Denali(US:DNLI)2022-08-07 16:00PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents Denali Therapeutics Inc.'s unaudited condensed consolidated financial statements as of June 30, 2022, showing total collaboration revenue of $94.6 million and a net loss of $124.0 million for the six months ended June 30, 2022, with total assets decreasing to $1.29 billion from $1.40 billion Condensed Consolidated Balance Sheets Total assets decreased to $1.29 billion as of June 30, 2022, from $1.40 billion at December 31, 2021, primarily due to reduced cash and marketable securities, while total liabilities decreased to $408.0 million from $441.9 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $155,088 | $293,477 | | Total current assets | $1,114,600 | $897,234 | | Total assets | $1,292,462 | $1,404,162 | | Liabilities & Stockholders' Equity | | | | Total current liabilities | $348,160 | $378,245 | | Total liabilities | $408,014 | $441,871 | | Total stockholders' equity | $884,448 | $962,291 | Condensed Consolidated Statements of Operations and Comprehensive Loss For Q2 2022, Denali reported a net loss of $58.8 million or ($0.48) per share, a slight decrease from $60.7 million or ($0.50) per share in Q2 2021, driven by increased collaboration revenue offsetting a 41% rise in R&D expenses Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total collaboration revenue | $52,480 | $22,939 | $94,621 | $30,862 | | Research and development | $92,737 | $65,711 | $178,835 | $125,918 | | General and administrative | $21,159 | $19,045 | $43,700 | $37,981 | | Loss from operations | ($61,416) | ($61,817) | ($127,914) | ($133,037) | | Net loss | ($58,794) | ($60,691) | ($124,014) | ($130,732) | | Net loss per share | ($0.48) | ($0.50) | ($1.01) | ($1.08) | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity decreased from $962.3 million at December 31, 2021, to $884.4 million at June 30, 2022, primarily due to a $124.0 million net loss, partially offset by stock-based compensation and equity incentive plan proceeds Changes in Stockholders' Equity (in thousands) | Description | Amount | | :--- | :--- | | Balance at December 31, 2021 | $962,291 | | Net loss (Six months ended June 30, 2022) | ($124,014) | | Stock-based compensation | $50,081 | | Issuances under equity incentive plans | $5,865 | | Other comprehensive loss | ($9,775) | | Balance at June 30, 2022 | $884,448 | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities increased to $115.0 million for the six months ended June 30, 2022, while investing activities shifted from providing $72.1 million to using $29.2 million, resulting in a $138.4 million decrease in cash, cash equivalents, and restricted cash Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | ($115,007) | ($104,461) | | Net cash (used in) provided by investing activities | ($29,247) | $72,132 | | Net cash provided by financing activities | $5,865 | $10,865 | | Net decrease in cash, cash equivalents and restricted cash | ($138,389) | ($21,464) | Notes to Condensed Consolidated Financial Statements The notes detail significant accounting policies and financial statement items, highlighting $40.0 million and $24.0 million in collaboration milestones from Sanofi and Takeda respectively, a $7.5 million milestone payment to Genentech, and $25.2 million in non-cancellable purchase commitments with Lonza - The company recognized a $40.0 million milestone from Sanofi in April 2022 upon the first patient dosing in a Phase 2 study of SAR443820/DNL788 for ALS66 - Two preclinical milestones from Takeda totaling $24.0 million were recognized in the first six months of 2022 upon CTA approvals for TAK-594/DNL593 and TAK-920/DNL91972 - In June 2022, the company paid a $7.5 million clinical milestone to Genentech triggered by the start of dosing in the Phase 2b LUMA study for BIIB122/DNL151, with Biogen responsible for 50% of this payment81 - As of June 30, 2022, the company had $25.2 million in non-cancellable purchase commitments with Lonza for the development and manufacturing of biologic products92 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, noting increased collaboration revenue from Sanofi and Takeda milestones, offset by rising R&D expenses for clinical programs, with $1.16 billion in cash, cash equivalents, and marketable securities deemed sufficient for at least the next 12 months Overview Denali's strategy targets neurodegenerative diseases using genetically validated pathways, proprietary BBB platform for brain delivery, and biomarkers, with key 2022 milestones including a $40.0 million Sanofi milestone and two $12.0 million Takeda milestones from clinical advancements - The company's strategy is guided by three principles: targeting genetically validated pathways (degenogenes), engineering brain delivery across the blood-brain barrier (BBB), and using biomarkers to drive development109111 - Key 2022 milestones include the initiation of a Phase 2 ALS study by Sanofi for SAR443820/DNL788, triggering a $40.0 million milestone payment118 - Collaboration partner Biogen commenced dosing in the global Phase 2b LUMA study for BIIB122/DNL151 in Parkinson's disease, triggering a milestone payment to Genentech120 - The company's IND application for TAK-920/DNL919 (ATV:TREM2) was placed on clinical hold by the FDA in January 2022, but a Phase 1 study has commenced in the Netherlands120 Results of Operations Q2 2022 collaboration revenue increased by $29.6 million to $52.5 million due to Sanofi and Takeda milestones, while R&D expenses rose by $27.0 million to $92.7 million driven by program advancements and personnel costs, and G&A expenses increased by $2.2 million to $21.2 million Comparison of Operating Results (in thousands) | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total collaboration revenue | $52,480 | $22,939 | $29,541 | 128.8% | | Research and development | $92,737 | $65,711 | $27,026 | 41.1% | | General and administrative | $21,159 | $19,045 | $2,114 | 11.1% | | Net loss | ($58,794) | ($60,691) | $1,897 | 3.1% | - The increase in R&D expenses for Q2 2022 was primarily driven by a $10.4 million increase in ETV:IDS program external expenses as it progresses towards a Phase 2/3 study, and a $6.3 million increase in LRRK2 program external expenses, which included a $7.5 million milestone payment to Genentech143145 Liquidity and Capital Resources As of June 30, 2022, Denali held $1.16 billion in cash, cash equivalents, and marketable securities, with management asserting sufficiency for at least the next 12 months, having cumulatively received $843.0 million from collaboration agreements and establishing a $400.0 million 'at-the-market' facility - The company had cash, cash equivalents, and marketable securities of $1.16 billion as of June 30, 2022157 - Management believes existing cash resources are sufficient to fund projected operations for at least the 12 months following the filing date of the Form 10-Q161 - Through June 30, 2022, the company has received a total of $843.0 million in upfront, option, and milestone payments from its collaboration agreements with Takeda ($93.0 million), Sanofi ($190.0 million), and Biogen ($560.0 million)155 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rate sensitivity on its $1.16 billion investment portfolio and foreign currency sensitivity from transactions in Euro, Swiss francs, and British Pound, with a hypothetical 10% interest rate change not expected to have a material impact - The company is exposed to market risk from changes in interest rates on its $1.16 billion portfolio of cash, cash equivalents, and marketable securities175 - Foreign currency sensitivity is a risk due to transactions denominated in the Euro, Swiss francs, and British Pound for preclinical, clinical, and manufacturing activities177 Item 4. Controls and Procedures As of June 30, 2022, management concluded that the company's disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2022180 - There were no material changes to the company's internal control over financial reporting during the second quarter of 2022181 PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently a party to any litigation or legal proceedings expected to have a material adverse effect on its business - Denali is not currently a party to any legal proceedings expected to have a material adverse effect on its business184 Item 1A. Risk Factors This section details significant risks, substantially similar to those in the 2021 Annual Report, including the company's early development stage, history of net losses, dependence on its BBB platform, high failure rates in neurodegenerative drug development, reliance on third-party collaborations and manufacturing, and intellectual property protection challenges - The company is in the early stages of clinical drug development with a limited operating history, has incurred significant net losses since inception, and has no products approved for commercial sale188197199 - The business is heavily dependent on the successful development of its blood-brain barrier (BBB) technology and its early-stage pipeline, with no assurance of regulatory approval for any product candidates189231 - The company depends on collaborations with third parties like Biogen, Sanofi, and Takeda for research, development, and commercialization, and relies on third parties for clinical trial conduct and manufacturing192384393 - There is a significant risk of being unable to obtain and maintain patent protection for its product candidates and BBB technology, which is critical for its competitive position193410 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the quarter and confirmed no material change in the planned use of $193.9 million net proceeds from its January 2020 public offering - There were no unregistered sales of equity securities during the period541 - The company confirmed no material change in the planned use of proceeds from its January 2020 public offering of $193.9 million542 Other Information (Items 3-6) This section addresses standard disclosure items, reporting no defaults upon senior securities, no mine safety disclosures, and no other material information, while Item 6 provides an index of filed exhibits - Items 3 (Defaults Upon Senior Securities), 4 (Mine Safety Disclosures), and 5 (Other Information) are noted as not applicable or having no information to report544545546 - Item 6 lists the exhibits filed with the quarterly report, including officer certifications and XBRL data files550551