Denali Therapeutics Inc. (DNLI) Earnings Call Transcript & Summary

Good morning, and thank you for joining our webinar today. I am Laura Hansen, Vice President of Investor Relations at Denali Therapeutics. Please note that the press release we issued earlier today and the slide deck for this webinar are available on our Investors section of our website, denalitherapeutics.com. Before we get started, I'd like to note that the presentation given today during the webinar and the responses to questions will contain forward-looking statements regarding Denali's future plans, business strategy, product candidates, planned preclinical studies and clinical trials among other things. Such statements are subject to numerous important risks and uncertainties and assumptions. Should any of these risks and uncertainties materialize or should our assumptions appear to be incorrect, our actual results could differ materially from these forward-looking statements. These risks, uncertainties and assumptions are more fully described in our filings with the SEC, including our latest quarterly report on Form 10-Q and the latest annual report on Form 10-K. Any forward-looking statements are based on information available to us as of today, and we disclaim any obligation to update any forward-looking statements, except as required by law. So on the webinar today, I am joined by members of Denali's management team; Ryan Watts, Chief Executive Officer; Carole Ho, Chief Medical Officer; Alex Schuth, Chief Operating Officer; and Steve Krognes, Chief Financial Officer. We are allotted approximately 45 minutes total for the webinar today, including presentations followed by a Q&A session. [Operator Instructions] Questions will remain anonymous, and we will do our best to answer as many as possible during the Q&A session. And now I'd like to turn over the program to our Chief Executive Officer, Ryan Watts.

Excellent. Thank you, Laura. Good morning, and thank you for joining us today. We're excited to share new clinical data with you as described in our press release which we issued earlier this morning. Despite the challenges of the global pandemic, it's been a remarkable year at Denali, and we have made progress on many fronts on our purpose to defeat degeneration. We have continued our approach of advancing a broad therapeutic portfolio, taking parallel investments and entering into strategic partnerships. We have active programs across each of these disease areas, including Alzheimer's disease, Parkinson's disease, ALS. However, today, I'd like to focus on a rare lysosomal storage disease known as Hunter syndrome. The news we are sharing today is a significant step forward in addressing a long-standing challenge for the industry. And that is one of getting large molecules or biotherapeutics across the blood-brain barrier. The blood-brain barrier evolved in such a way that it eliminates toxins and other substances from entering the brain and establishes a microenvironment for important signaling within the CNS. Our solution is engineering what we call the transport vehicle, which use an Fc fragment of an IgG. The importance of using transferrin receptor to get across blood-brain barriers that transfer receptors expressed on all the capillaries within the brain. And as a result, we're able to get across the capillaries and every capital has an associated neuron. On the right-hand side is an example of one of our transport vehicles, specifically the enzyme transport vehicle, and which we fused Iduronate 2-sulfatase to the transport vehicle, given ETV:IDS, and that is the focus of today's news and today's presentation. So today is an incredible day for Denali, and I'd like to just announce that we have the first human biomarker proof-of-concept for a transport vehicle. This is data from a biomarker study, a Phase I/II study of ETV:IDS in Hunter syndrome. And after 4 weekly doses, we've -- a mean reduction in CSF GAG levels of heparan sulfate from baseline of 76% was observed with normal healthy levels being achieved in 4 of 5 patients. And importantly, based on cohort A safety data review, an independent data monitoring committee recommended continuing the study without modifications, enabling progression to cohort B, including enrollment of younger patients and continuation of dose escalation in cohort A. It's important as we continue to expand this study now with additional patients, we look forward to additional data. And then finally, before I hand it over to Carole Ho to go into great detail on this data, I just want to point out that these biomarker data represent an important step in addressing a long-standing challenge of effectively getting biotherapeutics across the blood-brain barrier. And with that, I'd like to introduce Carole Ho, our Chief Medical Officer.

Great. Thank you, Ryan. So I'll start by discussing a little bit about Hunter syndrome. Hunter syndrome is a rare inherited genetic disorder that is primarily experienced in boys, given that it is X linked. It is caused by a missing or malfunctioning enzyme Iduronate 2-sulfatase, which we call IDS for short. This belongs to a group of inherited metabolic disorders called mucopolysaccharidosis. These MPS disorders are characterized by accumulation of substrate called glycosaminoglycans that result in accumulation both in the body as well as in the brain, which results in somatic symptoms, which are partially treated by standard-of-care enzyme replacement therapy as well as neurocognitive symptoms, which at this time, are not addressed at all by standard-of-care enzyme replacement therapy. We have developed ETV:IDS, which stands for enzyme transport vehicle IDS, which is the enzyme that is deficient or missing in Hunter syndrome. And we have developed this [ AMAS ] transport vehicle to enable an IV therapeutic to address both the systemic and somatic features of the base as well as the neurocognitive manifestations of the disease. Given this delivery technology, we can get extensive distribution through the vast capillary network into the body as well as into the brain. This enables this therapeutic to be given with a single weekly administered IV therapeutic. This differentiates from other therapies that treat central nervous system or -- and are developed to treat central nerve system manifestations of the disease that may need to be administered by intrathecal or intra-cisterna magna treatment, which would also require ID standard therapy in addition. The clinical phenotype of mucopolysaccharidosis are vast and result in the accumulation of heparan sulfate, dermatan sulfate and chondroitin sulfate and other glycosaminoglycans. What is notable here is that all of the mucopolysaccharidosis that have CNS manifestations or CNS involvement, are characterized by accumulation of heparan sulfatase. This is in contrast of dermatan sulfate, which is also accumulated and is a substrate of IDS in Hunter syndrome. But as you can see, in certain MPS disorders such as MPS VI, there are no CNS manifestations. And in those disorders, you do not see the accumulation of heparan sulfate. Thus, we believe that heparan sulfate is associated with MPS disorders with CNS involvement, and is the critical GAG that we have evaluated in our clinical studies. This is the design of the Phase I/II study for DNL310. This is a 2-part study with a 24-week dose escalation period, Part 1, and Part 2 is a safety extension for 18 months. Part 1 of the protocol has 2 cohorts, cohort A and cohort B. Cohort A enrolls neuronopathic patients. Cohort B enrolls younger patients as young as 2 years old and up to 18 years old that can be either neuronopathic or non-neuronopathic. Today, we are presenting data from cohort A, which has completed enrollment of 5 subjects, and these patients have all completed dose escalation of dose A and dose B depicted below and have continued on with dose escalation based on the data monitoring committee recommendation to continue this study. Today, we will be sharing CSF biomarker data that is outlined in green from after 4 weekly doses of DNL310. This biomarker proof-of-concept was achieved after 4 doses. And based on this data, we have achieved proof-of-concept for the transport vehicle platform. We are now proceeding to cohort B, where screening has been initiated and 3 different doses will be tested and will be enrolled sequentially but in parallel in this cohort. So here is the top line data from the 4-week dosing. Regarding safety, cohort A has completed enrollment of the 5 male patients who are aged 5 to 8 years old. Importantly, an independent data monitoring committee reviewed the safety data from cohort A and recommended to continue the study an open cohort B without modifications. This enables us to enroll younger patients as young as 2 years old and also continued dose escalation in Cohort A. Within subject dose escalation is continuing in Cohort A to higher dose levels and screening of Cohort B has been initiated. Our top line CSF GAG data is presented below. After 4 weekly doses of DNL310, we observed a mean reduction from baseline of 76%, which was statistically significant. Very importantly, 4 of these 5 patients achieved normalization of CSF heparan sulfate. Individual subject reductions of heparan sulfate were 93%, 91%, 90% and 81%, which achieved normalization and 25% in the fifth patient. In addition to the effects on heparan sulfate, which is the key glycosaminoglycan that we believe is associated with CNS manifestations of disease, we also saw a decrease in mean reduction of dermatan sulfate from baseline of 53% that was also statistically significant. The individual subject reductions were 64% in 2 patients, 53%, 41% and 39% from baseline. This biomarker proof-of-concept was achieved in a shorter period of time than we had anticipated with a mean reduction of 76% in heparan sulfate and normal healthy levels achieved in 4 of the 5 patients after 4 doses. On the next slide, we are summarizing the data from this study. Methodological development was performed to validate this assay. As you can see, the normal levels are depicted in the black, in the upper left graph. And what you can see is in the 5 patients, elevated heparan sulfate levels, as expected, were observed, and these decreased after 4 doses to normalization in 4 subjects with a mean reduction of 76%. As can be seen on the right graph, in addition to the decrease in heparan sulfate, we also see a similar decrease in dermatan sulfate with a mean reduction of 53%. Notably, the total urine GAG levels, which are a measure of efficacy in the periphery were maintained within the same range after switching from standard-of-care therapy to DNL310. I'd like to put this in context with the preclinical data that we have generated to date. We have previously presented that in a paper that was published earlier this year that the elevation in heparan sulfate in patients of 11-fold on the left is not addressed by standard of care therapy, while serum reduction in heparan sulfate is seen with standard of care therapy. Notably in our mouse model of disease, of -- this is a Hunter knockout model that lacks the IDS enzyme but has the human transferrin receptor binding in the blood-brain barrier, you can see that a 50% reduction in CSF glycosaminoglycans were reflected also in the brain, and very importantly, were correlated with improvement in pathway biomarkers of lysosomal function as well as motor and cognitive endpoints in the knockout disease model of Hunters disease. This data we have demonstrated now is translatable to the clinic. In step one of our de-risking of this therapeutic, we have interim Phase I/II biomarker data that demonstrates the translatability of these preclinical findings by demonstrating that after 4 weeks, we can substantially reduce CNS -- CSF GAG levels. This outlines our biomarker-driven development strategy and our achievement of step one of the biomarker-driven development strategy, which is to demonstrate target engagement by reducing the substrate of IDS in the CSF. The next step, step IIa and IIb will allow us to further characterize our dose that has effect an on downstream biomarkers of lysosomal function as well as neuronal health is measured by neurofilament light. These steps will enable us to select the dose to move forward into a Phase II/III study that would demonstrate patient impact by looking at neurocognitive endpoints. This biomarker-driven development strategy has been applied to this program, and I would like to share some of the preclinical data and the next steps that we anticipate observing in the clinic. So as we presented previously, ETV:IDS in the mouse model of disease was able to improve lysosomal function as evidenced by improvement in reduction of gangliosides that accumulate in the mouse model of disease as well as in human patients as well as decrease of lipids that accumulate in the lysosome BNP and glucosylceramide in the Hunter IDS knockout model. Step IIa in our clinical observation of data will be to assess the effects of ETV:IDS, DNL310 on biomarkers of lysosomal function. We anticipate this data in Q1 of 2021. In addition in our mouse model of disease, we have also observed the increase in neurofilament light that we showed for the first time is also a characteristic of patients with Hunter syndrome. As shown previously in this data, at earlier stages as well as later stages in this mouse model of disease, we can substantially reduce neurofilament light. Step IIb of our patient data will assess the effects of ETV:IDS on neurofilament and we expect this data at the completion of Part 1 of this Phase I/II study, the dose escalation portion of the study in mid-2021. As we've also shown previously in our animal model of disease, ETV:IDS also improves both motor and cognitive deficits in a Hunter's knockout model. We anticipate that in step III, which would be the Phase II/III study, which we are in process of planning, will assess neurocognitive benefit in Hunter's patients. So in conclusion, DNL310 is being developed to treat neurologic and physical manifestations of Hunter syndrome. And given the IV delivery will replace current standard of care therapy with a single intravenous therapeutic. Our Denali data today connects GAG reduction to lysosomal rescue lipid reduction, reduced neurofilament white and motor cognitive improvement in the mouse model of disease by correlating biomarkers in Hunter's patients with this mouse model. We have shown now that this is translatable in the first step where we have demonstrated that similar to our effects in the mouse model, we can reduce brain -- we can reduce CSF GAG levels in patients. The 50% reduction in CSF GAG levels in the Hunter's model correlated with downstream biomarkers, which will be tested in future data that we will read out in the Phase I/II program. Today, we have demonstrated the reduction of CSF GAG levels in the CSF, and this triggers Phase II/III planning and pre-Phase III global regulatory meeting preparation. This also provides proof-of-concept for the transport vehicle. Step IIa, we will read out in Q1 of 2021, which we'll be looking at CSF biomarkers of lysosomal function rescue. This will support our dose selection strategy. In mid-2021 with final Phase I/II data from Part 1 of the study, we will aim to demonstrate reduction of neurofilament, which will enable dose selection and a go decision for Phase II/III. And finally, with our ultimate goal in our Phase II/III study of demonstrating neurocognitive benefit in patients, this data will enable registration. Ryan, I'll turn back to you.

Excellent. Thank you, Carole. Thank you for going through the data. We're excited to now dive in a little bit into the implications of these data for the transport vehicle platform. So let me just begin that the transport vehicle platform is designed to enhance or unlock targets. As you can see on the left-hand side, there are a number of antibody targets in which we have actively used the transport vehicle technology to enhance antibody uptake in brain. We also observe that this often gives an additional boost in activity when combining transferrin receptor with these targets. On the right-hand side are a set of targets that are -- that we can unlock, specifically enzymes and antisense oligos as well as other proteins. Today, we focused on DNL310. However, I want to highlight that in our R&D Day just a little over a month ago, we looked at other programs, including trend to Abeta and HER2 as examples. In addition to this, we've also shown data that we can effectively get antisense oligos across the blood-brain barrier using the transport vehicle technology. So the data today are critical in validating the transport vehicle and showing a robust pharmacodynamic effect in humans. Just want to highlight that in addition to neurodegeneration and lysosomal storage diseases, there are other opportunities with the transport vehicle technology, including oncology, other indications in neurology as well as infectious diseases. What's important about these data is that it validates transferrin receptor as a viable path to the brain. We can then use these insights to engineer additional platforms using receptor media transcytosis including our gene therapy approaches. So I want to end by summarizing the progress we've made this year with our overall portfolio and just highlight that we're excited about our LRRK2 program and the partnership that we've entered in with Biogen and now fully initiated moving forward with DNL151. We continue in our healthy volunteer study in EIF IIb expecting data by year-end or early next year and make a decision to enable a patient study. Sanofi, our partner with RIP kinase, has continued to advance the program in peripheral RIPK inhibition as well as central inhibition with an IND submitted for DNL788. However, today is a key step in our -- in the progress and plans for Denali where we've established biomarker proof-of-concept for ETV:IDS. And importantly, the TD platform proof-of-concept in humans. I specifically want to thank everyone at Denali who's worked endlessly and tirelessly in a very difficult year to get these data. And also the courage of the patients and specifically, their parents and Hunter syndrome. And finally, all of our partners and collaborators that together, we have focused on defeating degeneration. So for now, I'll turn it over to the Q&A, which I will moderate, and we have a large number of questions here.

Okay. So we'll do the best we can to describe -- to answer as many of these questions as we can. So let me start with the first question. What is the reason for the non responder? Carole, why don't you give some insight? And then I'll add to that.

Yes. So the disease for Hunter's disease is a heterogeneous disease that is due to a number of mutations, which can collude deletion mutations as well as point in missense mutations. Given this, the level of enzyme activity in patients differs. And so it's not surprising that in this small study and after 4 weeks of dosing, that we do see some heterogeneity. We do expect based on previous data from others in the competitive landscape that with continued dosing, we may continue to see decreases in CSF glycosaminoglycans over time.

I'll just add to this, actually, this patient, at least compared to historical data is, in fact, not a nonresponder. So a 25% reduction is near the reduction observed by other technologies such as the high-affinity antibody fused to enzymes and even the gene therapy where it's about 30% to 40% reduction. So we see 25% reduction in heparan sulfate. That particular patient also had 41% reduction in dermatan sulfate. So we -- as Carole said, there's probably heterogeneity in that particular patient, but we do believe the patient is responding, and we hope that after continued dosing that we'd see an even more robust effect. So the next question is, what is the significance of heparan over dermatan sulfate? Carole, do you want to take that?

Sure. We described this in Slide 11. So the key GAGs that are metabolized by Iduronate 2-sulfatase is heparan sulfate and dermatan sulfate. And you can see in this publication, these are the predominant GAGs that accumulate in this disease. Notably, heparan sulfate is seen in all MPS disorders that have CNS involvement, but is not observed in those diseases that do not have CNS involvement. Based on that, we believe this is the critical GAG. However, it is important in our mind to also look at dermatan sulfate, given that this is also a substrate of Iduronate 2-sulfatase. As noted, we achieved our prespecified bar for looking at proof-of-concept with a greater than 50% reduction. But we believe that the most important GAG moving forward is heparan sulfate where we saw 76% mean reduction.

And again, I would point a little bit to historical data to look at others who have run studies with enzyme fusion, specifically antibody fusions. Are there any other GAGs of significance that you are not reporting? Carole, do you want to take that?

No, the -- these are the 2 that we have looked at. We are not looking at other GAGs given that the 2 key substrates of IDS are heparan sulfate and dermatan sulfate. And to our knowledge, others that are developing therapeutics for Hunter's have not yet looked at other GAG species.

Okay. So this next question has 3 parts to it. I'll read through it. And Carole, you and I can answer it. So the first is can you speak to the severity of the patients and the baseline starting points for heparan sulfate? Do you expect patients to see more reductions as they either dose up or dose longer? And then the third is what do you consider normal heparan sulfate levels? And so I'll turn to the actual data here to be able to answer that question. So let's start, Carole, with the severity of the patients.

We can look at Slide 15, and this is the data that we published previously that characterized the levels of heparan sulfate in patients. And as you can see, the range that is observed here is very similar to the range that we saw in our Phase I/II study of roughly 400 to 800 nanograms per ml. So this range we feel is very representative of the population that we expect to see. In terms of the second part of the question, do we expect to see additional reductions over time. And I mentioned this previously, but based on previous data as well as our preclinical data, we do expect to see continued reductions in GAGs over time. Notably, though, however, we have normalized heparan sulfate levels in 4 of the 5 patients. And to address the question of what are normal values? We did methodologic development of this assay, which included looking at 30 healthy individuals' levels of heparan sulfate and dermatan sulfate, and those are the values that are presented in the black in the bottom of that graph, which is the normal range in 10% to 90% of healthy subjects. I think it's very notable that we have achieved normal levels in 4 to 5 subjects. This has not previously been seen in the CSF with competitor therapies.

And I think I'll just add to that, that basically 85% to 90% reduction puts you in the normal range of heparan sulfate. So we shouldn't expect any more than that. And in addition to that, we have seen, at least in other programs, that longer-term dosing leads to more reductions. So I think as Carole highlighted, I think what was surprising to us is the magnitude and timing of effect. And the fact that I think this is the first time in which patients have normalized heparan sulfate, I think the sort of max reduction depending on what technology you use is anywhere between 50% to 70% or 80%. I think one exception that is intrathecal, although this is -- looks to potentially be superior to that as well. Okay. So next question. If you were giving more enzyme overall, why were urine GAGs only maintained?

So I can answer that. So urine GAGs and the assay that is used to measure urine GAGs is a clinical-grade assay that is used for monitoring response to therapy for peripheral enzyme replacement therapies, standard-of-care therapy. Our goal in switching patients from standard-of-care therapy to DNL310 was to, at minimum, maintain the levels of reduce the urinary GAGs as a safety measure as we continue dosing. I think it's too early to really quantify at this point whether the effects that we're seeing on urine GAGs exceeds what you see with peripheral standard-of-care therapy. Our reporting of the GAG levels is primarily at this point in the urine as a safety measure to demonstrate that we are at least equivalent to standard of care in the periphery that enables us to continue dosing DNL310 without concomitant standard-of-care therapy.

Yes. I think the point is also that either sulfate is highly potent, so we'd expect a peripheral effect. However, we look forward to looking at additional peripheral endpoints as we go forward. Okay. So let's dive into a bunch more questions here. So do you have nonhuman primate with the Hunter candidate specifically that validates that CSF target engagement data are representative of what's happening across the brain? I know that you have Hunter mouse data and then also ATV-based data, but curious if you have nonhuman primate for this compound. I'll just comment that we have done nonhuman primate experiments. We have looked at brain levels. We do see uptick across brain regions. It's essentially using the transferrin receptor similar to ATV-based. But importantly, the nonhuman primate is wild type for IDS. So this is not a knockout model, so we can't correlate necessarily a pharmacodynamic response. But the short answer to that is yes. We see the same biodistribution. How many different CSF GAGs are there? Are there 2 you're reporting on the predominant GAGs in Hunter? I think Shire had a total GAG assay. And I think, Carole, you've already answered this question. These are the predominant GAGs. They're the only ones that we measure. And I think our sort of conclusion is that it's much more accurate to report on the exact GAGs as it is to do a generalized GAG assay. And then I think, number three, how do you think about the regulatory path? Do you think you'll need to show clinical benefit or can CSF GAGs represent a registrational endpoint? Is the IT Elaprase program a reasonable comp for what the next steps might look like? Carole, I'll hand this one to you.

Sure. So maybe if I could just back up just to answer also additional color on the total GAG versus reporting the GAGs separately. Heparan sulfate plus dermatan sulfate is essentially total GAGs in this disease, where those are the predominant species that are -- that accumulate. I think it's notable that GAGs are very complex polysaccharide and very heterogeneous. And this was very important in the development of this assay, which we have done methodologic development that we have very reproducible and very well-characterized mass spec measurement of both heparan sulfate and dermatan sulfate. And so together, these would be essentially total GAGs. Now to answer the question just regarding the regulatory pathway and whether GAG levels are considered a surrogate biomarker. At this time, regulators do not consider this a surrogate biomarker of disease given that the correlation between reduction in CSF GAGs and clinical benefit has not been established. I think that this is an important point in that in, for example, with intrathecally delivered Elaprase, as we've discussed previously, the administration relative to where GAG levels are collected in the CSF with intrathecal administration may not necessarily reflect GAG reduction in the brain. So our delivery provides basically a very vast distribution throughout the brain, through the vast capillary network and we've shown in our animal models that this reduction in the CSF is correlated with brain reduction. We do still believe that for registration, we would need to see clinical endpoints, but these would very much be supported by biomarkers that demonstrate an effect on the disease substrate as well as the pathway which is the data that we plan to collect in Q1 and Q2 of 2021, demonstrating that we are not only reducing substrate, but that we are actually having an effect on lysosomal biology and on neuronal function with the lysosomal biomarkers that we've mentioned as well as neurofilament.