What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-03 compared with 2022-08-08 · 91 added, 97 removed, 252 unchanged (43% of the section changed)

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Forward-looking statements include, but are not limited to, statements about:

• the success, cost and timing of our development activities, preclinical studies and clinical trials, including the enrollment in such trials, and in particular the development of our blood-brain barrier (“BBB”) platform technology, programs and biomarkers;

• the extent to which any dosing limitations that we have been subject to, and/or may be subject to in the future, may affect the success of our product candidates;

• the progress, success, cost and timing of our development activities, preclinical studies and clinical trials, and in particular the development of our blood-brain barrier (“BBB”) platform technology, programs and biomarkers, including the initiation and completion of studies or trials and related preparatory work, enrollment in such trials, the timing of when data from clinical trials will become available, the advancement of new molecule entities into clinical development and related timing, and the filing of investigational new drug applications or clinical trial applications;

• the impact of preclinical findings on our ability to achieve exposures of our product candidates that allow us to explore a robust pharmacodynamic range of these candidates in humans;

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• our ability to obtain and maintain regulatory approval of our product candidates, and any related restrictions, limitations and/or warnings in the label of any approved product candidate;

• the extent to which any dosing limitations that we have been subject to, and/or may be subject to in the future, may affect the success of our product candidates;

• the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology;

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• our ability to attract and retain key managerial, scientific and medical personnel;

• the impact of increasing geopolitical uncertainty, rising inflation and increased labor market competition;

• the accuracy of our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

• our ability to enhance operational, financial and information management systems;

• the impact of increasing geopolitical uncertainty, rising inflation and increased labor market competition;

• the impact of the COVID-19 pandemic, rising interest rates, and global economic and social conditions on our business;

• our financial performance.

• our expectations regarding the impact of the COVID -19 pandemic on our business.

These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in “Risk Factors”.

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Our goal is to discover, develop and deliver therapeutics to defeat degeneration.

Our strategy is guided by three overarching principles that we believe will significantly increase the probability of success and will accelerate the timing to bring effective therapeutics to patients with neurodegenerative diseases:

• Genetic Pathway Potential :

We select our therapeutic targets and disease pathways based on genes that, when mutated, cause, or are major risk factors for, neurodegenerative diseases.

We refer to these genes as degenogenes;

• Engineering Brain Delivery :

We engineer our product candidates to cross the blood-brain barrier ("BBB") and act directly in the brain;

• Biomarker-Driven Development :

We discover, develop and utilize biomarkers to select the right patient population and demonstrate target engagement, pathway engagement and impact on disease progression of our product candidates.

By executing this strategy with a team of experienced and passionately dedicated scientists and drug developers, we believe we can succeed in a field that has seen limited progress over the past several decades.

We have a focused yet diversified portfolio with seven clinical programs and more than fifteen programs in the preclinical development stage.

We have also developed a proprietary BBB platform technology, our transport vehicle ("TV"), which enables multiple modality-based platforms to deliver a wide range of large-molecule therapeutics across the BBB, including enzymes, antibodies, proteins and oligonucleotides.

This technology is designed to engage specific BBB transport receptors, which are ubiquitously expressed in brain capillaries and facilitate transport of proteins into the brain.

We are currently optimizing and broadening this platform technology.

Our discovery and development strategy is guided by three overarching principles that we believe will significantly increase the probability of success and accelerate the timing to bring effective therapeutics to patients with neurodegenerative diseases:

• Degenogene Pathways – each of our programs addresses a molecular target or biological pathway that is genetically validated to cause or increase the risk for neurodegenerative diseases.

• BBB Platform Technology – we engineer our product candidates to cross the BBB and act directly in the brain by following a rigorous approach in designing small molecules and by using our proprietary TV platform technology to effectively deliver large therapeutic molecules, such as enzymes, proteins, antibodies, and oligonucleotides, across the BBB after intravenous administration.

• Biomarker-Driven Development – we discover, develop and use biomarkers to inform dose selection, assess clinical activity, and to identify patients most likely to respond to our therapies.

