Denali(DNLI) - 2024 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents Denali Therapeutics Inc.'s unaudited condensed consolidated financial statements for the periods ended September 30, 2024 Condensed Consolidated Balance Sheets As of September 30, 2024, total assets increased to $1.45 billion from $1.15 billion at year-end 2023, primarily driven by an increase in additional paid-in capital from a private placement Condensed Consolidated Balance Sheets (in thousands) | | September 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total current assets | $868,839 | $1,064,137 | | Total assets | $1,454,013 | $1,153,917 | | Total current liabilities | $87,093 | $77,982 | | Total liabilities | $135,518 | $122,963 | | Total stockholders' equity | $1,318,495 | $1,030,954 | Condensed Consolidated Statements of Operations and Comprehensive Loss For the nine months ended September 30, 2024, the company reported no collaboration revenue, leading to a significantly higher net loss of $308.0 million compared to $25.8 million in the prior year Statement of Operations Highlights (in thousands, except per share data) | Metric | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Total collaboration revenue | $0 | $330,531 | $0 | $1,267 | | Research and development | $296,653 | $316,073 | $98,238 | $89,737 | | General and administrative | $75,379 | $78,585 | $24,949 | $25,325 | | Loss from operations | ($357,495) | ($64,127) | ($123,187) | ($113,795) | | Net loss | ($308,020) | ($25,751) | ($107,192) | ($99,353) | | Net loss per share | ($1.89) | ($0.19) | ($0.63) | ($0.72) | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity increased from $1.03 billion at year-end 2023 to $1.32 billion as of September 30, 2024, primarily due to a private placement offset by net loss - The company raised approximately $499.3 million in net proceeds from a private placement of common stock and pre-funded warrants in February 2024[9][96] - The net loss for the nine months ended September 30, 2024, was $308.0 million, which reduced retained earnings (accumulated deficit)[9] Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2024, net cash used in operating activities was $264.0 million, with a net decrease in cash of $36.5 million Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 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) | - Financing activities in 2024 were driven by $499.3 million in net proceeds from the issuance of common stock and pre-funded warrants[11][96] Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, fair value measurements, collaboration agreements, and key events including a new R&D funding agreement and a major private placement - In January 2024, the company entered into a Collaboration and Development Funding Agreement for up to $75.0 million to fund a Phase 2a study of BIIB122/DNL151 in Parkinson's disease patients[63] - In July 2024, Biogen terminated its license to the ATV:Abeta program, with Denali expecting no future milestone or royalty payments for this program[69] - On February 29, 2024, the company closed a private placement of common stock and pre-funded warrants, receiving net proceeds of approximately $499.3 million[96] - On March 1, 2024, the company divested certain preclinical small molecule drug discovery assets for equity consideration valued at $15.0 million, recognizing a gain of approximately $14.5 million[104][105][108] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition, operations, and key 2024 events, including a significant net loss and strategic financing - The company plans to file a Biologics License Application (BLA) for accelerated approval for tividenofusp alfa (DNL310) for MPS II in early 2025, based on successful discussions with the FDA[122] - In March 2024, the company completed the divestiture of its preclinical small molecule portfolio to prioritize its TV-enabled platforms for large molecules[123] - The company secured approximately $499.3 million in net proceeds from a private placement in February 2024 and an additional $75.0 million funding commitment for its BIIB122/DNL151 Parkinson's disease program[123] Comparison of Results of Operations (in thousands) | | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Total collaboration revenue | $0 | $330,531 | | Research and development | $296,653 | $316,073 | | General and administrative | $75,379 | $78,585 | | Net loss | ($308,020) | ($25,751) | - The decrease in collaboration revenue for the nine months ended Sep 30, 2024, was primarily due to a $293.9 million revenue recognition in 2023 from Biogen's exercise of its ATV:Abeta option, which did not recur in 2024[142] - As of September 30, 2024, the company had $1.28 billion in cash, cash equivalents, and marketable securities, believed sufficient to fund operations for at least the next 12 months[152][160] Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to market risks related to interest rate and foreign currency sensitivities, with its investment portfolio intended to preserve capital - The company's primary market risk exposures are to changes in interest rates and foreign currency exchange rates[173] - The investment portfolio of $1.28 billion as of September 30, 2024, is subject to interest rate risk, but a hypothetical 10% relative change in rates is not expected to have a material impact[174][175] - Foreign exchange risk arises from transactions denominated in currencies other than the U.S. dollar, mainly the Euro, Swiss Franc, and British Pound, for certain preclinical, clinical, and manufacturing activities[176] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of September 30, 2024, with no material changes to internal control over financial reporting - The Chief Executive Officer and Chief Operating and Financial Officer concluded that as of September 30, 2024, the company's disclosure controls and procedures were effective at a reasonable assurance level[179] - No material changes to the company's internal control over financial reporting occurred during the quarter ended September 30, 2024[180] PART II. OTHER INFORMATION Legal Proceedings The company reports that it is not currently a party to any litigation or legal proceedings likely to have a material adverse effect on its business - As of the report date, the company is not involved in any legal proceedings that management believes would have a material adverse effect on the business[182] Risk Factors This section details significant risks, including platform dependence, development uncertainties, financial losses, and third-party reliance - Business & Financial Risks: The company is a clinical-stage entity with a history of significant net losses, no approved products, and a need for future financing. A pandemic or economic downturn could adversely affect operations[185] - Development & Commercialization Risks: The company is heavily dependent on its BBB technology and pipeline. Development in neurodegenerative diseases has historically seen limited success. Clinical trials may face delays, enrollment difficulties, or reveal adverse events. Competition is significant[185] - Regulatory & Legal Risks: The regulatory approval process is lengthy and unpredictable. Data from trials outside the U.S. may not be accepted. The business is subject to complex laws regarding data privacy and healthcare costs[185] - Third-Party Reliance Risks: The company depends on collaborations for development and commercialization, and on third parties for conducting clinical trials and manufacturing, which may not be performed satisfactorily[186] - Intellectual Property Risks: The inability to obtain and maintain patent protection for its technology and product candidates could harm its competitive position. Its rights are also subject to the terms of licenses from others[186] Unregistered Sales of Equity Securities and Use of Proceeds On February 27, 2024, the company completed a private placement of common stock and pre-funded warrants, generating approximately $499.3 million in net proceeds for R&D and general corporate purposes - In February 2024, the company sold 3,244,689 shares of common stock and pre-funded warrants to purchase 26,046,065 shares in a private placement[497] - The private placement generated net proceeds of approximately $499.3 million, which will be used to support R&D, advance the TV technology platform, and for general corporate purposes[497] Defaults Upon Senior Securities Not applicable, as the company reports no defaults upon senior securities - No defaults upon senior securities were reported[500] Mine Safety Disclosures Not applicable, as the company has no mine safety disclosures - No mine safety disclosures were reported[500] Other Information This section discloses that certain directors and executive officers adopted Rule 10b5-1 trading plans during the third quarter of 2024 Rule 10b5-1 Trading Plan Adoptions in Q3 2024 | Name | Position | Date of Plan Adoption | Max Shares to be Sold | | :--- | :--- | :--- | :--- | | David Schenkein | Director | 8/12/2024 | 110,524 | | Ryan Watts | Chief Executive Officer | 9/16/2024 | 495,282 | Exhibits This section provides an index of the exhibits filed with the Quarterly Report on Form 10-Q, including certifications and XBRL data files - The report includes CEO and CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act[503] - Inline XBRL documents are also furnished as exhibits with this report[503]