Denali Therapeutics Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Denali is a clinical-stage biopharmaceutical company developing treatments for neurodegenerative diseases and has no approved products or product-sales revenue. Financial amounts below are in U.S. dollars; millions unless otherwise noted.
Financial results and liquidity
| Metric | Q1 2020 | Q1 2019 / prior balance date |
|---|---|---|
| Collaboration revenue | $3.6 million | $4.2 million |
| Research and development expense | $51.0 million | $37.4 million |
| General and administrative expense | $12.6 million | $9.3 million |
| Operating loss | $60.0 million | $42.5 million |
| Net loss | $56.8 million | $39.0 million |
| Basic and diluted loss per share | $0.55 | $0.41 |
| Net cash used in operating activities | $54.5 million | $30.3 million |
| Cash, cash equivalents and marketable securities | $596.9 million | $455.2 million at Dec. 31, 2019 |
Total assets were $695.9 million and total liabilities were $150.6 million at March 31, 2020. Current assets were $604.8 million versus current liabilities of $47.6 million. No funded debt is reported on the balance sheet; liabilities include lease obligations and collaboration contract liabilities. Accumulated deficit was $482.3 million. The filing reports no product revenue and no product-level margins.
Net cash provided by financing was $195.9 million, primarily from the January follow-on offering, which generated $193.9 million net proceeds. Investing activities used $13.3 million, mainly reflecting purchases of marketable securities partly offset by maturities and sales. Cash, cash equivalents and restricted cash increased $128.1 million to $209.0 million; marketable securities are additional liquidity.
Changes versus the prior comparable period
- Revenue declined 14%, as Sanofi revenue from retained activities fell while Takeda revenue increased with program costs.
- R&D expense rose 36%, reflecting pipeline activity, increased LRRK2 and other external program costs, higher headcount and stock compensation. G&A expense rose 35%, primarily due to personnel-related costs and stock compensation.
- Net loss increased 46%; operating cash use rose from $30.3 million to $54.5 million.
- The January offering raised $193.9 million net. Common shares outstanding increased to 105.5 million from 96.2 million at year-end 2019.
Outlook, programs and risks
- Management expects significant operating losses and expenses to continue and expects R&D expense to increase as programs advance. It stated that available cash, equivalents and marketable securities should fund projected operations for at least 12 months from the May 7, 2020 filing date; this estimate depends on assumptions and spending could exceed expectations. No specific revenue or earnings guidance was provided.
- Key program updates included positive reported Phase 1b DNL201 results and interim Phase 1 DNL151 results; Denali planned to select one LRRK2 molecule for Phase 2/3 studies by mid-2020. DNL343 entered a Phase 1 trial in February. The company planned to start a DNL310 Phase 1/2 Hunter syndrome study in the first half of 2020.
- COVID-19 created uncertainty around clinical and preclinical timelines, third-party services and potential access to capital. The filing reports paused enrollment in DNL151 Phase 1 and 1b trials, the DNL343 Phase 1 trial, and the ETV:IDS observational biomarker study; resumption timing was unknown. Denali did not then expect manufacturing or supply-chain delays and said available and expected drug supplies could support ongoing trials and planned trials well into 2021.
- Collaboration and license payments are contingent on development, regulatory and commercial milestones. Potential future amounts include up to approximately $1.1 billion under Sanofi, up to $407.5 million in clinical milestones and $300 million in regulatory milestones under Takeda (with options and other conditions), up to $447 million under F-star, and up to $315 million under Genentech. These are conditional amounts, not current receivables or assured proceeds.
- Other significant risks include early-stage clinical failure or safety issues, dependence on collaborators and contract manufacturers, regulatory approval, intellectual-property protection, and the need for future financing. Denali reported no material litigation and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether COVID-19-related enrollment pauses and site or vendor disruptions changed trial timelines after the filing.
- Progress and decision timing for the LRRK2 program, DNL310 study start, and other clinical programs; assess final rather than preliminary clinical data.
- Cash burn and the assumptions supporting management’s stated minimum 12-month liquidity runway, including future R&D commitments and financing needs.
- How collaboration revenue and contract liabilities evolve as Sanofi activities transfer and Takeda research services continue, and whether contingent milestones are achieved.
- Potential dilution from equity compensation or future financing, and the status of manufacturing commitments, lease obligations and other contractual commitments.