10-Q 1 dnli-20220930.htm 10-Q dnli-20220930
2022Q3false0001714899--12-3100017148992022-01-012022-09-3000017148992022-10-27xbrli:shares00017148992022-09-30iso4217:USD00017148992021-12-31iso4217:USDxbrli:shares00017148992022-07-012022-09-3000017148992021-07-012021-09-3000017148992021-01-012021-09-300001714899us-gaap:CommonStockMember2021-12-310001714899us-gaap:AdditionalPaidInCapitalMember2021-12-310001714899us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-12-310001714899us-gaap:RetainedEarningsMember2021-12-310001714899us-gaap:CommonStockMember2022-01-012022-09-300001714899us-gaap:AdditionalPaidInCapitalMember2022-01-012022-09-300001714899us-gaap:RetainedEarningsMember2022-01-012022-09-300001714899us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-01-012022-09-300001714899us-gaap:CommonStockMember2022-09-300001714899us-gaap:AdditionalPaidInCapitalMember2022-09-300001714899us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-09-300001714899us-gaap:RetainedEarningsMember2022-09-300001714899us-gaap:CommonStockMember2022-06-300001714899us-gaap:AdditionalPaidInCapitalMember2022-06-300001714899us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-06-300001714899us-gaap:RetainedEarningsMember2022-06-3000017148992022-06-300001714899us-gaap:CommonStockMember2022-07-012022-09-300001714899us-gaap:AdditionalPaidInCapitalMember2022-07-012022-09-300001714899us-gaap:RetainedEarningsMember2022-07-012022-09-300001714899us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-07-012022-09-300001714899us-gaap:CommonStockMember2020-12-310001714899us-gaap:AdditionalPaidInCapitalMember2020-12-310001714899us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-310001714899us-gaap:RetainedEarningsMember2020-12-3100017148992020-12-310001714899us-gaap:CommonStockMember2021-01-012021-09-300001714899us-gaap:AdditionalPaidInCapitalMember2021-01-012021-09-300001714899us-gaap:RetainedEarningsMember2021-01-012021-09-300001714899us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-09-300001714899us-gaap:CommonStockMember2021-09-300001714899us-gaap:AdditionalPaidInCapitalMember2021-09-300001714899us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-09-300001714899us-gaap:RetainedEarningsMember2021-09-3000017148992021-09-300001714899us-gaap:CommonStockMember2021-06-300001714899us-gaap:AdditionalPaidInCapitalMember2021-06-300001714899us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-06-300001714899us-gaap:RetainedEarningsMember2021-06-3000017148992021-06-300001714899us-gaap:CommonStockMember2021-07-012021-09-300001714899us-gaap:AdditionalPaidInCapitalMember2021-07-012021-09-300001714899us-gaap:RetainedEarningsMember2021-07-012021-09-300001714899us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-07-012021-09-30dnli:Segment0001714899us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel1Member2022-09-300001714899us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel2Member2022-09-300001714899us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel3Member2022-09-300001714899us-gaap:MoneyMarketFundsMember2022-09-300001714899us-gaap:FairValueInputsLevel1Memberus-gaap:CommercialPaperMember2022-09-300001714899us-gaap:FairValueInputsLevel2Memberus-gaap:CommercialPaperMember2022-09-300001714899us-gaap:FairValueInputsLevel3Memberus-gaap:CommercialPaperMember2022-09-300001714899us-gaap:CommercialPaperMember2022-09-300001714899us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel1Member2022-09-300001714899us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel2Member2022-09-300001714899us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel3Member2022-09-300001714899us-gaap:USTreasurySecuritiesMember2022-09-300001714899us-gaap:FairValueInputsLevel1Memberus-gaap:CorporateDebtSecuritiesMember2022-09-300001714899us-gaap:FairValueInputsLevel2Memberus-gaap:CorporateDebtSecuritiesMember2022-09-300001714899us-gaap:FairValueInputsLevel3Memberus-gaap:CorporateDebtSecuritiesMember2022-09-300001714899us-gaap:CorporateDebtSecuritiesMember2022-09-300001714899us-gaap:FairValueInputsLevel1Memberus-gaap:CommercialPaperMember2022-09-300001714899us-gaap:FairValueInputsLevel2Memberus-gaap:CommercialPaperMember2022-09-300001714899us-gaap:FairValueInputsLevel3Memberus-gaap:CommercialPaperMember2022-09-300001714899us-gaap:CommercialPaperMember2022-09-300001714899us-gaap:FairValueInputsLevel1Member2022-09-300001714899us-gaap:FairValueInputsLevel2Member2022-09-300001714899us-gaap:FairValueInputsLevel3Member2022-09-300001714899us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel1Member2021-12-310001714899us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel2Member2021-12-310001714899us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel3Member2021-12-310001714899us-gaap:MoneyMarketFundsMember2021-12-310001714899us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel1Member2021-12-310001714899us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel2Member2021-12-310001714899us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel3Member2021-12-310001714899us-gaap:USTreasurySecuritiesMember2021-12-310001714899us-gaap:FairValueInputsLevel1Memberus-gaap:CorporateDebtSecuritiesMember2021-12-310001714899us-gaap:FairValueInputsLevel2Memberus-gaap:CorporateDebtSecuritiesMember2021-12-310001714899us-gaap:FairValueInputsLevel3Memberus-gaap:CorporateDebtSecuritiesMember2021-12-310001714899us-gaap:CorporateDebtSecuritiesMember2021-12-310001714899us-gaap:FairValueInputsLevel1Memberus-gaap:CommercialPaperMember2021-12-310001714899us-gaap:FairValueInputsLevel2Memberus-gaap:CommercialPaperMember2021-12-310001714899us-gaap:FairValueInputsLevel3Memberus-gaap:CommercialPaperMember2021-12-310001714899us-gaap:CommercialPaperMember2021-12-310001714899us-gaap:FairValueInputsLevel1Member2021-12-310001714899us-gaap:FairValueInputsLevel2Member2021-12-310001714899us-gaap:FairValueInputsLevel3Member2021-12-310001714899us-gaap:USTreasurySecuritiesMemberdnli:ShortTermMarketableSecuritiesMember2022-09-300001714899dnli:ShortTermMarketableSecuritiesMemberus-gaap:CorporateDebtSecuritiesMember2022-09-300001714899us-gaap:CommercialPaperNotIncludedWithCashAndCashEquivalentsMemberdnli:ShortTermMarketableSecuritiesMember2022-09-300001714899dnli:ShortTermMarketableSecuritiesMember2022-09-30dnli:securitydnli:program0001714899us-gaap:USTreasurySecuritiesMemberdnli:ShortTermMarketableSecuritiesMember2021-12-310001714899dnli:ShortTermMarketableSecuritiesMemberus-gaap:CorporateDebtSecuritiesMember2021-12-310001714899us-gaap:CommercialPaperNotIncludedWithCashAndCashEquivalentsMemberdnli:ShortTermMarketableSecuritiesMember2021-12-310001714899dnli:ShortTermMarketableSecuritiesMember2021-12-310001714899us-gaap:USTreasurySecuritiesMemberdnli:LongTermMarketableSecuritiesMember2021-12-310001714899dnli:LongTermMarketableSecuritiesMemberus-gaap:CorporateDebtSecuritiesMember2021-12-310001714899dnli:LongTermMarketableSecuritiesMember2021-12-310001714899dnli:BiogenMemberdnli:BiogenCollaborativeArrangementMember2022-01-012022-09-300001714899dnli:BiogenMemberdnli:BiogenCollaborativeArrangementMember2022-07-012022-09-300001714899dnli:BiogenMembersrt:AffiliatedEntityMember2022-09-300001714899dnli:BiogenMembersrt:AffiliatedEntityMember2021-12-310001714899dnli:ROFNAndOptionAgreementCollaborativeArrangementMemberdnli:BiogenMemberdnli:MaterialRightForAnOptionMembersrt:AffiliatedEntityMember2022-09-300001714899dnli:ROFNAndOptionAgreementCollaborativeArrangementMembersrt:MaximumMemberdnli:BiogenMemberdnli:MaterialRightForAnOptionMembersrt:AffiliatedEntityMember2022-01-012022-09-300001714899dnli:OptionResearchServicesMemberdnli:BiogenMemberdnli:BiogenCollaborativeArrangementMembersrt:AffiliatedEntityMember2022-09-300001714899dnli:OptionResearchServicesMembersrt:MinimumMemberdnli:BiogenMemberdnli:BiogenCollaborativeArrangementMembersrt:AffiliatedEntityMember2022-01-012022-09-300001714899dnli:BiogenMemberdnli:BiogenCollaborativeArrangementMembersrt:AffiliatedEntityMember2022-07-012022-09-300001714899dnli:BiogenMemberdnli:BiogenCollaborativeArrangementMembersrt:AffiliatedEntityMember2022-01-012022-09-300001714899dnli:BiogenMemberdnli:BiogenCollaborativeArrangementMember2022-09-300001714899dnli:BiogenMemberdnli:BiogenCollaborativeArrangementMember2021-07-012021-09-300001714899dnli:BiogenMemberdnli:BiogenCollaborativeArrangementMember2021-01-012021-09-300001714899dnli:BiogenMemberdnli:BiogenCollaborativeArrangementMember2021-12-31dnli:milestone0001714899dnli:BiogenMemberus-gaap:ProductMemberdnli:BiogenCollaborativeArrangementMember2022-01-012022-09-300001714899dnli:SanofiMemberus-gaap:CollaborativeArrangementMember2022-07-012022-09-300001714899dnli:SanofiMemberus-gaap:CollaborativeArrangementMember2022-01-012022-09-300001714899dnli:SanofiMemberus-gaap:CollaborativeArrangementMemberdnli:MilestoneTriggeredMember2022-04-012022-04-300001714899dnli:SanofiMemberus-gaap:CollaborativeArrangementMemberdnli:AlzheimersDiseaseServicesMember2022-09-300001714899dnli:SanofiMemberus-gaap:CollaborativeArrangementMemberdnli:AlzheimersDiseaseServicesMember2021-12-310001714899dnli:SanofiMemberus-gaap:CollaborativeArrangementMember2021-12-310001714899dnli:SanofiMemberus-gaap:CollaborativeArrangementMember2022-09-300001714899dnli:SanofiMemberus-gaap:CollaborativeArrangementMemberdnli:MilestoneTriggeredMember2018-10-012022-09-300001714899dnli:SanofiMemberus-gaap:CollaborativeArrangementMemberus-gaap:ProductMember2018-10-012022-09-300001714899us-gaap:CollaborativeArrangementMemberdnli:TakedaPharmaceuticalCompanyLimitedMember2022-09-300001714899dnli:CollaborativeArrangementATVTauMemberdnli:TakedaPharmaceuticalCompanyLimitedMember2022-01-012022-03-310001714899dnli:CollaborativeArrangementATVTauMemberdnli:TakedaPharmaceuticalCompanyLimitedMember2021-12-310001714899dnli:CollaborativeArrangementATVTauMemberdnli:TakedaPharmaceuticalCompanyLimitedMember2022-09-300001714899us-gaap:CollaborativeArrangementMemberdnli:MilestoneTriggeredMemberdnli:TakedaPharmaceuticalCompanyLimitedMember2022-07-012022-09-300001714899us-gaap:CollaborativeArrangementMemberdnli:MilestoneTriggeredMemberdnli:TakedaPharmaceuticalCompanyLimitedMember2022-01-012022-09-300001714899us-gaap:CollaborativeArrangementMemberdnli:TakedaPharmaceuticalCompanyLimitedMember2022-01-012022-09-300001714899us-gaap:CollaborativeArrangementMemberdnli:TakedaPharmaceuticalCompanyLimitedMember2021-12-310001714899dnli:CollaborativeArrangementPTVPGRNAndATVTREM2Memberdnli:TakedaPharmaceuticalCompanyLimitedMember2021-12-012021-12-31dnli:contract0001714899dnli:CollaborativeArrangementPTVPGRNAndATVTREM2Memberdnli:TakedaPharmaceuticalCompanyLimitedMember2022-01-012022-09-300001714899dnli:CollaborativeArrangementPTVPGRNAndATVTREM2Memberdnli:TakedaPharmaceuticalCompanyLimitedMember2022-07-012022-09-300001714899dnli:CollaborativeArrangementPTVPGRNAndATVTREM2Membersrt:MaximumMemberdnli:TakedaPharmaceuticalCompanyLimitedMember2021-12-310001714899dnli:CollaborativeArrangementPTVPGRNMemberdnli:TakedaPharmaceuticalCompanyLimitedMember2022-07-012022-09-300001714899dnli:CollaborativeArrangementPTVPGRNMemberdnli:TakedaPharmaceuticalCompanyLimitedMember2022-01-012022-09-300001714899dnli:CollaborativeArrangementATVTREM2Memberdnli:TakedaPharmaceuticalCompanyLimitedMember2022-07-012022-09-300001714899dnli:CollaborativeArrangementATVTREM2Memberdnli:TakedaPharmaceuticalCompanyLimitedMember2022-01-012022-09-300001714899dnli:CollaborativeArrangementPTVPGRNAndATVTREM2Memberdnli:TakedaPharmaceuticalCompanyLimitedMember2021-01-012021-09-300001714899dnli:CollaborativeArrangementPTVPGRNAndATVTREM2Memberdnli:TakedaPharmaceuticalCompanyLimitedMember2021-07-012021-09-300001714899dnli:OptionFeePaymentMemberdnli:CollaborativeArrangementPTVPGRNAndATVTREM2Memberdnli:TakedaPharmaceuticalCompanyLimitedMember2022-01-012022-09-300001714899dnli:CollaborativeArrangementPTVPGRNAndATVTREM2Memberus-gaap:ProductMemberdnli:TakedaPharmaceuticalCompanyLimitedMember2018-01-012022-09-300001714899dnli:CollaborationAgreementServicesMemberdnli:TakedaCollaborationAgreementMember2022-07-012022-09-300001714899dnli:CollaborationAgreementServicesMemberdnli:TakedaCollaborationAgreementMember2021-07-012021-09-300001714899dnli:CollaborationAgreementServicesMemberdnli:TakedaCollaborationAgreementMember2022-01-012022-09-300001714899dnli:CollaborationAgreementServicesMemberdnli:TakedaCollaborationAgreementMember2021-01-012021-09-300001714899dnli:TakedaCollaborationAgreementMember2022-07-012022-09-300001714899dnli:TakedaCollaborationAgreementMember2021-07-012021-09-300001714899dnli:TakedaCollaborationAgreementMember2022-01-012022-09-300001714899dnli:TakedaCollaborationAgreementMember2021-01-012021-09-300001714899dnli:CNSProgramLicenseMemberdnli:SanofiCollaborationAgreementMember2022-07-012022-09-300001714899dnli:CNSProgramLicenseMemberdnli:SanofiCollaborationAgreementMember2021-07-012021-09-300001714899dnli:CNSProgramLicenseMemberdnli:SanofiCollaborationAgreementMember2022-01-012022-09-300001714899dnli:CNSProgramLicenseMemberdnli:SanofiCollaborationAgreementMember2021-01-012021-09-300001714899dnli:PeripheralProductMemberdnli:SanofiCollaborationAgreementMember2022-07-012022-09-300001714899dnli:PeripheralProductMemberdnli:SanofiCollaborationAgreementMember2021-07-012021-09-300001714899dnli:PeripheralProductMemberdnli:SanofiCollaborationAgreementMember2022-01-012022-09-300001714899dnli:PeripheralProductMemberdnli:SanofiCollaborationAgreementMember2021-01-012021-09-300001714899dnli:AlzheimersDiseaseServicesMemberdnli:SanofiCollaborationAgreementMember2022-07-012022-09-300001714899dnli:AlzheimersDiseaseServicesMemberdnli:SanofiCollaborationAgreementMember2021-07-012021-09-300001714899dnli:AlzheimersDiseaseServicesMemberdnli:SanofiCollaborationAgreementMember2022-01-012022-09-300001714899dnli:AlzheimersDiseaseServicesMemberdnli:SanofiCollaborationAgreementMember2021-01-012021-09-300001714899dnli:SanofiCollaborationAgreementMember2022-07-012022-09-300001714899dnli:SanofiCollaborationAgreementMember2021-07-012021-09-300001714899dnli:SanofiCollaborationAgreementMember2022-01-012022-09-300001714899dnli:SanofiCollaborationAgreementMember2021-01-012021-09-300001714899dnli:BiogenMemberdnli:OptionServicesMember2022-07-012022-09-300001714899dnli:BiogenMemberdnli:OptionServicesMember2021-07-012021-09-300001714899dnli:BiogenMemberdnli:OptionServicesMember2022-01-012022-09-300001714899dnli:BiogenMemberdnli:OptionServicesMember2021-01-012021-09-300001714899dnli:BiogenMember2022-07-012022-09-300001714899dnli:BiogenMember2021-07-012021-09-300001714899dnli:BiogenMember2022-01-012022-09-300001714899dnli:BiogenMember2021-01-012021-09-300001714899dnli:GenentechIncMemberus-gaap:ResearchAndDevelopmentExpenseMemberdnli:LicenseAgreementMember2022-06-012022-06-300001714899dnli:AccruedClinicalAndOtherResearchAndDevelopmentCostsCurrentMemberdnli:GenentechIncMemberdnli:LicenseAgreementMember2022-09-012022-09-300001714899us-gaap:CollaborativeArrangementMemberdnli:BiogenMember2022-01-012022-09-30xbrli:pure0001714899us-gaap:CollaborativeArrangementMemberdnli:BiogenMember2022-07-012022-09-300001714899us-gaap:CollaborativeArrangementMemberdnli:GenentechIncMember2022-07-012022-09-300001714899us-gaap:CollaborativeArrangementMemberdnli:GenentechIncMember2022-01-012022-09-300001714899us-gaap:CollaborativeArrangementMemberdnli:GenentechIncMember2021-01-012021-09-300001714899us-gaap:CollaborativeArrangementMemberdnli:GenentechIncMember2021-07-012021-09-300001714899dnli:GenentechIncMemberus-gaap:ResearchAndDevelopmentExpenseMemberdnli:LicenseAgreementMember2016-06-012022-09-300001714899dnli:BiogenMemberdnli:LicenseAgreementMember2016-06-012022-09-300001714899dnli:SLCLeaseMemberus-gaap:BuildingMemberdnli:OperatingLease93YearLeaseAgreementMember2022-07-012022-07-31utr:sqft0001714899dnli:SLCLeaseMemberus-gaap:BuildingMemberdnli:OperatingLease93YearLeaseAgreementMember2022-07-310001714899dnli:SLCLeaseMemberus-gaap:BuildingMember2022-09-300001714899dnli:SLCLeaseMemberus-gaap:BuildingMember2022-07-012022-09-300001714899dnli:SLCLeaseMemberus-gaap:BuildingMember2022-01-012022-09-300001714899dnli:DMSAMember2022-09-300001714899dnli:DMSAMember2021-12-310001714899dnli:DMSAMember2022-07-012022-09-300001714899dnli:DMSAMember2021-07-012021-09-300001714899dnli:DMSAMember2022-01-012022-09-300001714899dnli:DMSAMember2021-01-012021-09-300001714899srt:MinimumMemberus-gaap:EmployeeStockOptionMember2022-01-012022-09-300001714899srt:MaximumMemberus-gaap:EmployeeStockOptionMember2022-01-012022-09-300001714899srt:MinimumMemberus-gaap:EmployeeStockOptionMember2021-01-012021-09-300001714899srt:MaximumMemberus-gaap:EmployeeStockOptionMember2021-01-012021-09-300001714899us-gaap:EmployeeStockOptionMember2022-01-012022-09-300001714899us-gaap:EmployeeStockOptionMember2021-01-012021-09-300001714899us-gaap:RestrictedStockUnitsRSUMember2021-12-310001714899us-gaap:RestrictedStockUnitsRSUMember2022-01-012022-09-300001714899us-gaap:RestrictedStockUnitsRSUMember2022-09-300001714899us-gaap:ResearchAndDevelopmentExpenseMember2022-07-012022-09-300001714899us-gaap:ResearchAndDevelopmentExpenseMember2021-07-012021-09-300001714899us-gaap:ResearchAndDevelopmentExpenseMember2022-01-012022-09-300001714899us-gaap:ResearchAndDevelopmentExpenseMember2021-01-012021-09-300001714899us-gaap:GeneralAndAdministrativeExpenseMember2022-07-012022-09-300001714899us-gaap:GeneralAndAdministrativeExpenseMember2021-07-012021-09-300001714899us-gaap:GeneralAndAdministrativeExpenseMember2022-01-012022-09-300001714899us-gaap:GeneralAndAdministrativeExpenseMember2021-01-012021-09-300001714899us-gaap:SubsequentEventMemberus-gaap:OverAllotmentOptionMember2022-10-012022-10-310001714899us-gaap:SubsequentEventMemberus-gaap:OverAllotmentOptionMember2022-10-31
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 001-38311
Denali Therapeutics Inc.
(Exact name of registrant as specified in its charter)
Delaware46-3872213
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
161 Oyster Point Blvd.
South San Francisco, CA, 94080
(Address of principal executive offices and zip code)
(650) 866-8548
(Registrant’s telephone number, including area code)
_______________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.01 per shareDNLINASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  
The number of outstanding shares of the registrant’s common stock as of October 27, 2022 was 135,813,668.




TABLE OF CONTENTS

Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

2

PART I. FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS
Denali Therapeutics Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share amounts)
September 30, 2022December 31, 2021
Assets
Current assets:
Cash and cash equivalents$118,615 $293,477 
Short-term marketable securities987,440 571,930 
Cost sharing reimbursements due from related party 1,226 
Prepaid expenses and other current assets32,471 30,601 
Total current assets1,138,526 897,234 
Long-term marketable securities 425,449 
Property and equipment, net41,692 38,865 
Operating lease right-of-use assets31,271 30,743 
Other non-current assets16,117 11,871 
Total assets$1,227,606 $1,404,162 
Liabilities and stockholders' equity
Current liabilities:
Accounts payable$7,539 $4,779 
Cost sharing payments due to related party1,443  
Accrued compensation13,253 19,013 
Accrued clinical and other research & development costs21,701 15,887 
Accrued manufacturing costs16,732 9,955 
Other accrued costs and current liabilities2,395 2,857 
Operating lease liabilities, current7,068 5,453 
Related-party contract liability, current290,516 292,386 
Contract liabilities, current23 27,915 
Total current liabilities360,670 378,245 
Related-party contract liability, less current portion276 1,295 
Contract liabilities, less current portion 3,398 
Operating lease liabilities, less current portion54,978 58,554 
Other non-current liabilities379 379 
Total liabilities416,303 441,871 
Commitments and contingencies (Note 6)
Stockholders' equity:
Convertible preferred stock, $0.01 par value; 40,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 0 shares issued and outstanding as of September 30, 2022 and December 31, 2021
  
Common stock, $0.01 par value; 400,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 123,796,438 shares and 122,283,305 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively
1,564 1,548 
Additional paid-in capital1,693,901 1,608,238 
Accumulated other comprehensive loss(11,853)(2,499)
Accumulated deficit(872,309)(644,996)
Total stockholders' equity811,303 962,291 
Total liabilities and stockholders’ equity$1,227,606 $1,404,162 
See accompanying notes to unaudited condensed consolidated financial statements.
3

Denali Therapeutics Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(In thousands, except share and per share amounts)

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Collaboration revenue:
Collaboration revenue from customers(1)
$184 $5,285 $94,805 $36,143 
Other collaboration revenue3,375  3,375 4 
Total collaboration revenue3,559 5,285 98,180 36,147 
Operating expenses:
Research and development(2)
87,786 71,559 266,621 197,477 
General and administrative23,259 19,319 66,959 57,300 
Total operating expenses111,045 90,878 333,580 254,777 
Loss from operations(107,486)(85,593)(235,400)(218,630)
Interest and other income, net4,187 1,005 8,114 3,310 
Loss before income taxes(103,299)(84,588)(227,286)(215,320)
Income tax expense  (27) 
Net loss(103,299)(84,588)(227,313)(215,320)
Other comprehensive income (loss):
Net unrealized gain (loss) on marketable securities, net of tax421 (153)(9,354)(276)
Comprehensive loss$(102,878)$(84,741)$(236,667)$(215,596)
Net loss per share, basic and diluted$(0.84)$(0.69)$(1.85)$(1.77)
Weighted average number of shares outstanding, basic and diluted123,473,390121,742,067123,054,889121,309,197
__________________________________________________
(1)Includes related-party collaboration revenue from a customer of $0.2 million and $2.9 million for the three and nine months ended September 30, 2022, respectively, and $0.9 million and $2.5 million for the three and nine months ended September 30, 2021, respectively.
(2)Includes expense for cost sharing payments due to a related party of $1.4 million and $3.8 million for the three and nine months ended September 30, 2022, respectively, and an offset to expense from related-party cost sharing reimbursements of $1.2 million and $5.3 million for the three and nine months ended September 30, 2021, respectively.

See accompanying notes to unaudited condensed consolidated financial statements.
 

4


Denali Therapeutics Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
(In thousands, except share amounts)    

Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders' Equity
SharesAmount
Balance at December 31, 2021122,283,305 $1,548 $1,608,238 $(2,499)$(644,996)$962,291 
Issuances under equity incentive plans
723,604 8 11,011 — — 11,019 
Vesting of restricted stock units
789,529 8 (8)— —  
Stock-based compensation
— — 74,660 — — 74,660 
Net loss
— — — — (227,313)(227,313)
Other comprehensive loss— — — (9,354)— (9,354)
Balance at September 30, 2022123,796,438 $1,564 $1,693,901 $(11,853)$(872,309)$811,303 
Balance at June 30, 2022123,157,278 $1,558 $1,664,174 $(12,274)$(769,010)$884,448 
Issuances under equity incentive plans331,643 3 5,151 — — 5,154 
Vesting of restricted stock units307,517 3 (3)— —  
Stock-based compensation— — 24,579 — — 24,579 
Net loss— — — — (103,299)(103,299)
Other comprehensive income— — — 421 — 421 
Balance at September 30, 2022123,796,438 $1,564 $1,693,901 $(11,853)$(872,309)$811,303 
Balance at December 31, 2020120,531,333 $1,531 $1,503,660 $(245)$(354,415)$1,150,531 
Issuances under equity incentive plans880,560 8 14,172 — — 14,180 
Vesting of restricted stock units599,258 6 (6)— —  
Stock-based compensation— — 63,162 — — 63,162 
Net loss— — — — (215,320)(215,320)
Other comprehensive loss— — — (276)— (276)
Balance at September 30, 2021122,011,151 $1,545 $1,580,988 $(521)$(569,735)$1,012,277 
Balance at June 30, 2021121,531,952 $1,541 $1,556,679 $(368)$(485,147)$1,072,705 
Issuances under equity incentive plans
228,048 2 3,313 — — 3,315 
Vesting of restricted stock units251,151 2 (2)— —  
Stock-based compensation
— — 20,998 — — 20,998 
Net loss
— — — — (84,588)(84,588)
Other comprehensive loss— — — (153)— (153)
Balance at September 30, 2021122,011,151 $1,545 $1,580,988 $(521)$(569,735)$1,012,277 
See accompanying notes to unaudited condensed consolidated financial statements.
5

Denali Therapeutics Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)

Nine Months Ended
September 30,
20222021
Operating activities
Net loss$(227,313)$(215,320)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization6,292 6,499 
Stock–based compensation expense74,660 63,162 
Net amortization of premiums on marketable securities1,430 6,316 
Non-cash adjustment to operating lease expense(2,488)(2,201)
Other non-cash items51  
Changes in operating assets and liabilities:
Prepaid expenses and other assets(1,386)8,049 
Accounts payable3,989 3,783 
Accruals and other current liabilities6,891 (3,036)
Contract liabilities(31,290)(10,601)
Related-party contract liability(2,889)(2,546)
Net cash used in operating activities(172,053)(145,895)
Investing activities
Purchases of marketable securities(628,330)(1,191,491)
Purchases of property and equipment(12,984)(5,447)
Maturities and sales of marketable securities627,486 1,216,062 
Net cash (used in) provided by investing activities(13,828)19,124 
Financing activities
Proceeds from exercise of awards under equity incentive plans11,019 14,180 
Net cash provided by financing activities11,019 14,180 
Net decrease in cash, cash equivalents and restricted cash(174,862)(112,591)
Cash, cash equivalents and restricted cash at beginning of period294,977 508,644 
Cash, cash equivalents and restricted cash at end of period$120,115 $396,053 
Supplemental disclosures of cash flow information
Property and equipment purchases accrued but not yet paid$284 $29 

See accompanying notes to unaudited condensed consolidated financial statements.
6

Denali Therapeutics Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1.    Significant Accounting Policies
Organization and Description of Business

Denali Therapeutics Inc. ("Denali" or the “Company”) is a biopharmaceutical company, incorporated in Delaware, that discovers and develops therapeutics to defeat neurodegenerative diseases. The Company is headquartered in South San Francisco, California.
Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of SEC Regulation S-X for interim financial information.

These unaudited condensed consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission on February 28, 2022 (the "2021 Annual Report on Form 10-K"). The Condensed Consolidated Balance Sheet as of December 31, 2021 was derived from the audited annual consolidated financial statements as of and for the period then ended. Certain information and footnote disclosures typically included in the Company's annual consolidated financial statements have been condensed or omitted. The accompanying unaudited condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary for a fair statement of the results of the interim periods presented. All such adjustments are of a normal recurring nature except for the impacts of adopting new accounting standards, if any, discussed below. These interim financial results are not necessarily indicative of results expected for the full fiscal year or for any subsequent interim period.

During the nine months ended September 30, 2022 there were no material changes to the Company's significant accounting and financial reporting policies from those reflected in the 2021 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 2021 Annual Report on Form 10-K.
Principles of Consolidation

These unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. For the Company and its subsidiaries, the functional currency has been determined to be U.S. dollars. Monetary assets and liabilities denominated in foreign currency are remeasured at period-end exchange rates, non-monetary assets and liabilities denominated in foreign currencies are remeasured at historical rates, and transactions in foreign currencies are remeasured at average exchange rates. Foreign currency gains and losses resulting from remeasurement are recognized in interest and other income, net in the Condensed Consolidated Statements of Operations and Comprehensive Loss.
7

Use of Estimates

The preparation of financial statements in conformity with U.S. 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 Statements of Operations and Comprehensive Loss.
Concentration of Credit Risk and Other Risks and Uncertainties

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, and marketable securities. Substantially all of the Company’s cash and cash equivalents are deposited in accounts with financial institutions that management believes are of high credit quality. Such deposits have and will continue to exceed federally insured limits. The Company maintains its cash with accredited financial institutions and accordingly, such funds are subject to minimal credit risk.

The Company’s investment policy limits investments to certain types of securities issued by the U.S. government and its agencies, as well as institutions with investment-grade credit ratings and places restrictions on maturities and concentration by type and issuer. The Company is exposed to credit risk in the event of a default by the financial institutions holding its cash, cash equivalents and marketable securities and issuers of marketable securities to the extent recorded on the Condensed Consolidated Balance Sheets. As of September 30, 2022 and December 31, 2021, the Company had no off-balance sheet concentrations of credit risk.

The Company is subject to a number of risks similar to other clinical-stage biopharmaceutical companies, including, but not limited to, the need to obtain adequate additional funding, possible failure of current or future preclinical testing or clinical trials, its reliance on third parties to conduct its clinical trials, the need to obtain regulatory and marketing approvals for its product candidates, competitors developing new technological innovations, the need to successfully commercialize and gain market acceptance of the Company’s product candidates, its right to develop and commercialize its product candidates pursuant to the terms and conditions of the licenses granted to the Company, protection of proprietary technology, the ability to make milestone, royalty or other payments due under any license or collaboration agreements, and the need to secure and maintain adequate manufacturing arrangements with third parties. If the Company does not successfully commercialize or partner any of its product candidates, it will be unable to generate product revenue or achieve profitability. Further, the company is also subject to broad market risks and uncertainties resulting from recent events, such as the COVID-19 pandemic, the Russian invasion of Ukraine, inflation, rising interest rates, and recession risks as well as supply chain and labor shortages.
Segments

The Company has one operating segment. The Company’s chief operating decision maker, its Chief Executive Officer, manages the Company’s operations on a consolidated basis for the purposes of allocating resources.
Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with original maturities of 90 days or less at the date of purchase to be cash and cash equivalents. Cash equivalents are reported at fair value.

8

Cash, cash equivalents, and restricted cash reported within the Condensed Consolidated Statements of Cash Flows is composed of Cash and Cash equivalents reported in the Condensed Consolidated Balance Sheets and $1.5 million of restricted cash for the letter of credit for the Company’s headquarters building lease, which is included within other non-current assets in the Condensed Consolidated Balance Sheets.
Marketable Securities

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, short-term marketable securities, or long-term marketable securities on the Condensed Consolidated Balance Sheets, are considered available-for-sale, and 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 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.

The Company periodically evaluates the need for an allowance for credit losses. This evaluation includes consideration of several qualitative and quantitative factors, including whether it has plans to sell the security, whether it is more likely than not it will be required to sell any marketable securities before recovery of its amortized cost basis, and if the entity has the ability and intent to hold the security to maturity, and the portion of any unrealized loss that is the result of a credit loss. Factors considered in making these evaluations include quoted market prices, recent financial results and operating trends, implied values from any recent transactions or offers of investee securities, credit quality of debt instrument issuers, expected cash flows from securities, other publicly available information that may affect the value of the marketable security, duration and severity of the decline in value, and the Company's strategy and intentions for holding the marketable security.
Accounts Receivable

Accounts receivable are included within prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets. The accounts receivable balance represents amounts receivable from the Company's collaboration partners, excluding related parties, net of an allowance for credit losses, if required.
Leases

The Company leases real estate, and certain equipment for use in its operations. 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.
9

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. 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.

Leases with an initial term of 12 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. The Company recognizes lease expenses on a straight-line basis over the lease term. The Company has leases with lease and non-lease components, which the Company has elected to account for as a single lease component.
Revenue Recognition

License, Option and Collaboration Revenue

The Company analyzes its collaboration arrangements to assess whether they are within the scope of ASC 808, Collaborative Arrangements (“ASC 808”) to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities. This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements within the scope of ASC 808 that contain multiple elements, the Company first determines which elements of the collaboration are deemed to be within the scope of ASC 808 and those that are more reflective of a vendor-customer relationship and, therefore, within the scope of Topic 606. For elements of collaboration arrangements that are accounted for pursuant to ASC 808, an appropriate recognition method is determined and applied consistently, generally by analogy to Topic 606. The accounting treatment pursuant to Topic 606 is outlined below.
The terms of license, option and collaboration agreements entered into typically include payment of one or more of the following: non-refundable, up-front license fees; option exercise fees; development, regulatory and commercial milestone payments; payments for manufacturing supply and research and development services and royalties on net sales of licensed products. Each of these payments results in license, collaboration and other revenue, except for revenues from royalties on net sales of licensed products, which are classified as royalty revenue. The core principle of Topic 606 is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received in exchange for those goods or services. The Company may also receive reimbursement or make payments to a collaboration partner to satisfy cost sharing requirements. These payments are accounted for pursuant to ASC 808 and are recorded as an offset or increase to research and development expenses, respectively.

In determining the appropriate amount of revenue to be recognized as the Company fulfills its obligations under each of its agreements, the Company performs the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations based on estimated selling prices; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
10

Amounts received prior to satisfying the revenue recognition criteria are recorded as contract liabilities in the Company’s Condensed Consolidated Balance Sheets. If the related performance obligation is expected to be satisfied within the next 12 months this will be classified in current liabilities. Amounts recognized as revenue prior to the Company having an unconditional right (other than a right that is conditioned only on the passage of time) to receipt are recorded as contract assets in the Company's Condensed Consolidated Balance Sheets. If the Company expects to have an unconditional right to receive the consideration in the next 12 months, this will be classified in current assets. A net contract asset or liability is presented for each contract with a customer.

At contract inception, the Company assesses the goods or services promised in a contract with a customer and identifies those distinct goods and services that represent a performance obligation. A promised good or service may not be identified as a performance obligation if it is immaterial in the context of the contract with the customer, if it is not separately identifiable from other promises in the contract (either because it is not capable of being separated or because it is not separable in the context of the contract), or if the promised good or service does not provide the customer with a material right.

The Company considers the terms of the contract to determine the transaction price. The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. Variable consideration will only be included in the transaction price when it is not considered constrained, which is when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur.

If it is determined that multiple performance obligations exist, the transaction price is allocated at the inception of the agreement to all identified performance obligations based on the relative standalone selling prices ("SSP"). The relative SSP for each deliverable is estimated using external sourced evidence if it is available. If external sourced evidence is not available, the Company uses its best estimate of the SSP for the deliverable.

Revenue is recognized when, or as, the Company satisfies a performance obligation by transferring a promised good or service to a customer. An asset is transferred when, or as, the customer obtains control of that asset, which for a service is considered to be as the services are received and used. The Company recognizes revenue over time by measuring the progress toward complete satisfaction of the relevant performance obligation using an appropriate input or output method based on the nature of the service promised to the customer.
After contract inception, the transaction price is reassessed at every period end and updated for changes such as resolution of uncertain events. Any change in the transaction price is allocated to the performance obligations on the same basis as at contract inception, or to a single performance obligation as applicable.

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

Comprehensive loss is composed of net loss and certain changes in stockholders’ equity that are excluded from net loss, primarily unrealized gains or losses on the Company’s marketable securities.
11

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.
2.    Fair Value Measurements
Assets and liabilities measured at fair value at each balance sheet date are as follows (in thousands):
September 30, 2022
Level 1Level 2Level 3Total
Assets:
Cash equivalents:
Money market funds$99,279 $ $ $99,279 
Commercial paper 7,949  7,949 
Short-term marketable securities:
U.S. government treasuries918,758   918,758 
Corporate debt securities 42,375  42,375 
Commercial paper 26,307  26,307 
Total$1,018,037 $76,631 $ $1,094,668 
December 31, 2021
Level 1Level 2Level 3Total
Assets:
Cash equivalents:
Money market funds$265,294 $ $ $265,294 
Short-term marketable securities:
U.S. government treasuries450,436   450,436 
Corporate debt securities 70,009  70,009 
Commercial paper 51,485  51,485 
Long-term marketable securities:
U.S. government treasuries410,147   410,147 
Corporate debt securities 15,302  15,302 
Total$1,125,877 $136,796 $ $1,262,673 
Liabilities:
Foreign currency derivative contracts$ $111 $ $111 
Total$ $111 $ $111 
The carrying amounts of cost sharing reimbursements due from and payments due to related party, prepaid expenses and other current assets, accounts payable, and accrued liabilities approximate their fair values due to their short-term maturities.

The Company’s Level 2 securities are valued using third-party pricing sources. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly.
The Company has not transferred any assets or liabilities between the fair value measurement levels.
12

3.    Marketable Securities
All marketable securities were considered available-for-sale at September 30, 2022 and December 31, 2021. On a recurring basis, the Company records its marketable securities at fair value using Level 1 or Level 2 inputs as disclosed in Note 2, "Fair Value Measurements". The amortized cost, gross unrealized holding gains or losses, and fair value of the Company’s marketable securities by major security type at each balance sheet date are summarized in the tables below (in thousands):
September 30, 2022
Amortized CostUnrealized Holding GainsUnrealized Holding LossesAggregate Fair Value
Short-term marketable securities:
U.S. government treasuries(1)
$929,628 $ $(10,870)$918,758 
Corporate debt securities(2)
43,007  (632)42,375 
Commercial paper
26,307   26,307 
Total short-term marketable securities
998,942  (11,502)987,440 
Total
$998,942 $ $(11,502)$987,440 
__________________________________________________
(1)Unrealized holding losses on 63 securities with an aggregate fair value of $918.8 million.
(2)Unrealized holding losses on 11 securities with an aggregate fair value of $42.4 million.


December 31, 2021
Amortized CostUnrealized Holding GainsUnrealized Holding LossesAggregate Fair Value
Short-term marketable securities:
U.S. government treasuries(1)
$450,689 $ $(253)$450,436 
Corporate debt securities(2)
70,076 1 (68)70,009 
Commercial paper
51,485   51,485 
Total short-term marketable securities
572,250 1 (321)571,930 
Long-term marketable securities:
U.S. government treasuries(3)
411,904  (1,757)410,147 
Corporate debt securities(4)
15,373  (71)15,302 
Total long-term marketable securities
427,277  (1,828)425,449 
Total
$999,527 $1 $(2,149)$997,379 
__________________________________________________
(1)Unrealized holding losses on 19 securities with an aggregate fair value of $450.4 million.
(2)Unrealized holding losses on 16 securities with an aggregate fair value of $68.5 million.
(3)Unrealized holding losses on 16 securities with an aggregate fair value of $410.1 million.
(4)Unrealized holding losses on 6 securities with an aggregate fair value of $15.3 million.

As of September 30, 2022 and December 31, 2021, a majority of the Company's marketable securities were in an unrealized loss position. The Company has not recognized an allowance for credit losses as of September 30, 2022 or December 31, 2021. 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. Further, these marketable securities were initially, and continue to be, held with investment grade, high credit quality institutions. All marketable securities with unrealized losses as of each balance sheet date have been in a loss position for less than 12 months or the loss is not material.

As of September 30, 2022 all of the Company’s marketable securities have an effective maturity of less than one year.
13

4.    Collaboration Agreements
Biogen

In August 2020, the Company entered into a binding Provisional Collaboration and License Agreement (“Provisional Biogen Collaboration Agreement”) with Biogen Inc.’s subsidiaries, Biogen MA Inc. (“BIMA”) and Biogen International GmbH (“BIG”) (BIMA and BIG, collectively, “Biogen”), which expired in October 2020 upon the execution of a Definitive LRRK2 Collaboration and License Agreement (“LRRK2 Agreement”) with Biogen on October 4, 2020 and a Right of First Negotiation, Option and License Agreement (the “ROFN and Option Agreement”) on October 6, 2020 (collectively, the "Biogen Collaboration Agreement"). The details of the Provisional Biogen Collaboration Agreement and the Biogen Collaboration Agreement and the payments the Company has received, and is entitled to receive, are further described in Note 6, "Collaboration Agreements", to the consolidated financial statements in the 2021 Annual Report on Form 10-K. During the third quarter of 2022, there were no changes to the terms of the Company’s collaboration agreement with Biogen, and no change in the transaction price for the Biogen Collaboration Agreement has been recorded during the three and nine months ended September 30, 2022.
A related-party contract liability of $290.8 million and $293.7 million was recorded on the Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021, respectively. Approximately $288.9 million of the September 30, 2022 contract liability relates to the revenue allocated to the material right for an option under the ROFN and Option Agreement which is being deferred until resolution of the option, which is expected to be within one year of the balance sheet date, and $1.9 million of this contract liability relates to the portion of the Option Research Services performance obligation yet to be satisfied, with such amount to be recognized over the estimated period of the services, which is expected to be more than one year. The Company recorded incremental research and development expenses in the Condensed Consolidated Statement of Operations and Comprehensive Loss of $1.4 million and $3.8 million for the three and nine months ended September 30, 2022, respectively, representing cost sharing payments owed to Biogen for LRRK2 Development Activities. The Company recorded $1.4 million of cost sharing payments due to related party on the Condensed Consolidated Balance Sheet as of September 30, 2022. The Company recorded $1.2 million and $5.3 million of cost sharing reimbursements for LRRK2 Development Activities as an offset to research and development expenses in the Condensed Consolidated Statement of Operations and Comprehensive Loss for the three and nine months ended September 30, 2021, respectively, and $1.2 million was recorded as cost sharing reimbursements due from related party on the Condensed Consolidated Balance Sheets as of December 31, 2021.

As of September 30, 2022, the Company had not achieved any milestones and had not recorded any product sales under the Biogen Collaboration Agreement.
Sanofi

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. ("Sanofi"). The details of the Sanofi Collaboration Agreement and the payments the Company has received, and is entitled to receive, are further described in Note 6, "Collaboration Agreements", to the consolidated financial statements in the Company's 2021 Annual Report on Form 10-K. During the third quarter of 2022, there were no changes to the terms of the Company’s collaboration agreement with Sanofi, and no changes in the transaction price of the Sanofi Collaboration Agreement. The transaction price of the Sanofi Collaboration Agreement increased by $40.0 million during the nine months ended September 30, 2022 related to a $40.0 million milestone triggered in April 2022 upon first patient in a Phase 2 study of SAR443820/DNL788 in individuals with amyotrophic lateral sclerosis (ALS) which was paid in May 2022.
14

A contract liability of $23,352 and $3.4 million was recorded on the Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021, respectively. This contract liability relates to the portion of the Alzheimer's Disease service performance obligation yet to be satisfied, with such amounts to be recognized over the estimated period of the services, which is expected to be less than a year as of September 30, 2022. The Company recorded no receivable associated with the Sanofi Collaboration Agreement on the Condensed Consolidated Balance Sheets as of both September 30, 2022 and December 31, 2021.

As of September 30, 2022, the Company had earned milestone payments of $65.0 million and had not recorded any product sales under the Sanofi Collaboration Agreement.
Takeda
Takeda Collaboration Agreement

In January 2018, the Company entered into a Collaboration and Option Agreement ("Takeda Collaboration Agreement") with Takeda Pharmaceutical Company Limited ("Takeda"). The details of the Takeda Collaboration Agreement are further described in Note 6, "Collaboration Agreements", to the consolidated financial statements in the Company's 2021 Annual Report on Form 10-K. Total preclinical milestone payments that Takeda may owe to the Company under this agreement is $55.0 million, all of which were earned and received as of September 30, 2022.
A contract liability of $27.9 million was recorded on the Condensed Consolidated Balance Sheet as of December 31, 2021 which was recognized in its entirety during the first quarter of 2022. No contract liability remains on the Condensed Consolidated Balance Sheet as of September 30, 2022.

There were no changes to the transaction price of the Takeda Collaboration Agreement during the third quarter of 2022. The transaction price of the Takeda Collaboration Agreement increased by $24.0 million during the nine months ended September 30, 2022 due to two $12.0 million preclinical milestones becoming unconstrained and recorded as collaboration revenue from customers. The first milestone was earned in January 2022 upon approval of the TAK-594/DNL593 ("PTV:PGRN") clinical trial application (CTA), and the second milestone was earned in June 2022 upon approval of the TAK-920/DNL919 ("ATV:TREM2") CTA. Payment for the PTV:PGRN milestone was received in February 2022, and the payment for ATV:TREM2 was received in July 2022. There was no receivable under the Takeda Collaboration Agreement as of either September 30, 2022 and December 31, 2021. The Company has no remaining performance obligations under the Takeda Collaboration Agreement.
PTV:PGRN and ATV:TREM2 Collaboration Agreements
Opt-in by Takeda on the PTV:PGRN and ATV:TREM2 programs represented two new contracts with a customer for accounting purposes (the "PTV:PGRN Collaboration Agreement" and the "ATV:TREM2 Collaboration Agreement"), both effective in December 2021. The details of the PTV:PGRN Collaboration Agreement and the ATV:TREM2 Collaboration Agreement are further described in Note 6, "Collaboration Agreements", to the consolidated financial statements in the Company's 2021 Annual Report on Form 10-K.
During the three and nine months ended September 30, 2022, there were no changes to the terms of either the PTV:PGRN Collaboration Agreement or the ATV:TREM2 Collaboration Agreement and no changes to the transaction prices for either agreement. Under the PTV:PGRN Collaboration Agreement and the ATV:TREM2 Collaboration Agreement, Takeda may be obligated to pay the Company up to an aggregate of $280.0 million upon achievement of certain clinical milestone events and up to an aggregate of $200.0 million in regulatory milestone events relating to receipt of regulatory approval in the United States, certain European countries and Japan. Takeda may also be obligated to pay the Company up to $75.0 million per biologic product upon achievement of a certain sales-based milestone, or an aggregate of $150.0 million if one biologic product from each program achieves this milestone.
15

The Company recorded $2.3 million and $8.0 million of cost sharing reimbursements for PTV:PGRN Development Activities, and $1.6 million and $5.2 million of cost sharing reimbursements for ATV:TREM2 Development Activities, for the three and nine months ended September 30, 2022, respectively, as offsets to research and development expenses in the Condensed Consolidated Statement of Operations and Comprehensive Loss. The cost sharing reimbursements for the three months ended September 30, 2022 are recorded as a receivable within prepaid expenses and other current assets on the Condensed Consolidated Balance Sheet as of September 30, 2022. There were no cost sharing reimbursements for the three and nine months ended September 30, 2021.
As of September 30, 2022, the Company had earned $10.0 million in option fee payments from Takeda under the PTV:PGRN and the ATV:TREM2 Collaboration Agreements, and had not recorded any product sales under either agreement.
Collaboration Revenue
Revenue disaggregated by collaboration agreement and performance obligation is as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Takeda Collaboration Agreement:
Takeda Collaboration Agreement Services(1)
$ $4,425 $51,916 $18,597 
Total Takeda Collaboration Revenue 4,425 51,916 18,597 
Sanofi Collaboration Agreement
CNS Program License  40,000  
Peripheral Program License   15,000 
   Alzheimer's Disease Services(2)
3,375  3,375 4 
Total Sanofi Collaboration Revenue3,375  43,375 15,004 
Biogen Collaboration Agreement
Option Research Services(2)
184 860 2,889 2,546 
Total Biogen Collaboration Revenue184 860 2,889 2,546 
Total Collaboration Revenue$3,559 $5,285 $98,180 $36,147 
_________________________________________________
(1)Revenue of $27.9 million and $15.6 million for the nine months ended September 30, 2022 and 2021, respectively, were included in the contract liability balance at the beginning of the period. All revenue for the three months ended September 30, 2021 was included in the contract liability balance at the beginning of the period.
(2)Revenue for the three and nine months ended September 30, 2022 and the nine months ended September 30, 2021 all represent amounts that were included in the contract liability balance at the beginning of the respective period.
16

5.     License Agreements
Genentech
In June 2016, the Company entered into an Exclusive License Agreement with Genentech, Inc. (“Genentech License Agreement”). The details of the Genentech License Agreement are further described in Note 7, "License Agreements", to the consolidated financial statements in the Company's 2021 Annual Report on Form 10-K. In June 2022, the Company paid Genentech a $7.5 million clinical milestone payment triggered upon the commencement of dosing in the global Phase 2b LUMA study to evaluate the efficacy and safety of BIIB122/DNL151 by the Company's collaboration partner Biogen. In September 2022, a further $5.0 million clinical milestone payment was triggered upon the commencement of dosing in the global Phase 3 LIGHTHOUSE study to evaluate the efficacy and safety profile of BIIB122/DNL151 by the Company's collaboration partner Biogen. This $5.0 million milestone payment is included within accrued clinical and other research and development costs on the Condensed Consolidated Balance Sheet as of September 30, 2022.
Biogen is responsible for 50% of any payment obligation to Genentech under the Biogen Collaboration Agreement, including these clinical milestones, and accordingly $2.5 million and $6.3 million of research and development expense under this agreement was recorded in the three and nine months ended September 30, 2022, respectively. There were no expenses recorded under the Genentech License Agreement for the three and nine months ended September 30, 2021.
To date, the Company has made payments to Genentech of $20.0 million in the aggregate, including an upfront fee, a technology transfer fee and two clinical milestone payments, with $16.3 million of this recorded as research and development expense as incurred, after cost sharing reimbursements from Biogen.
6.    Commitments and Contingencies
Lease Obligations
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 9, "Commitments and Contingencies," to the consolidated financial statements in the Company's 2021 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”). There was an amendment to the SLC Lease in July 2022, subsequent to which the rentable square feet is approximately 78,000, the contractual term is approximately 9.3 years which will commence upon completion of certain improvements by the landlord and the Company, and future undiscounted lease payments total approximately $19.5 million. For accounting purposes, the SLC lease, as amended, has not yet commenced as the landlord has not yet made the underlying asset available for use by Denali, and as such, no lease liability or ROU asset is recorded on the Condensed Consolidated Balance Sheets as of September 30, 2022, and no operating lease expense has been recorded for the three and nine months ended September 30, 2022.
Management exercised judgment in applying the requirements of ASC 842, including the determination as to whether certain contracts contain a lease and for leases identified under the standard, the discount rate used to determine the measurement of the lease liability. The discount rate 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. To estimate the incremental borrowing rates, 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 Company's existing operating leases recognized under ASC 842 during the three or nine months ended September 30, 2022.
17

The following table contains a summary of the lease costs recognized under ASC 842 and other information pertaining to the Company’s operating leases for the periods presented (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Operating lease cost (1)
$3,306 $2,863 $8,857 $8,429 
Cash paid for amounts included in measurement of lease liabilities$2,899 $2,618 $8,193 $7,717 
As of September 30,
20222021
Weighted average remaining lease term6.4 years7.6 years
Weighted average discount rate8.9%9.0%
__________________________________________________
(1)Including variable and short-term lease costs
The following table reconciles the undiscounted cash flows for the next five years and total of the remaining years to the operating lease liabilities recorded in the Condensed Consolidated Balance Sheet as of September 30, 2022 (in thousands):
Year Ended December 31:
2022 (three months)2,996 
202312,238 
202412,122 
202511,793 
202612,182 
Thereafter29,966 
Total undiscounted lease payments81,297 
Present value adjustment(19,251)
Net operating lease liabilities$62,046 
Sublease
In October 2018, the Company entered into a sublease agreement ("Sublease Agreement") for space in the corporate headquarters. The details of the Sublease Agreement are further described in Note 9, "Commitments and Contingencies", to the consolidated financial statements in the Company's 2021 Annual Report on Form 10-K. During the third quarter of 2022, there were no changes to the terms of the Sublease Agreement. Total sublease income, including rent and variable sublease cost reimbursements, of $1.0 million for both of the three months ended September 30, 2022 and 2021, and $2.9 million for both of the nine months ended September 30, 2022 and 2021, was recorded within Interest and other income, net in the Condensed Consolidated Statement of Operations and Comprehensive Loss.
The following table details the future undiscounted cash inflows relating to the Sublease Agreement as of September 30, 2022 (in thousands):
Year Ended December 31:
2022 (three months)758 
20233,096 
2024876 
2025 and thereafter 
Total undiscounted sublease receipts$4,730 
18

Indemnification
In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to vendors, lessors, business partners, board members, officers, and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, services to be provided by the Company, negligence or willful misconduct of the Company, violations of law by the Company, or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with directors and certain officers and employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No demands have been made upon the Company to provide indemnification under such agreements, and thus, there are no claims that the Company is aware of that could have a material effect on the Company’s Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations and Comprehensive Loss, or Condensed Consolidated Statements of Cash Flows.
Commitments
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. 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.
As of September 30, 2022 and December 31, 2021, the Company had open purchase orders for biological product development and manufacturing costs totaling $37.9 million and $35.8 million, respectively. The activities under these purchase orders are expected to be completed by October 2029. As of September 30, 2022 and December 31, 2021, the Company had total non-cancellable purchase commitments under the DMSA of $36.0 million and $28.3 million, respectively.
During the three months ended September 30, 2022 and 2021, the Company incurred costs of $3.4 million and $5.8 million, respectively, and made payments of $3.9 million and $4.0 million, respectively, for the development and manufacturing services rendered under the DMSA. During the nine months ended September 30, 2022 and 2021, the Company incurred costs of $22.9 million and $14.2 million, respectively, and made payments of $19.6 million and $10.4 million, respectively, for the development and manufacturing services rendered under the DMSA.
Contingencies
From time to time, the Company may be involved in lawsuits, arbitration, claims, investigations and proceedings consisting of intellectual property, employment and other matters which arise in the ordinary course of business. The Company records accruals for loss contingencies to the extent that the Company concludes that it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated.
7.    Stock-Based Awards
The Company has issued stock-based awards from various equity incentive and stock purchase plans, as more fully described in Note 10, "Stock-Based Awards" to the consolidated financial statements in the Company's 2021 Annual Report on Form 10-K.
19

Stock Option Activity
The following table summarizes stock option activity for the nine months ended September 30, 2022:
Number of Options
Weighted-Average
Exercise Price
Balance at December 31, 202113,686,386 $24.33 
Granted
2,168,090 43.54 
Exercised
(610,816)14.23 
Forfeited
(495,030)40.64 
Balance at September 30, 202214,748,630 $27.02 
Vested and expected to vest at September 30, 2022
13,137,935 $30.25 
Exercisable at September 30, 20229,553,685 $21.08 

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

Nine Months Ended September 30,
20222021
Expected term (in years)
5.50 - 6.08
5.50 - 6.08
Volatility
65.1% - 66.1%
62.2% - 63.7%
Risk-free interest rate
1.5% - 3.3%
0.5% - 1.2%
Dividend yield
Restricted Stock Activity
The following table summarizes restricted stock unit ("RSU") activity for the nine months ended September 30, 2022:
Number of RSU sharesWeighted-Average Fair Value at Date of Grant per Share
Unvested at December 31, 20212,629,980 $43.97 
Granted1,739,356 37.77 
Vested and released(789,529)40.14 
Forfeited(223,352)45.53 
Unvested and expected to vest at September 30, 20223,356,455 $41.55 
Stock-Based Compensation Expense
The Company’s results of operations include expenses relating to stock-based compensation as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Research and development
$14,716 $12,174 $45,144 $36,997 
General and administrative
9,863 8,824 29,516 26,165 
Total
$24,579 $20,998 $74,660 $63,162 
20

8.    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.

Potentially dilutive securities, including all options issued and outstanding, ESPP shares issuable, and restricted shares subject to future vesting, that were not included in the diluted per share calculations for all periods presented because they would be anti-dilutive totaled approximately 18.4 million and 16.5 million shares as of September 30, 2022 and September 30, 2021, respectively.
9.    Subsequent Event
In October 2022, the Company sold 11.9 million shares of common stock (inclusive of shares sold pursuant to an overallotment option granted to the underwriters in connection with the offering) through an underwritten public offering at a price of $26.50 per share for aggregate net proceeds of approximately $296.2 million.
21

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 could 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;

22

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 potential plans and ability to develop our own manufacturing facilities;