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

Good afternoon, everyone. Thanks for joining us. Pleased to have the Denali team with us. We have Ryan Watts, CEO, Co-Founder and President; and Alex Schuth, CFO and COO. Ryan, to start here, you've made steady progress with the pipeline, notably with positive data from Hunter Syndrome with your blood brain-barrier portfolio, and we saw some data at World Symposium recently. As you look to second half onwards, where do you see the most important areas that investors should focus to understand the value proposition for the story?

Well, thank you for having us here again, Salveen. And yes, it's been a lot of steady progress. In fact, we founded Denali 7 years ago. And I think what's most exciting for us right now is that we have 6 clinical stage programs, and 3 of them are entering late-stage efficacy studies or have entered within the last several months. And I think that just shows the early investment in a broad discovery and now development portfolio has led to the progress overall for our approach. Just a reminder that our targets are -- they're really genetically implicated targets, what we call the degenogene pathways and every one of the drugs we've invented is engineered to cross the blood-brain barrier and we're discussing that -- we'll discuss that in length with the Hunter program. And then we focus on these biomarker-driven development approaches that allow us to select the right dose. And so as you highlighted, we had data earlier this year, and we look in the next -- the second half of the year, additional data coming out of a number of our programs. I think the most important one is like eIF2B program, which we hopefully get a chance to talk about. But again, that's one of 6 programs that we've advanced in our portfolio.

That's great. And so maybe let's start with Hunters. You recently announced plans to initiate the pivotal Phase II/III study in the first half. Is this still on track? And then secondly, just help us understand the data that we've seen to date and the variability of impact that we saw with neurofilament light, in light of some of the feedback that's been coming out recently at FDA panels.

Yes. Great. So I'll start with the Phase II/III for the Hunter program. So that trial is now posted on clinicaltrials.gov. Very exciting time for us. This is one of the 3 efficacy studies that we're advancing at -- I should just highlight and we'll talk about it in a minute. The other one is our LRRK2 program, and then we have a RIPK program in ALS. So LRRK2 for Parkinson's. So that particular study, that Phase II/III study is really -- it's a head-to-head study with the standard of care Elaprase. And as I mentioned, we've just outlined it. We're on track, looking forward to enrolling that study as quickly as we can, focusing on important biomarker endpoints but also clinical efficacy. So in fact, if you look at the study, there are 2 co-primary endpoints our CSF heparan sulfate, which we've shown a 90% reduction already in the Phase I/II and normalization and the neuro behavioral assessment. And I think we'll get into more detail in a moment. But what's been really interesting about that program and our other programs is early on in Denali, we decided to invest heavily in biomarker-driven development. And the way you think about biomarkers for us is target engagement, pathway engagement and patient phenotyping. And the key is that each one of these biomarkers lead to insight around dosing and potential efficacy. In the case of the Hunter program, the most important biomarker is the actual substrate, which is elevated. And once that substrate is elevated, it leads to neurotoxicity and actual toxicity physical manifestations as well. So Elaprase effectively treats the physical manifestations but doesn't cross the blood-brain barrier. And our technology was -- is engineered to cross the blood-brain barrier and reduce heparan sulfate in brain and then all the subsequent downstream effects. And what we've observed is we then correct the pathway biomarkers, which are these lysosomal biomarkers. And we're also starting to see in the majority of patients, an improvement in cognition and neurobehavioral endpoints. So it is an open-label study, but very, I think, exciting improvement in those patients. It's obviously a rare disease. And those patients, especially in Cohort A or ages 5 to 8, they should be declining, and they're actually improving in the various endpoints. The outlier in the data, as you mentioned, is the neurofilament data, which we've now presented over a year ago. And it's an interesting biomarker. It's not a biomarker that the FDA hangs their hat on. In other words, it's not an approvable biomarker. And there's been mixed data across different disease areas, the kind of on the extremes, and I'll just give 1 or 2 examples. So I think it became an exciting biomarker because of what was seen in SMA and in MS. However, there are now data in ALS where there seems to be a disconnect between changes in neurofilament and clinical benefit. And probably the most relevant for us is likely fat disease, where neurofilament was eventually reduced but clinical benefit was observed in the first year of treatment, and it took as much as 3 years in order to see an effect on neurofilament. But when we started exploring all these biomarkers, our goal is to find a biomarker that we think will translate to clinical benefit. And it seems that the FDA is most keen on heparan sulfate for obvious reasons, both in the CSF, but also in the periphery. And neurofilament does not appear to be in Hunter Syndrome, an acute biomarker that responds acutely to treatment. But likely, over time, you would see a reduction in neurofilament.

And you also have a program going after TREM2 in Alzheimer's disease that is a key asset and is on clinical hold. Are you still -- I guess, where do you stand with the FDA in resolving this? And is an update still planned for second half on that front?

Yes. So the last point first, yes, we definitely plan to give an update in the second half of the year when we understand our exact path forward, and we're on that path. So we want to share as we've made progress with that program. But a reminder about TREM2, so TREM2 loss of function is a risk factor in Alzheimer's disease. TREM2 is very specifically expressed in the immune cells in the nervous system microglial cells. And because of the genetic data, the implication is that you need to activate TREM2. And that's exactly what we've done. So we've engineered an antibody that robustly activates TREM2. And there are a couple of other antibodies that are in development as well. But notably, you're activating an immune receptor, right? And that's essentially the path we're taking here. And our experience so far is that immune modulation, that's a pretty aggressive way of going after a particular target and especially disease like Alzheimer's disease. So our plan is to provide an update. And just as a reminder, for those of you that were not aware, we received a clinical hold at the beginning of the year and then subsequent another 30 days, received a letter that was highly -- very collaborative, and now we're mapping out that path forward.

And can you remind us the reason behind this? Was it the preclinical tox disclosure? And is there anything related to the target that it maybe has played out in the field?

Yes. It's a great question. So yes, it is -- preclinical tox assessment, it's really about determining the therapeutic index based on the data. And then subsequent to that, how do you monitor, right? And the field has -- it's been an interesting build around TREM2 with other programs, either on partial clinical hold or having to discontinue dosing in a subset of patients. So I think there's a lot to be learned about this particular target, and it's -- and really the immune modulation. I think importantly, I think this is probably the most important point is that what we see with TREM2, we don't see in any of our other TV-related programs, any of our related transport vehicle-related programs.

And we're going to see eIF2B activator data in second -- this quarter, I believe?

Yes. So what -- exactly. So eIF2B just again a reminder of that one to make so many targets that we're going after him, and let me give you a little bit of background on eIF2B. So our eIF2B to be activated -- it's really a master regulator of integrated stress response. So when a cell response to stress, there are a number of kinases that will be activated in the case of viral infection or starvation or protein misfolding. And what happens is a cell basically stops translating proteins. It accumulates all of the mRNA and what are called RNA stress granules. And part of this is basically the inactivation of eIF2B. The molecule that we have can activate and basically put cells back into a healthy state and reinitiate translation. So the data that we've shown so far has been in healthy volunteers in which we see we're able to activate eIF2B by reading out a couple of important biomarkers. And I term them as pathway biomarkers, TAK1 and ATF4. So our goal with the ALS study, and it's a 28-day study is to show basically very similar data in ALS patients. But then we have a longer-term extension in that particular study. So we'll look at data midyear, make a decision and our plan is to basically present data second half of this year at a medical conference, which is really how we've been doing this with all of our programs, especially like our Hunter program and our LRRK2 program is identifying a medical conference in which we can basically share the data. But we have -- we'll have the data to be able to make that decision midyear this year now.

And will you share any efficacy measures? And what do you need to see to move it forward?

Yes. So it's a 28-day study, so we don't have high expectations for efficacy in the sense of any delay in the rate of decline. It's really going to be biomarker focus, but the study continues. It's an ALS study with a safety extension, we'll just continue to follow all of those patients. So for us to move it forward, to answer your question, it's really target engagement, pathway -- well, really pathway engagement the ISR pathway.

A question for you, Alex, on partnerships here. You've got collaborations with Biogen and Sanofi, among others. Given the breadth of the TV platform as well as the other verticals that you're focused on, do you anticipate collaborating with biopharmas more in the future with different programs? And I guess when do you think about doing it and how do you decide what to keep in-house versus not?

Yes. Thanks for the question on partnering. Partnering is a core pillar of our overall strategy. And this really goes back to when we set up the company, we think why -- how can we succeed in an area that has been so challenging and where so many others have not succeeded. And one of the reason is, Ryan mentioned some of the scientific reasons degenogenes, getting drug into the brain, but there is a business component as well. And we wanted to build a portfolio company, big a portfolio company based on the platform, the TV platform and based on our small molecules, partly because of the opportunity, but also partly to manage the risk, right? And many of these trials take a long time and are expensive. Now the upside is also really large. So this is where partnering comes in and why partnering is so expensive so important. You mentioned our 3 partnerships, so Biogen, Sanofi and Takeda and each of those are essentially 50-50 arrangements where we share the cost. Our part of the cost is covered through the milestones and then we maintain 50% of the upside. Now on the other hand, it's also important for us that we maintain a number of wholly-owned programs, where we have all of the upside, where we drive progress, where we can really go after this. And currently, we have the entire enzyme replacement therapy portfolio, which is wholly owned and eIF2B. Now in addition to the 6 programs in the clinic, some of them which we just touched on, we have about 15 in preclinical development. So as more molecules transition into the clinic, we have more opportunity for partnering. So a long way to answer, yes, there is more opportunity for partnering in neurodegeneration. There is also some adjacent areas. So oncology is an area which is -- which we have generated really interesting preclinical data of getting antibodies into the brain. You can think about brain metastases, you can think about primary brain tumors where the TV platform is ideal. It's not within our core area of focus. It's not something where we want to build capabilities in the clinic so that could be a partnering opportunity.

Where do you stand from a cash perspective or funding all of the programs?

Which is a very important question now more than ever. We are well financed. We had $1.2 billion in cash at the end of Q1. We have guided that our operating expense compared to last year will increase by about 20% to 25%. And but that is offset by about $100 million in expected milestone income that we would have this year. So the great thing about partnerships are -- as programs progress, they continue to cover a part of our cost. So if you do the numbers, that's about a net spend of about $200 million this year.

And I guess when you think of the vision for Denali, it always was you'd be a neurology-focused company, but you would bring in all the tools you need and have as many verticals and approaches. And you've talked about bringing in, for instance, playing with AAV, not playing with, but exploring AAV as an approach there. And clearly, we've seen you take oligos into the TV platform or the blood-barrier platform. Maybe you could talk to us about technologies you're looking to bring in-house or how you're expanding?

Right. So I mean expansion is not what we need today because in the last 2 years, we've massively expanded. We built an enzyme transport vehicle, the ETV franchise with Hunter Syndrome and soon Sanfilippo and a number of other lysosomal store diseases. One of the most exciting pieces of data that we've presented this year is on our oligo transport vehicle. So it's basically taking an ASO, combining it with an antibody that binds to transferrin receptor and getting across the blood-brain barrier. This is a whole other franchise, right? And we've accessed the technology through a partnership with Secarna that allowed us to basically get unlimited access to ASOs. And now we're executing on basically the enzymes, the oligos, which is preclinical, and then we have a broad small molecule portfolio, which is each of those are engineered to cross the blood-brain barrier. And so I think our vision is that we're at the point where when we need to access technology, we can do it through partnerships as we've done historically. I think even our Fc engineering technology was enabled through a partnership that gave us access to intellectual property. And now it's about executing on those programs.

Going back to the TV platform, you have a program with Takeda in frontotemporal dementia. When should we expect initial Phase I data from that program? And what are you hoping to see here? And remind us of the mechanism of action, just given the competitive dynamics?

Yes. So this particular program, it's called PTV program, so protein transport vehicle program. It's similar to our Hunter program, where our Hunter program is an enzyme transfer vehicle getting either on a 2-sulfatase or IDS into the central nervous system. This allows us to replace progranulin. And the simplest way to think about it is FTD granulin, it's basically a mutation in the granulin gene. And we're replacing the protein in a similar sort of enzyme replacement therapy. So it's very logical in terms of just the linear thinking between loss of function and then restoring progranulin. What's important, and I think this reflects our commitment to science as we have a number -- we have 3 different pathways that we've invested in heavily, lysosomal biology, glial biology and cellular homeostasis. Our lysosomal biology team has worked on the lysosomal storage diseases, LRRK2 and progranulin or FTD granulate. We published a paper in sell in September of last year that did show 2 things: One is the role of progranulin in the lysosome and actually in granular loss of function, you see basically a lysosomal defect in microglial cells, which is leading to FTD. And then we showed that we could rescue that, specifically crossing the blood-brain barrier with our transport vehicle technology, right? So that particular program is now in healthy volunteers. It's our second transport vehicle program. So we have -- we've now taken 2 TVs and we'll be taking more TVs into the clinic, and we'll start with healthy volunteers and then we're moving forward in FTD granulin. Now the biomarkers are more -- are most ideally suited for the granulin mutation carriers. So they're really restoring lysosomal function. We don't have an expectation to be presenting biomarkers in healthy volunteers because you already have normal levels of progranulin. So with likely safety and PK and healthy volunteers and then moving forward into FTD granule. We're not actually guiding on when we'll collect that data but what I can say is, as you point out, Takeda has opted into that program. We're going all out on the healthy volunteer and then we'll begin enrolling the FTD granular and then as we've accumulated more data and understand the enrollment better, we can give guidance on when we'd expect to present that data.

Perfect. So moving over to LRRK2. You have a program partnered with BIIB in Parkinson's disease that's entering 2 late-stage trials here. What should investors take note of when we look at this target and just given the updated information around it and the programs out there, how -- I guess, how much data is there that's supportive of LRRK2 as a target in this indication?

Yes. I can tell you that I've been working on LRRK2 since 2006. So it was discovered in 2004 as a gene linked to Parkinson's disease. So through a human genetic study, there were 2 papers published back-to-back, identifying mutations in LRRK2 in Parkinson's disease. These mutations are kinase-activating. So it's almost like the perfect drug target where you have these kinase active mutations of what we need to do is invent a molecule that can inhibit the kinase, bring it back to normal levels and then move forward in clinical trials. Now that was 2004 that, that was published and obviously, a lot of work has gone into derisking LRRK2 initially at Genentech and now at Denali. But I'm very excited to say is that at the end of May, we began dosing the first full efficacy study with the potential really to -- for a pivotal study, 640-patients LUMA study and this is in idiopathic Parkinson's. It's actually all patients except for LRRK2 carriers, in part because what's really built up around this particular target is after that discovery and after several decades of discovery work for 15 years, it's been shown that LRRK2 activation leads to lysosomal dysfunction back to this theme with progranulin and, with Hunter Syndrome is really linked to the lysosome. Inhibiting LRRK2 restores that lysosomal function, right? And just last week, we published the first human data in both healthy volunteers and Parkinson's disease, including LRRK2 carriers with a LRRK2 inhibitor that was published in Science Translational Medicine last week. And that was actually basically the proof of concept that led to us selecting the clinical lead, which is DNL151, which can be given once a day. So the LUMA study is now enrolled -- it's enrolling, it's dosing. And then soon, we'll be kicking off the LIGHTHOUSE study, which are with LRRK2 carriers, obviously, the highest probability of success, again, inhibiting LRRK2 and restoring lysosomal function.

Just to remind us, with LRRK2 carriers, how important is patient selection in the sense that you can be a carrier, but if it's not activated, it may not result in Parkinson's disease. So how do you account for that in accounting -- and account for early versus later stage patients? And then how do you know you'll have a read-through to non-LRRK2 carriers?

So we're starting with the non-LRRK2 because of the evidence around lysosomal dysfunction, the broad genetic architecture of Parkinson's points to lysosomal dysfunction. I think GBA is probably the best example. It's the other most common genetic variant in Parkinson's and homozygous carriers of GBA mutations have a Gaucher's disease, which is a lysosomal store disease. Notably, we can actually treat patient fibroblasts with Gaucher's disease and restore lysosomal function with a LRRK2 inhibitor. So just showing how closely related these pathways are. For us, the -- I think that the LRRK2 carriers, it's actually a little bit of a longer study. It's a 2-year study, and it will be almost all LRRK2 carriers that will be eligible for that. For the idiopathic study, it's biased towards early-stage Parkinson's ideally, patients that are not yet on standard of care, although there will be a subset of patients that will be, and therefore, we can see probably a more rapid rate of decline and we'll just run those 2 studies in parallel. And so back to original question, it's really -- all LRRK2 carriers, including those that are on standard of care, of course, we'd have a bias towards earlier stage. That's where you're going to see the most robust effect.

RIPK1, that is also -- you've initiated the Phase II trials there in ALS remind us of the study design and what you're looking for and the measures of efficacy here? This one's a bit more complicated because it's a mutated pathway versus the target itself.

Yes. So I'll hand this one to Alex, and as part of our Sanofi partnership.

That's right. So RIP kinase really interesting biology. So it's a novel immune modulatory mechanism. And the simplest way to think about it is that RIP kinase is just downstream of TNF. So in some form, it's like an oral anti-TNF with a nuanced immune modulatory mechanism. In collaboration with Sanofi are 2 compounds; one compound that crosses the blood-brain barrier that gets into the brain; and one that was specifically engineered not to get into the brain. The former is currently just started an ALS study, and I'll get to that in a second, and Sanofi also plans to start an MS study with this mechanism. The peripheral compound is currently in a study in cutaneous lupus and Sanofi also initiate or express the intention to initiate a study in ulcerative colitis. The external -- the peripheral molecule is essentially a straight out license. So there is milestones and royalties. Now back to the CNS compound. So this is a co-development co-commercialization agreement. The most advanced study is the ALS study. So the ALS study just initiated last month, we received a $40 million milestone based on that. It's called the HIMALAYA study. It is a study in 260 patients with ALS. The primary endpoint is ALSFRS after 6 months, and then there is an open-label extension after 12 months, there will also be an assessment on overall -- on survival. So this is 1 of 2 clinical ALS stage programs that we have. But if you look at those -- the other one being eIF2B compound, if you look at the mechanisms of actions, they're very distinct. This is immune modulation and the eIF2B is in the context of the integrated stress response. So you can think of triggers and defectors of disease. So going after ALS by 2 different approaches.

Any questions from the audience?

So I think GSK recently had a RIPK1 in Phase III and it didn't show benefit in ulcerative colitis. Could you just talk about how yours is different or why that doesn't readthrough to you guys?

Yes. It's really about levels of target engagement and exposure and the GSK molecule had -- was not able to reach the level of exposure that was required for a level of target engagement that would expect some benefits. So if you look into the history of that compound and they subsequently escalated the dose, but we're not able to reach the same -- the level of target engagement. We are, as you may know, this is actually our third RIP kinase inhibitor that we take into the clinic. First was DNL104, which we discontinued early on for some molecule-specific liver effects. The second was DNL747, which we discontinued also because we couldn't hit the level of target engagement that we think is relevant here. So this is really the third and optimized version that has -- that we think has all the right properties.

And then for eIF2B, will you guys share TDP-43 levels in CSF? Is that one of the biomarkers that we'll get or is…

Yes that's an interesting hypothesis. We actually haven't seen necessarily regulation of TDP-43 levels. But what you see is a redistribution of TDP-43, which forms these aggregates, co-localizes with RNA stress granules but there's no evidence that TDP-43 itself may be modulated in CSF. The set of CSF biomarkers that we're looking at are ISR dependent. So they're really related to eIF2B. We haven't disclosed what those are and just worth mentioning that it's a highly competitive target mainly with some of our friends across the street working on the target, so.

One last one for me. The ATV HER2 program as well as ATV more broadly, where -- maybe you could describe the HER2 program, but more broadly, where are you going next? Could you apply it to Alzheimer's with next-generation approaches?

Yes. I'll take the HER2 program, which had always been a little bit under the radar at Denali. And I think there is partly so much of the history of us is linked to Genentech, and there is this big oncology perspective. So -- but conceptually, what the TV platform can do is can get antibodies in the brain. We know antibodies are great anticancer drugs, but they don't cross the blood-brain barrier. Brain metastases are a huge problem in HER2-positive breast cancer and other cancers as well. So early on, we, as a side project, initiated the HER2 program, which was making blood-brain barrier penetrant versions essentially of Herceptin and Perjeta. Subsequently, because we have great antibody engineers, we made a bispecific molecule, which with one fab binds the Herceptin target insight and the other one, the Perjeta targeting site. So it's an interesting biology molecule in itself. Now it's a tri-specific molecule. It has those 2 fabs, and then it binds transferrin receptor with the Fc. Now what's really interesting about this and where we saw preclinically in peripheral tumor models is that transferrin receptor binding leads to additional antitumor activity. It's a super potent molecule because cancer cells, they're fast dividing, they need lots of iron and therefore, have lots of transferrin receptor expressed. So this additional binding site actually leads to superior antitumor activity in the periphery, not even in the brain where it's expected to be better than the standard of care because standard of care doesn't cross. So this is now a very interesting data package. We have a very passionate team and a very competent team that is around -- that is leading that program. And we're now considering the options how to take it forward. I think it's unlikely that we would take it into the clinic ourselves, not impossible. We could definitely do it, but I think it would actually be in the better in the hands of a company that is fully dedicated to oncology. Maybe just one more point on that. So HER2, this HER2 is just the lead program in a potential package of oncology molecules. There are other targets, some data that we have and others that is more conceptual where one could consider this a whole suite of oncology molecules.

And the second half of your question, which is application of ATV to other targets. Biogen has an option to ATV Abeta, so basically an antibody targeting Abeta using the transport vehicle technology. We have, of course, data with TREM2, which we discussed in immune modulation, which is the antibody transport vehicle. But I think the area that we haven't gone into detail yet is the ability to use an antibody like structure, but to tag an ASO and get that across the blood-brain barrier. So rather than it being an ATV, it's an oligo transport vehicle and that's really, again, the data that we've generated in nonhuman primates that we get fantastic biodistribution of ASOs, delivering it systemically. So that -- but the foundation was the ATV, which we then, of course, convert into the OTV.

Great. Well, with that, thank you very much.

Thank you.

Thank you.