specific basis. 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.
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It is challenging to predict the nature, timing and estimated long-range costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our product candidates. This is made more challenging by events outside of our control, such as the recent COVID-19 pandemic. We are also unable to predict when, if ever, material net cash inflows will commence from sales or licensing of our product candidates. This is due to the numerous risks and uncertainties associated with drug development, including the uncertainty of:
• our ability to add and retain key research and development personnel;
• our ability to establish an appropriate safety profile with IND-enabling toxicology studies;
• our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize, our product candidates;
• our successful enrollment in and completion of clinical trials;
• the costs associated with the development of any additional product candidates we identify in-house or acquire through collaborations;
• our ability to discover, develop and utilize biomarkers to demonstrate target engagement, pathway engagement and the impact on disease progression of our molecules;
• our ability to establish agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing, if our product candidates are approved;
• the terms and timing of any collaboration, license or other arrangement, including the terms and timing of any milestone payments thereunder;
• our ability to obtain and maintain patent, trade secret and other intellectual property protection and regulatory exclusivity for our product candidates if and when approved;
• our receipt of marketing approvals from applicable regulatory authorities;
• our ability to commercialize products, if and when approved, whether alone or in collaboration with others; and
• the continued acceptable safety profiles of the product candidates following approval.
A change in any of these variables with respect to the development of any of our product candidates would significantly change the costs, timing and viability associated with the development of that product candidate. We expect our research and development expenses to increase at least over the next several years as we continue to implement our business strategy, advance our current programs, expand our research and development efforts, seek regulatory approvals for any product candidates that successfully complete clinical trials, access and develop additional product candidates and incur expenses associated with hiring additional personnel to support our research and development efforts. In addition, product candidates in later stages of clinical development generally incur higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials.
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General and Administrative
General and administrative expenses include personnel-related expenses, such as salaries, benefits, travel and stock-based compensation expense, expenses for outside professional services and allocated expenses. Outside professional services consist of legal, accounting and audit services and other consulting fees. 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 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
Interest and other income, net , consists pr imarily of interest income and investment income earned on our cash, cash equivalents, and marketable securities, gains and losses on foreign currency hedges, and sublease income.
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Results of Operations
Comparison of the three and six months ended June 30, 2021 and 2020
The following table sets forth the significant components of our results of operations (in thousands):
Three Months Ended June 30, Change
2021 2020 $ %
Collaboration revenue:
Collaboration revenue from customers
$ 22,936 $ 5,811 $ 17,125 * %
Other collaboration revenue
3 36 (33) (92)
Total collaboration revenue
22,939 5,847 17,092 *
Operating expenses:
Research and development
65,711 53,152 12,559 24
General and administrative
19,045 13,972 5,073 36
Total operating expenses
84,756 67,124 17,632 26
Loss from operations (61,817) (61,277) (540) 1
Interest and other income, net
1,126 2,598 (1,472) (57)
Loss before income taxes (60,691) (58,679) (2,012) 3
Income tax provision — (79) 79 (100)
Net loss $ (60,691) $ (58,758) $ (1,933) 3 %
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* Percentage is not meaningful.
Six Months Ended June 30, Change
2021 2020 $ %
Collaboration revenue:
Collaboration revenue from customers
$ 30,858 $ 9,363 $ 21,495 * %
Other collaboration revenue
4 88 (84) (95)
Total collaboration revenue
30,862 9,451 21,411 *
Operating expenses:
Research and development
125,918 104,168 21,750 21
General and administrative
37,981 26,527 11,454 43
Total operating expenses
163,899 130,695 33,204 25
Loss from operations (133,037) (121,244) (11,793) 10
Interest and other income, net
2,305 5,667 (3,362) (59)
Loss before income taxes (130,732) (115,577) (15,155) 13
Income tax benefit — 56 (56) (100)
Net loss $ (130,732) $ (115,521) $ (15,211) 13 %
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* Percentage is not meaningful.
Collaboration revenue. Collaboration revenue was $22.9 million and $30.9 million for the three and six months ended June 30, 2021, respectively, and $5.8 million and $9.5 million for the three and six months ended June 30, 2020, respectively. The increase in collaboration revenue of $17.1 million and $21.4 million for the three and six months ended June 30, 2021, respectively, compared to the comparative period in the prior year were primarily due to the achievement of a $15.0 million milestone in June 2021 under our collaboration with Sanofi related to the initiation of the Phase 2 study of DNL758 (SAR443122), as well as an increase in revenue from our collaboration with Takeda of $1.6 million driven by increased costs incurred in the underlying partnered programs, and revenue of $0.8 million from our collaboration with Biogen.
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Research and development expen ses. Research and development expenses were $65.7 million and $125.9 million for the three and six months ended June 30, 2021, compared to $53.2 million and $104.2 million for the three and six months ended June 30, 2020, respectively.
The following table summarizes our research and development expenses by program and category (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
LRRK2 program external expenses
$ 2,776 $ 6,174 $ 5,152 $ 15,766
EIF2B program external expenses 4,752 1,994 9,092 3,306
ETV:IDS program external expenses 6,867 5,212 13,753 8,350
TV platform and other program external expenses
7,659 3,462 15,142 6,186
Other external research and development expenses
7,755 7,782 13,234 15,174
Personnel-related expenses (1)
28,352 20,251 56,119 39,122
Other unallocated research and development expenses
9,117 8,277 17,504 16,264
Cost sharing reimbursements from related party (2)
(1,567) — (4,078) —
Total research and development expenses
$ 65,711 $ 53,152 $ 125,918 $ 104,168
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(1) Personnel-related expenses include stock-based compensation expense of $12.5 million and $24.8 million for the three and six months ended June 30, 2021, respectively, and $7.1 million and $13.2 million for the three and six months ended June 30, 2020, respectively, reflecting an increase of $5.4 million and $11.6 million, respectively.
(2) Cost sharing reimbursements from Biogen during the three and six months ended June 30, 2021 are 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 $12.5 million for the three months ended June 30, 2021 and June 30, 2020, was primarily attributable to the following:
• An increase of $8.1 million in personnel-related expenses, consisting of a $5.4 million increase in stock-based compensation expense primarily attributable to additional equity award grants and our increasing market price, and a $2.7 million increase in salaries and related expenses attributable to an increase in our research and development headcount;
• An increase of $4.2 million in 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 $2.8 million and $1.6 million in EIF2B and ETV:IDS program external expenses, respectively, reflecting the progress of these programs in clinical trials during 2021; and
• An increase of $0.8 million in other unallocated research and development expenses, primarily due to an increase of $0.4 million in lab consumable expenses, an increase in facilities-related expenses of $0.3 million including depreciation expense and certain costs associated with COVID-19 safety protocols, and a $0.1 million increase in other general costs.
These increases were partially offset by a decrease in external expenses related to the LRRK2 program primarily due to completion of the phase 1 and 1b trials of DNL151 (BIIB122) of $3.4 million and by cost sharing reimbursements under our collaboration with Biogen of $1.6 million.
The increase in research and development expenses of approximately $21.7 million for the six months ended June 30, 2021 and June 30, 2020, was primarily attributable to the following:
• An increase of $17.0 million in personnel-related expenses, consisting of an $11.6 million increase in stock-based compensation expense primarily attributable to additional equity award grants and our increasing market price, and a $5.4 million increase in salaries and related expenses attributable to an increase in our research and development headcount;
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• An increase of $9.0 million in 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 $5.8 million and $5.3 million in EIF2B and ETV:IDS program external expenses, respectively, reflecting the progress of these programs in clinical trials during 2021; and
• An increase of $1.2 million in other unallocated research and development expenses, which is primarily due to an increase in facilities-related expenses of $1.0 million including depreciation expense and certain costs associated with COVID-19 safety protocols and an increase in lab consumable expenses of $0.5 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 in external expenses related to the LRRK2 program primarily due to completion of the phase 1 and 1b trials of DNL151 (BIIB122) of $10.6 million, cost sharing reimbursements under our collaboration with Biogen of $4.1 million, and a $1.9 million decrease in other external research and development expenses primarily due to a decrease in DNL747 costs after completion of the Phase 1b trials.
General and administrative expenses. General and administrative expenses were $19.0 million for the three months ended June 30, 2021 compared to $14.0 million for the three months ended June 30, 2020, respectively. The increase of $5.0 million was primarily attributable to the following:
• $4.2 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;
• $0.9 million of increased other general costs, including insurance, tax and IT related expenses; and
• $0.1 million of increased facilities related expenses, including depreciation expense and certain costs associated with COVID-19 safety protocols.
These increases were partially offset by a decrease $0.2 million in legal and other professional services expenses.
General and administrative expenses were $38.0 million for the six months ended June 30, 2021 compared to $26.5 million for the six months ended June 30, 2020, respectively. The increase of $11.5 million was primarily attributable to the following:
• $9.0 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;
• $1.7 million of increased other general costs, including insurance, tax and IT related expenses;
• $0.5 million of increased professional services expenses, primarily due to accounting, tax and consulting fees associated with assessment of the Biogen Collaboration Agreement; and
• $0.3 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 $1.1 million and $2.6 million for the three months ended June 30, 2021 and 2020, respectively. The decrease of $1.5 million was primarily due to decreased interest income earned on our investments due to declining interest rates.
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Interest and other income, net. Interest and other income, net was $2.3 million and $5.7 million for the six months ended June 30, 2021 and 2020, respectively. The decrease of $3.4 million was primarily due to decreased interest income earned on our investments due to declining interest rates.
Income tax provision (benefit). There was an income tax provision of $0.1 million for the three months ended June 30, 2020 associated with a decrease in unrealized gains on marketable securities in other comprehensive income and an income tax benefit of $0.1 million for the six months ended June 30, 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 and six months ended June 30, 2021.
Liquidity and Capital Resources
Sources of Liquidity
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. In January 2020, we sold 9.0 million shares of common stock (inclusive of shares sold pursuant to an overallotment option granted to the underwriters in connection with the offering) through an underwritten public offering at a price of $23.00 per share for aggregate net proceeds of approximately $193.9 million.
Pursuant to the Takeda Collaboration Agreement, we have received $71.0 million related to upfront and milestone payments through June 30, 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 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 also received further payments of $13.5 million for performance of Retained Activities. In June 2021, Sanofi commenced dosing of a patient in a Phase 2 study of DNL758 (SAR443122) in CLE patients, triggering a $15.0 million milestone payable to us, which we received in July 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. We have received cost sharing reimbursements of $11.8 million from Biogen through June 30, 2021.
As of June 30, 2021, we had cash, cash equivalents and marketable securities in the amount of $1.4 billion.
Future Funding Requirements
To date, we have not generated any product revenue. We do not expect to generate any product revenue unless and until we obtain regulatory approval of and commercialize any of our product candidates, and we do not know when, or if, either will occur.
We expect to continue to incur significant losses for the foreseeable future, and we expect the losses to increase as we expand our research and development activities and continue the development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products. Further, we expect general and administrative expenses to increase as we continue to incur additional costs associated with supporting our growing operations. We are subject to all of the risks typically related to the development of new product candidates, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. We anticipate that we will need substantial additional funding in connection with our continuing operations.
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Until we can generate a sufficient amount of revenue from the commercialization of our product candidates or from our existing collaboration agreements, or future agreements with other third parties, if ever, we expect to finance our future cash needs through public or private equity or debt financings. Additional capital may not be available on reasonable terms, if at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates. If we raise additional funds through the issuance of additional debt or equity securities, it could result in dilution to our existing stockholders, increased fixed payment obligations and the existence of securities with rights that may be senior to those of our common stock. If we incur indebtedness, we could become subject to covenants that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Additionally, any future collaborations we enter into with third parties may provide capital in the near term but limit our potential cash flow and revenue in the future. Any of the foregoing could significantly harm our business, financial condition and prospects.
Since our inception, we have incurred significant losses and negative cash flows from operations. We have an accumulated deficit of $485.1 million through June 30, 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 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. Our future funding requirements will depend on many factors, including:
• the timing and progress of preclinical and clinical development activities;
• the number and scope of preclinical and clinical programs we decide to pursue;
• the progress of the development efforts of third parties with whom we have entered into license and collaboration agreements;
• 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 establishing and operating a manufacturing facility;
• the costs involved in prosecuting, defending and enforcing patent claims and other intellectual property claims;
• the cost and timing of regulatory approvals;
• our efforts to enhance operational, financial and information management systems and hire additional personnel, including personnel to support development of our product candidates; and
• the costs and ongoing investments to in-license and/or acquire additional technologies.
A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Furthermore, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plans.
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Cash Flows
The following table sets forth a summary of the primary sources and uses of cash for each of the periods presented below (in thousands):
Six Months Ended June 30,
2021 2020
Net cash used in operating activities $ (104,461) $ (97,849)
Net cash provided by (used in) investing activities 72,132 (43,744)
Net cash provided by financing activities 10,865 199,328
Net increase (decrease) in cash, cash equivalents and restricted cash $ (21,464) $ 57,735
Net Cash Used In Operating Activities
During the six months ended June 30, 2021, cash used in operating activities was $104.5 million, which consisted of a net loss of $130.7 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.
Net Cash Provided By (Used In) Investing Activities
During the six months ended June 30, 2021, cash provided by investing activities was $72.1 million, which consisted of $923.0 million in proceeds from the maturity of marketable securities, partially offset by $847.3 million of purchases of marketable securities and $3.6 million of capital expenditures to purchase property and equipment.
Net Cash Provided By Financing Activities
During the six months ended June 30, 2021, cash provided by financing activities was $10.9 million in proceeds from the exercise of options to purchase common stock as well as the purchase of ESPP shares.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements.
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Contractual Obligations and Commitments
In May 2018, we entered into an amendment to our operating lease for our former corporate headquarters in South San Francisco (the "Headquarters Lease Amendment") to relocate and expand our headquarters to 148,020 rentable square feet in a building in South San Francisco, California (the "New Premises"). The Headquarters Lease Amendment has a contractual term of ten years from the legal commencement date, which was April 1, 2019 when the building was ready for occupancy. For accounting purposes, the lease commencement date was determined to be August 1, 2018, which was the date at which we were deemed to have obtained control over the property. We have an option to extend the lease term for a period of ten years by giving the landlord written notice of the election to exercise the option at least nine months, but not more than twelve months, prior to the expiration of the Headquarters Lease Amendment lease term. We determined that this renewal was not reasonably certain at lease inception.
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 Consolidated Balance Sheets as of June 30, 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.
Effective September 2017, we entered into a Development and Manufacturing Services Agreement, as amended ("DMSA") with Lonza Sales AG ("Lonza") for the development and manufacture of biologic products. Under the DMSA, we will execute purchase orders based on project plans authorizing Lonza to provide development and manufacturing services with respect to certain of our antibody and enzyme products, and will pay for the services provided and batches delivered in accordance with the DMSA and project plan. Unless earlier terminated, the DMSA will expire on September 6, 2022.
As of June 30, 2021 and December 31, 2020, we had open purchase orders for biological product development and manufacturing costs totaling $32.5 million and $33.0 million, respectively. The activities under these purchase orders are expected to be completed by February 2028. As of June 30, 2021 and December 31, 2020, we had total non-refundable purchase commitments of $28.4 million and $27.1 million, respectively, under the DMSA.
During the three months ended June 30, 2021 and 2020, we incurred costs of $3.2 million and $3.8 million, and made payments of $5.7 million and $2.0 million, respectively, for the development and manufacturing services rendered under the DMSA. During the six months ended June 30, 2021 and 2020, we incurred costs of $8.4 million and $4.8 million, respectively, and made payments of $6.4 million and $5.2 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.
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Critical Accounting Policies and Significant Judgments and Estimates
This discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP . The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, as well as the reported revenues recognized and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. 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 six months ended June 30, 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 heading "Recently Adopted Accounting Pronouncement," there have been no new accounting pronouncements or changes to accounting pronouncements during the six months ended June 30, 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.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.