What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-04 compared with 2021-08-04 · 69 added, 88 removed, 275 unchanged (36% of the section changed)

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• 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;

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• 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");

• our eukaryotic initiation factor 2 B ("eIF2B") activator program to address diseases such as amyotrophic lateral sclerosis ("ALS") and frontotemporal dementia ("FTD");

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

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

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

EIF2B DNL343 Ph 1 ALS and FTD Denali

eIF2B DNL343 Ph 1b (in ALS) ALS and FTD Denali

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

RIPK1 (Peripheral) DNL758 (SAR443122) Ph 2 CLE

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

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

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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.

• In December 2020 and January 2021, GLP toxicology studies were initiated for DNL593 ("PTV:PGRN") and DNL919 ("ATV:TREM2"), 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;

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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:

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

• 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;

• In June 2021, we announced that our collaboration 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;

• 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).

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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.

Based on these data, we began enrolling Cohort C in the Phase 1/2 study to further investigate clinical endpoints, and we plan to initiate a pivotal Phase 2/3 study of DNL310 in the first half of 2022;

• In August 2021 we entered into a lease for approximately 50,000 square feet of laboratory, office and warehouse premises in Salt Lake City, Utah.

We have initiated the build-out of the Utah site to expand our clinical manufacturing capabilities for biologic therapeutics (large molecules) with the goal of increasing flexibility and speed in advancing new investigational therapies into clinical trials;

• In September, at Biogen’s R&D Day event, we provided a progress update on our collaboration with Biogen to develop DNL151 (BIIB122) for PD.

Together with Biogen, we highlighted data supporting the advancement to late-stage clinical development and ongoing start-up activities for DNL151 (BIIB122) in preparation to commence PD studies.

As previously announced, two studies are planned:

one in participants with PD who do not carry a LRRK2 mutation and another in PD participants with LRRK2 mutations.

Biogen will lead operationalization and conduct of these studies;

• In October 2021, we presented results from a Phase 1 healthy volunteer study demonstrating that DNL343 met safety and biomarker goals.

The Phase 1 data supported initiation of a Phase 1b study in participants with ALS, which commenced dosing in August 2021;

• In October 2021, we announced that our collaboration partner Sanofi advanced development of DNL788 (SAR443820) in ALS and that the U.S.

FDA granted DNL788 (SAR443820) Fast Track designation for the potential treatment of ALS.

Results from a Phase 1 study of DNL788 (SAR443820) in healthy volunteers demonstrated robust target engagement at doses that were generally well tolerated.

Sanofi plans to initiate the Phase 2 study, named HIMALAYA, in the first quarter of 2022.

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

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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.

Our net losses wer e $84.6 million and $215.3 million for the three and nine months ended September 30, 2021 , respectively, and $58.2 million and $173.7 million for the three and nine months ended September 30, 2020, respectively.

As of September 30, 2021, we had an accumulated deficit o f $569.7 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;

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Results of Operations

Comparison of the three and six months ended June 30, 2021 and 2020

Comparison of the three and nine months ended September 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

Three Months Ended September 30, Change

2021 2020 $ %

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Loss before income taxes (84,588) (58,172) (26,416) 45

Income tax provision — (79) 79 (100)

Income tax expense — (56) 56 (100)

Net loss $ (84,588) $ (58,228) $ (26,360) 45 %

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* Percentage is not meaningful.

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

2021 2020 $ %

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Loss before income taxes (215,320) (173,749) (41,571) 24

Income tax benefit — 56 (56) (100)

Net loss $ (215,320) $ (173,749) $ (41,571) 24 %

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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.

Collaboration revenue was $5.3 million and $36.1 million for the three and nine months ended September 30, 2021, respectively, and $9.4 million and $18.8 million for the three and nine months ended September 30, 2020, respectively.

The decrease in collaboration revenue of $4.1 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 was primarily due to a decrease in revenue from our collaboration with Takeda driven by decreased costs incurred in the underlying partnered programs.

The increase of $17.3 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 was primarily due to the recognition of a $15.0 million milestone payment in June 2021 under our collaboration with Sanofi related to the initiation of the Phase 2 study of DNL758 (SAR443122) and revenue of $2.5 million from our collaboration with Biogen.

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.

Research and development expenses were $71.6 million and $197.5 million for the three and nine months ended September 30, 2021, compared to $53.7 million and $157.9 million for the three and nine months ended September 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,

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

2021 2020 2021 2020

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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;

• 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.

(1) Personnel-related expenses include stock-based compensation expense of $12.2 million and $37.0 million for the three and nine months ended September 30, 2021, respectively, and $7.8 million and $21.0 million for the three and nine months ended September 30, 2020, respectively, reflecting an increase of $4.4 million and $16.0 million, respectively.

