What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-05-07 compared with 2023-11-07 · 114 added, 163 removed, 200 unchanged (58% of the section changed)

27 unchanged sentences

• the impact of adverse economic conditions such as instability in the financial services sector, rising interest rates, rising inflation, and increased labor market competition;

• the impact of the COVID-19 pandemic, increased geopolitical uncertainty, and related global economic disruptions and social conditions on our business;

• the impact of increased geopolitical uncertainty, a pandemic or other global health emergency, and related global economic disruptions and social conditions on our business;

• expectations regarding the intended use of proceeds from our February 2024 Private Investment in Public Equity ("PIPE") financing;

• our financial performance.

9 unchanged sentences

Our goal is to discover, develop and deliver therapeutics to defeat degeneration.

Our discovery and development strategy is guided by three overarching principles that we believe will significantly increase the probability of success and accelerate the timing to bring effective therapeutics to patients with neurodegenerative diseases:

• Degenogene Pathways – each of our programs addresses a molecular target or biological pathway that is genetically validated to cause or increase the risk for neurodegenerative diseases.

• BBB Platform Technology – we engineer our product candidates to cross the BBB and act directly in the brain by following a rigorous approach in designing small molecules and by using our proprietary TV platform technology to effectively deliver large therapeutic molecules, such as enzymes, proteins, antibodies, and oligonucleotides, across the BBB after intravenous administration.

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

Ou r clinic al-stage large molecule programs are:

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

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

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

Ou r clinic al-stage small molecule programs are:

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

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

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

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

• Degenogenes:

Genetic Pathway Realization – each of our programs addresses a molecular target or biological pathway that is genetically validated to cause or increase the risk for neurodegenerative diseases.

• Brain Delivery:

Validation and Optionality – we engineer our product candidates to cross the BBB and act directly in the brain.

Our proprietary transport vehicle ("TV") platform technology is designed to effectively deliver large therapeutic molecules, such as enzymes, proteins, antibodies, and oligonucleotides, across the BBB after intravenous administration.

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

We are actively engaged in discussions with health authorities regarding the potential use of biomarkers as primary clinical endpoints to support faster paths to approval.

Ou r late and mid-stage clinic al programs are as follows:

• Tividenofusp alfa (DNL310, ETV:IDS), our lead enzyme replacement therapy ("ERT") program enabled by our Enzyme Transport Vehicle ("ETV"), is designed to cross the BBB and restore duronate 2-sulfatase ("IDS") and reduce glycosaminoglycans ("GAGs"), both peripherally and in the brain, in individuals with mucopolysaccharidosis II ("MPS II" or "Hunter syndrome");

• DNL343, our eukaryotic initiation factor 2 B ("eIF2B") activator program to address diseases such as amyotrophic lateral sclerosis ("ALS") and frontotemporal dementia ("FTD");

• BIIB122/DNL151, our leucine-rich repeat kinase 2 ("LRRK2") inhibitor program, being developed in collaboration with Biogen, to address Parkinson’s disease ("PD");

• SAR443820/DNL788, our CNS-penetrant receptor interacting serine/threonine protein kinase 1 ("RIPK1") inhibitor program, being developed in collaboration with Sanofi, to address neurological diseases such as multiple sclerosis ("MS") and Alzheimer's disease;

• Eclitasertib (SAR443122/DNL758), a peripheral and non-CNS penetrant RIPK1 inhibitor, being developed in collaboration with Sanofi, to address peripheral inflammatory diseases such as ulcerative colitis ("UC").

Ou r early-stage clinic al programs are as follows:

• DNL126 (ETV:SGSH), our second most advanced ETV enabled program, which is designed to restore lysosomal activity of N-sulfoglucosamine sulfohydrolase ("SGSH"), an enzyme responsible for degrading heparan sulfates in the lysosome, in individuals with MPS IIIA (Sanfilippo syndrome Type A);

• TAK-594/DNL593 (PTV:PGRN), our recombinant progranulin ("PGRN") biotherapeutic enabled by our Protein Transport Vehicle ("PTV:PGRN"), being developed in collaboration with Takeda, to address frontotemporal dementia-granulin ("FTD-GRN") caused by PGRN deficiency.

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

Program Product Candidate Clinical Study(ies) Indication Operational Control

ETV:IDS DNL310 Ph 1/2

ETV:IDS tividenofusp alfa, or DNL310

Hunter syndrome (MPS II) Denali

TAK-594/DNL593 Ph 1/2 FTD-GRN

Joint with Takeda

ETV:SGSH DNL126 Ph 1/2 (planned)

Sanfilippo syndrome Type A (MPS IIIA) Denali

LRRK2 BIIB122/DNL151 Ph 2b

Parkinson's disease Joint with Biogen

eIF2B DNL343 Ph 1b ALS Denali

Ph 2/3 ALS Joint with Healey Center

LRRK2 BIIB122/DNL151 Ph 2a (planned)

Parkinson's disease Denali

Joint with Biogen

RIPK1 (CNS-penetrant) SAR443820/DNL788 Ph 2

RIPK1 (Peripheral) eclitasertib, or SAR443122/DNL758

Ph 2 (closing)

ETV:SGSH DNL126 Ph 1/2

Sanfilippo syndrome Type A (MPS IIIA) Denali

TAK-594/DNL593 Ph 1/2 (paused) 1

Joint with Takeda

__________________________________________________

(1) Study has been voluntarily paused in order to implement protocol modifications and is expected to resume later this year.

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

Key operational and financing milestones in 2024 to date include:

• In January 2023, our collaboration partner Sanofi commenced dosing in the Phase 2 study of SAR443820/ DNL788 in patients with MS , triggering a $25.0 million milestone payment, which was received in January 2023 ;

• In February 2023, at the WORLD Symposium TM , we reported additional interim data from the open-label, single-arm Phase 1/2 study of DNL310.

Over 49 weeks of DNL310 treatment in the Phase 1/2 study, positive changes across measures of exploratory clinical outcomes including VABS-II (adaptive behavior) and BSID-III (cognitive capabilities) scores and global impression scales were observed.

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

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

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

The DNL310 safety profile, with up to two years of treatment, remained consistent with standard of care;

• In March 2023, a contingent consideration payment of $30.0 million associated with our acquisition of F-star Gamma was triggered upon the achievement of a specified clinical milestone in the ETV:IDS program.

This payment fully satisfies our clinical contingent consideration obligations under the Purchase Agreement;

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

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

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

• In April 2023, our collaboration partner Biogen exercised its option to develop and commercialize our ATV program targeting Amyloid Beta, triggering an option exercise payment of $5.0 million, which we received in May 2023;

• In April 2023, we presented final data from the 28-day treatment period of the Phase 1b study of DNL343 in participants with ALS at the 75 th Annual Meeting of the American Academy of Neurology ("AAN").

The results continued to demonstrate that once-daily oral dosing with DNL343 for 28 days was generally well tolerated and demonstrated extensive CSF penetration.

In addition, robust inhibition of biomarkers associated with the ISR pathway was observed in blood samples from study participants;

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

Recruitment of participants continues for this trial;

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

Prior to the planned revisions, the BIIB122 clinical development program encompassed two global late-stage clinical trials:

the Phase 2b LUMA study in participants with early-stage Parkinson’s disease, which commenced in May 2022;

and the Phase 3 LIGHTHOUSE study in participants with Parkinson’s disease related to LRRK2 mutations, which commenced in September 2022.

In consideration of the LIGHTHOUSE study’s complexity, including the long timeline with anticipated study completion in 2031, Biogen and we plan to refocus our efforts to enable a timely readout on efficacy in idiopathic early-stage Parkinson’s disease while gaining further clinical data in Parkinson’s disease with and without a LRRK2 mutation.

The planned revisions to the BIIB122 clinical development program are not based on any safety or efficacy data from studies of BIIB122.

Biogen and we plan to modify the LUMA study’s enrollment criteria to allow for inclusion of eligible participants with Parkinson’s disease and a confirmed pathogenic variant of LRRK2, in addition to continuing to enroll eligible participants with idiopathic early-stage Parkinson’s disease.

Collectively, data from the LUMA study will inform next steps for the development of BIIB122 in Parkinson’s disease;

• In June 2023, we announced a robust reduction in Neurofilament Light ("NfL") with DNL310 treatment in MPS II (Hunter syndrome).

Interim results demonstrated average reduction of 64% (p <0.001) from baseline in serum NfL after two years of dosing with DNL310 in the Phase 1/2 study.

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

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

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

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

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

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

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

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

Eclitasertib was found to be generally well-tolerated.

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

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

This is a strategic decision based on the totality of clinical data emerging from the single ascending dose Phase 1 study of TAK-920/DNL919 in healthy volunteers and in consideration of the rapidly evolving treatment landscape for Alzheimer's disease whereby an understanding of drug combinations with newly approved therapies will be important.

A preliminary analysis of Phase 1 data indicates robust target engagement and effects on microglial biomarkers (e.g., CSF1R, SPP1, IL1RA, IP10, MIP1b, MCP-1), which were consistent with preclinical studies that demonstrate that ATV:TREM2 induces robust changes to a responsive microglial cell state (van Lengerich B, et al.

Nat Neurosci.

In the Phase 1 study, TAK-920/DNL919 was clinically well tolerated at doses with demonstrated changes in CSF biomarkers and there were no serious adverse events or severe treatment emergent adverse events;

however, safety signals of moderate, reversible hematologic effects were observed at the highest dose tested, suggesting a narrow therapeutic window for the Alzheimer’s disease patient population.

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

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

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

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

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

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

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

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

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

• In January 2024, we announced that enrollment continues in the global Phase 2/3 COMPASS study and is expected to be completed in 2024.

In February, we presented new positive data from the ongoing Phase 1/2 study of tividenofusp alfa in MPS II at the 20th Annual WORLD Symposium TM demonstrating sustained normalization of heparan sulfate in cerebrospinal fluid (CSF HS), robust and sustained reductions in biomarkers of lysosomal dysfunction and neuronal damage (NfL;

neurofilament light), and improvements and stabilization of multiple clinical outcomes measures over two years of treatment.

Also in February, we participated in the Reagan-Udall Foundation for the FDA workshop on CSF HS as a potential surrogate biomarker to support accelerated approval in MPS.

Based on continued dialogue with the Center for Drug Evaluation and Research (CDER) division of the FDA in April, we believe the division may be open to discussing an accelerated path for tividenofusp alfa.

We look forward to continuing the productive dialogue with CDER and, in parallel, conducting the global Phase 2/3 COMPASS study;

• In January 2024, we announced that Part B in the TAK-594/DNL593 Phase 1/2 study in participants with FTD-GRN had been voluntarily paused to implement protocol modifications and is expected to resume this year;

• In January 2024, we announced our intention to divest our preclinical small molecule portfolio, which was completed effective March 1, 2024.

We will maintain ownership of, and continue to advance, our current portfolio of clinical stage small molecule programs.

The decision was made based on clinical validation and prioritization of our TV-enabled platforms for brain delivery of large molecules;

• In February 2024, we announced that dosing had been initiated in the Phase 1/2 study of DNL126 in MPS IIIA;

Phase 1/2 biomarker and safety data are expected by the end of 2024.

Further, in February 2024, we presented supportive preclinical data at WORLD Symposium TM demonstrating that DNL126 improves lysosomal and microglial morphology, degeneration, and cognitive behavior in MPS IIIA mice;

• In February 2024, we announced that the Phase 2 HIMALAYA study evaluating SAR443820/DNL788 in participants with ALS did not meet the primary endpoint of change in ALS Functional Rating Scale-Revised (ALSFRS-R).

Sanofi intends to present the detailed efficacy and safety results of the ALS Phase 2 HIMALAYA study at a future scientific forum.

Sanofi is evaluating SAR443820/DNL788 in another Phase 2 clinical trial in participants with MS which is fully enrolled, and the outcome of HIMALAYA study has no impact on the ongoing MS study;

• In February 2024, we announced that we entered into a securities purchase agreement with certain existing accredited investors for the private placement of 3,244,689 shares of our common stock at a price of $17.07 per share and pre-funded warrants to purchase an aggregate of 26,046,065 shares of our common stock at a purchase price of $17.06 per pre-funded warrant, resulting in net proceeds of approximately $499.3 million.

The pre-funded warrants have an exercise price of $0.01 per share of Common Stock, and are immediately exercisable and will remain exercisable until exercised in full.

The private placement closed on February 29, 2024, subject to customary closing conditions;

• In February 2024, we announced that we executed a Collaboration and Development Funding Agreement in January 2024 with a third party related to a global Phase 2a study of BIIB122/DNL151, which we plan to solely operationalize to evaluate safety and biomarkers associated with BIIB122 in participants with Parkinson’s disease and confirmed pathogenic variants of LRRK2.

This agreement includes committed funding of $75.0 million, of which $12.5 million was received in January 2024, and the remainder will be triggered based on time and operational milestones in the study.

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.

We plan to initiate the Phase 2a study in 2024.

Biogen will continue to conduct the ongoing global Phase 2b LUMA study in early-stage Parkinson’s disease.

Denali and Biogen will co-commercialize BIIB122/DNL151 assuming regulatory approval;

• In May 2024, the Sean M.

Healey & AMG Center for ALS at Massachusetts General Hospital (MGH) in collaboration with the Northeast ALS Consortium (NEALS) announced that enrollment is complete in Regimen G (DNL343) of the Phase 2/3 HEALEY ALS Platform Trial.

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

We have funded our operations primarily from the issuance and sale of convertible preferred stock, the sale of common stock in public offerings, and payments received from our collaboration agreements with Takeda, Sanofi and Biogen.

We have funded our operations primarily from the issuance and sale of convertible preferred stock, the sale of common stock and pre-funded warrants to purchase shares of our common stock in public offerings and private placements, and payments received from our collaboration and funding agreements with Takeda, Sanofi, Biogen and other third parties.

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

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

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

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

We had net losses of $101.8 million and $109.8 million for the three months ended March 31, 2024 and 2023, respectively .

As of March 31, 2024, we had an accumulated deficit o f $1.22 billion.

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

54 unchanged sentences

We expect to increase our administrative headcount as we advance our product candidates through clinical development, which will increase our general and administrative expenses.

Gain from divestiture of small molecule programs

The gain from the divestiture of small molecule programs consists entirely of the non-cash gain associated with the divestiture of assets associated with select preclinical small molecule programs, including specified intellectual property, tangible assets and equipment used to conduct early stage small molecule drug discovery from the Company, in exchange for equity consideration.

Interest and Other Income, Net

Interest and other income, net , consists pr imarily of interest income and investment income earned on our cash, cash equivalents, and marketable securities, and sublease income.

Interest and other income, net , consists pr imarily of interest income and investment income earned on our cash, cash equivalents, and marketable securities, as well as sublease income.

Results of Operations

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

Comparison of the three months ended March 31, 2024 and 2023

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

Three Months Ended September 30, Change

Three Months Ended March 31, Change

2024 2023 $ %

2 unchanged sentences

$ — $ 35,141 $ (35,141) * %

Other collaboration revenue

— 3,375 (3,375) *

Total collaboration revenue

7 unchanged sentences

132,252 155,956 (23,704) (15)

Gain from divestiture of small molecule programs 14,537 — 14,537 *

Loss from operations (117,715) (120,815) 3,100 (3)

1 unchanged sentence

15,913 11,034 4,879 44

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

Net loss $ (101,802) $ (109,781) $ 7,979 (7) %

1 unchanged sentence

* Percentage is not meaningful.

Nine Months Ended September 30, Change

2023 2022 $ %

Collaboration revenue.

Collaboration revenue from customers

$ 330,531 $ 94,805 $ 235,726 * %

Other collaboration revenue

— 3,375 (3,375) *

Total collaboration revenue

330,531 98,180 232,351 *

Operating expenses:

Research and development

316,073 266,621 49,452 19

General and administrative

78,585 66,959 11,626 17

Total operating expenses

394,658 333,580 61,078 18

Loss from operations

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

Interest and other income, net

38,376 8,114 30,262 *

Loss before income taxes

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

Income tax expense

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

__________________________________________________

* Percentage is not meaningful.

Collaboration revenue.

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

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

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

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

There was no collaboration revenue for three months ended March 31, 2024 and collaboration revenue of $35.1 million for three months ended March 31, 2023.

The decrease in revenue was primarily due to a decrease of revenue earned under the Sanofi Collaboration of $25.0 million and Takeda Collaboration of $10.0 million.

Research and development expen ses.

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

Research and development expenses were $107.0 million and $128.8 million for the three months ended March 31, 2024 and 2023, respectively.

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

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

2023 2022 2023 2022

Three Months Ended March 31,

ETV:IDS program external expenses $ 29,720 $ 46,644

ETV:SGSH program external expenses

PTV:PGRN program external expenses 1,690 2,846

TV platform and other program external expenses

3,836 8,038 18,090 25,889

LRRK2 program external expenses 617 1,905

1 unchanged sentence

Other external research and development expenses

6,512 8,314 20,031 26,182

Personnel related expenses (1)

2 unchanged sentences

10,023 16,738

Net cost sharing payments (reimbursements) (2)

583 (2,462) 5,105 (9,460)

Net cost sharing payments (2)

Total research and development expenses

1 unchanged sentence

__________________________________________________

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(1) Personnel related expenses include stock-based compensation expense of $16.3 million and $16.8 million for the three months ended March 31, 2024 and 2023, respectively.

(2) Net cost sharing payments details are broken down as shown in the table below.

The underlying costs for reimbursements are included with the specified external expenses line and personnel related expenses in the table above.

ATV:TREM2 program external expenses are presented within the TV platform and other program external expenses line.

Three Months Ended March 31,

net reimbursements for ATV:TREM2 program

$ (513) $ (1,657)

net reimbursements for PTV:PGRN program

(1,200) (1,478)

net payments for LRRK2 program

Net cost sharing payments (reimbursements)

$ 3,076 $ 1,015

The decrease in research and development expenses of approximately $21.8 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, was primarily attributable to the following:

• a decrease of $16.9 million in ETV:IDS program external expenses because the first quarter of 2023 included expense for a contingent consideration payment of $30.0 million related to the acquisition of F-star Gamma, which was triggered in March 2023 upon the achievement of a specified clinical milestone in the ETV:IDS program.

This decrease was partially offset by increased spend from the continued progress of this program in clinical trials in 2024, including costs related to our ongoing Phase 1/2 study and our potentially registrational Phase 2/3 study;

• decreases of $1.9 million and $1.2 million in TV platform and other program external expenses including ATV:TREM2 expenses, and PTV:PGRN program external expenses, respectively, due to the discontinuation of clinical development of TAK-920/DNL919 (ATV:TREM2) in Alzheimer’s disease and voluntary pause of Part B in the TAK-594/DNL593 (PTV:PGRN) Phase 1/2 study, respectively;

• a decrease of $1.3 million in LRRK2 program external expenses due to the transition of LRRK2 clinical activities to Biogen;

• a decrease of $1.9 million in other external research and development expenses.

These decreases were partially offset by increases of $2.9 million and $1.8 million in eIF2B and ETV:SGSH program external expenses, respectively, reflecting the continued progress of these programs in clinical trials during 2024, and an increase of $2.1 million in net cost sharing payments due to increased payments due to Biogen as a result of increased LRRK2 clinical trial costs incurred by Biogen, offset by decreased reimbursements from Takeda as a result of the discontinuation of TREM2 DNL919 phase 1 trial and temporary pause of TAK-594/DNL593.

General and administrative expenses.

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

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

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

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

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

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

General and administrative expenses were $25.2 million for the three months ended March 31, 2024 compared to $27.1 million for the three months ended March 31, 2023.

The decrease of $1.9 million was primarily attributable to $2.4 million of combined decreases in professional services, facilities and other corporate costs, partially offset by $0.5 million of increased personnel-related expenses consisting of employee compensation and stock-based compensation expense.

Gain from divestiture of small molecule programs.

For a full description, see Item 2.

Components of Operating Results included in this Quarterly Report on Form 10-Q.

Liquidity and Capital Resources

Sources of Liquidity

We fund our operations primarily with the proceeds from the sale of common stock in public offerings and payments received from our collaboration agreements with Takeda, Sanofi, and Biogen.

