What changed in this filing

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Item 1. Financial Statements

2023-05-08 compared with 2022-11-03 · 102 added, 168 removed, 350 unchanged (44% of the section changed)

3 unchanged sentences

(In thousands, except share amounts)

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Current assets:

1 unchanged sentence

Short-term marketable securities 1,220,322 1,118,171

Cost sharing reimbursements due from related party — 1,226

Prepaid expenses and other current assets 36,709 36,104

Total current assets 1,325,162 1,372,319

Long-term marketable securities — 425,449

Property and equipment, net 42,117 44,087

6 unchanged sentences

Cost sharing payments due to related party 8,538 4,388

Accrued compensation 13,253 19,013

Accrued clinical and other research & development costs 47,571 16,297

1 unchanged sentence

Other accrued costs and current liabilities 9,136 3,682

Accrued compensation 7,365 17,087

Operating lease liabilities, current 6,539 7,318

Related-party contract liability, current 289,757 290,053

Contract liabilities, current 23 27,915

Total current liabilities 391,080 363,922

Related-party contract liability, less current portion 633 479

Contract liabilities, less current portion — 3,398

Operating lease liabilities, less current portion 50,546 53,032

4 unchanged sentences

Convertible preferred stock, $ 0.01 par value;

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

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

40,000,000 shares authorized as of March 31, 2023 and December 31, 2022;

0 shares issued and outstanding as of March 31, 2023 and December 31, 2022

Common stock, $ 0.01 par value;

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

123,796,438 shares and 122,283,305 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively

400,000,000 shares authorized as of March 31, 2023 and December 31, 2022;

136,741,627 shares and 135,965,918 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively

Additional paid-in capital 2,048,297 2,018,617

7 unchanged sentences

(In thousands, except share and per share amounts)

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

2022 2021 2022 2021

Three Months Ended March 31,

Collaboration revenue:

1 unchanged sentence

$ 35,141 $ 42,141

Other collaboration revenue 3,375 — 3,375 4

Total collaboration revenue 35,141 42,141

6 unchanged sentences

Interest and other income, net 11,034 1,278

Loss before income taxes ( 103,299 ) ( 84,588 ) ( 227,286 ) ( 215,320 )

Income tax expense — — ( 27 ) —

Net loss ( 109,781 ) ( 65,220 )

5 unchanged sentences

__________________________________________________

(1) Includes related-party collaboration revenue from a customer of $ 0.2 million and $ 2.9 million for the three and nine months ended September 30, 2022, respectively, and $ 0.9 million and $ 2.5 million for the three and nine months ended September 30, 2021, respectively.

(2) Includes expense for cost sharing payments due to a related party of $ 1.4 million and $ 3.8 million for the three and nine months ended September 30, 2022, respectively, and an offset to expense from related-party cost sharing reimbursements of $ 1.2 million and $ 5.3 million for the three and nine months ended September 30, 2021, respectively.

(1) Includes related-party collaboration revenue from a customer of $ 0.1 million and $ 2.2 million for the three months ended March 31, 2023 and 2022, respectively.

(2) Includes expenses for cost sharing payments due to a related party of $ 4.2 million and $ 2.7 million for the three months ended March 31, 2023 and 2022, respectively.

See accompanying notes to unaudited condensed consolidated financial statements.

12 unchanged sentences

— — — — ( 109,781 ) ( 109,781 )

Other comprehensive loss — — — ( 9,354 ) — ( 9,354 )

Balance at September 30, 2022 123,796,438 $ 1,564 $ 1,693,901 $ ( 11,853 ) $ ( 872,309 ) $ 811,303

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

Issuances under equity incentive plans 331,643 3 5,151 — — 5,154

Vesting of restricted stock units 307,517 3 ( 3 ) — — —

Stock-based compensation — — 24,579 — — 24,579

Net loss — — — — ( 103,299 ) ( 103,299 )

Other comprehensive income — — — 421 — 421

Balance at September 30, 2022 123,796,438 $ 1,564 $ 1,693,901 $ ( 11,853 ) $ ( 872,309 ) $ 811,303

Other comprehensive gain — — — 4,369 — 4,369

Balance at March 31, 2023 136,741,627 $ 1,694 $ 2,048,297 $ ( 2,517 ) $ ( 1,080,768 ) $ 966,706

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

4 unchanged sentences

Other comprehensive loss — — — ( 6,752 ) — ( 6,752 )

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

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

Issuances under equity incentive plans

228,048 2 3,313 — — 3,315

Vesting of restricted stock units 251,151 2 ( 2 ) — — —

Stock-based compensation

— — 20,998 — — 20,998

— — — — ( 84,588 ) ( 84,588 )

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

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

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

See accompanying notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

Nine Months Ended

September 30,

Three Months Ended

Operating activities

3 unchanged sentences

Stock–based compensation expense 28,084 26,145

Net amortization of premiums on marketable securities 1,430 6,316

Net amortization of premiums and (discounts) on marketable securities ( 7,853 ) 1,627

Non-cash adjustment to operating lease expense ( 877 ) ( 783 )

Other non-cash items 51 —

Changes in operating assets and liabilities:

9 unchanged sentences

Maturities and sales of marketable securities 433,785 250,500

Net cash (used in) provided by investing activities ( 13,828 ) 19,124

Net cash used in investing activities ( 92,715 ) ( 117,878 )

Financing activities

5 unchanged sentences

Supplemental disclosures of cash flow information

Cash paid during the period for income taxes $ 4 $ —

Property and equipment purchases accrued but not yet paid $ 6,075 $ 114

9 unchanged sentences

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of SEC Regulation S-X for interim financial information.

These unaudited condensed consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission on February 28, 2022 (the "2021 Annual Report on Form 10-K").

GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of the Securities and Exchange Commission ("SEC") Regulation S-X for interim financial information.

These unaudited condensed consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 27, 2023 (the "2022 Annual Report on Form 10-K").

The Condensed Consolidated Balance Sheet as of December 31, 2022 was derived from the audited annual consolidated financial statements as of and for the period then ended.

3 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 nine months ended September 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.

During the three months ended March 31, 2023 there were no material changes to the Company's significant accounting and financial reporting policies from those reflected in the 2022 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 2022 Annual Report on Form 10-K.

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

As of March 31, 2023 and December 31, 2022, the Company had no off-balance sheet concentrations of credit risk.

The Company is subject to a number of risks similar to other clinical-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, the Russian invasion of Ukraine, inflation, rising interest rates, and recession risks as well as supply chain and labor shortages.

Further, the company is also subject to broad market risks and uncertainties resulting from recent events, such as bank failures or instability in the financial services sector, 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.

25 unchanged sentences

The Company does not assume renewals in its determination of the lease term unless the renewals are deemed by management to be reasonably certain at lease inception.

Leases with an initial term of 12 months or less are not recorded on the balance sheet, unless they include an option to purchase the underlying asset that the Company is reasonably certain to exercise.

Leases with an initial term of twelve months or less are not recorded on the balance sheet, unless they include an option to purchase the underlying asset that the Company is reasonably certain to exercise.

The Company recognizes lease expenses on a straight-line basis over the lease term.

23 unchanged sentences

Amounts received prior to satisfying the revenue recognition criteria are recorded as contract liabilities in the Company’s Condensed Consolidated Balance Sheets.

If the related performance obligation is expected to be satisfied within the next 12 months this will be classified in current liabilities.

If the related performance obligation is expected to be satisfied within the next twelve months this will be classified in current liabilities.

Amounts recognized as revenue prior to the Company having an unconditional right (other than a right that is conditioned only on the passage of time) to receipt are recorded as contract assets in the Company's Condensed Consolidated Balance Sheets.

If the Company expects to have an unconditional right to receive the consideration in the next 12 months, this will be classified in current assets.

If the Company expects to have an unconditional right to receive the consideration in the next twelve months, this will be classified in current assets.

A net contract asset or liability is presented for each contract with a customer.

22 unchanged sentences

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

September 30, 2022

March 31, 2023

Level 1 Level 2 Level 3 Total

1 unchanged sentence

Money market funds $ 38,170 $ — $ — $ 38,170

Commercial paper — 7,949 — 7,949

Short-term marketable securities:

government treasuries 1,093,118 — — 1,093,118

government agency securities — 26,471 — 26,471

Corporate debt securities — 47,315 — 47,315

5 unchanged sentences

Money market funds $ 105,340 $ — $ — $ 105,340

Short-term marketable securities:

government treasuries 43,781 — — 43,781

Corporate debt securities — 70,009 — 70,009

Commercial paper — 9,948 — 9,948

Long-term marketable securities:

Short-term marketable securities:

government treasuries 1,003,504 — — 1,003,504

government agency securities — 16,861 — 16,861

Corporate debt securities — 54,215 — 54,215

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

Foreign currency derivative contracts $ — $ 111 $ — $ 111

Commercial paper — 43,591 — 43,591

Total $ 1,152,625 $ 124,615 $ — $ 1,277,240

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

The carrying amounts of cost sharing reimbursements due to 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 September 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".

All marketable securities were considered available-for-sale at March 31, 2023 and December 31, 2022.

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

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

September 30, 2022

March 31, 2023

Amortized Cost Unrealized Holding Gains Unrealized Holding Losses Aggregate Fair Value

2 unchanged sentences

$ 1,095,241 $ 280 $ ( 2,403 ) $ 1,093,118

government agency securities

26,419 52 — 26,471

Corporate debt securities (2)

2 unchanged sentences

53,418 — — 53,418

Total short-term marketable securities

$ 1,222,488 $ 332 $ ( 2,498 ) $ 1,220,322

__________________________________________________

(1) Unrealized holding losses on 40 securities with an aggregate fair value of $ 570.5 million.

5 unchanged sentences

$ 1,009,733 $ 58 $ ( 6,287 ) $ 1,003,504

Corporate debt securities (2)

70,076 1 ( 68 ) 70,009

Commercial paper

51,485 — — 51,485

Total short-term marketable securities

572,250 1 ( 321 ) 571,930

Long-term marketable securities:

government treasuries (3)

government agency securities

16,823 38 — 16,861

1 unchanged sentence

54,571 — ( 356 ) 54,215

Total long-term marketable securities

Commercial paper

43,591 — — 43,591

3 unchanged sentences

(2) Unrealized holding losses on 16 securities with an aggregate fair value of $ 54.2 million.

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

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

As of September 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 September 30, 2022 or December 31, 2021.

As of March 31, 2023 and December 31, 2022, 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 March 31, 2023 or December 31, 2022.

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 12 months or the loss is not material.

As of September 30, 2022 all of the Company’s marketable securities have an effective maturity of less than one year .

Further, a majority of these marketable securities are held in U.S.

government securities, and the remainder 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.

As of March 31, 2023, all of the Company’s marketable securities have an effective maturity of less than one year .

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.

In May 2018, the Company exercised the pre-negotiated option agreement (the "Option Agreement") under the F-star Collaboration Agreement and entered into a Share Purchase Agreement (the “Purchase Agreement”) with the shareholders of F-star Gamma and Shareholder Representative Services LLC, pursuant to which the Company acquired all of the outstanding shares of F-star Gamma (the “Acquisition”).

The details of the Acquisition are further described in Note 4, "Acquisition", to the consolidated financial statements in the Company's 2022 Annual Report on Form 10-K.

As of March 31, 2023, the Company had paid consideration of $ 19.8 million in the aggregate consisting of up-front and preclinical contingent consideration, all of which was recorded as research and development expense as incurred.

An additional contingent consideration payment of $ 30.0 million was triggered in March 2023 upon the achievement of a specified clinical milestone in the ETV:IDS program, and recognized as research and development expense in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended March 31, 2023, and is recorded in accrued clinical and other research and development costs on the Condensed Consolidated Balance Sheet as of March 31, 2023.

This payment fully satisfies the Company's clinical contingent consideration obligations under the Purchase Agreement.

There was no contingent consideration expense recognized for the three months ended March 31, 2022.

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 5, "Collaboration Agreements", to the consolidated financial statements in the 2022 Annual Report on Form 10-K.

During the third 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 nine months ended September 30, 2022.

A related-party contract liability of $ 290.8 million and $ 293.7 million was recorded on the Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021, respectively.

Approximately $ 288.9 million of the September 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 $ 1.9 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 incremental research and development expenses in the Condensed Consolidated Statement of Operations and Comprehensive Loss of $ 1.4 million and $ 3.8 million for the three and nine months ended September 30, 2022, respectively, representing cost sharing payments owed to Biogen for LRRK2 Development Activities.

The Company recorded $ 1.4 million of cost sharing payments due to related party on the Condensed Consolidated Balance Sheet as of September 30, 2022.

The Company recorded $ 1.2 million and $ 5.3 million of cost sharing reimbursements for LRRK2 Development Activities as an offset to research and development expenses in the Condensed Consolidated Statement of Operations and Comprehensive Loss for the three and nine months ended September 30, 2021, respectively, 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 September 30, 2022, the Company had no t achieved any milestones and had no t recorded any product sales under the Biogen Collaboration Agreement.

During the first quarter of 2023, there were no changes to the terms of the Biogen Collaboration Agreement, and no change in the transaction price during the three months ended March 31, 2023.

In April 2023, Biogen exercised its option to license Denali's ATV:Abeta program, triggering a $ 5.0 million option fee payment, which is expected to be received in May 2023.

A related-party contract liability of $ 290.4 million and $ 290.5 million was recorded on the Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022, respectively.

Approximately $ 288.9 million of this contract liability relates to the revenue allocated to the material right for the ATV:Abeta option under the ROFN and Option Agreement, which was exercised in April 2023.

The remaining $ 1.5 million of this contract liability relates to the portion of the Option Research Services performance obligation for the second option program 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 $ 4.2 million and $ 2.7 million of cost sharing payments to Biogen for LRRK2 development activities in research and development expenses in the Condensed Consolidated Statement of Operations and Comprehensive Loss for the three months ended March 31, 2023 and 2022, respectively.

C ost sharing payments due to related party of $ 8.5 million and $ 4.4 million were recorded on the Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022 , respectively.

As of March 31, 2023, 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 5, "Collaboration Agreements", to the consolidated financial statements in the Company's 2022 Annual Report on Form 10-K.

During the third quarter of 2022, there were no changes to the terms of the Company’s collaboration agreement with Sanofi, and no changes in the transaction price of the Sanofi Collaboration Agreement.

The transaction price of the Sanofi Collaboration Agreement increased by $ 40.0 million during the nine months ended September 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 $ 23,352 and $ 3.4 million was recorded on the Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021, respectively.

This contract liability relates to the portion of the Alzheimer's Disease service performance obligation yet to be satisfied, with such amounts to be recognized over the estimated period of the services, which is expected to be less than a year as of September 30, 2022 .

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

As of September 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

The Company has no remaining performance obligations under the Sanofi Collaboration Agreement, and therefore no contract liability remains on the Condensed Consolidated Balance Sheets as of March 31, 2023 or December 31, 2022 .

During the first quarter of 2023, there were no changes to the terms of the Sanofi Collaboration Agreement, and the transaction price increased by $ 25.0 million due to a milestone payment triggered and received in January 2023 upon the commencement of dosing in a Phase 2 study of SAR443820/DNL788 in individuals with multiple sclerosis.

As of March 31, 2023, the Company had earned milestone payments of $ 100.0 million and had no t recorded any product sales under the Sanofi Collaboration Agreement.

PTV:PGRN and ATV:TREM2 Collaboration Agreements

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

The details of the Takeda Collaboration Agreement are further described in Note 5, "Collaboration Agreements", to the consolidated financial statements in the Company's 2022 Annual Report on Form 10-K.

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

A contract liability of $ 27.9 million was recorded on the Condensed Consolidated Balance Sheet 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 Sheet as of September 30, 2022.

There were no changes to the transaction price of the Takeda Collaboration Agreement during the third quarter of 2022.

The transaction price of the Takeda Collaboration Agreement increased by $ 24.0 million during the nine months ended September 30, 2022 due to two $ 12.0 million preclinical milestones becoming unconstrained and recorded as collaboration revenue from customers.

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 payment for ATV:TREM2 was received in July 2022.

There was no receivable under the Takeda Collaboration Agreement as of either September 30, 2022 and December 31, 2021.

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

PTV:PGRN and ATV:TREM2 Collaboration Agreements

Opt-in by Takeda on the PTV:PGRN and ATV:TREM2 programs represented 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.

There are no remaining performance obligations or potential payments remaining under the initial Takeda Collaboration Agreement.

The opt-in by Takeda on the PTV:PGRN and ATV:TREM2 programs represented two new contracts with a customer for accounting purposes (the "PTV:PGRN Collaboration Agreement" and the "ATV:TREM2 Collaboration Agreement"), both of which became effective in December 2021.

The details of the PTV:PGRN Collaboration Agreement and the ATV:TREM2 Collaboration Agreement are further described in Note 5, "Collaboration Agreements", to the consolidated financial statements in the Company's 2022 Annual Report on Form 10-K.

During the three and nine months ended September 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 $ 2.3 million and $ 8.0 million of cost sharing reimbursements for PTV:PGRN Development Activities, and $ 1.6 million and $ 5.2 million of cost sharing reimbursements for ATV:TREM2 Development Activities, for the three and nine months ended September 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 September 30, 2022 are recorded as a receivable within prepaid expenses and other current assets on the Condensed Consolidated Balance Sheet as of September 30, 2022.

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

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

During the three months ended March 31, 2023, there were no changes to the terms of the ATV:TREM2 or PTV:PGRN Collaboration Agreements, and an increase in the transaction price in the PTV:PGRN Collaboration Agreement of $ 10.0 million upon achievement of a specified clinical milestone in the Phase 1/2 clinical of DNL593 in patients with FTD-GRN.

This milestone was recognized in collaboration revenue from customers in the Condensed Consolidated Statement of Operations and Comprehensive Loss for the three months ended March 31, 2023 since the associated performance obligation has been satisfied, and was included as a receivable within prepaid expenses and other current assets on the Condensed Consolidated Balance Sheet as of March 31, 2023.

The Company recorded $ 1.5 million and $ 2.9 million of cost sharing reimbursements for PTV:PGRN, and $ 1.7 million and $ 2.1 million of cost sharing reimbursements for ATV:TREM2 Development Activities, for the three months ended March 31, 2023 and 2022, respectively, as offsets to research and development expenses in the Condensed Consolidated Statement of Operations and Comprehensive Loss.

Cost sharing reimbursements of $ 3.2 million and $ 8.9 million are recorded as receivables within prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022, respectively.

As of March 31, 2023, the Company had earned $ 10.0 million in option fee payments and $ 10.0 million in milestone payments from Takeda under the combined PTV:PGRN and ATV:TREM2 Collaboration Agreements, and had no t recorded any product sales under either agreement.

Collaboration Revenue

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

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

2022 2021 2022 2021

Three Months Ended March 31,

Takeda Collaboration Agreement:

Takeda Collaboration Agreement Services (1)

$ — $ 4,425 $ 51,916 $ 18,597

PTV:PGRN Collaboration Agreement 10,000 —

Total Takeda Collaboration Revenue 10,000 39,916

1 unchanged sentence

CNS Program License 25,000 —

Peripheral Program License — — — 15,000

Alzheimer's Disease Services (2)

3,375 — 3,375 4

Total Sanofi Collaboration Revenue 25,000 —

1 unchanged sentence

Option Research Services (2)

184 860 2,889 2,546

Total Biogen Collaboration Revenue 141 2,225

1 unchanged sentence

_________________________________________________

(1) Revenue of $ 27.9 million and $ 15.6 million for the nine months ended September 30, 2022 and 2021, respectively, were included in the contract liability balance at the beginning of the period.

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

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

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

(2) Revenue for the three months ended March 31, 2023 and 2022 was included in the contract liability balance at the beginning of the period.

License Agreements

2 unchanged sentences

The details of the Genentech License Agreement are further described in Note 6, "License Agreements", to the consolidated financial statements in the Company's 2022 Annual Report on Form 10-K.

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.

In September 2022, a further $ 5.0 million clinical milestone payment was triggered upon the commencement of dosing in the g lobal Phase 3 LIGHTHOUSE study to evaluate the efficacy and safety profile of BIIB122/DNL151 by the Company's collaboration partner Biogen.

This $ 5.0 million milestone payment is included w ithin accrued clinical and other research and development costs on the Condensed Consolidated Balance Sheet as of September 30, 2022.

Biogen is responsible for 50 % of any payment obligation to Genentech under the Biogen Collaboration Agreement, including these clinical milestones, and accordingly $ 2.5 million and $ 6.3 million of research and development expense under this agreement was recorded in th e three and nine months ended September 30, 2022, respectively .

There were no expenses recorded under the Genentech License Agreement for the three and nine months ended September 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.

No expenses were recorded under the Genentech License Agreement for the three months ended March 31, 2023 or 2022.

To date, the Company has made payments to Genentech of $ 25.0 million in the aggregate, including an upfront fee, a technology transfer fee and three clinical milestone payments, with $ 18.8 million of the payments recorded as research and development expense as incurred, net of cost sharing reimbursements from Biogen.

Commitments and Contingencies

2 unchanged sentences

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 $ 19.5 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 September 30, 2022, and no operating lease expense has been recorded for the three and nine months ended September 30, 2022.

In March 2023, the Company terminated the SLC Lease, which resulted in the recognition of $ 7.9 million of accelerated depreciation on leasehold improvements in the three months ended March 31, 2023 .

The SLC Lease had not commenced for accounting purposes, and as such, no lease liability or ROU asset was recorded on the Condensed Consolidated Balance Sheet, and no operating lease expense was recorded associated with this lease.

In April 2023, the Company entered into a new operating lease in Salt Lake City for a 59,336 square foot laboratory, office and warehouse premises with a contractual term of approximately 15.0 years upon commencement, and future undiscounted lease payments of approximately $ 13.4 million.

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 existing operating leases recognized under ASC 842 during the three or nine months ended September 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 September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Operating lease cost (1)

$ 3,306 $ 2,863 $ 8,857 $ 8,429

The discount rates 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 rate, 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 leases recognized under ASC 842 during three months ended March 31, 2023.

Operating lease costs, including variable costs, recognized under ASC 842 were $ 2.9 million and $ 2.8 million for three months ended March 31, 2023 and 2022, respectively.

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

Three Months Ended March 31,

Cash paid for amounts included in measurement of lease liabilities $ 2,996 $ 2,618

As of September 30,

As of March 31,

Weighted average remaining lease term 6.1 years 7.1 years

Weighted average discount rate 9.0 % 9.0 %

__________________________________________________

(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 liabilities recorded in the Condensed Consolidated Balance Sheet as of September 30, 2022 (in thousands):

Year Ended December 31:

2022 (three months) 2,996

2023 (nine months) 8,348

Thereafter 17,382

2 unchanged sentences

Net operating lease liabilities $ 57,085

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

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

During the third 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 $ 1.0 million for both of the three months ended September 30, 2022 and 2021, and $ 2.9 million for both of the nine months ended September 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 September 30, 2022 (in thousands):

Year Ended December 31:

2022 (three months) 758

2025 and thereafter —

Total undiscounted sublease receipts $ 4,730

Indemnification

4 unchanged sentences

Under the DMSA, the Company will execute purchase orders based on project plans authorizing Lonza to provide development and manufacturing services with respect to certain of the Company's antibody and enzyme products, and will pay for the services provided and batches delivered in accordance with the DMSA and project plan.

Unless earlier terminated, the DMSA will expire when all development and manufacturing services are completed.

As of September 30, 2022 and December 31, 2021, the Company had open purchase orders for biological product development and manufacturing costs totaling $ 37.9 million and $ 35.8 million, respectively.

The activities under these purchase orders are expected to be completed by October 2029.

As of September 30, 2022 and December 31, 2021, the Company had total non-cancellable purchase commitments under the DMSA of $ 36.0 million and $ 28.3 million, respectively.

During the three months ended September 30, 2022 and 2021, the Company incurred costs of $ 3.4 million and $ 5.8 million, respectively, and made payments of $ 3.9 million and $ 4.0 million, respectively, for the development and manufacturing services rendered under the DMSA.

During the nine months ended September 30, 2022 and 2021, the Company incurred costs of $ 22.9 million and $ 14.2 million, respectively, and made payments of $ 19.6 million and $ 10.4 million, respectively, for the development and manufacturing services rendered under the DMSA.

Unless earlier terminated, the DMSA will expire when all development and manufacturing services are completed, which is expected to be by November 2029.

As of March 31, 2023 and December 31, 2022, the Company had total non-cancellable purchase commitments under the DMSA of $ 39.6 million and $ 32.3 million, respectively.

During the three months ended March 31, 2023 and 2022, the Company incurred costs of $ 5.2 million and $ 10.0 million, respectively, and made payments of $ 3.8 million and $ 8.7 million, respectively, for the development and manufacturing services rendered under the DMSA.

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

The Company had contractual obligations under certain clinical and manufacturing agreements other than the DMSA of $ 46.9 million and $ 9.6 million, as of March 31, 2023 and December 31, 2022, respectively, with certain amounts subject to cost sharing with Takeda.

Contingencies

4 unchanged sentences

Stock Option Activity

The following table summarizes stock option activity for the nine months ended September 30, 2022:

The following table summarizes stock option activity for the three months ended March 31, 2023:

Number of Options

5 unchanged sentences

( 194,300 ) 39.71

Balance at September 30, 2022 14,748,630 $ 27.02

Vested and expected to vest at September 30, 2022

Balance at March 31, 2023 17,252,950 $ 27.22

Vested and expected to vest at March 31, 2023

16,443,079 $ 28.53

Exercisable at September 30, 2022 9,553,685 $ 21.08

Exercisable at March 31, 2023 10,535,232 $ 23.63

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

Nine Months Ended September 30,

Three Months Ended March 31,

Expected term (in years)

6 unchanged sentences

Restricted Stock Activity

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

The following table summarizes restricted stock unit ("RSU") activity for the three months ended March 31, 2023:

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

3 unchanged sentences

Forfeited ( 133,150 ) 36.79

Unvested and expected to vest at September 30, 2022 3,356,455 $ 41.55

Unvested and expected to vest at March 31, 2023 3,947,783 $ 36.52

Stock-Based Compensation Expense

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

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

2022 2021 2022 2021

Three Months Ended March 31,

Research and development

5 unchanged sentences

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, 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 16.5 million shares as of September 30, 2022 and September 30, 2021, respectively.

Subsequent Event

In October 2022, the Company 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.

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 21.4 million and 18.4 million shares as of March 31, 2023 and March 31, 2022, 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