Denali Therapeutics Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Denali Therapeutics Inc. Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 147 Consolidated Balance Sheets 149 Consolidated Statements of Operations and Comprehensive Loss 150 Consolidated Statements of Stockholders' Equity 151 Consolidated Statements of Cash Flows 152 Notes to Consolidated Financial Statements 153 146 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Denali Therapeutics Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Denali Therapeutics Inc. (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive loss, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 27, 2024 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 147 Accrued and prepaid research and development costs Description of the Matter As more fully described in Note 1 to the consolidated financial statements, the Company records accrued liabilities for estimated costs of research and development (R&D) activities and prepaid research and development costs based upon the estimated cost of services provided. As of December 31, 2023, accrued clinical and other R&D costs were $19.0 million and prepaid clinical R&D costs were $10.2 million. The accrued and prepaid R&D costs (“Accrued and Prepaid R&D Costs”) are based on estimated clinical trial and other R&D costs incurred under service agreements with organizations that conduct R&D activities on behalf of the Company. The Company recognizes these costs based on several factors, such as information obtained from vendors and estimates of the work completed under the service agreements. Auditing the Company's accounting for Accrued and Prepaid R&D Costs was complex because the Company’s analyses are dependent upon data obtained from external third-party service providers who often act as intermediaries to those performing the underlying services. The determination of the balances when the Company has either not been invoiced or has not received information regarding actual costs incurred requires evaluation of the stage of completion of the services. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over the Company’s process for accounting for Accrued & Prepaid R&D Costs, including management’s controls over completeness and accuracy of data used in determining these costs as well as management’s process for estimating work completed under the service agreements. To test the Accrued & Prepaid R&D Costs, our audit procedures included, among others, i) confirming the completeness of the terms and conditions of significant R&D service agreements directly with the vendor; ii) testing the completeness and accuracy of the underlying inputs used in the Company’s analyses through verification of significant inputs, such as costs incurred and invoices paid, to the terms and conditions of the underlying agreements and information from the Company’s internal personnel and vendors; iii) testing significant assumptions used in estimating costs of services provided including meeting with personnel outside of the accounting department to discuss the basis for such assumptions; and iv) performing a hindsight analysis of invoices received subsequent to the balance sheet date. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2015. San Mateo, California February 27, 2024 148 Table of Contents Denali Therapeutics Inc. Consolidated Balance Sheets (In thousands, except share amounts) December 31, 2023 December 31, 2022 Assets Current assets: Cash and cash equivalents $ 127,106 $ 218,044 Short-term marketable securities 907,405 1,118,171 Prepaid expenses and other current assets 29,626 36,104 Total current assets 1,064,137 1,372,319 Property and equipment, net 45,589 44,087 Operating lease right-of-use asset 26,048 30,437 Other non-current assets 18,143 13,399 Total assets $ 1,153,917 $ 1,460,242 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 9,483 $ 2,790 Cost sharing payments due to related party — 4,388 Accrued expenses and other current liabilities 68,499 66,691 Related party contract liability, current — 290,053 Total current liabilities 77,982 363,922 Related party contract liability, less current portion — 479 Operating lease liability, less current portion 44,981 53,032 Other non-current liabilities — 379 Total liabilities 122,963 417,812 Commitments and contingencies (Note 8) Stockholders’ equity: Convertible preferred stock, $ 0.01 par value; 40,000,000 shares authorized as of December 31, 2023 and December 31, 2022; 0 shares issued and outstanding as of December 31, 2023 and December 31, 2022 — — Common stock, $ 0.01 par value; 400,000,000 shares authorized as of December 31, 2023 and December 31, 2022; 138,385,498 and 135,965,918 shares issued and outstanding as of December 31, 2023 and December 31, 2022, respectively 1,711 1,686 Additional paid-in capital 2,144,811 2,018,617 Accumulated other comprehensive income (loss) 643 ( 6,886 ) Accumulated deficit ( 1,116,211 ) ( 970,987 ) Total stockholders’ equity 1,030,954 1,042,430 Total liabilities and stockholders’ equity $ 1,153,917 $ 1,460,242 See accompanying notes to consolidated financial statements. 149 Table of Contents Denali Therapeutics Inc. Consolidated Statements of Operations and Comprehensive Loss (In thousands, except share and per share amounts) Year Ended December 31, 2023 2022 2021 Collaboration revenue: Collaboration revenue from customers (1) $ 330,531 $ 105,065 $ 48,657 Other collaboration revenue — 3,398 4 Total collaboration revenue 330,531 108,463 48,661 Operating expenses: Research and development (2) 423,876 358,732 265,353 General and administrative 103,354 90,475 79,059 Total operating expenses 527,230 449,207 344,412 Loss from operations ( 196,699 ) ( 340,744 ) ( 295,751 ) Interest and other income, net 51,505 14,774 4,595 Loss before income taxes ( 145,194 ) ( 325,970 ) ( 291,156 ) Income tax benefit (expense) ( 30 ) ( 21 ) 575 Net loss ( 145,224 ) ( 325,991 ) ( 290,581 ) Other comprehensive income (loss): Net unrealized gain (loss) on marketable securities, net of tax 7,529 ( 4,387 ) ( 2,254 ) Comprehensive loss $ ( 137,695 ) $ ( 330,378 ) $ ( 292,835 ) Net loss per share, basic and diluted $ ( 1.06 ) $ ( 2.60 ) $ ( 2.39 ) Weighted average number of shares outstanding, basic and diluted 137,370,897 125,530,703 121,524,795 __________________________________________________ (1) Includes related-party collaboration revenue from customers of $ 295.5 million, $ 3.2 million, and $ 3.7 million for the years ended December 31, 2023, 2022 and 2021 respectively. (2) Includes expense for cost sharing payments to a related party of $ 17.7 million and $ 8.2 million for the years ended December 31, 2023 and 2022, respectively, and an offset to expense from related-party cost reimbursements of $ 6.5 million for the year ended December 31, 2021. See accompanying notes to consolidated financial statements. 150 Table of Contents Denali Therapeutics Inc. Consolidated Statements of Stockholders’ Equity (In thousands, except share amounts) Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders' Equity Shares Amount Balance at December 31, 2020 120,531,333 $ 1,531 $ 1,503,660 $ ( 245 ) $ ( 354,415 ) $ 1,150,531 Issuances under equity incentive plans 1,117,636 11 19,337 — — 19,348 Vesting of restricted stock units 634,336 6 ( 6 ) — — — Stock-based compensation — — 85,247 — — 85,247 Net loss — — — — ( 290,581 ) ( 290,581 ) Other comprehensive loss — — — ( 2,254 ) — ( 2,254 ) Balance at December 31, 2021 122,283,305 $ 1,548 $ 1,608,238 $ ( 2,499 ) $ ( 644,996 ) $ 962,291 Issuance of common stock in follow-on offering, net of issuance costs of $ 1,060 11,933,962 120 296,095 — — 296,215 Issuances under equity incentive plans 911,555 10 14,445 — — 14,455 Vesting of restricted stock units 837,096 8 ( 8 ) — — — Stock-based compensation — — 99,847 — — 99,847 Net loss — — — — ( 325,991 ) ( 325,991 ) Other comprehensive loss — — — ( 4,387 ) — ( 4,387 ) Balance at December 31, 2022 135,965,918 $ 1,686 $ 2,018,617 $ ( 6,886 ) $ ( 970,987 ) $ 1,042,430 Issuances under equity incentive plans 1,232,526 12 17,808 — — 17,820 Vesting of restricted stock units 1,187,054 13 ( 13 ) — — — Stock-based compensation — — 108,399 — — 108,399 Net loss — — — — ( 145,224 ) ( 145,224 ) Other comprehensive income — — — 7,529 — 7,529 Balance at December 31, 2023 138,385,498 $ 1,711 $ 2,144,811 $ 643 $ ( 1,116,211 ) $ 1,030,954 See accompanying notes to consolidated financial statements. 151 Table of Contents Denali Therapeutics Inc. Consolidated Statements of Cash Flows (In thousands) Year Ended December 31, 2023 2022 2021 Operating activities Net loss $ ( 145,224 ) $ ( 325,991 ) $ ( 290,581 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 16,726 10,383 8,593 Stock-based compensation expense 108,102 99,847 85,247 Net amortization of premiums and (discounts) on marketable securities ( 43,952 ) ( 1,637 ) 8,748 Non-cash adjustment to operating lease expense ( 3,719 ) ( 3,351 ) ( 2,984 ) Other non-cash items 2 63 — Changes in operating assets and liabilities: Prepaid expenses and other assets ( 4,094 ) ( 2,760 ) ( 12,865 ) Accounts payable 2,431 2,274 3,705 Accruals and other current liabilities 2,648 10,918 4,732 Contract liabilities — ( 31,313 ) ( 11,925 ) Related party contract liability ( 290,532 ) ( 3,149 ) ( 3,737 ) Other non-current liabilities ( 379 ) — ( 322 ) Net cash used in operating activities ( 357,991 ) ( 244,716 ) ( 211,389 ) Investing activities Purchases of marketable securities ( 1,813,700 ) ( 1,115,040 ) ( 1,422,938 ) Purchases of property and equipment ( 12,939 ) ( 17,833 ) ( 8,500 ) Maturities and sales of marketable securities 2,075,947 991,486 1,409,812 Net cash provided by (used in) investing activities 249,308 ( 141,387 ) ( 21,626 ) Financing activities Proceeds from public offering of common stock, net of issuance costs — 296,215 — Proceeds from exercise of awards under equity incentive plans 17,820 14,455 19,348 Net cash provided by financing activities 17,820 310,670 19,348 Net decrease in cash, cash equivalents and restricted cash ( 90,863 ) ( 75,433 ) ( 213,667 ) Cash, cash equivalents and restricted cash at beginning of year 219,544 294,977 508,644 Cash, cash equivalents and restricted cash at end of year $ 128,681 $ 219,544 $ 294,977 Supplemental disclosures of cash flow information Cash paid during the year for income taxes $ 3 $ 47 $ 210 Issuance costs incurred but not yet paid $ — $ 224 $ — Property and equipment purchases accrued but not yet paid $ 553 $ 1,464 $ 593 See accompanying notes to consolidated financial statements. 152 Table of Contents Denali Therapeutics Inc. Notes to Consolidated Financial Statements 1. Significant Accounting Policies Organization and Description of Business Denali Therapeutics Inc. ("Denali" or the “Company”) is a biopharmaceutical company, incorporated in Delaware, that discovers and develops therapeutics to defeat neurodegenerative diseases. The Company is headquartered in South San Francisco, California. Basis of Presentation These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Principles of Consolidation These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. For the Company and its subsidiaries, the functional currency has been determined to be U.S. dollars. 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 Consolidated Statements of Operations and Comprehensive Loss. Use of Estimates The preparation of financial statements in conformity with U.S. 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 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 Consolidated Balance Sheets and Consolidated Statements of Operations and Comprehensive Loss. Concentration of Credit Risk and Other Risks and Uncertainties Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, and marketable securities. Substantially all of the Company’s cash and cash equivalents are deposited in accounts with financial institutions that management believes are of high credit quality. Such deposits have and will continue to exceed federally insured limits. The Company maintains its cash with accredited financial institutions and accordingly, such funds are subject to minimal credit risk. The Company’s investment policy limits investments to certain types of securities issued by the U.S. government and its agencies, as well as institutions with investment-grade credit ratings and places restrictions on maturities and concentration by type and issuer. 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 Consolidated Balance Sheets . As of December 31, 2023 and 2022, the Company had no off-balance sheet concentrations of credit risk. 153 Table of Contents The Company is subject to a number of risks similar to other clinical-stage biopharmaceutical companies, including, but not limited to, the need to obtain adequate additional funding, possible failure of current or future preclinical testing or clinical trials, its reliance on third parties to conduct its clinical trials, the need to obtain regulatory and marketing approvals for its product candidates, competitors developing new technological innovations, the need to successfully commercialize and gain market acceptance of the Company’s product candidates, its right to develop and commercialize its product candidates pursuant to the terms and conditions of the licenses granted to the Company, protection of proprietary technology, the ability to make milestone, royalty or other payments due under any license or collaboration agreements, and the need to secure and maintain adequate manufacturing arrangements with third parties. If the Company does not successfully commercialize or partner any of its product candidates, it will be unable to generate product revenue or achieve profitability. Further, the company is also subject to broad market risks and uncertainties resulting from recent events, such as bank failures or instability in the financial services sector, the COVID-19 pandemic, war and armed conflicts, inflation, rising interest rates, and recession risks as well as supply chain and labor shortages. Convertible Preferred Stock The Company is authorized to issue 40.0 million shares of preferred stock in one or more series and to fix the powers, designations, preferences and relative participating option or other rights thereof, including dividend rights, conversion rights, voting rights, redemption terms, liquidation preferences and the number of shares constituting any series, without any further vote or action by the Company’s shareholders. As of December 31, 2023 and 2022 , the Company had no shares of preferred stock issued or outstanding. Segments The Company has one operating segment. The Company’s chief operating decision maker, its Chief Executive Officer, manages the Company’s operations on a consolidated basis for the purposes of allocating resources. Fair Value of Financial Instruments Accounting Standards Codification ("ASC") Topic 820, Fair Value Measurement (“ASC 820”), establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances. ASC 820 identifies fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy that distinguishes between the following: Level 1 – inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 – inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 – inputs are unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. 154 Table of Contents To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. The carrying amounts reflected in the Consolidated Balance Sheets for cash and cash equivalents, prepaid expenses and other current assets, accounts payable, and accrued liabilities approximate their fair values due to their short-term nature. Cash, Cash Equivalents and Restricted Cash The Company considers all highly liquid investments with original maturities of 90 days or less at the date of purchase to be cash and cash equivalents. Cash equivalents are reported at fair value. Cash, cash equivalents, and restricted cash reported within the Consolidated Statements of Cash Flows is composed of cash and cash equivalents reported in the Consolidated Balance Sheets and $ 1.6 million and $ 1.5 million of restricted cash for the letter of credit for the Company’s headquarters building lease which is included within other non-current assets in the Consolidated Balance Sheets as of December 31, 2023 and 2022, respectively. Marketable Securities 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 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 Consolidated Statements of Operations and Comprehensive 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. The Company periodically evaluates the need for an allowance for credit losses. This evaluation includes consideration of several qualitative and quantitative factors, including whether it has plans to sell the security, whether it is more likely than not it will be required to sell any marketable securities before recovery of its amortized cost basis, and if the entity has the ability and intent to hold the security to maturity, and the portion of any unrealized loss that is the result of a credit loss. Factors considered in making these evaluations include quoted market prices, recent financial results and operating trends, implied values from any recent transactions or offers of investee securities, credit quality of debt instrument issuers, expected cash flows from securities, other publicly available information that may affect the value of the marketable security, duration and severity of the decline in value, and the Company's strategy and intentions for holding the marketable security. 155 Table of Contents Accounts Receivable Accounts receivable are included within prepaid expenses and other current assets on the Consolidated Balance Sheets. The accounts receivable balance represents amounts receivable from the Company's collaboration partners, excluding related parties, net of an allowance for credit losses, if required. Property and Equipment, Net Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the related estimated useful lives as presented in the table below. Significant additions and improvements are capitalized, while repairs and maintenance are charged to expense as incurred. Asset Estimated useful life Leasehold improvements shorter of life of asset or lease term Computer equipment and purchased software three years Laboratory equipment five years Furniture and fixtures five years Manufacturing equipment eight years Impairment of Long-Lived Assets The Company periodically evaluates property and equipment for impairment whenever events or changes in circumstances indicate that a potential impairment may have occurred. If such events or changes in circumstances arise, the Company compares the carrying amount of the long-lived assets to the estimated future undiscounted cash flows expected to be generated by the long-lived assets. If the estimated aggregate undiscounted cash flows are less than the carrying amount of the long-lived assets, an impairment charge, calculated as the amount by which the carrying amount of the assets exceeds the fair value of the assets, is recorded. The fair value of the long-lived assets is determined based on the estimated discounted cash flows expected to be generated from the long-lived assets. The Company has not recorded any material impairment charges during the years presented. Leases The Company leases real estate, and certain equipment for use in its operations. A determination is made as to whether an arrangement is a lease at inception. Right-of-use (“ROU”) assets and operating lease liabilities are recognized for identified operating leases in the Consolidated Balance Sheets. The changes in operating lease ROU assets and operating lease liabilities are presented net within non-cash adjustment to operating lease expense in the Consolidated Statements of Cash Flows. ROU assets represent the Company’s right to use the underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments due over the lease term, with the ROU assets adjusted for lease incentives received. When determining the present value of lease payments, the Company uses its incremental borrowing rate on the date of lease commencement, or the rate implicit in the lease, if known. The Company does not assume renewals in its determination of the lease term unless the renewals are deemed by management to be reasonably certain at lease inception. Leases with an initial term of twelve months or less are not recorded on the balance sheet, unless they include an option to purchase the underlying asset that the Company is reasonably certain to exercise. The Company recognizes lease expenses on a straight-line basis over the lease term. The Company has leases with lease and non-lease components, which the Company has elected to account for as a single lease component. 156 Table of Contents Revenue Recognition License, Option and Collaboration Revenue The Company analyzes its collaboration arrangements to assess whether they are within the scope of ASC 808, Collaborative Arrangements (“ASC 808”) to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities. This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements within the scope of ASC 808 that contain multiple elements, the Company first determines which elements of the collaboration are deemed to be within the scope of ASC 808 and those that are more reflective of a vendor-customer relationship and, therefore, within the scope of Topic 606. For elements of collaboration arrangements that are accounted for pursuant to ASC 808, an appropriate recognition method is determined and applied consistently, generally by analogy to Topic 606. The accounting treatment pursuant to Topic 606 is outlined below. The terms of license, option and collaboration agreements entered into typically include payment of one or more of the following: non-refundable, up-front license fees; option exercise fees; development, regulatory and commercial milestone payments; payments for manufacturing supply and research and development services and royalties on net sales of licensed products. Each of these payments results in license, collaboration and other revenue, except for revenues from royalties on net sales of licensed products, which are classified as royalty revenue. The core principle of Topic 606 is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received in exchange for those goods or services. The Company may also receive reimbursement or make payments to a collaboration partner to satisfy cost sharing requirements. These payments are accounted for pursuant to ASC 808 and are recorded as an offset or increase to research and development expenses, respectively. In determining the appropriate amount of revenue to be recognized as the Company fulfills its obligations under each of its agreements, the Company performs the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations based on estimated selling prices; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. Amounts received prior to satisfying the revenue recognition criteria are recorded as contract liabilities in the Company’s Consolidated Balance Sheets. If the related performance obligation is expected to be satisfied within the next twelve months this will be classified in current liabilities. Amounts recognized as revenue prior to the Company having an unconditional right (other than a right that is conditioned only on the passage of time) to receipt are recorded as contract assets in the Company's Consolidated Balance Sheets. If the Company expects to have an unconditional right to receive the consideration in the next twelve months, this will be classified in current assets. A net contract asset or liability is presented for each contract with a customer. At contract inception, the Company assesses the goods or services promised in a contract with a customer and identifies those distinct goods and services that represent a performance obligation. A promised good or service may not be identified as a performance obligation if it is immaterial in the context of the contract with the customer, if it is not separately identifiable from other promises in the contract (either because it is not capable of being separated or because it is not separable in the context of the contract), or if the promised good or service does not provide the customer with a material right. The Company considers the terms of the contract to determine the transaction price. The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. Variable consideration will only be included in the transaction price when it is not considered constrained, which is when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. 157 Table of Contents If it is determined that multiple performance obligations exist, the transaction price is allocated at the inception of the agreement to all identified performance obligations based on the relative standalone selling prices ("SSP"). The relative SSP for each deliverable is estimated using external sourced evidence if it is available. If external sourced evidence is not available, the Company uses its best estimate of the SSP for the deliverable. Revenue is recognized when, or as, the Company satisfies a performance obligation by transferring a promised good or service to a customer. An asset is transferred when, or as, the customer obtains control of that asset, which for a service is considered to be as the services are received and used. The Company recognizes revenue over time by measuring the progress toward complete satisfaction of the relevant performance obligation using an appropriate input or output method based on the nature of the service promised to the customer. After contract inception, the transaction price is reassessed at every period end and updated for changes such as resolution of uncertain events. Any change in the transaction price is allocated to the performance obligations on the same basis as at contract inception, or to a single performance obligation as applicable. The Company accounts for the exercise of a material right as either a contract modification or as a continuation of the existing contract, as is most appropriate based on the facts and circumstances. Management may be required to exercise considerable judgment in estimating revenue to be recognized. 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. Research and Development Expenses Research and development costs are expensed as incurred. Research and development costs consist of salaries and other personnel related expenses, including associated stock–based compensation, consulting fees, lab supplies, and facility costs, as well as fees paid to other entities that conduct certain research, development and manufacturing activities on behalf of the Company. Where the Company shares costs with collaboration partners, such as in the Biogen Collaboration Agreement and the Takeda Collaboration Agreement, research and development expenses may include cost sharing reimbursements from or payments to the collaboration partner, respectively. Nonrefundable advance payments for goods and services that will be used or received in future research and development activities are deferred and recognized as expense in the period in which the related goods are delivered or services are performed. There can be judgment involved in measuring the research and development expenses to be recognized in a particular period. In some cases, expense is recorded using an underlying assumption of the progress to completion of specific activities. For example, costs may be recognized based on the passage of time for activities that span reporting periods. If the provision of services is not linear then this assumption could impact the amount of expense recognized. The level of judgment varies based on the nature of the services being performed and the underlying support obtained. For some activities, such as for certain clinical trials, expense is recorded based on information obtained from vendors as an intermediary to those performing the underlying services, such as contract research organizations. These estimates are inherently more judgmental since the quality and availability of the underlying data may vary. The Company has acquired and may continue to acquire the rights to develop and commercialize new product candidates from third parties. The upfront payments to acquire license, product or rights, as well as any future milestone payments, are immediately recognized as research and development expense provided that there is no alternative future use of the rights in other research and development projects. 158 Table of Contents Stock-Based Compensation The Company’s stock-based compensation programs grant awards that have included stock options, restricted stock units, restricted stock awards, and shares issued under its employee stock purchase plan. Grants are awarded to employees, directors, and non-employee service providers. The Company measures compensation expense for all stock-based awards at the grant date based on the fair value measurement of the award. The expense is recorded on a straight-line basis over the requisite service period, which is generally the vesting period, for the entire award. Expense is adjusted for actual forfeitures of unvested awards as they occur. The Company calculates the fair value measurement of stock options subject solely to service-based vesting requirements using the Black-Scholes valuation model. The Company uses the fair value of its common stock to determine the fair value of restricted stock awards. Income Taxes Income taxes are accounted for using the liability method, under which deferred tax assets and liabilities are determined based on the temporary differences between the financial reporting and tax bases of assets and liabilities and consideration is given to net operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates that are expected to be in effect when the differences are expected to reverse. The Company assesses the likelihood that deferred tax assets will be recovered from future taxable income, and a valuation allowance is established when necessary to reduce deferred tax assets to the amounts more likely than not expected to be realized. The Company recognizes and measures uncertain tax positions using a two–step approach. The first step is to evaluate the tax position taken or expected to be taken by determining whether the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. Significant judgment is required to evaluate uncertain tax positions. The Company evaluates uncertain tax positions on a regular basis. The evaluations are based on a number of factors, including changes in facts and circumstances, changes in tax law, correspondence with tax authorities during the course of the audit, and effective settlement of audit issues. Previously recognized tax positions that no longer meet the more-likely-than-not threshold are derecognized in the first subsequent financial reporting period in which that threshold is no longer met. The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. 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. 159 Table of Contents Recently Issued Accounting Pronouncements In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures , which is intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The amendments in this Update are effective for all public entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The guidance is to be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact of the new standard on its consolidated financial statements and related disclosures. In December 2023, the FASB issued Accounting Standards Update No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures , which requires that an entity, on an annual basis, disclose additional income tax information, primarily related to the rate reconciliation and income taxes paid. The amendments in this Update are effective to be applied prospectively for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of the new standard on its income tax disclosures. 2. Fair Value Measurements Assets and liabilities measured at fair value at each balance sheet date are as follows (in thousands): December 31, 2023 Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 121,034 $ — $ — $ 121,034 Short-term marketable securities: U.S. government treasuries 869,172 — — 869,172 U.S. government agency securities — 7,086 — 7,086 Commercial paper — 31,147 — 31,147 Total $ 990,206 $ 38,233 $ — $ 1,028,439 December 31, 2022 Level 1 Level 2 Level 3 Total Assets: Cash equivalents Money market funds $ 105,340 $ — $ — $ 105,340 U.S. government treasuries 43,781 — — 43,781 Commercial paper — 9,948 — 9,948 Short-term marketable securities: U.S. government treasuries 1,003,504 — — 1,003,504 U.S. government agency securities — 16,861 — 16,861 Corporate debt securities — 54,215 — 54,215 Commercial paper — 43,591 — 43,591 Total $ 1,152,625 $ 124,615 $ — $ 1,277,240 The Company’s Level 2 securities are valued using third-party pricing sources. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly. The Company has not transferred any assets or liabilities between the fair value measurement levels during the years ended December 31, 2023 or 2022. 160 Table of Contents 3. Marketable Securities All marketable securities were considered available-for-sale at December 31, 2023 and 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): December 31, 2023 Amortized Cost Unrealized Holding Gains Unrealized Holding Losses Aggregate Fair Value Short-term marketable securities: U.S. government treasuries $ 868,174 $ 998 $ — $ 869,172 U.S. government agency securities (1) 7,089 — ( 3 ) 7,086 Commercial paper 31,147 — — 31,147 Total $ 906,410 $ 998 $ ( 3 ) $ 907,405 ______________________________________________ (1) Unrealized holding losses on 2 securities with an aggregate fair value of $ 7.1 million. December 31, 2022 Amortized Cost Unrealized Holding Gains Unrealized Holding Losses Aggregate Fair Value Short-term marketable securities: U.S. government treasuries (1) $ 1,009,733 $ 58 $ ( 6,287 ) $ 1,003,504 U.S. government agency securities 16,823 38 — 16,861 Corporate debt securities (2) 54,571 — ( 356 ) 54,215 Commercial paper 43,591 — — 43,591 Total $ 1,124,718 $ 96 $ ( 6,643 ) $ 1,118,171 __________________________________________________ (1) Unrealized holding losses on 51 securities with an aggregate fair value of $ 683.4 million. (2) Unrealized holding losses on 16 securities with an aggregate fair value of $ 54.2 million. As of December 31, 2023 and 2022, some of the Company's marketable securities were in an unrealized loss position. The Company has no t recognized an allowance for credit losses as of December 31, 2023 or 2022. The Company determined that it had the ability and intent to hold all marketable securities that have been in a continuous loss position until maturity or recovery. Further, a majority of these securities are held in U.S. government securities, and the remainder were held with investment grade, high credit quality institutions. All marketable securities with unrealized losses as of each balance sheet date have been in a loss position for less than twelve months or the loss is not material. As of December 31, 2023 all of the Company’s marketable securities have an effective maturity of less than one year . 4. Acquisition 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. Under the F-star Collaboration Agreement, the Company made payments to F-star totaling $ 11.5 million. In connection with the entry into the F-star Collaboration Agreement, the Company also purchased an option for an upfront option fee of $ 0.5 million (the “buy-out-option”), to acquire all of the outstanding shares of F-star Gamma pursuant to a pre-negotiated buy-out option agreement (the “Option Agreement”). 161 Table of Contents In May 2018, the Company exercised the Option Agreement and entered into a Share Purchase Agreement (the “Purchase Agreement”) with the shareholders of F-star Gamma and Shareholder Representative Services LLC, pursuant to which the Company acquired all of the outstanding shares of F-star Gamma (the “Acquisition”). As a result of the Acquisition, F-star Gamma became a wholly-owned subsidiary of the Company and the Company changed the entity’s name to Denali BBB Holding Limited. In addition, the Company became a direct licensee of certain intellectual property of F-star Ltd by way of the Company’s assumption of F-star Gamma’s license agreement with F-star Ltd, dated August 24, 2016, (the “F-star Gamma License”). The Company made initial exercise payments under the Purchase Agreement and the F-star Gamma License, in the aggregate, of $ 17.8 million. In addition, the Company is required to make contingent payments, to F-star Ltd and the former shareholders of F-star Gamma, up to a maximum amount following completion of the research phase of the F-star collaboration of $ 243.0 million in the aggregate upon the achievement of certain defined preclinical, clinical, regulatory and commercial milestones. These include up to $ 3.0 million in preclinical contingent payments, $ 30.0 million in clinical contingent payments, $ 60.0 million in regulatory contingent payments and $ 150.0 million in commercial contingent payments. The Company concluded that the assets acquired and liabilities assumed upon the exercise of the Option Agreement did not meet the accounting definition of a business, and as such, the acquisition was accounted for as an asset purchase. As the transaction was accounted for as an asset purchase rather than a business combination, the Company did no t recognize any contingent consideration liability on the acquisition date. To date, the Company has paid consideration of $ 49.8 million in the aggregate, consisting of up-front and preclinical contingent consideration, all of which was recorded as research and development expense as incurred. This amount includes a $ 30.0 million contingent consideration payment which was triggered and recorded as research and development expense in March 2023 upon the achievement of a specified clinical milestone in the ETV:IDS program. 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 years ended December 31, 2022 or 2021. Under the F-star Collaboration Agreement, the Company was responsible for certain research costs incurred by F-star Ltd in conducting activities under an agreed development plan for each Fcab, for up to 24 months after the target Fcab is accepted. In July 2021, a side letter was executed to the Company's agreements with F-star, which confirmed the completion of the research services performed by F-star Ltd that were funded by the Company. The Company has not recognized research and development expense related to the funding of F-star Ltd activities under development plans during the years ended December 31, 2023 or 2022, respectively, and recognized $ 0.1 million in research and development expense during the year ended December 31, 2021. 162 Table of Contents 5. Collaboration Agreements Biogen In August 2020, the Company entered into a binding Provisional Collaboration and License Agreement (“Provisional Biogen Collaboration Agreement”) with Biogen Inc.’s subsidiaries, Biogen MA Inc. (“BIMA”) and Biogen International GmbH (“BIG”) (BIMA and BIG, collectively, “Biogen”) pursuant to which the Company granted Biogen a license to co-develop and co-commercialize Denali’s small molecule LRRK2 inhibitor program (the “LRRK2 Program”), an option in respect of each of (i) the Company’s amyloid beta program utilizing the Company's Transport Vehicle ("TV") technology platform to cross the blood-brain barrier ("BBB") and (ii) one other unnamed program also utilizing the Company's TV technology platform (the “Option Programs”), and a right of first negotiation with respect to two additional unnamed programs for indications within Alzheimer’s disease, Parkinson’s disease, amyotrophic lateral sclerosis ("ALS") and multiple sclerosis ("MS") utilizing the Company's TV technology platform (the “ROFN Programs”), should the Company decide to seek a collaboration with a third party for such programs. The Provisional Biogen Collaboration Agreement was a binding agreement, which became effective on the closing of the Common Stock Purchase Agreement ("SPA"), as described further below. The Provisional Biogen Collaboration Agreement expired in October 2020 upon the execution of a Definitive LRRK2 Collaboration and License Agreement (“LRRK2 Agreement”) with Biogen on October 4, 2020 and a Right of First Negotiation, Option and License Agreement (the “ROFN and Option Agreement”) on October 6, 2020 (collectively, the "Biogen Collaboration Agreement"). Biogen made an upfront payment of $ 560.0 million upon execution of the Biogen Collaboration Agreement in October 2020, which was included in the transaction price at inception. In August 2023, the Company and Biogen executed an Amendment (the “Biogen Amendment”) to the LRRK2 Agreement and ROFN and Option Agreement. LRRK2 Agreement With respect to the LRRK2 Program, Biogen is required to make milestone payments up to approximately $ 1.125 billion upon achievement of certain development and sales milestone events. Such milestone payments include $ 375.0 million in development, $ 375.0 million upon first commercial sale, and $ 375.0 million in net sales-based milestones. 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. The Company will share 50 % of the profits and losses with Biogen for LRRK2 Products in the United States, and 40 % of such profits and losses in China. The Company will be entitled to receive royalties in the high teens to low twenties percentages on net sales for LRRK2 Products outside of the United States and China. The Company and Biogen are jointly developing LRRK2 Products pursuant to a clinical development plan set forth within the LRRK2 Agreement. The parties share responsibility and costs for global development of LRRK2 Products pursuant to a mutually agreed development plan and budget ("LRRK2 Development Activities"), with Biogen funding 60 % and the Company funding 40 % of such costs. The Company may opt out of development cost sharing worldwide and upon such election, from any further profit-sharing from the LRRK2 Program. The Company also has the right to opt-out of the profit sharing arrangement for the LRRK2 Program or for only those LRRK2 Products that do not penetrate the BBB (“Peripheral LRRK2 Products”), in each of the United States and China. After such an opt out, the Company will no longer be obligated to share in the development and commercialization costs for, or be entitled to share in the applicable revenues from, such LRRK2 Program (or from the Peripheral LRRK2 Products) for such country, as applicable. If the Company chooses to exercise its opt out rights, the Company will be entitled to receive tiered royalties on net sales of the applicable LRRK2 Program in the relevant country (or countries). The royalty rates for the applicable LRRK2 Program will be a percentage in the high teens to low twenties, but may increase to the mid-twenties if the Company has met certain co-funding thresholds or there has been a first commercial sale at the time of the Company's election. 163 Table of Contents Stock Purchase Agreement In connection with the Provisional Biogen Collaboration Agreement, the Company entered into a common stock purchase agreement (the "Stock Purchase Agreement") with BIMA on August 5, 2020, pursuant to which the Company sold 13,310,243 shares of common stock (the “Shares”) to BIMA for an aggregate purchase price of $ 465.0 million. Management determined that it was appropriate to account for the Provisional Biogen Collaboration Agreement and the SPA as one arrangement because they were entered into at the same time with interrelated financial terms. This stock issuance resulted in a $ 44.9 million premium paid to the Company above the estimated fair value of the Company's common stock, which forms part of the transaction price at inception for the Biogen Collaboration Agreement. The shares of common stock owned by Biogen as of December 31, 2022 and through September 30, 2023, represented approximately 10 % of the voting interest of the Company, and as such, Biogen was considered a related party as defined in ASC 850. As of December 31, 2023, the percentage voting interest has declined such that Biogen is no longer considered a related party as defined in ASC 850. ROFN and Option Agreement Under the ROFN and Option Agreement, Biogen received an exclusive option to license two preclinical programs enabled by the Company's TV technology platform, which platform aims to improve brain uptake of biotherapeutics, including its ATV-enabled anti-amyloid beta program ("ATV:Abeta program") and a second program utilizing the Company's TV technology for an unnamed target ("TV program"). In April 2023, Biogen exercised its option to license the Company's ATV:Abeta program and made a $ 5.0 million option exercise fee payment. Further, in August 2023, Biogen waived its option to the second option program upon execution of the Biogen Amendment. Further, Biogen had the right of first negotiation ("ROFN") on two additional TV-enabled therapeutics within Alzheimer’s disease, Parkinson’s disease, ALS and MS should the Company decide to seek a collaboration with a third party for such programs, but this did not include any of the Company’s small molecule, AAV or oligonucleotide programs. In August 2023, Biogen waived its ROFN rights upon execution of the Biogen Amendment. Under the amended ROFN and Option Agreement, w ith respect to the ATV:Abeta license granted by the Company to Biogen, Biogen is obligated to pay an aggregate of up to $ 142.5 million in development milestone payments, an aggregate of up to $ 180.0 million upon first commercial sale, and up to $ 190.0 million of net sales-based milestone payments, following the achievement of certain prespecified milestone events. Furthermore, Biogen is obligated to pay royalties in the mid-single digit percentages, upon the achievement of certain sales thresholds. The Biogen Collaboration Agreement was considered to be a contract modification to the Provisional Biogen Collaboration Agreement and was accounted for as a termination of the provisional agreement and commencement of a new contract. The Biogen Amendment was considered to be a continuation of the Biogen Collaboration Agreement. The Company identified the following distinct performance obligations associated with the Biogen Collaboration Agreement that had not yet been delivered under the original contract: the LRRK2 Program license, the research services for the ATV:Abeta and TV programs (“Option Research Services”) which include option joint steering committee ("JSC") participation, and a material right for an option under the ROFN and Option Agreement. Further, the LRRK2 Development Activities which includes LRRK2 JSC and joint development committee (“JDC”) participation was identified as a unit of account under ASC 808. The LRRK2 Development Activities, JSC and JDC participation are considered to be a single unit of account since the development activities are highly interrelated with the JSC and JDC involvement and these are not distinct in the context of the contract. Further, the same was considered to be true for the option research services and option JSC participation performance obligation. 164 Table of Contents The Company believes that the Biogen Collaboration Agreement is a collaboration arrangement as defined in ASC 808, Collaborative Arrangements. The Company also believes that Biogen meets the definition of a customer as defined in ASC 606, Revenue From Contracts With Customers for all of the performance obligations identified at inception except for the LRRK2 Development Activities. Since ASC 808 does not address recognition and measurement, the Company looked to other accounting literature for guidance where the performance obligation does not fall under ASC 606, and determined that for the interim LRRK2 development activities subject to cost sharing provisions, the guidance in ASC 730, Research and Development should be applied. The respective standalone value for each of the performance obligations was determined at inception by applying the SSP method and the transaction price of $ 604.9 million at inception was allocated based on the relative SSP method with revenue recognition timing to be determined either by delivery, resolution of an option, or the provision of services. The Company used an adjusted market assessment approach to estimate the selling price for the LRRK2 Program license, an expected cost plus margin approach for estimating the Option Research Services and estimated the intrinsic value of the material right for the option, taking into account the likelihood that an option would be exercised. The LRRK2 Program license was delivered on or around the effective date of the Biogen Collaboration Agreement and the revenue allocated to this performance obligation was recognized during the year ended December 31, 2020 . The Option Research Services were delivered over time as the services are performed, with revenue being recognized over time based on costs incurred to perform the services. As of December 31, 2023 , all revenue allocated to the Option Research Services has been recognized since, after Biogen's ATV:Abeta option exercise, and the waiving of the second option right in the Biogen Amendment, the underlying performance obligations have been fully satisfied. The $ 288.9 million of revenue allocated to the material right for an option under the ROFN and Option Agreement was initially deferred as a contract liability, and was recognized in full during the year ended December 31, 2023 , upon Biogen's ATV:Abeta option exercise, along with the $ 5.0 million option exercise fee which was fully allocated to the material right. The LRRK2 Development Activities cost sharing reimbursements or expenses are being recognized over time as earned or incurred, since this is believed to directly correlate to the value of the services performed. No related-party contract liability remains on the Consolidated Balance Sheet as of December 31, 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 $ 17.7 million and $ 8.2 million of cost sharing payments to Biogen for LRRK2 development activities in research and development expenses in the Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2023 , and 2022, respectively, of which $ 3.2 million was recorded as cost sharing payments included within accounts payable on the Consolidated Balance Sheet as of December 31, 2023, and $ 4.4 million was recorded as cost sharing payments due to related party on the Consolidated Balance Sheet as of December 31, 2022. The Company recorded $ 6.5 million of cost sharing reimbursements for LRRK2 Development Activities as an offset to research and development expenses in the Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2021. In assessing the Biogen Collaboration Agreement, management exercised considerable judgment in estimating revenue to be recognized, specifically related to estimating the discount for lack of marketability associated with the stock issuance, determining the separate performance obligations under the Biogen Collaboration Agreement, and estimating the standalone selling price of those performance obligations. As of December 31, 2023 , the Company had earned $ 5.0 million in option fee payments, but had no t recorded milestone revenue or product sales under the Biogen Collaboration Agreement. 165 Table of Contents Sanofi 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. ("Sanofi") pursuant to which certain small molecule CNS and peripheral receptor interacting serine/threonine protein kinase 1 ("RIPK1") inhibitors contributed by Sanofi and by the Company will be developed and commercialized. The Sanofi Collaboration Agreement became effective in November 2018 at which time Sanofi paid the Company an upfront payment of $ 125.0 million which was included in the transaction price at inception. Under the Sanofi Collaboration Agreement, the Company is eligible to receive milestone payments from Sanofi up to approximately $ 1.1 billion upon achievement of certain clinical, regulatory and sales milestone events. Such milestone payments include $ 215.0 million in clinical milestone payments and $ 385.0 million in regulatory milestone payments for CNS Products, as defined, that are developed and approved in the United States, by the European Medicines Agency ("EMA") and in Japan for three indications, including Alzheimer's disease. These milestones also include $ 120.0 million in clinical milestone payments, $ 175.0 million in regulatory milestone payments and $ 200.0 million in commercial milestone payments for Peripheral Products, as defined, that are developed and approved in the United States, Europe and Japan for three indications. The Company will share profits and losses equally with Sanofi for CNS Products sold in the United States and China, and receive variable royalties on net sales for CNS Products sold outside of the United States and China and for Peripheral Products sold worldwide. The Company and Sanofi are jointly developing CNS Products pursuant to a global development plan. The Company is responsible, at its own cost, for conducting Phase 1 and Phase 2 trials for CNS Products in Alzheimer’s disease and any activities required to support such clinical trials and specific for Alzheimer’s disease ("Denali CNS Development Activities"). Other than the Denali CNS Development Activities, Sanofi is responsible, at its cost, for all other Phase 1 and Phase 2 trials for CNS Products, including ALS and MS. Sanofi will lead the conduct of all Phase 3 and later stage development trials for CNS Products, with Sanofi and the Company funding 70 % and 30 % of such costs, respectively. Sanofi will also lead the commercialization activities globally for CNS Products, subject to certain options that the Company has to conduct co-commercialization activities with respect to each CNS Product in the United States and China. Sanofi will be responsible, at its cost, for conducting activities relating to the development and commercialization of all Peripheral Products. Denali will be entitled to receive tiered royalties in the low- to mid- teen percentages on net sales of Peripheral Products. The Company identified the following distinct performance obligations associated with the Sanofi Collaboration Agreement upon inception: the CNS program license, the Peripheral program license, the Phase 1 and Phase 2 trials for CNS Products for Alzheimer’s disease ("Alzheimer's Disease Services"), and the Phase 1b trial for DNL747 for ALS and associated activities ("Retained Activities"). The Company believes that the Sanofi Collaboration Agreement is a collaboration arrangement as defined in ASC 808, Collaborative Arrangements. The Company also believes that Sanofi meets the definition of a customer as defined in ASC 606, Revenue From Contracts With Customers for three of the performance obligations identified at inception, but does not meet the definition of a customer for the Alzheimer's Disease Services. Further, Sanofi does not meet the definition of a customer for all Phase 3 and later stage development trials for CNS Products led by Sanofi for which the Company will fund 30 % of total costs. Since ASC 808 does not address recognition and measurement, the Company looked to other accounting literature for guidance where the performance obligation does not fall under ASC 606, and determined that for the Alzheimer's Disease Services, the guidance in ASC 606 should be analogized for the recognition, measurement and reporting of this performance obligation, and for the cost sharing provisions, the Company determined that the guidance in ASC 730, Research and Development should be applied. 166 Table of Contents The respective standalone value for each of the performance obligations was determined by applying the SSP method and the transaction price at inception was allocated based on the relative SSP method with revenue recognition timing to be determined either by delivery or the provision of services. During the year ended December 31, 2023 , a $ 25.0 million milestone payment was triggered upon the commencement of dosing in a Phase 2 study of SAR443820/DNL788, in individuals with MS. During the years ended December 31, 2022 and 2021, the Company earned clinical milestones of $ 50.0 million and $ 15.0 million, respectively. These milestones were recognized in collaboration revenue from customers in the Consolidated Statement of Operations and Comprehensive Loss during for the years ended December 31, 2023 , 2022 and 2021, respectively, s ince the associated performance obligation has been satisfied . The Company used an adjusted market assessment approach to estimate the selling price for the program licenses, and an expected cost plus margin approach for estimating the Alzheimer’s Disease Services and the Retained Activities. The program licenses and existing know-how were delivered on the effective date of the Sanofi Collaboration Agreement, and as such upfront revenue allocated to these performance obligations were recognized at this time. Further, clinical milestones are recognized as earned since these relate to the underlying program licenses previously delivered. The Alzheimer’s Disease Services and the Retained Activities were expected to be delivered over time as the services are performed. For the Alzheimer's Disease Services, revenue was recognized over time using the input method, based on costs incurred to perform the services, since the level of costs incurred over time was thought to best reflect the transfer of services to Sanofi. For the Retained Activities, revenue was recognized over time using the output method, based on amounts invoiced to Sanofi, since this is believed to directly correlate to the value of the services performed. The Company has no remaining performance obligations under the Sanofi Collaboration Agreement, and no contract liability remains on the Consolidated Balance Sheets as of December 31, 2023 or 2022 . The Company did no t record any receivable associated with the Sanofi Collaboration Agreement on the Consolidated Balance Sheets as of December 31, 2023 or 2022. In assessing the Sanofi Collaboration Agreement, management exercised considerable judgment in estimating revenue to be recognized. Management applied judgment in determining the separate performance obligations, in estimating the selling price, in determining when control was transferred to Sanofi for the licenses, and in estimating total future costs when using the input method. As of December 31, 2023, the Company had earned milestone payments of $ 100.0 million and had no t recorded any product sales under the Sanofi Collaboration Agreement. Takeda Takeda Collaboration Agreement In January 2018, the Company entered into a Collaboration and Option Agreement ("Takeda Collaboration Agreement") with Takeda Pharmaceutical Company Limited ("Takeda"), pursuant to which the Company granted Takeda an option to develop and commercialize, jointly with the Company, certain biologic products that are enabled by the Company's BBB delivery technology and intended for the treatment of neurodegenerative disorders. The programs subject to the Takeda Collaboration Agreement were the Company ’s ATV:BACE1/Tau, ATV:TREM2 and PTV:PGRN programs. The Takeda Collaboration Agreement became effective in February 2018, at which time Takeda paid the Company an upfront payment of $ 40.0 million. In February 2019, the agreem ent was amended to replace the ATV:BACE1/Tau program with the ATV:Tau program. The amendment did not have a material impact to the consolidated financial statements. In March 2022, Takeda and the Company agreed to terminate activity on the ATV:Tau program over which Takeda had an option to develop and commercialize jointly with the Company. Subsequent to the ATV:Tau termination, total preclinical milestone payments that Takeda owed under the Takeda Collaboration Agreement was $ 55.0 million for all three programs, all of which had been earned and received as of December 31, 2022 . 167 Table of Contents Pursuant to the terms of the Takeda Collaboration Agreement, the Company entered into a common stock purchase agreement with Takeda on January 3, 2018, pursuant to which Takeda purchased 4,214,559 shares of the Company’s common stock on February 23, 2018 for an aggregate purchase price of $ 110.0 million, which included a $ 15.6 million stock premium. Under the Takeda Collaboration Agreement and unless otherwise agreed jointly between both parties, the Company was responsible, at its cost, for conducting activities relating to pre-IND development of biologic products directed to the three identified targets and enabled by its BBB delivery technology targeting TfR during the applicable research period. Subsequent to Takeda exercising its option with respect to a particular target and collaboration program (i.e., the biologic products directed to the target for which Takeda has exercised its option), Takeda has the right to develop and commercialize, jointly with the Company, a specified number of biologic products enabled by its BBB delivery technology that were developed during the research period and which are directed to the relevant target, and the Company grants to Takeda a co-exclusive license under the intellectual property the Company controls related to those biologic products. The Company believes that the Takeda Collaboration Agreement is a collaboration arrangement as defined in ASC 808, Collaborative Arrangements. Further, during the research period, the Company believes that the arrangement was a contract with a customer as defined in ASC 606, Revenue From Contracts With Customers . The Takeda Collaboration Agreement and the Stock Purchase Agreement were accounted for as one arrangement because they were entered into at the same time with interrelated financial terms. The Company identified performance obligations during the research period consisting of the license, the development options, and joint steering committee ("JSC") participation together with the research services for each collaboration program. The license rights, JSC involvement, option and research services were considered to be a single performance obligation for each program since the research services were highly interrelated with the option and JSC involvement and significantly modify the license. The performance obligations under each of the three programs are separate since the activities and risks under the programs are distinct. The Company determined that all other goods or services which were contingent upon Takeda exercising its option for each program were not performance obligations at the inception of the Takeda Collaboration Agreement. The transaction price at inception included fixed consideration consisti ng of the upfron t fee of $ 40.0 million, the $ 15.6 million premium on the sale of common stock, and the first preclinical milestone payment of $ 5.0 million . The transaction price also included variable consideration of $ 26.0 million relating to future milestones that were not constrained upon inception and have since all been met and received. Transaction price has also subsequently increased by $ 24.0 million since inception pertaining to further preclinical milestones earned that had previously been constrained. Revenue was recognized over time using the input method, based on costs incurred to perform the research services, and all revenue under the Takeda Collaboration Agreement was recognized prior to December 31, 2022. The Company did no t record any product sales and there are no remaining performance obligations under the initial Takeda Collaboration Agreement. The Takeda Collaboration Agreement was superseded by the PTV:PGRN and ATV:TREM2 Collaboration Agreements subsequent to opt-in for the two programs, recognition of all preclinical milestones, and termination of the ATV:Tau program. 168 Table of Contents PTV:PGRN and ATV:TREM2 Collaboration Agreements In November and December 2021, Takeda exercised its options to jointly develop and commercialize the PTV:PGRN and ATV:TREM2 programs, respectively, triggering the option fee of $ 5.0 million for each program, which formed the transaction price at contract inception for each contract . Management determined that the opt-in by Takeda on the PTV:PGRN and ATV:TREM2 programs represent two new contracts with a customer for accounting purposes (the "PTV:PGRN Collaboration Agreement" and the "ATV:TREM2 Collaboration Agreement"), both effective in December 2021 upon payment of the respective option fees. From inception of the PTV:PGRN Collaboration Agreement and the ATV:TREM2 Collaboration Agreement through December 31, 2023, there was no change to the terms of either agreement. For each contract, the Company identified a single performance obligation under ASC 606, and initially one unit of account under ASC 808 associated with each of the PTV:PGRN and ATV:TREM2 Collaboration Agreements. The performance obligation is the delivery of a co-exclusive license under the intellectual property the Company controls related to the PTV:PGRN or ATV:TREM2 program ("PTV:PGRN Technology License" or "ATV;TREM2 Technology License"), and the unit of account is the obligation to share in responsibility and costs for global development of PTV:PGRN or ATV:TREM2 Products pursuant to a mutually agreed upon development plan and budget ("PTV:PGRN Development Activities" or "ATV:TREM2 Development Activities"), which both include JSC involvement. The PTV:PGRN Development Activities and JSC participation, and the ATV:TREM2 Development Activities and JSC participation are each considered to be single units of account since the activities are highly interrelated with the JSC involvement and these are not distinct in the context of the contract. The Company believes that the PTV:PGRN and ATV:TREM2 Collaboration Agreements are both collaboration arrangements as defined in ASC 808, Collaborative Arrangements. The Company also believes that Takeda meets the definition of a customer as defined in ASC 606, Revenue From Contracts With Customers for the PTV:PGRN Technology License and the ATV:TREM2 Technology License performance obligations delivered in these collaboration agreements, respectively. Since ASC 808 does not address recognition and measurement, the Company looked to other accounting literature for the PTV:PGRN Development Activities and ATV:TREM2 Development Activities units of account, and determined that the guidance in ASC 730, Research and Development should be applied. Takeda may be obligated to pay the Company up to an aggregate of $ 280.0 million upon achievement of certain clinical milestone events and up to an aggregate of $ 200.0 million in regulatory milestone events relating to receipt of regulatory approval in the United States, certain European countries and Japan. Takeda may also be obligated to pay the Company up to $ 75.0 million per biologic product upon achievement of a certain sales-based milestone, or an aggregate of $ 150.0 million if one biologic product from each program achieves this milestone. The entire transaction price of $ 5.0 million on inception was allocated to the underlying Technology License in each Collaboration Agreement, which was delivered on or around the effective date of the respective Collaboration Agreement, with the revenue allocated to this performance obligation recognized during the year ended December 31, 2021. During the year ended December 31, 2023, a $ 10.0 million milestone was triggered upon achievement of a specified clinical milestone in the Phase 1/2 clinical trial of TAK-594/DNL593 in patients with FTD-GRN, which was recognized in collaboration revenue from customers in the Consolidated Statement of Operations and Comprehensive Loss for the year ended December 31, 2023 since the associated performance obligation has been satisfied. The Development Activities cost sharing reimbursements or expenses will be recognized over time as earned or incurred, since this is believed to directly correlate to the value of the services performed. The Company recorded $ 7.1 million, $ 11.3 million, and $ 7.7 million of cost sharing reimbursements for PTV:PGRN, and $ 5.1 million, $ 6.9 million, $ 6.0 million of cost sharing reimbursements for ATV:TREM2 Development Activities for the years ended December 31, 2023, 2022, and 2021 respectively, as offsets to research and development expenses in the Consolidated Statements of Operations and Comprehensive Loss. Cost sharing reimbursements of $ 2.7 million and $ 8.9 million are recorded as receivables on the Consolidated Balance Sheets as of December 31, 2023 and 2022, respectively. 169 Table of Contents In assessing the Takeda Collaboration Agreement and the PTV:PGRN and the ATV:TREM2 Collaboration Agreements, management was required to exercise considerable judgment in estimating revenue to be recognized. Management applied judgment in determining whether opt-in resulted in a modification to an existing contract or a new contract, in determining the separate performance obligations in the research period, and estimating variable consideration. As of December 31, 2023, the Company had earned $ 10.0 million in option fee payments and $ 10.0 million in milestone payments from Takeda under the PTV:PGRN and the 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): Year Ended December 31, 2023 2022 2021 Takeda Collaboration Agreement: Takeda Collaboration Agreement Services (1) $ — $ 51,916 $ 19,921 PTV:PGRN Collaboration Agreement 10,000 — 5,000 ATV:TREM2 Collaboration Agreement — — 5,000 Total Takeda Collaboration Revenue 10,000 51,916 29,921 Sanofi Collaboration Agreement: CNS Program License 25,000 40,000 — Peripheral Program License — 10,000 15,000 Alzheimer's Disease Services (2) — 3,398 4 Total Sanofi Collaboration Revenue 25,000 53,398 15,004 Biogen Collaboration Agreement: ATV:Abeta Program License (3) 293,912 — — Option Research Services (2) 1,619 3,149 3,736 Total Biogen Collaboration Revenue 295,531 3,149 3,736 Total Collaboration Revenue $ 330,531 $ 108,463 $ 48,661 _________________________________________________ (1) Revenue of $ 27.9 million and $ 15.9 million for the years ended December 31, 2022 and 2021 was included in the contract liability balance at the beginning of the year. (2) Revenue for all periods presented was included in the contract liability balance at the beginning of the respective year. (3) Revenue of $ 288.9 million for the year ended December 31, 2023 was included in the related-party contract liability balance at the beginning of the period. 6. License Agreements Genentech In June 2016, the Company entered into an Exclusive License Agreement with Genentech, Inc. (“Genentech”). This agreement gives the Company access to Genentech’s LRRK2 inhibitor small molecule program for Parkinson's disease. Under the agreement, Genentech granted the Company (i) an exclusive, worldwide, sublicensable license under Genentech’s rights to certain patents and patent applications directed to small molecule compounds which bind to and inhibit LRRK2 and (ii) a non-exclusive, worldwide, sublicensable license to certain related know-how, in each case, to develop and commercialize certain compounds and licensed products incorporating any such compound. 170 Table of Contents The Company may owe Genentech milestone payments upon the achievement of certain development, regulatory, and commercial milestones, up to a maximum of $ 315.0 million in the aggregate. These milestones include up to $ 37.5 million in clinical milestone payments, $ 102.5 million in regulatory milestone payments and $ 175.0 million in commercial milestone payments. In addition, the Company may owe royalties on net sales of licensed products ranging from low to high single-digit percentages. I n the year ended December 31, 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 g lobal 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 $ 6.3 million of research and development expense was recognized in the year ended December 31, 2022 in the Consolidated Statements of Operations and Comprehensive Loss. No expenses were recognized under the Genentech License Agreement in the years ended December 31, 2023 or 2021. 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 this recorded as research and development expense as incurred , net of cost sharing reimbursements from Biogen. 7. Balance Sheet Components Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consists of the following (in thousands): As of December 31, 2023 2022 Accounts receivable and other receivables $ 3,420 $ 9,282 Prepaid clinical research & development costs 10,178 8,895 Prepaid manufacturing and other research & development costs 12,192 13,834 Other prepaid assets and other current assets 3,836 4,093 Total prepaid expenses and other current assets $ 29,626 $ 36,104 Property and Equipment, Net Property and equipment, net consists of the following (in thousands): As of December 31, 2023 2022 Leasehold improvements $ 41,238 $ 43,698 Laboratory equipment 36,985 34,419 Manufacturing equipment 9,722 — Computer equipment and purchased software 1,741 1,605 Furniture and fixtures 1,906 1,580 Total property and equipment 91,592 81,302 Less: accumulated depreciation ( 46,003 ) ( 37,215 ) Total property and equipment, net $ 45,589 $ 44,087 Depreciation expense was $ 16.7 million , $ 10.4 million and $ 8.6 million for the years ended December 31, 2023, 2022 and 2021, respectively. D epreciation expense for the year ended December 31, 2023 includes $ 7.9 million of accelerated depreciation on leasehold improvements due to the Company terminating the previous SLC Lease in March 2023. 171 Table of Contents Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consists of the following (in thousands): As of December 31, 2023 2022 Accrued compensation $ 21,590 $ 17,087 Accrued clinical and other research & development costs 19,035 16,297 Accrued manufacturing costs 15,462 22,307 Operating lease liability, current 7,260 7,318 Other accrued costs and current liabilities 5,152 3,682 Total accrued expenses and other current liabilities $ 68,499 $ 66,691 8. Commitments and Contingencies Lease Obligations In May 2018, the Company entered into an operating lease for its corporate headquarters in South San Francisco (the "Headquarters Lease"), a 148,020 rentable square feet building in South San Francisco, California (the "Headquarters"). The Headquarters Lease has a contractual term of 10 years from the legal commencement date, which was April 1, 2019 when the building was ready for occupancy. For accounting purposes, the lease commencement date was determined to be August 1, 2018, which was the date at which the Company was deemed to have obtained control over the property. The Company has an option to extend the lease term for a period of ten years by giving the landlord written notice of the election to exercise the option at least nine months , but not more than twelve months , prior to the expiration of the Headquarters Lease Amendmen t lease term. The Company determined that this renewal was not reasonably certain at lease inception. The Headquarters Lease provides for monthly base rent amounts escalating over the term of the lease. In addition, the Headquarters Lease provided a tenant improvement allowance ("TIA") of up to $ 25.9 million, which was fully utilized, of which $ 4.4 million will be repaid to the landlord in the form of additional monthly rent. This is recorded as leasehold improvement assets and an offset to the lease ROU asset on the Consolidated Balance Sheets . The Company is also required to pay the operating expenses for the Headquarters, such as taxes and insurance, which are treated as variable lease payments. In August 2021, the Company entered into an operating lease for laboratory, office and warehouse facilities in Salt Lake City, Utah. In March 2023, the Company terminated this operating lease, which resulted in the recognition of $ 7.9 million of accelerated depreciation on leasehold improvements during the year ended December 31, 2023 . The lease had not commenced for accounting purposes. 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 (the "SLC Lease") with a contractual term of approximately 15 years upon commencement, and future undiscounted lease payments of approximately $ 13.4 million, which was subsequently amended in October 2023. The Company has the option to extend the lease term for a period of ten years at the end of the lease term. For accounting purposes, the SLC Lease, as amended, had not commenced as of December 31, 2023 since the landlord had not yet made the underlying asset available for use by the Company, and as such, no lease liability or ROU asset has been recorded on the Consolidated Balance Sheet as of December 31, 2023, and no operating lease expense has been recorded for the year ended December 31, 2023. 172 Table of Contents 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 year ended December 31, 2023. Operating lease costs, including variable l ease costs recognized under ASC 842, were $ 12.4 million, $ 12.0 million, and $ 11.0 million for the years ended December 31, 2023 , 2022 and 2021 , respectively. The following table contains a summary of other information pertaining to the Company’s operating leases for the periods presented (in thousands): Year Ended December 31, 2023 2022 2021 Cash paid for amounts included in measurement of lease liabilities $ 11,345 $ 11,189 $ 10,336 As of December 31, 2023 2022 2021 Weighted average remaining lease term 5.3 years 6.2 years 7.3 years Weighted average discount rate 9.0 % 8.9 % 9.0 % The following table reconciles the undiscounted lease payments under our operating leases to the operating lease liabilities recorded in the Consolidated Balance Sheet as of December 31, 2023 (in thousands): Year Ended December 31: 2024 $ 11,417 2025 11,793 2026 12,182 2027 12,584 2028 13,001 Thereafter 4,381 Total undiscounted lease payments 65,358 Present value adjustment ( 13,117 ) Net operating lease liabilities $ 52,241 173 Table of Contents Indemnification In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to vendors, lessors, business partners, board members, officers, and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, services to be provided by the Company, negligence or willful misconduct of the Company, violations of law by the Company, or from intellectual property infringement claims made by third parties. 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 Consolidated Balance Sheets , Consolidated Statements of Operations and Comprehensive Loss, or Consolidated Statements of Cash Flows . Commitments 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 not expected to be before November 2029. As of December 31, 2023 and 2022, the Company had total non-cancellable purchase commitments under the DMSA of $ 37.6 million and $ 32.3 million, respectively. During the years ended December 31, 2023, 2022 and 2021, the Company incurred costs of $ 39.5 million, $ 28.6 million, and $ 17.4 million, respectively, and made payments of $ 37.1 million, $ 23.9 million, and $ 14.9 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 $ 34.8 million and $ 9.6 million, as of December 31, 2023 and 2022, respectively, with certain amounts subject to cost sharing with Takeda. Further, the Company had other commitments of $ 1.6 million as of both December 31, 2023 and 2022, respectively, and a purchase commitment related to manufacturing equipment for the SLC Facility of $ 5.6 million as of December 31, 2022. There is no purchase commitment related to manufacturing equipment for the SLC Facility as of December 31, 2023. Contingencies From time to time, the Company may be involved in lawsuits, arbitration, claims, investigations and proceedings consisting of intellectual property, employment and other matters which arise in the ordinary course of business. The Company records accruals for loss contingencies to the extent that the Company concludes that it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated. 174 Table of Contents 9. Stock-Based Awards Equity Incentive Plans The Company's equity incentive plans, the 2017 Equity Incentive Plan (the “2017 Plan”), and previously, the 2015 Stock Incentive Plan (the “2015 Plan”), reserve shares of common stock for the issuance of stock options, restricted stock and other stock awards, to employees, non-employee directors, and consultants under terms and provisions established by the board of directors and approved by the stockholders. Upon adoption of the 2017 Plan, no new awards or grants are permitted under the 2015 Plan. The 2015 Plan continues to govern restricted stock awards and option awards previously granted thereunder. Awards granted under the 2017 Plan and 2015 Plan expire no later than ten years from the date of grant. For stock options, the option price shall not be less than 100 % of the estimated fair value of the Company's common stock on the day of grant. Options granted typically vest over a four - year period but may be granted with different vesting terms. The 2017 Plan provides that the number of shares reserved and available for issuance under the 2017 Plan will automatically increase each January 1, beginning on January 1, 2019, by the lesser of (i) 10.0 million shares, (ii) 5 % of the outstanding shares on the last day of the immediately preceding fiscal year, or (iii) such number of shares determined by the administrator of the 2017 Plan. In January 2023, common stock available for issuance under the 2017 Plan was increased by approximately 6.8 million shares as a result of this automatic increase provision. As of December 31, 2023 and 2022, there were approxim ately 12.5 million and 9.9 million common shares available for the Company to grant under the 2017 Plan, respectively. Stock Option Activity The following table summarizes option award activity under the 2017 Plan and the 2015 Plan: Number of Options Weighted- Average Exercise Price Weighted- Average remaining contractual life (years) Aggregate Intrinsic Value (in thousands) Balance at December 31, 2022 14,673,717 $ 27.03 6.24 $ 127,865 Granted 3,482,231 27.51 Exercised ( 916,235 ) 13.01 Forfeited ( 749,162 ) 39.64 Balance at December 31, 2023 16,490,551 $ 27.34 5.97 $ 61,982 Vested and expected to vest at December 31, 2023 15,680,680 $ 28.72 6.23 $ 45,153 Exercisable at December 31, 2023 10,918,798 $ 25.93 5.14 $ 45,085 Aggregate intrinsic value represents the difference between the fair value of the Company's common stock and the exercise price of outstanding options. The total intrinsic value of options exercised was $ 12.1 million, $ 12.6 million, and $ 47.9 million as of December 31, 2023, 2022 and 2021, respectively. During the years ended December 31, 2023, 2022, and 2021 the weighted-average grant-date fair value of the options vested was $ 24.30 , $ 23.96 , and $ 11.83 per share, respectively. The weighted-average grant date fair value of all options granted during the years ended December 31, 2023, 2022 and 2021 was $ 17.95 , $ 26.00 , and $ 41.30 per share, respectively. 175 Table of Contents Stock Options Granted to Employees with Service-Based Vesting The estimated fair value of stock options granted to employees were calculated using the Black-Scholes option-pricing model, which requires various assumptions, including the fair value of the Company’s common stock, expected term, expected dividend yield, expected volatility, and the risk-free interest rate. The fair value of the Company’s common stock is based on the current market price, unless an adjustment is determined to be required, through discussion with senior management, due to material non-public information known by the Company at the time of grant. The expected volatility of the Company’s stock options is estimated using a combination of average historical stock price volatility of the Company's stock and that of comparable public companies within the biotechnology and pharmaceutical industry that are deemed to be representative of future stock price trends, since the Company does not have sufficient trading history to rely solely on the volatility of its common stock. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available. Management considers whether the Company is in possession of material non-public information at the time of grants when making certain estimates, including volatility and the fair value of the Company's common stock. The expected term of stock options represents the period that the Company’s stock-options are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term). The risk-free interest rate is based on the implied yield currently available on U.S. treasury notes with terms approximately equal to the expected life of the option. The expected dividend rate is zero as the Company currently has no history or expectation of declaring cash dividends on the Company’s common stock. The following assumptions were used in estimating the fair value of grants during the: Year Ended December 31, 2023 2022 2021 Expected term (in years) 5.50 - 6.08 5.50 - 6.08 5.50 - 6.08 Volatility 67.6 % - 69.6 % 65.1 % - 66.3 % 61.0 % - 63.4 % Risk-free interest rate 3.4 % - 4.8 % 1.5 % - 4.3 % 0.5 % - 1.3 % Dividend yield — — — Restricted Stock Activity We grant restricted stock units ("RSUs") under the 2017 Plan. The fair value of restricted stock underlying the RSUs is determined based on the closing market price of the Company's common stock on the date of grant. 176 Table of Contents Aggregated information regarding RSUs granted under the Plan for the year ended December 31, 2023 is summarized below: Number of Units Weighted-Average Fair Value at Date of Grant per Share Unvested at December 31, 2022 3,330,654 $ 41.39 Granted 1,855,090 27.38 Vested and released ( 1,187,054 ) 38.60 Forfeited ( 363,533 ) 36.89 Unvested and expected to vest at December 31, 2023 3,635,157 $ 35.60 The aggregate intrinsic value of RSUs is calculated as the closing price per share of the Company's common stock on the last trading day of the fiscal period, multiplied by outstanding RSUs as of December 31, 2023 . The total intrinsic value of RSUs expected to vest was $ 78.0 million as of December 31, 2023. During the years ended December 31, 2022 and 2021 the weighted-average grant-date fair value of RSUs granted was $ 37.55 and $ 68.30 , respectively. The total fair value of RSUs that vested during the years ended December 31, 2023, 2022, and 2021 was $ 31.6 million, $ 29.4 million, and $ 39.8 million, respectively. Stock-Based Compensation Expense The Company’s stock-based compensation expense was as follows (in thousands): Year Ended December 31, 2023 2022 2021 Research and development $ 62,901 $ 60,196 $ 50,036 General and administrative 45,201 39,651 35,211 Total $ 108,102 $ 99,847 $ 85,247 As of December 31, 2023, total unamortized stock-based compensation expense was $ 179.7 million . The weighted-average period over which such stock-based compensation expense will be recognized is approximately 2.4 years. There was no tax benefit realized related to awards vested or exercised during the years ended December 31, 2023, 2022 and 2021. There is no tax benefit on total stock-based compensation expense for the years ended December 31, 2023 , 2022 and 2021 since the company has recorded a full valuation allowance on all deferred tax assets. 10. Defined Contribution Plan The Company sponsors a 401(k) retirement savings plan for the benefit of its employees, including Denali's named executive officers, who satisfy certain eligibility requirements. Under the 401(k) plan, eligible employees may elect to defer a portion of their compensation, within the limits prescribed by the Code, on a pre-tax or after-tax (Roth) basis through contributions to the 401(k) plan. The 401(k) plan authorizes employer safe harbor contributions. The Company made contributions to the Plan for eligible participants, and recorded contribution expenses o f $ 3.2 million , $ 2.8 million and $ 2.3 million for the years ended December 31, 2023, 2022, and 2021 respectively. 177 Table of Contents 11. Income Taxes The provision for income taxes consisted of the following (in thousands): Year Ended December 31, 2023 2022 2021 Current: U.S. Federal $ — $ — $ — U.S. State — 7 ( 576 ) Foreign 30 14 1 Total Current $ 30 $ 21 $ ( 575 ) Deferred: U.S. Federal $ — $ — $ — U.S. State — — — Foreign — — — Total deferred $ — $ — $ — The reconciliation of federal statutory income tax rate to our effective income tax rate is as follows: Year Ended December 31, 2023 2022 2021 Taxes at the U.S. statutory tax rate 21.0 % 21.0 % 21.0 % Change in valuation allowance ( 27.3 ) ( 25.1 ) ( 28.2 ) Research tax credits 14.5 4.9 4.1 Stock-based compensation ( 3.2 ) ( 0.5 ) 3.2 Nondeductible acquisition-related costs ( 3.5 ) — — Impact of IRC 162m ( 0.7 ) — — Other ( 0.8 ) ( 0.4 ) 0.1 Total provision for income taxes — % ( 0.1 ) % 0.2 % 178 Table of Contents Deferred Income Taxes The components of the Company’s net deferred tax assets are as follows (in thousands): December 31, 2023 2022 Deferred tax assets: Net operating loss carryforwards $ 89,273 $ 67,492 Tax credit carryforwards 95,808 69,562 Research expense capitalization 119,349 61,869 Contract liabilities — 70,824 Operating lease liabilities 12,663 14,712 Stock-based compensation 53,226 44,473 Accruals and other 17,453 18,381 Gross deferred tax assets 387,772 347,313 Valuation allowance ( 375,795 ) ( 332,580 ) Net deferred tax assets 11,977 14,733 Deferred tax liabilities: Property and equipment ( 5,663 ) ( 7,314 ) Operating lease right-of-use assets ( 6,314 ) ( 7,419 ) Net deferred tax assets $ — $ — Recognition of deferred tax assets is appropriate when realization of such assets is more likely than not. Based upon the weight of available evidence, especially the uncertainties surrounding the realization of deferred tax assets through future taxable income, the Company believes it is not more likely than not that the deferred tax assets will be fully realizable. Accordingly, the Company has provided a full valuation allowance against its net deferred tax assets as of December 31, 2023 and 2022. There was an increase in the net valuation allowance of $ 43.2 million during the year ended December 31, 2023. As of December 31, 2023, the Company has federal net operating loss (“NOL”) carryforwards of approximately $ 290.6 million , which are available to reduce future taxable income, and has federal R&D and orphan drug tax credits of approximately $ 53.1 million and $ 37.4 million respectively, both of which may be used to offset future tax liabilities. The federal NOL and federal tax credit carryforwards will begin to expire in 2034. The Company also has state NOL carryforwards of approximately $ 403.2 million , which are available to reduce future taxable income, and has state tax credits of approximately $ 37.2 million which may be used to offset future tax liabilities. The state NOL will begin to expire in 2031 and the state tax credit carryforwards will be carried forward indefinitely. The NOL and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service (“IRS”) and state tax authorities and may become subject to an annual limitation in the event of certain future cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code of 1986. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. Annual limitations may result in expiration of net operating loss and tax credit carryforwards before some or all of such amounts have been utilized. The Company follows the provisions of ASC 740 , Accounting for Income Taxes , and the accounting guidance related to accounting for uncertainty in income taxes. The Company determines its uncertain tax positions based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings is more likely than not to be sustained upon examination by the relevant income tax authorities. 179 Table of Contents A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in thousands): December 31, 2023 2022 2021 Unrecognized tax benefits at January 1 $ 19,371 $ 13,699 $ 8,139 Additions for tax positions taken in a prior year 168 135 1,042 Additions for tax positions taken in the current year 6,636 5,537 4,725 Reductions for tax positions taken in the prior year — — ( 207 ) Unrecognized tax benefits at December 31 $ 26,175 $ 19,371 $ 13,699 If recognized , none of the unrecognized tax benefits would reduce the effective tax rate for the year ended December 31, 2023. The Company will recognize both accrued interest and penalties related to unrecognized benefits in income tax expense. As of December 31, 2023, no liability has been recorded for potential interest or penalties. The Company does no t expect the unrecognized tax benefits to change significantly over the next 12 months. Since the Company is in a loss carryforward position, the Company is generally subject to examination by the U.S. federal, state and local income tax authorities for all tax years in which a loss carryforward is available. 12. Net Loss and Net Loss Per Share The following table sets forth the computation of the basic and diluted net loss per share (in thousands, except share and per share data): Year Ended December 31, 2023 2022 2021 Numerator: Net loss $ ( 145,224 ) $ ( 325,991 ) $ ( 290,581 ) Denominator: Weighted average number of shares outstanding, basic and diluted 137,370,897 125,530,703 121,524,795 Net loss per share, basic and diluted $ ( 1.06 ) $ ( 2.60 ) $ ( 2.39 ) 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 20.5 million, 18.2 million, and 16.5 million shares as of December 31, 2023, 2022, and 2021, respectively. 13. Subsequent events Collaboration and Development Funding Agreement In January 2024, the Company entered into a Collaboration and Development Funding Agreement with an unrelated third party, pursuant to which this third party will provide $ 75.0 million of funding and collaborate with the Company to conduct a global Phase 2a study of BIIB122/DNL151 in patients with Parkinson’s disease and confirmed pathogenic variants of LRRK2. 180 Table of Contents Pursuant to this agreement, an upfront payment of $ 12.5 million was received in January 2024, with the remainder to be paid based on time and operational milestones in the study. After the full $ 75.0 million investment has been made, the third party will be eligible to receive low single-digit royalties from Denali on annual worldwide net sales of LRRK2 inhibitors for the treatment of Parkinson’s disease, with royalty amounts varying based on the scope of the label. Private Investment in Public Equity ("PIPE") financing On February 27, 2024, the Company entered into a securities purchase agreement with certain investors for the private placement of (i) 3,244,689 shares of Denali's common stock at a price of $ 17.07 per share and (ii) pre-funded warrants to purchase an aggregate of 26,046,065 shares of Denali's common stock at a purchase price of $ 17.06 per pre-funded warrant, which represents the per share price for the common stock less the $ 0.01 exercise price. 181 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.