What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-07 compared with 2023-08-08 · 83 added, 80 removed, 280 unchanged (37% of the section changed)

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• our financial performance.

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

In some cases, you can identify these statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expects,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of those terms, and similar expressions that convey uncertainty of future events or outcomes.

These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in “Risk Factors.” In some cases, you can identify these statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expects,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would,” or the negative of those terms, and similar expressions that convey uncertainty of future events or outcomes.

These forward-looking statements reflect our beliefs and views with respect to future events and are based on estimates and assumptions as of the date of this Quarterly Report on Form 10-Q and are subject to risks and uncertainties.

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

Ou r clinic al-stage programs are:

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

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

• our novel, selective, high affinity triggering receptors expressed on myeloid cells 2 ("TREM2") antibody, enabled by our ATV, for which development of TAK-920/DNL919 is being discontinued in Alzheimer's disease in conjunction with the closeout of the current Phase 1 clinical study of TAK-920/DNL919, and for which Denali and Takeda will explore back-up molecules in preclinical development;

Ou r clinic al-stage large molecule programs are:

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

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

• our second most advanced ETV enabled program, which is designed to restore lysosomal activity of N-sulfoglucosamine sulfohydrolase ("SGSH"), an enzyme responsible for degrading heparan sulfates in the lysosome, in patients with MPS IIIA (Sanfilippo syndrome Type A);

Ou r clinic al-stage small molecule programs are:

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

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

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

• our CNS-penetrant receptor interacting serine/threonine protein kinase 1 ("RIPK1") inhibitor program, partnered with Sanofi, to address neurological diseases such as ALS, multiple sclerosis ("MS") and Alzheimer's disease;

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

• a second non-CNS penetrant RIPK1 inhibitor, partnered with Sanofi, to address peripheral inflammatory diseases such as ulcerative colitis ("UC").

The following table summarizes key information about our clinical stage programs:

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Joint with Takeda

ATV:TREM2 TAK-920/DNL919 Ph 1 (closing) (1)

Alzheimer's disease Joint with Takeda

ETV:SGSH DNL126 Ph 1 (planned) Sanfilippo syndrome Type A (MPS IIIA) Denali

ETV:SGSH DNL126 Ph 1/2 (planned)

Sanfilippo syndrome Type A (MPS IIIA) Denali

LRRK2 BIIB122/DNL151 Ph 2b

Parkinson's disease Joint with Biogen

Ph 3 (closing)

eIF2B DNL343 Ph 1b ALS Denali

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RIPK1 (CNS-penetrant) SAR443820/DNL788 Ph 2

RIPK1 (Peripheral) SAR443122/DNL758 Ph 2 CLE

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(1) Study closing following our decision with Takeda to discontinue clinical development of TAK-920/DNL919 in Alzheimer's disease, and explore back-up molecules in preclinical development.

RIPK1 (Peripheral) eclitasertib, or SAR443122/DNL758

Ph 2 (closing)

Since we commenced operations, we have devoted substantially all of our resources to discovering, acquiring and developing product candidates, building our BBB platform technology and assembling our core capabilities in understanding key neurodegenerative disease pathways.

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The data also suggested that DNL310 improved hearing, as assessed by auditory brainstem response testing.

Additional biomarker data out to 49 weeks continued to demonstrate that DNL310 enabled rapid and sustained normalization of CSF heparan sulfate to normal healthy levels and improvement in lysosomal function biomarkers.

Additional biomarker data out to 49 weeks continued to demonstrate that DNL310 enabled rapid and sustained normalization of cerebrospinal fluid ("CSF") heparan sulfate to normal healthy levels and improvement in lysosomal function biomarkers.

Reduction in urine heparan sulfate and dermatan sulfate after switch from standard of care to DNL310 suggested additional sustained peripheral activity of DNL310.

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• In March 2023, a $10.0 million milestone payment from Takeda was triggered upon achievement of a specified clinical milestone in the Phase 1/2 study of TAK-594/DNL593 in patients with FTD-GRN, which we received in May 2023;

• In April 2023, we entered into a new operating lease in Salt Lake City for a 59,336 square foot laboratory, office and warehouse premises, after terminating our previous SLC lease in March 2023, decreasing future lease payments by $6.1 million while increasing the lease term by approximately five and a half years.

• In April 2023, we entered into a new operating lease in Salt Lake City, Utah for a 59,336 square foot laboratory (the "Utah site"), office and warehouse premises, after terminating our previous SLC lease in March 2023, decreasing future lease payments by $6.1 million while increasing the lease term by approximately five and a half years.

The Utah site will expand our clinical manufacturing capabilities for biologic therapeutics (large molecules) as we plan to use the premises for the manufacture of materials for toxicology studies and drug substance for early human clinical studies with the goal of increasing flexibility and speed in advancing new investigational therapies into clinical trials;

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• In May 2023, the first patient was dosed with DNL343 in the Phase 2/3 HEALEY ALS Platform Trial.

Recruitment of participants continues for this trial;

• In June 2023, in conjunction with Biogen, and based on review of portfolio timelines and resource prioritization, we announced plans to revise the clinical development program for BIIB122/DNL151.

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The FDA has recommended assessment of NfL, a marker of neuroaxonal damage, as a possible biomarker in MPS II;

Recruitment of participants with MPS II, with and without neuronopathic disease, in the global Phase 2/3 COMPASS study is ongoing;

• In July 2023, we presented additional healthy volunteer data from Part A of the Phase 1/2 study of TAK-594/DNL593 at the Alzheimer's Association International Conference, which continued to demonstrate that single doses of TAK-594/DNL593 resulted in substantial increases in CSF PGRN levels and were generally well tolerated.

Recruitment of participants with symptomatic FTD-GRN loss of function mutations in Part B (ascending multiple doses) of the Phase 1/2 study is ongoing;

• In August 2023, we announced that in July Sanofi completed enrollment in the Phase 2 HIMALAYA study;

primary completion of the study is estimated to be February 2024.

• In August 2023, we announced that Sanofi completed a Phase 2 study of SAR443122/DNL758 in patients with CLE in June and data analyses are ongoing.

Sanofi is conducting a Phase 2 trial of SAR443122/DNL758 in patients with ulcerative colitis (UC);

• In August 2023, we announced that Sanofi had completed enrollment in the Phase 2 HIMALAYA study in July;

primary completion of the study is estimated to be January 2024.

Further, in November 2023 we announced that Sanofi has completed enrollment of both the global Phase 2 HIMALAYA study in ALS and the Phase 2 study in MS;

• In August 2023, we announced that Sanofi completed a Phase 2 study of eclitasertib, also known as SAR443122/DNL758, in patients with CLE in June.

In October, Sanofi announced that the development of eclitasertib in CLE is being discontinued because the Phase 2 proof-of-concept study did not meet its primary endpoint (percent change from baseline in CLASI-A at week 12).

Eclitasertib was found to be generally well-tolerated.

Sanofi continues to recruit the Phase 2 study of eclitasertib in patients with UC;

• In August 2023 we announced that, in agreement with Takeda, the companies will discontinue clinical development of TAK-920/DNL919 in Alzheimer’s disease.

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The Phase 1 safety findings are believed to be specific to properties of TAK-920/DNL919 and TREM2 biology.

Denali and Takeda will focus research efforts on back-up molecules in preclinical development, including exploration of potential combination therapy given recent new drug approvals in Alzheimer's disease;

• In August 2023, we announced that the Investigational New Drug (IND) application for DNL126 in MPS IIIA has been accepted and we plan to initiate recruiting activities for the Phase 1/2 study in the second half of 2023.

Denali and Takeda will continue to focus research efforts on back-up molecules in preclinical development, including exploration of potential combination therapy given recent new drug approvals in Alzheimer's disease;

• In August 2023, we announced that the Investigational New Drug ("IND") application for DNL126 in MPS IIIA has been accepted and start-up activities for the Phase 1/2 study are ongoing;

• In August 2023, we presented new interim data from the Phase 1/2 study of DNL310 in MPS II in an oral presentation at the Society for the Study of Inborn Errors of Metabolism ("SSIEM") Annual Symposium 2023.

The interim clinical outcomes data, safety profile, and biomarker effects, including normalization of CSF heparan sulfate and reduction in NfL, continue to support development of DNL310 in MPS II.

Recruitment is ongoing in the global Phase 2/3 COMPASS study of DNL310 in neuronopathic and non-neuronopathic MPS II;

• In August 2023, we executed an amendment to the Definitive LRRK2 Collaboration and License Agreement and Waiver of and Amendment to Right of First Negotiation (ROFN), Option, and License Agreement.

As part of the amendment, certain milestone criteria were changed while the total amount of development, regulatory, and commercial milestones across all indications remains the same.

In addition, Biogen agreed to waive the remaining option and rights of first negotiation under the ROFN and Option Agreement.

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

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We have incurred significant operating losses to date and expect to continue to incur operating losses for the foreseeable future.

Due to revenue recognized from our collaboration arrangement with Biogen, we had net income of $183.4 million and $73.6 million for the three and six months ended June 30, 2023, respectively.

Our net losses were $58.8 million and $124.0 million for the three and six months ended June 30, 2022 , respectively.

As of June 30, 2023, we had an accumulated deficit o f $897.4 million.

We had net losses of $99.4 million and $25.8 million for the three and nine months ended September 30, 2023, respectively.

Our net losses were $103.3 million and $227.3 million for the three and nine months ended September 30, 2022 , respectively.

As of September 30, 2023, we had an accumulated deficit o f $996.7 million.

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

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

Future revenue may be recognized from the Takeda Collaboration Agreement, Sanofi Collaboration Agreement, and Biogen Collaboration Agreement, and may be generated from product sales or milestone payments, royalties and cost reimbursement from other collaboration agreements, strategic alliances and licensing arrangements.

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

Future revenue may be recognized from the Takeda Collaboration Agreement, Sanofi Collaboration Agreement, and Biogen Collaboration Agreement, and may be generated from product sales or milestone payments, royalties and profit sharing reimbursement from other collaboration agreements, strategic alliances and licensing arrangements.

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

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

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Results of Operations

Comparison of the three and six months ended June 30, 2023 and 2022

Comparison of the three and nine months ended September 30, 2023 and 2022

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

Three Months Ended June 30, Change

Three Months Ended September 30, Change

2023 2022 $ %

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$ 1,267 $ 184 $ 1,083 * %

Other collaboration revenue

— 3,375 (3,375) *

Total collaboration revenue

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115,062 111,045 4,017 4

Income (loss) from operations 170,483 (61,416) 231,899 *

Loss from operations (113,795) (107,486) (6,309) 6

Interest and other income, net

14,442 4,187 10,255 *

Income (loss) before income taxes 183,383 (58,767) 242,150 *

Income tax benefit (expense) — (27) 27 *

Net income (loss) $ 183,383 $ (58,794) $ 242,177 * %

Loss before income taxes (99,353) (103,299) 3,946 (4)

Net loss $ (99,353) $ (103,299) $ 3,946 (4) %

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* Percentage is not meaningful.

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

2023 2022 $ %

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Other collaboration revenue

— 3,375 (3,375) *

Total collaboration revenue

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394,658 333,580 61,078 18

Income (loss) from operations 49,668 (127,914) 177,582 *

Loss from operations

(64,127) (235,400) 171,273 (73)

Interest and other income, net

38,376 8,114 30,262 *

Income (loss) before income taxes 73,602 (123,987) 197,589 *

Income tax benefit (expense) — (27) 27 *

Net income (loss) $ 73,602 $ (124,014) $ 197,616 * %

Loss before income taxes

(25,751) (227,286) 201,535 (89)

Income tax expense

$ (25,751) $ (227,313) $ 201,562 (89) %

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* Percentage is not meaningful.

Collaboration revenue.

Collaboration revenue was $294.1 million and $329.3 million for the three and six months ended June 30, 2023, respectively, and $52.5 million and $94.6 million for the three and six months ended June 30, 2022.

The increases in collaboration revenue of $241.6 million and $234.7 million for the three month and six month comparable periods, respectively, were primarily due to $293.9 million in revenue recognized in April 2023 under the Biogen Collaboration Agreement as a result of Biogen exercising its option to license our ATV:Abeta program.

The increase for the six months ended June 30, 2023 compared to June 30, 2022 was partially offset by a decrease of $15.0 million in milestone revenue earned under the Sanofi Collaboration Agreement and a decrease of $41.9 million in revenue earned under the Takeda Collaboration Agreement.

The increase for the three months ended June 30, 2023 compared to June 30, 2022 was partially offset by a decrease of $40.0 million in milestone revenue earned under the Sanofi Collaboration Agreement and a decrease of $12.0 million in revenue earned under the Takeda Collaboration Agreement.

The decreases in revenues from the Sanofi and Takeda Collaboration Agreements are due to the timing of underlying activities and milestone triggers under the collaboration agreements.

Collaboration revenue was $1.3 million and $330.5 million for the three and nine months ended September 30, 2023, respectively, and $3.6 million and $98.2 million for the three and nine months ended September 30, 2022.

The decrease in revenue of $2.3 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 was due to a decrease of revenue earned under the Sanofi Collaboration of $3.4 million, partially offset by an increase of $1.1 million in revenue earned under the Biogen Collaboration Agreement due to the August 2023 amendment which resulted in the satisfaction of the only remaining performance obligation for the second option program.

The increase in collaboration revenue of $232.3 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 was primarily due to $293.9 million in revenue recognized in April 2023 under the Biogen Collaboration Agreement as a result of Biogen exercising its option to license our ATV:Abeta program, partially offset by a decrease of $41.9 million in revenue earned under the Takeda Collaboration Agreement, as well as a decrease of $18.4 million in milestone revenue earned under the Sanofi Collaboration Agreement.

The decreases in revenues from the Sanofi and Takeda Collaboration Agreements are due to the timing of underlying activities and achievement of milestones under the collaboration agreements.

Research and development expen ses.

Research and development expenses were $97.5 million and $226.3 million for the three and six months ended June 30, 2023, compared to $92.7 million and $178.8 million for the three and six months ended June 30, 2022, respectively.

Research and development expenses were $89.7 million and $316.1 million for the three and nine months ended September 30, 2023, compared to $87.8 million and $266.6 million for the three and nine months ended September 30, 2022, respectively.

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

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

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

2023 2022 2023 2022

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PTV:PGRN program external expenses 1,889 3,838 8,107 12,632

ATV:TREM2 program external expenses 2,602 1,955 4,488 4,701

TV platform and other program external expenses

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(1) Personnel related expenses include stock-based compensation expense of $15.2 million and $32.0 million for the three and six months ended June 30, 2023, respectively, and $14.9 million and $30.4 million for the three and six months ended June 30, 2022, respectively, reflecting an increase of $0.3 million and $1.6 million, respectively.

(2) There were $3.5 million and $4.5 million in net cost sharing payments during the three and six months ended June 30, 2023, respectively, consisting of $7.0 million and $11.1 million, respectively, owed to Biogen for LRRK2 program external expenses and program internal expenses (included within Personnel related expenses), partially offset by $1.9 million and $3.4 million, respectively, of reimbursements from Takeda for the PTV:PGRN program (included within PTV program external program expenses and Personnel related expenses), and $1.5 million and $3.2 million respectively, of reimbursements from Takeda for the ATV:TREM2 program (included within TV platform and other program external expenses and Personnel related expenses).

For the three and six months ended June 30, 2022, net cost sharing reimbursements includes $2.8 million and $5.7 million respectively, of reimbursements from Takeda for the PTV:PGRN program (included within PTV program external program expenses and Personnel related expenses), and $1.5 million and $3.7 million respectively, of reimbursements from Takeda for the ATV:TREM2 program (included within TV platform and other program external expenses and Personnel related expenses).

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

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

The increase in research and development expenses of approximately $4.8 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022, was primarily attributable to the following:

• An increase of $3.4 million in ETV:IDS program external expenses reflecting the continued progress of this program in clinical trials during 2023, including costs incurred to prepare for our planned potentially registrational Phase 2/3 study;

(1) Personnel related expenses include stock-based compensation expense of $15.8 million and $47.8 million for the three and nine months ended September 30, 2023, respectively, and $14.7 million and $45.1 million for the three and nine months ended September 30, 2022, respectively, reflecting an increase of $1.1 million and $2.7 million, respectively.

(2) There were $0.6 million and $5.1 million in net cost sharing payments during the three and nine months ended September 30, 2023, respectively, consisting of $3.4 million and $14.5 million, respectively, owed to Biogen for LRRK2 program external expenses and program internal expenses (included within Personnel related expenses), partially offset by $1.7 million and $5.1 million, respectively, of reimbursements from Takeda for the PTV:PGRN program (included within PTV program external program expenses and Personnel related expenses), and $1.1 million and $4.3 million respectively, of reimbursements from Takeda for the ATV:TREM2 program (included within TV platform and other program external expenses and Personnel related expenses).

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

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

The increase in research and development expenses of approximately $1.9 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022, was primarily attributable to the following:

• An increase of $7.8 million in ETV:IDS program external expenses reflecting the continued progress of this program in clinical trials during 2023, including costs related to our ongoing Phase 1/2 study and our potentially registrational Phase 2/3 study;

• An increase of $0.6 million in eIF2B program external expenses reflecting the continued progress of this program in clinical trials during 2023;

• An increase of $2.2 million in other unallocated research and development expenses primarily due to increased facilities costs, including utilities, building repairs and maintenance costs, as well as other research costs;

• An increase of $3.6 million in personnel related expenses, consisting of $2.5 million in employee compensation and $1.1 million in stock-based compensation expense pertaining to additional salaries, related expenses, and equity award grants driven by an increase in our research and development headcount;

• An increase of $3.0 million in net cost sharing payments due to the transition of LRRK2 clinical activities to Biogen, resulting in cost sharing reimbursements flipping to payments.

These increases were partially offset by a decrease of $8.2 million in LRRK2 program external expenses due to the transition of LRRK2 clinical activities to Biogen, $4.6 million in other external research and development expenses, $2.0 million in TV platform and other program external expenses, and $1.3 million in PTV:PGRN program external expenses due to the timing of significant external research and manufacturing related activities year over year.

The increase in research and development expenses of approximately $47.5 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022, was primarily attributable to the following:

These increases were partially offset by decreases of $6.1 million in LRRK2 program external expenses due to the transition of LRRK2 clinical activities to Biogen, $4.2 million in TV platform and other program external expenses as a result of discontinuation of development of DNL919, $1.9 million in PTV:PGRN program external expenses due to the timing of significant external research and manufacturing related activities year over year, and $1.8 million in other external research and development expenses.

The increase in research and development expenses of approximately $49.5 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, was primarily attributable to the following:

• An increase of $39.9 million in ETV:IDS program external expenses primarily due to the contingent consideration payment of $30.0 million recorded in the first quarter of 2023 related to the acquisition of F-star Gamma, which was triggered in March 2023 upon the achievement of a specified clinical milestone in the ETV:IDS program;

• An increase of $9.8 million in other unallocated research and development expenses primarily due to increased facility costs as a result of accelerated depreciation on leasehold improvements associated with the termination of the SLC Lease as well as other research costs;

• An increase of $10.7 million in other unallocated research and development expenses primarily due to increased facility costs as a result of accelerated depreciation on leasehold improvements associated with the termination of the SLC Lease as well as other general research costs;

• An increase of $3.7 million in eIF2B program external expenses reflecting the continued progress of this program in clinical trials during 2023;

• An increase of $12.5 million in personnel related expenses, consisting of $9.8 million in employee compensation and $2.7 million in stock-based compensation expense pertaining to additional salaries, related expenses, and equity award grants driven by an increase in our research and development headcount;

• An increase of $11.5 million in net cost sharing payments due to the transition of LRRK2 clinical activities to Biogen, resulting in cost sharing reimbursements flipping to payments.

These increases were partially offset by a decrease of $7.5 million in LRRK2 program external expenses due to the transition of LRRK2 clinical activities to Biogen, and decreases of $4.3 million in other external research and development expenses, $3.4 million in TV platform and other program external expenses, and $2.6 million in PTV:PGRN program external expenses due to the timing of significant external research and manufacturing related activities year over year.

• An increase of $14.6 million in net cost sharing payments primarily due to the transition of LRRK2 clinical activities to Biogen, resulting in cost sharing reimbursements flipping to payments.

These increases were partially offset by decreases of $13.5 million in LRRK2 program external expenses due to the transition of LRRK2 clinical activities to Biogen, $7.8 million in TV platform and other program external expenses as a result of discontinuation of development of DNL919, $6.1 million in other external research and development expenses and $4.5 million in PTV:PGRN program external expenses due to the timing of significant external research and manufacturing related activities year over year.

General and administrative expenses.

General and administrative expenses were $26.1 million for the three months ended June 30, 2023 compared to $21.2 million for the three months ended June 30, 2022.

The increase of $4.9 million was primarily attributable to the following:

• $3.2 million of increased personnel-related expenses consisting of employee compensation and stock-based compensation expense associated with additional salary expenses and equity award grants driven by higher general and administrative headcount;

• $1.7 million of increased facilities, consulting, professional services and other costs.

General and administrative expenses were $53.3 million for the six months ended June 30, 2023 compared to $43.7 million for the six months ended June 30, 2022.

General and administrative expenses were $25.3 million for the three months ended September 30, 2023 compared to $23.3 million for the three months ended September 30, 2022.

The increase of $2.0 million was primarily attributable to a $3.0 million increase in personnel-related expenses consisting of employee compensation and stock-based compensation expense associated with additional salary expenses and equity award grants driven by higher general and administrative headcount, partially offset by a $1.0 million decrease in professional services and other corporate costs.

General and administrative expenses were $78.6 million for the nine months ended September 30, 2023 compared to $67.0 million for the nine months ended September 30, 2022.

The increase of $11.6 million was primarily attributable to the following:

• $8.0 million of increased personnel-related expenses consisting of employee compensation and stock-based compensation expense associated with additional salary expenses and equity award grants driven by higher general and administrative headcount;

• $4.6 million of combined increases in facilities, consulting, professional services and other costs.

• $3.6 million of combined increases in professional services, facilities and other corporate costs.

Liquidity and Capital Resources

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

Pursuant to our collaboration agreements with Takeda, Sanofi and Biogen, through June 30, 2023 we have received upfront, option and milestone payments of $115.0 million , $225.0 million, and $565.0 million, respectively, and have also received $35.1 million and $16.2 million of gross cost sharing reimbursements from Takeda and Biogen, respectively, and received $13.7 million of reimbursement from Sanofi for the Phase 1b trial for DNL747 for ALS and associated activities.

Further, under associated stock purchase agreements with Takeda and Biogen, through June 30, 2023 we have received $110.0 million and $465.0 million, respectively, for the sale and issuance of shares of our common stock to these collaboration partners.

As of June 30, 2023, we had cash, cash equivalents and marketable securities in the amount of $1.19 billion .

Pursuant to our collaboration agreements with Takeda, Sanofi and Biogen, through September 30, 2023 we have received upfront, option and milestone payments of $115.0 million , $225.0 million, and $565.0 million, respectively, and have also received $38.5 million and $16.2 million of gross cost sharing reimbursements from Takeda and Biogen, respectively, and received $13.7 million of reimbursement from Sanofi for the Phase 1b trial for DNL747 for ALS and associated activities.

Further, under associated stock purchase agreements with Takeda and Biogen, through September 30, 2023 we have received $110.0 million and $465.0 million, respectively, for the sale and issuance of shares of our common stock to these collaboration partners.

As of September 30, 2023, we had cash, cash equivalents and marketable securities in the amount of $1.12 billion.

Future Funding Requirements and Commitments

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

We have an accumulated deficit of $897.4 million through June 30, 2023.

We have an accumulated deficit of $996.7 million through September 30, 2023.

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

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

As of June 30, 2023, operating lease liabilities were $55.5 million.

As of September 30, 2023, operating lease liabilities were $53.9 million.

Under the SLC lease which was executed in April 2023, we have future undiscounted lease payments totaling approximately $13.4 million.

Under the DMSA with Lonza, and certain other clinical and manufacturing agreements, we had total non-refundable purchase commitments as of June 30, 2023 of $80.8 million, with certain amounts subject to cost sharing with Takeda.

Under the DMSA with Lonza, and certain other clinical and manufacturing agreements, we had total non-refundable purchase commitments as of September 30, 2023 of $87.7 million, with certain amounts subject to cost sharing with Takeda.

While the lease obligations span multiple years, the majority of the purchase commitments with Lonza and other clinical and manufacturing agreements are due within twelve months, with some spanning several years.

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

Six Months Ended June 30,

Nine Months Ended September 30,

Net cash used in operating activities $ (259,334) $ (172,053)

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Net Cash Used In Operating Activities

During the six months ended June 30, 2023, net cash used in operating activities was $172.0 million, which consisted of a net loss of $73.6 million, adjusted by non-cash items primarily related to stock-based compensation, depreciation and amortization, net amortization of discounts on marketable securities and non-cash rent expenses.

Cash used in operating activities was also driven by changes in our operating assets and liabilities, including the $24.0 million contingent consideration payment to F-star during the three months ended June 30, 2023.

During the nine months ended September 30, 2023, net cash used in operating activities was $259.3 million, which consisted of a net loss of $25.8 million, adjusted by non-cash items primarily related to stock-based compensation, depreciation and amortization, net amortization of discounts on marketable securities and non-cash rent expenses.

Cash used in operating activities was also driven by changes in our operating assets and liabilities such as the reduction in our related-party contract liability as a result of Biogen's option exercise during the second quarter of 2023, as well as $30.0 million in contingent consideration payments to F-star during the nine months ended September 30, 2023.

Net Cash Provided By (Used In) Investing Activities

During the six months ended June 30, 2023, net cash provided by investing activities was $75.4 million, which consisted of $985.8 million in proceeds from maturities and sales of marketable securities, partially offset by $901.8 million of purchases of marketable securities, and $8.6 million of capital expenditures to purchase property and equipment.

During the nine months ended September 30, 2023, net cash provided by investing activities was $176.3 million, which consisted of $1.6 billion in proceeds from maturities and sales of marketable securities, partially offset by $1.4 billion of purchases of marketable securities, and $10.7 million of capital expenditures to purchase property and equipment.

Net Cash Provided By Financing Activities

During the six months ended June 30, 2023, cash provided by financing activities was $10.6 million which consisted of proceeds from the exercise of options to purchase common stock and purchases of ESPP shares.

During the nine months ended September 30, 2023, cash provided by financing activities was $13.1 million which consisted of proceeds from the exercise of options to purchase common stock and purchases of ESPP shares.

Critical Accounting Estimates

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In our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 27, 2023, we described the accounting estimates that we believe involve a significant level of estimation uncertainty which could have a material impact on our financial condition or results of operations.

There have been no material changes to these critical accounting estimates during the six months ended June 30, 2023.

There have been no material changes to these critical accounting estimates during the nine months ended September 30, 2023.

Recent Accounting Pronouncements

There have been no new accounting pronouncements or changes to accounting pronouncements during the six months ended June 30, 2023 , as compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 27, 2023, that are of significance or potential significance to us.

There have been no new accounting pronouncements or changes to accounting pronouncements during the nine months ended September 30, 2023 , as compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 27, 2023, that are of significance or potential significance to us.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis