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

Welcome to the Morgan Stanley Global Healthcare Conference. I'm Jeff Hung, one of the biotech analysts. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. For this session, we have Denali Therapeutics with Co-Founder and CEO, Ryan Watts. Welcome, Ryan.

Yes. Great to be here. Thank you, Jeff.

So for those who may not be familiar with Denali, can you provide a brief introduction?

Yes. So Denali founded now 8 years ago to defeat degeneration. Our goal is to invent medicines for rare and common neurodegenerative diseases. And it's been a pretty extraordinary 8 years. I think ultimately, we were founded to focus on the genetic drivers of disease, what we call the degenogenes. These are genes when mutated that cause neurodegeneration. A second area of focus for us has been biomarker-driven development. Using biomarkers to drive our dose selection, patient selection ultimately as predictors of efficacy. And I know today, we'll be talking a lot about biomarkers for a number of our programs. I think the third area that we focused on and have focused on is engineering brain delivery, how to invent medicines to cross the blood-brain barrier. And I think what's really transitioned for us in the last couple of years kicking off a number of late-stage clinical trials as now we're focusing on delivering our medicines to patients. So as we prepare for commercial launch as we're working closely with regulators. It's been a pretty extraordinary transition from invention or discovery to development and now delivery. And I think that's really the introduction for today is how do we now take that next step and how do we continue to discover and development in the context of delivering medicines, working with regulatory agencies and launching our medicines.

Great. Your pipeline portfolio includes both small molecule delivery and large molecule delivery with the TV platform. Can you just talk about the platform, how it works and what differentiates it from other blood-brain barrier crossing technologies?

Yes. So I think that's exactly right that we have 2 parts of our portfolio. We have a group of brilliant chemists who engineer small molecules to cross the blood-brain barrier. And when it comes to small molecules, every project is its own engineering. You have to invent a molecule that has the right properties to get across the blood-brain barrier. And we have a pretty advanced and mature small molecule pipeline now, thanks to the effort of those chemists. We also have a group of protein engineers that also joined with us 8 years ago. And their goal was to build a platform to get large molecules across the blood-brain barrier. When I say large molecules, it's not just antibody or therapeutic antibodies. It's also enzymes, other proteins and then an area that we're really keen on is antisense oligos. If there's a way we could engineer antisense oligos to cross the blood-brain barrier. And so Denali's first iteration of our blood-brain barrier technology known as the transport vehicle technology is using an iron transporter known as transferrin receptor. And the idea of using transferrin receptor isn't actually new. It was proposed in the late 1980s and when we founded Denali, we asked, could we industrialize this. There was very little clinical evidence that it works. Very -- there had been a lot of academic papers. And so we decided that we could take advantage of what has known and invent a modular platform that allows us to get different types of modalities across the blood-brain barrier. And now we have evidence from multiple modalities and hopefully, before long, also clinical evidence around, for example, like ASOs, crossing the blood-brain barrier. And so that transport vehicle technology, the first iteration of that, the first version at Denali is utilizing the transferrin receptor across the blood-brain barrier. And now there are a lot of competing companies that are working on these technologies, which is exciting. It means that there is promise and that it's probably a very valuable approach.

Great. Let's start with DNL310 for Hunter syndrome. The last couple of weeks, you just presented additional interim data for the Phase I/II study at SSIEM. Can you sort of walk us through what you've seen.

Yes. So I'll first introduce what DNL310 is. It's known as ETV:IDS or Enzyme Transport Vehicle: iduronate 2-sulfatase. So it's an enzyme idursulfase that's engineered across the blood-brain barrier using this transport vehicle technology. And I think it's important to set a little bit of the context in the history. This is our first molecule to enter clinical studies using this transparent receptor-based approach. And we got our first clinical data in 2020. At that point, we had 5 patients of which 4 out of the 5 had normalized heparan sulfate very rapidly and robustly at relatively low doses. Subsequent now we have upwards of 27-plus patients in the clinical study out to 2 years. And what we show is sustained normalization of the primary substrate for IDS, known as heparan sulfate. In addition, we have a very robust, and this was data just presented at SSIEM, lysosomal biomarkers also showing normalization or near normalization out to 2 years. And I think probably most importantly, at least what we've received most attention about, and I think very exciting data is neurofilament light chain, also showing a robust reduction beginning at 6 months with a steady decline out to 2 years. And I think these data, combined with data that we had presented previously, looking at cognition, behavior and auditory brainstem response, hearing basically show this directionally positive data with now a robust biomarker data set. And so I think it was our first time presenting these data, in particular, neurofilament data to the broader lysosomal storage disease community in Europe. It was actually -- the conference was in Israel, very well received. And I think a growing interest in using downstream biomarkers as potential indicators of halting neurodegeneration, for example, in lysosomal storage diseases.

So speaking of NfL in June, the FDA recommended NFL as an exploratory endpoint for neuropathic MPS II. Have you had a chance to share the NfL data with the agency? And how might this impact the development path?

Yes. So the short answer is that we have not yet shared the neurofilament data with agency, but that's imminent, and we have ongoing I think, very good conversations with the FDA. It was actually a little surprising to us that they proactively requested neurofilament and specifically neurofilament. And there's a little bit of an interesting history, I think most of us that work in the lysosomal storage disease is recognize that the primary substrate is really the predictor of ultimate benefit. And in this case, it's heparan sulfate. But in order for us to connect those dots -- we need to see that we're rescuing the lysosomal biology, rescuing neurodegeneration in the context of neurofilament. So it was almost like subsequent for the data cut for SSIEM and the FDA requesting looking at neurofilament that we were able to see these robust data. And the short answer is that we continue to engage with regulators. I think it's a good sign that biomarkers are becoming more interested and let's set the broader context with tofersen in ALS and neurofilament as basically a surrogate biomarker for accelerated approval. And obviously, if you look at like historically, any medicines that are reducing neurofilament ultimately are approved.

The COMPASS study is ongoing. Can you just talk about the study and what you need to see to consider the success?

So the COMPASS study has really 2 cohorts. One is the neuronopathic cohort and the other is the non-neuronopathic cohort. And the goal here is to compare against active comparator, which is idursulfase. And the goal is I think the primary endpoint being CSF heparan sulfate. We've already seen obviously the data from the Phase I/II study, we expect it to be equally robust in the COMPASS study, but also endpoints around neuro behavioral improvement. The study is actually powered to see a slowing of decline. And if you look at the data from the Phase I/II study, even in older patients, look at that age range that we've enrolled ages 2 to 12, we're actually seeing improvement in a number of these endpoints. And so that's the way that we powered the study. We're now -- we have 28 sites active across 13 countries, so very actively enrolling and looking forward to fully enrolling that study and seeing those data.

Now there are multiple competitors in the space. So can you talk about what gives you confidence in your approach? What differentiates 310 from competing candidates?

Yes. So I think this goes back to the original discussion around the transport vehicle technology. And I think there's a couple of important points. One is engineering affinity. The other is in engineering immune function, which I think we'll talk about later, which I think is critically important. But really that the architecture is what defines the transport vehicle compared to other standard approach like full-length antibodies or single chain fusions. And what we've done is we've often made these comparator molecules, and we published some of that work where we compare head-to-head with molecules of different architecture and show a much more robust response to, for example, heparan sulfate reduction. And I think that's also played out in the clinic. So the preclinical data showed at least a twofold improvement in reducing heparan sulfate. And if you actually look at the clinical data, look at heparan sulfate, you again see this normalization with DNL310 that you're not seeing with the competitor approaches. And so I think that's a critical part of that differentiation. Now we also hope that, that feeds in as it has to lysosomal biomarkers, neurofilament and cognitive behavioral improvements, and we'd love to see that data from others as well, especially around neurofilament.

What is the latest thinking on the regulatory path? And what confidence do you have in the potential path for accelerated approval?

Yes, they're really -- we've focused primarily on the FDA requesting neurofilament as an exploratory biomarker. But actually, the other very interesting dynamic here is the differences between CBER and CDER in the same disease area in Hunter syndrome. And I think part of it is gene therapy versus enzyme replacement therapy, although using the same endpoints, CSF heparan sulfate, for example. And so there seems to be momentum around a potential accelerated path for gene therapy and Hunter. Again, using the CSF heparan sulfate. And what we're driving for, obviously, is a unification between CDER and CBER and again, I think, hopeful that CDER seems to be much more interested now in potential biomarkers, especially biomarkers of neurodegeneration.

Great. Let's shift to DNL593, which is being codeveloped with Takeda. Can you just talk about this program and highlight what you've seen in healthy volunteers?

Yes. So DNL593 or PTV progranulin protein transport vehicle. Progranulin is designed basically to replace progranulin that is deficient. These patients have a loss of 1 copy of progranulin, about 50% less progranulin develop FTD. It represents about 5% of FTD. So it's pretty rare already in a rare disease. And the goal here is very similar to IDS, as I've just described, is basically to replace progranulin. We published some of our work on the role of progranulin in the lysosome and the fact that we can restore it using the protein transport vehicle. And so we've recently shared healthy volunteer data where it was well tolerated. We see progranulin levels, at least 25 fold above normal in CSF. And really the next step is enrolling the Part B study, which we've always -- we haven't guided on timing because we know it's challenging. Again, it's about 5% of FTD patients that carry this granular mutation. And so we've now becoming much more familiar with that field and actively enrolling and dosing that study.

And so how has recruitment been going for the multiple ascending dose study? And what do you need to see to consider that a success?

Yes. So generally speaking, I highlighted here, it's challenging to recruit. Again, that's why we're not commenting on time line. I think what we'd like to see in terms of success is rescue of some of the lysosomal biomarkers that we outlined in our publication around PTV progranulin and the role that progranulin plays in the lysosome. And so I think those are articulated well in that publication, and those are the type of end points we'd be looking at in the FTD granulin patients.

Okay. Maybe moving to BIIB122. Can you just talk about the target and the opportunity you see for that asset?

Yes. So BIIB122, also known as our LRRK2 inhibitor, DNL151, is basically a small molecule -- it is the first of the small molecules we're talking about engineered across the blood-brain barrier. We've been working on LRRK2 for a number of years. It's one of the very first targets we started working on at Denali. And this is the most advanced of the LRRK2 programs that are currently in clinical testing, which I think are about 2 or 3 other. The idea here is this particular small molecule inhibits the kinase activity of LRRK2 and LRRK2 is mutated increasing kinase activity is a risk for Parkinson's disease. The most common mutation is the G2019S mutation, which increases kinase activity by about two to threefold. And here, we can basically bring kinase activity back to normal levels and even below. And we've shown both in healthy volunteers and in Parkinson's patients that this particular molecule is robust at inhibiting LRRK2.

Now in June, you and Biogen announced plans to revise the program. What are the planned revisions and why were the changes being made?

Yes. So I think the key here is the LRRK2 inhibitor program had 2 large clinical studies, Phase II, Phase II/III studies, the LUMA study and the LIGHTHOUSE study. And the LIGHTHOUSE study focused just on basically the LRRK2 carriers. So in the revision, part of this is driven by getting data quicker, also being resource-wise, which works both for us and Biogen. The idea is to fold essentially LIGHTHOUSE into LUMA. Now LRRK2 carriers that meet the eligibility criteria can enroll in the LUMA study. The LUMA study is a 640 patient study both carriers and noncarriers, idiopathic Parkinson's as well as LRRK2 carriers using UPDRS as an endpoint. So this is a very important test of the kinase hypothesis that will include both, again, noncarriers and carriers. And so that revision basically got rid of LIGHTHOUSE and just focusing on LUMA with the goal to read out in 2025. We continue to invest in the biology of LRRK2. In fact, we have a couple of papers that are currently in review, and I think they're available on bioarchives. It's a very interesting target. And what's notable is most of the genetics in Parkinson's disease is pointing to lysosomal dysfunction. So you can see a theme here with both progranulin and with IDS and with LRRK2 that link this biology to lysosomal dysfunction, which is the organ now that's required to turn over protein. So we're excited about that study. Biogen is leading the operations of the LUMA study, and that now focused collaboration is advancing rapidly.

Great. Maybe moving on to some of your other pipeline programs. You've partnered with Sanofi on RIPK1 inhibitors. Can you just talk about these programs and what gives you confidence that the target has therapeutic potential for both CNS and peripheral diseases?

Yes. So probably the simplest way to describe RIP kinase 1 receptor interacting protein kinase 1 is that it's downstream of TNF receptor 1. So not TNF receptor 2 and it mediates a process known as necroptosis, which is a necrotic cell death, but also inflammatory response depending on the cell type that RIPK1 is activated in. And so this is now becoming a hot target amongst biopharma. We're seeing more and more. There are a couple that were leading the way. Now these 2 molecules, one is peripherally restricted, meaning that it doesn't readily cross the blood-brain barrier and the other one that crosses the blood-brain barrier are the 2 most advanced RIPK inhibitors. Sanofi is leading basically these studies, ALS and MS for the centrally acting RIP kinase inhibitor with the MS study just kicking off this year and the ALS study completing enrollment, we'll read out next year, the HEMILEIA study and then also 2 studies in peripheral indications. Now the reason we have confidence in RIP kinase in these indications is because there's evidence, especially in the peripheral inflammatory diseases of the role of TNF and TNF receptor signaling. And so this node, the RIP kinase 1 node is, I think, a very attractive target in peripheral inflammatory diseases. In terms of ALS and MS, obviously, MS has a strong immunological component and ALS, there is a genetic link between RIP kinase, Optineurin TBK1, other genes have been linked to ALS that are related to RIP kinase signaling.

Great. Maybe on another program, Biogen exercised its option to license your ATV amyloid Abeta program. How important is this for validating your approach? And what do you see as the potential for this program?

Yes. So now -- the last 2 programs we just discussed were small molecules, again, engineered across the blood-brain barrier. Now we'll step back to the transport vehicle technology and talk about some of the broader indications in which the transport vehicle can be used. So as a company, Denali, we are focused on building the enzyme franchise as a foundation. We then see a great opportunity for bigger indications with more risk around biology. And so Alzheimer's is one area where there's been a lot of interest. We're now seeing for the first time that the biology risk is decreasing with the success of lecanemab, with the success of donanemab. And the question is what's required to be a best-in-class Abeta antibody, right? And I think some of the challenges right now that we're all aware of is probably ARIA dose frequency, route of administration, IV. And so the goal for the transport vehicle. In fact, the way that I like to frame it is that the transport vehicle can unlock certain targets like enzymes that we can't dose high enough to get enzymes across the blood-brain barrier. So that unlocks those targets. But in the case of antibodies, they may enhance. So lecanemab, obviously is working as is donanemab, can we enhance that approach by using the transport vehicle technology to improve the Max, the Cmax basically. So -- and in doing so, maybe enable subcu dosing. There's one other very important differentiator for a TV approach versus a standard antibody. And then that is how antibody distributes throughout the brain. So standard antibodies largely distributed through perivascular distribution. So CSF, ISF flow. And if you look at the localization of an antibody that's injected systemically you'll see that the vast majority of that antibody is near these large vessels. Transport vehicle-enabled antibodies or antibodies using transferrin receptor across the capillaries. And so the biodistribution is actually very different between the standard antibody and a TFR-enabled antibody. You also have a much larger Cmax, probably tenfold what you would expect at equal doses or even lower doses. And so we see this difference in biodistribution as a potential differentiator for vascular changes, for example, ARIA. Now that will have to be tested in the clinic. We are testing it and have tested it preclinically, but the reality is that the clinic will sort of determine, is there a separation between plaque reduction and ARIA as a potential differentiator. So I think, in brief, the transport vehicle gives broad biodistribution gives you the ability to maximize Cmax and I think enabling subcu and hopefully optimal sort of safety efficacy profile.

Great. On TREM2, you indicate our discontinuing development of DNL919 in Alzheimer's disease, what led to this decision?

Yes, it's perfect timing for this question in the context of the Abeta antibodies. So there are 2 major reasons for discontinuing the TREM2 program. One is the shift in the therapeutic landscape and our lack of evidence around combination therapies of TREM2 and Abeta. And the second is the data that came from our Phase I healthy volunteer study. And so let me step through that briefly. So we observed a robust pharmacodynamic response in the Phase I healthy volunteer study. And when I say pharmacodynamic response, what I'm referring to is CSF biomarkers of microglial activities. So for example, SPP1 and CSF1R and MCP-1, this list of biomarkers that we had previously published on preclinically, we saw a very robust effect at low doses with ATV:TREM2, which is promising. That being said, we found -- we saw moderate hematological findings at a higher dose. And our concern in advancing in Alzheimer's disease is that there's probably a higher risk of hematological finding their anemia in the age population. Now I think if we were a single asset company, I could imagine that we would continue to push this molecule and work with that therapeutic window, we've decided to go back because we believe we understand the principles around these hematological findings, really the TREM2 driven introduction of immune function back to the antibody. And therefore, we're going to dial the affinity around TREM2 and TFR as a path forward. I think equally important is understanding the combination. We're in a new world now with Alzheimer's therapy, where I think very rapidly, anti-amyloid are going to be the standard of care. There's a lot of uncertainty around TREM2 activation, potential vasogenic edema, may or may not be linked to amyloid removal, but I think it's very important to understand that combination, I think, before running the clinical experiment. And so I think we took a conservative approach, both Takeda and our team, we stepped back and we'll continue engineering ATV:TREM2 and really explore the combination effects with Abeta, while we pursue ATV:Abeta and OTV MAPT, which is another Alzheimer's program that we're quite keen on. So we're thinking a lot about the Alzheimer's portfolio.

Great. And amongst your earlier stage program, what program excites you the most and why?

Yes. So that's a tough question. I want to be careful because all the programs are interested in different ways, and they change with data. And so there are really 2 -- keep on the theme of OTV and the second I want to talk about maybe end with is our Sanfilippo, the next enzyme that's just entered -- will just be entering clinical studies now. So the OTV is the oligo transport vehicle. And I think it's been shown, I think, pretty readily that ASOs are a fantastic modality for neurological diseases. The challenge with ASOs and siRNAs is that they're delivered intrathecally. And that's limiting not that you can't do it, and of course, there's approved medicines. But ideally, we could give these systemically and have very broad distribution throughout the central nervous system. So we showed within the last year, 1.5 years, I think for the first time, robustly that we can get ASOs across the blood-brain barrier using a full-length antibody that binds to transferrin receptor. And this particular molecule can cross the blood-brain barrier. We've shown it in mouse and in monkey. And we've disclosed 5 targets that we're interested in, actually, 4 targets in a fifth target space. So MAPT, SNCA, UBE3A, DMPK and also epilepsy. And I think one example of that is if we can knock down Tau expression with systemic delivery, that's going to be, I think, a perfect additive to anti-amyloid therapies. So I think we're very excited about this. We've actually -- the paper describing this is available on bioarchives. We're revising that work so people can be aware of it. But we also see that this is becoming very competitive. So a lot of other companies will also have the same desire to engineer ASOs to cross the blood-brain barrier. So the second program, which is basically will be entering clinical studies imminently as our Sanfilippo ETV:SGSH. And the reason I'm excited about this program is because we've laid the foundation with Hunter. We've invested a ton of time and effort in understanding biomarkers and Hunter syndrome. And we'd love to be able to apply that to the next set of enzyme replacement therapies, and Sanfilippo is the next. Now what's unique about Sanfilippo relative to Hunter is that there is no standard of care. So it's largely a CNS disease. There's no enzyme replacement therapy already approved like idursulfase and therefore, we're blazing the trail. We're not replacing standard of care. But we now have a set of biomarkers and notably with SGSH, you're also measuring heparan sulfate. And you know that you have these other set of biomarkers, and we understand our kinetics and Hunter syndrome that we think we can predict what's happening in Sanfilippo. So very excited to start that study and to generate additional clinical data with the ETV platform.

Partnerships have been important to your strategy. So I guess going forward, how do you think about what to partner versus develop yourselves? And how do you think about additional -- establishing additional partnerships?

Yes, it's a great question, and I think you're exactly right. Partnerships have been central to our success. We have a set of scientific principles as I mentioned before, degenogenes, engineering brain delivery and biomarker-driven development, but we also have a set of business principles, a broad portfolio and basically having a global infrastructure, but global -- sorry, partnerships. And I think, these strategic partnerships are key for Denali's longevity success. And there's a couple of reasons why we do them not just to access capital or to broaden our portfolio, but also to access expertise when I think of what Biogen can do in Parkinson's, having years of experience in enrolling that study, great collaborations with Takeda, Sanofi's interest more broadly in inflammatory diseases. And so we're at a point where we again have this broad portfolio. We have a lot of wholly owned assets, but we also have these platforms that can enable technologies. And we remain very interested in partnerships and have continued those conversations and have for years. But our last partnership we entered in was in 2020 with Biogen. And we're always excited to either expand or initiate new partnerships. So it is a major focus of ours.

And can you remind us how much cash you have and the runway that gets you?

Yes. So a little over -- we have about $1.19 billion. And based on some of the decisions that we've made, for example, the LIGHTHOUSE decision or even the TREM2 decision, which is also a major sort of resource decision going into now Alzheimer's studies, that runway extends into 2026. And I think importantly, we have 4 major readouts coming. We have just in the coming years. So obviously, the ongoing discussions with regulators around DNL310 and the COMPASS study, but HEMILEIA next year, the HEALEY platform study for eIF2B, which we didn't have a chance to get into another, I think, important wholly-owned asset and the LUMA study, those all kind of coming basically '24, '25 and on '26. And so our cash runway is -- and the way that we're sort of prioritizing our portfolio takes us beyond those 4 key readouts.

Great. Looks like we'll have to leave it there. Thanks so much for your time.

Yes. Thanks, Jeff. Appreciate it.