Divestiture of Preclinical Small Molecule Programs

3 Months Ended

Mar. 31, 2024

Disposal Groups, Including Disposal Of Long-Lived Assets [Abstract]

Divestiture of Preclinical Small Molecule Programs

Divestiture of Preclinical Small Molecule Programs

On March 1, 2024, the Company divested certain assets, including specified intellectual property, tangible assets, and equipment used to conduct early stage small molecule drug discovery ("Divested Assets") through an Asset Purchase and License Agreement (the "Asset Purchase Agreement") executed with a venture-backed private company ("VBPC"). Additionally, certain of the Company’s employees terminated their employment with the Company and became employees of VBPC.

In exchange for the Divested Assets, the Company received equity consideration in the form of a simple agreement for future equity (“SAFE”), equal to $15.0 million of equity in VBPC’s next financing round or, if VBPC’s next equity financing does not occur prior to December 31, 2024, a number of shares of preferred stock issued in VBPC’s previous round of equity financing prior to this agreement equal to $15.0 million divided by the price per share paid by investors in that previous equity financing. The Company may also be eligible to receive certain win state, development and sales based milestone payments up to approximately $1.2 billion in the form of either cash or equity at the election of VBPC. The Company will also be entitled to receive future royalties on aggregate net sales of any products that bind to certain identified targets, on a product-by-product and country-by-country basis during the periods of time commencing at the time of the first commercial sale of such product in such country, until the later of (i) the expiration of certain related patents, (ii) the expiration of Regulatory Exclusivity, or (iii) ten years after such first commercial sale.

Concurrently, VBPC and the Company also entered into a sublease for 12,985 square feet of office and lab space within the Company's corporate headquarters, and transition and research services agreement ("Service Agreements"). The sublease is expected to commence in May 2024 for a period of approximately ten months, with two optional six month extension periods. The Service Agreements allow Denali to provide access to equipment and provision of certain specified administrative and research services to VBPC for a period up to the end of the sublease term.

This divestiture did not meet the criteria for reporting discontinued operations as the sale does not represent a strategic shift in the Company’s business. The Company recognized a gain on divestiture of approximately $14.5 million in the Condensed Consolidated Statements of Operations and Comprehensive Loss during the three months ended March 31, 2024, representing the difference between the fair value of the consideration received and the carrying amount of the Divested Assets.

The Company recorded the SAFE at $15.0 million based on the expected value of the equity to be received within other non-current assets in the Condensed Consolidated Balance Sheet as of March 31, 2024.