(2) Cost sharing reimbursements from Biogen during the three and nine months ended September 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 $17.9 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020, was primarily attributable to the following:

• An increase of $7.8 million in personnel-related expenses, consisting of a $4.4 million increase in stock-based compensation expense primarily attributable to additional equity award grants, and a $3.4 million increase in salaries and related expenses attributable to an increase in our research and development headcount;

• An increase of $5.5 million in ETV:IDS program external expenses reflecting the continued progress of this program in clinical trials during 2021;

• Increases of $4.5 million and $3.4 million in TV platform and other program external expenses, and other external research and development expenses, respectively, reflecting the progress in our TV platform PTV:PGRN and ATV:TREM2 programs as well our continued investment in developing a robust pipeline;

• An increase of $1.1 million in other unallocated research and development expenses, primarily due to an increase of $0.8 million in lab consumable expenses, an increase in facilities-related expenses of $0.3 million including depreciation expense, both due to our increased research and development headcount.

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;

• 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;

The increase in research and development expenses of approximately $39.6 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, was primarily attributable to the following:

• An increase of $24.8 million in personnel-related expenses, consisting of a $16.0 million increase in stock-based compensation expense primarily attributable to additional equity award grants and our increased market price, and a $8.8 million increase in salaries and related expenses attributable to an increase in our research and development headcount;

• An increase of $13.4 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 as our continued investment in developing a robust pipeline;

• Increases of $5.9 million and $10.9 million in eIF2B and ETV:IDS program external expenses, respectively, reflecting the progress of these programs in clinical trials during 2021;

• An increase of $2.4 million in other unallocated research and development expenses, which is primarily due to an increase in facilities-related expenses of $1.3 million including depreciation expense and certain costs associated with COVID-19 safety protocols and an increase in lab consumable expenses of $1.3 million, partially offset by a $0.2 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.

• An increase of $1.4 million in other external research and development expenses primarily due to increased investment in our pipeline.

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.

General and administrative expenses were $19.3 million for the three months ended September 30, 2021 compared to $15.8 million for the three months ended September 30, 2020.

The increase of $3.5 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;

• $4.5 million of increased personnel-related expenses, driven by higher general and administrative headcount and stock-based compensation expense associated with additional equity award grants;

• $0.5 million of increased other general costs, including insurance, tax and IT related expenses;

• $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.

• $0.2 million of increased facilities related expenses, including depreciation expense.

These increases were partially offset by a decrease of $1.7 million in legal and other professional services expenses due to costs incurred in 2020 associated with the execution of the Biogen Collaboration Agreement.

General and administrative expenses were $57.3 million for the nine months ended September 30, 2021 compared to $42.3 million for the nine months ended September 30, 2020.

The increase of $15.0 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;

• $13.5 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 increased market price;

• $2.2 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;

• $0.5 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.

These increases were partially offset by a decrease of $1.2 million in legal and other professional services expenses due to costs incurred in 2020 associated with the execution of the Biogen Collaboration Agreement.

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.

Interest and other income, net was $1.0 million and $3.3 million for the three and nine months ended September 30, 2021, compared to $1.9 million and $7.6 million for the three and nine months ended September 30, 2020, respectively.

The decreases of $0.9 million and $4.3 million, respectively, were primarily due to decreased interest income earned on our investments due to declining interest rates.

Income tax expense.

There was an income tax expense of $0.1 million for the three months ended September 30, 2020 associated with a decrease in unrealized gains on marketable securities in other comprehensive income.

There was no income tax expense for the nine months ended September 30, 2020 or for the three and nine months ended September 30, 2021.

Liquidity and Capital Resources

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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 .

Pursuant to the Takeda Collaboration Agreement, we have received $71.0 million related to upfront and milestone payments through September 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 Sanofi Collaboration Agreement, we have received $150.0 million related to upfront and milestone payments through September 30, 2021 .

W e have also received $13.7 million for performance of Retained Activities.

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.

We have received cost sharing reimbursements of $13.3 million from Biogen through September 30, 2021.

As of September 30, 2021, we had cash, cash equivalents and marketable securities in the amount of $1.36 billion.

Future Funding Requirements

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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 have an accumulated deficit of $569.7 million through September 30, 2021.

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

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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,

Nine Months Ended September 30,

Net cash used in operating activities $ (145,895) $ (97,763)

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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.

During the nine months ended September 30, 2021, cash used in operating activities was $145.9 million, which consisted of a net loss of $215.3 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 Investing Activities

During the nine months ended September 30, 2021, cash provided by investing activities was $19.1 million, which consisted of $1.22 billion in proceeds from the maturity of marketable securities, partially offset by $1.19 billion of purchases of marketable securities and $5.4 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.

During the nine months ended September 30, 2021, cash provided by financing activities was $14.2 million in proceeds from the exercise of options to purchase common stock and the purchase of ESPP shares.

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.

Except as discussed in Note 7, Commitments and Contingencies, in the notes to condensed consolidated financial statements, there have been no material changes to our contractual obligations and commitments as included in our 2020 Annual Report on Form 10-K, which was filed with the SEC on February 26, 2021.

Critical Accounting Policies and Significant Judgments and Estimates

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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 .

There have been no material changes to our critical accounting policies and estimates during the nine months ended September 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.

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 nine months ended September 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.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis