dnli-20201231

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2020

For the transition period from to

Denali Therapeutics Inc.

(Exact name of registrant as specified in its charter)

161 Oyster Point Blvd.South San Francisco, CA, 94080

(Address of principal executive offices and zip code)

(650) 866-8548

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol Name of each exchange on which registered

Common Stock, par value $0.01 per share DNLI The NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act. Yes ☐No☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☒ Accelerated filer ☐

Non-accelerated filer ☐ Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The aggregate market value of the common stock held by non-affiliates of the registrant as of June 30, 2020 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $850.6 million, based on the closing price of the registrant’s common stock, as reported by the NASDAQ Global Select Market on June 30, 2020 of $24.18 per share. Shares of the registrant’s common stock held by each executive officer, director and holder of 5% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This calculation does not reflect a determination that certain persons are affiliates of the registrant for any other purpose.

The number of outstanding shares of the registrant’s common stock as of February 17, 2021 was 120,984,085 par value $0.01 per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the registrant’s Definitive Proxy Statement relating to the registrant’s 2020 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated. Such Definitive Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of the registrant’s2020fiscal year ended December 31, 2020.

Denali Therapeutics Inc.

Annual Report on Form 10-K

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PART I

Item 1. Business 6

Item 1A. Risk Factors 55

Item 1B. Unresolved Staff Comments 119

Item 2. Properties 119

Item 3. Legal Proceedings 120

Item 4. Mine Safety Disclosures 120

PART II

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 149

Item 8. Financial Statements and Supplementary Data 150

Item 9A. Controls and Procedures 193

Item 9B. Other Information 195

PART III

Item 10. Directors, Executive Officers and Corporate Governance 196

Item 11. Executive Compensation 196

Item 14. Principal Accountant Fees and Services 196

PART IV

Item 15. Exhibits and Financial Statement Schedules 197

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PART I

Special Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking statements. All statements other than statements of historical facts contained in this report, including statements regarding our future results of operations and financial position, business strategy, product candidates, planned preclinical studies and clinical trials, research and development costs, regulatory approvals, timing and likelihood of success, as well as plans and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that are in some cases beyond our control and may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “would,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this report include, but are not limited to, statements about:

•the progress, success, cost and timing of our development activities, preclinical studies and clinical trials, and in particular the development of our blood-brain barrier ("BBB") platform technology, programs and biomarkers, including the initiation and completion of studies or trials and related preparatory work, enrollment in such trials, the timing of when results of the trials will become available, and the filing of Investigational New Drug applications or clinical trial applications;

•the ability of clinical trials to demonstrate safety and efficacy of our product candidates, and other positive results;

•our ability to develop and advance our product candidates and programs into, and successfully complete, clinical trials;

•the beneficial characteristics, safety, efficacy and therapeutics effects of our product candidates;

•the extent to which any dosing limitations that we have been subject to and/or may be subject to in the future, may affect the success of our product candidates;

•the impact of preclinical findings on our ability to achieve exposures of our product candidates that allow us to explore a robust pharmacodynamic range of these candidates in humans;

•our plans to grow our discovery and early clinical development capabilities and to expand global late-stage clinical development capabilities, internal clinical manufacturing capabilities and commercial infrastructure in a staged manner that is aligned with the development timelines of our portfolio;

•the expected potential benefits and potential revenue resulting from strategic collaborations with third parties and our ability to attract collaborators with development, regulatory and commercialization expertise;

•the timing, scope or likelihood of regulatory filings and approvals;

•our ability to obtain and maintain regulatory approval of our product candidates, and any related restrictions, limitations and/or warnings in the label of any approved product candidate;

•the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology;

•the terms and conditions of licenses granted to us and our ability to license and/or acquire additional intellectual property relating to our product candidates and BBB platform technology;

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•our ability to obtain funding for our operations, including funding necessary to develop and commercialize our current and potential future product candidates;

•our strategy, plans and ability to establish and expand sales, marketing and distribution infrastructure to commercialize any product candidates for which we obtain approval;

•future agreements with third parties in connection with the commercialization of our product candidates;

•the size and growth potential of the markets for our product candidates, if approved for commercial use, including our estimates of the number of patients who suffer from the diseases we are targeting, and our ability to serve those markets;

•the rate and degree of market acceptance of our product candidates;

•existing regulations and regulatory developments in the United States and foreign countries;

•potential claims relating to our intellectual property and third-party intellectual property;

•our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;

•our strategy, plans and ability to develop and expand our own manufacturing facilities and capabilities;

•the pricing and reimbursement of our product candidates, if approved and commercialized;

•the success of competing products or platform technologies that are or may become available;

•our ability to attract and retain key managerial, scientific and medical personnel;

•the accuracy of our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

•our ability to enhance operational, financial and information management systems;

•our financial performance; and

•our expectations regarding the impact of the COVID-19 pandemic on our business.

We have based these forward-looking statements largely on our current expectations and projections about our business, the industry in which we operate, and financial trends that we believe may affect our business, financial condition, results of operations and prospects, and these forward-looking statements are not guarantees of future performance or development. These forward-looking statements speak only as of the date of this report and are subject to a number of risks, uncertainties and assumptions described in the section titled “Risk Factors” and elsewhere in this report. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Annual Report on Form 10-K to conform these statements to actual results or to changes in expectations.

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In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.

This report contains estimates, projections and other information concerning our industry, our business and the markets for our product candidates. We obtained the industry, market and similar data set forth in this report from our own internal estimates and research and from academic and industry research, publications, surveys and studies conducted by third parties, including governmental agencies. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. While we believe that the data we use from third parties are reliable, we have not separately verified these data. Further, while we believe our internal research is reliable, such research has not been verified by any third party. You are cautioned not to give undue weight to any such information, projections and estimates.

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ITEM 1. BUSINESS

Overview and Strategy

Our goal is to discover, develop and deliver therapeutics to defeat degeneration.

Neurodegeneration represents one of the most significant unmet medical needs of our time, with few effective therapeutic options available for patients with neurodegenerative diseases. Recent genetic insights are revealing the underlying biology of neurodegeneration and potential drug targets while enabling better patient selection, similar to how genetic insights have transformed the field of oncology.

Our scientific strategy is guided by three overarching principles that we believe will significantly increase the probability of success and accelerate the timing to bring effective therapeutics to patients with neurodegenerative diseases:

Genetic Pathway Potential - We select our therapeutic targets and disease pathways based on studies that link human genetic variation to the risk of developing a neurodegenerative disease. These studies identify genes that, when mutated, cause, or are major risk factors for, neurodegenerative diseases, which we refer to as degenogenes.

Engineering Brain Delivery - We engineer our product candidates to cross the blood-brain barrier ("BBB"), and act directly in the brain.

Biomarker-Driven Development - We discover, develop and utilize biomarkers to select the right patient population and demonstrate target engagement, pathway engagement and impact on disease progression of our product candidates.

By executing this strategy with a team of experienced and passionately dedicated scientists and drug developers, we believe we can succeed in a field that has seen limited progress over the past several decades. We have a focused yet diversified portfolio with five clinical programs and more than fifteen programs in the preclinical development stage.

To further increase the probability of success of our programs, we make parallel investments in lead and back-up development candidates, and plan to advance only those candidates to the later stages of clinical development that show strong preclinical and early clinical data. We replenish, grow and optimize our portfolio through in-house discovery and external business development activities, in each case enabled by our strong internal research and development expertise and capabilities. We maintain a high bar to move our product candidates through development and quickly terminate molecules and programs based on data that do not meet our rigorous discovery and development standards.

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Collaborations and partnering are central components of our strategy to build and develop our portfolio of product candidates. We have arrangements with biopharmaceutical companies, technology companies, academic institutions, foundations, and patient-focused data companies. Notable active arrangements include those with Biogen Inc.’s subsidiaries, Biogen MA Inc. (“BIMA”) and Biogen International GmbH (“BIG”) (BIMA and BIG, collectively, “Biogen”), Takeda Pharmaceutical Company Limited ("Takeda"), Genzyme Corporation, a wholly owned subsidiary of Sanofi S.A. ("Sanofi"), Genentech, Inc., F-star, Sirion, Harvard University, the Michael J. Fox Foundation, Centogene and Secarna, amongst others. Through these arrangements, we are able to gain access to additional resources and complementary expertise, new product candidates, deepen our scientific understanding of certain areas of biology, identify potential patients for our clinical trials and thereby accelerate and increase the probability of success of the development of our programs. We believe that being an active participant in the scientific community and accessing external innovation is important to our success and we plan to remain active in business development activities. Our goal is to be the most attractive partner for academic groups and companies in the field of neurodegeneration based on our singular focus, deep scientific expertise in neurodegeneration and BBB biology, established research and development capabilities, growing manufacturing and commercial capabilities and the ability to execute development programs with speed and scientific rigor.

We hold significant development and commercialization rights to all of our programs, including the programs which are subject to our collaboration agreements with Biogen and Takeda, as well as with Sanofi for central nervous system ("CNS") indications, where we share responsibility for clinical development and share commercialization rights in the United States and China.

We envision our future as a fully integrated global organization serving patients. As we build and grow our capabilities, we maintain a deep focus on science at the core of our efforts to discover, develop and deliver medicines. We plan to further grow our discovery and early clinical development capabilities and intend to expand global late-stage clinical development capabilities, internal manufacturing capabilities and commercial infrastructure in a staged manner that is aligned with the development timelines of our portfolio.

We intend to commercialize our product candidates globally, if approved, with a tailored strategic approach for each therapeutic area. We believe that our investigational therapy for Hunter syndrome (DNL310) has the potential to be our first approved medicine and that we can leverage certain efficiencies of scale to support the commercialization of additional lysosomal storage disease ("LSD") therapeutics. More than 30,000 patients suffer from LSDs world-wide, with approximately two-thirds having CNS manifestations that are not addressed by currently available enzyme replacement therapies. We are actively working toward building clinical manufacturing capabilities and continuing to expand our commercial capabilities in LSDs and intend to serve patients directly in several countries. Subsequently, we intend to expand into rare CNS diseases, such as amyotrophic lateral sclerosis ("ALS") and Frontotemporal Dementia ("FTD"), which afflict more than 200,000 patients world-wide. We may commercialize these product candidates, if approved, independently or seek partners to ensure optimal access for patients. For the common neurodegenerative diseases, such as Alzheimer's disease and Parkinson's disease, which afflict more than 50 million patients world-wide, we plan to initially leverage strategic collaborations that contribute existing global commercial infrastructure.

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Our Approach to Defeating Neurodegeneration

Disease Overview

Neurodegenerative diseases are a collection of conditions defined by progressive nervous system dysfunction, degeneration and/or death of neurons causing cognitive decline, functional impairment and eventually death. Neurodegeneration represents one of the most significant unmet medical needs of our time, with the aging of the population and the lack of effective therapeutic options causing a rapid increase in the number of patients. The two most common neurodegenerative diseases are Alzheimer’s disease, representing an estimated 60% to 70% of all dementias according to the World Health Organization, and Parkinson’s disease. In the United States, 5.8 million people suffer from Alzheimer’s disease, as many as one million people suffer from Parkinson’s disease, and more than 16,000 people suffer from ALS, according to estimates from the Alzheimer’s Association, the Parkinson’s Disease Foundation, and the ALS Association, respectively.

The cost to society from neurodegenerative disease is enormous. The direct costs of caring for individuals with Alzheimer’s disease and other dementias in the United States were an estimated $290 billion in 2019. By 2050, these costs could rise to $1.1 trillion, according to the Alzheimer’s Association. In the United States, the total cost of care to patients suffering from Alzheimer’s disease and other dementias far exceeds that of many other diseases, including cancer.

Our target indications include diseases with large patient populations, such as Alzheimer’s disease and Parkinson’s disease, as well as orphan indications, such as Hunter syndrome, FTD and ALS.

Degenogene Biology

Since 2007, the number of genetic associations discovered in neurodegenerative diseases has grown rapidly. Degenogenes identify important disease pathways that, when dysregulated, increase the risk of developing neurodegenerative disease, and provide a strong scientific foundation for prioritizing drug development programs. We currently focus on programs that seek to modulate three key disease pathways:

Lysosomal Function: Dysfunction of the lysosomal system is associated with several neurodegenerative diseases, including Parkinson’s disease and neurodegeneration in the context of LSDs. Degenogenes linked to lysosomal function include leucine-rich repeat kinase 2 ("LRRK2"), progranulin ("PGRN"), alpha-synuclein ("aSyn"), and lysosomal enzymes, including iduronate 2-sulfatase ("IDS"), Sulfamidase ("SGSH"), and glucocerebrosidase ("GBA").

Glial Biology: Degenogenes implicate immune dysfunction in the brains of patients with Alzheimer’s disease and other neurodegenerative diseases. These degenogenes include triggering receptor expressed on myeloid cells 2 ("TREM2") and numerous other genes that are highly expressed in inflamed microglia, the resident immune cells of the brain. We believe the impact of immune modulation in neurodegeneration is a promising approach to treating disease. Specifically, receptor interacting serine/threonine protein kinase 1 ("RIPK1"), a kinase downstream of the TNF receptor pathway, is overactive in inflamed microglia and several other cells in the brain.

Cellular Homeostasis: The brain is particularly susceptible to defects in lipid, protein or RNA homeostasis. Mutations in several ALS and FTD degenogenes alter RNA homeostasis and increase cellular stress. Eukaryotic initiation factor 2 B ("EIF2B") is an essential regulator of cellular stress, and modulators of EIF2B activity have been shown to be beneficial in numerous in vitro and in vivo models of neurodegenerative disease. Other degenogenes linked to cellular homeostasis include amyloid precursor protein ("APP"), Tau and Apolipoprotein E.

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BBB Platform Technology

Our TV technology enables several classes of biotherapeutics to more effectively cross the BBB, including enzymes, antibodies, proteins and oligonucleotides. This technology is designed to engage specific BBB transport receptors, which are ubiquitously expressed in brain capillaries and facilitate transport of proteins into the brain (Figure 1).

Figure 1: Engineering brain delivery. Schematic of the TV technologies, designed to cross the BBB through receptor-mediated transcytosis, leveraging endogenous receptors expressed on endothelial cells in the vasculature of the brain.

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The platform has demonstrated proof of concept safety and pharmacokinetic/pharmacodynamic data in mouse and nonhuman primate models, including a robust and sustained pharmacodynamic effect in the brain after intravenous ("IV") dosing of a TV-enabled antibody, while a standard antibody had minimal pharmacodynamic effect, and robust and sustained efficacy in the brain in a mouse model of Hunter syndrome after IV dosing of a TV-enabled IDS enzyme, while a standard recombinant IDS enzyme had only minimal effect. The improvement in brain exposure may enable TV-enabled product candidates to achieve therapeutically relevant concentrations in the brain after systemic administration, making them potentially superior to traditional antibody and enzyme therapeutics in targeting neurodegenerative diseases. Our TV technology is differentiated from other BBB technologies through its engineering approach, which may provide superior stability, safety, and higher exposure of drug candidates in the brain (Figure 2).

Our pipeline currently includes 15 programs that are based on our TV technology, including the most advanced program ETV:IDS (DNL310). In November 2020, we announced first human clinical biomarker proof of concept for our TV technology from an ongoing Phase 1/2 trial of DNL310 in patients with Hunter syndrome.

Delivering high concentrations of protein therapeutics to the brain has potential benefits for a large range of therapeutic applications. We believe that we can expand our portfolio leveraging the modularity of the TV technology. In addition to our current focus on neurodegenerative and LSDs, we are exploring programs in oncology (ATV:HER2) and infectious diseases as well as other neurological and neuromuscular indications (Figure 3). We may develop these additional programs ourselves in the future or seek partnerships.

Figure 2: Transport Vehicle technology is highly differentiated

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Figure 3: TV technology provides opportunities for platform expansion

Biomarkers

As part of our strategy, we identify and validate biomarkers which are relevant for both animal models and human trials, are critical for selecting patients, predicting and measuring target engagement, supporting dose selection and enabling decisions on progression of product candidates to the next phase of development. When practicable, we are developing patient selection biomarkers for our programs to enable identification of patients with the relevant disease biology and stage of disease likely to benefit from targeted therapy in order to increase the likelihood of success of clinical trials. Ultimately, by reducing the number of patients that are likely to experience a low treatment response, we expect to positively impact market acceptance of these targeted therapies driven by high and meaningful response rates within the targeted population as defined by the patient selection biomarkers. In certain indications, regulatory approval may limit the market of a product candidate to target patient populations when patient selection biomarkers are used. In these indications, regulatory authorities may require us to run additional clinical trials prior to expanding the label for approval that includes a broader patient population.

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Our Programs

The following table summarizes key information about our programs and pipeline:

Figure 4: Denali’s current pipeline

We are developing a broad portfolio of targeted therapeutic candidates for neurodegenerative diseases. Our programs are at different stages of clinical and preclinical development. We discuss our most advanced programs in further detail below.

LRRK2 Inhibitor Program

Parkinson's disease is one of the most common brain diseases, affecting approximately 6 million people world-wide. It is commonly thought of as a movement disorder because patients can experience tremors, slowness of movement, stiffness and difficulty with walking and balance. In addition, Parkinson's patients can have other non-motor type problems such as constipation, depression and memory loss. The disease results from the loss of dopamine-producing cells in the brain and is likely caused by a combination of genetic and environmental risk factors.

LRRK2 is the most common genetic risk factor for Parkinson's disease, and is involved in maintaining a healthy cellular environment by regulating lysosomal function through modification of Rab proteins. Increased levels of LRRK2 lead to lysosomal dysfunction, which contributes to neurodegeneration and the formation of Lewy bodies, a central pathology of Parkinson's disease. Inhibition of LRRK2 activity may slow the progression of Parkinson’s disease in patients with and without known genetic risks based on restoration of lysosomal function.

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We have advanced two chemically distinct CNS-penetrant small molecules that inhibit LRRK2 into clinical development, DNL201 and DNL151. Based on the totality of preclinical and clinical data to date, both DNL201 and DNL151 have met our requirements to proceed into further late-stage clinical studies. In August 2020, we, in collaboration with Biogen, announced the selection of DNL151 to advance into two late-stage studies in Parkinson’s disease: one in Parkinson's patients who carry LRRK2 mutations and the other in Parkinson's patients independent of mutation status.

DNL151 was selected for its pharmacokinetic properties that provide additional dosing regimen flexibility. DNL201 remains a backup molecule for this program. As described in more detail in “Business - Licenses and Collaborations” below, we are collaborating with Biogen on the LRRK2 program and intend to initiate late-stage development in the second half of 2021.

Biomarker-Driven Development

We have developed assays that measure pS935 LRRK2 and pRab10 phosphorylation as markers of LRRK2 kinase activity to demonstrate target engagement in humans. Phosphorylation of LRRK2 at serine 935 ("pS935") is a well-established biomarker of LRRK2 kinase activity that has been demonstrated to respond to pharmacological inhibition. Rab10 is a member of the Rab GTPase family involved in endolysosomal function and is a direct substrate of LRRK2 kinase.

To provide greater insight into the effects of LRRK2 inhibitors on lysosomal biology in humans, in addition to pRab10 phosphorylation, we have measured di-22:6-bis (monoacylglycerol) phosphate ("BMP di22:6") in the urine of subjects treated with LRRK2 inhibitors. BMP di22:6 is a lysosomal lipid biomarker that indicates changes in lysosome function associated with LRRK2 inhibition and is elevated in individuals that carry LRRK2 disease-associated mutations.

Preliminary Results of DNL151 (BIIB122) Phase 1 Clinical Trial

DNL151 (BIIB122) has completed dosing of 162 healthy volunteers in an ongoing Phase 1 trial in healthy volunteer subjects and met safety, target engagement and biomarker goals. In January 2020, we announced that preliminary results from the ongoing Phase 1 trial for DNL151 (BIIB122) in healthy volunteers demonstrated an encouraging safety and pharmacokinetic/pharmacodynamic profile (Figure 5A). DNL151 (BIIB122) was generally well tolerated at all doses tested, and the majority of subjects experienced either no or mild AEs. Target and pathway engagement of greater than 50 percent and a dose-dependent reduction of BMP in urine of up to 50 percent were observed at clinically relevant doses. We are currently completing further dose escalation cohorts in the Phase 1 trial to define the full therapeutic window of DNL151 (BIIB122).

Figure 5A: Left: DNL151 (BIIB122) demonstrated: pS935 LRRK2 inhibition, a biomarker of LRRK2 kinase activity and target engagement. Middle: pRab10 inhibition, a biomarker of LRRK2 kinase pathway engagement linked to lysosomal regulation. Right: reduction in urinary BMP.

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DNL151 (BIIB122) Phase 1b trial in Parkinson’s disease patients

The DNL151 (BIIB122) Phase 1b trial (NCT04056689) in Parkinson's disease patients was a 28-day, multicenter, randomized, placebo controlled, double-blind clinical trial in patients with mild-to-moderate Parkinson’s disease conducted in the United States and Europe. Its purpose was to evaluate safety, tolerability, pharmacokinetics, pharmacodynamics, including target and pathway engagement biomarkers as well as certain exploratory clinical endpoints, after multiple oral doses of DNL151 (BIIB122). A total of 36 Parkinson's patients were enrolled. In January 2021, we announced completion of the Phase 1b trial and that target engagement and pathway engagement goals (the same as for DNL201) were met. We plan to present data from the Phase 1b trial at upcoming medical congresses.

DNL151 (BIIB122) Future Development Plan

We and Biogen expect to initiate late-stage clinical development of DNL151 (BIIB122) in Parkinson's patients by year-end 2021. Two clinical trials are planned: one in Parkinson's patients who carry LRRK2 mutations and the other in Parkinson's patients independent of mutation status.

Results of DNL201 Phase 1 Clinical Trial

The DNL201 Phase 1 clinical trial in healthy volunteers was completed in July 2018. This was a randomized, double-blind, placebo-controlled, single-center clinical trial in 105 healthy young and 17 healthy elderly subjects to investigate the safety and tolerability of single and multiple oral doses of DNL201 and characterize the pharmacokinetics and pharmacodynamics of DNL201 in plasma and CSF. In this trial, DNL201 met all objectives including cerebrospinal fluid ("CSF") exposure levels and LRRK2 inhibition, as well as evidence of pathway engagement, at doses that were well tolerated. The data from this clinical trial supported our decision to initiate the Phase 1b clinical trial in Parkinson’s disease patients.

Results of DNL201 Phase 1b Clinical Trial

The DNL201 Phase 1b clinical trial in Parkinson’s disease patients was completed in December 2019, and safety and biomarker data from this trial, including biomarkers of lysosomal function, support advancement to the next stage of clinical development (Figure 5B below).

This trial (NCT03710707) was a 28-day, randomized, placebo-controlled Phase 1b clinical trial in patients with mild to moderate Parkinson’s disease, with and without genetic LRRK2 mutations. Its purpose was to evaluate safety, tolerability, pharmacokinetics, pharmacodynamics, and target and pathway engagement biomarkers in multiple oral doses of DNL201. Exploratory endpoints included certain clinical endpoints. The 28 patients dosed in the trial were randomized to receive either a low dose of DNL201, a high dose of DNL201, or placebo.

Safety

DNL201 was generally well tolerated at the low dose and the majority of subjects experienced either no or mild adverse events (“AEs”). There was one serious adverse event considered unrelated to drug. At the high dose, the majority of subjects experienced either mild or moderate AEs and there was one severe AE (headache) leading to dose reduction and one study withdrawal (headache and nausea). All treatment-related AEs were manageable and reversible.

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Target and Pathway Engagement

The Phase 1b results with DNL201 in patients with Parkinson’s disease met all biomarker goals by demonstrating greater than 50 percent inhibition of pS935 LRRK2 and pRAB10 in blood for both doses tested and improvement of the lysosomal biomarker BMP by 20 percent and 60 percent in urine at the low and high dose, respectively.

Figure 5B: Left: DNL201 demonstrated: pS935 LRRK2 inhibition, a biomarker of LRRK2 kinase activity and target engagement. Middle: pRab10 inhibition, a biomarker of LRRK2 kinase pathway engagement linked to lysosomal regulation. Right: reduction in urinary BMP, an established biomarker of lysosomal dysfunction in biofluids that is elevated in LRRK2 mutation carriers.

Other LRRK2 Compounds

Genetic and functional studies have linked LRRK2 and other proteins that modulate lysosomal function to Crohn's disease. Excessive LRRK2 activity leads to a reduction in lysosomal function, which contributes to the inflammation and intestinal dyshomeostasis that are characteristic of this disorder. We have discovered potent and selective small molecule inhibitors of LRRK2 and have selected a lead clinical candidate (“DNL975”) for treatment of Crohn's disease. As described in more detail in “Business - Licenses and Collaborations” below, we are collaborating with Biogen on the Peripheral LRRK2 program.

ETV:IDS Enzyme Replacement Therapy Program for Hunter Syndrome

Hunter syndrome is an X-linked, monogenic LSD, which affects approximately 2,000 boys world-wide. Hunter syndrome is caused by a mutation in the gene that encodes for the enzyme iduronate-2-sulfatase (IDS). IDS is an enzyme responsible for breaking down glycosaminoglycans ("GAGs") in the lysosome thereby maintaining lysosomal homeostasis. In Hunter syndrome, the reduction or loss of IDS enzyme activity leads to accumulation of GAGs, which causes lysosomal dysfunction and neurodegeneration as well as progressive damage to multiple organs including bone, cartilage, heart, lung and brain. Approximately two-thirds of Hunter syndrome patients suffer from central manifestations of the disease, which is characterized by intellectual disability and a progressive cognitive decline that emerges between three and five years of age. Hunter syndrome is currently treated with IV infusions of recombinant IDS protein. These treatments do not efficiently distribute to the brain and, therefore, cannot address the neurological symptoms of the disease. There is a demonstrated need for enzyme replacement therapies ("ERTs") that effectively cross the BBB so as to treat both central and peripheral manifestations of Hunter syndrome and other LSDs.

DNL310 ("ETV:IDS") is an intravenously, centrally administered ERT biotherapeutic enabled by our enzyme transport vehicle ("ETV"), designed to address both central and peripheral manifestations of the disease by delivering IDS and reducing GAGs, both peripherally and in the brain, in patients with Hunter syndrome. DNL310 is currently being evaluated in a Phase 1/2 trial in patients with Hunter syndrome.

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Biomarker-Driven Development

We have developed and validated assays to quantify GAGs in CSF and urine of patients receiving DNL310. These assays are designed to measure changes in primary substrate accumulation that is a result of enzyme deficiency in these patients. In patients with Hunter syndrome receiving standard ERT, a reduction in urine GAG levels is associated with improvements in peripheral manifestations of the disease whereas there is no effect on CSF GAG levels or neurocognitive manifestations.Based on our preclinical models with ETV:IDS, we anticipate that reductions in both urine and CSF GAG levels may result in improvements in both peripheral and neurocognitive manifestations of the disease. In addition, we have identified downstream pathway and disease biomarkers that are dysregulated in animal models of Hunter syndrome, and we are exploring these biomarkers in clinical studies.

Phase 1/2 Trial in Patients with Hunter Syndrome

The investigational new drug application ("IND") for DNL310 was accepted in January 2020. We initiated a Phase 1/2 trial for DNL310 in Hunter syndrome patients in August 2020 as a multicenter, multiregional, open-label trial to assess the safety, pharmacokinetics, and pharmacodynamics of increasing dose levels of DNL310 administered once weekly by intravenous infusion.The initial trial design included two staggered cohorts: the first (Cohort A) enrolled a total of five neuronopathic patients aged five to ten years; the second (Cohort B) is enrolling either neuronopathic or non-neuronopathic patients aged two to eighteen years. A third cohort (Cohort C) is planned to enroll neuronopathic patients aged two to under four years.

In November 2020, we announced achieving first-in-human biomarker proof of concept for our TV technology based on safety and biomarker results after patients in Cohort A had received four weekly IV doses of DNL310. In February 2021, we presented an interim analysis of additional safety and biomarker data from the five patients enrolled in Cohort A, who all received three months of weekly IV doses of DNL310 after switching from idursulfase ERT on Day 1 of the trial. Key results included:

•Normal levels of heparan sulfate, a GAG, in CSF that were seen after four weeks of dosing in four of the five patients were sustained after three months of dosing (mean 85% reduction; p<0.001); heparan sulfate levels were further significantly reduced and approached normal levels in the fifth patient (from 25% to 73% reduction from one to three months, respectively). (Figure 6)

•Reductions in downstream exploratory CSF biomarkers, GM3 and BMP (lysosomal lipids), of 39% and 15%, respectively, were observed after eight weeks of dosing with DNL310, consistent with improvement in lysosomal function.

•Reductions in urine heparan sulfate (Figure 6) and dermatan sulfate following a switch from idursulfase, of 76% and 82%, respectively, were observed after eight weeks of dosing of DNL310, supporting potential for improved peripheral effects relative to standard of care.

•DNL310 was generally well tolerated with no dose reductions and all five patients continue in the trial. The most frequently observed adverse events were mild or moderate infusion-related reactions in three of the five patients, which is consistent with other ERTs.

•Based on three-month clinical data, doses of DNL310 from 3 mg/kg to 30 mg/kg are generally well tolerated and provide flexibility for dose selection in clinical trials.

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We believe the Phase 1/2 data to date continue to support the overall safety profile and biomarker effects of DNL310 as an investigational treatment in Hunter syndrome. Importantly, at dose levels resulting in robust and durable biomarker response, DN310 appears generally well tolerated with a safety profile consistent with standard of care ERT. In addition, early biomarker effects initially seen after four weeks of treatment with DNL310 were sustained after three months of dosing, and the reductions observed in CSF lipid biomarkers indicate, for the first time, an improvement in lysosomal function. The urine GAG results also support the potential for systemic administration of TV-enabled therapeutics to address peripheral disease. Overall, the magnitude and durability of biomarker response and tolerability seen with DNL310 in this Phase 1/2 trial provide strong support for the potential application of our TV technology to deliver enzymes and other therapeutic modalities to the brain.

Figure 6: Heparan sulfate levels as measured in the CSF (left) and urine (right) from patients with Hunter syndrome enrolled into Cohort A of the ongoing Phase 1/2 trial of DNL310. Normal range of CSF heparan sulfate (black circle on left).

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Preclinical Studies in a Mouse Model of Hunter Syndrome

In a mouse model of Hunter syndrome, we have shown that ETV:IDS treatment reduced CSF GAGs and that these reductions were correlated with GAG reductions in the brain (Figure 7). Furthermore, reduction in CSF GAG levels was associated with subsequent improvements in lysosomal function, neurodegeneration biomarkers, neurobehavioral outcomes and correction of skeletal disease manifestations in the mouse model.

Figure 7: ETV:IDS reduced peripheral and CNS GAGs in an MPS II mouse model.

Future Development Plan

In January 2021, based on strong proof-of-concept data, we announced the expansion of our DNL310 development program with the addition of a third cohort (Cohort C, approximately 12 patients) to the ongoing Phase 1/2 trial. Cohort C will enable further exploration of clinical endpoints related to neuronopathic manifestations in patients at early disease stages. We plan to initiate a pivotal Phase 2/3 trial with DNL310 in the first half of 2022.

EIF2B Program

ALS and FTD are rare neurodegenerative diseases collectively affecting over 200,000people world-wide. ALS, often called Lou Gehrig's disease, refers to a group of progressive neurodegenerative diseases that affect nerve cells in the brain and spinal cord, leading to loss of voluntary muscle control and movement. FTD refers to a rare group of brain disorders that are characterized by atrophy of the frontal and temporal lobes of the brain and are associated with changes to personality and behavior as well as difficulties with language.

Mutations in genes associated with ALS and FTD alter RNA homeostasis, which contributes to the aggregation of TDP-43 or other RNA binding proteins. TDP-43 inclusions are found in over 95% of ALS patients and approximately 50% of FTD patients. Activators of EIF2B have demonstrated benefits in resolving TDP-43 aggregation, restoring protein translation and attenuating neurodegeneration via inhibition of the cellular integrated stress response in numerous in vitro and in vivo models. Our most advanced EIF2B activator, DNL343, is a brain-penetrant small molecule designed to rescue EIF2B function and restore normal RNA metabolism.

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Biomarker-Driven Development

We have developed assays to measure ATF4 protein and other ISR-dependent changes in gene expression as proximal pathway markers of EIF2B activity in humans. ATF4 is a transcription factor that modulates ISR gene expression and is upregulated when cellular stress modifies EIF2B activity. These biomarkers have been characterized in in vitro assays and in human peripheral blood mononuclear cells ("PBMCs").

Clinical Development Plan

We initiated a Phase 1 clinical trial of DNL343 in healthy volunteers in February 2020. The Phase 1 trial is a randomized, double-blind, placebo-controlled, single-center clinical trial in 88 healthy subjects to investigate the safety and tolerability of single and multiple ascending oral doses of DNL343 and characterize the PK and PD of DNL343 in plasma and CSF. Initial safety and biomarker results from this trial are expected in the first half of 2021. We plan to initiate a Phase 1b trial in ALS patients in the second half of 2021.

Figure 8A: DNL343 treatment dissolved existing TDP-43 aggregates in a cell based model and was associated with decreased stress response gene expression.

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Figure 8B: Left: DNL343 treatment resulted in a dose dependent reduction in the expression of the ISR-dependent gene Chac1 and other ISR-dependent genes in the brain of a mouse neurodegeneration model. Right: A similar reduction in CHAC1 expression is observed in ex vivo DNL343 studies using PBMCs from healthy volunteers; overlay of single ascending dose (SAD) pharmacokinetics data from healthy volunteers in Phase 1 treated with DNL343 demonstrated clinical exposures achieved in SAD cohorts. A dose-dependent reduction in gene expression of CHAC1 and ATF4 protein levels consistent with ex vivo studies was observed (data not shown).

RIPK1 Inhibitor Program

RIPK1 is a critical signaling protein in the tumor necrosis factor receptor pathway and is a regulator of inflammation and cell death. Increased RIPK1 activity in the brain drives neuroinflammation and cell necroptosis and contributes to neurodegeneration. RIPK1 inhibition has been shown to have beneficial effects in preclinical models of Alzheimer’s disease, ALS and other diseases.

As described in more detail in “Business - Licenses and Collaborations” below, we are collaborating with Sanofi on the RIPK1 inhibitor program in neurological diseases, including Alzheimer’s disease, ALS and multiple sclerosis ("MS").

In June 2020, we announced the joint decision with Sanofi to pause clinical studies with DNL747, previously the program's lead brain-penetrant RIPK1 inhibitor molecule, and focus our efforts on accelerating development of DNL788 (SAR443820), which we believe has superior drug properties and a more rapid path toward proof-of-concept clinical studies.

Biomarker-Driven Development

Target engagement has been characterized using a marker of RIPK1 activity, autophosphorylation of RIPK1 at Serine166 ("pS166"). This biomarker has been characterized in in vitro assays in human and monkey PBMCs and has been demonstrated to be robustly reduced by RIPK1 inhibitors.

DNL747 Phase 1b Results and Decision to Advance DNL788 (SAR443820)

In June 2020, we announced data from 31 patients in two 29-day Phase 1b trials in Alzheimer’s disease and ALS, and additional data from 6 ALS patients in an open label extension trial, showing that DNL747 was safe and well tolerated at the dose tested with no significant treatment related adverse events. Target engagement of approximately 80% median inhibition of pRIPK1 in blood at trough drug concentration was achieved.

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In parallel to the clinical trials, chronic toxicity studies with DNL747 in cynomolgus monkeys showed dose- and duration-dependent adverse nonclinical findings at exposures higher than those tested in the clinic. These findings, which are considered off-target and molecule-specific, impact the ability to increase the dose of DNL747 and achieve higher levels of target inhibition without time consuming additional clinical safety studies in patients to evaluate the long-term safety and tolerability.

Due to the emerging evidence that higher levels of target inhibition may be required for maximizing efficacy, and challenges to achieving higher doses imposed by molecule-specific toxicity findings with DNL747, we made the decision with Sanofi to pause additional studies with DNL747. We are encouraged by the emerging pathway biomarker data in Alzheimer’s disease and ALS patients, and our experience and learnings with DNL747 should allow us to progress quickly with clinical studies for DNL788 (SAR443820). DNL788 (SAR443820) appears to have a superior preclinical therapeutic window compared to DNL747, facilitating development in multiple indications, including Alzheimer’s disease, ALS and MS.

Future Development Plan

Sanofi submitted an IND application for DNL788 (SAR443820) in October 2020. First-in-human dosing in a Phase 1 healthy volunteer trial commenced in December 2020; data are expected to be available in the second half of 2021.

Other RIPK1 Compounds

As part of our parallel development strategy, we have also developed a number of other structurally diverse CNS-penetrant and peripherally-restricted RIPK1 inhibitor molecules, which are included as part of the collaboration agreement with Sanofi. In July 2020, we announced that Sanofi commenced a Phase 1b trial of DNL758 (SAR443122), a Peripheral Product (as defined below), in hospitalized adult patients with severe COVID-19 lung disease. The Phase 1b trial was completed and DNL758 (SAR443122) was found to be generally well tolerated and resulted in changes in disease relevant biomarkers and clinical outcome trends consistent with the proof of mechanism. Based on the rapidly evolving landscape of treatment and prevention options for COVID-19, Sanofi has made a sponsor decision to hold further development in COVID-19 at this time. Sanofi continues to develop DNL758 (SAR443122) as a potential treatment for cutaneous lupus erythematosus ("CLE"). CLE is a type of interface dermatitis characterized by immune cell infiltration. Biopsy-derived T-cells from CLE patients are dominated by IFN-γ and TNF-α positive cells. Furthermore, primary pro-inflammatory cytokines involved in the pathophysiology of CLE are strongly linked to RIPK1 activation and downstream signaling. Therefore,inhibition of RIPK1 activity downstream of TNF and IFN receptor signaling is considered an important target to modulate the pathophysiology of CLE.Sanofi plans to initiate a Phase 2 clinical trial of DNL758 (SAR443122) in CLE patients in the first half of 2021. Sanofi leads all clinical development activities with DNL758 (SAR443122) for systemic inflammatory diseases.

PTV:PGRN Program for FTD

PGRN is a soluble lysosomal protein that has critical functions in lysosomes and an innate immunity in the brain. The GRN gene encodes for the PGRN protein. Loss of function genetic mutations in the GRN genecauses FTD by decreasing PGRN levels in the brain.

DNL593 (“PTV:PGRN”) is an intravenously, centrally administered recombinant PGRN biotherapeutic enabled by our protein transport vehicle ("PTV"). DNL593 is designed to restore normal levels of PGRN in multiple cell types in the brain without interfering with normal PGRN processing. DNL593 restored lysosomal function and reduced microglial activation in the brain of granulin knock-out mice. BMP has been identified as a translatable biomarker for FTD in humans that reflects lysosomal function. DNL593 has demonstrated the ability to rescue BMP levels both peripherally and in the brain and rescue brain BMP levels in granulin knock-out mice (Figure 9).

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Figure 9: PTV:PGRN but not Fc:PGRN rescues brain BMP levels (left) and both rescue Liver BMP levels (right) in granulin knock-out mice.

In December 2020, we initiated IND-enabling studies for DNL593 and we plan to file an IND application or a clinical trial application ("CTA") in late 2021. As described in more detail in “Business - Licenses and Collaborations” below, Takeda has the right to opt in to our PTV:PGRN program. The initiation of IND-enabling studies triggered a milestone payment of $8.0 million from Takeda which we received in January 2021.

ATV:TREM2 Program for Alzheimer's disease

Dementias affect approximately 50 million people world-wide. Alzheimer's disease is the most common cause of dementia accounting for 60-70% of cases. TREM2 is a protein expressed in microglia, the resident immune cells of the brain. Mutations in the TREM2 gene are strongly associated with an increased risk for Alzheimer's disease. DNL919 (“ATV:TREM2”) is a TV-enabled antibody designed to modulate TREM2 signaling and thereby normalize microglial function. We have demonstrated significantly higher brain uptake of ATV:TREM2 compared to standard TREM2 antibodies as well as modulation of microglial gene expression in mouse models (Figure 10).

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Figure 10: Single dose 10 mg/kg ATV:TREM2 induces robust pharmacodynamic response in brain. Left: Similar brain concentrations achieved with 10 mg/kg ATV:TREM2 and 100 mg/kg standard TREM2 antibody. Right: ATV:TREM2 has greater impact on microglia than standard TREM2 antibody using similar doses and exposure in mice.

In January 2021, we initiated IND-enabling studies for DNL919, and we plan to file an IND application or a CTA in late 2021 or early 2022. As described in more detail in “Business - Licenses and Collaborations” below, Takeda has the right to opt into our ATV:TREM2 program. The initiation of IND-enabling studies triggered a milestone payment of $8.0 million from Takeda which we expect to receive in early 2021.

Our portfolio includes additional preclinical programs, including programs targeting alpha-Synuclein ("ATV:aSyn"), Tau ("ATV:Tau"), Abeta (“ATV:Abeta”), SGSH ("ETV:SGSH"), GBA (“ETV:GBA”), GAA (“ETV:GAA”), IDUA (“ETV:IDUA”), NAGLU (“ETV:NAGLU”), and ARSA (“ETV:ARSA”) and oligonucleotide delivery (“OTV”) which are enabled by our TV platform technology. In addition to ATV:TREM2 and PTV:PGRN, our ATV:Tau program is subject to our collaboration agreement with Takeda and our ATV:Abeta program is subject to our collaboration agreement with Biogen, as described in more detail in “Business - Licenses and Collaborations” below.

Licenses and Collaborations

Takeda Option and Collaboration Agreement

Overview

In January 2018, we entered into the Collaboration Agreement with Takeda ("Takeda Collaboration Agreement"), pursuant to which we granted Takeda an option with respect to our ATV:BACE1/Tau, ATV:TREM2 and PTV:PGRN programs. The Takeda Collaboration Agreement provided that Takeda pay a $40.0 million upfront payment related to the collaboration, as well as $110.0 million under a share purchase agreement, both of which were received in February 2018. The Takeda Collaboration Agreement became effective in February 2018 when the requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 were satisfied. In February 2019, we amended the agreement to replace the ATV:BACE1/Tau program with the ATV:Tau program.

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Research Phase and Takeda’s Option

Under the Takeda Collaboration Agreement and unless we otherwise agreed jointly with Takeda, we will be responsible, at our cost, for conducting activities relating to pre-IND development of biologic products directed to the three identified targets and enabled by our BBB delivery technology targeting transferrin receptor during the applicable option period. The option period continues for each target until the first biologic product candidate directed to the relevant target is IND-ready or about five years after selection of the target, whichever is earlier.

Takeda is obligated to pay us up to an aggregate of $25.0 million with respect to each of the three programs under the Takeda Collaboration Agreement directed to a target and based upon the achievement of certain preclinical milestone events, up to $75.0 million in total, of which $5.0 million was received when the Takeda Collaboration Agreement became effective. Additional payments totaling $26.0 million have become due based on the achievement of certain preclinical milestone events, of which $10.0 million was received by December 31, 2020, and an additional $8.0 million was received in January 2021.

Collaboration Activities Following Takeda’s Option Exercise

If Takeda exercises its option with respect to a particular target and collaboration program (i.e., the biologic products directed to the target for which Takeda has exercised its option), then Takeda will have the right to develop and commercialize, jointly with us, a specified number of biologic products enabled by our BBB technology that were developed during the option period and which are directed to the relevant target, and we will grant to Takeda a co-exclusive license under the intellectual property we control related to those biologic products.

Takeda is obligated to pay us a $5.0 million option fee for each target for which Takeda exercises its option, up to $15.0 million in total.

In addition, if Takeda exercises its option for all three collaboration programs, Takeda may be obligated to pay us up to an aggregate of $407.5 million upon achievement of certain clinical milestone events and up to an aggregate of $300.0 million in regulatory milestone events relating to receipt of regulatory approval in the United States, certain European countries and Japan. Further, Takeda may also be obligated to pay us up to $75.0 million per biologic product upon achievement of a certain sales-based milestone, or an aggregate of $225.0 million if one biologic product from each program achieves the milestone.

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Once Takeda has exercised its option for a particular target, we and Takeda will share equally the development and commercialization costs, and, if applicable, the profits, for each collaboration program. However, for each collaboration program, we may elect not to continue sharing development and commercialization costs, or Takeda may elect to terminate our cost-profit sharing rights and obligations if, following notice from Takeda and a cure period, we fail to satisfy our cost sharing obligations with respect to the relevant collaboration program. After such an election by us or termination by Takeda becomes effective, we will no longer be obligated to share in the development and commercialization costs for the relevant collaboration program, and we will not share in any profits from that collaboration program. Instead we will be entitled to receive tiered royalties. The royalty rates will be in the low- to mid-teen percentages on net sales, or low- to high-teen percentages on net sales if we have met a certain co-funding threshold at the time of our election to opt out of co-development or Takeda’s termination of our cost-profit sharing rights and obligations, and, in each case, these royalty rates will be subject to certain reductions specified in the Takeda Collaboration Agreement. Takeda will pay these royalties to us for each biologic product included in the relevant collaboration program, on a country-by-country basis, until the latest of (i) the expiration of certain patents covering the relevant biologic product, (ii) the expiration of all regulatory exclusivity for that biologic product, and (iii) an agreed period of time after the first commercial sale of that biologic product in the applicable country, unless biosimilar competition in excess of a significant level specified in the Takeda Collaboration Agreement occurs earlier, in which case Takeda’s royalty obligations in the applicable country would terminate.

For each collaboration program for which we are sharing costs and profits with Takeda, we will lead the conduct of clinical activities for each indication up to the first trial with a clinical outcomes-based efficacy endpoint, and Takeda will lead the conduct of all subsequent clinical activities for that indication. For each collaboration program for which we are sharing costs and profits with Takeda, we and Takeda will jointly commercialize biologic products included in the relevant collaboration program in the United States and China. Unless we have opted out of cost-sharing for two collaboration programs, we have the right to lead commercialization activities in the United States for one collaboration program and Takeda will lead commercialization activities in the United States for all collaboration programs for which we do not lead commercialization activities. Further, Takeda will lead commercialization activities in China and will solely conduct commercialization activities in all other countries.

We have the right to lead all manufacturing activities for all collaboration programs for which the parties are sharing costs and profits.

Exclusivity

During the option period for a particular target and, if the applicable option is exercised by Takeda (unless the Takeda Collaboration Agreement is terminated earlier), until expiration of an agreed period of time after the first regulatory approval in the United States or Europe of a biologic product within the applicable collaboration program, neither party may conduct clinical or commercial activities involving antibodies or protein-based therapeutic products directed to the same target (or in the case of a bi-specific program, the same combination of targets) that have an intended therapeutic effect in diseases and conditions of the CNS (including lysosomal storage diseases), except to the extent permitted under the Takeda Collaboration Agreement.

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Termination

Each party may terminate the Takeda Collaboration Agreement in its entirety, or with respect to a particular collaboration program, as applicable, if the other party remains in material breach of the Takeda Collaboration Agreement following a cure period to remedy the material breach. Takeda may terminate the Takeda Collaboration Agreement in its entirety or with respect to any particular collaboration program, for convenience and after giving a specified amount of prior notice to us, but Takeda may not do so for a certain period of time after the effective date of the Takeda Collaboration Agreement. Takeda may also terminate the Takeda Collaboration Agreement with respect to any collaboration program if the joint steering committee established under the Takeda Collaboration Agreement unanimously agrees that a material safety event has occurred with respect to the applicable collaboration program. We may terminate the Takeda Collaboration Agreement with respect to a particular collaboration program if Takeda fails to conduct material development and commercial activities for a specified period of time with respect to a collaboration program, unless Takeda cures such failure within a certain period of time. We and Takeda may each terminate the Takeda Collaboration Agreement in its entirety if the other party is declared insolvent or in similar financial distress or if, subject to a specified cure period, the other party challenges any patents licensed to it under the Takeda Collaboration Agreement.

Following any termination of the Takeda Collaboration Agreement with respect to a particular collaboration program or the Takeda Collaboration Agreement in its entirety, our rights to each terminated collaboration program will revert to us, Takeda will grant us a license to intellectual property owned by Takeda with respect to such collaboration program (which could be subject to certain royalty payments that would be negotiated at the time of such a termination) and, unless the termination was by Takeda on the basis of a material safety event, Takeda will conduct certain development, manufacturing and commercialization wind-down activities.

Common Stock Purchase Agreement

Pursuant to the terms of the Takeda Collaboration Agreement, we entered into a common stock purchase agreement (the “Purchase Agreement”) with Takeda in January 2018, pursuant to which we agreed to issue and sell, and Takeda agreed to purchase, 4,214,559 shares of our common stock (the “Shares”) for an aggregate purchase price of $110.0 million pursuant to the terms and conditions thereof. We closed the sale of the Shares to Takeda in February 2018.

We and Takeda also entered into a standstill and stock restriction agreement (the “Standstill Agreement”). Pursuant to the terms of the Standstill Agreement, Takeda agreed to certain transfer and standstill restrictions, including a restriction on acquiring more than 10% of our capital stock, for a specified period of time following the closing of the sale of the Shares to Takeda, or earlier upon our change of control or, with respect to the transfer restrictions, termination of the Takeda Collaboration Agreement. In addition, Takeda is entitled to certain registration rights with respect to the Shares following termination of the transfer restrictions if the Shares cannot be resold without restriction pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended.

Sanofi Collaboration and License Agreement

Overview

In October 2018, we entered into the Collaboration Agreement with Genzyme Corporation, a wholly owned subsidiary of Sanofi S.A. ("Sanofi") pursuant to which certain small molecule compounds that bind to and inhibit RIPK1 (“RIPK1 Inhibitors”) contributed by Sanofi and by us will be developed and commercialized. The Sanofi Collaboration Agreement became effective in November 2018 when the requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 were satisfied.

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We and Sanofi plan to jointly develop products containing RIPK1 Inhibitors for neurological indications, such as Alzheimer’s disease, ALS and MS, and Sanofi plans to develop and commercialize products containing RIPK1 Inhibitors for systemic inflammatory indications, such as cutaneous lupus, rheumatoid arthritis and psoriasis.

The Sanofi Collaboration Agreement includes our and Sanofi’s RIPK1 Inhibitors that measurably penetrate the BBB ("CNS Products"), and our and Sanofi’s RIPK1 Inhibitors that do not measurably penetrate the BBB ("Peripheral Products"). The two most advanced RIPK1 Inhibitors in the collaboration are DNL788 (SAR443820), a CNS Product that was discovered by us and is currently in a Phase 1 trial in healthy volunteers, and DNL758 (SAR443122), a Peripheral Product discovered by us, which has completed a Phase 1b trial in COVID-19 patients and in which Sanofi plans to initiate a Phase 2 clinical trial in patients with cutaneous lupus in the first half of 2021. In June 2020, together with Sanofi we decided to pause clinical studies with DNL747 and focus our efforts on accelerating development of DNL788 (SAR443820), which we believe has superior drug properties and a more rapid path toward proof-of-concept clinical studies in patients in multiple neurological indications.

License Grant

Under the Sanofi Collaboration Agreement, we granted Sanofi an exclusive, worldwide license under intellectual property that we control related to our RIPK1 Inhibitors, including certain intellectual property licensed to us by an academic institution.

Payments

When the Sanofi Collaboration Agreement became effective in November 2018, Sanofi paid us $125.0 million upfront, and in August 2019, Sanofi paid us $10.0 million for the milestone triggered by the commencement of a DNL758 (SAR443122) Phase 1 clinical trial in healthy volunteers. Under the Sanofi Collaboration Agreement, Sanofi is required to make milestone payments up to approximately $1.1 billion upon achievement of certain clinical, regulatory and sales milestone events. Such milestone payments include $215.0 million in clinical milestone payments and $385.0 million in regulatory milestone payments for CNS Products, as defined, that are developed and approved in the United States, by the European Medicines Agency ("EMA") and in Japan for three indications, including Alzheimer's disease. These milestones also include $120.0 million in clinical milestone payments, $175.0 million in regulatory milestone payments and $200.0 million in commercial milestone payments for Peripheral Products, as defined, that are developed and approved in the United States, by the EMA and in Japan for three indications.

We will share profits and losses equally with Sanofi for CNS Products sold in the United States and China, and receive royalties on net sales for CNS Products sold outside of the United States and China and for Peripheral Products sold worldwide, each as further described below.

RIPK1 Inhibitors contributed by Sanofi and developed and commercialized under the Sanofi Collaboration Agreement will be subject to lower milestone and royalty payments to us compared to RIPK1 Inhibitors contributed by us. We will also retain responsibility for certain payment obligations under our agreement with an academic institution which licensed certain intellectual property to us that we are sublicensing to Sanofi under the Sanofi Collaboration Agreement.

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Program for Development and Commercialization of CNS Products

We and Sanofi will jointly develop CNS Products pursuant to a global development plan ("CNS Development Plan"). We will be responsible, at our cost, for conducting Phase 1 and Phase 2 trials for CNS Products for Alzheimer’s disease and any activities required to support such clinical trials and specific for Alzheimer’s disease. Sanofi will be responsible, at its cost, for all other Phase 1 and Phase 2 trials for CNS Products, including for ALS and multiple sclerosis. Sanofi will lead the conduct of all Phase 3 and later stage development trials for CNS Products, with Sanofi and us funding 70% and 30% of such costs, respectively. The Sanofi Collaboration Agreement contains certain protections for us with respect to Phase 3 development costs not included in the initial budget for the CNS Development Plan agreed by the parties, including a deferral mechanism for costs incurred above the budgeted amounts for such trials and for costs incurred in respect of Phase 3 and other clinical trials not contemplated in the initial CNS Development Plan. In addition, we have the ability to opt out of the cost-profit sharing provisions of the Sanofi Collaboration Agreement, as further described below.

Sanofi will lead commercialization activities globally for CNS Products. We may elect to conduct certain co-commercialization activities outside of MS with respect to each CNS Product in the United States and/or China, provided that the cost-profit sharing provisions of the Sanofi Collaboration Agreement for the relevant CNS Product are still in effect, as further described below.

We may opt out of the cost-profit sharing provisions of the Sanofi Collaboration Agreement for CNS Products in the United States and China on a CNS product-by-CNS Product and country-by-country basis. Sanofi may also terminate our cost-profit sharing provisions of the Sanofi Collaboration Agreement in its entirety if, following notice from Sanofi and a cure period, we fail to satisfy our cost-sharing obligations. After such an opt out by us or termination by Sanofi, we will no longer be obligated to share in the development and commercialization costs for the applicable CNS Products and we will not share in the applicable profits from such CNS Products. Instead, we will be entitled to receive tiered royalties on net sales of the applicable CNS Products in the relevant country (or countries). The royalty rates will be a percentage in the low double digits to mid-teens, but may increase to the mid-teens to low-twenties percentages for all countries in which Sanofi is paying royalties on the applicable CNS Products, if we have met certain co-funding thresholds at the time of our election or Sanofi’s termination of our cost-profit sharing rights and obligations.

Program for Development and Commercialization of Peripheral Products

Sanofi is responsible, at its cost, for conducting activities relating to the development and commercialization of all Peripheral Products.

Sanofi will lead commercialization activities globally for Peripheral Products. We will be entitled to receive tiered royalties in the low- to mid- teen percentages on net sales of Peripheral Products.

Manufacturing

Sanofi will be responsible for delivering all supplies for current and future clinical trials and commercial production for CNS Products and Peripheral Products. However, we retain manufacturing rights for certain independent clinical activities.

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Royalty Term

For any CNS Product with respect to any country for which Sanofi is required to pay royalties on net sales and for each Peripheral Product, Sanofi will pay royalties to us on a country-by-country basis until the latest of (i) the expiration of certain patents covering the relevant product, (ii) the expiration of all regulatory exclusivity for that product in the applicable country, and (iii) an agreed period of time after the first commercial sale of that product in the applicable country. If, in a particular country, a CNS Product for which Sanofi is required to pay royalties or a Peripheral Product is not covered by specified patent rights in that country or net sales in that country decrease below specified thresholds as a result of generic competition, Sanofi’s royalty obligations in the applicable country would be reduced or would terminate as specified in the Sanofi Collaboration Agreement.

Exclusivity

During the term of the Sanofi Collaboration Agreement, neither we nor Sanofi may conduct IND-enabling, clinical or commercial activities involving any RIPK1 Inhibitor, anywhere in the world, unless the RIPK1 Inhibitor is included by us or Sanofi, as the case may be, under the collaboration and only to the extent such activity is permitted under the Sanofi Collaboration Agreement.

Termination

Each party may terminate the Sanofi Collaboration Agreement in its entirety, or with respect to a particular program (i.e., the CNS Products program or Peripheral Products program), as applicable, if the other party remains in material breach of the Sanofi Collaboration Agreement following a cure period to remedy the material breach. After giving a specified amount of prior notice to us, Sanofi may terminate the Sanofi Collaboration Agreement for convenience in its entirety, with respect to any particular program, or with respect to one or more specified regions of the world. Sanofi may also terminate the Sanofi Collaboration Agreement with respect to any program or a particular RIPK1 Inhibitor if a material safety event has occurred and cessation of all development and commercialization of all RIPK1 Inhibitors in the affected program or the affected RIPK1 Inhibitor is recommended. We and Sanofi may each terminate the Sanofi Collaboration Agreement in its entirety if the other party is declared insolvent or in similar financial distress or if, subject to a specified cure period, the other party challenges any patents licensed to it under the Sanofi Collaboration Agreement.

Following any termination of the Sanofi Collaboration Agreement with respect to a particular program or a particular region (or regions) of the world or termination of the Sanofi Collaboration Agreement in its entirety, our rights to each of our RIPK1 Inhibitors that were licensed to Sanofi will revert to us. Sanofi will conduct certain development, manufacturing and commercialization activities on a transitional basis following termination of the Sanofi Collaboration Agreement, as outlined in the Sanofi Collaboration Agreement or agreed by Sanofi, depending upon the basis for the applicable termination.

If the Sanofi Collaboration Agreement is terminated for any reason other than by Sanofi for our material uncured breach, our insolvency or our challenge to any of the patents licensed to us by Sanofi, Sanofi will grant us an exclusive license to certain intellectual property controlled by Sanofi with respect to such RIPK1 Inhibitors (which could be subject to low single digit royalties payable to Sanofi).

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Biogen License and Collaboration Agreement and Right of First Negotiation, Option and License Agreement

Overview

In August 2020, we entered into a binding Provisional Collaboration and License Agreement (“Provisional Biogen Collaboration Agreement”) with Biogen Inc.’s subsidiaries, Biogen MA Inc. (“BIMA”) and Biogen International GmbH (“BIG”) (BIMA and BIG, collectively, “Biogen”) pursuant to which we granted Biogen a license to co-develop and co-commercialize our small molecule LRRK2 inhibitor program (the “LRRK2 Program”), an option to our amyloid beta program utilizing our TV technology platform to cross the BBB as well as one other unnamed program also utilizing our TV technology platform (the “Option Programs”), and a right of first negotiation with respect to two additional unnamed programs for indications within Alzheimer’s disease, Parkinson’s disease, ALS and multiple sclerosis utilizing our TV technology platform (the “ROFN Programs”) should we decide to seek a collaboration with a third party for such programs. In October 2020, we entered into a Definitive LRRK2 Collaboration and License Agreement (“LRRK2 Agreement”) and a Right of First Negotiation, Option and License Agreement (the “ROFN and Option Agreement”) with Biogen (collectively the "Biogen Collaboration Agreement"). The material terms of the LRRK2 Agreement and the ROFN and Option Agreement were consistent with, and superseded, the Provisional Biogen Collaboration Agreement.

LRRK2 Agreement

The LRRK2 Agreement includes our small molecule LRRK2 inhibitors (“LRRK2 Products”) that penetrate the BBB, including DNL201 and DNL151 (BIIB122), as well as those that do not penetrate the BBB. Based on the totality of preclinical and clinical data to date, both DNL201 and DNL151 (BIIB122) (two chemically distinct LRRK2 inhibitors) have met our requirements to proceed into further late-stage clinical testing, however, DNL151 (BIIB122) has been selected to proceed due to pharmacokinetic properties that provide additional dosing regimen flexibility.

Payments

Under the terms of the LRRK2 Agreement, Biogen paid us a $400.0 million upfront payment in October 2020. With respect to the LRRK2 Program, Biogen is required to make milestone payments up to approximately $1.125 billion upon achievement of certain development and sales milestone events. Such milestone payments include $375.0 million in development, $375.0 million upon first commercial sale, and $375.0 million in net sales-based milestones. We will share profits and losses equally with Biogen for LRRK2 Products in the United States and will share profits and losses in China with Biogen sharing 60% of such profits and losses and us sharing 40% of such profits and losses. We will be entitled to receive royalties in the high teens to low twenties percentages on net sales for LRRK2 Products outside of the United States and China.

License Grant to LRRK2 Program

Under the LRRK2 Agreement, we granted Biogen a co-exclusive, worldwide license under intellectual property that we control related to our LRRK2 inhibitors, including certain intellectual property licensed to us by a third party.

Development and Commercialization of LRRK2 Program

We and Biogen will jointly develop LRRK2 Products pursuant to a clinical development plan set forth in the LRRK2 Agreement. We and Biogen will share responsibility and costs for global development of LRRK2 Products, with Biogen funding 60% of such costs and us funding 40% of such costs. We have the ability to opt out of the development cost sharing arrangement, as further described below.

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Biogen will lead commercialization activities globally for LRRK2 Products. We will co-commercialize the LRRK2 Products with Biogen in the United States and China, provided that the profit-sharing arrangement for the LRRK2 Products is still in effect, as further described below.

We may opt out of development cost sharing worldwide and upon such election, of all further profit sharing from the LRRK2 Program. We also have the right to opt out of the profit-sharing arrangement for the LRRK2 Program or for only those LRRK2 Products that do not penetrate the BBB (“Peripheral LRRK2 Products”), in each of the United States and China. After such an opt out, we will no longer be obligated to share in the development and commercialization costs for, and we will not share in the applicable revenues from, such LRRK2 Program (or from the Peripheral LRRK2 Products), in such country, as applicable. In such cases, we will be entitled to receive tiered royalties on net sales of the applicable LRRK2 Program in the relevant country (or countries). The royalty rates for the applicable LRRK2 Program will be a percentage in the high teens to low twenties, but may increase to the low twenties to mid-twenties, if we have met certain co-funding thresholds or there has been a first commercial sale at the time of our election.

LRRK2 Program Manufacturing

Biogen will be responsible for delivering all supplies for clinical trials and commercial production for LRRK2 Products, except that we will deliver such supplies until the point of transition which will be mutually agreed by us and Biogen, but in no event later than commencement of activities to support commercial launch, and in any event we retain manufacturing rights for certain independent clinical activities.

LRRK2 Program Royalty Term

For any LRRK2 Product for which Biogen is required to pay royalties, Biogen will pay us royalties on a country-by-country basis and product-by-product basis until the latest of (i) the expiration of certain patents covering the relevant product, (ii) the expiration of all regulatory exclusivity for that product in the applicable country, and (iii) an agreed period of time after the first commercial sale of that product in the applicable country. If, in a particular country, a LRRK2 Product for which Biogen is required to pay royalties is not covered by specified patent rights in that country or where generic competition exists, Biogen’s royalty obligations in the applicable country would be reduced.

Exclusivity of LRRK2 Program

During the term of the LRRK2 Agreement, neither we nor Biogen may conduct preclinical, clinical or commercial activities involving any small molecule that targets LRRK2 as its primary mechanism of action anywhere in the world, unless such molecule is included under the collaboration and only to the extent such activity is permitted under the LRRK2 Agreement or, with respect to Biogen, the molecule is an antisense oligonucleotide product that is the subject of a collaboration between Biogen and a particular third party.

Termination

Each party may terminate the LRRK2 Agreement in its entirety, if the other party remains in material breach of the LRRK2 Agreement following a cure period to remedy the material breach. After giving a specified amount of prior notice to us, Biogen may terminate the LRRK2 Agreement for convenience in its entirety, or with respect to one or more specified regions of the world, but Biogen may not do so for a certain period of time after the effective date of the LRRK2 Agreement. We may terminate the LRRK2 Agreement if Biogen fails to conduct meaningful activities to advance the development or commercialization of any LRRK2 Products for a specified period of time, unless Biogen cures such failure within a certain period of time or if Biogen challenges any patents licensed to it under the LRRK2 Agreement. We and Biogen may each terminate the LRRK2 Agreement in its entirety if the other party is declared insolvent or in similar financial distress.

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Following any termination of the LRRK2 Agreement with respect to a particular region (or regions) of the world or termination of the LRRK2 Agreement in its entirety, our rights to each of our LRRK2 inhibitors that were licensed to Biogen will revert to us. Biogen will conduct certain development, manufacturing and commercialization activities on a transitional basis following termination of the LRRK2 Agreement, as outlined in the LRRK2 Agreement.

If the LRRK2 Agreement is terminated, Biogen will grant us an exclusive license to certain intellectual property controlled by Biogen with respect to such LRRK2 inhibitors.

ROFN and Option Agreement

Option Programs

In addition to the LRRK2 Program, Biogen also received an exclusive option to license two preclinical programs that utilize our TV technology platform, including our ATV:Abeta program and a second program for an unnamed target, excluding small molecules, AAVs and oligonucleotides (each, an "Option Program"). Biogen’s option may be triggered up to initiation of IND-enabling studies for each program and continues for each program until a specified period of time after delivery of an option data package or 30 business days after the 5th anniversary of the effective date of the Provisional Biogen Collaboration Agreement, whichever is earlier.

ROFN Programs

Further, Biogen will have the right of first negotiation on two additional TV-enabled therapeutics in the fields of Alzheimer’s disease, Parkinson’s disease, ALS or multiple sclerosis should we decide to seek a collaboration with a third party for such programs, but this does not include any of our small molecule, AAVs and oligonucleotide programs. The ROFN period continues until seven years after the effective date of the Provisional Biogen Collaboration Agreement or the date on which we have offered Biogen two ROFN Programs and for which Biogen has agreed to trigger a ROFN for such program, whichever is earlier. However, if we do not execute an agreement with a third party with respect to a particular ROFN Program offered to Biogen within a specified amount of time, then Biogen will have one additional right to exercise the ROFN again with respect to such ROFN Program.

Payments

Under the ROFN and Option Agreement, Biogen paid us a $160.0 million upfront payment in October 2020. With respect to the options granted by us to Biogen, Biogen is obligated to pay to us an aggregate of up to $270.0 million in option exercise and development milestone payments and an aggregate of up to $615.0 million in commercial milestone payments, following the achievement of certain prespecified milestone events and if Biogen exercises both of its options. Furthermore, Biogen is obligated to pay us royalties in the mid-single digit to mid-teens percentages, depending on the program for which Biogen exercises its option and upon the achievement of certain sales thresholds.

In addition, if Biogen exercises its ROFN with respect to an eligible Denali program, the parties are obligated to negotiate in good faith for a specified period of time regarding the financial and other terms of an agreement pursuant to which Biogen would obtain rights to such program.

License Grant to Option Programs

If Biogen exercises its option with respect to an Option Program, then we will grant Biogen an exclusive, worldwide license under certain intellectual property that we control that is specific to that Option Program, and a non-exclusive license under certain intellectual property that we control that pertains to our TV platform, in each case to develop, manufacture and commercialize products that are the subject of such Option Program.

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Exclusivity of ROFN and Option Agreement

If the applicable option is exercised by Biogen, then until termination or expiration of the ROFN and Option Agreement, neither party may conduct preclinical, clinical or commercial activities involving certain therapeutic products directed to the same target, unless the therapeutic is included under the collaboration and only to the extent such activity is permitted under the ROFN and Option Agreement or the therapeutic is a product that includes AAVs, oligonucleotides or small molecules.

Termination

Each party may terminate the ROFN and Option Agreement in its entirety, if the other party remains in material breach of the ROFN and Option Agreement following a cure period to remedy the material breach. After giving a specified amount of prior notice to us, Biogen may terminate the ROFN and Option Agreement for convenience in its entirety or with respect to any Option Program for one or more specified regions or in its entirety. We may terminate the ROFN and Option Agreement if Biogen challenges any patents licensed to it under the ROFN and Option Agreement. We and Biogen may each terminate the ROFN and Option Agreement in its entirety if the other party is declared insolvent or in similar financial distress.

Following any termination of the ROFN and Option Agreement in its entirety or with respect to an Option Program (including with respect to a region), the licenses that we granted to Biogen with respect to each such terminated Option Program will be terminated. Biogen will conduct certain development, manufacturing and commercialization activities for certain of such products on a transitional basis following termination of the ROFN and Option Agreement, as outlined in the ROFN and Option Agreement.

If the ROFN and Option Agreement is terminated following exercise of the applicable option with respect to an Option Program, Biogen will grant us an exclusive license to certain intellectual property controlled by Biogen with respect to certain of such products that were the subject of such Option Program.

Common Stock Purchase Agreement

In August 2020, in connection with the Provisional Biogen Collaboration Agreement, we entered into a common stock purchase agreement (the “Stock Purchase Agreement”) with BIMA, pursuant to which we agreed to issue and sell, and BIMA agreed to purchase, 13,310,243 shares of our common stock (the “Shares”) for an aggregate purchase price of $465.0 million pursuant to the terms and conditions thereof. The sale of the Shares closed, and payment was received, in September 2020.

Pursuant to the terms of a standstill and stock restriction agreement (the “Standstill Agreement”) entered into between Biogen and us at the closing of the sale of the Shares, Biogen has agreed to certain transfer and standstill restrictions, including a restriction on acquiring more than 10% of our capital stock, and to vote the Shares in the same manner and proportion as the votes cast by the other holders of our common stock on certain matters, in each case for a period of eighteen months following the closing of the sale of the Shares, or earlier upon a change of control of us. In addition, Biogen will be entitled to certain demand registration rights with respect to the Shares following termination of the transfer restrictions.

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F-star License and Collaboration Agreement

Overview

In August 2016, we entered into a license and collaboration agreement (“F-star Collaboration Agreement”) with F-star Gamma Limited (“F-star Gamma”), F-star Biotechnologische Forschungs-und Entwicklungsges m.b.H ("F-star GmbH") and F-star Biotechnology Limited ("F-star Ltd") (collectively "F-star"). The goal of the collaboration was the development of certain constant Fc domains of an antibody with non-native antigen binding activity, or Fcabs, to enhance delivery of therapeutics across the BBB into the brain. The collaboration was designed to leverage F-star’s modular antibody technology and our expertise in the development of therapies for neurodegenerative diseases. In connection with the entry into the F-star collaboration agreement, we also purchased an option for an upfront option fee of $0.5 million, which we refer to as the buy-out-option, to acquire all of the outstanding shares of F-star Gamma pursuant to a pre-negotiated buy-out option agreement (the “Option Agreement”).

In May 2018, we exercised such buy-out option and entered into a Share Purchase Agreement (the “Purchase Agreement”) with the shareholders of F-star Gamma and Shareholder Representative Services LLC, pursuant to which we acquired all of the outstanding shares of F-star Gamma (the “Acquisition”).

As a result of the Acquisition, F-star Gamma became a wholly-owned subsidiary of the Company and we changed the entity’s name to Denali BBB Holding Limited. In addition, we became a direct licensee of certain intellectual property of F-star Ltd (by way of the Company’s assumption of F-star Gamma’s license agreement with F-star Ltd, dated August 24, 2016, (the “F-star Gamma License”)). We made initial exercise payments under the Purchase Agreement and the F-star Gamma License of $18.0 million in the aggregate, less the net liabilities of F-star Gamma, which were approximately $0.2 million. In addition, we are required to make future contingent payments, to F-star Ltd and the former shareholders of F-star Gamma, up to a maximum amount of $447.0 million in the aggregate upon the achievement of certain defined preclinical, clinical, regulatory and commercial milestones. These include up to $27.0 million in preclinical contingent payments, $50.0 million in clinical contingent payments, $120.0 million in regulatory contingent payments and $250.0 million in commercial contingent payments. The amount of the contingent payments will vary based on whether F-star delivers an Fcab (constant Fc-domains with antigen-binding activity) that meets pre-defined criteria and whether the Fcab has been identified solely by us or solely by F-star or jointly by us and F-star. In June 2019, we made a payment of $1.5 million to F-star Ltd upon the achievement of a specified preclinical milestone in the Company's ETV:IDS program.

Under the terms of the original F-star Collaboration Agreement, we could nominate up to three Fcab targets (“Accepted Fcab Targets”) within the first three years of the date of the F-star Collaboration Agreement. Upon entering into the F-star Collaboration Agreement, we had selected transferrin receptor (“TfR”) as the first Accepted Fcab Target and paid F-star Gamma an upfront fee of $5.5 million, which included selection of the first Accepted Fcab Target. In May 2018, we exercised our right to nominate two additional Fcab Targets and identified a second Accepted Fcab Target. We made a one-time payment for the two additional Accepted Fcab Targets of, in the aggregate, $6.0 million and extended the time period for our selection of the third Accepted Fcab Target until approximately the fourth anniversary of the date of the original F-star Collaboration Agreement. We have not identified a third Fcab Target.

We are also responsible for certain research costs incurred by F-star Ltd in conducting activities under an agreed development plan for each Fcab, for up to 24 months after the target Fcab is accepted.

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Genentech Exclusive License Agreement

In June 2016, we entered into an exclusive license agreement with Genentech, Inc. (“Genentech”). The agreement gives us access to Genentech’s LRRK2 inhibitor small molecule program for Parkinson’s disease. Under the agreement, Genentech granted us (i) an exclusive, worldwide, sublicensable license under Genentech’s rights to certain patents and patent applications directed to small molecule compounds which bind to and inhibit LRRK2 and (ii) a non-exclusive, worldwide, sublicensable license to certain related know-how, in each case, to develop and commercialize certain compounds and licensed products incorporating any such compound. We are obligated to use commercially reasonable efforts during the first three years of the agreement to research, develop and commercialize at least one licensed product.

Our financial obligations under the agreement with Genentech included an upfront payment of $8.5 million and a technology transfer fee of $1.5 million. In addition, we may owe Genentech milestone payments upon the achievement of certain development, regulatory and commercial milestones, up to a maximum of $315.0 million in the aggregate. These milestones include up to $37.5 million in clinical milestone payments, $102.5 million in regulatory milestone payments and $175.0 million in commercial milestone payments. In addition, we are obligated to pay royalties on net sales of licensed products ranging from low to high single-digit percentages, with the exact royalty rate dependent on various factors, including (i) whether the compound incorporated in the relevant licensed product is a Genentech-provided compound or a compound acquired or developed by us, (ii) the date a compound was first discovered, derived or optimized by us, (iii) the existence of patent rights covering the relevant licensed product in the relevant country, (iv) the existence of orphan drug exclusivity covering a licensed product that is a Genentech-provided compound and (v) the level of annual net sales of the relevant licensed product. We also have the right to credit a certain amount of third-party royalty and milestone payments against royalty and milestone payments owed to Genentech, but such credit cannot reduce our royalty obligation to Genentech by more than fifty percent. Our royalty payment obligations will expire on a country-by-country and licensed product-by-licensed product basis upon the later of (a) ten years after the first commercial sale of such licensed product in such country or (b) the expiration of the last valid claim of a licensed patent covering such licensed product in such country. If one of our licensed products incorporates a compound provided to us by Genentech, has orphan drug exclusivity, and is not covered by a valid claim of a licensed patent, we must pay royalties on net sales of such licensed products on a country-by-country and licensed product-by-licensed product basis until such orphan drug exclusivity in such country expires, but our obligation to pay these royalties may be eliminated or reduced if there is a clinically superior product marketed in such country. Under the terms of our LRRK2 Agreement with Biogen, Biogen is responsible for 50% of any payment obligation to Genentech under this agreement accruing after October 2020.

Unless earlier terminated, our agreement with Genentech will continue in effect until all of our royalty and milestone payment obligations to Genentech expire. Following expiration of the agreement, we will retain our licenses under the intellectual property Genentech licensed to us on a non-exclusive, royalty-free basis. Genentech may terminate the agreement if we challenge any of the patent rights licensed to us by Genentech, or if we materially breach the agreement, subject to specified notice and cure provisions, or enter into bankruptcy or insolvency proceedings. If Genentech terminates the agreement for our material breach, bankruptcy or insolvency after we have made a milestone payment to Genentech, then we are obligated to grant to Genentech an exclusive right of first negotiation with respect to certain of our patents, know-how and regulatory filings directed to Genentech-provided compounds. We do not have the right to terminate the agreement without cause, but may terminate the agreement for Genentech’s material breach, subject to specified notice and cure provisions.

Manufacturing

We believe it is important to our business success to have a reliable, high-quality preclinical and clinical drug supply chain. As we mature as a company and approach commercial stage operations, securing reliable high-quality commercial drug supply will be critical.

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We do not currently own or operate facilities for product manufacturing, storage, distribution or testing. We are actively working towards building our preclinical and clinical manufacturing capabilities as part of our goal to become a fully integrated global organization.

We currently rely on third-party contract development and manufacturing organizations ("CDMOs"), to manufacture and supply our preclinical and clinical materials used during the development of our product candidates. We have established relationships with several CDMOs, including Lonza Sales AG ("Lonza"), WuXi Biologics Limited and Thermo Fisher Scientific. Effective September 2017, we entered into a development and manufacturing services agreement with Lonza, which we have subsequently amended to add scope of work. We refer to this agreement, as amended, as the DMSA or the Lonza agreement. Pursuant to the Lonza agreement, Lonza agreed to provide clinical development and manufacturing services with respect to certain of our biologic products on a fee-for-service basis.

We currently do not need commercial manufacturing capacity. When and if this becomes relevant, we intend to evaluate both third-party manufacturers as well as building out internal capabilities and capacity.

Commercialization Plan

We do not currently have any approved drugs and we do not expect to have any approved drugs in the near term. Therefore, we have no sales, marketing or commercial product distribution capabilities at the current time.

Our vision is to become a fully integrated, independent global leader in neurodegeneration with capabilities spanning discovery, development, manufacturing and commercial in order to optimize speed, quality and level of patient access to our medicines. We look to grow strategically both in terms of therapeutic areas of high unmet need, starting with lysosomal storage diseases with CNS pathology and expanding into large neurodegenerative disorders, as well as from a geographic perspective, with an initial focus on establishing a commercial presence in the United States, with a subsequent expansion worldwide (including the European Union ("EU") and China).

For programs covered by collaboration agreements (including those with Takeda, Sanofi and Biogen), we expect to commercialize only in certain geographies, as defined by the terms of the agreements with the counterpart, and rely on our partners to provide commercialization infrastructure for the rest of the world.

Competition

The biotechnology and pharmaceutical industries, including in the neurodegenerative disease field, are characterized by rapidly advancing technologies, strong competition and an emphasis on intellectual property. We face substantial competition from many different sources, including large and specialty pharmaceutical and biotechnology companies, academic research institutions, governmental agencies and public and private research institutions. We believe that the key competitive factors affecting the success of any of our product candidates will include efficacy, safety profile, method of administration, cost, level of promotional activity and intellectual property protection.

Our product candidates will compete with current therapies approved for the treatment of neurodegenerative diseases, which to date have been primarily targeted at treating the symptoms of such diseases rather than halting or slowing the progression of the disease. However, in addition to such currently approved therapies, we believe that our product candidates, if approved, may also compete with other potential therapies intended to halt or slow the progression of neurodegenerative disease that are being developed by a number of companies and institutions, including but not limited to:

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•Alzheimer’s Disease: Potentially disease modifying therapeutics are being developed by several large and specialty pharmaceutical and biotechnology companies, including Biogen, Eli Lilly, Eisai, Roche (including Genentech, its wholly owned subsidiary), Alector and AbbVie in various stages of clinical trials.

•Parkinson’s Disease: Potentially disease modifying therapeutics are being developed by several large and specialty pharmaceutical and biotechnology companies, including Prothena, Roche (including Genentech, its wholly owned subsidiary), Sanofi, Biogen/Ionis, Prevail/Eli Lilly, AstraZeneca, and Takeda in various stages of clinical trials.

•ALS: Potentially disease modifying therapeutics are being developed by several large and specialty pharmaceutical and biotechnology companies and academic institutions, including Biogen/Ionis, Amylyx, AB Science, and Novartis in various stages of clinical trials.

•Lysosomal Storage Diseases: The currently approved treatments for LSDs are enzyme-based therapies. Potentially disease modifying therapeutics are being developed by several large and specialty pharmaceutical and biotechnology companies, including BioMarin, JCR Pharmaceuticals, RegenxBio, Sangamo, Orchard Therapeutics, Takeda and Ultragenyx in various stages of clinical trials.

In addition, there are companies that are developing technologies that would compete directly with our technologies, including:

•Blood-Brain Barrier Technology: There are several large and specialty pharmaceutical and biotechnology companies developing BBB delivery technologies that utilize RMT, including AbbVie, biOasis Technologies, ABL Bio, BioArtic, JCR Pharmaceuticals and Roche (including Genentech, its wholly owned subsidiary), among others.

Intellectual Property

Our intellectual property is critical to our business and we strive to protect it, including by obtaining and maintaining patent protection in the United States and internationally for our product candidates, novel biological discoveries and BBB platform technology, including new targets and applications, and other inventions that are important to our business. We also rely on trademarks, trade secrets, know-how, continuing technological innovation and licensing opportunities to develop and maintain our proprietary position.

As ofDecember 31, 2020, our owned and licensed patent portfolio includes over 900 patents and patent applications, including over 30 licensed U.S. issued patents and 14 owned U.S. issued patents, covering certain aspects of our proprietary technology, our product candidates, and related inventions and improvements. The patent portfolio also includes over 500 licensed patents issued in jurisdictions outside of the United States, and over 400 owned patent applications pending in jurisdictions outside of the United States that, in many cases, are counterparts to the foregoing U.S. patents and patent applications. For our product candidates and our BBB platform technology, we generally pursue or in-license patent protection covering compositions of matter, methods of use, and manufacture. For example, we own patent applications in the United States and internationally that are directed to the composition of matter of certain antibodies and small molecule product candidates that we intend to develop or are developing, as well as the Fc domain portion of our BBB platform technology.

For our BBB platform technology we own pending patent applications directed to the composition and sequences of our TfR-binding TVs and two issued U.S. patents, which are expected to expire in 2038, not including any patent term adjustments and any patent term extensions, as well as pending patent applications, to other BBB platform technology. Furthermore, we own patent applications directed to our ETV:IDS, ATV:TREM2, and PTV:PGRN programs. In particular, we own an issued U.S. patent, which is expected to expire in 2038, not including any patent term adjustments and any patent term extensions, directed to the composition of matter of our ETV:IDS molecules, including DNL310. In

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addition, we license multiple patent families from F-star, the earliest issued patents of which are expected to expire in 2026, not including any patent term adjustments and any patent term extensions.

For our LRRK2 program, which is subject to our collaboration agreement with Biogen, we license multiple patent families from Genentech directed to, among other things, DNL201, DNL151 (BIIB122) and other related compounds, which are expected to expire in 2031, not including any patent term adjustments and any patent term extensions. Furthermore, we own patent families that have projected expiration dates in 2038 or later, not accounting for any patent term adjustments and any patent term extensions. We also own two issued U.S. patents, which are expected to expire in 2037, not including any patent term adjustments and any patent term extensions, directed to the composition of matter of DNL151 (BIIB122) and methods of treatment using DNL151 (BIIB122), respectively, as well as pending patent applications in jurisdictions outside the U.S.

For our RIPK1 program, we own four issued U.S. patents, which are expected to expire in 2037, not including any patent term adjustments and any patent term extensions and pending patent applications, which are directed to the composition of matter of our prior lead DNL747 as well as other RIPK1 inhibitor compounds. We additionally have pending applications both in and outside the U.S. directed to the composition of matter of our current RIPK1 lead, DNL788 (SAR443820), as well as other RIPK1 inhibitor compounds, which, if issued, would expire in 2038, not including any patent term adjustments and any patent term extensions.

We cannot guarantee that our owned and licensed pending patent applications, or any patent applications that we may in the future file or license from third parties, will result in the issuance of patents. We also cannot predict the scope of claims that may be allowed or enforced in our patents. In addition, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted after issuance. Consequently, we may not obtain or maintain adequate patent protection for any of our programs and product candidates. For more information regarding the risks related to our intellectual property, see "Risk Factors - Risks Related to Our Intellectual Property."

The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries in which we file, the patent term is 20 years from the earliest date of filing a non-provisional patent application. In the United States, the patent term of a patent that covers an FDA-approved drug may also be eligible for patent term extension, which permits patent term restoration as compensation for the patent term lost during the FDA regulatory review process. The Hatch-Waxman Act permits a patent term extension of up to five years beyond the expiration of the patent. The length of the patent term extension is related to the length of time the drug is under regulatory review. Patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent applicable to an approved drug may be extended and only those claims covering the approved drug, a method for using it, or a method for manufacturing it may be extended. Similar provisions are available in Europe and other foreign jurisdictions to extend the term of a patent that covers an approved drug. In the future, if and when our products receive FDA approval, we expect to apply for patent term extensions on patents covering those products. We plan to seek patent term extensions to any of our issued patents in any jurisdiction where these are available, however there is no guarantee that the applicable authorities, including the FDA in the United States, will agree with our assessment of whether such extensions should be granted, and if granted, the length of such extensions. For more information regarding the risks related to our intellectual property, see "Risk Factors - Risks Related to Our Intellectual Property."

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In addition to patent protection, we also rely on trademark registration, trade secrets, know how, other proprietary information and continuing technological innovation to develop and maintain our competitive position. We seek to protect and maintain the confidentiality of proprietary information to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. Although we take steps to protect our proprietary information and trade secrets, including through contractual means with our employees and consultants, third parties may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose our technology. Thus, we may not be able to meaningfully protect our trade secrets. It is our policy to require our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential information concerning our business or financial affairs developed or made known to the individual during the course of the individual’s relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. Our agreements with employees also provide that all inventions conceived by the employee in the course of employment with us or from the employee’s use of our confidential information are our exclusive property. However, such confidentiality agreements and invention assignment agreements can be breached and we may not have adequate remedies for any such breach. For more information regarding the risks related to our intellectual property, see "Risk Factors - Risks Related to Our Intellectual Property."

The patent positions of biotechnology companies like ours are generally uncertain and involve complex legal, scientific and factual questions. Our commercial success will also depend in part on not infringing upon the proprietary rights of third parties. It is uncertain whether the issuance of any third-party patent would require us to alter our development or commercial strategies, or our drugs or processes, obtain licenses or cease certain activities. Our breach of any license agreements or our failure to obtain a license to proprietary rights required to develop or commercialize our future products may have a material adverse impact on us. If third parties prepare and file patent applications in the United States that also claim technology to which we have rights, we may have to participate in interference or derivation proceedings in the United States Patent and Trademark Office (the "USPTO") to determine priority of invention. For more information, see "Risk Factors - Risks Related to Our Intellectual Property."

Government Regulation

Government authorities in the United States at the federal, state and local level and in other countries regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of drug and biological products. Generally, before a new drug or biologic can be marketed, considerable data demonstrating its quality, safety and efficacy must be obtained, organized into a format specific for each regulatory authority, submitted for review and approved by the regulatory authority.

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U.S. Drug Development

In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act ("FDCA"), and its implementing regulations, and biologics under the FDCA, the Public Health Service Act ("PHSA"), and their implementing regulations. Both drugs and biologics also are subject to other federal, state and local statutes and regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations requires the expenditure of resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or post-market may subject an applicant to administrative or judicial sanctions. These sanctions could include, among other actions, the FDA’s refusal to approve pending applications, withdrawal of an approval, a clinical hold, untitled or warning letters, product recalls or market withdrawals, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement and civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us.

Any future product candidates must be approved by the FDA through either a new drug application ("NDA"), or a biologics license application ("BLA"), process before they may be legally marketed in the United States. The process generally involves the following:

•Completion of extensive preclinical studies in accordance with applicable regulations, including studies conducted in accordance with good laboratory practice ("GLP"), requirements;

•Submission of an IND to the FDA, or a CTA to the EMA or to an appropriate National Competent Authority, one of which must become effective before human interventional clinical trials may begin;

•Approval by an independent institutional review board ("IRB"), or ECs at each clinical trial site before each trial may be initiated;

•Performance of adequate and well-controlled human clinical trials in accordance with applicable IND or CTA regulations, good clinical practice ("GCP"), requirements and other clinical trial-related regulations to establish the safety and efficacy of the investigational product for each proposed indication;

•Submission to the FDA of an NDA or BLA;

•A determination by the FDA within 60 days of its receipt of an NDA or BLA to accept the filing for review;

•Satisfactory completion of a FDA pre-approval inspection of the manufacturing facility or facilities where the drug or biologic will be produced to assess compliance with current good manufacturing practices ("cGMP"), requirements to assure that the facilities, methods and controls are adequate to preserve the drug or biologic’s identity, strength, quality and purity;

•Potential FDA audit of the preclinical and/or clinical trial sites that generated the data in support of the NDA or BLA;

•FDA review and approval of the NDA or BLA, including consideration of the views of any FDA advisory committee, prior to any commercial marketing or sale of the drug or biologic in the United States; and

•Compliance with any post-approval requirements, including the potential requirement to implement a Risk Evaluation and Mitigation Strategy ("REMS"), and the potential requirement to conduct post-approval studies.

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The data required to support an NDA or BLA are generated in two distinct developmental stages: preclinical and clinical. The preclinical and clinical testing and approval process requires substantial time, effort and financial resources, and we cannot be certain that any approvals for any future product candidates will be granted on a timely basis, or at all.

Preclinical Studies and IND

The preclinical developmental stage generally involves laboratory evaluations of drug chemistry, formulation and stability, as well as studies to evaluate toxicity in animals, which support subsequent clinical testing. The sponsor must submit the results of the preclinical studies, together with manufacturing information, analytical data, any available clinical data or literature and a proposed clinical protocol, to the FDA as part of the IND. An IND is a request for authorization from the FDA to administer an investigational product to humans, and must become effective before human clinical trials may begin.

Preclinical studies include laboratory evaluation of product chemistry and formulation, as well as in vitro and animal studies to assess the potential for adverse events and in some cases to establish a rationale for therapeutic use. The conduct of preclinical studies is subject to federal regulations and requirements, including GLP regulations for safety/toxicology studies. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical studies, among other things, to the FDA as part of an IND. Some long-term preclinical testing, such as animal tests of reproductive adverse events and carcinogenicity, may continue after the IND is submitted. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time, the FDA raises concerns or questions related to one or more proposed clinical trials and places the trial on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials to commence.

Clinical Trials

The clinical stage of development involves the administration of the investigational product to healthy volunteers or patients under the supervision of qualified investigators, generally physicians not employed by or under the trial sponsor’s control, in accordance with GCP requirements, which include the requirement that all research subjects provide their informed consent for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria and the parameters to be used to monitor subject safety and assess efficacy. Each protocol, and any subsequent amendments to the protocol, must be submitted to the FDA as part of the IND. Furthermore, each clinical trial must be reviewed and approved by an IRB for each institution at which the clinical trial will be conducted to ensure that the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the informed consent form that must be provided to each clinical trial subject or his or her legal representative, and must monitor the clinical trial until completed. There also are requirements governing the reporting of ongoing clinical trials and completed clinical trial results to public registries.

A sponsor who wishes to conduct a clinical trial outside of the United States may, but need not, obtain FDA authorization to conduct the clinical trial under an IND. If a foreign clinical trial is not conducted under an IND, the sponsor may submit data from the clinical trial to the FDA in support of an NDA or BLA. The FDA will accept a well-designed and well-conducted foreign clinical trial not conducted under an IND if the trial was conducted in accordance with GCP requirements and the FDA is able to validate the data through an onsite inspection if deemed necessary.

Clinical trials in the United States generally are conducted in three sequential phases, known as Phase 1, Phase 2 and Phase 3, and may overlap.

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•Phase I clinical trials generally involve a small number of healthy volunteers or disease-affected patients who are initially exposed to a single dose and then multiple doses of the product candidate. The primary purpose of these clinical trials is to assess the metabolism, pharmacologic action, and initial side effect tolerability and safety of the drug.

•Phase II clinical trials involve studies in disease-affected patients to determine the dose required to produce the desired benefits. At the same time, safety and further PK and PD information is collected, possible adverse effects and safety risks are identified, and a preliminary evaluation of efficacy is conducted.

•Phase III clinical trials generally involve a large number of patients at multiple sites and are designed to provide the data necessary to demonstrate the effectiveness of the product for its intended use, its safety in use and to establish the overall benefit/risk relationship of the product and provide an adequate basis for product approval. These trials may include comparisons with placebo and/or other comparator treatments. The duration of treatment is often extended to mimic the actual use of a product during marketing.

Post-approval trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval. These trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval of an NDA or BLA.

Progress reports detailing the results of the clinical trials, among other information, must be submitted at least annually to the FDA. Expedited written IND safety reports must be submitted to the FDA, IRBs, ECs and the investigators for serious and unexpected suspected adverse events, findings from other studies suggesting a significant risk to humans exposed to the drug, findings from animal or in vitro testing that suggest a significant risk for human subjects and any clinically important increase in the rate or severity of a serious suspected adverse reaction over that listed in the protocol or investigator brochure.

Further, as a result of the COVID-19 pandemic, we may be required to develop and implement additional clinical trial policies and procedures designed to help protect subjects from the COVID-19 virus. For example, the FDA has issued guidance on conducting clinical trials during the pandemic, which describes a number of considerations for sponsors of clinical trials impacted by the pandemic, including certain reporting requirements, and additional guidance on the good manufacturing practice considerations for responding to COVID-19 infection and other topics. We may be required to make further adjustments to our clinical trials or business operations based on current or future guidance and regulatory requirements as a result of the COVID-19 pandemic.

Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, if at all. The FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug or biologic has been associated with unexpected serious harm to patients. Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee. This group provides authorization for whether a trial may move forward at designated check points based on access to certain data from the trial. Concurrent with clinical trials, companies usually complete additional animal studies and also must develop additional information about the chemistry and physical characteristics of the drug or biologic as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product and, among other things, companies must develop methods for testing the identity, strength, quality and purity of the final product. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that our product candidates do not undergo unacceptable deterioration over their shelf life.

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NDA/BLA Review Process

Following completion of the clinical trials, data are analyzed to assess whether the investigational product is safe and effective for the proposed indicated use or uses. The results of preclinical studies and clinical trials are then submitted to the FDA as part of an NDA or BLA, along with proposed labeling, chemistry and manufacturing information to ensure product quality and other relevant data. In short, the NDA or BLA is a request for approval to market the drug or biologic for one or more specified indications and must contain proof of safety and efficacy for a drug or safety, purity and potency for a biologic. The application may include both negative and ambiguous results of preclinical studies and clinical trials, as well as positive findings. Data may come from company-sponsored clinical trials intended to test the safety and efficacy of a product’s use and/or from a number of alternative sources, including studies initiated by investigators or cooperative clinical groups. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety and efficacy of the investigational product to the satisfaction of FDA. FDA approval of an NDA or BLA must be obtained before a drug or biologic may be marketed in the United States.

Under the Prescription Drug User Fee Act ("PDUFA"), as amended, each NDA or BLA must be accompanied by a user fee. FDA adjusts the PDUFA user fees on an annual basis. According to the FDA’s FY 2021 user fee schedule, effective through September 31, 2021, the user fee for an application requiring clinical data, such as an NDA or BLA, is $2,875,842. PDUFA also imposes an annual program fee for each marketed human drug or biologic of $336,432. Fee waivers or reductions are available in certain circumstances, including a waiver of the application fee for the first application filed by a small business. Additionally, no user fees are assessed on NDAs or BLAs for products designated as orphan drugs for an orphan indication submission.

The FDA reviews all submitted NDAs and BLAs before it accepts them for filing, and may request additional information rather than accepting the NDA or BLA for filing. The FDA must make a decision on accepting an NDA or BLA for filing within 60 days of receipt. Once the submission is accepted for filing, the FDA begins an in-depth review of the NDA or BLA. Under the goals and policies agreed to by the FDA under PDUFA, the FDA has ten months, from the filing date, in which to complete its initial review of a new molecular-entity NDA or original BLA and respond to the applicant, and six months from the filing date of a new molecular-entity NDA or original BLA designated for priority review. The FDA does not always meet its PDUFA goal dates for standard and priority NDAs or BLAs, and the review process may be extended by FDA requests for additional information or clarification.

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Before approving an NDA or BLA, the FDA will conduct a pre-approval inspection of the manufacturing facilities for the new product to determine whether they comply with cGMP requirements. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. The FDA also may audit data from clinical trials to ensure compliance with GCP requirements. Additionally, the FDA may refer applications for novel drug products or drug products which present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions, if any. The FDA is not bound by recommendations of an advisory committee, but it considers such recommendations when making decisions on approval. The FDA likely will reanalyze the clinical trial data, which could result in extensive discussions between the FDA and the applicant during the review process. After the FDA evaluates an NDA or BLA, it will issue an approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete and the application will not be approved in its present form. A Complete Response Letter usually describes all of the specific deficiencies in the NDA or BLA identified by the FDA. The Complete Response Letter may require additional clinical data, additional pivotal Phase 3 clinical trial(s) and/or other significant and time-consuming requirements related to clinical trials, preclinical studies or manufacturing. If a Complete Response Letter is issued, the applicant may either resubmit the NDA or BLA, addressing all of the deficiencies identified in the letter, or withdraw the application. Even if such data and information are submitted, the FDA may decide that the NDA or BLA does not satisfy the criteria for approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than we interpret the same data.

Orphan Drugs

Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biological product intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and making the product available in the United States for this type of disease or condition will be recovered from sales of the product.

Orphan drug designation must be requested before submitting an NDA or BLA. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.

If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications to market the same drug for the same indication for seven years from the date of such approval, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity by means of greater effectiveness, greater safety or providing a major contribution to patient care or in instances of drug supply issues. Competitors, however, may receive approval of either a different product for the same indication or the same product for a different indication but that could be used off-label in the orphan indication. Orphan drug exclusivity also could block the approval of one of our products for seven years if a competitor obtains approval before we do for the same product, as defined by the FDA, for the same indication we are seeking approval, or if a product candidate is determined to be contained within the scope of the competitor’s product for the same indication or disease. If one of our products designated as an orphan drug receives marketing approval for an indication broader than that which is designated, it may not be entitled to orphan drug exclusivity. Orphan drug status in the EU has similar, but not identical, requirements and benefits.

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Expedited Development and Review Programs

The FDA has a fast track program that is intended to expedite or facilitate the process for reviewing new drugs and biologics that meet certain criteria. Specifically, new drugs and biologics are eligible for fast track designation if they are intended to treat a serious or life-threatening condition and preclinical or clinical data demonstrate the potential to address unmet medical needs for the condition. Fast track designation applies to the combination of the product and the specific indication for which it is being studied. The sponsor can request the FDA to designate the product for fast track status any time before receiving NDA or BLA approval, but ideally no later than the pre-NDA or pre-BLA meeting.

Additionally, a drug or biologic may be eligible for designation as a breakthrough therapy if the product is intended, alone or in combination with one or more other drugs or biologics, to treat a serious or life-threatening condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over currently approved therapies on one or more clinically significant endpoints. The benefits of breakthrough therapy designation include the same benefits as fast track designation, plus intensive guidance from the FDA to facilitate an efficient drug development program.

Any product submitted to the FDA for marketing, including under a fast track or breakthrough therapy designation program, may be eligible for other types of FDA programs intended to expedite development and review, such as priority review and accelerated approval.

Any product is eligible for priority review if it treats a serious or life-threatening condition and, if approved, would provide a significant improvement in safety and effectiveness compared to available therapies. Priority review reduces the review time for an initial or supplemental marketing application by four months.

A product may be eligible for accelerated approval, if it treats a serious or life-threatening condition and generally provides a meaningful advantage over available therapies based on an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality ("IMM"), that is reasonably likely to predict an effect on IMM or other clinical benefit. As a condition of accelerated approval, the FDA requires that a sponsor of a drug or biologic receiving accelerated approval subsequently provide additional data confirming the anticipated clinical benefit, for example by performing adequate and well-controlled post-marketing clinical trials. If clinical benefit is not confirmed, accelerated approval may be revoked. If the FDA concludes that a drug or biologic shown to be effective can be safely used only if distribution or use is restricted, it may require such post-marketing restrictions, as it deems necessary to assure safe use of the product.

Fast track designation, breakthrough therapy designation, priority review, and accelerated approval do not change the standards for approval, but may expedite the development or approval process.

Abbreviated Licensure Pathway of Biological Products as Biosimilar or Interchangeable

The Patient Protection and Affordable Care Act ("PPACA"), Affordable Care Act ("ACA"), signed into law in 2010, includes a subtitle called the Biologics Price Competition and Innovation Act of 2009 ("BPCIA"), created an abbreviated approval pathway for biological products shown to be highly similar to an FDA-licensed reference biological product. The BPCIA attempts to minimize duplicative testing, and thereby lower development costs and increase patient access to affordable treatments. An application for licensure of a biosimilar product must include information demonstrating biosimilarity based upon the following, unless the FDA determines otherwise:

•analytical studies demonstrating that the proposed biosimilar product is highly similar to the approved product notwithstanding minor differences in clinically inactive components;

•animal studies (including the assessment of toxicity); and

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•a clinical trial or trials (including the assessment of immunogenicity and PK or PD) sufficient to demonstrate safety, purity and potency in one or more conditions for which the reference product is licensed and intended to be used.

In addition, an application must include information demonstrating that:

•the proposed biosimilar product and reference product utilize the same mechanism of action for the condition(s) of use prescribed, recommended, or suggested in the proposed labeling, but only to the extent the mechanism(s) of action are known for the reference product;

•the condition or conditions of use prescribed, recommended, or suggested in the labeling for the proposed biosimilar product have been previously approved for the reference product;

•the route of administration, the dosage form, and the strength of the proposed biosimilar product are the same as those for the reference product; and

•the facility in which the biological product is manufactured, processed, packed or held meets standards designed to assure that the biological product continues to be safe, pure, and potent.

Biosimilarity means that the biological product is highly similar to the reference product notwithstanding minor differences in clinically inactive components; and that there are no clinically meaningful differences between the biological product and the reference product in terms of the safety, purity, and potency of the product. In addition, the law provides for a designation of “interchangeability” between the reference and biosimilar products, whereby the biosimilar may be substituted for the reference product without the intervention of the health care provider who prescribed the reference product. The higher standard of interchangeability must be demonstrated by information sufficient to show that:

•the proposed product is biosimilar to the reference product;

•the proposed product is expected to produce the same clinical result as the reference product in any given patient; and

•for a product that is administered more than once to an individual, the risk to the patient in terms of safety or diminished efficacy of alternating or switching between the biosimilar and the reference product is no greater than the risk of using the reference product without such alternation or switch.

FDA approval is required before a biosimilar may be marketed in the United States. However, complexities associated with the large and intricate structures of biological products and the process by which such products are manufactured pose significant hurdles to the FDA’s implementation of the law that are still being worked out by the FDA. For example, the FDA has discretion over the kind and amount of scientific evidence—laboratory, preclinical and/or clinical—required to demonstrate biosimilarity to a licensed biological product.

The FDA intends to consider the totality of the evidence, provided by a sponsor to support a demonstration of biosimilarity, and recommends that sponsors use a stepwise approach in the development of their biosimilar products. Biosimilar product applications thus may not be required to duplicate the entirety of preclinical and clinical testing used to establish the underlying safety and effectiveness of the reference product. However, the FDA may refuse to approve a biosimilar application if there is insufficient information to show that the active ingredients are the same or to demonstrate that any impurities or differences in active ingredients do not affect the safety, purity or potency of the biosimilar product. In addition, as with BLAs, biosimilar product applications will not be approved unless the product is manufactured in facilities designed to assure and preserve the biological product’s safety, purity and potency.

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The submission of a biosimilar application does not guarantee that the FDA will accept the application for filing and review, as the FDA may refuse to accept applications that it finds are insufficiently complete. The FDA will treat a biosimilar application or supplement as incomplete if, among other reasons, any applicable user fees assessed under the Biosimilar User Fee Act of 2012 have not been paid. In addition, the FDA may accept an application for filing but deny approval on the basis that the sponsor has not demonstrated biosimilarity, in which case the sponsor may choose to conduct further analytical, preclinical or clinical studies and submit a BLA for licensure as a new biological product.

The timing of final FDA approval of a biosimilar for commercial distribution depends on a variety of factors, including whether the manufacturer of the branded product is entitled to one or more statutory exclusivity periods, during which time the FDA is prohibited from approving any products that are biosimilar to the branded product. The FDA cannot approve a biosimilar application for twelve years from the date of first licensure of the reference product. Additionally, a biosimilar product sponsor may not submit an application for four years from the date of first licensure of the reference product. A reference product may also be entitled to exclusivity under other statutory provisions. For example, a reference product designated for a rare disease or condition (an “orphan drug”) may be entitled to seven years of exclusivity, in which case no product that is biosimilar to the reference product may be approved until either the end of the twelve-year period provided under the biosimilarity statute or the end of the seven-year orphan drug exclusivity period, whichever occurs later. In certain circumstances, a regulatory exclusivity period can extend beyond the life of a patent, and thus block biosimilarity applications from being approved on or after the patent expiration date. In addition, the FDA may under certain circumstances extend the exclusivity period for the reference product by an additional six months if the FDA requests, and the manufacturer undertakes, studies on the effect of its product in children, a so-called pediatric extension.

The first biological product determined to be interchangeable with a branded product for any condition of use is also entitled to a period of exclusivity, during which time the FDA may not determine that another product is interchangeable with the reference product for any condition of use. This exclusivity period extends until the earlier of: (1) one year after the first commercial marketing of the first interchangeable product; (2) 18 months after resolution of a patent infringement against the applicant that submitted the application for the first interchangeable product, based on a final court decision regarding all of the patents in the litigation or dismissal of the litigation with or without prejudice; (3) 42 months after approval of the first interchangeable product, if a patent infringement suit against the applicant that submitted the application for the first interchangeable product is still ongoing; or (4) 18 months after approval of the first interchangeable product if the applicant that submitted the application for the first interchangeable product has not been sued.

Post-Approval Requirements

Following approval of a new product, the manufacturer and the approved product are subject to continuing regulation by the FDA, including, among other things, monitoring and record-keeping requirements, requirements to report adverse experiences, and complying with promotion and advertising requirements, which include restrictions on promoting drugs for unapproved uses or patient populations (known as “off-label use”) and limitations on industry-sponsored scientific and educational activities. Although physicians may prescribe legally available drugs for off-label uses, manufacturers may not market or promote such uses. Prescription drug promotional materials must be submitted to the FDA in conjunction with their first use. Further, if there are any modifications to the drug or biologic, including changes in indications, labeling or manufacturing processes or facilities, the applicant may be required to submit and obtain FDA approval of a new NDA/BLA or NDA/BLA supplement, which may require the development of additional data or preclinical studies and clinical trials.

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The FDA may also place other conditions on approvals including the requirement for a Risk Evaluation and Mitigation Strategy ("REMS"), to assure the safe use of the product. A REMS could include medication guides, physician communication plans or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription or dispensing of products. Product approvals may be withdrawn for non-compliance with regulatory standards or if problems occur following initial marketing.

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DNLI · 10-K · period ended 2020-12-31

ITEM 1. BUSINESS

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DNLI · 10-K · period ended 2020-12-31

ITEM 1. BUSINESS

DNLI US Equity