Denali Therapeutics Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Denali is a clinical-stage biopharmaceutical company developing treatments for neurodegenerative diseases and has no products approved for sale. All financial figures below are in millions of dollars unless noted.
Financial results and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Collaboration revenue | $22.9 | $5.8 | $30.9 | $9.5 |
| Research and development expense | $65.7 | $53.2 | $125.9 | $104.2 |
| General and administrative expense | $19.0 | $14.0 | $38.0 | $26.5 |
| Operating loss | $61.8 | $61.3 | $133.0 | $121.2 |
| Net loss | $60.7 | $58.8 | $130.7 | $115.5 |
| Basic and diluted loss per share | $0.50 | $0.56 | $1.08 | $1.11 |
| Cash used in operating activities | — | — | $104.5 | $97.8 |
At June 30, 2021, cash and cash equivalents were $485.7 million; short- and long-term marketable securities totaled $915.8 million, for combined cash, cash equivalents and marketable securities of approximately $1.40 billion. Total assets were $1.51 billion, total liabilities $437.1 million, and stockholders’ equity $1.07 billion. The filing reports no borrowings or debt balance. Accumulated deficit was $485.1 million. No product revenue or product gross margin was reported; the filing does not provide a meaningful product-margin measure.
Material changes and drivers
- Revenue rose mainly because Sanofi’s $15.0 million milestone for the start of a Phase 2 DNL758 study was triggered in June 2021, alongside higher Takeda collaboration revenue and $0.8 million of Biogen option research-services revenue in Q2. The Sanofi milestone was received in July.
- Six-month operating expenses increased 25% year over year. R&D rose 21%, primarily reflecting higher personnel and stock-based compensation, investment in the TV platform and pipeline, and progress in EIF2B and ETV:IDS programs. These increases were partly offset by lower LRRK2 trial costs and Biogen cost-sharing reimbursements.
- G&A increased 43% for the six months, including higher personnel-related costs. Net loss increased 13% year over year, while loss per share improved because the weighted-average share count was higher.
- Stock-based compensation was $42.2 million for the first six months, up from $23.3 million. Cash used in operations increased to $104.5 million. Investing activities provided $72.1 million, mainly from net maturities of marketable securities; financing provided $10.9 million, primarily from equity award exercises.
Outlook, commentary and risks
- Management expects significant operating losses and expenses to continue, with R&D spending expected to increase as programs advance. It expects no product revenue unless and until candidates are approved and commercialized.
- Management stated existing cash, cash equivalents and marketable securities should fund projected operations through at least 12 months after the filing date. This estimate depends on assumptions and may change; the company anticipates needing substantial additional funding over time.
- Key program plans and developments included initiating late-stage DNL151 (BIIB122) development with Biogen by year-end 2021; planning a DNL343 Phase 1b ALS study in the second half of 2021; and, following July interim DNL310 data, planning Cohort C enrollment and a pivotal Phase 2/3 study in the first half of 2022. These are forward-looking plans, not assured outcomes.
- Key risks include clinical failure or delay, safety or tolerability issues, regulatory uncertainty, the early stage of the BBB platform and pipeline, dependence on collaborators and third-party manufacturers, competition, intellectual-property challenges, and the need for additional capital. COVID-19 had previously disrupted trial recruitment and laboratory efficiency; the company noted that renewed effects could again affect trials, operations or supply.
- There were no material litigation proceedings identified by management. A shareholder derivative action concerning director compensation was settled and approved in April 2021; payments were not material. Lonza manufacturing commitments included $28.4 million of non-cancellable commitments at June 30, 2021. The company reported no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether planned clinical milestones and timelines are achieved, particularly late-stage development for DNL151 and the planned pivotal DNL310 study.
- Whether collaboration revenue and future milestone, cost-sharing or option payments materialize; Q2 revenue included a one-time $15.0 million Sanofi milestone, not product sales.
- Cash consumption, investment balances and the assumptions underlying management’s stated runway, given continuing losses and anticipated funding needs.
- Clinical safety, efficacy and biomarker results as interim data mature, along with any resulting changes to trial design or program timelines.
- Reliance on third parties for clinical trials and manufacturing, including the status and cost of Lonza commitments and any supply constraints.