Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and the related notes to those statements included elsewhere in this Quarterly Report on Form 10-Q . This discussion and analysis and other parts of this report contain forward-looking statements based upon current beliefs, plans, and expectations related to future events and our future financial performance that involve risks, uncertainties, and assumptions, such as statements regarding our intentions, plans, objectives, expectations, forecasts, and projections. Our actual results and the timing of selected events coul d differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under the section titled “Risk Factors” included in this Quarterly Report on Form 10-Q.
Forward-looking statements include, but are not limited to, statements about:
• the progress, success, cost, and timing of our development activities, preclinical studies, and clinical trials, and in particular the development of our blood-brain barrier (“BBB”) platform technology, programs, and biomarkers, including the initiation and completion of studies or trials and related preparatory work, enrollment in such trials, the timing of when data from clinical trials will become available, the advancement of new molecule entities into clinical development and related timing, and the filing of investigational new drug applications or clinical trial applications;
• the impact of preclinical findings on our ability to achieve exposures of our product candidates that allow us to explore a robust pharmacodynamic range of these candidates in humans;
• the expected potential benefits and potential revenue resulting from strategic collaborations with third parties and our ability to attract collaborators with development, regulatory, and commercialization expertise;
• the timing or likelihood of regulatory filings and approvals;
• our ability to obtain and maintain regulatory approval of our product candidates, and any related restrictions, limitations, and/or warnings in the label of any approved product candidate;
• the extent to which any dosing limitations that we have been subject to, and/or may be subject to in the future, may affect the success of our product candidates;
• the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology;
• the terms and conditions of licenses granted to us and our ability to license and/or acquire additional intellectual property relating to our product candidates and BBB platform technology;
• our ability to obtain funding for our operations, including funding necessary to develop and commercialize our current and potential future product candidates;
• our plans and ability to establish sales, marketing, and distribution infrastructure to commercialize any product candidates for which we obtain approval;
• future agreements with third parties in connection with the commercialization of our product candidates;
• the size and growth potential of the markets for our product candidates, if approved for commercial use, and our ability to serve those markets;
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• the rate and degree of market acceptance of our product candidates;
• existing regulations and regulatory developments in the United States and foreign countries;
• potential claims relating to our intellectual property and third-party intellectual property;
• our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;
• our plans and ability to develop our own manufacturing facilities;
• the pricing and reimbursement of our product candidates, if approved and commercialized;
• the success of competing products or platform technologies that are or may become available;
• our ability to attract and retain key managerial, scientific, and medical personnel;
• the accuracy of our estimates regarding expenses, future revenue, capital requirements, and needs for additional financing;
• our ability to enhance operational, financial, and information management systems;
• the impact of adverse economic conditions such as instability in the financial services sector, rising interest rates, rising inflation, and increased labor market competition;
• the impact of increased geopolitical uncertainty, a pandemic or other global health emergency, and related global economic disruptions and social conditions on our business;
• expectations regarding the intended use of proceeds from our February 2024 Private Investment in Public Equity ("PIPE") financing; and
• our financial performance.
These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in “Risk Factors.” In some cases, you can identify these statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expects,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would,” or the negative of those terms, and similar expressions that convey uncertainty of future events or outcomes. These forward-looking statements reflect our beliefs and views with respect to future events and are based on estimates and assumptions as of the date of this Quarterly Report on Form 10-Q and are subject to risks and uncertainties. We discuss many of these risks in greater detail in the section entitled “Risk Factors” included in Part II, Item 1A and elsewhere in this report. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Given these uncertainties, you should not place undue reliance on these forward-looking statements. We qualify all of the forward-looking statements in this Quarterly Report on Form 10-Q by these cautionary statements. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, whether as a result of new information, future events, or otherwise.
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Overview
Our goal is to discover, develop and deliver therapeutics to defeat degeneration.
Our discovery and development strategy is guided by three overarching principles that we believe will significantly increase the probability of success and accelerate the timing to bring effective therapeutics to people living with neurodegenerative and lysosomal storage diseases :
• Degenogenes: Genetic Pathway Realization – each of our programs addresses a molecular target or biological pathway that is genetically validated to cause or increase the risk for neurodegenerative diseases.
• Brain Delivery: Validation and Optionality – we engineer our product candidates to cross the BBB and act directly in the brain. Our proprietary transport vehicle ("TV") platform technology is designed to effectively deliver large therapeutic molecules, such as enzymes, proteins, antibodies, and oligonucleotides, across the BBB after intravenous administration.
• Biomarker-Driven Development and Approval – we discover, develop and use biomarkers to inform dose selection, assess clinical activity, and identify patients most likely to respond to our therapies. We are actively engaged in discussions with health authorities regarding the potential use of biomarkers as primary clinical endpoints to support faster paths to approval.
Ou r late and mid-stage clinic al programs are as follows:
• Tividenofusp alfa (DNL310, ETV:IDS), our lead enzyme replacement therapy ("ERT") program enabled by our Enzyme Transport Vehicle ("ETV"), is designed to cross the BBB and restore Iduronate 2-sulfatase ("IDS") and reduce glycosaminoglycans ("GAGs"), both peripherally and in the brain, in individuals with mucopolysaccharidosis II ("MPS II" or "Hunter syndrome");
• DNL343, our eukaryotic initiation factor 2 B ("eIF2B") activator program to address diseases such as amyotrophic lateral sclerosis ("ALS") and frontotemporal dementia ("FTD");
• BIIB122/DNL151, our leucine-rich repeat kinase 2 ("LRRK2") inhibitor program, being developed in collaboration with Biogen, to address Parkinson’s disease ("PD"); and
• Eclitasertib (SAR443122/DNL758), a peripheral and non-CNS penetrant RIPK1 inhibitor, being developed in collaboration with Sanofi, to address peripheral inflammatory diseases such as ulcerative colitis ("UC").
Ou r early-stage clinic al programs are as follows:
• DNL126 (ETV:SGSH), our second most advanced ETV enabled program, which is designed to restore lysosomal activity of N-sulfoglucosamine sulfohydrolase ("SGSH"), an enzyme responsible for degrading heparan sulfates in the lysosome, in individuals with MPS IIIA (Sanfilippo syndrome Type A); and
• TAK-594/DNL593 (PTV:PGRN), our recombinant progranulin ("PGRN") biotherapeutic enabled by our Protein Transport Vehicle ("PTV"), being developed in collaboration with Takeda, to address frontotemporal dementia-granulin ("FTD-GRN"), or frontotemporal dementia due to loss of function mutations in the GRN gene.
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The following table summarizes key information about our clinical stage programs:
Program Product Candidate Clinical Study(ies) Indication Operational Control
ETV:IDS tividenofusp alfa, or DNL310
Ph 1/2
Hunter syndrome (MPS II) Denali
Ph 2/3
eIF2B DNL343 Ph 1b ALS Denali
Ph 2/3 ALS Joint with Healey Center
LRRK2 BIIB122/DNL151 Ph 2a
Parkinson's disease Denali
Ph 2b
Joint with Biogen
RIPK1 (Peripheral) eclitasertib, or SAR443122/DNL758
Ph 2 UC
Sanofi
ETV:SGSH DNL126 Ph 1/2
Sanfilippo syndrome Type A (MPS IIIA) Denali
PTV:PGRN
TAK-594/DNL593 Ph 1/2
FTD-GRN
Joint with Takeda
Since we commenced operations, we have devoted substantially all of our resources to discovering, acquiring and developing product candidates, building our BBB platform technology and assembling our core capabilities in understanding key neurodegenerative disease pathways.
Key operational and financing milestones in 2024 to date include:
• In January 2024, we announced that enrollment continues in the global Phase 2/3 COMPASS study and is expected to be completed in 2024. In February, we presented new positive data from the ongoing Phase 1/2 study of tividenofusp alfa in MPS II at the 20th Annual WORLD Symposium TM demonstrating sustained normalization of heparan sulfate in cerebrospinal fluid (CSF HS), robust and sustained reductions in biomarkers of lysosomal dysfunction and neuronal damage (NfL; neurofilament light), and improvements and stabilization of multiple clinical outcomes measures over two years of treatment. Also in February, we participated in the Reagan-Udall Foundation for the FDA workshop on CSF HS as a potential surrogate biomarker to support accelerated approval in MPS. In April, we completed enrollment of 47 participants with MPS II in the Phase 1/2 open-label study. Following the Reagan-Udall Foundation workshop, we received written communication from the Center for Drug Evaluation and Research ("CDER") division of the FDA indicating openness to discussing an accelerated approval pathway for tividenofusp alfa in MPS II with cerebrospinal fluid heparan sulfate (CSF HS) as a surrogate biomarker. In September 2024, we announced that we plan to file a biologics license application (BLA) for accelerated approval for tividenofusp alpha (DNL310) for the treatment of MPS II (Hunter syndrome), based on the outcome of a recent successful meeting with the Center for Drug Evaluation and Research (CDER) division of the FDA. In addition, the meeting also provides a path for conversion to full approval based on the totality of the tividenofusp clinical development plan. Based on discussions with CDER, we will include preclinical and clinical data on biomarkers (CSF HS and neurofilament light (NfL)) and safety in the BLA for tividenofusp alfa as a treatment of MPS II and intend to submit the BLA under the accelerated approval pathway in early 2025;
• In January 2024, we announced that Part B in the TAK-594/DNL593 Phase 1/2 study in participants with FTD-GRN had been voluntarily paused to implement protocol modifications. In the second quarter of 2024, we finalized the protocol amendment for the Phase 1/2 study and screening of participants for Cohort B2 is ongoing ;
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• In January 2024, we announced our intention to divest our preclinical small molecule portfolio, which was completed effective March 1, 2024. We will maintain ownership of, and continue to advance, our current portfolio of clinical stage small molecule programs. The decision was made based on clinical validation and prioritization of our TV-enabled platforms for brain delivery of large molecules;
• In February 2024, we announced that dosing had been initiated in the Phase 1/2 study of DNL126 in MPS IIIA. Further, in February 2024, we presented supportive preclinical data at WORLD Symposium TM demonstrating that DNL126 improves lysosomal and microglial morphology, degeneration, and cognitive behavior in MPS IIIA mice. In June 2024, DNL126 was selected for the FDA's Support for clinical Trials Advancing Rare disease Therapeutics (START) program to accelerate the development of rare disease therapeutics. In November, we announced that preliminary data from up to 25 weeks of dosing in the ongoing open-label Phase 1/2 study in MPS IIIA participants demonstrate a significant reduction in CSF HS levels from baseline, including normalization. The safety profile supports continued development. The most frequent treatment emergent adverse events were infusion related reactions of mild and moderate severity in all participants. There was one serious adverse event considered by the investigator not related to drug. Based on the preliminary Phase 1/2 results and a positive regulatory environment, we recently expanded the study and continue to assess the development plans including an accelerated approval path;
• In February 2024, we announced that the Phase 2 HIMALAYA study evaluating SAR443820/DNL788 in participants with ALS did not meet the primary endpoint of change in ALS Functional Rating Scale-Revised (ALSFRS-R). In October 2024, we were informed by Sanofi that the K2 Phase 2 study evaluating the safety and efficacy of SAR443820/DNL788 on serum neurofilament light chain levels in participants with multiple sclerosis was discontinued based on not meeting the primary and key secondary endpoints;
• In February 2024, we announced that we entered into a securities purchase agreement with certain existing accredited investors for the private placement of 3,244,689 shares of our common stock at a price of $17.07 per share and pre-funded warrants to purchase an aggregate of 26,046,065 shares of our common stock at a purchase price of $17.06 per pre-funded warrant, resulting in net proceeds of approximately $499.3 million. The pre-funded warrants have an exercise price of $0.01 per share of Common Stock, and are immediately exercisable and will remain exercisable until exercised in full. The private placement closed on February 29, 2024, subject to customary closing conditions;
• In February 2024, we announced that we executed a Collaboration and Development Funding Agreement in January 2024 with a third party related to a global Phase 2a study of BIIB122/DNL151, which we plan to solely operationalize to evaluate safety and biomarkers associated with BIIB122/DNL151 in participants with Parkinson’s disease and confirmed pathogenic variants of LRRK2. This agreement includes committed funding of $75.0 million, of which $12.5 million was received in January 2024 and $12.5 million was received in July 2024, with the remainder to be triggered based on operational milestones in the study. The third party will be eligible to receive low single-digit royalties from Denali on annual worldwide net sales of LRRK2 inhibitors for the treatment of Parkinson’s disease, with royalty amounts varying based on the scope of the label. Denali has initiated screening of participants for the global Phase 2a study to evaluate safety and biomarkers associated with BIIB122/DNL151 in participants with Parkinson’s disease and confirmed pathogenic variants of LRRK2. Biogen will continue to conduct the ongoing global Phase 2b LUMA study in early-stage Parkinson’s disease. Denali and Biogen will co-commercialize BIIB122/DNL151 assuming regulatory approval;
• In May 2024, the Sean M. Healey & AMG Center for ALS at Massachusetts General Hospital (MGH) in collaboration with the Northeast ALS Consortium (NEALS) announced that enrollment is complete in Regimen G (DNL343) of the Phase 2/3 HEALEY ALS Platform Trial; and
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• In July 2024, Biogen terminated its license to the ATV:Abeta program enabled by our TfR-targeting technology against amyloid beta for the potential treatment of Alzheimer's disease and granted us rights to data generated during the collaboration. As a result of the termination, all rights to develop, manufacture, perform medical affairs activities, and commercialize new TfR-targeting ATV:Abeta therapeutics reverted to us. Biogen licensed our TfR-targeting ATV:Abeta program in April 2023 having exercised an option that was part of the 2020 collaboration agreement between the two companies. Biogen’s decision was not related to any efficacy or safety concerns with the TV platform.
We do not have any products approved for sale and have not generated any product revenue since our inception. We have funded our operations primarily from the issuance and sale of convertible preferred stock, the sale of common stock and pre-funded warrants to purchase shares of our common stock in public offerings and private placements, and payments received from our collaboration and funding agreements with Takeda, Sanofi, Biogen and other third parties.
We have incurred significant operating losses to date and expect to continue to incur operating losses for the foreseeable future. We had net losses of $107.2 million and $308.0 million for the three and nine months ended September 30, 2024, respectively, and net losses of $99.4 million and $25.8 million for the three and nine months ended September 30, 2023, respectively. As of September 30, 2024, we had an accumulated deficit o f $1.42 billion. Our ability to generate product revenue will depend on the successful development and eventual commercialization of one or more of our product candida tes. We e xpect to continue to incur significant expenses and operating losses as we advance our current clinical stage programs through healthy volunteer and patient trials; broaden and improve our BBB platform technology; acquire, discover, validate and develop additional product candidates; obtain, maintain, protect and enforce our intellectual property portfolio; and hire additional personnel.
Components of Operating Results
Collaboration Revenue
To date, we have not generated any revenue from product sales and do not expect to generate any revenue from product sales for the foreseeable future. All revenue recognized to date has been collaboration and license revenue from our collaboration agreements with Takeda, Sanofi and Biogen.
Future revenue may be recognized from the Takeda Collaboration Agreement, Sanofi Collaboration Agreement, and Biogen Collaboration Agreement, and may be generated from product sales or milestone payments, royalties and profit sharing reimbursement from other collaboration agreements, strategic alliances and licensing arrangements. We expect that our revenue will fluctuate from quarter-to-quarter and year-to-year as a result of the timing and amount of license fees, option exercise fees, milestone payments, profit sharing reimbursement, other payments and product sales, to the extent any are successfully commercialized. If we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.
Operating Expenses
Research and Development
Research and development activities account for a significant portion of our operating expenses. We record research and development expenses as incurred. Research and development expenses incurred by us for the discovery and development of our product candidates and BBB platform technology include:
• external research and development expenses, including:
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– expenses incurred under arrangements with third parties, such as contract research organizations ("CROs"), preclinical testing organizations, contract development and manufacturing organizations ("CDMOs"), academic and non-profit institutions and consultants;
– expenses to acquire technologies to be used in research and development that have not reached technological feasibility and have no alternative future use;
– fees related to our license and collaboration agreements;
• personnel related expenses, including salaries, benefits and stock-based compensation expense; and
• other expenses, which include direct and allocated expenses for laboratory, facilities and other costs.
A portion of our research and development expenses are direct external expenses, which we track on a program-specific basis once a program has commenced late-stage IND-enabling studies.
Program expenses include expenses associated with our most advanced product candidates and the discovery and development of backup or next-generation molecules. We also track external expenses associated with our TV platform. These expenses include external expenses incurred by us relating to our Takeda Collaboration Agreement, Sanofi Collaboration Agreement a nd Biogen Collaboration Agreement. Al l external costs associated with earlier stage programs, or that benefit the entire portfolio, are tracked as a group. We also incur personnel and other operating expenses for our research and development programs which are presented in aggregate. These expenses primarily relate to salaries and benefits, stock-based compensation, facility expenses including rent and depreciation, and lab consumables. Where we share costs with our collaboration partners, such as in our Biogen Collaboration Agreement and Takeda Collaboration Agreement , research and development expenses may include cost sharing reimbursements from, or payments to, our collaboration partners. Further, where we receive R&D funding from third parties, this may be recognized as a reduction to research and development expenses.
It is challenging to predict the nature, timing and estimated long-range costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our product candidates. This is made more challenging by events outside of our control, such as global pandemics and increased geopolitical uncertainty. We are also unable to predict when, if ever, material net cash inflows will commence from sales or licensing of our product candidates. This is due to the numerous risks and uncertainties associated with drug development, including the uncertainty of:
• our ability to add and retain key research and development personnel;
• our ability to establish an appropriate safety profile with IND-enabling toxicology studies;
• our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize, our product candidates;
• our successful enrollment in and completion of clinical trials;
• the costs associated with the development of any additional product candidates we identify in-house or acquire through collaborations;
• our ability to discover, develop and utilize biomarkers to demonstrate target engagement, pathway engagement and the impact on disease progression of our molecules;
• our ability to establish agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing, if our product candidates are approved;
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• the terms and timing of any collaboration, license or other arrangement, including the terms and timing of any milestone payments thereunder;
• our ability to obtain and maintain patent, trade secret and other intellectual property protection and regulatory exclusivity for our product candidates if and when approved;
• our receipt of marketing approvals from applicable regulatory authorities;
• our ability to commercialize products, if and when approved, whether alone or in collaboration with others; and
• the continued acceptable safety profiles of the product candidates following approval.
A change in any of these variables with respect to the development of any of our product candidates would significantly change the costs, timing and viability associated with the development of that product candidate. We expect our research and development expenses to increase at least over the next several years as we continue to implement our business strategy, advance our current programs, expand our research and development efforts, seek regulatory approvals for any product candidates that successfully complete clinical trials, access and develop additional product candidates and incur expenses associated with hiring additional personnel to support our research and development efforts. In addition, product candidates in later stages of clinical development generally incur higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials.
General and Administrative
General and administrative expenses include personnel related expenses, such as salaries, benefits, travel and stock-based compensation expense, expenses for outside professional services and allocated expenses. Outside professional services consist of legal, accounting and audit services and other consulting fees. Allocated expenses consist of rent, depreciation and other expenses related to our office and research and development facility not otherwise included in research and development expenses. We expect to increase our administrative headcount as we advance our product candidates through clinical development, which will increase our general and administrative expenses.
Gain from divestiture of small molecule programs
The gain from the divestiture of small molecule programs consists entirely of the non-cash gain associated with the divestiture of assets associated with select preclinical small molecule programs, including specified intellectual property, tangible assets and equipment used to conduct early stage small molecule drug discovery from the Company, in exchange for equity consideration.
Interest and Other Income, Net
Interest and other income, net , consists pr imarily of interest income and investment income earned on our cash, cash equivalents, and marketable securities, as well as sublease income and interest on our finance lease liability.
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Results of Operations
Comparison of the three and nine months ended September 30, 2024 and 2023
The following table sets forth the significant components of our results of operations (in thousands):
Three Months Ended September 30, Change
2024 2023 $ %
Collaboration revenue:
Collaboration revenue from customers
$ — $ 1,267 $ (1,267) * %
Total collaboration revenue
— 1,267 (1,267) *
Operating expenses:
Research and development
98,238 89,737 8,501 9
General and administrative
24,949 25,325 (376) (1)
Total operating expenses
123,187 115,062 8,125 7
Loss from operations (123,187) (113,795) (9,392) 8
Interest and other income, net
15,995 14,442 1,553 11
Net loss $ (107,192) $ (99,353) $ (7,839) 8 %
__________________________________________________
* Percentage is not meaningful.
Nine Months Ended September 30, Change
2024 2023 $ %
Collaboration revenue:
Collaboration revenue from customers
$ — $ 330,531 $ (330,531) * %
Total collaboration revenue
— 330,531 (330,531) *
Operating expenses:
Research and development
296,653 316,073 (19,420) (6)
General and administrative
75,379 78,585 (3,206) (4)
Total operating expenses
372,032 394,658 (22,626) (6)
Gain from divestiture of small molecule programs 14,537 — 14,537 *
Loss from operations (357,495) (64,127) (293,368) *
Interest and other income, net
49,475 38,376 11,099 29
Net loss $ (308,020) $ (25,751) $ (282,269) * %
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* Percentage is not meaningful.
Collaboration revenue. There was no collaboration revenue for three and nine months ended September 30, 2024, and $1.3 million and $330.5 million for three and nine months ended September 30, 2023, respectively. The decrease for the three months ended September 30, 2024 compared to September 30, 2023 was primarily due to activities under the Biogen Collaboration Agreement. The decrease for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was primarily due to a decrease of $293.9 million in revenue recognized in April 2023 under the Biogen Collaboration Agreement as a result of Biogen exercising its option to license our ATV:Abeta program, as well as decreases of revenue earned under the Takeda of $10.0 million and Sanofi Collaboration Agreements of $25.0 million received due to clinical milestones.
Research and development expen ses. Research and development expenses were $98.2 million and $296.7 million for the three and nine months ended September 30, 2024, compared to $89.7 million and $316.1 million for the three and nine months ended September 30, 2023, respectively.
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The following table summarizes our research and development expenses by program and category (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2024 2023 2024 2023
ETV:IDS program external expenses $ 22,840 $ 20,388 $ 73,639 $ 87,674
ETV:SGSH program external expenses 3,435 1,792 10,474 6,417
PTV:PGRN program external expenses 2,500 1,889 6,145 8,107
TV platform and other program external expenses
8,534 2,105 16,416 11,865
LRRK2 program external expenses 2,051 1,049 4,133 3,867
eIF2B program external expenses 7,702 4,971 24,219 14,866
Other external research and development expenses
3,539 6,451 13,182 19,839
Personnel related expenses (1)
35,318 39,578 111,699 119,640
Other unallocated research and development expenses
11,291 10,931 31,823 38,693
Net cost sharing and research and development funding payments (2)
1,028 583 4,923 5,105
Total research and development expenses
$ 98,238 $ 89,737 $ 296,653 $ 316,073
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(1) Personnel related expenses include stock-based compensation expense of $14.1 million and $44.8 million for the three and nine months ended September 30, 2024, respectively, and $15.8 million and $47.8 million for the three and nine months ended September 30, 2023, respectively, reflecting decreases of $1.7 million and $3.0 million, respectively.
(2) The breakdown of net cost sharing, and research and development funding payments is shown in the table below. The underlying costs for reimbursements and research and development funding are included with the specified external expenses line and personnel related expenses in the table above. ATV:TREM2 program external expenses are presented within the TV platform and other program external expenses line.
Three Months Ended September 30, Nine Months Ended September 30,
2024 2023 2024 2023
Takeda: net reimbursements for PTV:PGRN program $ (1,211) $ (1,777) $ (3,549) $ (5,120)
Takeda: net reimbursements for ATV:TREM2 program
(208) (1,018) (936) (4,279)
Biogen: net payments for LRRK2 program
4,965 3,378 14,194 14,504
LRRK2 research and development funding
(2,518) — (4,786) —
Net cost sharing payments and research and development funding payments
$ 1,028 $ 583 $ 4,923 $ 5,105
The increase in research and development expenses of approximately $8.5 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, was primarily attributable to the following:
• Increases in costs in various clinical stage programs, including of eIF2B ($2.7 million), ETV:IDS ($2.5 million), ETV:SGSH ($1.6 million), LRRK2 ($1.0 million) and PTV:PGRN ($0.6 million) reflecting the continued progress of these programs in clinical trials; and
• An increase of $6.4 million in TV platform and other program external expenses, reflecting our continued investment in our TV-enabled product candidates.
These increases were partially offset by a decrease $4.3 million in personnel related expenses due to decreases in salary and stock-based compensation expenses due to decreased headcount, primarily as a result of the divestiture of our preclinical small molecule programs in March 2024, and a decrease of $2.9 million in other external research and development expenses associated with the divestiture of our preclinical small molecule programs.
The decrease in research and development expenses of approximately $19.4 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, was primarily attributable to the following:
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• a decrease of $14.0 million in ETV:IDS program external expenses due to $30.0 million in milestone-related expense in the first quarter of 2023 pursuant to our acquisition of F-star Gamma, which was triggered by a clinical milestone for the ETV:IDS program. This decrease was partially offset by increased spend in 2024 related to our ongoing Phase 1/2 study and our potentially registrational Phase 2/3 study;
• decreases of $7.9 million and $6.9 million in personnel related expenses and other unallocated research and development expenses, respectively, primarily as a result of the divestiture of our preclinical small molecule programs in March 2024;
• a decrease of $2.0 million in PTV:PGRN program external expenses as the TAK-594/DNL593 (PTV:PGRN) Phase 1/2 study was previously voluntarily paused; and
• a decrease of $6.7 million in other external research and development expenses primarily due to elevated facility costs in the nine months ended September 30, 2023 as a result of accelerated depreciation on leasehold improvements associated with the termination of the former SLC Lease.
These decreases were partially offset by increases of $9.4 million and $4.1 million in eIF2B and ETV:SGSH program external expenses, respectively, reflecting the continued progress of these programs in clinical trials, and an increase of $4.6 million in TV platform and other program external expenses, reflecting our continued investment in our TV-enabled product candidates.
General and administrative expenses. General and administrative expense was $24.9 million for the three months ended September 30, 2024, and $25.3 million for the same period in 2023.
General and administrative expenses were $75.4 million for the nine months ended September 30, 2024 compared to $78.6 million for the nine months ended September 30, 2023. The decrease of $3.2 million was primarily attributable to $2.5 million of combined decreases in professional services and facilities costs, and $1.8 million of decreased personnel-related expenses consisting of employee compensation and stock-based compensation expenses as a result of the divestiture of our preclinical small molecule programs in March 2024, partially offset by an increase of $1.1 million in other corporate costs.
Gain from divestiture of small molecule programs. For a full description, see Item 2. Components of Operating Results included in this Quarterly Report on Form 10-Q.
Liquidity and Capital Resources
Sources of Liquidity
As of September 30, 2024, we had cash, cash equivalents and marketable securities in the amount of $1.28 billion. We fund our operations primarily with the proceeds from the sale of common stock and payments received from our collaboration partners, including those received under agreements with Takeda, Sanofi, and Biogen. We have sold common stock and other securities in public offerings, a private placement, and stock purchase agreements with Takeda and Biogen.
Through September 30, 2024 we have obtained aggregate net proceeds of approximately $754.4 million from public offerings of our common stock, including $296.2 million obtained through the sale of 11.9 million shares of common stock in October 2022. Under stock purchase agreements with collaboration partners we have received a further $575.0 million through September 30, 2024 .
Further, in February 2024 we received net proceeds of approximately $499.3 million from our private placement through the sale of approximately 3.2 million shares of common stock and pre-funded warrants to purchase a pproximately 26.0 million shares of our common stock .
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In February 2022, we established a registered “at-the-market” facility for the sale of up to $400.0 million of shares of common stock from time to time by entering into an equity distribution agreement with Goldman Sachs & Co. LLC, Leerink Partners LLC (formerly SVB Securities LLC) and Cantor Fitzgerald & Co. as sales agents. To date, no shares have been sold under the equity distribution agreement.
Pursuant to our collaboration and research and development funding agreements with Takeda, Sanofi, Biogen and an unrelated third party, through September 30, 2024 we have received upfront, option and milestone payments of $115.0 million , $225.0 million, $565.0 million and $25.0 million, respectively, and have also received $47.2 million and $16.2 million of gross cost sharing reimbursements from Takeda and Biogen, respectively, and received $13.7 million in specified reimbursements from Sanofi.
Future Funding Requirements and Commitments
To date, we have not generated any product revenue. We do not expect to generate any product revenue unless and until we obtain regulatory approval of and commercialize any of our product candidates, and we do not know when, or if, either will occur.
We expect to continue to incur significant losses for the foreseeable future, and we expect the losses to increase as we expand our research and development activities and continue the development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products. Further, we expect general and administrative expenses to increase as we continue to incur additional costs associated with supporting our growing operations. We are subject to all of the risks typically related to the development of new product candidates, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. We anticipate that we will need substantial additional funding in connection with our continuing operations.
Until we can generate a sufficient amount of revenue from the commercialization of our product candidates or from our existing collaboration agreements, or future agreements with other third parties, if ever, we expect to finance our future cash needs through public or private equity or debt financings. Additional capital may not be available on reasonable terms, if at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates. If we raise additional funds through the issuance of additional debt or equity securities, it could result in dilution to our existing stockholders, increased fixed payment obligations and the existence of securities with rights that may be senior to those of our common stock. If we incur indebtedness, we could become subject to covenants that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Additionally, any future collaborations we enter into with third parties may provide capital in the near term but limit our potential cash flow and revenue in the future. Any of the foregoing could significantly harm our business, financial condition and prospects.
Since our inception, we have incurred significant losses and negative cash flows from operations. We have an accumulated deficit of $1.42 billion through September 30, 2024. We expect to incur substantial additional losses in the future as we conduct and expand our research and development activities. We believe that our existing cash, cash equivalents and marketable securities will be sufficient to enable us to fund our projected operations through at least the twelve months following the filing date of this Quarterly Report on Form 10-Q, including our existing commitments as outlined below. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. In the longer term, we anticipate that we will need substantial additional resources to fund our operations and meet future commitments.
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Our existing commitments primarily relate to our obligations under existing lease agreements, and certain clinical and manufacturing agreements, including the DMSA with Lonza Sales AG ("Lonza") for the development and manufacture of biologic products. As of September 30, 2024, the operating lease liability was $46.9 million and the finance lease liability was $5.7 million. Under the DMSA with Lonza, and certain other clinical and manufacturing agreements, we had total non-refundable purchase commitments as of September 30, 2024 of $49.0 million, with certain amounts subject to cost sharing with Takeda. While the lease obligations span multiple years, the majority of the purchase commitments with Lonza and other clinical and manufacturing agreements are due within twelve months, with some spanning several years. These commitments are more fully described in Note 6 - Commitments and Contingencies of our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q .
Our future funding requirements, including changes to and new commitments, will depend on many factors, including:
• the timing and progress of preclinical and clinical development activities;
• the number and scope of preclinical and clinical programs we decide to pursue;
• the progress of the development efforts of third parties with whom we have entered into license and collaboration agreements;
• our ability to maintain our current research and development programs and to establish new research and development, license or collaboration arrangements;
• our ability and success in securing manufacturing relationships with third parties or in establishing and operating a manufacturing facility;
• the costs involved in prosecuting, defending and enforcing patent claims and other intellectual property claims;
• the cost and timing of regulatory approvals;
• our efforts to enhance operational, financial and information management systems and hire additional personnel, including personnel to support development of our product candidates; and
• the costs and ongoing investments to in-license and/or acquire additional technologies.
A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Furthermore, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plans.
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Cash Flows
The following table sets forth a summary of the primary sources and uses of cash for each of the periods presented below (in thousands):
Nine Months Ended September 30,
2024 2023
Net cash used in operating activities $ (263,979) $ (259,334)
Net cash (used in) provided by investing activities (260,963) 176,261
Net cash provided by financing activities 488,472 13,115
Net decrease in cash, cash equivalents and restricted cash $ (36,470) $ (69,958)
Net Cash Used In Operating Activities
During the nine months ended September 30, 2024, net cash used in operating activities was $264.0 million, which consisted of a net loss of $308.0 million, adjusted by non-cash items primarily related to stock-based compensation expense, depreciation and amortization, net accretion of discounts on marketable securities, non-cash rent expenses, and the non-cash gain on divestiture of small molecule programs. Cash used in operating activities was also driven by changes in our operating assets and liabilities.
Net Cash (Used In) Provided By Investing Activities
During the nine months ended September 30, 2024, net cash used in investing activities was $261.0 million, which consisted of $1.06 billion of purchases of marketable securities and $10.8 million of capital expenditures to purchase property and equipment, partially offset by $806.1 million in proceeds from maturities and sales of marketable securities.
Net Cash Provided By Financing Activities
During the nine months ended September 30, 2024, cash provided by financing activities was $488.5 million which consisted of $499.3 million of net proceeds from issuance of common stock and pre-funded warrants in a private placement in February 2024 and $13.2 million in proceeds from the exercise of stock options and the Company's ESPP, partially offset by an aggregate of $24.0 million of payments related to our finance lease.
Critical Accounting Estimates
This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenues recognized and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies are described in detail in the notes to our consolidated financial statements included elsewhere in this report. In our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on February 28, 2024, we described the accounting estimates that we believe involve a significant level of estimation uncertainty which could have a material impact on our financial condition or results of operations. There have been no material changes to these critical accounting estimates during the nine months ended September 30, 2024.
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Recent Accounting Pronouncements
There have been no new accounting pronouncements or changes to accounting pronouncements during the nine months ended September 30, 2024 , as compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on February 28, 2024, that are of significance or potential significance to us.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.