Denali Therapeutics Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Denali is a clinical-stage biopharmaceutical company developing treatments for neurodegenerative diseases; it had no approved products and no product-sales revenue.
Financial performance and position
| Metric | Q2 2022 | Six months 2022 | Comparable 2021 period |
|---|---|---|---|
| Collaboration revenue | $52.5 million | $94.6 million | $22.9 million Q2; $30.9 million six months |
| Research and development expense | $92.7 million | $178.8 million | $65.7 million Q2; $125.9 million six months |
| General and administrative expense | $21.2 million | $43.7 million | $19.0 million Q2; $38.0 million six months |
| Operating loss | $61.4 million | $127.9 million | $61.8 million Q2; $133.0 million six months |
| Net loss | $58.8 million | $124.0 million | $60.7 million Q2; $130.7 million six months |
| Net loss per share, basic and diluted | $0.48 | $1.01 | $0.50 Q2; $1.08 six months |
Collaboration revenue was driven by partner payments and milestones, not product sales. Q2 included a $40 million Sanofi milestone after first patient dosing in a Phase 2 ALS study and a $12 million Takeda milestone for CTA approval of the ATV:TREM2 program. Six-month revenue also included a $12 million Takeda milestone for PTV:PGRN and revenue associated with termination of the Tau program. Operating expenses exceeded collaboration revenue in both periods; derived operating-loss margins were approximately 117% of revenue for Q2 and 135% for the first six months.
Cash flow and liquidity: Cash, cash equivalents and marketable securities totaled approximately $1.163 billion at June 30, 2022. Cash and cash equivalents were $155.1 million; short- and long-term marketable securities totaled $1.008 billion. Operating cash outflow was $115.0 million for the first six months, versus $104.5 million in 2021. Investing activities used $29.2 million, while financing provided $5.9 million. Current assets were $1.115 billion and current liabilities $348.2 million. The filing reports no debt balance; operating lease liabilities were $61.4 million. Available-for-sale securities had $11.9 million of gross unrealized losses, reflected in accumulated other comprehensive loss.
Accumulated deficit was $769.0 million. Stock-based compensation was $50.1 million for the first six months. Shares issued and outstanding were 123.2 million at June 30, 2022; 123,348,168 were outstanding August 1, 2022.
Material changes versus 2021
- Six-month collaboration revenue increased $63.8 million, primarily from Takeda and Sanofi milestones and other collaboration accounting.
- Six-month R&D expense rose $52.9 million, led by ETV:IDS clinical development and preparation for a planned Phase 2/3 study, higher personnel costs, and spending on LRRK2, the transport-vehicle platform and other programs.
- Six-month G&A expense increased $5.7 million, mainly due to headcount and related costs.
- Despite higher expenses, six-month net loss improved by $6.7 million year over year, largely reflecting increased collaboration revenue. Cash used in operations increased by $10.5 million.
- Unrealized marketable-security losses increased, contributing to a $9.8 million six-month other comprehensive loss.
Outlook, risks and notable items
- Management said existing cash, cash equivalents and marketable securities were expected to fund projected operations through at least 12 months after the filing date, while noting the estimate depends on assumptions. The company expects continued significant losses and R&D expense growth and anticipates needing substantial additional funding longer term.
- A $400 million at-the-market equity facility was established in February 2022; no shares had been issued under it by June 30. Future equity financing could dilute shareholders; debt or collaborations could impose other costs or constraints.
- The FDA had placed the TAK-920/DNL919 (ATV:TREM2) IND on clinical hold in January 2022. Denali said it was engaging with U.S. and European regulators on a path forward. The filing also describes subsequent August 2022 program announcements, including initiation of a Phase 1 study for this candidate and plans for a Phase 3 LRRK2 study; these are post-quarter updates, not June 30 results.
- Denali reported interim DNL310 data showing sustained CSF heparan-sulfate normalization and a safety profile described as comparable with standard-of-care therapy; interim and preliminary clinical findings may change as data mature and are verified.
- Key risks include clinical failure or delay, regulatory holds, patient enrollment, dependence on collaborators and contract manufacturers, complex biologic manufacturing and supply chains, competition, intellectual-property disputes, and broader COVID-19, geopolitical, inflation, interest-rate and recession risks.
- Lonza non-cancellable purchase commitments were $25.2 million at June 30, 2022. The Salt Lake City lease amendment was made in July; the lease had not commenced for accounting purposes at quarter-end.
- Management reported disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2022, with no material change in internal control over financial reporting during the quarter. No material litigation was reported.
Investor verification priorities
- Check the status, timelines, enrollment and full data readouts for DNL310, BIIB122/DNL151, DNL343, the Sanofi RIPK1 programs and Takeda’s PTV:PGRN and ATV:TREM2 programs, particularly the FDA clinical hold and its resolution.
- Assess cash burn, the assumptions behind the stated 12-month runway, planned R&D spending, lease and manufacturing commitments, and whether the ATM facility is used.
- Review the timing and conditions of partner milestones, cost-sharing arrangements, and the substantial Biogen-related deferred contract liability, including the option-related material right.
- Distinguish recurring collaboration-service revenue from milestone or other non-recurring revenue; confirm there remains no product revenue.
- Monitor investment-security values and interest-rate exposure, as well as clinical, regulatory, manufacturing, collaboration and financing risks.