What changed in this filing

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Item 1. Financial Statements

2024-11-06 compared with 2024-08-01 · 161 added, 137 removed, 420 unchanged (42% of the section changed)

3 unchanged sentences

(In thousands, except share amounts)

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Current assets:

6 unchanged sentences

Operating lease right-of-use asset 23,717 26,048

Finance lease right-of-use asset 38,685 —

Other non-current assets 26,487 18,143

3 unchanged sentences

Accounts payable $ 9,594 $ 9,483

Accrued clinical and other research & development costs 19,915 19,035

Accrued clinical and other research and development costs 23,923 19,035

Accrued manufacturing costs 9,568 15,462

Other accrued costs and current liabilities 6,013 5,152

Accrued compensation 14,874 21,590

Operating lease liability, current 8,036 7,260

Deferred research funding liability 10,232 —

Deferred research and development funding liability, current 16,269 —

Other accrued costs and current liabilities 4,829 5,152

Total current liabilities 87,093 77,982

Operating lease liability, less current portion 38,850 44,981

Finance lease liability, less current portion 5,631 —

Deferred research funding and development liability, less current portion 3,944 —

Total liabilities 135,518 122,963

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Convertible preferred stock, $ 0.01 par value;

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

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

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

Common stock, $ 0.01 par value;

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

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

143,840,029 shares and 138,385,498 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively

Additional paid-in capital 2,735,433 2,144,811

Accumulated other comprehensive income (loss) ( 2,659 ) 643

Accumulated other comprehensive income 5,529 643

Accumulated deficit ( 1,424,231 ) ( 1,116,211 )

3 unchanged sentences

Denali Therapeutics Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

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

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

2024 2023 2024 2023

9 unchanged sentences

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

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

Loss from operations ( 123,187 ) ( 113,795 ) ( 357,495 ) ( 64,127 )

Interest and other income, net 15,995 14,442 49,475 38,376

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

Net loss ( 107,192 ) ( 99,353 ) ( 308,020 ) ( 25,751 )

Other comprehensive income (loss):

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

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

Net unrealized gain on marketable securities, net of tax

8,188 790 4,886 6,235

(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.

Comprehensive loss $ ( 99,004 ) $ ( 98,563 ) $ ( 303,134 ) $ ( 19,516 )

Net loss per share, basic and diluted $ ( 0.63 ) $ ( 0.72 ) $ ( 1.89 ) $ ( 0.19 )

Weighted average number of shares outstanding, basic and diluted 169,456,988 137,644,534 162,589,325 137,076,199

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

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

See accompanying notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(In thousands, except share amounts)

Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss

Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss)

Accumulated Deficit Total Stockholders' Equity

7 unchanged sentences

Net loss — — — — ( 308,020 ) ( 308,020 )

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

Other comprehensive income

— — — 4,886 — 4,886

Balance at September 30, 2024 143,840,029 $ 1,764 $ 2,735,433 $ 5,529 $ ( 1,424,231 ) $ 1,318,495

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 291,183 3 5,453 — — 5,456

2 unchanged sentences

Net loss — — — — ( 107,192 ) ( 107,192 )

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

Other comprehensive income

— — — 8,188 — 8,188

Balance at September 30, 2024 143,840,029 $ 1,764 $ 2,735,433 $ 5,529 $ ( 1,424,231 ) $ 1,318,495

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

2 unchanged sentences

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

Net income — — — — 73,602 73,602

Net loss — — — — ( 25,751 ) ( 25,751 )

Other comprehensive income

— — — 6,235 — 6,235

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

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

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

3 unchanged sentences

— — 27,577 — — 27,577

Net income — — — — 183,383 183,383

Net loss — — — — ( 99,353 ) ( 99,353 )

Other comprehensive income — — — 790 — 790

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

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

See accompanying notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

Six Months Ended

Nine Months Ended

September 30,

Operating activities

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

Net loss $ ( 308,020 ) $ ( 25,751 )

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

3 unchanged sentences

Non-cash adjustment to operating lease expense

( 3,025 ) ( 2,762 )

Right-of-use asset amortization for finance lease

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

Changes in operating assets and liabilities:

Prepaid expenses and other assets ( 20,336 ) 1,823

Prepaid expenses and other current assets ( 2,625 ) 1,910

Other non-current assets ( 1,178 ) —

Accounts payable 151 4,512

1 unchanged sentence

Related-party contract liability — ( 290,532 )

Deferred research and development funding liability, less current portion 3,944 —

Net cash used in operating activities ( 263,979 ) ( 259,334 )

1 unchanged sentence

Purchases of marketable securities ( 1,056,263 ) ( 1,399,982 )

Purchases of property and equipment ( 6,936 ) ( 8,636 )

Maturities and sales of marketable securities 806,120 1,586,947

Purchases of property and equipment ( 10,820 ) ( 10,704 )

Net cash (used in) provided by investing activities ( 260,963 ) 176,261

2 unchanged sentences

Proceeds from exercise of awards under equity incentive plans 13,234 13,115

Payments for finance lease right-of-use asset ( 24,015 ) —

Net cash provided by financing activities 488,472 13,115

3 unchanged sentences

Supplemental disclosures of cash flow information

Increase in right-of-use asset due to lessor assets $ 7,051 $ —

Non-cash recognition of new finance lease $ 5,689 $ —

Cash paid for finance lease interest $ 121 $ —

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

18 unchanged sentences

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

During the 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.

During the nine months ended September 30, 2024 the only material change to the Company's significant accounting and financial reporting policies from those reflected in the 2023 Annual Report on Form 10-K was the addition of accounting policies related to the finance lease included herein.

For further information with regard to the remainder of 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.

Principles of Consolidation

3 unchanged sentences

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 Income (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 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 Income (Loss).

Concentration of Credit Risk and Other Risks and Uncertainties

6 unchanged sentences

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

As of June 30, 2024 and December 31, 2023, the Company had no off-balance sheet concentrations of credit risk.

As of September 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.

11 unchanged sentences

The Company generally invests its excess cash in money market funds and investment grade short to intermediate-term fixed income securities.

Such investments are included in cash and cash equivalents, or short-term marketable securities on the Condensed Consolidated Balance Sheets, are considered available-for-sale, and are reported at fair value with net unrealized gains and losses included as a component of stockholders’ equity.

Such investments are included in cash and cash equivalents, short-term marketable securities or long-term marketable securities on the Condensed Consolidated Balance Sheets, are considered available-for-sale, and are reported at fair value with net unrealized gains and losses included as a component of stockholders’ equity.

The Company classifies investments in securities with remaining maturities of less than one year, or where its intent is to use the investments to fund current operations or to make them available for current operations, as short-term investments.

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

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

7 unchanged sentences

A determination is made as to whether an arrangement is a lease at inception.

Right-of-use (“ROU”) assets and operating lease liabilities are recognized for identified operating leases in the Condensed Consolidated Balance Sheets.

The changes in operating lease ROU assets and operating lease liabilities are presented net within non-cash adjustment to operating lease expense in the Condensed Consolidated Statements of Cash Flows.

ROU assets represent the Company’s right to use the underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments due over the lease term, with the ROU assets adjusted for lease incentives received.

The Company recognizes finance and operating lease right-of-use (ROU) assets, and finance and operating lease liabilities based on the present value of the future minimum lease payments at the commencement date.

The Company adjusts ROU assets as needed for any lease incentives it receives and for assets it purchases that are regarded as landlord-owned.

When determining the present value of lease payments, the Company uses its incremental borrowing rate on the date of lease commencement, or the rate implicit in the lease, if known.

The Company does not assume renewals in its determination of the lease term unless the renewals are deemed by management to be reasonably certain at lease inception.

The Company recognizes amortization of the ROU assets and interest on the lease liabilities for its finance lease.

Finance lease ROU assets are amortized on a straight-line basis from the commencement date to the earlier of the end of the useful life of the ROU asset or the end of the lease term.

Operating lease expense is recognized on a straight-line basis over the lease term.

Leases with an initial term of twelve months or less are not recorded on the balance sheet, unless they include an option to purchase the underlying asset that the Company is reasonably certain to exercise.

45 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 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 ".

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 September 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 Company has not early adopted this update, and is currently evaluating the impact of the new standard on its income tax disclosures.

In November 2024, the FASB issued Accounting Standards Update No.

2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40):

D isaggregation of Income Statement Expenses , which is intended to improve the disclosures of expenses by providing more detailed information about the types of expenses in commonly presented expense captions.

The amendments in this update are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027.

Early adoption is permitted.

The amendments can be applied either prospectively or retrospectively.

The Company has not early adopted this update, and is currently evaluating the impact of this new standard on its consolidated financial statements and related disclosures.

Fair Value Measurements

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

June 30, 2024

September 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 six months ended June 30, 2024 or 2023.

The Company has not transferred any assets or liabilities between the fair value measurement levels for the nine months ended September 30, 2024 or for the year ended December 31, 2023.

Marketable Securities

All marketable securities were considered available-for-sale at June 30, 2024 and December 31, 2023.

All marketable securities were considered available-for-sale at September 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):

June 30, 2024

September 30, 2024

Amortized Cost Unrealized Holding Gains Unrealized Holding Losses Aggregate Fair Value

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__________________________________________________

(1) Unrealized holding losses on 26 securities with an aggregate fair value of $ 755.9 million.

(2) Unrealized holding losses on 2 securities with an aggregate fair value of $ 10.2 million.

(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.

(1) Unrealized holding losses on 1 security with an aggregate fair value of $ 59.9 million.

(2) Unrealized holding losses on 1 security with an aggregate fair value of $ 5.0 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 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.

As of September 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 September 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.

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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 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

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

Acquisition and Research and Development Funding Collaboration Agreement

Acquisition of F-star Gamma

2 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 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.

As of September 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 and six months ended June 30, 2024 or the three months ended June 30, 2023.

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

Collaboration and Development Funding Agreement

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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.

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.

R&D funding under this arrangement of $ 2.5 million and $ 4.8 million offset research and development expenses in the Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2024, respectively.

As of September 30, 2024, $ 16.3 million and $ 3.9 million of current and non-current deferred research and development funding liability were recorded on the Condensed Consolidated Balance Sheet, respectively.

Collaboration Agreements

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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.

In April 2023, Biogen exercised its option to license Denali’s ATV:Abeta program which was previously concluded to be a material right, triggering payment of a $ 5.0 million option fee which was received in May 2023 and allocated to the material right in its entirety.

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.

1 unchanged sentence

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.

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 June 30, 2024 or December 31, 2023 .

There were no changes to the terms of the LRRK2 Agreement during the three and nine months ended September 30, 2024 or 2023.

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

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.

As of September 30, 2024, the Company has no t 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 June 30, 2024 or December 31, 2023 .

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.

As of September 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.

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.

As of September 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 June 30, Six Months Ended June 30,

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

2024 2023 2024 2023

10 unchanged sentences

Option Research Services (4)

— 1,267 — 1,619

Total Biogen Collaboration Revenue — 1,267 — 295,531

1 unchanged sentence

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(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.

(1) Revenue for the nine months ended September 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 nine months ended September 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 nine months ended September 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 nine months ended September 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,

Cost sharing payments to collaboration partners recorded as expenses in research and development expenses in the Condensed Consolidated Statements of Operations and Comprehensive 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 Loss are as follows (in thousands):

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

2024 2023 2024 2023

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_________________________________

(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.

(2) Cost sharing payments due to Biogen of $ 5.0 million and $ 3.2 million were recorded within accounts payable on the Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023, respectively.

Commitments and Contingencies

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In May 2018, the Company entered into an operating lease for its corporate headquarters in South San Francisco (the "Headquarters Lease"), as further described in Note 8, "Commitments and Contingencies," to the consolidated financial statements in the Company's 2023 Annual Report on Form 10-K.

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 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.

The discount rates of our operating leases are an approximation of the Company's incremental borrowing rate and are dependent upon the term and economics of the agreement.

In August 2021, the Company entered into a lease for laboratory, office and warehouse premises in Salt Lake City, Utah .

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

In April 2023, the Company entered into a lease in Salt Lake City (the “SLC Lease”) 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.

The accounting lease commencement date was determined to be August 1, 2024, the date the Company was deemed to have obtained control over the property, at which time the lease was determined to be a finance lease and the lease liability and ROU asset were recorded on the Condensed Consolidated Balance Sheet.

Included in the ROU asset as of September 30, 2024 are $ 33.1 million of assets purchased by the Company, which are considered to be owned by the landlord.

Management exercised judgment in applying the requirements of ASC 842, including the determination as to whether certain contracts contain a lease, lease classification, the lease consideration, the commencement date of the leases, and for leases identified under the standard, the discount rate used to determine the measurement of the lease liability.

The discount rates of the Company's operating and finance leases are an approximation of the Company's incremental borrowing rate and are dependent upon the term and economics of the agreement.

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

There were no changes to the terms of the leases recognized under ASC 842 during the 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 June 30, Six Months Ended June 30,

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

Operating lease costs were $ 1.9 million and $ 5.8 million for the three and nine months ended September 30, 2024, respectively, and $ 1.9 million and $ 6.1 million for the three and nine months ended September 30, 2023, respectively.

Variable lease costs were $ 1.6 million and $ 3.9 million for the three and nine months ended September 30, 2024, respectively, and $ 1.3 million and $ 3.3 million for the three and nine months ended September 30, 2023, respectively.

Finance lease costs representing amortization of ROU assets and interest on lease liability were $ 0.4 million and $ 0.1 million, respectively, for both the three and nine months ended September 30, 2024.

There was no finance lease cost for the three and nine months ended September 30, 2023.

The following tables contain a summary of other information pertaining to the Company’s leases for the periods presented (in thousands):

Three Months Ended September 30, Nine Months Ended September 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 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 June 30, 2024 (in thousands):

Operating cash flows from operating lease $ 2,885 $ 2,793 $ 8,532 $ 8,552

As of September 30,

Weighted-average remaining lease term (in years):

Operating lease

4.6 years 5.6 years

Finance lease

Weighted-average discount rate applied (%):

Operating lease 9.0 % 9.0 %

Finance lease 13.7 % — %

The following table reconciles the undiscounted cash flows for the next five years and total of the remaining years to the operating and finance lease liabilities recorded in the Condensed Consolidated Balance Sheet as of September 30, 2024 (in thousands):

Year Ended December 31:

2024 (six months)

Operating Lease

Finance Lease

2024 (three months) $ 2,885 $ 191

2025 11,793 777

2026 12,182 794

2027 12,584 811

2028 13,001 829

Thereafter 4,381 9,661

1 unchanged sentence

present value adjustment ( 9,940 ) —

Net operating lease liability

imputed interest — ( 7,381 )

Total future minimum lease payments $ 46,886 $ 5,682

Indemnification

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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 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.

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 .

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

Under the DMSA, the Company will execute purchase orders based on project plans authorizing Lonza to provide development and manufacturing services with respect to certain of the Company's antibody and enzyme products, and will pay for the services provided and batches delivered in accordance with the DMSA and project plan.

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

As of 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.

Unless earlier terminated, the DMSA will expire when all development and manufacturing services are completed, which is not expected to be before January 2028.

As of September 30, 2024 and December 31, 2023, the Company had total non-cancellable purchase commitments under the DMSA of $ 23.4 million and $ 37.6 million, respectively.

During the three months ended September 30, 2024 and 2023, the Company incurred costs of $ 6.0 million and $ 10.4 million, respectively, and made payments of $ 1.9 million and $ 12.8 million, respectively, for the development and manufacturing services rendered under the DMSA.

During the nine months ended September 30, 2024 and 2023, the Company incurred costs of $ 28.6 million and $ 26.5 million, respectively, and made payments of $ 32.2 million and $ 24.9 million, respectively, for the development and manufacturing services rendered under the DMSA.

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

The Company had contractual obligations under certain clinical and manufacturing agreements other than the DMSA of $ 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.

The Company had contractual obligations under certain clinical and manufacturing agreements other than the DMSA of $ 25.6 million and $ 34.8 million, as of September 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 June 30, 2024, all of the Pre-Funded Warrants issued in the private placement were outstanding.

All of the Pre-Funded Warrants issued in the private placement were outstanding as of September 30, 2024.

Stock-Based Awards

1 unchanged sentence

Stock Option Activity

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

The following table summarizes stock option activity for the nine months ended September 30, 2024:

Number of Options

5 unchanged sentences

( 1,663,311 ) 31.29

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

Balance at September 30, 2024 18,581,012 $ 25.84

Vested and expected to vest at September 30, 2024 17,771,141 $ 26.98

Exercisable at September 30, 2024 11,543,850 $ 27.89

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

Six Months Ended June 30,

Nine Months Ended September 30,

Expected term (in years)

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Restricted Stock Activity

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

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

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

3 unchanged sentences

Forfeited ( 727,400 ) 28.85

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

Unvested and expected to vest at September 30, 2024 3,994,341 $ 27.48

Stock-Based Compensation Expense

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

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

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

2024 2023 2024 2023

4 unchanged sentences

$ 24,860 $ 27,459 $ 77,800 $ 82,114

Net Income (Loss) Per Share

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.

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 June 30, Six Months Ended June 30,

2024 2023 2024 2023

Net income (loss)

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

2024 2023 2024 2023

Net loss $ ( 107,192 ) $ ( 99,353 ) $ ( 308,020 ) $ ( 25,751 )

Weighted average number of:

3 unchanged sentences

26,046,065 — 20,437,606 —

Weighted average number of shares outstanding, basic

169,456,988 137,644,534 162,589,325 137,076,199

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.

Net loss per share $ ( 0.63 ) $ ( 0.72 ) $ ( 1.89 ) $ ( 0.19 )

Potentially dilutive securities, including options issued and outstanding, Employee Stock Purchase Plan (“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 22.7 million and 20.7 million shares as of September 30, 2024 and September 30, 2023, respectively.

Divestiture of Preclinical Small Molecule Programs

5 unchanged sentences

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 commenced in May 2024 and will continue for a period of approximately ten months , with two optional six month extension periods.

The sublease commenced in May 2024 and continues 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 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 recognized a gain on divestiture of approximately $ 14.5 million in the Condensed Consolidated Statements of Operations and Comprehensive Loss during the nine months ended September 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.

The SAFE remains outstanding as of September 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