Denali(DNLI) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The unaudited condensed consolidated financial statements for Denali Therapeutics Inc. as of June 30, 2025, show a decrease in total assets to $1.17 billion from $1.37 billion at year-end 2024, primarily due to cash used in operations Condensed Consolidated Balance Sheets As of June 30, 2025, the company's total assets were $1.17 billion, a decrease from $1.37 billion at December 31, 2024, driven by a reduction in cash and long-term marketable securities Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $141,207 | $174,960 | | Total current assets | $934,706 | $864,436 | | Total assets | $1,166,241 | $1,374,180 | | Total current liabilities | $91,057 | $102,208 | | Total liabilities | $139,188 | $144,496 | | Total stockholders' equity | $1,027,053 | $1,229,684 | Condensed Consolidated Statements of Operations and Comprehensive Loss For the three months ended June 30, 2025, Denali reported a net loss of $124.1 million, compared to a $99.0 million loss in the same period of 2024, primarily due to increased research and development expenses Statement of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Research and development | $102,696 | $91,399 | $218,923 | $198,415 | | General and administrative | $32,267 | $25,194 | $61,620 | $50,430 | | Loss from operations | $(134,963) | $(116,593) | $(280,543) | $(234,308) | | Net loss | $(124,119) | $(99,026) | $(257,089) | $(200,828) | | Net loss per share | $(0.72) | $(0.59) | $(1.50) | $(1.26) | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity decreased from $1.23 billion at the end of 2024 to $1.03 billion as of June 30, 2025, primarily driven by the net loss for the six-month period - Total stockholders' equity declined by approximately $202.6 million in the first six months of 2025, from $1,229,684 thousand to $1,027,053 thousand[15] - The primary driver of the decrease in equity was the net loss of $257,089 thousand for the six months ended June 30, 2025[15] Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2025, net cash used in operating activities was $206.8 million, while net cash provided by investing activities was $176.7 million, resulting in a net decrease in cash of $32.2 million Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(206,766) | $(204,840) | | Net cash provided by (used in) investing activities | $176,683 | $(354,618) | | Net cash (used in) provided by financing activities | $(2,139) | $507,031 | | Net decrease in cash, cash equivalents and restricted cash | $(32,222) | $(52,427) | Notes to Condensed Consolidated Financial Statements The notes detail significant accounting policies, fair value measurements, collaboration agreements, and commitments, including the termination of several collaboration programs and a research and development funding agreement - In July 2024, Biogen terminated its license to the ATV:Abeta program for Alzheimer's disease, ending future milestone or royalty payments for this program[51] - In February 2025, Sanofi terminated its license to the CNS Products program (SAR443820/DNL788), and Takeda terminated the ATV:TREM2 collaboration program[54][58] - The company entered into an R&D funding agreement in January 2024, receiving $25.0 million in 2024 and another $25.0 million in Q1 2025 to support a Phase 2a study of BIIB122/DNL151 in Parkinson's disease[48][49] - In March 2024, the company divested certain preclinical small molecule programs to Tenvie Therapeutics, Inc. in exchange for $15.0 million in equity, recognizing a gain of approximately $14.5 million[80][81][82] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial results, highlighting an increase in operating expenses driven by advancing clinical programs and operating a new manufacturing facility, with sufficient cash to fund operations for at least the next twelve months Overview and Key Milestones The company highlights its strategy focused on its Transport Vehicle (TV) platform and key operational milestones in 2025, including BLA submission for tividenofusp alfa and alignment with the FDA on an accelerated approval pathway for DNL126 - Completed a rolling Biologics License Application (BLA) submission for tividenofusp alfa (DNL310) for MPS II under the accelerated approval pathway in May 2025[94] - The FDA accepted the BLA for tividenofusp alfa for priority review, with a PDUFA target action date of January 5, 2026[94] - Reached alignment with the FDA that cerebrospinal fluid heparan sulfate (CSF HS) may be used as a surrogate endpoint to support accelerated approval of DNL126 for MPS IIIA[94] - Opened a new clinical biomanufacturing facility in Salt Lake City, Utah, in March 2025 to expand manufacturing capabilities[94] Results of Operations For the six months ended June 30, 2025, R&D expenses increased by $20.5 million (10%) and G&A expenses rose by $11.2 million (22%), primarily due to TV programs, the new manufacturing facility, and commercial launch preparations Change in Operating Expenses (Six Months Ended June 30, in thousands) | Expense Category | 2025 | 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Research and development | $218,923 | $198,415 | $20,508 | 10% | | General and administrative | $61,620 | $50,430 | $11,190 | 22% | | Total operating expenses | $280,543 | $248,845 | $31,698 | 13% | - The increase in R&D expenses was primarily due to an $18.1 million increase in TV program external costs and a $12.3 million increase in other R&D expenses related to the new Salt Lake City facility[113] - The increase in G&A expenses was primarily driven by activities related to preparations for a potential commercial launch for tividenofusp alfa[114] Liquidity and Capital Resources As of June 30, 2025, the company had $977.4 million in cash, cash equivalents, and marketable securities, which management believes is sufficient to support projected operations for at least the next twelve months - The company held $977.4 million in cash, cash equivalents, and marketable securities as of June 30, 2025[116] - In February 2024, the company received net proceeds of approximately $499.3 million from a private placement of common stock and pre-funded warrants[118] - Management believes existing cash is sufficient to fund operations for at least the next twelve months from the filing date of this report[124] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks primarily from interest rate and foreign currency sensitivities on its $977.4 million investment portfolio, though a hypothetical 10% change in interest rates is not expected to have a material impact - The company's primary market risk exposures are interest rate sensitivity on its $977.4 million portfolio of cash and marketable securities and foreign currency risk[135][136] - The investment portfolio is designed to preserve capital and consists of high-credit-quality, short-term duration securities. A hypothetical 10% change in interest rates is not expected to have a material impact[137] - Foreign currency risk arises from transactions denominated in the Euro, Swiss Franc, and British Pound related to preclinical, clinical, and manufacturing activities[138] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of June 30, 2025, the company's disclosure controls and procedures were effective at a reasonable assurance level[141] - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, internal controls[142] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently a party to any litigation or legal proceedings that management believes are likely to have a material adverse effect on its business - Denali is not currently involved in any legal proceedings expected to have a material adverse effect on the business[144] Item 1A. Risk Factors This section details significant risks that could harm the company's business, financial condition, and growth prospects, including its history of net losses, dependence on its TV platform, drug development uncertainty, regulatory hurdles, reliance on third parties, and intellectual property challenges Risks Related to Business, Financial Condition and Capital Requirements The company has a limited operating history, no approved products, and a history of significant net losses, with future profitability uncertain and potential need for additional dilutive capital - The company has incurred significant net losses since inception, with an accumulated deficit of $1.80 billion as of June 30, 2025, and expects to continue incurring losses[154] - As a clinical-stage company with no approved products, its business is difficult to evaluate and subject to the high risks of drug development[153] - The company may require additional financing to complete development and commercialization, and failure to obtain it could force delays or discontinuation of programs[164][167] Risks Related to Discovery, Development, and Commercialization The company's success is heavily dependent on its TV platform and clinical-stage candidates, facing high failure rates in neurodegenerative diseases, risks of clinical trial delays, and challenges in manufacturing, competition, and market acceptance - The company is heavily dependent on the success of its TV technology and its pipeline candidates, which are still in development and may not receive regulatory approval[169] - The company's focus on neurodegenerative and lysosomal storage diseases is a high-risk field with a history of limited drug development success[175] - Clinical trials may be substantially delayed or fail, as exemplified by the Phase 2/3 HEALEY ALS Platform Trial for DNL343, which did not meet its primary endpoints[171][177] Risks Related to Regulatory Approval and Legal Compliance The regulatory approval process is lengthy, costly, and unpredictable, with no guarantee of success, and products will be subject to extensive ongoing scrutiny and compliance with complex healthcare and data privacy laws - The regulatory approval process is lengthy and unpredictable, and there is no guarantee that any product candidates will be approved[224] - Even if accelerated approval is granted for DNL310, the FDA will require a confirmatory study, and failure of this study could lead to withdrawal of the approval[235] - The business is subject to complex and evolving U.S. and foreign laws regarding data privacy (GDPR, CCPA) and healthcare fraud and abuse, with non-compliance risking significant penalties[243][245] Risks Related to Reliance on Third Parties Denali depends heavily on collaborations with partners for development and commercialization, and on third-party CROs and CDMOs for clinical trials and manufacturing, introducing risks related to performance, regulatory compliance, and supply chain continuity - The company depends on collaborations with third parties (e.g., Biogen, Sanofi, Takeda) for R&D and commercialization, and the success of these programs depends on the collaborators' performance[257] - Denali relies on third-party CROs to conduct clinical trials and third-party manufacturers for most of its materials, creating risks related to quality, timeliness, and regulatory compliance[262][267] Risks Related to Intellectual Property The company's success depends on obtaining and maintaining patent protection for its TV platform and product candidates, which is challenging and subject to risks of invalidation, non-compliance with license agreements, and third-party infringement claims - The company's ability to commercialize its products depends on obtaining and maintaining patent protection for its TV platform and candidates, which is uncertain[275][277] - The company relies on licenses from third parties (e.g., Genentech, F-star) and could lose important rights if it fails to comply with its obligations under these agreements[285][289] - The company may face third-party claims of intellectual property infringement, which could be expensive to defend and could prevent or delay the commercialization of its products[318][322] Risks Related to Operations The company is highly dependent on key personnel and faces challenges in managing growth, with internal computer systems vulnerable to cyberattacks and operations subject to disruption from external events - Denali is highly dependent on its key managerial and scientific personnel, and the inability to attract and retain them could harm the business[328][329] - Internal computer systems are vulnerable to security breaches and cyberattacks, which could lead to data loss, disruption of development programs, and liability[338][340] - Business operations are subject to risks from international operations, economic instability, and disruptions like natural disasters or public health crises[343][345] Risks Related to Ownership of Common Stock The market price of the company's common stock is highly volatile, future capital raises may cause significant dilution, and principal stockholders and management can exercise substantial influence - The trading price of the company's common stock is highly volatile and subject to wide fluctuations[350] - Raising additional capital may cause dilution to existing stockholders or require relinquishing rights to technologies or product candidates[356][358] - Principal stockholders and management own a significant percentage of stock, enabling them to exercise significant influence over matters requiring stockholder approval[360] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In February 2024, the company completed a private placement of common stock and pre-funded warrants, raising approximately $499.3 million for R&D, TV technology expansion, and general corporate purposes - On February 29, 2024, the company closed a private placement of 3,244,689 shares of common stock and pre-funded warrants to purchase 26,046,065 shares, receiving net proceeds of approximately $499.3 million[375] - The proceeds will be used to support R&D, accelerate the BBB-crossing TV technology, and for general corporate purposes[375] Item 5. Other Information Co-founder Marc Tessier-Lavigne will step down from the Board effective September 1, 2025, and no officers or directors adopted or terminated a Rule 10b5-1 trading plan during the second quarter of 2025 - Co-founder and Board member Marc Tessier-Lavigne will step down from the Board effective September 1, 2025[383] - No officers or directors adopted or terminated a Rule 10b5-1 trading arrangement during the second quarter ended June 30, 2025[384]