Ou r clinic al-stage programs are:

• our leucine-rich repeat kinase 2 ("LRRK2") inhibitor program, to be developed in collaboration with Biogen, to address Parkinson’s disease ("PD");

• our ETV:IDS program, our lead brain-penetrant enzyme replacement therapy ("ERT"), enabled by our enzyme transport vehicle ("ETV"), which is designed to restore iduronate 2-sulfatase ("IDS"), and reduce glycosaminoglycans ("GAGs"), both peripherally and in the brain, in patients with mucopolysaccharidosis II ("MPS II", or "Hunter syndrome");

• our ETV:IDS program, our lead brain-penetrant enzyme replacement therapy ("ERT"), enabled by our ETV, which is designed to restore iduronate 2-sulfatase ("IDS"), and reduce glycosaminoglycans ("GAGs"), both peripherally and in the brain, in patients with mucopolysaccharidosis II ("MPS II", or "Hunter syndrome");

• our recombinant progranulin ("PGRN") biotherapeutic enabled by our protein transport vehicle ("PTV:PGRN"), being developed in collaboration with Takeda, to address certain types of FTD, especially FTD-GRN caused by PGRN deficiency;

• our novel, selective, high affinity triggering receptors expressed on myeloid cells 2 ("TREM2") antibody, enabled by our ATV, being developed in collaboration with Takeda for the potential treatment of Alzheimer's disease;

• our leucine-rich repeat kinase 2 ("LRRK2") inhibitor program, being developed in collaboration with Biogen, to address Parkinson’s disease ("PD");

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

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

• our recombinant progranulin ("PGRN") biotherapeutic enabled by our protein transport vehicle ("PTV:PGRN"), to be developed in collaboration with Takeda, to address certain types of FTD, especially FTD-GRN caused by PGRN deficiency;

• our novel, selective, high affinity triggering receptors expressed on myeloid cells 2 ("TREM2") antibody, enabled by our antibody transport vehicle ("ATV"), to be developed in collaboration with Takeda for the potential treatment of Alzheimer's disease.

The following table summarizes key information about our planned and ongoing clinical studies:

Program Product Candidate Clinical Study(ies) Indication Operational Control

LRRK2 BIIB122/DNL151 Ph 2b

PD Joint with Biogen

Ph 3 (planned)

ETV:IDS DNL310 Ph 1/2

Hunter syndrome (MPS II) Denali

Ph 2/3 (planned)

TAK-594/DNL593 Ph 1/2 FTD-GRN

Joint with Takeda

ATV:TREM2 TAK-920/DNL919 Ph 1 Alzheimer's disease Joint with Takeda

LRRK2 BIIB122/DNL151 Ph 2b

PD Joint with Biogen

eIF2B DNL343 Ph 1b ALS Denali

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Ph 2 (planned) UC

TAK-594/DNL593 Ph 1/2 FTD-GRN

Joint with Takeda

ATV:TREM2 TAK-920/DNL919 Ph 1 Alzheimer's disease Joint with Takeda

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

Collaborations and partnering are central components of our strategy to build, develop and commercialize our portfolio of product candidates.

We have numerous arrangements with biopharmaceutical companies, technology companies, academic institutions, foundations, and patient-focused data companies.

We currently rely on third-party contract manufacturers to manufacture and supply our preclinical and clinical materials to be used during the development of our product candidates.

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• In January 2022, we announced that Sanofi plans to initiate a Phase 2 trial of SAR443820/ DNL788 in MS, and a Phase 2 trial of SAR443122/ DNL758 in patients with UC;

• In January 2022, the clinical trial application ("CTA") for TAK-594/DNL593 (PTV:PGRN) was approved by the MHRA, triggering a $12.0 million milestone from Takeda which was received in February 2022;

• In February 2022, we presented interim data from the Phase 1/2 clinical trial of DNL310 at the WORLDSymposium™ on lysosomal diseases.

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• In March 2022, we announced the initiation of a Phase 1/2 Clinical Trial of TAK-594/DNL593 for Frontotemporal Dementia-Granulin (FTD-GRN).

Pending initial clinical data from healthy volunteers, we expect to begin dosing participants with FTD-GRN in the second half of 2022;

In January 2022, the clinical trial application ("CTA") for TAK-594/DNL593 (PTV:PGRN) was approved by the MHRA, triggering a $12.0 million milestone payment from Takeda which was received in February 2022.

In November 2022, we announced that interim results from Part A of the Phase 1/2 study demonstrated that single doses of TAK-594/DNL593 resulted in substantial increases in CSF progranulin levels suggesting brain delivery of TAK-594/DNL593 was achieved and has the potential to address progranulin deficiency, which drives disease progression in people living with FTD-GRN.

Single doses of TAK-594/DNL593 were also generally well tolerated, based on blinded safety analysis.

These data support dosing in participants with FTD-GRN in Part B of the study;

• In March 2022, we mutually agreed under the Takeda Collaboration Agreement to terminate activity on the ATV:Tau program over which Takeda had an option to develop and commercialize jointly with the Company;

• In April 2022, our collaboration partner Sanofi commenced dosing in the HIMALAYA Phase 2 study of SAR443820/DNL788 expected to enroll approximately 260 participants with ALS , triggering a $40.0 million milestone which was received in May 2022;

• Effective May 1, 2022, Steve Krognes transitioned from his role as Chief Financial Officer to join the Company’s Board of Directors, and Alexander Schuth, M.D., former Chief Operating Officer and Secretary of the Company, added the Chief Financial Officer role to his responsibilities, becoming Denali’s Chief Operating and Financial Officer;

• In May 2022, we announced that our collaboration partner Biogen commenced dosing in the global Phase 2b LUMA study to evaluate the efficacy and safety of BIIB122/DNL151, as compared to placebo in approximately 640 participants with early-stage Parkinson’s disease, which triggered a clinical milestone payment of $7.5 million owed to Genentech.

In August 2022 we announced that t he Phase 3 LIGHTHOUSE study in approximately 400 participants with Parkinson's disease with a confirmed LRRK2 pathogenic variant is expected to begin in the second half of 2022;

• In August 2022, we announced that dosing has commenced in the Phase 1 single ascending dose study in healthy volunteers in the Netherlands.

• In May 2022, Steve Krognes transitioned from his role as Chief Financial Officer to join the Company’s Board of Directors, and Alexander Schuth, M.D., former Chief Operating Officer and Secretary of the Company, added the Chief Financial Officer role to his responsibilities, becoming Denali’s Chief Operating and Financial Officer;

• In May 2022, our collaboration partner Biogen commenced dosing in the global Phase 2b LUMA study to evaluate the efficacy and safety of BIIB122/DNL151, as compared to placebo in approximately 640 participants with early-stage Parkinson’s disease, which triggered a clinical milestone payment of $7.5 million owed to Genentech ;

• In August 2022, dosing commenced in the Phase 1 single ascending dose study of TAK-920/DNL919 in healthy volunteers in the Netherlands.

In June 2022, the CTA for TAK-920/DNL919 (ATV:TREM2) was approved, triggering a $12.0 million milestone payment from Takeda which was received in July 2022.

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In addition, 49-week open label data on global impression of change continues to suggest stabilization and/or improvement in MPS II symptoms.

We also announced that we have initiated recruitment of the Phase 2/3 COMPASS study for DNL310 (ETV:IDS).

The Phase 2/3 COMPASS study continues to enroll up to 54 participants with Hunter syndrome with and without neuronopathic disease;

upon completion of the ongoing Phase 1/2 study, and together with data from the global COMPASS study, this combined data package will potentially support registration;

• In October 2022, we announced that in September 2022, our collaboration partner Biogen commenced dosing in the global Phase 3 LIGHTHOUSE study to evaluate the efficacy and safety profile of BIIB122/DNL151, as compared to placebo in approximately 400 participants with Parkinson’s disease and a confirmed pathogenic mutation in the leucine-rich repeat kinase 2 (LRRK2) gene, which triggered a clinical milestone payment of $5.0 million owed to Genentech;

• In October 2022, we sold 11.9 million shares of common stock (inclusive of shares sold pursuant to an overallotment option granted to the underwriters in connection with the offering) through an underwritten public offering at a price of $26.50 per share for aggregate net proceeds of approximately $296.2 million;

• In November 2022, our collaboration partner Sanofi presented Phase 1 healthy volunteer data on SAR443820/DNL788 at the Annual Northeast Amyotrophic Lateral Sclerosis ("NEALS") Meeting demonstrating a safety profile that was well-tolerated after single ascending doses and 14 days of multiple ascending doses taken orally once or twice daily, with favorable pharmacokinetic properties and excellent CNS penetrance.

These data further support the ongoing global Phase 2 HIMALAYA study in participants with ALS.

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

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Our ability to generate product revenue will depend on the successful development and eventual commercialization of one or more of our product candida tes.

Our net losses wer e $58.8 million and $124.0 million for the three and six months ended June 30, 2022, respectively, and $60.7 million and $130.7 million for three and six months ended June 30, 2021 , respectively.

As of June 30, 2022, we had an accumulated deficit o f $769.0 million.

We e xpect to continue to incur signi ficant expenses and operating losses as we advance our current clinical stage programs through healthy volunteer and patient trials;

Our net losses wer e $103.3 million and $227.3 million for the three and nine months ended September 30, 2022, respectively, and $84.6 million and $215.3 million for three and nine months ended September 30, 2021 , respectively.

As of September 30, 2022, we had an accumulated deficit o f $872.3 million.

We e xpect to continue to incur significant expenses and operating losses as we advance our current clinical stage programs through healthy volunteer and patient trials;

broaden and improve our BBB platform technology;

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All revenue recognized to date has been collaboration and license revenue from our collaboration agreements with Takeda, Sanofi and Biogen.

In the future, we may continue to recognize revenue from the Takeda Collaboration Agreement, Sanofi Collaboration Agreement, and Biogen Collaboration Agreement, and may generate revenue from product sales or milestones, royalties and cost reimbursement from other collaboration agreements, strategic alliances and licensing arrangements.

We expect that our revenue will fluctuate from quarter-to-quarter and year-to-year as a result of the timing and amount of license fees, option exercise fees, milestones, reimbursement of costs incurred and other payments and product sales, to the extent any are successfully commercialized.

In the future, we may continue to recognize revenue from the Takeda Collaboration Agreement, Sanofi Collaboration Agreement, and Biogen Collaboration Agreement, and may generate revenue from product sales or milestone payments, royalties and cost reimbursement from other collaboration agreements, strategic alliances and licensing arrangements.

We expect that our revenue will fluctuate from quarter-to-quarter and year-to-year as a result of the timing and amount of license fees, option exercise fees, milestone payments, reimbursement of costs incurred and other payments and product sales, to the extent any are successfully commercialized.

If we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.

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Results of Operations

Comparison of the three and six months ended June 30, 2022 and 2021

Comparison of the three and nine months ended September 30, 2022 and 2021

The following table sets forth the significant components of our results of operations (in thousands):

Three Months Ended June 30, Change

Three Months Ended September 30, Change

2022 2021 $ %

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Loss before income taxes (103,299) (84,588) (18,711) (22)

Income tax expense (27) — (27) *

Net loss $ (103,299) $ (84,588) $ (18,711) (22) %

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* Percentage is not meaningful.

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

2022 2021 $ %

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Collaboration revenue.

Collaboration revenue was $52.5 million and $94.6 million for the three and six months ended June 30, 2022, respectively, and $22.9 million and $30.9 million for the three and six months ended June 30, 2021.

The increases in collaboration revenue of $29.6 million and $63.7 million for the three and six months ended June 30, 2022, respectively, compared to the comparative period in the prior year were primarily due to an increase in revenue from our collaborations with Takeda and Sanofi.

Takeda revenue increased for the three months ended June 30, 2022 due to the $12.0 million preclinical milestone earned for approval of the CTA for TAK-920/DNL919 ("ATV:TREM2"), and further increased for the six months ended June 30, 2022 due to the $12.0 million preclinical milestone earned for approval of the CTA for TAK-594/DNL593 ("PTV:PGRN"), and revenue recognized for the performance obligation satisfaction associated with termination of the Tau program.

Sanofi revenue increased for the three and six months ended June 30, 2022 due to a $40.0 million milestone earned in April 2022 upon dosing the first patient in a Phase 2 study of SAR443820/DNL788 in individuals with ALS, compared with a $15.0 million milestone recognized in the comparable period related to the initiation of a Phase 2 study of SAR443122/DNL758.

Collaboration revenue was $3.6 million and $98.2 million for the three and nine months ended September 30, 2022, respectively, and $5.3 million and $36.1 million for the three and nine months ended September 30, 2021.

The decrease in collaboration revenue of $1.7 million for the three months ended September 30, 2022, compared to the comparative period in the prior year, was primarily due to a decrease in revenue from our collaboration with Takeda as the preclinical performance obligations are now satisfied under the Takeda Collaboration Agreement, partially offset by an increase in revenue from our collaboration with Sanofi pertaining to Alzheimer's Disease service performance.

The increase in collaboration revenue of $62.1 million for the nine months ended September 30, 2022, compared to the comparative period in the prior year was primarily due to our collaborations with Takeda and Sanofi.

Takeda revenue increased for the nine months ended September 30, 2022 primarily due to preclinical milestone payments of $24.0 million earned for CTA approvals of TAK-920/DNL919 and TAK-594/DNL593, as well as $27.9 million recognized for the performance obligation satisfaction associated with termination of the Tau program.

Sanofi revenue increased for the nine months ended September 30, 2022 primarily due to a $40.0 million milestone payment earned in April 2022 upon dosing the first patient in a Phase 2 study of SAR443820/DNL788 in individuals with ALS, compared with a $15.0 million milestone payment recognized in the comparable period related to the initiation of a Phase 2 study of SAR443122/DNL758 as well as revenue earned for performance of Alzheimer's Disease services in the third quarter of 2022.

Research and development expen ses.

Research and development expenses were $92.7 million and $178.8 million for the three and six months ended June 30, 2022, compared to $65.7 million and $125.9 million for the three and six months ended June 30, 2021, respectively.

Research and development expenses were $87.8 million and $266.6 million for the three and nine months ended September 30, 2022, compared to $71.6 million and $197.5 million for the three and nine months ended September 30, 2021, respectively.

The following table summarizes our research and development expenses by program and category (in thousands):

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

2022 2021 2022 2021

LRRK2 program external expenses

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

2022 2021 2022 2021

ETV:IDS program external expenses $ 12,610 $ 8,272 $ 47,743 $ 22,025

eIF2B program external expenses 2,824 4,752 6,759 9,092

PTV program external expenses 4,651 4,150 8,794 6,758

PTV:PGRN program external expenses 3,838 2,668 12,632 9,426

ATV:TREM2 program external expenses 1,936 4,026 6,637 10,355

TV platform and other program external expenses

6,102 3,694 19,252 5,749

LRRK2 program external expenses 7,099 3,231 17,387 8,383

eIF2B program external expenses 4,415 3,531 11,174 12,623

Other external research and development expenses

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(1) Personnel related expenses include stock-based compensation expense of $14.9 million and $30.4 million for the three and six months ended June 30, 2022, respectively, and $12.5 million and $24.8 million for the three and six months ended June 30, 2021, respectively, reflecting an increase of $2.4 million and $5.6 million, respectively.

(2) For the three and six months ended June 30, 2022, net cost sharing reimbursements includes $2.8 million and $5.7 million of reimbursements from Takeda for the PTV:PGRN program (included within PTV program external program expenses and Personnel related expenses), respectively, and $1.5 million and $3.6 million of reimbursements from Takeda for the ATV:TREM2 program (included within TV platform and other program external expenses and Personnel related expenses), respectively.

For the three months ended June 30, 2022, cost sharing reimbursements includes $0.4 million of reimbursements from Biogen for LRRK2 program external expenses and program internal expenses (included within Personnel related expenses).

For the six months ended June 30, 2022, cost sharing reimbursements were partially offset by cost sharing payments of $2.4 million to Biogen.

For the three and six months ended June 30, 2021, the entire amount represents cost sharing reimbursements from Biogen.

The increase in research and development expenses of approximately $27.0 million for the three months ended June 30, 2022 compared to the three months ended June 30, 2021, was primarily attributable to the following:

• An increase of $10.4 million in ETV:IDS program external expenses reflecting the continued progress of this program in clinical trials during 2022, including costs incurred to prepare for our planned potentially registrational Phase 2/3 study;

• An increase of $6.8 million in personnel related expenses, consisting of increases of $2.4 million and $4.4 million in stock-based compensation expense pertaining to additional equity award grants and salaries and related expenses, as a result of an increase in our research and development headcount, respectively;

• An increase in external expenses related to the LRRK2 program of $6.3 million primarily due to a $7.5 million clinical milestone payment to Genentech triggered upon the commencement of dosing in the global Phase 2b LUMA study to evaluate the efficacy and safety of BIIB122/DNL151 by our collaboration partner Biogen, partially offset by decreases in costs due to the transition of clinical activities to Biogen;

• Increases of $5.8 million, $2.6 million, and $0.5 million in TV platform and other program external expenses, other external research and development expenses, and PTV program external expenses, respectively, reflecting the progress in our ATV:TREM2 and PTV:PGRN programs as well as our continued investment in developing a robust pipeline.

These increases were partially offset by a decrease of $1.9 million in eIF2B program external expenses due to the timing of significant clinical activities year over year, a decrease of $0.3 million in other unallocated research and development expenses, and an increase of $3.2 million in cost sharing reimbursements due to the commencement of cost sharing in the Takeda collaboration and Biogen's share of the $7.5 million milestone to Genentech, as discussed above.

The increase in research and development expenses of approximately $52.9 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021, was primarily attributable to the following:

• An increase of $21.4 million in ETV:IDS program external expenses reflecting the continued progress of this program in clinical trials during 2022, including costs incurred to prepare for our planned potentially registrational Phase 2/3 study;

• An increase of $15.0 million in personnel related expenses, consisting of increases of $5.6 million and $9.4 million in stock-based compensation expense primarily attributable to additional equity award grants, and salaries and related expenses attributable to an increase in our research and development headcount, respectively;

• An increase in external expenses related to the LRRK2 program of $5.1 million primarily due to a $7.5 million clinical milestone payment to Genentech triggered upon the commencement of dosing in the global Phase 2b LUMA study to evaluate the efficacy and safety of BIIB122/DNL151 by our collaboration partner Biogen, partially offset by decreases in costs due to the transition of clinical activities to Biogen;

• Increases of $9.5 million, $4.6 million and $2.0 million, in TV platform and other program external expenses, other external research and development expenses, and PTV program external expenses, respectively, reflecting the progress in our ATV:TREM2 and PTV:PGRN programs as well as our continued investment in developing a robust pipeline;

• An increase of $0.5 million in other unallocated research and development expenses.

These increases were partially offset by a decrease of $2.3 million in eIF2B program external expenses due to the timing of significant clinical activities year over year, and an increase of $2.9 million in cost sharing reimbursements due to the commencement of cost sharing in the Takeda collaboration, as discussed above.

(1) Personnel related expenses include stock-based compensation expense of $14.7 million and $45.1 million for the three and nine months ended September 30, 2022, respectively, and $12.2 million and $37.0 million for the three and nine months ended September 30, 2021, respectively, reflecting an increase of $2.5 million and $8.1 million, respectively.

(2) For the three and nine months ended September 30, 2022, net cost sharing reimbursements includes reimbursements from Takeda for the PTV:PGRN program (included within PTV:PGRN program external program expenses and Personnel related expenses) of $2.3 million and $8.0 million, respectively, and reimbursements from Takeda for the ATV:TREM2 program (included within ATV:TREM2 program external expenses and Personnel related expenses) of $1.6 million and $5.2 million, respectively.

For the three and nine months ended September 30, 2022, cost sharing reimbursements were partially offset by cost sharing payments of $1.4 million and $3.8 million, respectively, owed to Biogen.

For the three and nine months ended September 30, 2021, the entire amount represents cost sharing reimbursements from Biogen.

The increase in research and development expenses of approximately $16.2 million for the three months ended September 30, 2022 compared to the three months ended September 30, 2021, was primarily attributable to the following:

• An increase of $4.3 million in ETV:IDS program external expenses reflecting the continued progress of this program in clinical trials during 2022, including costs related to our ongoing Phase 1/2 study and our potentially registrational Phase 2/3 study;

• An increase in external expenses related to the LRRK2 program of $3.9 million primarily due to a $5.0 million clinical milestone payment owed to Genentech which was triggered upon the commencement of dosing in the global Phase 3 LIGHTHOUSE study to evaluate the efficacy and safety of BIIB122/DNL151 by our collaboration partner Biogen, partially offset by decreases in costs due to the transition of clinical activities to Biogen;

• Increases of $2.4 million and $1.2 million in TV platform and other program external expenses and PTV:PGRN program external expenses, respectively, reflecting the progress in our continued investment in developing our TV platform and associated programs;

• An increase of $7.0 million in personnel related expenses, consisting of $4.5 million in employee compensation and $2.5 million in stock-based compensation expense pertaining to additional salaries, related expenses, and equity award grants driven by an increase in our research and development headcount.

These increases were partially offset by a decrease of $2.1 million in ATV:TREM2 program external expenses due to the timing of significant clinical related activities year over year and an increase of $1.3 million in cost sharing reimbursements primarily due to the commencement of cost sharing in the Takeda collaboration, as discussed above.

The increase in research and development expenses of approximately $69.1 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021, was primarily attributable to the following:

• An increase of $25.7 million in ETV:IDS program external expenses reflecting the continued progress of this program in clinical trials during 2022, including costs related to our ongoing Phase 1/2 study and our potentially registrational Phase 2/3 study;

• Increases of $13.5 million, $4.0 million and $3.2 million, in TV platform and other program external expenses, other external research and development expenses, and PTV:PGRN program external expenses, respectively, reflecting the progress in our PTV:PGRN program as well as our continued investment in developing our robust pipeline;

• An increase in external expenses related to the LRRK2 program of $9.0 million primarily due to $12.5 million in clinical milestone payments owed to Genentech in the nine months ended September 30, 2022 triggered upon commencement of dosing in the global Phase 2b LUMA study and the global Phase 3 LIGHTHOUSE study to evaluate the efficacy and safety of BIIB122/DNL151 by our collaboration partner Biogen, partially offset by decreases in costs due to the transition of clinical activities to Biogen;

• An increase of $22.1 million in personnel related expenses, consisting of increases of $14.0 million in employee compensation and $8.1 million in stock-based compensation expense pertaining to additional salaries, related expenses, and equity award grants driven by an increase in our research and development headcount.

These increases were partially offset by decreases of $3.7 million and $1.4 million in ATV:TREM2 program external expenses and eIF2B program external expenses due to the timing of significant clinical related activities year over year, and an increase of $4.2 million in cost sharing reimbursements primarily due to the commencement of cost sharing in the Takeda collaboration, as discussed above.

General and administrative expenses.

General and administrative expenses were $21.2 million for the three months ended June 30, 2022 compared to $19.0 million for the three months ended June 30, 2021.

General and administrative expenses were $23.3 million for the three months ended September 30, 2022 compared to $19.3 million for the three months ended September 30, 2021.

The increase of $4.0 million was primarily attributable to the following:

• $1.5 million of increased personnel related expenses and stock-based compensation expense associated with additional salary expenses and equity award grants driven by higher general and administrative headcount;

• $1.0 million of increased other general costs, including general corporate services, IT services and subscriptions, taxes, insurance, and travel related expenses.

These increases were partially offset by a decrease of $0.3 million in consulting and legal professional services expenses.

• $1.9 million of increased personnel-related expenses consisting of employee compensation and stock-based compensation expense associated with additional salary expenses and equity award grants driven by higher general and administrative headcount;

• $1.2 million of increased other costs, including general corporate services, IT services and subscriptions, taxes, and travel-related expenses required to support our growing business;

• $0.9 million of increased consulting and legal professional service expenses, with specific increases in consulting expenses related to investment in IT system implementation and market research for our key programs.

General and administrative expenses.

General and administrative expenses were $43.7 million for the six months ended June 30, 2022 compared to $38.0 million for the six months ended June 30, 2021.

General and administrative expenses were $67.0 million for the nine months ended September 30, 2022 compared to $57.3 million for the nine months ended September 30, 2021.

The increase of $9.7 million was primarily attributable to the following:

• $4.9 million of increased personnel related expenses and stock-based compensation expense associated with additional salary expenses and equity award grants driven by higher general and administrative headcount;

• $1.5 million of increased other general costs, including general corporate services, IT services and subscriptions, taxes, insurance, and travel related expenses.

These increases were partially offset by a decrease of $0.7 million in consulting and legal professional services expenses.

• $6.9 million of increased personnel-related expenses consisting of employee compensation and stock-based compensation expense associated with additional salary expenses and equity award grants driven by higher general and administrative headcount;

• $2.5 million of increased other costs, including general corporate services, IT services and subscriptions, taxes, and travel related expenses required to support our growing business.

Liquidity and Capital Resources

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We have not yet issued any shares under the facility.

Pursuant to our collaboration agreements with Takeda, Sanofi and Biogen, through June 30, 2022 we have received upfront, option and milestone payments of $93.0 million , $190.0 million, and $560.0 million, respectively, and have also received $18.7 million and $15.8 million of gross cost sharing reimbursements from Takeda and Biogen, respectively, and have received $13.7 million of reimbursement from Sanofi for the Phase 1b trial for DNL747 for ALS and associated activities.

Further, under associated stock purchase agreements with Takeda and Biogen, through June 30, 2022 we have received $110.0 million and $465.0 million, respectively, for the sale and issuance of shares of our common stock to collaboration partners.

As of June 30, 2022, we had cash, cash equivalents and marketable securities in the amount of $1.16 billion.

In October 2022, we sold 11.9 million shares of common stock (inclusive of shares sold pursuant to an overallotment option granted to the underwriters in connection with the offering) through an underwritten public offering at a price of $26.50 per share for aggregate net proceeds of approximately $296.2 million.

Pursuant to our collaboration agreements with Takeda, Sanofi and Biogen, through September 30, 2022 we have received upfront, option and milestone payments of $105.0 million , $190.0 million, and $560.0 million, respectively, and have also received $23.0 million and $16.2 million of gross cost sharing reimbursements from Takeda and Biogen, respectively, and received $13.7 million of reimbursement from Sanofi for the Phase 1b trial for DNL747 for ALS and associated activities.

Further, under associated stock purchase agreements with Takeda and Biogen, through September 30, 2022 we have received $110.0 million and $465.0 million, respectively, for the sale and issuance of shares of our common stock to collaboration partners.

As of September 30, 2022, we had cash, cash equivalents and marketable securities in the amount of $1.11 billion.

Future Funding Requirements and Commitments

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Since our inception, we have incurred significant losses and negative cash flows from operations.

We have an accumulated deficit of $769.0 million through June 30, 2022.

We have an accumulated deficit of $872.3 million through September 30, 2022.

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

We believe that our existing cash, cash equivalents and marketable securities will be sufficient to enable us to fund our projected operations through at least the 12 months following the filing date of this Form 10-Q, including our existing commitments as outlined below.

We believe that our existing cash, cash equivalents and marketable securities will be sufficient to enable us to fund our projected operations through at least the 12 months following the filing date of this Quarterly Report on Form 10-Q, including our existing commitments as outlined below.

We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.

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Our existing commitments primarily relate to our obligations under existing lease agreements and the DMSA with Lonza Sales AG ("Lonza") for the development and manufacture of biologic products.

As of June 30, 2022, operating lease liabilities were $61.4 million.

Under other leases which have not yet commenced, including the SLC lease, we have future undiscounted lease payments totaling approximately $22.4 million.

Under the DMSA with Lonza, we had total non-refundable purchase commitments of $25.2 million as of June 30, 2022, with certain amounts subject to cost sharing with Takeda.

As of September 30, 2022, operating lease liabilities were $62.0 million.

Under other leases which have not yet commenced, such as the SLC lease, we have future undiscounted lease payments totaling approximately $19.5 million.

Under the DMSA with Lonza, we had total non-refundable purchase commitments of $36.0 million as of September 30, 2022, with certain amounts subject to cost sharing with Takeda.

Further, in the normal course of business, we enter into various firm purchase commitments primarily related to research and development activities.

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These commitments are more fully described in Note 9, "Commitments and Contingencies" to the consolidated financial statements included in Item 1.

of our Annual Report on Form 10-K and have not materially changed during the six months ended June 30, 2022.

of our Annual Report on Form 10-K and have not materially changed during the nine months ended September 30, 2022.

Our future funding requirements, including changes to and new commitments, will depend on many factors, including:

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The following table sets forth a summary of the primary sources and uses of cash for each of the periods presented below (in thousands):

Six Months Ended June 30,

Nine Months Ended September 30,

Net cash used in operating activities $ (172,053) $ (145,895)

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Net Cash Used In Operating Activities

During the six months ended June 30, 2022, cash used in operating activities was $115.0 million, which consisted of a net loss of $124.0 million, adjusted by non-cash items primarily related to stock-based compensation and depreciation, net amortization of discounts on marketable securities and non-cash rent expenses.

During the nine months ended September 30, 2022, net cash used in operating activities was $172.1 million, which consisted of a net loss of $227.3 million, adjusted by non-cash items primarily related to stock-based compensation and depreciation, net amortization of discounts on marketable securities and non-cash rent expenses.

Cash used in operating activities was also driven by changes in our operating assets and liabilities.

Net Cash (Used In) Provided By Investing Activities

During the six months ended June 30, 2022, cash used in investing activities was $29.2 million, which consisted of $505.5 million of purchases of marketable securities and $6.9 million of capital expenditures to purchase property and equipment, partially offset by $483.1 million in proceeds from maturities of marketable securities.

During the nine months ended September 30, 2022, net cash used in investing activities was $13.8 million, which consisted of $628.3 million of purchases of marketable securities and $13.0 million of capital expenditures to purchase property and equipment, partially offset by $627.5 million in proceeds from maturities of marketable securities.

Net Cash Provided By Financing Activities

During the six months ended June 30, 2022, cash provided by financing activities was $5.9 million in proceeds from the exercise of options to purchase common stock as well as the purchase of ESPP shares.

During the nine months ended September 30, 2022, cash provided by financing activities was $11.0 million in proceeds from the exercise of options to purchase common stock as well as the purchase of ESPP shares.

Critical Accounting Estimates

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In our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on February 28, 2022, we described the accounting estimates that we believe involve a significant level of estimation uncertainty which could have a material impact on our financial condition or results of operations.

There have been no material changes to these critical accounting estimates during the six months ended June 30, 2022.

There have been no material changes to these critical accounting estimates during the nine months ended September 30, 2022.

Recent Accounting Pronouncements

There have been no new accounting pronouncements or changes to accounting pronouncements during the six months ended June 30, 2022 , as compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on February 28, 2022, that are of significance or potential significance to us.

There have been no new accounting pronouncements or changes to accounting pronouncements during the nine months ended September 30, 2022 , as compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on February 28, 2022, that are of significance or potential significance to us.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis