Denali Therapeutics Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Denali is a clinical-stage biopharmaceutical company developing treatments for neurodegenerative diseases and reported one operating segment. It has no products approved for sale and generated no product revenue.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Collaboration revenue | $5.3 million | $9.4 million | $36.1 million | $18.8 million |
| Research and development expense | $71.6 million | $53.7 million | $197.5 million | $157.9 million |
| General and administrative expense | $19.3 million | $15.8 million | $57.3 million | $42.3 million |
| Operating loss | $85.6 million | $60.1 million | $218.6 million | $181.4 million |
| Net loss | $84.6 million | $58.2 million | $215.3 million | $173.7 million |
| Net loss per share, basic and diluted | $0.69 | $0.54 | $1.77 | $1.65 |
Revenue and expenses: All reported revenue was collaboration revenue. Nine-month revenue rose 92%, chiefly due to a $15.0 million Sanofi milestone for starting a Phase 2 study of DNL758 and $2.5 million of Biogen collaboration revenue. Q3 revenue fell 44%, primarily because Takeda-related revenue declined with lower costs on partnered programs. R&D spending increased as clinical programs and the broader pipeline advanced; G&A also increased. Interest and other income declined to $1.0 million in Q3 and $3.3 million year to date, primarily due to lower investment yields.
Cash, liquidity and obligations: At September 30, 2021, cash and cash equivalents were $394.6 million, short-term marketable securities $644.6 million and long-term marketable securities $319.5 million, totaling approximately $1.36 billion. Net cash used in operating activities was $145.9 million for the first nine months, compared with $97.8 million in 2020. Cash, cash equivalents and restricted cash at period-end were $396.1 million. The balance sheet reports no borrowings; liabilities were $437.7 million, including $294.9 million of Biogen-related contract liabilities and lease liabilities. Stockholders’ equity was $1.01 billion, and accumulated deficit was $569.7 million.
Denali said existing cash, cash equivalents and marketable securities were expected to fund projected operations through at least 12 months following the filing date, while also anticipating substantial additional funding needs. The company reported no off-balance-sheet arrangements. Its August 2021 Salt Lake City lease covers approximately 50,000 square feet, has an approximately 8.4-year term and about $12.5 million of future undiscounted payments; it had not commenced by quarter-end. The company also disclosed $27.6 million of non-cancellable commitments under its Lonza development and manufacturing agreement.
Material changes and business developments
- For the first nine months, collaboration revenue increased while operating costs and net losses also rose. R&D expense increased 25%; G&A increased 35%.
- Denali reported five clinical-stage programs: DNL151 (BIIB122) for Parkinson’s disease; DNL310 for Hunter syndrome; DNL343 for ALS and FTD; and two Sanofi-partnered RIPK1 programs, DNL788 for neurological disease and DNL758 for cutaneous lupus erythematosus.
- In July, Denali reported interim DNL310 Phase 1/2 data and said it began enrolling Cohort C. Management planned to initiate a pivotal Phase 2/3 study in the first half of 2022.
- Biogen and Denali reported progress toward late-stage development of DNL151, with two Parkinson’s disease studies planned. Biogen is to lead their operationalization and conduct.
- Subsequent to quarter-end, Denali reported DNL343 Phase 1 results and said its Phase 1b ALS study had begun dosing in August. It also reported FDA Fast Track designation for DNL788; Sanofi planned a Phase 2 study in Q1 2022.
Outlook, risks and unusual items
Management expected significant operating losses and rising R&D and administrative expenses as it advances clinical programs, expands its blood-brain-barrier transport-vehicle platform, develops additional candidates and grows its organization. No product-sales outlook or profitability guidance was provided. The filing cautions that clinical timing and costs are uncertain and that additional capital may be required; financing may not be available on acceptable terms.
Key risks include clinical failure or delays, uncertain safety and efficacy, regulatory approval and manufacturing challenges, dependence on collaborators and third-party manufacturers, competition, intellectual-property disputes, and possible disruption from COVID-19. Denali said COVID-19 had temporarily affected trial recruitment and laboratory efficiency, although recruitment had returned to pre-pandemic levels. It also disclosed that high-dose toxicities had been observed in nonclinical studies for clinical candidates and that no assurance could be given against future clinical holds. Management reported no material litigation expected to adversely affect the business. Disclosure controls were assessed as effective at a reasonable-assurance level, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the planned DNL310 pivotal study and the planned DNL788 and DNL151 studies start on the stated timelines, and whether subsequent trial data support advancement.
- How quickly the approximately $1.36 billion liquidity balance is consumed as clinical, platform and manufacturing investment increases.
- Whether collaboration milestones and cost reimbursements continue; collaboration revenue can vary with milestone timing and partner-program activity.
- The status and financial impact of the Salt Lake City lease, manufacturing build-out and Lonza commitments.
- Whether preliminary clinical results, including those described after quarter-end, are confirmed by complete, verified data and maintain acceptable safety profiles.