What changed in this filing

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Item 1. Financial Statements

2022-08-08 compared with 2022-05-05 · 116 added, 122 removed, 405 unchanged (37% of the section changed)

3 unchanged sentences

(In thousands, except share amounts)

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Current assets:

12 unchanged sentences

Accounts payable $ 7,116 $ 4,779

Cost sharing payments due to related party 2,713 —

Accrued compensation 8,315 19,013

14 unchanged sentences

Convertible preferred stock, $ 0.01 par value;

40,000,000 shares authorized as of March 31, 2022 and December 31, 2021;

0 shares issued and outstanding as of March 31, 2022 and December 31, 2021

40,000,000 shares authorized as of June 30, 2022 and December 31, 2021;

0 shares issued and outstanding as of June 30, 2022 and December 31, 2021

Common stock, $ 0.01 par value;

400,000,000 shares authorized as of March 31, 2022 and December 31, 2021;

122,857,908 shares and 122,283,305 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

400,000,000 shares authorized as of June 30, 2022 and December 31, 2021;

123,157,278 shares and 122,283,305 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively

Additional paid-in capital 1,664,174 1,608,238

7 unchanged sentences

(In thousands, except share and per share amounts)

Three Months Ended March 31,

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

2022 2021 2022 2021

Collaboration revenue:

10 unchanged sentences

Interest and other income, net 2,649 1,126 3,927 2,305

Loss before income taxes ( 58,767 ) ( 60,691 ) ( 123,987 ) ( 130,732 )

Income tax expense ( 27 ) — ( 27 ) —

Net loss ( 58,794 ) ( 60,691 ) ( 124,014 ) ( 130,732 )

Other comprehensive income (loss):

Net unrealized gain (loss) on marketable securities, net of tax ( 6,752 ) 13

Other comprehensive loss:

Net unrealized loss on marketable securities, net of tax ( 3,023 ) ( 136 ) ( 9,775 ) ( 123 )

Comprehensive loss $ ( 61,817 ) $ ( 60,827 ) $ ( 133,789 ) $ ( 130,855 )

2 unchanged sentences

__________________________________________________

(1) Includes related party collaboration revenue from a customer of $ 2.2 million and $ 0.9 million for the three months ended March 31, 2022 and 2021, respectively.

(2) Includes expense for cost sharing payments to a related party of $ 2.7 million for the three months ended March 31, 2022, and an offset to expense from related party cost sharing reimbursements of $ 2.5 million for the three months ended March 31, 2021.

(1) Includes related-party collaboration revenue from a customer of $ 0.5 million and $ 2.7 million for the three and six months ended June 30, 2022, respectively, and $ 0.8 million and $ 1.7 million for the three and six months ended June 30, 2021, respectively.

(2) Includes an offset to expense from related-party cost sharing reimbursements of $ 0.4 million and expense for cost sharing payments to a related party of $ 2.4 million for the three and six months ended June 30, 2022, respectively, and an offset to expense from related-party cost sharing reimbursements of $ 1.6 million and $ 4.1 million for the three and six months ended June 30, 2021, respectively.

See accompanying notes to unaudited condensed consolidated financial statements.

13 unchanged sentences

Other comprehensive loss — — — ( 9,775 ) — ( 9,775 )

Balance at June 30, 2022 123,157,278 $ 1,558 $ 1,664,174 $ ( 12,274 ) $ ( 769,010 ) $ 884,448

Balance at March 31, 2022 122,857,908 $ 1,554 $ 1,635,840 $ ( 9,251 ) $ ( 710,216 ) $ 917,927

Issuances under equity incentive plans 240,542 3 4,399 — — 4,402

Vesting of restricted stock units 58,828 1 ( 1 ) — — —

Stock-based compensation — — 23,936 — — 23,936

Net loss — — — — ( 58,794 ) ( 58,794 )

Other comprehensive loss — — — ( 3,023 ) — ( 3,023 )

Balance at June 30, 2022 123,157,278 $ 1,558 $ 1,664,174 $ ( 12,274 ) $ ( 769,010 ) $ 884,448

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

3 unchanged sentences

Net loss — — — — ( 130,732 ) ( 130,732 )

Other comprehensive income — — — 13 — 13

Other comprehensive loss — — — ( 123 ) — ( 123 )

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

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

Issuances under equity incentive plans

317,878 3 7,040 — — 7,043

Vesting of restricted stock units 66,642 1 ( 1 ) — — —

Stock-based compensation

— — 21,136 — — 21,136

— — — — ( 60,691 ) ( 60,691 )

Other comprehensive loss — — — ( 136 ) — ( 136 )

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

See accompanying notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

Three Months Ended

Six Months Ended

Operating activities

17 unchanged sentences

Maturities and sales of marketable securities 483,147 923,000

Net cash used in investing activities ( 117,878 ) ( 25,405 )

Net cash (used in) provided by investing activities ( 29,247 ) 72,132

Financing activities

23 unchanged sentences

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

During the three months ended March 31, 2022 there were no material changes to the Company's significant accounting and financial reporting policies from those reflected in the 2021 Annual Report on Form 10-K.

During the six months ended June 30, 2022 there were no material changes to the Company's significant accounting and financial reporting policies from those reflected in the 2021 Annual Report on Form 10-K.

For further information with regard to the Company’s Significant Accounting Policies, please refer to Note 1, "Significant Accounting Policies," to the Company’s Consolidated Financial Statements included in the 2021 Annual Report on Form 10-K.

9 unchanged sentences

Actual results could differ from those estimates, and such differences could be material to the Condensed Consolidated Balance Sheets and Statements of Operations and Comprehensive 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

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, marketable securities and forward foreign currency exchange contracts.

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, and marketable securities.

Substantially all of the Company’s cash and cash equivalents are deposited in accounts with financial institutions that management believes are of high credit quality.

4 unchanged sentences

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

As of March 31, 2022 and December 31, 2021, the Company had no off-balance sheet concentrations of credit risk.

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

The Company has established and maintains strict counterparty credit guidelines and enters into hedges only with financial institutions that are investment grade or better to minimize the Company’s exposure to potential defaults.

The Company does not require collateral to be pledged under these agreements.

As of June 30, 2022 and December 31, 2021, the Company had no off-balance sheet concentrations of credit risk.

The Company is subject to a number of risks similar to other early-stage biopharmaceutical companies, including, but not limited to, the need to obtain adequate additional funding, possible failure of current or future preclinical testing or clinical trials, its reliance on third parties to conduct its clinical trials, the need to obtain regulatory and marketing approvals for its product candidates, competitors developing new technological innovations, the need to successfully commercialize and gain market acceptance of the Company’s product candidates, its right to develop and commercialize its product candidates pursuant to the terms and conditions of the licenses granted to the Company, protection of proprietary technology, the ability to make milestone, royalty or other payments due under any license or collaboration agreements, and the need to secure and maintain adequate manufacturing arrangements with third parties.

If the Company does not successfully commercialize or partner any of its product candidates, it will be unable to generate product revenue or achieve profitability.

Further, the company is also subject to broad market risks and uncertainties resulting from recent events, such as the COVID-19 pandemic and the Russian invasion of Ukraine.

Further, the company is also subject to broad market risks and uncertainties resulting from recent events, such as the COVID-19 pandemic, the Russian invasion of Ukraine, inflation, rising interest rates, and recession risks as well as supply chain and labor shortages.

The Company has one operating segment.

17 unchanged sentences

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 other accrued costs and current liabilities, respectively, on the Condensed Consolidated Balance Sheets.

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

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

59 unchanged sentences

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

March 31, 2022

June 30, 2022

Level 1 Level 2 Level 3 Total

1 unchanged sentence

Money market funds $ 93,062 $ — $ — $ 93,062

government treasuries 10,013 — — 10,013

Commercial paper — 29,985 — 29,985

Short-term marketable securities:

6 unchanged sentences

Total $ 971,656 $ 129,206 $ — $ 1,100,862

Foreign currency derivative contracts $ — $ 44 $ — $ 44

Total $ — $ 44 $ — $ 44

December 31, 2021

12 unchanged sentences

Total $ — $ 111 $ — $ 111

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

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

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

2 unchanged sentences

Marketable Securities

All marketable securities were considered available-for-sale at March 31, 2022 and December 31, 2021.

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

All marketable securities were considered available-for-sale at June 30, 2022 and December 31, 2021.

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

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

March 31, 2022

June 30, 2022

Amortized Cost Unrealized Holding Gains Unrealized Holding Losses Aggregate Fair Value

20 unchanged sentences

(3) Unrealized holding losses on 6 securities with an aggregate fair value of $ 92.3 million.

(4) Unrealized holding losses on 5 securities with an aggregate fair value of $ 27.2 million.

(4) Unrealized holding losses on 1 security with an aggregate fair value of $ 1.9 million.

December 31, 2021

21 unchanged sentences

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

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

As of March 31, 2022 and December 31, 2021, 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 March 31, 2022 or December 31, 2021.

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

As of June 30, 2022 and December 31, 2021, a majority of the Company's marketable securities were in an unrealized loss position.

The Company has no t recognized an allowance for credit losses as of June 30, 2022 or December 31, 2021.

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.

2 unchanged sentences

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

Derivative Financial Instruments

Foreign Currency Exchange Rate Exposure

The Company uses forward foreign currency exchange contracts to hedge certain operational exposures resulting from potential changes in foreign currency exchange rates.

Such exposures result from portions of the Company’s forecasted cash flows being denominated in currencies other than the U.S.

dollar, primarily the Euro and British Pound.

The derivative instruments the Company uses to hedge this exposure are not designated as cash flow hedges, and as a result, changes in their fair value are recorded in interest and other income, net, on the Company's Condensed Consolidated Statements of Operations and Comprehensive Loss.

The fair values of forward foreign currency exchange contracts are estimated using current exchange rates and interest rates and take into consideration the current creditworthiness of the counterparties.

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

The following table summarizes the Company’s forward foreign currency exchange contracts outstanding as of March 31, 2022 and December 31, 2021, respectively (notional amounts in thousands):

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

3 150 Apr 2022 - Jun 2022

British Pounds

3 300 Apr 2022 - Jun 2022

Total at March 31, 2022

7 800 Jan 2022 - Jun 2022

British Pounds

6 900 Jan 2022 - Jun 2022

Total at December 31, 2021

_________________________________________________

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

Collaboration Agreements

2 unchanged sentences

The details of the Provisional Biogen Collaboration Agreement and the Biogen Collaboration Agreement and the payments the Company has received, and is entitled to receive, are further described in Note 6, "Collaboration Agreements", to the consolidated financial statements in the 2021 Annual Report on Form 10-K.

During the first quarter of 2022, there were no changes to the terms of the Company’s collaboration agreement with Biogen, and no change in the transaction price for the Biogen Collaboration Agreement has been recorded during the three months ended March 31, 2022.

A related party contract liability of $ 291.5 million and $ 293.7 million was recorded on the Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021, respectively.

Approximately $ 288.9 million of the March 31, 2022 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 $ 2.6 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 .

Expenses for cost sharing payments for LRRK2 Development Activities of $ 2.7 million were recorded as research and development expenses in the Condensed Consolidated Statement of Operations and Comprehensive Loss for the three months ended March 31, 2022, with the same amount recorded as cost sharing payments due to related party on the Condensed Consolidated Balance Sheets as of March 31, 2022.

The Company recorded $ 2.5 million of cost sharing reimbursements for LRRK2 Development Activities as an offset to research and development expenses in the Condensed Consolidated Statement of Operations and Comprehensive Loss for the three months ended March 31, 2021, and $ 1.2 million was recorded as cost sharing reimbursements due from related party on the Condensed Consolidated Balance Sheets as of December 31, 2021.

As of March 31, 2022, the Company had no t achieved any milestones or recorded any product sales under the Biogen Collaboration Agreement.

During the second quarter of 2022, there were no changes to the terms of the Company’s collaboration agreement with Biogen, and no change in the transaction price for the Biogen Collaboration Agreement has been recorded during the three and six months ended June 30, 2022.

A related-party contract liability of $ 291.0 million and $ 293.7 million was recorded on the Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021, respectively.

Approximately $ 288.9 million of the June 30, 2022 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 $ 2.1 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 an offset to research and development expenses for LRRK2 Development Activities of $ 0.4 million, and incremental research and development expenses for LRRK2 Development Activities of $ 2.4 million for cost sharing reimbursement and payments, respectively, for the three and six months ended June 30, 2022, respectively.

The Company recorded $ 0.4 million of cost sharing reimbursements due from related party on the Condensed Consolidated Balance Sheet as of June 30, 2022.

The Company recorded $ 1.6 million and $ 4.1 million of cost sharing reimbursements for LRRK2 Development Activities as an offset to research and development expenses in the Condensed Consolidated Statement of Operations and Comprehensive Loss for the three and six months ended June 30, 2021, respectively, and $ 1.2 million was recorded as cost sharing reimbursements due from related party on the Condensed Consolidated Balance Sheets as of December 31, 2021.

As of June 30, 2022, the Company had no t achieved any milestones and had no t recorded any product sales under the Biogen Collaboration Agreement.

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

The details of the Sanofi Collaboration Agreement and the payments the Company has received, and is entitled to receive, are further described in Note 6, "Collaboration Agreements", to the consolidated financial statements in the Company's 2021 Annual Report on Form 10-K.

During the first quarter of 2022, there were no changes to the terms of the Company’s collaboration agreement with Sanofi, and the transaction price of the Sanofi Collaboration Agreement did no t change during the three months ended March 31, 2022 or 2021.

A contract liability of $ 3.4 million was recorded on the Condensed Consolidated Balance Sheets as of both March 31, 2022 and December 31, 2021.

During the second quarter of 2022, there were no changes to the terms of the Company’s collaboration agreement with Sanofi.

The transaction price of the Sanofi Collaboration Agreement increased by $ 40.0 million during the three and six months ended June 30, 2022 related to a $ 40.0 million milestone triggered in April 2022 upon first patient in a Phase 2 study of SAR443820/DNL788 in individuals with amyotrophic lateral sclerosis (ALS) which was paid in May 2022 .

A contract liability of $ 3.4 million was recorded on the Condensed Consolidated Balance Sheets as of both June 30, 2022 and December 31, 2021.

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 no receivable associated with the Sanofi Collaboration Agreement on the Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021, respectively.

In April 2022, Sanofi commenced dosing in a Phase 2 study of SAR3820/DNL788 in patients with ALS, triggering a $ 40.0 million milestone which is due in May 2022.

As of March 31, 2022, the Company had earned milestone payments of $ 25.0 million and had no t recorded any product sales under the Sanofi Collaboration Agreement.

The Company recorded no receivable associated with the Sanofi Collaboration Agreement on the Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021, respectively.

As of June 30, 2022, the Company had earned milestone payments of $ 65.0 million and had no t recorded any product sales under the Sanofi Collaboration Agreement.

Takeda Collaboration Agreement

1 unchanged sentence

The details of the Takeda Collaboration Agreement are further described in Note 6, "Collaboration Agreements", to the consolidated financial statements in the Company's 2021 Annual Report on Form 10-K.

In March 2022, Takeda and the Company agreed to terminate activity on the ATV:Tau program over which Takeda had an option to develop and commercialize jointly with the Company.

As a result of this decision, total preclinical milestone payments that Takeda may owe was reduced to $ 55.0 million, of which $ 43.0 million has been received as of March 31, 2022.

A contract liability of $ 27.9 million was recorded on the Condensed Consolidated Balance Sheets as of December 31, 2021 relating to the remaining Tau program services.

As a result of the decision to terminate the ATV:Tau program, the performance obligation related to ATV:Tau was considered fully satisfied, and the contract liability was recognized in its entirety within collaboration revenue from customers in the Condensed Consolidated Statement of Operations and Comprehensive Loss for the three months ended March 31, 2022.

The transaction price of the Takeda Collaboration Agreement increased by $ 12.0 million during the three months ended March 31, 2022, due to a preclinical milestone being unconstrained.

This milestone was triggered by the January 2022 approval of the clinical trial application for TAK-594/DNL593 ("PTV:PGRN") by the Medicines and Healthcare products Regulatory Agency in the UK, and the milestone payment was received in February 2022.

There was no contract liability or receivable associated with the Takeda Collaboration Agreement on the Condensed Consolidated Balance Sheets as of March 31, 2022, and no receivable as of December 31, 2021.

The Company has no remaining performance obligations under the Takeda Collaboration Agreement, and accordingly the $ 12.0 million was recorded as collaboration revenue from customers in the three months ended March 31, 2022.

Total preclinical milestone payments that Takeda may owe to the Company is $ 55.0 million, all of which were earned, and $ 43.0 million of which received as of June 30, 2022.

A contract liability of $ 27.9 million was recorded on the Condensed Consolidated Balance Sheets as of December 31, 2021 which was recognized in its entirety during the first quarter of 2022.

No contract liability remains on the Condensed Consolidated Balance Sheets as of June 30, 2022.

The transaction price of the Takeda Collaboration Agreement increased by $ 12.0 million and $ 24.0 million during the three and six months ended June 30, 2022, respectively, due to two $ 12.0 million preclinical milestones becoming unconstrained and recorded as collaboration revenue from customers in the six months ended June 30, 2022, The first milestone was earned in January 2022 upon approval of the TAK-594/DNL593 ("PTV:PGRN") clinical trial application (CTA), and the second milestone was earned in June 2022 upon approval of the TAK-920/DNL919 ("ATV:TREM2") CTA.

Payment for the PTV:PGRN milestone was received in February 2022, and the $ 12.0 million milestone payment for ATV:TREM2 was recorded as a receivable within prepaid expenses and other current assets on the condensed consolidated balance sheet as of June 30, 2022 and received in July 2022.

There was no receivable under the Takeda Collaboration Agreement as of December 31, 2021.

The Company has no remaining performance obligations under the Takeda Collaboration Agreement.

As of June 30, 2022, the Company had earned $ 55.0 million in preclinical milestone payments from Takeda, and had no t recorded any product sales under the Takeda Collaboration Agreement.

PTV:PGRN and ATV:TREM2 Collaboration Agreements

1 unchanged sentence

The details of the PTV:PGRN Collaboration Agreement and the ATV:TREM2 Collaboration Agreement are further described in Note 6, "Collaboration Agreements", to the consolidated financial statements in the Company's 2021 Annual Report on Form 10-K.

During the first quarter of 2022, there were no changes to the terms of either the PTV:PGRN Collaboration Agreement or the ATV:TREM2 Collaboration Agreement, and there was no change in the transaction price of either agreement during the three months ended March 31, 2022.

During the three and six months ended June 30, 2022, there were no changes to the terms of either the PTV:PGRN Collaboration Agreement or the ATV:TREM2 Collaboration Agreement and no changes to the transaction prices for either agreement.

Under the PTV:PGRN Collaboration Agreement and the ATV:TREM2 Collaboration Agreement, Takeda may be obligated to pay the Company up to an aggregate of $ 280.0 million upon achievement of certain clinical milestone events and up to an aggregate of $ 200.0 million in regulatory milestone events relating to receipt of regulatory approval in the United States, certain European countries and Japan.

Takeda may also be obligated to pay the Company up to $ 75.0 million per biologic product upon achievement of a certain sales-based milestone, or an aggregate of $ 150.0 million if one biologic product from each program achieves this milestone.

The Company recorded $ 2.9 million and $ 2.1 million of cost sharing reimbursements for PTV:PGRN and ATV:TREM2 Development Activities, respectively, as an offset to research and development expenses in the Condensed Consolidated Statement of Operations and Comprehensive Loss for the three months ended March 31, 2022, the entirety of which is also recorded as a receivable within prepaid expenses and other current assets on the Condensed Consolidated Balance Sheet as of March 31, 2022.

As of March 31, 2022, the Company had earned $ 53.0 million in preclinical milestone and option fee payments from Takeda, and had no t recorded any product sales under the Takeda Collaboration Agreement.

The Company recorded $ 2.8 million and $ 5.7 million of cost sharing reimbursements for PTV:PGRN Development Activities, and $ 1.5 million and $ 3.6 million of cost sharing reimbursements for ATV:TREM2 Development Activities, for the three and six months ended June 30, 2022, respectively, as offsets to research and development expenses in the Condensed Consolidated Statement of Operations and Comprehensive Loss.

The cost sharing reimbursements for the three months ended June 30, 2022 are recorded as a receivable within prepaid expenses and other current assets on the Condensed Consolidated Balance Sheet as of June 30, 2022.

There were no cost sharing reimbursements for the three and six months ended June 30, 2021.

As of June 30, 2022, the Company has earned $ 10.0 million in option fee payments from Takeda, but has no t recorded any product sales under either the PTV:PGRN or the ATV:TREM2 Collaboration Agreements.

Collaboration Revenue

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

Three Months Ended March 31,

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

2022 2021 2022 2021

Takeda Collaboration Agreement:

3 unchanged sentences

Sanofi Collaboration Agreement

CNS program license 40,000 — 40,000 —

Peripheral Program License — 15,000 — 15,000

Alzheimer's Disease Services (2)

2 unchanged sentences

Option Research Services (2)

480 794 2,705 1,686

Total Biogen Collaboration Revenue 480 794 2,705 $ 1,686

1 unchanged sentence

_________________________________________________

(1) $ 27.9 million and $ 5.7 million of revenue for the three months ended March 31, 2022 and March 31, 2021, respectively, was included in the contract liability balance at the beginning of the period.

(2) Revenue for the three months ended March 31, 2022 and March 31, 2021 represent amounts that were included in the contract liability balance at the beginning of the respective period.

(1) Revenue of $ 27.9 million and $ 11.8 million for the six months ended June 30, 2022 and 2021, respectively, were included in the contract liability balance at the beginning of the period.

No revenue for the three months ended June 30, 2022, and all revenue for the three months ended June 30, 2021, were included in the contract liability balance at the beginning of the respective period.

(2) Revenue for the three and six months ended June 30, 2022 and June 30, 2021 represent amounts that were included in the contract liability balance at the beginning of the respective period.

License Agreements

2 unchanged sentences

The details of the Genentech License Agreement are further described in Note 7, "License Agreements", to the consolidated financial statements in the Company's 2021 Annual Report on Form 10-K.

No expenses were recorded associated with the Genentech License Agreement in the three months ended March 31, 2022 or 2021.

In June 2022, the Company paid Genentech a $ 7.5 million clinical milestone payment triggered upon the commencement of dosing in the global Phase 2b LUMA study to evaluate the efficacy and safety of BIIB122/DNL151 by the Company's collaboration partner Biogen.

Biogen is responsible for 50 % of any payment obligation to Genentech under the Biogen Collaboration Agreement, including this clinical milestone, and accordingly $ 3.8 million of research and development expense was recorded in the three and six months ended June 30, 2022 .

There were no expenses recorded under the Genentech License Agreement for three and six months ended June 30, 2021.

To date, the Company has made payments to Genentech of $ 20.0 million in the aggregate, including an upfront fee, a technology transfer fee and two clinical milestone payments, with $ 16.3 million of this recorded as research and development expense as incurred, after cost sharing reimbursements from Biogen.

Commitments and Contingencies

Lease Obligations

In May 2018, the Company entered into an operating lease for its corporate headquarters in South San Francisco (the "Headquarters Lease"), and in August 2021, the Company entered into an operating lease for laboratory, office and warehouse premises in Salt Lake City, Utah (“SLC Lease”).

The details of both leases are further described in Note 9, Commitments and Contingencies, to the consolidated financial statements in the Company's 2021 Annual Report on Form 10-K.

During the first quarter of 2022, there were no changes to the terms of either lease.

Further, for accounting purposes, the SLC lease has not yet commenced as the landlord has not yet made the underlying asset available for use by Denali, and as such, no lease liability or ROU asset is recorded on the Condensed Consolidated Balance Sheets as of March 31, 2022, and no operating lease expense has been recorded for the three months ended March 31, 2022.

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

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

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

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

Three Months Ended March 31,

In May 2018, the Company entered into an operating lease for its corporate headquarters in South San Francisco (the "Headquarters Lease"), as further described in Note 9, "Commitments and Contingencies," to the consolidated financial statements in the Company's 2021 Annual Report on Form 10-K.

In August 2021, the Company entered into an operating lease for laboratory, office and warehouse premises in Salt Lake City, Utah (the “SLC Lease”).

There was an amendment to the SLC Lease in July 2022, subsequent to which the rentable square feet is approximately 78,000 , the contractual term is approximately 9.3 years which will commence upon completion of certain improvements by the landlord and the Company, and future undiscounted lease payments total approximately $ 20.0 million.

For accounting purposes, the SLC lease, as amended, has not yet commenced as the landlord has not yet made the underlying asset available for use by Denali, and as such, no lease liability or ROU asset is recorded on the Condensed Consolidated Balance Sheets as of June 30, 2022, and no operating lease expense has been recorded for the three and six months ended June 30, 2022.

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

The discount rate of our operating leases are an approximation of the Company's incremental borrowing rate and are dependent upon the term and economics of the agreement.

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

There were no changes to the terms of the Company's operating leases recognized under ASC 842 during the three or six months ended June 30, 2022.

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

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

2022 2021 2022 2021

Operating lease cost (1)

1 unchanged sentence

Cash paid for amounts included in measurement of lease liability $ 2,676 $ 2,563 $ 5,294 $ 5,099

As of March 31,

As of June 30,

Weighted average remaining lease term 6.8 years 7.8 years

2 unchanged sentences

(1) Including variable and short-term lease costs

The following table reconciles the undiscounted cash flows for the next five years and total of the remaining years to the operating lease liability recorded in the Condensed Consolidated Balance Sheet as of March 31, 2022 (in thousands):

Year Ended December 31:

2022 (nine months) 8,084

2022 (six months) 5,408

Thereafter 29,966

4 unchanged sentences

The details of the Sublease Agreement are further described in Note 9, "Commitments and Contingencies", to the consolidated financial statements in the Company's 2021 Annual Report on Form 10-K.

During the first quarter of 2022, there were no changes to the terms of the Sublease Agreement.

Total sublease income, including rent and variable sublease cost reimbursements, was $ 1.0 million and $ 0.9 million for the three months ended March 31, 2022 and 2021, respectively.

The following table details the future undiscounted cash inflows relating to the Sublease Agreement as of March 31, 2022 (in thousands):

During the second quarter of 2022, there were no changes to the terms of the Sublease Agreement.

Total sublease income, including rent and variable sublease cost reimbursements, of $ 0.9 million and $ 1.0 million for the three months ended June 30, 2022 and 2021, respectively, and $ 1.9 million for both the six months ended June 30, 2022 and 2021, was recorded within Interest and other income, net in the Condensed Consolidated Statement of Operations and Comprehensive Loss.

The following table details the future undiscounted cash inflows relating to the Sublease Agreement as of June 30, 2022 (in thousands):

Year Ended December 31:

2022 (nine months) 2,272

2022 (six months) 1,516

2025 and thereafter —

7 unchanged sentences

Unless earlier terminated, the DMSA will expire on the later of September 6, 2022 or when all development and manufacturing services are completed.

As of March 31, 2022 and December 31, 2021, the Company had open purchase orders for biological product development and manufacturing costs totaling $ 44.6 million and $ 35.8 million, respectively.

The activities under these purchase orders are expected to be completed by December 2025.

As of March 31, 2022 and December 31, 2021, the Company had total non-cancellable purchase commitments under the DMSA of $ 35.2 million and $ 28.3 million, respectively.

During the three months ended March 31, 2022 and 2021, the Company incurred costs of $ 10.0 million and $ 5.2 million, respectively, and made payments of $ 8.7 million and $ 0.7 million, respectively, for the development and manufacturing services rendered under the DMSA.

As of June 30, 2022 and December 31, 2021, the Company had open purchase orders for biological product development and manufacturing costs totaling $ 41.4 million and $ 35.8 million, respectively.

The activities under these purchase orders are expected to be completed by November 2026.

As of June 30, 2022 and December 31, 2021, the Company had total non-cancellable purchase commitments under the DMSA of $ 25.2 million and $ 28.3 million, respectively.

During the three months ended June 30, 2022 and 2021, the Company incurred costs of $ 9.5 million and $ 3.2 million, respectively, and made payments of $ 7.0 million and $ 5.7 million, respectively, for the development and manufacturing services rendered under the DMSA.

During the six months ended June 30, 2022 and 2021, the Company incurred costs of $ 19.5 million and $ 8.4 million, respectively, and made payments of $ 15.7 million and $ 6.4 million, respectively, for the development and manufacturing services rendered under the DMSA.

Contingencies

4 unchanged sentences

Stock Option Activity

The following table summarizes stock option activity for the three months ended March 31, 2022:

The following table summarizes stock option activity for the six months ended June 30, 2022:

Number of Options

5 unchanged sentences

( 348,281 ) 37.46

Balance at March 31, 2022 15,298,048 $ 27.06

Vested and expected to vest at March 31, 2022

Balance at June 30, 2022 15,158,522 $ 26.96

Vested and expected to vest at June 30, 2022

13,485,327 $ 30.22

Exercisable at March 31, 2022 9,017,879 $ 19.19

Exercisable at June 30, 2022 9,431,675 $ 20.27

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

Three Months Ended March 31,

Six Months Ended June 30,

Expected term (in years)

6 unchanged sentences

Restricted Stock Activity

The following table summarizes restricted stock unit ("RSU") activity for the three months ended March 31, 2022:

The following table summarizes restricted stock unit ("RSU") activity for the six months ended June 30, 2022:

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

3 unchanged sentences

Forfeited ( 139,832 ) 45.99

Unvested at March 31, 2022 2,951,499 $ 44.65

Expected to vest at March 31, 2022 2,951,499 $ 44.65

Unvested and expected to vest at June 30, 2022 2,898,742 $ 43.96

Stock-Based Compensation Expense

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

Three Months Ended March 31,

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

2022 2021 2022 2021

Research and development

2 unchanged sentences

9,064 8,627 19,653 17,341

$ 23,936 $ 21,136 $ 50,081 $ 42,164

Net Loss Per Share

Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share for all periods as the inclusion of all potential shares of common stock outstanding would have been anti-dilutive.

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

Three Months Ended March 31,

Options issued and outstanding and ESPP shares issuable

15,447,944 14,323,256

Restricted shares subject to future vesting

2,951,499 2,699,107

18,399,443 17,022,363

Potentially dilutive securities, including all options issued and outstanding, ESPP shares issuable, and restricted shares subject to future vesting, that were not included in the diluted per share calculations for all periods presented because they would be anti-dilutive totaled approximately 18.4 million and 16.7 million shares as of June 30, 2022 and June 30, 2021, respectively.

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

What changed 10-Q

Item 1. Financial Statements