Denali Therapeutics Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Denali is a clinical-stage biopharmaceutical company developing treatments for neurodegenerative diseases. It had no approved products and generated no product-sale revenue; reported revenue came from collaborations.
Financial results and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Collaboration revenue | $42.1 million | $7.9 million |
| Research and development expense | $86.1 million | $60.2 million |
| General and administrative expense | $22.5 million | $18.9 million |
| Operating loss | $66.5 million | $71.2 million |
| Net loss | $65.2 million | $70.0 million |
| Net loss per share, basic and diluted | $0.53 | $0.58 |
| Net cash used in operating activities | $72.1 million | $50.2 million |
- Collaboration revenue increased $34.2 million, mainly from Takeda. Q1 2022 included $27.9 million recognized after termination of the ATV:Tau program and a $12.0 million Takeda milestone for approval of the TAK-594/DNL593 clinical trial application.
- R&D expense rose 43%, primarily due to higher ETV:IDS clinical spending, increased personnel costs, and investment in the PTV:PGRN and ATV:TREM2 programs. G&A expense rose 19%.
- At March 31, cash and cash equivalents were $105.0 million; short- and long-term marketable securities totaled $1.103 billion. Total cash, cash equivalents and marketable securities were approximately $1.21 billion.
- Cash, cash equivalents and restricted cash declined $188.5 million during the quarter. Investing cash outflow was $117.9 million, reflecting net marketable-security purchases and $4.0 million of capital expenditures. Financing provided $1.5 million from equity award exercises.
- Total assets were $1.321 billion, total liabilities $402.9 million, and stockholders’ equity $917.9 million. The balance sheet lists no borrowings or other financial debt; operating lease liabilities were $62.7 million.
- Accumulated deficit was $710.2 million. Unrealized losses on available-for-sale securities reached $8.9 million at quarter-end, with a $6.8 million quarterly other comprehensive loss; the company reported no credit-loss allowance.
Material changes and operating developments
- Takeda’s decision to end ATV:Tau activity led Denali to recognize the remaining $27.9 million contract liability as revenue. The company also recorded a $12.0 million milestone after UK approval of the TAK-594/DNL593 clinical trial application; the payment was received in February.
- In April 2022, Sanofi began dosing participants in a Phase 2 ALS study of SAR443820/DNL788, triggering a $40.0 million milestone due in May. This is a post-quarter event, not Q1 revenue or cash received.
- The FDA placed the DNL919/ATV:TREM2 IND application on clinical hold in January. Denali said it was addressing FDA observations and expected at least a three-month delay to first-in-human dosing; it planned an update in the second half of 2022.
- Denali reported interim DNL310 data in MPS II showing sustained normalization of CSF heparan sulfate in 20 patients, with up to one year of dosing, and described the treatment as generally well tolerated. These are company-reported interim findings.
- Denali had six clinical-stage programs and more than 15 preclinical programs. It established a $400 million at-the-market equity facility in February but had not sold shares under it as of the filing.
Outlook, risks and contingencies
- Management expects significant operating losses and R&D spending to continue and increase as programs advance. It stated that existing cash, cash equivalents and marketable securities should fund projected operations and existing commitments for at least 12 months following the filing date, while noting that assumptions could prove inaccurate and additional funding will be needed longer term.
- Key uncertainties include clinical and regulatory outcomes, the DNL919 clinical hold, trial timing and enrollment, the viability of the blood-brain barrier platform, manufacturing and third-party supply, collaboration dependencies, intellectual-property protection, and future access to capital. The filing also discusses potential impacts from COVID-19 and Russia’s invasion of Ukraine.
- Lonza open purchase orders for biologic development and manufacturing totaled $44.6 million; non-cancellable commitments under the manufacturing agreement were $35.2 million. Operating lease liabilities were $62.7 million, and the not-yet-commenced Utah lease carried approximately $12.5 million in future undiscounted payments.
- Management reported no litigation likely to have a material adverse effect and no material change in critical accounting estimates. Disclosure controls and procedures were assessed as effective at a reasonable-assurance level.
Important facts for investors to verify
- Whether Denali’s reported cash runway assumptions remain valid as clinical spending and commitments evolve.
- Progress in resolving the DNL919 clinical hold and the resulting effect on trial timing and costs.
- How much future collaboration revenue depends on milestones or recognition of previously deferred contract liabilities, rather than recurring product sales.
- Status and receipt of the $40.0 million Sanofi milestone announced after quarter-end, and the terms and potential dilution from any use of the $400 million ATM facility.
- Final, complete clinical data underlying interim DNL310 findings, and the safety, efficacy and regulatory progress of the broader pipeline.
- Potential effects of securities-market valuation changes, manufacturing commitments, and third-party execution on liquidity and development plans.