What changed in this filing

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Item 1. Financial Statements

2021-11-04 compared with 2021-08-04 · 109 added, 229 removed, 459 unchanged (42% of the section changed)

3 unchanged sentences

(In thousands, except share amounts)

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Current assets:

2 unchanged sentences

Cost sharing reimbursements due from related party 1,194 5,674

Accounts receivable, net 15,218 8,593

Prepaid expenses and other current assets 15,140 20,284

24 unchanged sentences

Convertible preferred stock, $ 0.01 par value;

40,000,000 shares authorized as of June 30, 2021 and December 31, 2020;

0 shares issued and outstanding as of June 30, 2021 and December 31, 2020

40,000,000 shares authorized as of September 30, 2021 and December 31, 2020;

0 shares issued and outstanding as of September 30, 2021 and December 31, 2020

Common stock, $ 0.01 par value;

400,000,000 shares authorized as of June 30, 2021 and December 31, 2020;

121,531,952 shares and 120,531,333 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively

400,000,000 shares authorized as of September 30, 2021 and December 31, 2020;

122,011,151 shares and 120,531,333 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

Additional paid-in capital 1,580,988 1,503,660

7 unchanged sentences

(In thousands, except share and per share amounts)

Three Months Ended June 30, Six Months Ended June 30,

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

2021 2020 2021 2020

12 unchanged sentences

Loss before income taxes ( 84,588 ) ( 58,172 ) ( 215,320 ) ( 173,749 )

Income tax benefit (expense) — ( 79 ) — 56

Income tax expense — ( 56 ) — —

Net loss ( 84,588 ) ( 58,228 ) ( 215,320 ) ( 173,749 )

Other comprehensive income (loss):

Net unrealized gain (loss) on marketable securities, net of tax ( 136 ) ( 284 ) ( 123 ) 201

Other comprehensive loss:

Net unrealized loss on marketable securities, net of tax ( 153 ) ( 540 ) ( 276 ) ( 339 )

Comprehensive loss $ ( 84,741 ) $ ( 58,768 ) $ ( 215,596 ) $ ( 174,088 )

2 unchanged sentences

__________________________________________________

(1) Includes related party collaboration revenue from a customer of $ 0.8 million and $ 1.7 million for the three and six months ended June 30, 2021, respectively.

(2) Includes an offset to expense from related party cost reimbursement of $ 1.6 million and $ 4.1 million for the three and six months ended June 30, 2021, respectively.

(1) Includes related party collaboration revenue from a customer of $ 0.9 million and $ 2.5 million for the three and nine months ended September 30, 2021, respectively.

(2) Includes an offset to expense from related party cost reimbursement of $ 1.2 million and $ 5.3 million for the three and nine months ended September 30, 2021, respectively.

See accompanying notes to unaudited condensed consolidated financial statements.

13 unchanged sentences

Other comprehensive loss — — — ( 276 ) — ( 276 )

Balance at September 30, 2021 122,011,151 $ 1,545 $ 1,580,988 $ ( 521 ) $ ( 569,735 ) $ 1,012,277

Balance at June 30, 2021 121,531,952 $ 1,541 $ 1,556,679 $ ( 368 ) $ ( 485,147 ) $ 1,072,705

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

Issuances under equity incentive plans 228,048 2 3,313 — — 3,315

3 unchanged sentences

Other comprehensive loss — — — ( 153 ) — ( 153 )

Balance at June 30, 2021 121,531,952 $ 1,541 $ 1,556,679 $ ( 368 ) $ ( 485,147 ) $ 1,072,705

Balance at September 30, 2021 122,011,151 $ 1,545 $ 1,580,988 $ ( 521 ) $ ( 569,735 ) $ 1,012,277

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

1 unchanged sentence

9,000,000 90 193,858 — — 193,948

Issuance of common stock in connection with the Biogen Stock Purchase Agreement 13,310,243 133 420,013 — — 420,146

Issuances under equity incentive plans 1,001,905 10 11,123 — — 11,133

2 unchanged sentences

Net loss — — — — ( 173,749 ) ( 173,749 )

Other comprehensive income — — — 201 — 201

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

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

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

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

Issuance of common stock in connection with the Biogen Stock Purchase Agreement 13,310,243 133 420,013 — — 420,146

Issuances under equity incentive plans

5 unchanged sentences

Other comprehensive loss — — — ( 540 ) — ( 540 )

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

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

See accompanying notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

Six Months Ended

Nine Months Ended

September 30,

Operating activities

3 unchanged sentences

Stock–based compensation expense 63,162 36,521

Net amortization of discounts on marketable securities 3,656 ( 1,025 )

Net amortization of premiums (discounts) on marketable securities 6,316 ( 1,074 )

Non-cash adjustment to operating lease expense ( 2,201 ) ( 1,669 )

13 unchanged sentences

Financing activities

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

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

23 unchanged sentences

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

During the six months ended June 30, 2021, except as discussed below in the section titled "Recently Adopted Accounting Pronouncement," there were no material changes to the Company's significant accounting and financial reporting policies from those reflected in the 2020 Annual Report on Form 10-K.

During the nine months ended September 30, 2021, except as discussed below in the section titled "Recently Adopted Accounting Pronouncement," there were no material changes to the Company's significant accounting and financial reporting policies from those reflected in the 2020 Annual Report on Form 10-K.

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

21 unchanged sentences

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

As of June 30, 2021 and December 31, 2020, the Company had no off balance sheet concentrations of credit risk.

As of September 30, 2021 and December 31, 2020, the Company had no off balance sheet concentrations of credit risk.

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

5 unchanged sentences

Credit risk associated with investments in securities may increase if any institution with which the Company has an investment is significantly impacted by the COVID-19 pandemic.

As of June 30, 2021, the Company has not realized any losses on its cash deposits or investments.

As of September 30, 2021, the Company has not realized any losses on its cash deposits or investments.

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

16 unchanged sentences

Accounts Receivable

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

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

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

Derivatives and Hedging Activities

68 unchanged sentences

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

June 30, 2021

September 30, 2021

Level 1 Level 2 Level 3 Total

2 unchanged sentences

government treasuries 24,998 — — 24,998

Commercial paper — 29,999 — 29,999

Short-term marketable securities:

6 unchanged sentences

Corporate debt securities — 20,403 — 20,403

Foreign currency derivative contracts — 7 — 7

Total $ 1,147,084 $ 192,811 $ — $ 1,339,895

18 unchanged sentences

Total $ — $ 11 $ — $ 11

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

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

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

2 unchanged sentences

Marketable Securities

All marketable securities were considered available-for-sale at June 30, 2021 and December 31, 2020.

All marketable securities were considered available-for-sale at September 30, 2021 and December 31, 2020.

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

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

June 30, 2021

September 30, 2021

Amortized Cost Unrealized Holding Gains Unrealized Holding Losses Aggregate Fair Value

48 unchanged sentences

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

As of June 30, 2021 and December 31, 2020, some of the Company's marketable securities were in an unrealized loss position.

The Company has no t recognized an allowance for credit losses as of June 30, 2021 or December 31, 2020.

As of September 30, 2021 and December 31, 2020, some of the Company's marketable securities were in an unrealized loss position.

The Company has no t recognized an allowance for credit losses as of September 30, 2021 or December 31, 2020.

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

1 unchanged sentence

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

The Company recorded an unrealized gain on marketable securities in other comprehensive income for the six months ended June 30, 2020.

As a result, the Company recorded a tax benefit of $ 0.1 million for the six months ended June 30, 2020 on the Condensed Consolidated Statements of Operations and Comprehensive Loss and a corresponding tax charge in other comprehensive income.

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

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

7 unchanged sentences

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

The following table summarizes the Company’s forward foreign currency exchange contracts outstanding as of June 30, 2021 and December 31, 2020, respectively (notional amounts in thousands):

The following table summarizes the Company’s forward foreign currency exchange contracts outstanding as of September 30, 2021 and December 31, 2020, respectively (notional amounts in thousands):

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

20 3,050 July 2021 - June 2022

12 1,700 Oct 2021 - Jun 2022

British Pounds

17 3,120 July 2021 - June 2022

Total at June 30, 2021

11 1,725 Oct 2021 - Jun 2022

Total at September 30, 2021

26 3,855 Jan 2021 - Nov 2021

5 unchanged sentences

Collaboration Agreements

Provisional Biogen Collaboration Agreement and Common Stock Purchase Agreement

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

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

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

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

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

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

Such milestone payments include $ 375.0 million in development, $ 375.0 million upon first commercial sale, and $ 375.0 million in net sales-based milestones.

The Company will share 50 % of the profits and losses with Biogen for LRRK2 Products in the United States, and 40 % of such profits and losses in China.

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

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

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

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

The Company may opt out of development cost sharing worldwide and upon such election, from any further profit-sharing from the LRRK2 Program.

The Company also has the right to opt-out of the profit sharing arrangement for the LRRK2 Program or for only those LRRK2 Products that do not penetrate the BBB (“Peripheral LRRK2 Products”), in each of the United States and China.

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

If the Company chooses to exercise its opt out rights, the Company will be entitled to receive tiered royalties on net sales of the applicable LRRK2 Program in the relevant country (or countries).

The royalty rates for the applicable LRRK2 Program will be a percentage in the high teens to low twenties, but may increase to the mid-twenties if the Company has met certain co-funding thresholds or there has been a first commercial sale at the time of the Company's election.

In addition to the LRRK2 Program, Biogen received an exclusive option to license two preclinical programs enabled by the Company's TV technology platform, which platform aims to improve brain uptake of biotherapeutics, including its Antibody Transport Vehicle ("ATV"):

Abeta program ("ATV-enabled anti-amyloid beta program") and a second program utilizing the Company's TV technology for an unnamed target ("TV program"), excluding small molecules, Adeno-associated viruses ("AAV") and oligonucleotides.

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

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

The ROFN period continues until seven years after the effective date of the Provisional Biogen Collaboration Agreement or the date on which the Company has offered Biogen two ROFN Programs, and for which Biogen has agreed to trigger a ROFN for such program, whichever is earlier.

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

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

Since the shares of common stock owned by Biogen as of June 30, 2021 represent more than 10% of the voting interest of the Company, Biogen is considered a related party as defined in ASC 850.

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

On September 22, 2020, the Company closed the sale of the Shares to BIMA pursuant to the Stock Purchase Agreement.

The estimated fair market value of the Shares issued to BIMA was $ 420.1 million, based on the closing stock price of $ 35.87 on the date of issuance adjusted by a discount for lack of marketability due to certain holding period restrictions, which was valued using an option pricing model.

This stock issuance resulted in a $ 44.9 million premium paid to the Company above the estimated fair value of the Company's common stock (the "Stock Premium"), which forms part of the transaction price for the Biogen Collaboration Agreement.

Biogen Collaboration Agreement

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

Collectively these are known as the Biogen Collaboration Agreement, the material terms of which are consistent with, and supersede, the Provisional Biogen Collaboration Agreement discussed above.

Under the ROFN and Option Agreement, with respect to the options granted by the Company to Biogen, Biogen is obligated to pay to the Company an aggregate of up to $ 270.0 million in option exercise and development milestone payments, up to $ 325.0 million upon first commercial sale, and up to $ 290.0 million of net sales-based milestone payments, following the achievement of certain prespecified milestone events and if Biogen exercises both of its options.

Furthermore, Biogen is obligated to pay to the Company royalties in the mid-single digit to mid-teens percentages, depending on the program for which Biogen exercises its option and upon the achievement of certain sales thresholds.

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

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

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

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

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

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

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

The Company also believes that Biogen meets the definition of a customer as defined in ASC 606, Revenue From Contracts With Customers for all of the performance obligations identified at inception except for the LRRK2 Development Activities.

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

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

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

From inception of the Biogen Collaboration Agreement through June 30, 2021, there was no change to the transaction price.

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

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

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

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

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

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

A related party contract liability of $ 295.7 million was recorded on the Consolidated Balance Sheet as of June 30, 2021.

Approximately $ 288.9 million of this contract liability relates to the revenue allocated to the material right for an option under the ROFN and Option Agreement which is being deferred until resolution of the option which is expected to be several years from the balance sheet date, and $ 6.8 million of this contract liability relates to the portion of the Option Research Services performance obligation yet to be satisfied, with such amount to be recognized over the estimated period of the services, which is expected to be several years.

The Company recorded $ 1.6 million and $ 4.1 million of cost sharing reimbursements for LRRK2 Development Activities as an offset to research and development expenses in the Consolidated Statement of Operations and Comprehensive Income for the three and six months ended June 30, 2021, respectively.

The Company recorded cost sharing reimbursements due from Biogen on the Condensed Consolidated Balance Sheet as of June 30, 2021 and December 31, 2020 of $ 1.6 million and $ 5.7 million, respectively.

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

As of June 30, 2021, the Company had no t achieved any milestones or recorded any product sales under the Biogen Collaboration Agreement.

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

The details of the Provisional Biogen Collaboration Agreement and the Biogen Collaboration Agreement and the payments the Company has received, and is entitled to receive, are further described in Note 6, Collaboration Agreements, to the consolidated financial statements in the Company's 2020 Annual Report on Form 10-K.

During the third quarter of 2021, there were no changes to the terms of the Company’s collaboration agreement with Biogen, and no change in the transaction price for the Biogen Collaboration Agreement has been recorded during the three and nine months ended September 30, 2021.

A related party contract liability of $ 294.9 million was recorded on the Consolidated Balance Sheet as of September 30, 2021.

Approximately $ 288.9 million of this contract liability relates to the revenue allocated to the material right for an option under the ROFN and Option Agreement which is being deferred until resolution of the option, which is expected to be at least a year from the balance sheet date, and $ 6.0 million of this contract liability relates to the portion of the Option Research Services performance obligation yet to be satisfied, with such amount to be recognized over the estimated period of the services, which is expected to be several years.

The Company recorded $ 1.2 million and $ 5.3 million of cost sharing reimbursements for LRRK2 Development Activities as an offset to research and development expenses in the Condensed Consolidated Statement of Operations and Comprehensive Loss for the three and nine months ended September 30, 2021, respectively.

The Company recorded cost sharing reimbursements due from related party on the Condensed Consolidated Balance Sheet as of September 30, 2021 and December 31, 2020 of $ 1.2 million and $ 5.7 million, respectively.

As of September 30, 2021, the Company had no t achieved any milestones or recorded any product sales under the Biogen Collaboration Agreement.

In October 2018, the Company entered into a Collaboration and License Agreement ("Sanofi Collaboration Agreement") with Genzyme Corporation, a wholly owned subsidiary of Sanofi S.A.

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

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

Under the Sanofi Collaboration Agreement, the Company is eligible to receive milestone payments from Sanofi up to approximately $ 1.1 billion upon achievement of certain clinical, regulatory and sales milestone events.

Such milestone payments include $ 215.0 million in clinical milestone payments and $ 385.0 million in regulatory milestone payments for CNS Products, as defined, that are developed and approved in the United States, by the European Medicines Agency ("EMA") and in Japan for three indications, including Alzheimer's disease.

These milestones also include $ 120.0 million in clinical milestone payments, $ 175.0 million in regulatory milestone payments and $ 200.0 million in commercial milestone payments for Peripheral Products, as defined, that are developed and approved in the United States, by the EMA and Japan for three indications.

The Company will share profits and losses equally with Sanofi for CNS Products sold in the United States and China, and receive variable royalties on net sales for CNS Products sold outside of the United States and China and for Peripheral Products sold worldwide.

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

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

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

In June 2020, the Company announced that clinical activities on DNL747 would be paused and efforts focused on the development of the backup preclinical candidate, DNL788 (SAR443820).

Other than with the Denali CNS Development Activities, Sanofi is responsible, at its cost, for all other Phase 1 and Phase 2 trials for CNS Products, including for ALS and multiple sclerosis.

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

Sanofi will also lead the commercialization activities globally for CNS Products, subject to certain options that the Company has to conduct co-commercialization activities with respect to each CNS Product in the United States and China.

Sanofi will be responsible, at its cost, for conducting activities relating to the development and commercialization of all Peripheral Products.

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

The Company identified the following distinct performance obligations associated with the Sanofi Collaboration Agreement upon inception:

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

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

The Company also believes that Sanofi meets the definition of a customer as defined in ASC 606, Revenue From Contracts With Customers for three of the performance obligations identified at inception, but does not meet the definition of a customer for the Alzheimer's Disease Services.

Further, Sanofi does not meet the definition of a customer for all Phase 3 and later stage development trials for CNS Products led by Sanofi for which the Company will fund 30 % of total costs.

Since ASC 808 does not address recognition and measurement, the Company looked to other accounting literature for guidance where the performance obligation does not fall under ASC 606, and determined that for the Alzheimer's Disease Services, the guidance in ASC 606 should be analogized for the recognition, measurement and reporting of this performance obligation, and for the cost sharing provisions, the Company determined that the guidance in ASC 730, Research and Development should be applied.

The transaction price at inception included upfront fixed consideration of $ 125.0 million.

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

The transaction price increased by $ 15.0 million in the three and six months ended June 30, 2021 related to the $ 15.0 million milestone triggered in June 2021 upon first patient in a Phase 2 study of DNL758 (SAR443122) in patients with cutaneous lupus erythematosus , and increased by $ 0.3 million and $ 0.8 million for the three and six months ended June 30, 2020, respectively, related to costs incurred for Retained Activities that were no longer constrained.

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

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

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

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

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

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

A contract liability of $ 3.4 million was recorded on the Condensed Consolidated Balance Sheets as of both June 30, 2021 and December 31, 2020.

The details of the Sanofi Collaboration Agreement and the payments the Company has received, and is entitled to receive, are further described in Note 6, Collaboration Agreements, to the consolidated financial statements in the Company's 2020 Annual Report on Form 10-K.

During the third quarter of 2021, there were no changes to the terms of the Company’s collaboration agreement with Sanofi.

The transaction price of the Sanofi Collaboration Agreement did no t change in the three months ended September 30, 2021, and increased by $ 15.0 million in the nine months ended September 30, 2021.

This increase related to the $ 15.0 million milestone triggered in June 2021 upon first patient in a Phase 2 study of DNL758 (SAR443122) in patients with cutaneous lupus erythematosus.

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

A contract liability of $ 3.4 million was recorded on the Condensed Consolidated Balance Sheets as of both September 30, 2021 and December 31, 2020.

This contract liability relates to the portion of the Alzheimer's Disease Services performance obligation yet to be satisfied, with such amounts to be recognized over the estimated period of the services, which is expected to be several years.

The Company recorded a receivable of $ 15.0 million and $ 44,303 associated with the Sanofi Collaboration Agreement on the Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020, respectively.

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

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

Through June 30, 2021, the Company has earned milestone payments of $ 25.0 million, including a $ 15.0 million milestone triggered in June 2021 which the Company received in July 2021.

The company has no t recorded any product sales under the Sanofi Collaboration Agreement.

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

The programs were the Company’s ATV:BACE1/Tau and ATV:TREM2 and PTV:PGRN programs.

The Takeda Collaboration Agreement became effective in February 2018, at which time Takeda paid the Company an upfront payment of $ 40.0 million.

Takeda may pay up to an aggregate of $ 25.0 million with respect to each of the three programs directed to a target and based upon the achievement of certain preclinical milestone events, up to $ 75.0 million in total, $ 5.0 million of which was paid upon the Takeda Collaboration Agreement becoming effective.

In February 2019, the agreement was amended to replace the ATV:BACE1/Tau program with the ATV:Tau program.

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

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

The period through which the option can be exercised continues for each target until the first biologic product directed to the relevant target is IND-ready or approximately five years after selection of the target, whichever is earlier.

If Takeda exercises its option with respect to a particular target, then Takeda will have the right to develop and commercialize, jointly with the Company, a specified number of biologic products enabled by its BBB delivery technology that were developed during the research period and which are directed to the relevant target.

The Company will grant to Takeda a co-exclusive license under the intellectual property the Company controls related to those biologic products.

Takeda is obligated to pay the Company a $ 5.0 million option fee for each target for which Takeda exercises its option, up to $ 15.0 million in total.

In addition, if Takeda exercises its option for all three collaboration programs, Takeda may be obligated to pay the Company up to an aggregate of $ 407.5 million upon achievement of certain clinical milestone events and up to an aggregate of $ 300.0 million in regulatory milestone events relating to receipt of regulatory approval in the United States, certain European countries and Japan.

Takeda may also be obligated to pay the Company up to $ 75.0 million per biologic product upon achievement of a certain sales-based milestone, or an aggregate of $ 225.0 million if one biologic product from each program achieves this milestone.

If Takeda exercises its option for a particular target, the Company and Takeda will share equally in the development and commercialization costs, and, if applicable, the profits, for each collaboration program.

Pursuant to the terms of the Takeda Collaboration Agreement, the Company entered into a common stock purchase agreement (the "Stock Purchase Agreement") with Takeda on January 3, 2018, pursuant to which Takeda purchased 4,214,559 shares of the Company's common stock (the "Shares") for an aggregate purchase price of $ 110.0 million.

The sale of the Shares closed on February 23, 2018.

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

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

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

The Takeda Collaboration Agreement and the Stock Purchase Agreement are being accounted for as one arrangement because they were entered into at the same time with interrelated financial terms.

The Company identified performance obligations during the research period consisting of the license, the development options, and joint steering committee ("JSC") participation together with the research services for each collaboration program.

The license rights, JSC involvement, option and research services are considered to be a single performance obligation for each program since the research services are highly interrelated with the option and JSC involvement and will significantly modify the license.

The performance obligations under each of the three programs are separate since the activities and risks under the programs are distinct.

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

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

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

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

Additionally, cost and profit-sharing income, and the development and commercial milestones as outlined above, have not been considered given Takeda has not exercised its options for the development and commercial phases for any program.

No change in the transaction price has been recorded since inception.

This will be reassessed at each reporting period.

The transaction price has been ascribed in its entirety to the three performance obligations identified in the research term of the Takeda Collaboration Agreement.

Revenue is recognized when, or as, the Company satisfies its performance obligations by transferring the promised services to Takeda.

The Company recorded no receivable and a receivable of $ 44,303 associated with the Sanofi Collaboration Agreement on the Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020, respectively.

Through September 30, 2021, the Company has earned milestone payments of $ 25.0 million, and the Company has no t recorded any product sales under the Sanofi Collaboration Agreement.

In January 2018, the Company entered into a Collaboration and Option Agreement ("Takeda Collaboration Agreement") with Takeda Pharmaceutical Company Limited ("Takeda").

The details of the Takeda Collaboration Agreement and the payments the Company has received, and is entitled to receive, are further described in Note 6, Collaboration Agreements, to the consolidated financial statements in the Company's 2020 Annual Report on Form 10-K.

During the third quarter of 2021, there were no changes to the terms of the Company’s collaboration agreement with Takeda, and no change in the transaction price for the Takeda Collaboration Agreement has been recorded during the three and nine months ended September 30, 2021.

Revenue is recognized under the Takeda Collaboration Agreement when, or as, the Company satisfies its performance obligations by transferring the promised services to Takeda.

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

There were no material changes in estimates during the three and six months ended June 30, 2021 or June 30, 2020.

A contract liability of $ 33.7 million and $ 39.8 million was recorded on the Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020, respectively.

There were no material changes in estimates during the three and nine months ended September 30, 2021 or September 30, 2020.

A contract liability of $ 29.2 million and $ 39.8 million was recorded on the Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020, respectively.

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

There was no receivable as of June 30, 2021 and a receivable of $ 8.0 million for a PTV:PGRN preclinical milestone as of December 31, 2020.

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

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

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

Through June 30, 2021, the Company has received $ 31.0 million in preclinical milestone payments from Takeda which are included in the transaction price described above, and has no t recorded any product sales under the Takeda Collaboration Agreement.

There was no receivable as of September 30, 2021 and a receivable of $ 8.0 million for a preclinical milestone as of December 31, 2020.

Through September 30, 2021, the Company has earned $ 31.0 million in preclinical milestone payments from Takeda, and has no t recorded any product sales under the Takeda Collaboration Agreement.

Collaboration Revenue

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

Three Months Ended June 30, Six Months Ended June 30,

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

2021 2020 2021 2020

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_________________________________________________

(1) $ 11.8 million of revenue for the six months ended June 30, 2021 was included in the contract liability balance at the beginning of the period.

All revenue for the three months ended June 30, 2021 and the three and six months ended June 30, 2020 was included in the contract liability balance at the beginning of the period.

(2) Revenue for the three and six months ended June 30, 2021 and June 30, 2020, where applicable, represent amounts that were included in the contract liability balance at the beginning of the respective period.

(1) $ 15.6 million of revenue for the nine months ended September 30, 2021 was included in the contract liability balance at the beginning of the period.

All revenue for the three months ended September 30, 2021 and the three and nine months ended September 30, 2020 was included in the contract liability balance at the beginning of the period.

(2) Revenue for the three and nine months ended September 30, 2021 and September 30, 2020, where applicable, represent amounts that were included in the contract liability balance at the beginning of the respective period.

License Agreements

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(“Genentech”).

The agreement gives the Company access to Genentech’s LRRK2 inhibitor small molecule program for Parkinson’s disease.

Under the agreement, Genentech granted the Company (i) an exclusive, worldwide, sublicensable license under Genentech’s rights to certain patents and patent applications directed to small molecule compounds which bind to and inhibit LRRK2 and (ii) a non-exclusive, worldwide, sublicensable license to certain related know-how, in each case, to develop and commercialize certain compounds and licensed products incorporating any such compound.

The Company may owe Genentech milestone payments upon the achievement of certain development, regulatory, and commercial milestones, up to a maximum of $ 315.0 million in the aggregate.

These milestones include up to $ 37.5 million in clinical milestone payments, $ 102.5 million in regulatory milestone payments and $ 175.0 million in commercial milestone payments.

In addition, the Company may owe royalties on net sales of licensed products ranging from low to high single-digit percentages.

Under the terms of our LRRK2 Agreement with Biogen, Biogen is responsible for 50 % of any payment obligation to Genentech under this agreement accruing after October 4, 2020.

To date, the Company has paid Genentech $ 12.5 million in the aggregate, including an upfront fee, a technology transfer fee and a clinical milestone payment, all of which was recorded as research and development expense as incurred.

No expenses were recorded in the three and six months ended June 30, 2021 or 2020.

The details of the Genentech License Agreement are further described in Note 7, License Agreements, to the consolidated financial statements in the Company's 2020 Annual Report on Form 10-K.

No expenses were recorded associated with the Genentech License Agreement in the three and nine months ended September 30, 2021 or 2020.

Commitments and Contingencies

Lease Obligations

In May 2018, the Company entered into an amendment to its operating lease for its former corporate headquarters in South San Francisco (the "Headquarters Lease Amendment") to relocate and expand its 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 the Company was deemed to have obtained control over the property.

The Company has 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.

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

The remaining lease term was 7.8 years at June 30, 2021.

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

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

This is recorded as leasehold improvement assets and an offset to the lease ROU asset on the Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020.

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

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

As the implicit rate of the Headquarters Lease Amendment was not known, the Company estimated a 9.0 % discount rate, which was management’s estimate of the Company’s incremental borrowing rate.

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

Total operating lease costs, including variable and short-term lease costs, were $ 2.8 million and $ 5.6 million for the three and six months ended June 30, 2021, respectively, and $ 2.9 million and $ 5.5 million for the three and six months ended June 30, 2020, respectively.

Cash paid for amounts included in the measurement of lease liabilities for the six months ended June 30, 2021 and June 30, 2020 of $ 5.1 million and $ 4.7 million, respectively, was included in net cash used in operating activities in the Company's Condensed Consolidated Statements of Cash Flows.

The following table reconciles the undiscounted cash flows for the next five years and total of the remaining years to the operating lease liabilities recorded in the Condensed Consolidated Balance Sheet as of June 30, 2021 (in thousands):

In May 2018, the Company entered into an operating lease for its corporate headquarters in South San Francisco (the "Headquarters Lease").

The details of the Headquarters Lease are further described in Note 9, Commitments and Contingencies, to the consolidated financial statements in the Company's 2020 Annual Report on Form 10-K.

During the third quarter of 2021, there were no changes to the terms of the Headquarters Lease.

In August 2021, the Company entered into an operating lease for approximately 50,000 square feet of laboratory, office and warehouse premises in Salt Lake City, Utah (“SLC Lease”), with a contractual term of approximately 8.4 years which will commence upon completion of certain improvements by the landlord and the Company, and future undiscounted lease payments totaling approximately $ 12.5 million.

For accounting purposes, the lease has not yet commenced as the landlord has not yet made the underlying asset available for use by Denali, and as such, no lease liability or ROU asset is recorded on the condensed consolidated balance sheet as of September 30, 2021, and no operating lease expense has been recorded for the three and nine months ended September 30, 2021.

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

The discount rate of our headquarters lease is an approximation of the Company's incremental borrowing rate and is dependent upon the term and economics of the agreement.

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

The following table contains a summary of the lease costs recognized under ASC 842 and other information pertaining to the Company’s operating leases for the periods presented (in thousands):

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

2021 2020 2021 2020

Operating lease cost (1)

$ 2,863 $ 2,833 $ 8,429 $ 8,341

Cash paid for amounts included in measurement of lease liability $ 2,618 $ 2,536 $ 7,717 $ 7,202

As of September 30,

Weighted average remaining lease term 7.6 years 8.6 years

Weighted average discount rate 9 % 9 %

__________________________________________________

(1) Including variable and short-term lease costs

The following table reconciles the undiscounted cash flows for the next five years and total of the remaining years to the operating lease liability recorded in the Condensed Consolidated Balance Sheet as of September 30, 2021 (in thousands):

Year Ended December 31:

2021 (six months) $ 5,237

2021 (three months) $ 2,618

Thereafter 42,148

2 unchanged sentences

Net operating lease liabilities $ 65,242

In October 2018, the Company entered into a sublease agreement ("Sublease Agreement") to sublease approximately 36,835 rentable square feet of space in its New Premises.

The Sublease Agreement has a term of five years from the commencement date of April 12, 2019 and provides for the Company to receive monthly base rent amounts escalating over the term of the lease.

The Company also passes through a portion of the operating expenses, such as taxes and insurance for the New Premises to the sublessee, which are treated as variable sublease income.

Total sublease income, including rent and variable sublease cost reimbursements, was $ 1.0 million for both the three months ended June 30, 2021 and 2020, and $ 1.9 million for both the six months ended June 30, 2021 and 2020.

The following table details the future undiscounted cash inflows relating to the Sublease Agreement as of June 30, 2021 (in thousands):

In October 2018, the Company entered into a sublease agreement ("Sublease Agreement") for space in the corporate headquarters.

The details of the Sublease Agreement are further described in Note 9, Commitments and Contingencies, to the consolidated financial statements in the Company's 2020 Annual Report on Form 10-K.

During the third quarter of 2021, there were no changes to the terms of the Sublease Agreement.

Total sublease income, including rent and variable sublease cost reimbursements, was $ 1.0 million and $ 0.9 million for the three months ended September 30, 2021 and 2020, respectively, and $ 2.9 million and $ 2.8 million for the nine months ended September 30, 2021 and 2020, respectively.

The following table details the future undiscounted cash inflows relating to the Sublease Agreement as of September 30, 2021 (in thousands):

Year Ended December 31:

2021 (six months) $ 1,474

2021 (three months) $ 737

Total undiscounted sublease receipts $ 7,718

6 unchanged sentences

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

As of June 30, 2021 and December 31, 2020, the Company 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, the Company had total non-cancellable purchase commitments under the DMSA of $ 28.4 million and $ 27.1 million, respectively, under the DMSA.

During the three months ended June 30, 2021 and 2020, the Company incurred costs of $ 3.2 million and $ 3.8 million, respectively, 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, the Company 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.

As of September 30, 2021 and December 31, 2020, the Company had open purchase orders for biological product development and manufacturing costs totaling $ 42.0 million and $ 33.0 million, respectively.

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

As of September 30, 2021 and December 31, 2020, the Company had total non-cancellable purchase commitments under the DMSA of $ 27.6 million and $ 27.1 million, respectively, under the DMSA.

During the three months ended September 30, 2021 and 2020, the Company incurred costs of $ 5.8 million and $ 1.4 million, respectively, and made payments of $ 4.0 million and $ 0.8 million, respectively, for the development and manufacturing services rendered under the DMSA.

During the nine months ended September 30, 2021 and 2020, the Company incurred costs of $ 14.2 million and $ 6.2 million, respectively, and made payments of $ 10.4 million and $ 6.0 million, respectively, for the development and manufacturing services rendered under the DMSA.

Contingencies

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

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

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

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

Amounts paid by the Company pursuant to the settlement agreement were determined to not be material.

Stock-Based Awards

1 unchanged sentence

Stock Option Activity

The following table summarizes stock option activity for the six months ended June 30, 2021:

The following table summarizes stock option activity for the nine months ended September 30, 2021:

Number of Options

5 unchanged sentences

( 259,060 ) 34.89

Balance at June 30, 2021 13,993,984 $ 23.60

Vested and expected to vest at June 30, 2021

Balance at September 30, 2021 13,814,376 $ 24.11

Vested and expected to vest at September 30, 2021

12,078,689 $ 27.48

Exercisable at June 30, 2021 7,487,043 $ 14.67

Exercisable at September 30, 2021 7,856,046 $ 15.22

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

Six Months Ended June 30,

Nine Months Ended September 30,

Expected term (in years)

6 unchanged sentences

Restricted Stock Activity

The following table summarizes restricted stock unit ("RSU") activity for the six months ended June 30, 2021:

The following table summarizes restricted stock unit ("RSU") activity for the nine months ended September 30, 2021:

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

3 unchanged sentences

Forfeited ( 126,827 ) 60.92

Unvested at June 30, 2021 2,646,901 $ 41.13

Expected to vest at June 30, 2021 2,646,901 $ 41.13

Unvested at September 30, 2021 2,621,853 $ 43.83

Expected to vest at September 30, 2021 2,621,853 $ 43.83

Stock-Based Compensation Expense

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

Three Months Ended June 30, Six Months Ended June 30,

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

2021 2020 2021 2020

7 unchanged sentences

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

Three and Six Months Ended June 30,

Three and Nine Months Ended September 30,

Options issued and outstanding and ESPP shares issuable

3 unchanged sentences

16,498,968 15,950,786

Subsequent Event

In July 2021, a side letter was executed to the Company's agreements with F-star, which are disclosed in footnote 5 in the 2020 Annual Report on Form 10-K.

This side letter confirmed the completion of the research services performed by F-star Ltd that were funded by the Company.

The execution of the side letter is not expected to have any impact on the financial statements.

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

What changed 10-Q

Item 1. Financial Statements