What changed in this filing

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Item 1. Financial Statements

2023-11-07 compared with 2023-08-08 · 123 added, 125 removed, 384 unchanged (39% of the section changed)

3 unchanged sentences

(In thousands, except share amounts)

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Current assets:

3 unchanged sentences

Total current assets 1,142,884 1,372,319

Long-term marketable securities 7,905 —

Property and equipment, net 48,101 44,087

20 unchanged sentences

Convertible preferred stock, $ 0.01 par value;

40,000,000 shares authorized as of June 30, 2023 and December 31, 2022;

0 shares issued and outstanding as of June 30, 2023 and December 31, 2022

40,000,000 shares authorized as of September 30, 2023 and December 31, 2022;

0 shares issued and outstanding as of September 30, 2023 and December 31, 2022

Common stock, $ 0.01 par value;

400,000,000 shares authorized as of June 30, 2023 and December 31, 2022;

137,362,688 shares and 135,965,918 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

400,000,000 shares authorized as of September 30, 2023 and December 31, 2022;

138,051,798 shares and 135,965,918 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

Additional paid-in capital 2,114,013 2,018,617

5 unchanged sentences

Denali Therapeutics Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

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

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

2023 2022 2023 2022

2 unchanged sentences

$ 1,267 $ 184 $ 330,531 $ 94,805

Other collaboration revenue — 3,375 — 3,375

Total collaboration revenue 1,267 3,559 330,531 98,180

4 unchanged sentences

Total operating expenses 115,062 111,045 394,658 333,580

Income (loss) from operations 170,483 ( 61,416 ) 49,668 ( 127,914 )

Loss from operations ( 113,795 ) ( 107,486 ) ( 64,127 ) ( 235,400 )

Interest and other income, net 14,442 4,187 38,376 8,114

Income (loss) before income taxes 183,383 ( 58,767 ) 73,602 ( 123,987 )

Loss before income taxes ( 99,353 ) ( 103,299 ) ( 25,751 ) ( 227,286 )

Income tax expense — — — ( 27 )

Net income (loss) 183,383 ( 58,794 ) 73,602 ( 124,014 )

Net loss ( 99,353 ) ( 103,299 ) ( 25,751 ) ( 227,313 )

Other comprehensive income (loss):

Net unrealized gain (loss) on marketable securities, net of tax 790 421 6,235 ( 9,354 )

Comprehensive income (loss) $ 184,459 $ ( 61,817 ) $ 79,047 $ ( 133,789 )

Net income (loss) per share:

Net income (loss) per share, basic $ 1.34 $ ( 0.48 ) $ 0.54 $ ( 1.01 )

Net income (loss) per share, diluted $ 1.30 $ ( 0.48 ) $ 0.52 $ ( 1.01 )

Weighted-average shares used in calculating:

Weighted average number of shares outstanding, basic 137,047,227 123,008,558 136,787,321 122,842,171

Weighted average number of shares outstanding, diluted 140,930,625 123,008,558 140,550,226 122,842,171

Comprehensive loss $ ( 98,563 ) $ ( 102,878 ) $ ( 19,516 ) $ ( 236,667 )

Net loss per share, basic and diluted $ ( 0.72 ) $ ( 0.84 ) $ ( 0.19 ) $ ( 1.85 )

Weighted average number of shares outstanding, basic and diluted 137,644,534 123,473,390 137,076,199 123,054,889

__________________________________________________

(1) Includes related-party collaboration revenue from customers of $ 294.1 million and $ 294.3 million for the three and six months ended June 30, 2023, respectively, and $ 0.5 million and $ 2.7 million for the three and six months ended June 30, 2022, respectively.

(2) Includes expenses for cost sharing payments due to a related party of $ 7.0 million and $ 11.1 million for the three and six months ended June 30, 2023, respectively, an offset to expense from related-party cost sharing reimbursements of $ 0.4 million for the three months ended June 30, 2022, and expense for cost sharing payments due to a related party of $ 2.4 million for the six months ended June 30, 2022.

(1) Includes related-party collaboration revenue from customers of $ 1.3 million and $ 295.5 million for the three and nine months ended September 30, 2023, respectively, and $ 0.2 million and $ 2.9 million for the three and nine months ended September 30, 2022, respectively.

(2) Includes expenses for cost sharing payments due to a related party of $ 3.4 million and $ 14.5 million for the three and nine months ended September 30, 2023, respectively, and $ 1.4 million and $ 3.8 million for the three and nine months ended September 30, 2022.

See accompanying notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(In thousands, except share amounts)

Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (loss) Accumulated Deficit Total Stockholders' Equity

Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss

Accumulated Deficit Total Stockholders' Equity

Shares Amount

3 unchanged sentences

Stock-based compensation — — 82,302 — — 82,302

Net income — — — — 73,602 73,602

— — — — ( 25,751 ) ( 25,751 )

Other comprehensive income — — — 6,235 — 6,235

Balance at September 30, 2023 138,051,798 $ 1,707 $ 2,114,013 $ ( 651 ) $ ( 996,738 ) $ 1,118,331

Balance at June 30, 2023 137,362,688 $ 1,700 $ 2,083,951 $ ( 1,441 ) $ ( 897,385 ) $ 1,186,825

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

Issuances under equity incentive plans 222,688 2 2,490 — — 2,492

1 unchanged sentence

Stock-based compensation — — 27,577 — — 27,577

Net income — — — — 183,383 183,383

— — — — ( 99,353 ) ( 99,353 )

Other comprehensive income — — — 790 — 790

Balance at June 30, 2023 137,362,688 $ 1,700 $ 2,083,951 $ ( 1,441 ) $ ( 897,385 ) $ 1,186,825

Balance at September 30, 2023 138,051,798 $ 1,707 $ 2,114,013 $ ( 651 ) $ ( 996,738 ) $ 1,118,331

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 — — — ( 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

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

Issuances under equity incentive plans

4 unchanged sentences

— — — — ( 103,299 ) ( 103,299 )

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

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

Other comprehensive income

— — — 421 — 421

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

See accompanying notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

Six Months Ended

Nine Months Ended

September 30,

Operating activities

Net income (loss) $ 73,602 $ ( 124,014 )

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

Net loss $ ( 25,751 ) $ ( 227,313 )

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization 14,549 6,292

41 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 six months ended June 30, 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.

During the nine months ended September 30, 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.

4 unchanged sentences

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

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

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

Use of Estimates

1 unchanged sentence

GAAP requires the Company to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, as well as the reported amounts of expenses during the reporting period.

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

Concentration of Credit Risk and Other Risks and Uncertainties

6 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 June 30, 2023 and December 31, 2022, the Company had no off-balance sheet concentrations of credit risk.

As of September 30, 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.

9 unchanged sentences

The Company generally invests its excess cash in money market funds and investment grade short to intermediate-term fixed income securities.

Such investments are included in cash and cash equivalents or short-term marketable securities on the Condensed Consolidated Balance Sheets, are considered available-for-sale, and reported at fair value with net unrealized gains and losses included as a component of stockholders’ equity.

Such investments are included in cash and cash equivalents or short-term marketable securities on the Condensed Consolidated Balance Sheets, are considered available-for-sale, and are reported at fair value with net unrealized gains and losses included as a component of stockholders’ equity.

The Company classifies investments in securities with remaining maturities of less than one year, or where its intent is to use the investments to fund current operations or to make them available for current operations, as short-term investments.

The Company classifies investments in securities with remaining maturities of over one year as long-term investments, unless intended to fund current operations.

The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity, which is included in interest and other income, net in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

Realized gains and losses and declines in value determined to be due to credit losses on marketable securities, if any, are included in interest and other income, net.

60 unchanged sentences

Judgment is required in identifying performance obligations, estimating the transaction price, estimating the SSP of identified performance obligations, which may include forecasted revenue, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success, and estimating the progress towards satisfaction of performance obligations.

Comprehensive Income (Loss)

Comprehensive income (loss) is composed of net income (loss) and certain changes in stockholders’ equity that are excluded from net income (loss), primarily unrealized gains or losses on the Company’s marketable securities.

Net Income (Loss) per Share

Basic net income (loss) per share is calculated by dividing the net income (loss) by the weighted-average number of shares of common stock outstanding during the period, without consideration for common stock equivalents.

Diluted net income (loss) per share is computed based on the treasury stock method by dividing net income by the combined weighted-average number of common shares outstanding during the period and potentially dilutive common equivalent shares outstanding.

However, where there is a net loss per share, no adjustment is made for potentially issuable shares since their effect would be anti-dilutive.

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

Comprehensive Loss

Comprehensive loss is composed of net loss and certain changes in stockholders’ equity that are excluded from net loss, primarily unrealized gains or losses on the Company’s marketable securities.

Net Loss per Share

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period, without consideration for common stock equivalents.

Diluted net loss per share is the same as basic net loss per share, since the effects of potentially dilutive securities are antidilutive given the net loss for each period presented.

Fair Value Measurements

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

June 30, 2023

September 30, 2023

Level 1 Level 2 Level 3 Total

4 unchanged sentences

government agency securities — 20,941 — 20,941

Corporate debt securities — 19,032 — 19,032

Commercial paper — 15,493 — 15,493

Long-term marketable securities:

government treasuries 7,905 — — 7,905

Total $ 1,026,606 $ 36,434 $ — $ 1,063,040

11 unchanged sentences

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

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 carrying amounts of prepaid expenses and other current assets, accounts payable, accrued liabilities and cost sharing payments due to related party 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 June 30, 2023 and December 31, 2022.

All marketable securities were considered available-for-sale at September 30, 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):

June 30, 2023

September 30, 2023

Amortized Cost Unrealized Holding Gains Unrealized Holding Losses Aggregate Fair Value

4 unchanged sentences

20,952 1 ( 12 ) 20,941

Corporate debt securities (3)

19,046 1 ( 15 ) 19,032

Commercial paper

15,493 — — 15,493

Total short-term marketable securities

961,536 21 ( 312 ) 961,245

Long-term marketable securities:

government treasuries (3)

7,914 — ( 9 ) 7,905

(1) Unrealized holding losses on 42 securities with an aggregate fair value of $ 778.8 million.

Total long-term marketable securities

7,914 — ( 9 ) 7,905

$ 969,450 $ 21 $ ( 321 ) $ 969,150

__________________________________________________

(1) Unrealized holding losses on 39 securities with an aggregate fair value of $ 686.2 million.

(2) Unrealized holding losses on 4 securities with an aggregate fair value of $ 17.5 million.

(3) Unrealized holding loss on 1 security with an aggregate fair value of $ 7.9 million.

December 31, 2022

13 unchanged sentences

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

As of June 30, 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 June 30, 2023 or December 31, 2022.

As of September 30, 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 September 30, 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.

2 unchanged sentences

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 June 30, 2023, all of the Company’s marketable securities have an effective maturity of less than one year .

As of September 30, 2023, all of the Company’s marketable securities have an effective maturity of less than two years .

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.

1 unchanged sentence

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 June 30, 2023, the Company had paid consideration of $ 43.8 million in the aggregate consisting of up-front, preclinical and clinical contingent consideration, all of which had been recognized as research and development expense in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) in the first quarter of 2023.

The aggregate $ 43.8 million consideration payment includes $ 24.0 million of the $ 30.0 million contingent consideration payment triggered in March 2023 upon the achievement of a specified clinical milestone in the ETV:IDS program.

The remaining $ 6.0 million of the $ 30.0 million contingent consideration payment remained in accrued clinical and other research and development costs on the Condensed Consolidated Balance Sheet as of June 30, 2023, and was paid in July 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 June 30, 2023 or the three and six months ended June 30, 2022.

As of September 30, 2023, the Company had paid consideration of $ 49.8 million in the aggregate consisting of up-front, preclinical and clinical contingent consideration.

The aggregate $ 49.8 million consideration payment includes a $ 30.0 million contingent consideration payment triggered in March 2023 upon the achievement of a specified clinical milestone in the ETV:IDS program, all of which was recognized as research and development expense in the Condensed Consolidated Statements of Operations and Comprehensive Loss in the first quarter of 2023.

This contingent consideration 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 September 30, 2023 or the three and nine months ended September 30, 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 three and six months ended June 30, 2023, there were no changes to the terms of the Biogen Collaboration Agreement.

During the three and six months ended June 30, 2023, Biogen exercised its option to license Denali’s ATV:Abeta program which was previously concluded to be a material right.

In August 2023, the Company and Biogen executed an Amendment (the “Biogen Amendment”) to the LRRK2 Agreement and ROFN and Option Agreement.

Pursuant to the Biogen Amendment, the schedule of potential LRRK2 Agreement milestones was amended, while maintaining the same total value of milestones that Denali is eligible to receive.

In addition, under the Biogen Amendment, Biogen waived its option right to the second option program and waived its rights of first negotiation for two other TV-enabled programs under the ROFN and Option Agreement.

During the nine months ended September 30, 2023, Biogen exercised its option to license Denali’s ATV:Abeta program which was previously concluded to be a material right.

Biogen provided additional consideration of $ 5.0 million at the time of exercise which was fully allocated to the material right.

1 unchanged sentence

The $ 288.9 million related party contract liability associated with the material right for the ATV:Abeta option, and the $ 5.0 million option fee were both allocated to this performance obligation which was satisfied upon transfer of the ATV:Abeta Program License in April 2023.

Accordingly, related-party collaboration revenue from customers of $ 293.9 million was recognized in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) during the three and six months ended June 30, 2023.

No change in the transaction price for the Biogen Collaboration Agreement was recorded during the three and six months ended June 30, 2022.

A related-party contract liability of $ 1.3 million and $ 290.5 million was recorded on the Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022, respectively.

As of June 30, 2023, all of the remaining contract liability under the Biogen Collaboration Agreement 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 $ 7.0 million and $ 11.1 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 Income (Loss) for the three and six months ended June 30, 2023, respectively.

The Company recorded an offset to research and development expenses for LRRK2 Development Activities of $ 0.4 million for cost sharing reimbursements, and incremental research and development expenses for LRRK2 Development Activities of $ 2.4 million for cost sharing payments, for the three and six months ended June 30, 2022, respectively.

C ost sharing payments due to related party of $ 7.0 million and $ 4.4 million were recorded on the Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022 , respectively.

As of June 30, 2023, the Company had earned $ 5.0 million in option fee payments, but has not recorded milestone revenue or product sales under the Biogen Collaboration Agreement.

Accordingly, related-party collaboration revenue from customers of $ 293.9 million was recognized in the Condensed Consolidated Statements of Operations and Comprehensive Loss during the nine months ended September 30, 2023.

No change in the transaction price for the Biogen Collaboration Agreement was recorded during the three months ended September 30, 2023 and three and nine months ended September 30, 2022.

As a result of the Biogen Amendment, the related-party contract liability of $ 1.3 million related to the Option Research Services for the second option program, the only remaining performance obligation under the Biogen Collaboration Agreement, was considered fully satisfied, and as such this contract liability was recognized in full within collaboration revenue from customers during the three months ended September 30, 2023.

No related-party contract liability remains on the Condensed Consolidated Balance Sheet as of September 30, 2023.

A related-party contract liability of $ 290.5 million was recorded on the Consolidated Balance Sheet as of December 31, 2022.

The Company recorded incremental research and development expenses in the Condensed Consolidated Statement of Operations and Comprehensive Loss of $ 3.4 million and $ 1.4 million for the three months ended September 30, 2023 and 2022, respectively, and $ 14.5 million and $ 3.8 million for the nine months ended September 30, 2023 and 2022, respectively, representing cost sharing payments owed to Biogen for LRRK2 development activities.

C ost sharing payments due to related party of $ 10.4 million and $ 4.4 million were recorded on the Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022 , respectively.

As of September 30, 2023, the Company had earned $ 5.0 million in option fee payments, but has not recorded milestone revenue or 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.

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 June 30, 2023 or December 31, 2022 .

During the three and six months ended June 30, 2023, there were no changes to the terms of the Sanofi Collaboration Agreement.

There was no revenue or changes in transaction price for the three months ended June 30, 2023.

For the six months ended June 30, 2023 there was an increase in transaction price of $ 25.0 million as a result of 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.

This milestone was recognized in collaboration revenue from customers in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) during the first quarter of 2023 since the associated performance obligation had been satisfied.

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

As of June 30, 2023, the Company had earned milestone payments of $ 100.0 million and had no t recorded any product sales under the Sanofi Collaboration Agreement.

During the three and nine months ended September 30, 2023, there were no changes to the terms of the Sanofi Collaboration Agreement.

There was no revenue or changes in transaction price for the three months ended September 30, 2023 or 2022.

The transaction price increased by $ 25.0 million and $ 40.0 million for the nine months ended September 30, 2023 and 2022 , respectively, related to clinical milestones received, which were recognized in full within c ollaboration revenue from customers in the Condensed Consolidated Statements of Operations and Comprehensive Loss in the period in which they were earned.

As of September 30, 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

4 unchanged sentences

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 six months ended June 30, 2023, there were no changes to the terms of the ATV:TREM2 or PTV:PGRN Collaboration Agreements.

During the three months ended June 30, 2023, there were no changes in the transaction price, and for the six months ended June 30, 2023 there was an increase in transaction price for a $ 10.0 million milestone payment that was triggered upon achievement of a specified clinical milestone in the Phase 1/2 clinical of DNL593 in patients with FTD-GRN in the first quarter of 2023 and is recognized in collaboration revenue from customers in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the six months ended June 30, 2023.

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

The Company recorded $ 1.9 million and $ 3.4 million of cost sharing reimbursements for PTV:PGRN Development Activities, and $ 1.5 million and $ 3.2 million for ATV:TREM2 Development Activities, for the three and six months ended June 30, 2023, respectively, as offsets to research and development expenses in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

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

Cost sharing reimbursements of $ 3.4 million and $ 8.9 million are recorded as receivables within prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022, respectively.

As of June 30, 2023, the Company had earned an aggregate of $ 10.0 million in option fee payments and $ 10.0 million in milestone payments from Takeda under the PTV:PGRN and ATV:TREM2 Collaboration Agreements, and had no t recorded any product sales under either agreement.

During the three and nine months ended September 30, 2023, there were no changes to the terms of the ATV:TREM2 or PTV:PGRN Collaboration Agreements.

During the three months ended September 30, 2023, and the three and nine months ended September 30, 2022, there were no changes to the transaction prices for either the PTV:PGRN or ATV:TREM2 Collaboration Agreements.

The transaction price increased by $ 10.0 million in the nine months ended September 30, 2023 related to a clinical milestone received, which was recognized in full within c ollaboration revenue from customers in the Condensed Consolidated Statements of Operations and Comprehensive Loss in the period in which it was earned.

The Company recorded $ 1.7 million and $ 5.1 million of cost sharing reimbursements for PTV:PGRN development activities, and $ 1.1 million and $ 4.3 million for ATV:TREM2 development activities, for the three and nine months ended September 30, 2023, respectively, as offsets to research and development expenses in the Condensed Consolidated Statements of Operations and Comprehensive Loss.

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 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 Statements of Operations and Comprehensive Loss.

Cost sharing reimbursements of $ 2.1 million and $ 8.9 million were recorded as receivables within prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022, respectively.

As of September 30, 2023, the Company had earned an aggregate of $ 10.0 million in option fee payments and $ 10.0 million in milestone payments from Takeda under the 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 June 30, Six Months Ended June 30,

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

2023 2022 2023 2022

6 unchanged sentences

CNS Program License — — 25,000 40,000

Alzheimer's Disease Services (2)

— 3,375 — 3,375

Total Sanofi Collaboration Revenue — 3,375 25,000 43,375

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_________________________________________________

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

No revenue for the three months ended June 30, 2022 was included in the contract liability balance at the beginning of the period.

(2) Revenue of $ 288.9 million for the three and six months ended June 30, 2023 was included in the contract liability balance at the beginning of the period.

(3) Revenue for the three and six months ended June 30, 2023 and 2022 was included in the contract liability balance at the beginning of the period.

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

(2) Revenue for all periods presented was included in the contract liability balance at the beginning of the respective period.

(3) Revenue of $ 288.9 million for nine months ended September 30, 2023 was included in the related-party contract liability balance at the beginning of the period.

License Agreement

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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.

No expenses were recorded under the Genentech License Agreement for the three and six months ended June 30, 2023.

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

Biogen is responsible for 50 % of any payment obligation to Genentech under the Biogen Collaboration Agreement, including this clinical milestone, and accordingly a net $ 3.8 million of research and development expense was recorded in the three and six months ended June 30, 2022 in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

No expenses were recorded under the Genentech License Agreement for the three and nine months ended September 30, 2023.

In the nine months ended September 30, 2022, the Company paid Genentech two clinical milestone payments of $ 7.5 million and $ 5.0 million, triggered upon the commencement of dosing in the global Phase 2b LUMA study to evaluate the efficacy and safety of BIIB122/DNL151, and the commencement of dosing in the global Phase 3 LIGHTHOUSE study to evaluate the efficacy and safety profile of BIIB122/DNL151, respectively, by the Company's collaboration partner Biogen.

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 was recorded in the three and nine months ended September 30, 2022, respectively, in the Condensed Consolidated Statements of Operations and Comprehensive Loss.

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.

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

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 six months ended June 30, 2023 .

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 nine months ended September 30, 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.

For accounting purposes, this new lease has not yet commenced, and as such, no lease liability or ROU asset is recorded on the Condensed Consolidated Balance Sheet as of June 30, 2023 , and no operating lease expense has been recorded on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2023 .

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.

For accounting purposes, this new lease has not yet commenced, and as such, no lease liability or ROU asset is recorded on the Condensed Consolidated Balance Sheet as of September 30, 2023 , and no operating lease expense has been recorded on the Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2023 .

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

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 the three or six months ended June 30, 2023.

Operating lease costs, including variable costs, recognized under ASC 842 were $ 3.3 million and $ 6.2 million for the three and six months ended June 30, 2023, respectively, and $ 2.6 million and $ 5.5 million for the three and six months ended June 30, 2022, respectively.

There were no changes to the terms of the leases recognized under ASC 842 during the three or nine months ended September 30, 2023.

Operating lease costs, including variable costs, recognized under ASC 842 were $ 3.2 million and $ 9.4 million for the three and nine months ended September 30, 2023, respectively, and $ 3.3 million and $ 8.7 million for the three and nine months ended September 30, 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 June 30, Six Months Ended June 30,

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

2023 2022 2023 2022

Cash paid for amounts included in measurement of lease liabilities $ 2,793 $ 2,899 $ 8,552 $ 8,193

As of June 30,

As of September 30,

Weighted average remaining lease term 5.6 years 6.4 years

Weighted average discount rate 9.0 % 8.9 %

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 June 30, 2023 (in thousands):

Year Ended December 31:

2023 (six months) 5,586

2023 (three months)

Thereafter 17,381

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In addition, the Company has entered into indemnification agreements with directors and certain officers and employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees.

No demands have been made upon the Company to provide indemnification under such agreements, and thus, there are no claims that the Company is aware of that could have a material effect on the Company’s Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) , or Condensed Consolidated Statements of Cash Flows.

No demands have been made upon the Company to provide indemnification under such agreements, and thus, there are no claims that the Company is aware of that could have a material effect on the Company’s Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations and Comprehensive Loss , or Condensed Consolidated Statements of Cash Flows.

Effective September 2017, the Company entered into a Development and Manufacturing Services Agreement as amended (“DMSA”) with Lonza Sales AG (“Lonza”) for the development and manufacture of biologic products.

Under the DMSA, 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, which is expected to be by November 2029.

As of June 30, 2023 and December 31, 2022, the Company had total non-cancellable purchase commitments under the DMSA of $ 41.5 million and $ 32.3 million, respectively.

During the three months ended June 30, 2023 and 2022, the Company incurred costs of $ 10.9 million and $ 9.5 million, respectively, and made payments of $ 8.3 million and $ 7.0 million, respectively, for the development and manufacturing services rendered under the DMSA.

During the six months ended June 30, 2023 and 2022, the Company incurred costs of $ 16.1 million and $ 19.5 million, respectively, and made payments of $ 12.1 million and $ 15.7 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 not expected to be before November 2029.

As of September 30, 2023 and December 31, 2022, the Company had total non-cancellable purchase commitments under the DMSA of $ 49.9 million and $ 32.3 million, respectively.

During the three months ended September 30, 2023 and 2022, the Company incurred costs of $ 10.4 million and $ 3.4 million, respectively, and made payments of $ 12.8 million and $ 3.9 million, respectively, for the development and manufacturing services rendered under the DMSA.

During the nine months ended September 30, 2023 and 2022, the Company incurred costs of $ 26.5 million and $ 22.9 million, respectively, and made payments of $ 24.9 million and $ 19.6 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 $ 39.3 million and $ 9.6 million, as of June 30, 2023 and December 31, 2022, respectively, with certain amounts subject to cost sharing with Takeda.

The Company had contractual obligations under certain clinical and manufacturing agreements other than the DMSA of $ 37.8 million and $ 9.6 million, as of September 30, 2023 and December 31, 2022, respectively, with certain amounts subject to cost sharing with Takeda.

Contingencies

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Stock Option Activity

The following table summarizes stock option activity for the six months ended June 30, 2023:

The following table summarizes stock option activity for the nine months ended September 30, 2023:

Number of Options

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( 597,984 ) 40.37

Balance at June 30, 2023 16,946,571 $ 27.29

Vested and expected to vest at June 30, 2023

Balance at September 30, 2023 16,675,378 $ 27.39

Vested and expected to vest at September 30, 2023

15,865,507 $ 29.91

Exercisable at June 30, 2023 10,656,835 $ 24.47

Exercisable at September 30, 2023 10,721,238 $ 25.28

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

Six Months Ended June 30,

Nine Months Ended September 30,

Expected term (in years)

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Restricted Stock Activity

The following table summarizes restricted stock unit ("RSU") activity for the six months ended June 30, 2023:

The following table summarizes restricted stock unit ("RSU") activity for the nine months ended September 30, 2023:

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

3 unchanged sentences

Forfeited ( 293,478 ) 36.69

Unvested and expected to vest at June 30, 2023 3,860,784 $ 36.43

Unvested and expected to vest at September 30, 2023

3,716,511 $ 35.87

Stock-Based Compensation Expense

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

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

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

2023 2022 2023 2022

4 unchanged sentences

$ 27,459 $ 24,579 $ 82,114 $ 74,660

Net Income (Loss) Per Share

The following table sets forth the computation of the basic and diluted net income (loss) per share (in thousands, except share and per share data):

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

2023 2022 2023 2022

Net income (loss) $ 183,383 $ ( 58,794 ) $ 73,602 $ ( 124,014 )

Weighted average number of shares outstanding, basic 137,047,227 123,008,558 136,787,321 122,842,171

Dilutive effect of outstanding common stock options, ESPP shares issuable, and restricted shares 3,883,398 — 3,762,905 —

Weighted average number of shares outstanding, diluted 140,930,625 123,008,558 140,550,226 122,842,171

Net income (loss) per share, basic $ 1.34 $ ( 0.48 ) $ 0.54 $ ( 1.01 )

Net income (loss) per share, diluted $ 1.30 $ ( 0.48 ) $ 0.52 $ ( 1.01 )

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 11.8 million and 18.4 million shares as of June 30, 2023 and June 30, 2022, respectively.

Net Loss Per Share

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

Potentially dilutive securities, 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 20.7 million and 18.4 million shares as of September 30, 2023 and September 30, 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