What changed in this filing

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Item 1. Financial Statements

2024-08-01 compared with 2024-05-07 · 159 added, 110 removed, 398 unchanged (40% of the section changed)

3 unchanged sentences

(In thousands, except share amounts)

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Current assets:

16 unchanged sentences

Operating lease liability, current 7,771 7,260

Deferred research funding liability, current 12,500 —

Deferred research funding liability 10,232 —

Total current liabilities 74,533 77,982

4 unchanged sentences

Convertible preferred stock, $ 0.01 par value;

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

40,000,000 shares authorized as of June 30, 2024 and December 31, 2023;

0 shares issued and outstanding as of June 30, 2024 and December 31, 2023

Common stock, $ 0.01 par value;

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

400,000,000 shares authorized as of June 30, 2024 and December 31, 2023;

143,123,582 shares and 138,385,498 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively

Additional paid-in capital 2,704,992 2,144,811

5 unchanged sentences

Denali Therapeutics Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(In thousands, except share and per share amounts)

Three Months Ended March 31,

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

2024 2023 2024 2023

Collaboration revenue:

Collaboration revenue from customers (1)

$ — $ 294,123 $ — $ 329,264

Total collaboration revenue — 294,123 — 329,264

5 unchanged sentences

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

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

Income (loss) from operations ( 116,593 ) 170,483 ( 234,308 ) 49,668

Interest and other income, net 17,567 12,900 33,480 23,934

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

Net income (loss) ( 99,026 ) 183,383 ( 200,828 ) 73,602

Other comprehensive income (loss):

Net unrealized gain (loss) on marketable securities, net of tax ( 1,363 ) 1,076 ( 3,302 ) 5,445

Comprehensive loss $ ( 103,741 ) $ ( 105,412 )

Net loss per share, basic and diluted $ ( 0.68 ) $ ( 0.80 )

Weighted average number of shares outstanding, basic and diluted 149,404,188 136,524,528

Comprehensive income (loss) $ ( 100,389 ) $ 184,459 $ ( 204,130 ) $ 79,047

Net income (loss) per share:

Net income (loss) per share, basic $ ( 0.59 ) $ 1.34 $ ( 1.26 ) $ 0.54

Net income (loss) per share, diluted $ ( 0.59 ) $ 1.30 $ ( 1.26 ) $ 0.52

Weighted-average shares used in calculating:

Weighted average number of shares outstanding, basic 168,831,329 137,047,227 159,117,759 136,787,321

Weighted average number of shares outstanding, diluted 168,831,329 140,930,625 159,117,759 140,550,226

__________________________________________________

(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.

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

(2) Includes expenses for cost sharing payments due to a related party of $ 7.0 million and $ 11.1 million for the three and six months ended June 30, 2023, respectively.

See accompanying notes to unaudited condensed consolidated financial statements.

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

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

3,244,689 32 499,221 — — 499,253

3 unchanged sentences

Net loss — — — — ( 200,828 ) ( 200,828 )

Other comprehensive income

— — — 4,369 — 4,369

Other comprehensive loss — — — ( 3,302 ) — ( 3,302 )

Balance at June 30, 2024 143,123,582 $ 1,757 $ 2,704,992 $ ( 2,659 ) $ ( 1,317,039 ) $ 1,387,051

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

Issuances under equity incentive plans 527,308 5 6,750 — — 6,755

Vesting of restricted stock units 83,418 1 ( 1 ) — — —

Stock-based compensation — — 25,210 — — 25,210

Net loss — — — — ( 99,026 ) ( 99,026 )

Other comprehensive loss — — — ( 1,363 ) — ( 1,363 )

Balance at June 30, 2024 143,123,582 $ 1,757 $ 2,704,992 $ ( 2,659 ) $ ( 1,317,039 ) $ 1,387,051

Balance at December 31, 2022 135,965,918 $ 1,686 $ 2,018,617 $ ( 6,886 ) $ ( 970,987 ) $ 1,042,430

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 730,887 7 10,616 — — 10,623

130,214 1 1,021 — — 1,022

Vesting of restricted stock units 665,883 7 ( 7 ) — — —

Stock-based compensation — — 54,725 — — 54,725

Net income — — — — 73,602 73,602

Other comprehensive income

— — — 5,445 — 5,445

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

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

Issuances under equity incentive plans

526,579 5 9,014 — — 9,019

Other comprehensive loss

Vesting of restricted stock units 94,482 1 ( 1 ) — — —

Stock-based compensation

— — 26,641 — — 26,641

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

Net income — — — — 183,383 183,383

Other comprehensive income — — — 1,076 — 1,076

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

See accompanying notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

Three Months Ended

Six Months Ended

Operating activities

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

Net income (loss) $ ( 200,828 ) $ 73,602

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

1 unchanged sentence

Stock–based compensation expense 52,940 54,654

Net amortization of premiums and (discounts) on marketable securities ( 10,516 ) ( 7,853 )

Net accretion of discounts on marketable securities ( 20,574 ) ( 19,386 )

Non-cash adjustment to operating lease expense ( 1,976 ) ( 1,805 )

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Maturities and sales of marketable securities 608,120 985,829

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

Net cash (used in) provided by investing activities ( 354,618 ) 75,352

Financing activities

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Property and equipment purchases accrued but not yet paid $ 228 $ 575

Issuance costs incurred but not yet paid $ 394 $ —

See accompanying notes to unaudited condensed consolidated financial statements.

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Denali Therapeutics Inc.

("Denali" or the “Company”) is a biopharmaceutical company, incorporated in Delaware, that discovers and develops therapeutics to defeat neurodegenerative diseases.

("Denali" or the “Company”) is a biopharmaceutical company, incorporated in Delaware, that discovers and develops therapeutics to defeat neurodegenerative diseases and lysosomal storage diseases.

The Company is headquartered in South San Francisco, California.

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

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.

During the six months ended June 30, 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.

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

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

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

Use of Estimates

1 unchanged sentence

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

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

Concentration of Credit Risk and Other Risks and Uncertainties

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

As of June 30, 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.

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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 at March 31, 2024 and December 31, 2023.

Marketable Securities

3 unchanged sentences

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

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

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

4 unchanged sentences

Accounts receivable are included within prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets.

The accounts receivable balance represents amounts receivable from the Company's collaboration partners, excluding related parties, net of an allowance for credit losses, if required.

The accounts receivable balance represents amounts receivable from the Company's collaboration partners net of an allowance for credit losses, if required.

The Company leases real estate and certain equipment for use in its operations.

53 unchanged sentences

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

Comprehensive Loss

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

Net Loss Per Share

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

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

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 ".

Comprehensive Income (Loss)

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

Net Income (Loss) Per Share

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

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

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

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

The weighted-average common shares outstanding as of June 30, 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 in Note 7 - " Common Stock ".

Recently Issued Accounting Pronouncements

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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.

The Company has not early adopted this update, and 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.

2 unchanged sentences

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.

The Company has not early adopted this update, and 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):

March 31, 2024

June 30, 2024

Level 1 Level 2 Level 3 Total

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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 for the three months ended March 31, 2024 or 2023.

The Company has not transferred any assets or liabilities between the fair value measurement levels for the six months ended June 30, 2024 or 2023.

Marketable Securities

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

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

March 31, 2024

June 30, 2024

Amortized Cost Unrealized Holding Gains Unrealized Holding Losses Aggregate Fair Value

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(3) Unrealized holding losses on 11 securities with an aggregate fair value of $ 387.0 million.

(4) Unrealized holding losses on 5 securities with an aggregate fair value of $ 29.1 million.

December 31, 2023

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

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.

As of June 30, 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 June 30, 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 March 31, 2024, all of the Company’s marketable securities have an effective maturity of less than two years .

As of June 30, 2024, all of the Company’s marketable securities have an effective maturity of less than two years .

Acquisition and Research Funding Collaboration Agreement

3 unchanged sentences

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 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.

As of June 30, 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 March 31, 2024.

There was no contingent consideration expense recognized for the three and six months ended June 30, 2024 or the three months ended June 30, 2023.

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.

Pursuant to this agreement, an upfront payment of $ 12.5 million was received in January 2024, and a further payment of $ 12.5 million was received in July 2024, with the remainder to be paid upon achievement of 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.

2 unchanged sentences

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.

R&D funding under this arrangement of $ 2.3 million offset research and development expenses in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2024.

As of June 30, 2024, a liability of $ 10.2 million was recorded within deferred research funding liability on the Condensed Consolidated Balance Sheet.

Collaboration Agreements

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(“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.

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.

The details of the Biogen Collaboration Agreement, the August 2023 amendment to the ROFN and Option 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.

On July 26, 2024, Denali and Biogen executed a Side Letter to the ROFN and Option Agreement, pursuant to which, effective as of the date of the Side Letter, Biogen terminated its license to the ATV:Abeta program enabled by Denali’s TfR-targeting technology against amyloid beta for the potential treatment of Alzheimer's disease, and granted Denali rights to data generated during the collaboration.

The side letter also effected the immediate termination of the ROFN and Option Agreement;

as such, the Company expects to receive no future milestone or royalty payments from Biogen related to the ATV:Abeta program.

There were no changes to the terms of the LRRK2 Agreement during the three and six months ended June 30, 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.

As of June 30, 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 March 31, 2024 or December 31, 2023 .

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

As of June 30, 2024, the Company had earned milestone payments of $ 100.0 million and had no t recorded any product sales under the Sanofi Collaboration Agreement.

In January 2018, the Company entered into a Collaboration and Option Agreement ("Takeda Collaboration Agreement") with Takeda Pharmaceutical Company Limited ("Takeda").

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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.

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.

As of June 30, 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 March 31,

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

2024 2023 2024 2023

Takeda Collaboration Agreement:

PTV:PGRN Collaboration Agreement (1)

$ — $ — — 10,000

Total Takeda Collaboration Revenue — — — 10,000

3 unchanged sentences

Biogen Collaboration Agreement

ATV:Abeta Program License (3)

— 293,912 — 293,912

Option Research Services (4)

2 unchanged sentences

_________________________________________________

(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.

(1) Revenue for the six months ended June 30, 2023 from a specified clinical milestone in the Phase 1/2 study of DNL593 in patients with frontotemporal dementia-granulin (FTD-GRN).

(2) Revenue for the six months ended June 30, 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 and six months ended June 30, 2023 was associated with Biogen exercising its option to license Denali’s ATV:Abeta program which was previously concluded to be a material right, $ 288.9 million of which was included in the contract liability balance at the beginning of the period and $ 5.0 million of which was an option exercise fee received in April 2023.

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

Cost Sharing Payments and Reimbursements

Cost sharing payments to collaboration partners recorded as expenses in research and development expenses in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), and cost sharing reimbursements from collaboration partners recorded as an offset to expense in research and development expenses in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) are as follows (in thousands):

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

2024 2023 2024 2023

Takeda Collaboration Agreement:

PTV:PGRN cost sharing (reimbursements)

$ ( 1,138 ) $ ( 1,864 ) $ ( 2,338 ) $ ( 3,342 )

ATV:TREM2 cost sharing (reimbursements)

( 215 ) ( 1,605 ) ( 728 ) ( 3,262 )

Total Takeda cost sharing (reimbursements) (1)

( 1,353 ) ( 3,469 ) ( 3,066 ) ( 6,604 )

Biogen Collaboration Agreement:

LRRK2 cost sharing payments (2)

4,440 6,976 9,229 11,126

Net cost sharing payments (reimbursements)

$ 3,087 $ 3,507 $ 6,163 $ 4,522

_________________________________

(1) Cost sharing reimbursements of $ 1.4 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 June 30, 2024 and December 31, 2023, respectively.

(2) Cost sharing payments due to Biogen of $ 4.4 million and $ 3.2 million were recorded within accounts payable on the Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023, respectively.

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 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 .

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

In 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 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 June 30, 2024 and December 31, 2023 , and no operating lease expense has been recorded on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2024 .

Payments of $ 26.5 million made by the company, primarily for assets that are deemed to be landlord owned, and which will form part of the ROU asset upon lease commencement, are included within other non-current assets on the Condensed Consolidated Balance Sheet as of June 30, 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 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.

There were no changes to the terms of the leases recognized under ASC 842 during the three and six months ended June 30, 2024.

Operating lease costs, including variable costs recognized under ASC 842, was $ 3.1 million and $ 6.2 million for the three and six months ended June 30, 2024, respectively, and $ 3.3 million and $ 6.2 million for the three and six months ended June 30, 2023, respectively.

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

Three Months Ended March 31,

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

2024 2023 2024 2023

Cash paid for amounts included in measurement of lease liabilities $ 2,854 $ 2,763 $ 5,647 $ 5,759

As of March 31,

As of June 30,

Weighted average remaining lease term 4.8 years 5.8 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 March 31, 2024 (in thousands):

Year Ended December 31:

2024 (nine months)

2024 (six months)

Thereafter 4,381

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

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

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

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

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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 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.

As of June 30, 2024 and December 31, 2023, the Company had total non-cancellable purchase commitments under the DMSA of $ 24.0 million and $ 37.6 million, respectively.

During the three months ended June 30, 2024 and 2023, the Company incurred costs of $ 6.2 million and $ 10.9 million, respectively, and made payments of $ 16.8 million and $ 8.3 million, respectively, for the development and manufacturing services rendered under the DMSA.

During the six months ended June 30, 2024 and 2023, the Company incurred costs of $ 22.6 million and $ 16.1 million, respectively, and made payments of $ 30.3 million and $ 12.1 million, respectively, for the development and manufacturing services rendered under the DMSA.

In the normal course of business, the Company enters into other firm purchase commitments primarily related to research and development activities.

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

The Company had contractual obligations under certain clinical and manufacturing agreements other than the DMSA of $ 32.5 million and $ 34.8 million, as of June 30, 2024 and December 31, 2023, respectively, with certain amounts subject to cost sharing with Takeda.

Contingencies

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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.

As of June 30, 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 three months ended March 31, 2024:

The following table summarizes stock option activity for the six months ended June 30, 2024:

Number of Options

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( 1,435,314 ) 30.95

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 March 31, 2024 11,826,599 $ 26.70

Balance at June 30, 2024 18,972,592 $ 25.84

Vested and expected to vest at June 30, 2024 18,162,721 $ 27.85

Exercisable at June 30, 2024 11,565,306 $ 27.31

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

Three Months Ended March 31,

Six Months Ended June 30,

Expected term (in years)

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Restricted Stock Activity

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

The following table summarizes restricted stock unit ("RSU") activity for the six months ended June 30, 2024:

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

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Forfeited ( 641,220 ) 29.10

Unvested and expected to vest at March 31, 2024

4,297,088 $ 28.79

Unvested and expected to vest at June 30, 2024 4,147,635 $ 28.55

Stock-Based Compensation Expense

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

Three Months Ended March 31,

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

2024 2023 2024 2023

Research and development

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$ 25,100 $ 26,570 $ 52,940 $ 54,654

Net Loss Per Share

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

Net Income (Loss) Per Share

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 )

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

2024 2023 2024 2023

Net income (loss)

$ ( 99,026 ) $ 183,383 $ ( 200,828 ) $ 73,602

Weighted average number of:

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26,046,065 — 17,602,560 —

Net loss per share

Weighted average number of shares outstanding, basic

168,831,329 137,047,227 159,117,759 136,787,321

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.

Dilutive effect of outstanding common stock options, ESPP shares issuable, and restricted shares

— 3,883,398 — 3,762,905

Weighted average number of shares outstanding, diluted

168,831,329 140,930,625 159,117,759 140,550,226

Net income (loss) per share, basic

$ ( 0.59 ) $ 1.34 $ ( 1.26 ) $ 0.54

Net income (loss) per share, diluted

$ ( 0.59 ) $ 1.30 $ ( 1.26 ) $ 0.52

Potentially dilutive securities, including 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 the periods presented because they would be anti-dilutive totaled approximately 23.3 million and 11.8 million shares as of June 30, 2024 and June 30, 2023, respectively.

Divestiture of Preclinical Small Molecule Programs

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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 may also be eligible to receive certain market valuation, 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 sublease commenced in May 2024 and will continue 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.

The Company recognized a gain on divestiture of approximately $ 14.5 million in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) during the six months ended June 30, 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.

The SAFE remains outstanding as of June 30, 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