Denali Therapeutics Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Denali is a clinical-stage biopharmaceutical company developing treatments for neurodegenerative diseases. It has no products approved for sale and generated no product revenue; reported revenue is from collaborations and licensing arrangements.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / prior balance-sheet date |
|---|---|---|
| Collaboration revenue | $35.1 million | $42.1 million |
| Research and development expense | $128.8 million | $86.1 million |
| General and administrative expense | $27.1 million | $22.5 million |
| Operating loss | $120.8 million | $66.5 million |
| Interest and other income, net | $11.0 million | $1.3 million |
| Net loss | $109.8 million; $0.80 per share | $65.2 million; $0.53 per share |
| Cash, cash equivalents and marketable securities | $1.29 billion at March 31, 2023 | $1.34 billion at December 31, 2022 |
| Net cash used in operating activities | $58.8 million | $72.1 million |
| Net cash used in investing activities | $92.7 million | $117.9 million |
Operating margin was not meaningful for this clinical-stage company, which has no product sales and reports collaboration revenue. The filing reports no conventional borrowings; liabilities include operating leases and collaboration contract liabilities. Total liabilities were $442.6 million and stockholders’ equity was $966.7 million at March 31, 2023. Current assets were $1.33 billion and current liabilities were $391.1 million.
Material changes and notable items
- Revenue declined 17% year over year. Lower Takeda revenue following completion of preclinical research services and lower Biogen option-services revenue were partly offset by a $25.0 million Sanofi milestone recognized after dosing began in a Phase 2 multiple-sclerosis study.
- R&D expense increased 50%, primarily reflecting a $30.0 million F-star acquisition contingent-consideration charge triggered by an ETV:IDS clinical milestone, $7.9 million of accelerated depreciation after terminating the prior Salt Lake City lease, and higher personnel costs. The $30.0 million payment fully satisfied clinical contingent consideration obligations under the acquisition agreement.
- G&A expense rose 20%, mainly due to higher facility, consulting, legal and personnel costs.
- Q1 operating cash use improved from the prior-year quarter. Cash, cash equivalents and restricted cash decreased by $149.9 million during the quarter; investing cash use largely reflected purchases of marketable securities, net of maturities and sales.
- Accumulated deficit was $1.08 billion. The company reported 136.7 million common shares outstanding at March 31, 2023; weighted-average shares for the quarter were 136.5 million.
Outlook, management commentary and risks
- Management expects significant operating losses and R&D spending to continue as programs advance. It believes existing cash, cash equivalents and marketable securities will fund projected operations through at least the 12 months following the filing date, but says the estimate depends on assumptions and resources could be used sooner than expected. Additional funding may be needed longer term.
- In April 2023, Biogen exercised its option to license Denali’s ATV:Abeta program, triggering a $5.0 million fee expected in May. Approximately $288.9 million of the related-party contract liability was allocated to that option right. Also after quarter-end, Takeda’s $10.0 million DNL593 milestone was due in May.
- Management reported interim DNL310 data showing biomarker changes and exploratory clinical observations through 49 weeks; the filing cautions that interim clinical data may change as further data are reviewed. DNL343 Phase 1b results reported in April showed tolerability over 28 days, CSF penetration and biomarker inhibition; these results support planned Phase 2/3 trial dosing, not proof of efficacy.
- The FDA clinical hold on the TAK-920/DNL919 (ATV:TREM2) program remained a development risk; Denali said it was engaging with U.S. and European regulators. Other major risks include clinical failure or delay, safety findings, manufacturing and supply constraints, reliance on collaborators and third parties, intellectual-property challenges, competition, and the need for future financing.
- Commitments included $39.6 million of non-cancellable Lonza manufacturing purchase commitments and $46.9 million of other clinical and manufacturing obligations at quarter-end. In April, Denali signed a new Salt Lake City lease with approximately $13.4 million of future undiscounted payments and a contractual term of about 15 years upon commencement. Existing recorded operating lease liabilities were $57.1 million.
- Management reported effective disclosure controls as of March 31, 2023 and no material change in internal control over financial reporting during the quarter. It reported no litigation then expected to have a material adverse effect.
Most important facts for investors to verify
- Whether DNL310’s clinical and biomarker findings are confirmed in later, adequately controlled studies.
- Progress and regulatory status of key programs, especially the ATV:TREM2 clinical hold and planned DNL343 Phase 2/3 study.
- Cash burn, collaboration receipts and the assumptions underlying management’s stated minimum 12-month funding runway.
- Execution, cost and timing of the new Utah manufacturing-site build-out, alongside third-party manufacturing commitments.
- Timing and terms of collaboration milestones, option payments and cost-sharing obligations, including post-quarter Biogen and Takeda developments.