What changed in this filing

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Item 1. Financial Statements

2024-05-07 compared with 2023-11-07 · 142 added, 141 removed, 366 unchanged (44% of the section changed)

3 unchanged sentences

(In thousands, except share amounts)

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Current assets:

5 unchanged sentences

Property and equipment, net 46,863 45,589

Operating lease right-of-use assets 26,750 30,437

Operating lease right-of-use asset 25,309 26,048

Other non-current assets 44,621 18,143

3 unchanged sentences

Accounts payable $ 11,855 $ 9,483

Cost sharing payments due to related party 10,354 4,388

Accrued clinical and other research & development costs 19,956 19,035

2 unchanged sentences

Accrued compensation 8,053 21,590

Operating lease liabilities, current 7,014 7,318

Related-party contract liability, current — 290,053

Operating lease liability, current 7,512 7,260

Deferred research funding liability, current 12,500 —

Total current liabilities 82,582 77,982

Related-party contract liability, less current portion — 479

Operating lease liabilities, less current portion 46,887 53,032

Other non-current liabilities 379 379

Operating lease liability, less current portion 43,034 44,981

Total liabilities 125,616 122,963

2 unchanged sentences

Convertible preferred stock, $ 0.01 par value;

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

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

40,000,000 shares authorized as of March 31, 2024 and December 31, 2023;

0 shares issued and outstanding as of March 31, 2024 and December 31, 2023

Common stock, $ 0.01 par value;

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

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

400,000,000 shares authorized as of March 31, 2024 and December 31, 2023;

142,512,856 shares and 138,385,498 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively

Additional paid-in capital 2,673,033 2,144,811

Accumulated other comprehensive loss ( 651 ) ( 6,886 )

Accumulated other comprehensive income (loss) ( 1,296 ) 643

Accumulated deficit ( 1,218,013 ) ( 1,116,211 )

5 unchanged sentences

(In thousands, except share and per share amounts)

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

2023 2022 2023 2022

Three Months Ended March 31,

Collaboration revenue:

Collaboration revenue from customers (1)

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

Other collaboration revenue — 3,375 — 3,375

Total collaboration revenue — 35,141

4 unchanged sentences

Total operating expenses 132,252 155,956

Gain from divestiture of small molecule programs 14,537 —

Loss from operations ( 117,715 ) ( 120,815 )

Interest and other income, net 15,913 11,034

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

Income tax expense — — — ( 27 )

Net loss ( 101,802 ) ( 109,781 )

5 unchanged sentences

__________________________________________________

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

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

(1) Includes related-party collaboration revenue from customers of $ 0.1 million for the three months ended March 31, 2023.

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

See accompanying notes to unaudited condensed consolidated financial statements.

6 unchanged sentences

Balance at December 31, 2022

Issuances under equity incentive plans 953,575 9 13,106 — — 13,115

Vesting of restricted stock units 1,132,305 12 ( 12 ) — — —

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

135,965,918 $ 1,686 $ 2,018,617 $ ( 6,886 ) $ ( 970,987 ) $ 1,042,430

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

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

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

Issuances under equity incentive plans 204,308 2 1,602 — — 1,604

1 unchanged sentence

Stock-based compensation — — 28,084 — — 28,084

— — — — ( 99,353 ) ( 99,353 )

Net loss — — — — ( 109,781 ) ( 109,781 )

Other comprehensive income

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

— — — 4,369 — 4,369

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

Balance at December 31, 2023 138,385,498 $ 1,711 $ 2,144,811 $ 643 $ ( 1,116,211 ) $ 1,030,954

Issuances under equity incentive plans 723,604 8 11,011 — — 11,019

Vesting of restricted stock units 789,529 8 ( 8 ) — — —

Stock-based compensation — — 74,660 — — 74,660

Net loss — — — — ( 227,313 ) ( 227,313 )

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

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

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

Issuance of common stock and pre-funded warrants, net of issuance costs of $ 480 K

3,244,689 32 499,221 — — 499,253

Issuances under equity incentive plans

4 unchanged sentences

— — — — ( 101,802 ) ( 101,802 )

Other comprehensive income

Other comprehensive loss

— — — ( 1,939 ) — ( 1,939 )

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

Balance at March 31, 2024 142,512,856 $ 1,751 $ 2,673,033 $ ( 1,296 ) $ ( 1,218,013 ) $ 1,455,475

See accompanying notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

Nine Months Ended

September 30,

Three Months Ended

Operating activities

5 unchanged sentences

Non-cash adjustment to operating lease expense ( 957 ) ( 877 )

Other non-cash items — 51

Non-cash gain from divestiture of small molecule programs ( 14,537 ) —

Changes in operating assets and liabilities:

2 unchanged sentences

Accruals and other current liabilities 2,321 19,810

Contract liabilities — ( 31,290 )

Related-party contract liability — ( 141 )

4 unchanged sentences

Maturities and sales of marketable securities 383,120 433,785

Net cash provided by (used in) investing activities 176,261 ( 13,828 )

Net cash used in investing activities ( 453,187 ) ( 92,715 )

Financing activities

Proceeds from issuance of common stock and pre-funded warrants, net of issuance costs of $ 480 K

Proceeds from exercise of awards under equity incentive plans 1,022 1,604

5 unchanged sentences

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

Equity consideration received in the divestiture of small molecule programs (Note 10) $ 15,000 $ —

Property and equipment purchases accrued but not yet paid $ 1,947 $ 6,075

Issuance costs incurred but not yet paid $ 394 $ —

See accompanying notes to unaudited condensed consolidated financial statements.

15 unchanged sentences

These interim financial results are not necessarily indicative of results expected for the full fiscal year or for any subsequent interim period.

During the nine months ended September 30, 2023 there were no material changes to the Company's significant accounting and financial reporting policies from those reflected in the 2022 Annual Report on Form 10-K.

During the three months ended March 31, 2024 there were no material changes to the Company's significant accounting and financial reporting policies from those reflected in the 2023 Annual Report on Form 10-K.

For further information with regard to the Company’s Significant Accounting Policies, please refer to Note 1, "Significant Accounting Policies," to the Company’s Consolidated Financial Statements included in the 2023 Annual Report on Form 10-K.

17 unchanged sentences

The Company is exposed to credit risk in the event of a default by the financial institutions holding its cash, cash equivalents and marketable securities and issuers of marketable securities to the extent recorded on the Condensed Consolidated Balance Sheets.

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

As of March 31, 2024 and December 31, 2023, the Company had no off-balance sheet concentrations of credit risk.

The Company is subject to a number of risks similar to other clinical-stage biopharmaceutical companies, including, but not limited to, the need to obtain adequate additional funding, possible failure of current or future preclinical testing or clinical trials, its reliance on third parties to conduct its clinical trials, the need to obtain regulatory and marketing approvals for its product candidates, competitors developing new technological innovations, the need to successfully commercialize and gain market acceptance of the Company’s product candidates, its right to develop and commercialize its product candidates pursuant to the terms and conditions of the licenses granted to the Company, protection of proprietary technology, the ability to make milestone, royalty or other payments due under any license or collaboration agreements, and the need to secure and maintain adequate manufacturing arrangements with third parties.

If the Company does not successfully commercialize or partner any of its product candidates, it will be unable to generate product revenue or achieve profitability.

Further, the company is also subject to broad market risks and uncertainties resulting from recent events, such as bank failures or instability in the financial services sector, the COVID-19 pandemic, the Russian invasion of Ukraine, inflation, rising interest rates, and recession risks as well as supply chain and labor shortages.

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, global pandemics, war and armed conflicts, inflation, rising interest rates, and recession risks as well as supply chain and labor shortages.

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.