In our January 2020 follow-on offering, we sold 9.0 million shares of common stock (inclusive of shares sold pursuant to an overallotment option granted to the underwriters in connection with the offering) through an underwritten public offering at a price of $23.00 per share for aggregate net proceeds of approximately $193.9 million.

As of March 31, 2024, we had cash, cash equivalents and marketable securities in the amount of $1.43 billion.

We fund our operations primarily with the proceeds from the sale of common stock and payments received from our collaboration partners, including those received under agreements with Takeda, Sanofi, and Biogen.

We have sold common stock and other securities in public offerings, a private placement, and stock purchase agreements with Takeda and Biogen.

Through March 31, 2024 we have obtained aggregate net proceeds of approximately $754.4 million from public offerings of our common stock, including $296.2 million obtained through the sale of 11.9 million shares of common stock in October 2022.

Under stock purchase agreements with collaboration partners we have received a further $575.0 million through March 31, 2024 .

Further, in February 2024 we received net proceeds of approximately $499.3 million from our private placement through the sale of approximately 3.2 million shares of common stock and pre-funded warrants to purchase a pproximately 26.0 million shares of our common stock .

In February 2022, we established a registered “at-the-market” facility for the sale of up to $400.0 million of shares of common stock from time to time by entering into an equity distribution agreement with Goldman Sachs & Co.

2 unchanged sentences

To date, no shares have been sold under the equity distribution agreement.

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

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

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

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

Pursuant to our collaboration and research funding agreements with Takeda, Sanofi, Biogen and an unrelated third party, through March 31, 2024 we have received upfront, option and milestone payments of $115.0 million , $225.0 million, $565.0 million and $12.5 million, respectively, and have also received $43.9 million and $16.2 million of gross cost sharing reimbursements from Takeda and Biogen, respectively, and received $13.7 million in specified reimbursements from Sanofi.

Future Funding Requirements and Commitments

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

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

We have an accumulated deficit of $1.22 billion through March 31, 2024.

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

3 unchanged sentences

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

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

As of March 31, 2024, operating lease liabilities were $50.5 million.

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

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

Under the DMSA with Lonza, and certain other clinical and manufacturing agreements, we had total non-refundable purchase commitments as of March 31, 2024 of $67.6 million, with certain amounts subject to cost sharing with Takeda.

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

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

Nine Months Ended September 30,

Three Months Ended March 31,

Net cash used in operating activities $ (113,620) $ (58,802)

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

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

Net cash provided by financing activities 500,275 1,604

1 unchanged sentence

Net Cash Used In Operating Activities

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

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

Net Cash Provided By (Used In) Investing Activities

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

During the three months ended March 31, 2024, net cash used in operating activities was $113.6 million, which consisted of a net loss of $101.8 million, adjusted by non-cash items primarily related to stock-based compensation expense, depreciation and amortization, net amortization of premiums and (discounts) on marketable securities, non-cash rent expenses, and the non-cash gain on divestiture of small molecule programs.

Cash used in operating activities was also driven by changes in our operating assets and liabilities, the most significant of which was an increase in other non-current assets related to costs associated with the new Salt Lake City manufacturing facility during the three months ended March 31, 2024.

Net Cash Used In Investing Activities

During the three months ended March 31, 2024, net cash used in investing activities was $453.2 million, which consisted of $834.2 million of purchases of marketable securities, partially offset by $383.1 million in proceeds from maturities and sales of marketable securities, and $2.2 million of capital expenditures to purchase property and equipment.

Net Cash Provided By Financing Activities

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

During the three months ended March 31, 2024, cash provided by financing activities was $500.3 million which consisted of $499.3 million of net proceeds from the sale of common stock and pre-funded warrants in a private placement in February 2024, as well as proceeds from the exercise of options to purchase common stock.

Critical Accounting Estimates

5 unchanged sentences

In our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on February 28, 2024, we described the accounting estimates that we believe involve a significant level of estimation uncertainty which could have a material impact on our financial condition or results of operations.

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

There have been no material changes to these critical accounting estimates during the three months ended March 31, 2024.

Recent Accounting Pronouncements

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

There have been no new accounting pronouncements or changes to accounting pronouncements during the three months ended March 31, 2024 , as compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on February 28, 2024, that are of significance or potential significance to us.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis