What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-28 compared with 2021-02-26 · 201 added, 247 removed, 768 unchanged (37% of the section changed)

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Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Accounting for revenue under the Takeda Collaboration & Option Agreement

Description of the Matter Collaboration revenue recognized from the Company’s Collaboration and Option Agreement with Takeda Pharmaceutical Company Limited was $27.2 million for the year ended December 31, 2020.

As discussed in Note 6 to the consolidated financial statements, the Company entered into a Collaboration and Option Agreement with Takeda Pharmaceutical Company Limited during 2018 to develop and commercialize various research programs.

The Company is recognizing the revenue allocated to certain performance obligations using an input method, which involves the measurement of progress toward each performance obligation based on a measurement of the actual costs incurred for the related research and development activities for each program compared to the total costs expected to be incurred to satisfy the respective obligation.

Auditing the Company’s estimated measure of progress is complex.

The Company’s estimate of costs expected to be incurred in the future requires estimation of the amounts it expects to incur for research and development by project.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s collaboration revenue process, including controls over the identification of actual costs incurred and the Company’s estimation of total expected costs used in its measure of progress calculations, as well as controls over the completeness and accuracy of data used in the calculations.

Our audit procedures included, among others, gaining an understanding and testing the significant assumptions used in the Company’s estimates of total expected costs by project, and testing the completeness and accuracy of the underlying data used by the Company in its revenue recognition model.

We performed inquiries of the research and development personnel responsible for the specific development projects to corroborate management’s assumptions used in the Company’s estimates of total expected costs by project, reviewed any changes in the product development timeline and/or increases or decreases in the total expected costs by project on a quarterly basis, and examined evidence supporting key inputs of the revenue recognition model including assessing whether actual costs incurred were appropriate under the terms of the respective contracts.

We compared the estimates of total expected costs by project to actual costs incurred on a quarterly basis to evaluate management’s ability to forecast costs.

We also tested the amount of historical costs incurred under each project and the calculation of amounts recognized under the revenue recognition model.

Accounting for revenue under the Biogen LRRK2 Collaboration & License Agreements, Right of First Negotiation, Option and License Agreement, and Common Stock Purchase Agreement

Description of the Matter Collaboration revenue recognized under the Company’s LRRK2 Collaboration & License Agreements, Right of First Negotiation, Option and License Agreement, and Common Stock Purchase Agreement (collectively the “Agreements”) with Biogen MA Inc.

and Biogen International GmbH (collectively “Biogen”) was approximately $307.4 million for the year ended December 31, 2020.

Contract liability recognized under the Agreements was $297.4 million.

As discussed in Note 6 to the consolidated financial statements, the Company entered into the Agreements during 2020 pursuant to which the Company granted Biogen a license to co-develop and co-commercialize Denali’s small molecule LRRK2 inhibitor program, options to the Company’s amyloid beta program utilizing the Company’s Transport Vehicle (“TV”) technology platform and one unnamed program using the Company’s TV technology platform, a right of first negotiation to two additional unnamed programs for various indications for total upfront payments of $560.0 million.

In addition, the Company sold 13.3 million shares of its common stock to Biogen for total proceeds of $465.0 million.

Auditing the Company’s revenue recognition for the Agreements is complex and required significant auditor judgement.

Significant judgement is required to apply the authoritative accounting guidance at the outset of the Agreements, including the determination of performance obligations and transaction price, as well as allocation of the transaction price among the performance obligations.

The allocation of the transaction price among the performance obligations involves estimation of the standalone selling price of each performance obligation which is based on various assumptions, which may include projected income, estimated cost, probability of success of the underlying asset, likelihood of exercising an option and discount rate.

Furthermore, the common shares sold to Biogen include certain restrictions, which require the use of a valuation model for purposes of determining the fair value of the shares for financial reporting purposes, with any resulting premium impacting the transaction price.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of the controls over the Company’s process for accounting for revenue recognition of collaboration arrangements with multiple performance obligations.

This included testing management’s controls over the identification of performance obligations, the determination of transaction price, and the allocation of transaction price, including management’s review of the methodologies and significant assumptions utilized in the determination of the standalone selling price of the various performance obligations and fair value of common shares sold.

Our audit procedures included, among others, evaluating the Company’s assessment of the authoritative guidance applied to the Agreements, inspecting the Agreements, evaluating management’s interpretation of certain contract provisions when identifying performance obligations, and allocating transaction price to identified performance obligations.

We also evaluated the Company’s key assumptions and judgements and tested the completeness and accuracy of the underlying data used to determine the standalone selling price of each performance obligation.

We evaluated the significant assumptions by reference to data sources used by management and, where necessary, to information obtained through other independent sources to note whether such information corroborated or contradicted management’s conclusions.

We also performed sensitivity analyses over these assumptions to evaluate the extent of resulting changes to the standalone selling prices of the performance obligations and the allocation of the overall transaction price.

We also involved valuation specialists to test the Company’s valuation methodologies and conclusions, including those related to the standalone selling prices and fair value of the common shares.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue recognition for license, option and collaboration arrangements

Description of the Matter The Company recognized total collaboration revenue of $48.7 million for the year ended December 31, 2021.

As discussed in Note 1 to the consolidated financial statements, the terms of license, option and collaboration arrangements typically include payments for up-front license fees, option exercise fees, milestones, manufacturing supply and research development services, as well as royalties on net sales of licensed products.

The license, option and collaboration agreements often contain multiple elements delivered to the counterparty, including but not limited to i) licenses to IP;

ii) research and / or development services;

iii) options to license IP in the future;

and iv) participation in joint collaborative activities to develop and commercialize the partnered IP.

Auditing the Company's accounting for license, option and collaboration arrangements, such as the accounting resulting from Takeda’s exercise of its option rights to collaborate on DNL593 (PTV:PGRN) and DNL919 (ATV:TREM2) under the Takeda Option and Collaboration Agreement during 2021, is complex and requires significant auditor judgment.

Significant judgment and technical complexity is required to apply the authoritative accounting literature at the outset of the arrangement, including i) determining whether the arrangement is a new contract or a modification to an existing contract;

ii) identifying the underlying promised goods and / or services iii) evaluating whether the underlying promised goods and / or services are elements within the scope of Accounting Standards Codification (ASC) 808 Collaborative Arrangements or distinct performance obligations within the scope of ASC 606, Revenue from Contracts with Customers ;

and iv) determining and allocating transaction price to identified performance obligations.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over the Company’s process for accounting for new license, option and collaboration arrangements or modifications to existing arrangements.

For example, we tested management’s controls over the i) assessment of contracts as either new contracts or modifications to existing contracts;

ii) identification of promised goods and / or services within the arrangement;

and iii) determination of the accounting treatment for such promised goods and / or services.

Our audit procedures included, among others, i) evaluating the Company’s assessment of the authoritative guidance applied to the arrangements;

ii) inspecting the executed contracts to verify the completeness and accuracy of management’s assessment;

iii) evaluating management’s interpretation of certain contract provisions when determining which promises represent distinct performance obligations;

and iv) testing the allocation and recognition of transaction price to such identified performance obligations.

/s/ Ernst & Young LLP

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Additional paid-in capital 1,608,238 1,503,660

Accumulated other comprehensive income (loss) ( 245 ) 350

Accumulated other comprehensive loss ( 2,499 ) ( 245 )

Accumulated deficit ( 644,996 ) ( 354,415 )

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Income (loss) before income taxes ( 291,156 ) 71,959 ( 197,965 )

Income tax (expense) benefit ( 823 ) 351 —

Income tax benefit (expense) 575 ( 823 ) 351

Net income (loss) ( 290,581 ) 71,136 ( 197,614 )

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__________________________________________________

(1) Includes related party collaboration revenue from customer of $ 307,437 .

(2) Includes an offset to expense from related party cost reimbursement of $ 9,260 .

(1) Includes related party collaboration revenue from customer of $ 3,736 and $ 307,437 for the years ended December 31, 2021 and 2020, respectively.

(2) Includes an offset to expense from related party cost reimbursement of $ 6,499 and $ 9,260 for the years ended December 31, 2021 and 2020, respectively.

See accompanying notes to consolidated financial statements.

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Balance at December 31, 2018 94,662,435 $ 1,273 $ 774,158 $ ( 649 ) $ ( 227,937 ) $ 546,845

Issuance of common stock in connection with the Takeda Collaboration Agreement 4,214,559 42 94,364 — — 94,406

Issuances under equity incentive plans

Vesting of early exercised common stock 234,372 3 371 — — 374

Vesting of restricted stock awards 1,940,203 19 ( 19 ) — — —

Stock-based compensation — — 18,791 — — 18,791

Net loss — — — — ( 36,240 ) ( 36,240 )

Other comprehensive loss — — — ( 281 ) — ( 281 )

Balance at December 31, 2018 94,662,435 1,273 774,158 ( 649 ) ( 227,937 ) 546,845

Issuances under equity incentive plans

973,012 9 6,181 — — 6,190

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

Issuances under equity incentive plans 1,117,636 11 19,337 — — 19,348

Vesting of restricted stock awards 634,336 6 ( 6 ) — — —

Stock-based compensation — — 85,247 — — 85,247

Net loss — — — — ( 290,581 ) ( 290,581 )

Other comprehensive loss — — — ( 2,254 ) — ( 2,254 )

Balance at December 31, 2021 122,283,305 $ 1,548 $ 1,608,238 $ ( 2,499 ) $ ( 644,996 ) $ 962,291

See accompanying notes to consolidated financial statements.

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Net income (loss) $ ( 290,581 ) $ 71,136 $ ( 197,614 )

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization 8,593 8,531 7,991

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Related party contract liability ( 3,737 ) 297,418 —

Deferred rent — — 3,438

Other non-current liabilities ( 322 ) 322 —

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

Payments of issuance costs related to issuance for common stock — — ( 1,342 )

Payments of issuance costs related to issuance for preferred stock — — ( 44 )

Proceeds from exercise of awards under equity incentive plans 19,348 20,655 6,190

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Principles of Consolidation

These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary.

These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.

All intercompany balances and transactions have been eliminated in consolidation.

For the Company and its subsidiary, the functional currency has been determined to be U.S.

Monetary assets and liabilities denominated in foreign currency are remeasured at period-end exchange rates.

Non-monetary assets and liabilities denominated in foreign currencies are remeasured at historical rates.

Foreign currency transaction gains and losses resulting from remeasurement are recognized in interest and other income, net in the Consolidated Statements of Operations and Comprehensive Income (Loss).

For the Company and its subsidiaries, the functional currency has been determined to be U.S.

Monetary assets and liabilities denominated in foreign currency are remeasured at period-end exchange rates, non-monetary assets and liabilities denominated in foreign currencies are remeasured at historical rates, and transactions in foreign currencies are remeasured at average exchange rates.

Foreign currency gains and losses resulting from remeasurement are recognized in interest and other income, net in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Use of Estimates

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Actual results could differ from those estimates, and such differences could be material to the Consolidated Balance Sheets and Consolidated Statements of Operations and Comprehensive Income (Loss).

Reclassifications

Certain amounts in prior period financial statements have been reclassified to conform to the current period presentation.

Such reclassifications have not materially affected previously reported amounts.

Concentration of Credit Risk and Other Risks and Uncertainties

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Level 1 – inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 – inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 2 – inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 – inputs are unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability.

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Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The carrying amounts reflected in the Consolidated Balance Sheets for cash and cash equivalents, prepaid expenses and other current assets, accounts payable and accrued liabilities approximate their fair values, due to their short-term nature.

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

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

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

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

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

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

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The Company has not recorded any such impairment charges during the years presented.

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

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

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

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

A right-of-use

(“ROU”) asset and operating lease liability is recognized for identified operating leases in the Consolidated Balance Sheets.

A right-of-use (“ROU”) asset and operating lease liability is recognized for identified operating leases in the Consolidated Balance Sheets.

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

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Revenue Recognition

License and Collaboration Revenue

License, Option and Collaboration Revenue

The Company analyzes its collaboration arrangements to assess whether they are within the scope of ASC 808, Collaborative Arrangements (“ASC 808”) to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities.

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The accounting treatment pursuant to Topic 606 is outlined below.

The terms of licensing and collaboration agreements entered into typically include payment of one or more of the following:

The terms of license, option and collaboration agreements entered into typically include payment of one or more of the following:

non-refundable, up-front license fees;

option exercise fees;

development, regulatory and commercial milestone payments;

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Research and development costs consist of salaries and other personnel related expenses, including associated stock–based compensation, consulting fees, lab supplies, and facility costs, as well as fees paid to other entities that conduct certain research, development and manufacturing activities on behalf of the Company.

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

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

Nonrefundable advance payments for goods and services that will be used or received in future research and development activities are deferred and recognized as expense in the period in which the related goods are delivered or services are performed.

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The Company’s stock-based compensation programs grant awards that have included stock options, restricted stock units, restricted stock awards, and shares issued under its employee stock purchase plan.

Grants are awarded to employees, including directors, and non-employees.

The Company measures compensation expense for all stock-based awards at the grant date based on the fair value measurement of the award, which for non-employee stock-based awards became effective subsequent to the adoption of ASU No.

2018-07, Stock C ompensation (Topic 718):

Improvements to Nonemployee Share-Based Payment Accounting on September 30, 2018.

Grants are awarded to employees, including directors, and non-employee service providers.

The Company measures compensation expense for all stock-based awards at the grant date based on the fair value measurement of the award.

The expense is recorded on a straight-line basis over the requisite service period, which is generally the vesting period, for the entire award.

Expense is adjusted for actual forfeitures of unvested awards as they occur.

The Company calculates the fair value measurement of stock options using the Black-Scholes valuation model.

The Company uses the fair value of our common stock to determine the fair value of restricted stock awards.

The Company calculates the fair value measurement of stock options subject solely to service-based vesting requirements using the Black-Scholes valuation model.

The Company uses the fair value of its common stock to determine the fair value of restricted stock awards.

Income taxes are accounted for using the liability method, under which deferred tax assets and liabilities are determined based on the temporary differences between the financial reporting and tax bases of assets and liabilities and consideration is given to net operating losses and tax credit carryforwards.

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In this case, diluted net loss per share is equal to basic net loss per share.

Recently Issued Accounting Pronouncement

Recently Adopted Accounting Pronouncement

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

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2019-12 modifies ASC 740 to simplify several aspects of accounting for income taxes, including eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation.

The guidance is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years, with early adoption permitted, and is required to be adopted prospectively, with the exception of certain specific amendments.

The Company is currently finalizing its assessment of the impact of this ASU and does not expect it to have a material impact on its Consolidated Financial Statements.

Recently Adopted Accounting Pronouncement

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments-Credit Losses:

Measurement of Credit Losses on Financial Instruments .

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

In April 2019, the FASB issued clarification to ASU 2016-13 within ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging , and Topic 825, Financial Instruments .

The Company adopted this standard as of January 1, 2020 using a modified retrospective approach.

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

The guidance was effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years, with early adoption permitted, and is required to be adopted prospectively, with the exception of certain specific amendments, which were not applicable to the Company.

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

Adoption of the standard did not have a material impact on the Company's Consolidated Financial Statements.

Fair Value Measurements

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Money market funds $ 265,294 $ — $ — $ 265,294

government treasuries 149,997 — — 149,997

Short-term marketable securities:

government treasuries 450,436 — — 450,436

government agency securities — 25,217 — 25,217

Corporate debt securities — 70,009 — 70,009

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Corporate debt securities — 15,302 — 15,302

Foreign currency derivative contracts — 185 — 185

Total $ 1,125,877 $ 136,796 $ — $ 1,262,673

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Total $ — $ 11 $ — $ 11

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

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

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

There were no transfers of assets or liabilities between the fair value measurement levels during the years ended December 31, 2020 or 2019.

The Company has not transferred any assets or liabilities between the fair value measurement levels during the years ended December 31, 2021 or 2020.

Marketable Securities

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$ 450,689 $ — $ ( 253 ) $ 450,436

government agency securities (2)

25,214 5 ( 2 ) 25,217

Corporate debt securities (2)

70,076 1 ( 68 ) 70,009

Commercial paper 51,485 — — 51,485

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government treasuries (3)

411,904 — ( 1,757 ) 410,147

Corporate debt securities (4)

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(2) Unrealized holding losses on 16 securities with an aggregate fair value of $ 68.5 million.

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

(3) Unrealized holding loss on 16 securities with an aggregate fair value of $ 410.1 million.

(4) Unrealized holding loss on 6 securities with an aggregate fair value of $ 15.3 million.

December 31, 2020

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government agency securities (2)

Corporate debt securities (2)

25,214 5 ( 2 ) 25,217

Corporate debt securities 27,101 79 — 27,180

Commercial paper 31,218 — — 31,218

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government treasuries 2,561 — — 2,561

13,865 6 ( 2 ) 13,869

Corporate debt securities (3)

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

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

As of December 31, 2020 and 2019, 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 December 31, 2020 and there was no other-than-temporary impairment as of December 31, 2019 .

As of December 31, 2021 and 2020, many 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 December 31, 2021 and 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.

Further, these marketable securities were initially, and continue to be, held with investment grade, high credit quality institutions.

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

The Company recorded unrealized gains on marketable securities in other comprehensive income for the year ended December 31, 2019.

As a result, the Company recorded a tax benefit of 0.4 million for the year ended December 31, 2019 on the Consolidated Statements of Operations and Comprehensive Income (Loss) and a corresponding tax charge in other comprehensive income.

There was no unrealized gain on marketable securities in other comprehensive income for the years ended December 31, 2020, or 2018, and as such there was no tax benefit recorded for the years ended December 31, 2020 and 2018 on the Consolidated Statements of Operations and Comprehensive Income (Loss) .

Further, the majority of securities in an unrealized loss position are U.S.

government securities.

The remainder of these marketable securities were initially, and continue to be, held with investment grade, high credit quality institutions.

All of these marketable securities have been in a loss position for less than twelve months or the loss is not material.

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

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

Euros 26 3,855 Jan 2021 - Nov 2021

British Pounds 21 2,658 Jan 2021 - Nov 2021

Euros 7 800 Jan 2022 - Jun 2022

British Pounds 6 900 Jan 2022 - Jun 2022

Total at December 31, 2021

Euros 26 3,855 Jan 2021 - Nov 2021

British Pounds 15 2,285 Jan 2020 - Jun 2020

Swiss Francs 10 129 Jan 2020 - Aug 2020

British Pounds 21 2,658 Jan 2021 - Nov 2021

Total at December 31, 2020

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

Immaterial derivative liabilities are recorded on the Consolidated Balance Sheets as of December 31, 2020, and 2019.

A derivative asset balance of $ 0.2 million is recorded in prepaid expenses and other current assets on the Consolidated Balance Sheets as of December 31, 2020 and an immaterial derivative asset balance is recorded in prepaid expenses and other current assets on the Consolidated Balance Sheets as of December 31, 2019.

Net gains of $ 0.1 million and $ 0.2 million, and a net loss of $ 0.2 million, each associated with the Company's derivative instruments, are recognized in interest and other income, net on the Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2020, 2019 and 2018, respectively.

In August 2016, the Company entered into a License and Collaboration Agreement (“F-star Collaboration Agreement”) with F-star Gamma Limited (“F-star Gamma”), F-star Biotechnologische Forschungs-und Entwicklungsges M.B.H ("F-star GmbH") and F-star Biotechnology Limited ("F-star Ltd") (collectively, “F-star”) to leverage F-star’s modular antibody technology and the Company’s expertise in the development of therapies for neurodegenerative diseases.

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

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

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

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

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The Company recognized $ 1.5 million of contingent consideration as research and development expense for the year ended December 31, 2019.

There was no contingent consideration recognized for the year ended December 31, 2020.

There was no contingent consideration recognized for the years ended December 31, 2021 and 2020.

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

Under the F-star Collaboration Agreement, the Company is responsible for certain research costs incurred by F-star Ltd in conducting activities under an agreed development plan for each Fcab, for up to 24 months after the target Fcab is accepted.

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

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

The Company recognized $ 1.2 million, $ 1.1 million, and $ 0.8 million in research and development expense related to the funding of F-star activities under these development plans during the years ended December 31, 2020, 2019, and 2018, respectively.

Under the F-star Collaboration Agreement, the Company was responsible for certain research costs incurred by F-star Ltd in conducting activities under an agreed development plan for each Fcab, for up to 24 months after the target Fcab is accepted.

In July 2021, a side letter was executed to the Company's agreements with F-star, which confirmed the completion of the research services performed by F-star Ltd that were funded by the Company.

The Company recognized $ 0.1 million, $ 1.2 million, and $ 1.1 million in research and development expense related to the funding of F-star Ltd activities under development plans during the years ended December 31, 2021, 2020, and 2019, respectively.

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.

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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.

Biogen made an upfront payment of $ 560.0 million upon execution of the Biogen Collaboration Agreement in October 2020.

LRRK2 Agreement

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.

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

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

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

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.

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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, 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.

Stock Purchase Agreement

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.

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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 Provisional Biogen Collaboration Agreement.

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

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

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

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

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

All other potential future payments were considered constrained at inception through execution of the Biogen Collaboration Agreement since they were all contingent on the execution of the Biogen Collaboration Agreement.

Through execution of the Biogen Collaboration Agreement, management determined that no performance obligation was satisfied or delivered to Biogen.

Since no performance obligation had been satisfied, no related party revenue was recognized under ASC 606 prior to execution of 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.

ROFN and Option Agreement

Under this agreement, 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"):

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

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

In October 2020, the Company received upfront payments totaling $ 560.0 million pursuant to the Biogen Collaboration Agreement.

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

The Biogen Collaboration Agreement was 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:

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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 Agreements.

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.

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A related party contract liability of $ 293.7 million was recorded on the Consolidated Balance Sheet as of December 31, 2021 .

Approximately $ 288.9 million of this contract liability relates to the revenue allocated to the material right for an option under the ROFN and Option Agreement which is being deferred until resolution of the option which is expected to be several years from the balance sheet date, and $ 8.5 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 $ 9.3 million of cost sharing reimbursements for interim LRRK2 development activities and LRRK2 Development Activities as an offset to research and development expenses in the Consolidated Statement of Operations and Comprehensive Income for the year ended December 31, 2020, of which $ 5.7 million was recorded as cost sharing reimbursements due from Biogen on the Consolidated Balance Sheet as of December 31, 2020 .

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 within one year of the balance sheet date, and $ 4.8 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 more than one year .

The Company recorded $ 6.5 million and $ 9.3 million of cost sharing reimbursements for interim LRRK2 development activities and LRRK2 Development Activities as an offset to research and development expenses in the Consolidated Statement of Operations and Comprehensive Income for the year ended December 31, 2021 and 2020, respectively , of which $ 1.2 million and $ 5.7 million was recorded as cost sharing reimbursements due from related party on the Consolidated Balance Sheet as of December 31, 2021 and 2020, 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.

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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.

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

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

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

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

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

The transaction price increased by $ 1.0 million, $ 10.4 million and $ 2.3 million, for the years ended December 31, 2020, 2019 and 2018, respectively, related to costs incurred for Retained Activities that were no longer constrained.

Additionally, the $ 10.0 million milestone triggered by the commencement of a DNL758 (SAR443122) Phase 1 clinical trial in healthy volunteers was included in the increase in transaction price for the year ended December 31, 2019.

The transaction price increased by $ 15.0 million and $ 10.0 million for the years ended December 31, 2021 and 2019, respectively, related to clinical milestones received, and by $ 1.0 million and a further $ 10.4 million, for the years ended December 31, 2020 and 2019, 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.

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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 will be recognized over time using the input method, based on costs incurred to perform the services, since the level of costs incurred over time is thought to best reflect the transfer of services to Sanofi.

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

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

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

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

The Company recorded a receivable associated with the Sanofi Collaboration Agreement on the Consolidated Balance Sheets as of December 31, 2020 and 2019 of $ 44,303 and $ 1.2 million, respectively.

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

In assessing the Sanofi 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 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 December 31, 2020, the Company has received milestone payments of $ 10.0 million and has no t recorded any product sales under the Sanofi Collaboration Agreement.

Through December 31, 2021, the Company has earned milestone payments of $ 25.0 million, including a $ 15.0 million milestone triggered in June 2021 upon first patient in a Phase 2 study of SAR443122/DNL758 in patients with cutaneous lupus erythematosus, 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 programs were the Company ’s ATV:BACE1/Tau, 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.

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The amendment did not have a material impact to the 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.

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

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

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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.

Subsequent to Takeda exercising 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.

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

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

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

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

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

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

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

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

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

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.

There was no change in the transaction price during the years ended December 31, 2020, 2019 and 2018.

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

This will be reassessed at each reporting period.

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A contract liability of $ 27.9 million and $ 39.8 million was recorded on the Consolidated Balance Sheets as of December 31, 2021 and 2020, respectively.

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

In December 2020 and January 2021, GLP toxicology studies were initiated for PTV:PGRN and ATV:TREM2, respectively, triggering the second preclinical milestone payments of $ 8.0 million for each program.

There was a receivable of $ 8.0 million for the PTV:PGRN milestone as of December 31, 2020 and no receivable as of December 31, 2019, related to the Takeda Collaboration Agreement.

The second preclinical milestone payment for PTV:PGRN was received in January 2021.

Revenue recognized relating to future milestone payments of $ 4.6 million and $ 2.4 million, which the Company concluded is probable that a significant reversal in the amount recognized will not occur, is presented net in the contract liability on the Consolidated Balance Sheets as of December 31, 2020 and 2019, respectively.

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

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

There is some increase in the judgment required in estimating the timing of future costs due to the COVID-19 pandemic.

This is because it is challenging to predict the duration and extent of the impact of the COVID-19 pandemic on the third-party service providers assisting with the Company's ATV:Tau, ATV:TREM2 and PTV:PGRN programs.

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

Through December 31, 2020, the Company had received $ 15.0 million in preclinical milestone payments from Takeda and had no t recorded any product sales under the Takeda Collaboration Agreement.

The contract liability as of December 31, 2021 relates to the remaining Tau program services, with such amounts to be recognized within twelve months.

In December 2020 GLP toxicology studies were initiated for DNL593 (PTV:PGRN) triggering an $ 8.0 million milestone which was recorded as a receivable as of December 31, 2020 and received in January 2021.

In November 2021, Takeda exercised its option for DNL593 under the Takeda Collaboration Agreement, triggering the $ 5.0 million option fee, which was received in December 2021, at which point the opt in became effective.

In January 2022, a clinical trial application for DNL593 was approved by the Medicines and Healthcare products Regulatory Agency in the UK, triggering a $ 12.0 million milestone from Takeda which was received in February 2022.

In January 2021, GLP toxicology studies were initiated for DNL919 (ATV:TREM2) triggering an $ 8.0 million milestone which was received in March 2021.

In December 2021, Takeda exercised its option for DNL919 under the Takeda Collaboration Agreement, triggering the $ 5.0 million option fee, which was received in December 2021, at which point the opt in became effective.

Through December 31, 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.

PTV:PGRN and ATV:TREM2 Collaboration Agreements

Management determined that the opt-in by Takeda on the PTV:PGRN and ATV:TREM2 programs represent two new contracts with a customer for accounting purposes (the "PTV:PGRN Collaboration Agreement" and the "ATV:TREM2 Collaboration Agreement"), both effective in December 2021 upon payment of the respective option fees.

For each contract, the Company identified a single performance obligation under ASC 606, and initially one unit of account under ASC 808 associated with each of the PTV:PGRN and ATV:TREM2 Collaboration Agreements.

The performance obligation is the delivery of a co-exclusive license under the intellectual property the Company controls related to the PTV:PGRN or ATV:TREM2 program ("PTV:PGRN Technology License" or "ATV;TREM2 Technology License"), and the unit of account is the obligation to share in responsibility and costs for global development of PTV:PGRN or ATV:TREM2 Products pursuant to a mutually agreed development plan and budget ("PTV:PGRN Development Activities" or "ATV:TREM2 Development Activities"), which both include JSC involvement.

The PTV:PGRN Development Activities and JSC participation, and the ATV:TREM2 Development Activities and JSC participation are each considered to be single units of account since the activities are highly interrelated with the JSC involvement and these are not distinct in the context of the contract.

The Company believes that the PTV:PGRN and ATV:TREM2 Collaboration Agreements are both collaboration arrangements as defined in ASC 808, Collaborative Arrangements.

The Company also believes that Takeda meets the definition of a customer as defined in ASC 606, Revenue From Contracts With Customers for the PTV:PGRN Technology License and the ATV:TREM2 Technology License performance obligations delivered in these collaboration agreements, respectively.

Since ASC 808 does not address recognition and measurement, the Company looked to other accounting literature for the PTV:PGRN Development Activities and ATV:TREM2 Development Activities units of account, and determined that the guidance in ASC 730, Research and Development should be applied.

The transaction price for each contract at inception includes fixed consideration consisting of the option fee of $ 5.0 million .

All potential future milestones and other payments were considered constrained at the inception of the PTV:PGRN and the ATV:TREM2 Collaboration Agreements since the Company could not conclude it was probable that a significant reversal in the amount recognized would not occur.

From inception of the PTV:PGRN Collaboration Agreement and the ATV:TREM2 Collaboration Agreement through December 31, 2021, there was no change to the transaction price in either agreement.

The entire transaction price was allocated to the underlying Technology License in each Collaboration Agreement, which was delivered on or around the effective date of the respective Collaboration Agreement, with the revenue allocated to this performance obligation recognized during the year ended December 31, 2021.

The 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.

The Company recorded $ 7.7 million and $ 6.0 million of cost sharing reimbursements for PTV:PGRN and ATV:TREM2 Development Activities, respectively, as an offset to research and development expenses in the Consolidated Statement of Operations and Comprehensive Income for the year ended December 31, 2021, the entirety of which is also recorded as a receivable on the Consolidated Balance Sheet as of December 31, 2021.

In assessing the Takeda Collaboration Agreement and the PTV:PGRN and the ATV:TREM2 Collaboration Agreements, management is required to exercise considerable judgment in estimating revenue to be recognized.

Management applies judgment in determining whether opt-in resulted in a modification to an existing contract or a new contract, in determining the separate performance obligations in the research period and estimating variable consideration.

Collaboration Revenue

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Takeda Collaboration Agreement:

Takeda Collaboration Agreement Services (1)

$ 19,921 $ 27,155 $ 5,926

PTV:PGRN Collaboration Agreement 5,000 — —

ATV:TREM2 Collaboration Agreement 5,000 — —

Total Takeda Collaboration Revenue 29,921 27,155 5,926

Sanofi Collaboration Agreement:

CNS Program License — — 73,932

Peripheral Program License 15,000 — 10,000

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(1) $ 19.6 million of revenue for the year ended December 31, 2020 was included in the contract liability balance at the beginning of the year.

(1) $ 15.9 million and $ 19.6 million of revenue for the year ended December 31, 2021 and 2020 was included in the contract liability balance at the beginning of the year.

All of the revenue recognized in the year ended December 31, 2019 was included in the contract liability balance at the beginning of the year.

There was no deferred revenue at the beginning of the year ended December 31, 2018.

(2) Revenue for the years ended December 31, 2021, 2020 and 2019 represent amounts that were included in the contract liability balance at the beginning of the respective year.

There was no deferred revenue at the beginning of the year ended December 31, 2018.

(3) Revenue for the year ended December 31, 2021 represents amounts that were included in the contract liability balance at the beginning of the year.

License Agreements

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As of December 31,

Lab equipment $ 24,216 $ 21,846

Manufacturing and laboratory equipment $ 30,114 $ 24,216

Leasehold improvements 35,235 34,738

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Accrued compensation $ 19,013 $ 20,503

Accrued clinical costs 6,497 5,042

Accrued clinical costs and other research & development costs 15,887 11,775

Accrued manufacturing costs 9,955 7,140

Accrued other research & development costs 5,278 3,224

Accrued general and administrative, shared costs, and other current liabilities 3,037 1,318

Other accrued costs and current liabilities 2,857 3,037

Operating lease liability, current 5,453 4,690

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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.

In May 2018, the Company entered into an operating lease for its headquarters in South San Francisco (the "Headquarters Lease"), a 148,020 rentable square feet building in South San Francisco, California (the "Headquarters").

The Headquarters Lease 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 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.

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

In addition, the Headquarters Lease 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 .

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, was $ 11.1 million and $ 10.2 million for the year ended December 31, 2020 and 2019, respectively.

Rent expense excluding amortization of leasehold improvements was $ 6.0 million for the year ended December 31, 2018.

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

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

As of December 31, 2020, the weighted average remaining lease term is 8.3 years and the weighted average discount rate used to determine the operating lease liability was 9.0 %.

Cash paid for amounts included in the measurement of lease liabilities for the year ended December 31, 2020 was $ 9.7 million and was included in net cash used in operating activities in the Company's 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 Consolidated Balance Sheet as of December 31, 2020 (in thousands):

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

In August 2021, the Company entered into an operating lease for approximately 65,000 square feet of laboratory, office and warehouse premises ("SLC 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 had not yet commenced as of December 31, 2021 since the landlord was completing initial build-out activities and had not yet made the underlying asset available for use by the Company, and as such, no lease liability or ROU asset is recorded on the consolidated balance sheet as of December 31, 2021 , and no operating lease expense has been recorded for the year ended December 31, 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 at lease commencement 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):

Year Ended December 31,

2021 2020 2019

Operating lease cost (1)

$ 11,223 $ 11,126 $ 10,194

Cash paid for amounts included in measurement of lease liability $ 10,336 $ 9,737 $ 5,421

As of December 31, 2021

2021 2020 2019

Weighted average remaining lease term 7.3 years 8.3 years 9.3 years

Weighted average discount rate 9 % 9 % 9 %

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(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 Consolidated Balance Sheet as of December 31, 2021 (in thousands):

Year Ended December 31:

2022 $ 10,702

Thereafter 29,966

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Net operating lease liabilities $ 64,007

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.

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

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 $ 3.6 million and $ 2.6 million for the year ended December 31, 2020 and 2019, respectively.

There was no sublease income for the year ended December 31, 2018.

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

Total sublease income, including rent and variable sublease cost reimbursements, was $ 3.8 million, $ 3.6 million and $ 2.6 million for the year ended December 31, 2021, 2020 and 2019 , respectively.

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

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

As of December 31, 2020 and 2019, the Company had open purchase orders for biological product development and manufacturing costs totaling $ 33.0 million and $ 21.2 million, respectively.

As of December 31, 2021 and 2020, the Company had open purchase orders for biological product development and manufacturing costs totaling $ 35.8 million and $ 33.0 million, respectively, of which certain amounts are subject to cost sharing with Takeda.

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

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In the normal course of business, the Company enters into various firm purchase commitments primarily related to research and development activities.

The Company had contractual obligations under license and other agreements of $ 4.8 million and $ 1.1 million as of December 31, 2020 and 2019, respectively.

The Company had contractual obligations under development and manufacturing agreements other than the DMSA of $ 11.5 million and $ 3.8 million, as of December 31, 2021 and 2020, respectively, with certain amounts subject to cost sharing with Takeda.

Further, the Company had other commitments of $ 1.7 million and $ 1.0 million as of December 31, 2021 and 2020, respectively, and a purchase commitment related to manufacturing equipment for the SLC Facility of $ 8.0 million as of December 31, 2021.

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 challenging the compensation paid to the Company's Directors since the IPO in December 2017.

On January 13, 2021, the parties to the derivative action entered into a settlement agreement, subject to Court approval and certain other closing conditions, the terms of which were disclosed via Form 8-K filed on February 5, 2021.

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

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 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 via 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

2017 Equity Incentive Plan

In December 2017, the Company adopted the 2017 Equity Incentive Plan (the “2017 Plan”), which initially reserved approximately 6.4 million shares of common stock for the issuance of stock options, restricted stock and other stock awards, to employees, non-employee directors, and consultants under terms and provisions established by the Board of Directors and approved by the stockholders.

The 2017 Plan provides that the number of shares reserved and available for issuance under the 2017 Plan will automatically increase each January 1, beginning on January 1, 2019, by the lesser of (i) 10.0 million shares, (ii) 5 % of the outstanding shares on the last day of the immediately preceding fiscal year, or (iii) such number of shares determined by the administrator of the 2017 Plan.

In January 2020, common stock available for issuance under the 2017 Plan was increased by approximately 4.8 million shares as a result of this automatic increase provision.

Awards granted under the 2017 Plan expire no later than ten years from the date of grant.

For stock options, the option price shall not be less than 100 % of the estimated fair value of the Company's common stock on the day of grant.

Options granted typically vest over a four - year period but may be granted with different vesting terms.

2015 Stock Incentive Plan

In May 2015, the Company adopted the 2015 Stock Incentive Plan (the “2015 Plan”), which as amended, reserved approximately 8.3 million shares of common stock for the issuance of stock options, restricted stock and other stock awards, to employees, non-employee directors, and consultants under terms and provisions established by the Board of Directors and approved by the stockholders.

Awards granted under the 2015 Plan expire no later than ten years from the date of grant.

Equity Incentive Plans

The Company's equity incentive plans, the 2017 Equity Incentive Plan (the “2017 Plan”), and previously, the 2015 Stock Incentive Plan (the “2015 Plan”) reserve shares of common stock for the issuance of stock options, restricted stock and other stock awards, to employees, non-employee directors, and consultants under terms and provisions established by the Board of Directors and approved by the stockholders.

Awards granted under the 2017 Plan and 2015 Plan expire no later than ten years from the date of grant.

For stock options, the option price shall not be less than 100 % of the estimated fair value of the Company's common stock on the day of grant.

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The 2015 Plan will continue to govern restricted stock awards and option awards previously granted thereunder.

In January 2021, common stock available for issuance under the 2017 Plan was increased by approximately 6.0 million shares as a result of this automatic increase provision.

As of December 31, 2021 and 2020, there were approxim ately 7.0 million and 3.7 million common shares available for the Company to grant under the 2017 Plan, respectively.

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Stock Options Granted to Employees with Service-Based Vesting

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

The estimated fair value of stock options granted to employees were calculated using the Black-Scholes option-pricing model, which requires various assumptions, including the fair value of the Company’s common stock, expected term, expected dividend yield, expected volatility, and the risk-free interest rate.

The fair value of the Company’s common stock is based on the current market price, unless an adjustment is determined to be required, through discussion with senior management, due to material non-public information know by the Company at the time of grant.

The expected volatility of the Company’s stock options is estimated using a combination of average historical stock price volatility of the Company's stock and that of comparable public companies within the biotechnology and pharmaceutical industry that are deemed to be representative of future stock price trends, since the Company does not have sufficient trading history to rely solely on the volatility of its common stock.

The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available.

Management considers whether the Company is in possession of material non-public information at the time of grants when estimating volatility.

The expected term of stock options represents the period that the Company’s stock-options are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term).

The risk-free interest rate is based on the implied yield currently available on U.S.

treasury notes with terms approximately equal to the expected life of the option.

The expected dividend rate is zero as the Company currently has no history or expectation of declaring cash dividends on the Company’s common stock.

Management considers whether the company is in possession of material non-public information at the time of grants when making certain estimates, including volatility and the fair value of the Company's common stock.

The following assumptions were used in estimating the fair value of grants during the:

Year Ended December 31,

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Dividend yield — — —

Expected Term:

The expected term represents the period that the options granted are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term).

Expected Volatility:

The Company uses an average historical stock price volatility of comparable public companies within the biotechnology and pharmaceutical industry that were deemed to be representative of future stock price trends as the Company does not have sufficient trading history for its common stock.

The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available.

Risk-Free Interest Rate:

The Company based the risk-free interest rate over the expected term of the options based on the constant maturity rate of U.S.

Treasury securities with similar maturities as of the date of the grant.

Expected Dividend Yield:

The Company has no t paid and does not anticipate paying any dividends in the near future.

Therefore, the expected dividend yield was zero .

Performance and Market Contingent Stock Options Granted to Employees

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The expense recognized associated with these performance- and market- contingent awards was $ 0.3 million of general and administrative expense during the year ended December 31, 2020, and $ 5.2 million and $ 0.5 million of general and administrative expense and research and development expense, respectively, for the year ended December 31, 2019.

There was no expense recognized in the year ended December 31, 2021.

The Company used a lattice model with a Monte Carlo simulation to value these stock options.

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Aggregated information regarding RSUs granted under the Plan for the year ended December 31, 2021 is summarized below:

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

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

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

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During the years ended December 31, 2020 and 2019 the weighted-average grant-date fair value of RSUs granted was $ 29.31 and $ 18.86 , respectively.

The total fair value of RSUs that vested during the year ended December 31, 2020 was $ 8.7 million , and of RSUs and RSAs that vested during the years ended December 31, 2019, and 2018 (measured on the date of vesting) was $ 8.8 million , and $ 37.0 million , respectively.

Employee Stock Purchase Plan

In December 2017, the Company adopted the 2017 Employee Stock Purchase Plan (the “2017 ESPP”), which initially reserved 1.0 million shares of common stock for employee purchases under terms and provisions established by the Board of Directors.

The 2017 ESPP provides that the number of shares reserved and available for issuance under the 2017 ESPP will automatically increase each January 1, beginning on January 1, 2020, by the lesser of (i) 2.0 million shares, (ii) 1 % of the outstanding shares on the last day of the immediately preceding fiscal year, or (iii) such number of shares determined by the administrator of the 2017 Plan.

In January 2020, common stock available for issuance under the 2017 ESPP was increased by approximately 1.0 million shares as a result of this automatic increase provision.

Under the 2017 ESPP, employees may purchase common stock through payroll deductions at a price equal to 85 % of the lower of the fair market value of common stock on the first trading day of each offering period or on the exercise date.

The 2017 ESPP provides for consecutive, overlapping 12-month offering periods.

The offering periods are scheduled to start on the first trading day on or after May 31 or November 30 of each year, except for the first offering period which commenced on December 8, 2017, the first trading day after the effective date of the Company’s initial public offering.

Contributions under the 2017 ESPP are limited to a maximum of 15 % of an employee's eligible compensation.

We issued 0.2 million shares of common stock under the 2017 ESPP during each of the years ended December 31, 2020, 2019 , and 2018.

The total fair value of RSUs that vested during the years ended December 31, 2021 and 2020 was $ 39.8 million and $ 8.7 million , respectively, and of RSUs and RSAs that vested during the year ended December 31, 2019 was $ 8.8 million .

Stock-Based Compensation Expense

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The weighted-average period over which such stock-based compensation expense will be recognized is approximately 2.8 years.

For the year ended December 31, 2020 , tax benefit realized related to awards vested or exercised during the period was $ 1.0 million.

There was no tax benefit realized related to awards vested or exercised during the years ended December 31, 2019 and 2018.

There was no tax benefit realized related to awards vested or exercised during the years ended December 31, 2021 and December 31, 2019.

For the year ended December 31, 2020 a tax benefit of $ 1.0 million was realized related to awards vested or exercised during the period.

There is no tax benefit on total stock-based compensation expense for the years ended December 31, 2021 , 2020 and 2019 since the company has recorded a full valuation allowance on all deferred tax assets.

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Federal $ — $ —

State ( 576 ) 823

Total Current $ ( 575 ) $ 823

Federal $ — $ —

State — ( 13 )

Total deferred $ — $ —

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3.2 ( 7.9 ) 0.1

Nondeductible acquisition-related costs — — ( 9.5 )

0.1 0.1 ( 0.1 )

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0.2 % 1.1 % 0.1 %

The effective tax rate for the year ended December 31, 2020 is different from the federal statutory tax rate primarily due to research tax credits, stock-based compensation deductions and the valuation allowance against deferred tax assets.

For the years ended December 31, 2019 and 2018, the difference is primarily due to the valuation allowance against deferred tax assets.

Deferred Income Taxes

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$ 13,699 $ 8,139 $ 5,299

If recognized, $ 0.3 million of the unrecognized tax benefits would reduce the annual effective tax rate for the year ended December 31, 2020, primarily due to corresponding adjustments to the valuation allowance.

If recognized, no ne of the unrecognized tax benefits would reduce the annual effective tax rate for the year ended December 31, 2019.

If recognized , none of the unrecognized tax benefits would reduce the annual effective tax rate for the year ended December 31, 2021.

The Company will recognize both accrued interest and penalties related to unrecognized benefits in income tax expense.

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Net income (loss) per share, diluted $ ( 2.39 ) $ 0.63 $ ( 2.07 )

Potentially dilutive securities that were not included in the diluted per share calculations for the years ended December 31, 2020, 2019 and 2018 because they would be anti-dilutive were as follows:

Potentially dilutive securities that were not included in the diluted per share calculations for the years ended December 31, 2021, 2020, and 2019, respectively, because they would be anti-dilutive were as follows:

Year Ended December 31,

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Restricted shares subject to future vesting 2,629,980 879,792 882,636

Early exercised common stock subject to future vesting — — 135,424

Total 16,466,262 4,165,837 12,804,070

Related Party Transactions

On September 22, 2020, upon becoming an owner of record of more than 10% of the voting interest in the Company, Biogen became a related party under ASC 850.

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

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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-K

Item 8. Financial Statements and Supplementary Data