Denali Therapeutics Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; filed May 5, 2021. Denali is a clinical-stage biopharmaceutical company developing treatments for neurodegenerative diseases, including therapies designed to cross the blood-brain barrier. It had five clinical-stage programs and no products approved for sale; collaboration agreements were its only source of revenue.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Collaboration revenue | $7.9 million | $3.6 million |
| Research and development expense | $60.2 million | $51.0 million |
| General and administrative expense | $18.9 million | $12.6 million |
| Operating loss | $71.2 million | $60.0 million |
| Net loss | $70.0 million | $56.8 million |
| Net loss per share, basic and diluted | $0.58 | $0.55 |
| Net cash used in operating activities | $50.2 million | $54.5 million |
Revenue increased 120% year over year, principally from Takeda program activity and $0.9 million of Biogen option research services; Sanofi revenue declined after certain retained activities transferred to Sanofi. Net loss widened 23%, as operating expenses grew faster than collaboration revenue. No product revenue or product gross margin was reported.
Research and development expense rose 18%, reflecting increased personnel and stock-based compensation, investment in the TV platform and pipeline, and progress in EIF2B and ETV:IDS. The increases were partly offset by lower LRRK2 trial costs following completion of DNL151 Phase 1 and 1b trials, and $2.5 million of Biogen cost-sharing reimbursements. General and administrative expense rose 51%, including higher personnel, stock compensation, and professional services. Stock-based compensation totaled $21.0 million, versus $10.8 million a year earlier. Interest and other income fell to $1.2 million from $3.1 million, primarily due to lower investment yields.
At March 31, cash and cash equivalents were $435.3 million; short- and long-term marketable securities totaled $1.017 billion. Together, cash, cash equivalents and marketable securities were approximately $1.45 billion. Cash used in investing activities was $25.4 million, largely reflecting purchases of marketable securities net of maturities and sales; financing provided $3.8 million from equity award exercises. The company reported no borrowings in the presented balance sheet; liabilities primarily included collaboration contract liabilities and lease obligations. Total liabilities were $442.5 million, including $67.8 million of operating lease liabilities. Accumulated deficit was $424.5 million.
Material developments, outlook and risks
- Management expected significant operating losses and rising research and development spending as programs advance. It believed available cash, cash equivalents and marketable securities would fund projected operations for at least 12 months after the filing date, subject to assumptions that could prove inaccurate. No specific financial guidance was provided.
- For DNL151 (BIIB122), Denali reported completion of Phase 1 and Phase 1b studies; it planned with Biogen to begin late-stage Parkinson’s disease development by year-end 2021. The May 2021 update, after the quarter, said the studies generally met tolerability and biomarker goals.
- DNL310, for Hunter syndrome, received FDA Fast Track designation in March. Three-month data from five patients showed normalized cerebrospinal-fluid GAG levels and a safety profile described as consistent with standard-of-care enzyme replacement therapy; six-month Cohort A data were planned for mid-2021.
- Sanofi discontinued further DNL758 development for COVID-19 after a Phase 1b study did not meet its primary endpoint; Sanofi planned a Phase 2 study in cutaneous lupus erythematosus. Denali also reported in May that DNL343 interim Phase 1 data met safety and pathway-engagement goals and planned a patient Phase 1b study in the second half of 2021.
- COVID-19 had paused recruitment in several studies, but recruitment had resumed. The company cautioned that further pandemic-related trial, supply, service-provider or financing disruptions remained possible.
- Key risks include clinical and regulatory failure or delay, safety and toxicity findings, reliance on collaborators and third-party manufacturers, uncertain protection of intellectual property, competition, and the possibility that additional capital may be required. Denali stated it had no off-balance-sheet arrangements. A shareholder derivative action settlement was approved April 16, 2021; amounts payable were described as immaterial.
Important facts for investors to verify
- Progress, final data and timing for DNL151 late-stage development, DNL310 follow-up data, and DNL343’s planned patient study.
- Quarterly operating cash use and whether the stated cash runway assumptions remain valid as development spending increases.
- Collaboration economics and obligations, including Biogen option rights and LRRK2 cost sharing, and the timing of recognition of deferred contract liabilities.
- Clinical-trial, manufacturing and supply execution risks, including the continued effects of COVID-19 and reliance on third parties.