Investments in equity securities may be accounted for using (i) the fair value option, if elected, (ii) fair value through earnings if fair value is readily determinable or (iii) for equity investments without readily determinable fair values, the measurement alternative to measure at cost adjusted for any impairment and observable price changes, as applicable.

The election to use the measurement alternative is made for each eligible investment.

Cash, Cash Equivalents and Restricted Cash

1 unchanged sentence

Cash equivalents are reported at fair value.

Cash, cash equivalents, and restricted cash reported within the Condensed Consolidated Statements of Cash Flows is composed of cash and cash equivalents reported in the Condensed Consolidated Balance Sheets and $ 1.6 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 Condensed Consolidated Balance Sheets.

Marketable Securities

71 unchanged sentences

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.

The weighted-average common shares outstanding as of March 31, 2024 includes pre-funded warrants to purchase shares of common stock that were issued in connection with the February 2024 private placement, as discussed further below in Note 7 - " Common Stock ".

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.

Fair Value Measurements

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

September 30, 2023

March 31, 2024

Level 1 Level 2 Level 3 Total

3 unchanged sentences

government treasuries 829,409 — — 829,409

government agency securities — 20,941 — 20,941

Corporate debt securities — 1,079 — 1,079

Commercial paper — 45,807 — 45,807

1 unchanged sentence

government treasuries 475,196 — — 475,196

Corporate debt securities — 15,527 — 15,527

Total $ 1,345,902 $ 62,413 $ — $ 1,408,315

3 unchanged sentences

Money market funds $ 121,034 $ — $ — $ 121,034

government treasuries 43,781 — — 43,781

Commercial paper — 9,948 — 9,948

Short-term marketable securities:

1 unchanged sentence

government agency securities — 7,086 — 7,086

Corporate debt securities — 54,215 — 54,215

Commercial paper — 31,147 — 31,147

Total $ 990,206 $ 38,233 $ — $ 1,028,439

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

The Company’s Level 2 securities are valued using third-party pricing sources.

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.

The Company has not transferred any assets or liabilities between the fair value measurement levels for the three months ended March 31, 2024 or 2023.

Marketable Securities

All marketable securities were considered available-for-sale at September 30, 2023 and December 31, 2022.

All marketable securities were considered available-for-sale at March 31, 2024 and December 31, 2023.

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

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

September 30, 2023

March 31, 2024

Amortized Cost Unrealized Holding Gains Unrealized Holding Losses Aggregate Fair Value

2 unchanged sentences

$ 829,902 $ 51 $ ( 544 ) $ 829,409

government agency securities (2)

Corporate debt securities

1,079 — — 1,079

6 unchanged sentences

475,612 — ( 416 ) 475,196

Corporate debt securities (3)

15,562 — ( 35 ) 15,527

Total long-term marketable securities

4 unchanged sentences

(2) Unrealized holding losses on 14 securities with an aggregate fair value of $ 475.2 million.

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

(3) Unrealized holding losses on 4 securities with an aggregate fair value of $ 15.5 million.

December 31, 2023

5 unchanged sentences

7,089 — ( 3 ) 7,086

Corporate debt securities (2)

54,571 — ( 356 ) 54,215

Commercial paper

3 unchanged sentences

(1) Unrealized holding losses on 2 securities with an aggregate fair value of $ 7.1 million.

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

As of September 30, 2023 and December 31, 2022, a majority of the Company's marketable securities were in an unrealized loss position.

The Company has no t recognized an allowance for credit losses as of September 30, 2023 or December 31, 2022.

As of March 31, 2024 and December 31, 2023, 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 March 31, 2024 or December 31, 2023.

The Company determined that it had the ability and intent to hold all marketable securities that have been in a continuous loss position until maturity or recovery.

2 unchanged sentences

All marketable securities with unrealized losses as of each balance sheet date have been in a loss position for less than twelve months or the loss is not material.

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

As of March 31, 2024, all of the Company’s marketable securities have an effective maturity of less than two years .

Acquisition and Research Funding Collaboration Agreement

Acquisition of F-star Gamma

In August 2016, the Company entered into a License and Collaboration Agreement (“F-star Collaboration Agreement”) with F-star Gamma Limited (“F-star Gamma”), F-star Biotechnologische Forschungs-und Entwicklungsges M.B.H ("F-star GmbH") and F-star Biotechnology Limited ("F-star Ltd") (collectively, “F-star”) to leverage F-star’s modular antibody technology and the Company’s expertise in the development of therapies for neurodegenerative diseases.

1 unchanged sentence

The details of the Acquisition are further described in Note 4, "Acquisition", to the consolidated financial statements in the Company's 2023 Annual Report on Form 10-K.

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

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

As of March 31, 2024, the Company had paid consideration of $ 49.8 million in the aggregate consisting of up-front, preclinical, and clinical 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 three months ended September 30, 2023 or the three and nine months ended September 30, 2022.

There was no contingent consideration expense recognized for the three months ended March 31, 2024.

Collaboration and Development Funding Agreement

On January 29, 2024, the Company entered into a Collaboration and Development Funding Agreement with an unrelated third party, pursuant to which this third party will provide up to $ 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.

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 in consideration has been paid, the third party will be eligible to receive low single-digit royalties from the Company on annual worldwide net sales of LRRK2 inhibitors for the treatment of Parkinson’s disease.

The Company determined that this arrangement is an R&D funding arrangement under ASC 730.

As the third party is sharing in the risk associated with research and development activities with the Company, the development funding is recognized as an obligation to perform contractual services.

Accordingly, payments received will be recorded as a liability, and recognized by the Company as a reduction to Research and development expenses over the estimated Phase 2a study period as the underlying research and development costs are incurred.

No reduction to research and development expenses was recorded within in the Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2024.

As of March 31, 2024, a liability of $ 12.5 million was recorded within deferred research funding liability, current on the Condensed Consolidated Balance Sheet.

Collaboration Agreements

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”), which 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").

The details of the Provisional Biogen Collaboration Agreement and the Biogen Collaboration Agreement and the payments the Company has received, and is entitled to receive, are further described in Note 5, "Collaboration Agreements", to the consolidated financial statements in the 2022 Annual Report on Form 10-K.

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

In October 2020, the Company entered into a Definitive Collaboration and License Agreement (“LRRK2 Agreement”), pursuant to which it granted Biogen a license to co-develop and co-commercialize its small molecule LRRK2 inhibitor program (the “LRRK2 Program”), and a Right of First Negotiation, Option and License Agreement (the “ROFN and Option Agreement”), pursuant to which it granted an option and right of first negotiation to certain of the Company's programs utilizing our TV technology platform, including its amyloid beta program (collectively the "Biogen Collaboration Agreement"), with Biogen Inc.’s subsidiaries, Biogen MA Inc.

(“BIMA”) and Biogen International GmbH (“BIG”) (BIMA and BIG, collectively, “Biogen”).

The details of the Biogen Collaboration Agreement and the payments the Company has received, and is entitled to receive, are further described in Note 5, "Collaboration Agreements", to the consolidated financial statements in the 2023 Annual Report on Form 10-K.

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

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

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

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

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

The option exercise was accounted for as a continuation of the existing contract, and resulted in the delivery of the ATV:Abeta Program License.

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

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

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

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

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

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

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

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

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

The Company has no remaining performance obligations under the Biogen Collaboration Agreement, and therefore no contract liability remained on the Condensed Consolidated Balance Sheets as of March 31, 2024 or December 31, 2023 .

There were no changes to the terms of the Biogen Collaboration Agreement during the three months ended March 31, 2024 or 2023.

As of December 31, 2023, Biogen was no longer considered a related party as defined in ASC 850.

The Company recorded $ 4.8 million and $ 4.2 million of cost sharing payments to Biogen for LRRK2 development activities in research and development expenses in the Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2024 and 2023, respectively.

Cost sharing payments due to Biogen of $ 4.8 million and $ 3.2 million were recorded within accounts payable on the Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023, respectively.

As of March 31, 2024, the Company had earned $ 5.0 million in option fee payments, but had not recorded milestone revenue or product sales under the Biogen Collaboration Agreement.

In October 2018, the Company entered into a Collaboration and License Agreement ("Sanofi Collaboration Agreement") with Genzyme Corporation, a wholly owned subsidiary of Sanofi S.A.

The details of the Sanofi Collaboration Agreement and the payments the Company has received, and is entitled to receive, are further described in Note 5, "Collaboration Agreements", to the consolidated financial statements in the Company's 2023 Annual Report on Form 10-K.

The Company has no remaining performance obligations under the Sanofi Collaboration Agreement, and therefore no contract liability remains on the Condensed Consolidated Balance Sheets as of September 30, 2023 or December 31, 2022 .

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

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

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

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

There were no changes to the terms of the Sanofi Collaboration Agreement during the three months ended March 31, 2024 or 2023.

As of March 31, 2024, the Company had earned milestone payments of $ 100.0 million and had no t recorded any product sales under the Sanofi Collaboration Agreement.

PTV:PGRN and ATV:TREM2 Collaboration Agreements

4 unchanged sentences

The details of the PTV:PGRN Collaboration Agreement and the ATV:TREM2 Collaboration Agreement are further described in Note 5, "Collaboration Agreements", to the consolidated financial statements in the Company's 2023 Annual Report on Form 10-K.

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

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

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

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

The Company recorded $ 2.3 million and $ 8.0 million of cost sharing reimbursements for PTV:PGRN development activities, and $ 1.6 million and $ 5.2 million for ATV:TREM2 development activities, for the three and nine months ended September 30, 2022, respectively, as offsets to research and development expenses in the Condensed Consolidated Statements of Operations and Comprehensive Loss.

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

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

There were no changes to the terms of the ATV:TREM2 or PTV:PGRN Collaboration Agreements during the three months ended March 31, 2024 or 2023.

The Company recorded $ 1.2 million and $ 1.5 million of cost sharing reimbursements for PTV:PGRN development activities, and $ 0.5 million and $ 1.7 million for ATV:TREM2 development activities, for the three months ended March 31, 2024 and 2023, respectively, as offsets to research and development expenses in the Condensed Consolidated Statements of Operations and Comprehensive Loss.

Cost sharing reimbursements of $ 1.9 million and $ 2.7 million were recorded as a receivable within prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023, respectively.

As of March 31, 2024, the Company had earned an aggregate of $ 10.0 million in option fee payments and $ 10.0 million in milestone payments from Takeda under the PTV:PGRN and ATV:TREM2 Collaboration Agreements, and had no t recorded any product sales under either agreement.

Collaboration Revenue

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

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

2023 2022 2023 2022

Three Months Ended March 31,

Takeda Collaboration Agreement:

Takeda Collaboration Agreement Services (1)

$ — $ — $ — $ 51,916

PTV:PGRN Collaboration Agreement (1)

2 unchanged sentences

CNS Program License (2)

Alzheimer's Disease Services (2)

— 3,375 — 3,375

Total Sanofi Collaboration Revenue — 25,000

Biogen Collaboration Agreement

ATV:Abeta Program License (3)

— — 293,912 —

Option Research Services (3)

1,267 184 1,619 2,889

Total Biogen Collaboration Revenue — 141

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

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

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

License Agreement

In June 2016, the Company entered into an Exclusive License Agreement with Genentech, Inc.

(“Genentech License Agreement”).

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

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

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

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

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

(1) Revenue for the three months ended March 31, 2023 from a specified clinical milestone in the Phase 1/2 clinical of DNL593 in patients with frontotemporal dementia-granulin (FTD-GRN).

(2) Revenue for the three months ended March 31, 2023 from a milestone payment triggered and received in January 2023 upon the commencement of dosing in a Phase 2 study of SAR443820/DNL788 in individuals with multiple sclerosis.

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

Commitments and Contingencies

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

In March 2023, the Company terminated the SLC Lease, which resulted in the recognition of $ 7.9 million of accelerated depreciation on leasehold improvements in the nine months ended September 30, 2023 .

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

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

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

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

In April 2023, the Company entered into a new operating lease in Salt Lake City for a 59,336 square foot laboratory, office and warehouse premises with a contractual term of approximately 15 years upon commencement, and future undiscounted lease payments of approximately $ 13.4 million, which was subsequently amended in October 2023.

For accounting purposes, this new lease has not yet commenced, and as such, no lease liability or ROU asset is recorded on the Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023 , and no operating lease expense has been recorded on the Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2024 .

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.

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To estimate the incremental borrowing rate, management considers observable debt yields of comparable market instruments, as well as benchmarks within the lease agreement that may be indicative of the rate implicit in the lease.

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

Operating lease costs, including variable costs, recognized under ASC 842 were $ 3.2 million and $ 9.4 million for the three and nine months ended September 30, 2023, respectively, and $ 3.3 million and $ 8.7 million for the three and nine months ended September 30, 2022, respectively.

There were no changes to the terms of the leases recognized under ASC 842 during the three months ended March 31, 2024.

Operating lease costs, including variable costs recognized under ASC 842, was $ 2.9 million for both the three months ended March 31, 2024 and 2023.

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

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

2023 2022 2023 2022

Three Months Ended March 31,

Cash paid for amounts included in measurement of lease liabilities $ 2,793 $ 2,996

As of September 30,

As of March 31,

Weighted average remaining lease term 5.1 years 6.1 years

Weighted average discount rate 9.0 % 9.0 %

The following table reconciles the undiscounted cash flows for the next five years and total of the remaining years to the operating lease liabilities recorded in the Condensed Consolidated Balance Sheet as of September 30, 2023 (in thousands):

Year Ended December 31:

2023 (three months)

2024 (nine months)

Thereafter 4,381

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Present value adjustment ( 12,019 )

Net operating lease liabilities $ 53,901

Net operating lease liability

Indemnification

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Unless earlier terminated, the DMSA will expire when all development and manufacturing services are completed, which is not expected to be before November 2029.

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

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

During the nine months ended September 30, 2023 and 2022, the Company incurred costs of $ 26.5 million and $ 22.9 million, respectively, and made payments of $ 24.9 million and $ 19.6 million, respectively, for the development and manufacturing services rendered under the DMSA.

As of March 31, 2024 and December 31, 2023, the Company had total non-cancellable purchase commitments under the DMSA of $ 33.1 million and $ 37.6 million, respectively.

During the three months ended March 31, 2024 and 2023, the Company incurred costs of $ 16.4 million and $ 5.2 million, respectively, and made payments of $ 13.5 million and $ 3.8 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 $ 37.8 million and $ 9.6 million, as of September 30, 2023 and December 31, 2022, respectively, with certain amounts subject to cost sharing with Takeda.

The Company had contractual obligations under certain clinical and manufacturing agreements other than the DMSA of $ 34.5 million and $ 34.8 million, as of March 31, 2024 and December 31, 2023, respectively, with certain amounts subject to cost sharing with Takeda.

Contingencies

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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.

On February 27, 2024, the Company entered into a securities purchase agreement (the "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 (the "Pre-Funded Warrants") 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.

The private placement closed on February 29, 2024, at which time the Company received aggregate net proceeds of approximately $ 499.3 million, after deducting issuance costs of approximately $ 0.5 million.

The Pre-Funded Warrants were classified as a component of permanent equity in the Company’s consolidated balance sheet as they are freestanding financial instruments that are immediately exercisable, do not embody an obligation for the Company to repurchase its shares and permit the holders to receive a fixed number of shares of common stock upon exercise.

As of March 31, 2024, all of the Pre-Funded Warrants issued in the private placement were outstanding.

Stock-Based Awards

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Stock Option Activity

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

The following table summarizes stock option activity for the three months ended March 31, 2024:

Number of Options

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( 804,563 ) 28.50

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

Vested and expected to vest at September 30, 2023

Balance at March 31, 2024 19,726,876 $ 25.94

Vested and expected to vest at March 31, 2024

18,917,005 $ 27.02

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

Exercisable at March 31, 2024 11,826,599 $ 26.70

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

Nine Months Ended September 30,

Three Months Ended March 31,

Expected term (in years)

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Restricted Stock Activity

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

The following table summarizes restricted stock unit ("RSU") activity for the three months ended March 31, 2024:

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

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Forfeited ( 504,807 ) 28.86

Unvested and expected to vest at September 30, 2023

Unvested and expected to vest at March 31, 2024

4,297,088 $ 28.79

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

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

2023 2022 2023 2022

Three Months Ended March 31,

Research and development

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

Potentially dilutive securities, including all options issued and outstanding, ESPP shares issuable, and restricted shares subject to future vesting, that were not included in the diluted per share calculations for all periods presented because they would be anti-dilutive totaled approximately 20.7 million and 18.4 million shares as of September 30, 2023 and September 30, 2022, respectively.

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

Three Months Ended March 31,

Net loss $ ( 101,802 ) $ ( 109,781 )

Weighted average number of:

Common stock shares outstanding

140,245,132 136,524,528

Private placement pre-funded warrants

149,404,188 136,524,528

Net loss per share

$ ( 0.68 ) $ ( 0.80 )

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 24.4 million and 21.4 million shares as of March 31, 2024 and March 31, 2023, respectively.

Divestiture of Preclinical Small Molecule Programs

On March 1, 2024, the Company divested certain assets, including specified intellectual property, tangible assets, and equipment used to conduct early stage small molecule drug discovery ("Divested Assets") through an Asset Purchase and License Agreement (the "Asset Purchase Agreement") executed with a venture-backed private company ("VBPC").

Additionally, certain of the Company’s employees terminated their employment with the Company and became employees of VBPC.

In exchange for the Divested Assets, the Company received equity consideration in the form of a simple agreement for future equity (“SAFE”), equal to $ 15.0 million of equity in VBPC’s next financing round or, if VBPC’s next equity financing does not occur prior to December 31, 2024, a number of shares of preferred stock issued in VBPC’s previous round of equity financing prior to this agreement equal to $ 15.0 million divided by the price per share paid by investors in that previous equity financing.

The Company may also be eligible to receive certain win state, development and sales based milestone payments up to approximately $ 1.2 billion in the form of either cash or equity at the election of VBPC.

The Company will also be entitled to receive future royalties on aggregate net sales of any products that bind to certain identified targets, on a product-by-product and country-by-country basis during the periods of time commencing at the time of the first commercial sale of such product in such country, until the later of (i) the expiration of certain related patents, (ii) the expiration of Regulatory Exclusivity, or (iii) ten years after such first commercial sale.

Concurrently, VBPC and the Company also entered into a sublease for 12,985 square feet of office and lab space within the Company's corporate headquarters, and transition and research services agreement ("Service Agreements").

The sublease is expected to commence in May 2024 for a period of approximately ten months , with two optional six month extension periods.

The Service Agreements allow Denali to provide access to equipment and provision of certain specified administrative and research services to VBPC for a period up to the end of the sublease term.

This divestiture did not meet the criteria for reporting discontinued operations as the sale does not represent a strategic shift in the Company’s business.

The Company recognized a gain on divestiture of approximately $ 14.5 million in the Condensed Consolidated Statements of Operations and Comprehensive Loss during the three months ended March 31, 2024, representing the difference between the fair value of the consideration received and the carrying amount of the Divested Assets.

The Company recorded the SAFE at $ 15.0 million based on the expected value of the equity to be received within other non-current assets in the Condensed Consolidated Balance Sheet as of March 31, 2024.

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

What changed 10-Q

Item 1. Financial Statements