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 closer website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representatives. So, for this session, we have Denali Therapeutics with CEO, Ryan Watts. Welcome.

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

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

Yes. So, Denali has been in existence for a little over 9 years. We're going on our 10th year, and we founded the company with the goal to, number one, to feed degeneration, nothing like setting very ambitious goals and area that at least 9 years ago, not very popular area to develop medicines for Alzheimer's, Parkinson's and ALS. I think the second goal was to cross the blood-brain barrier to find a way of getting medicines effectively across the bluebird barrier to treat various diseases. And so, we set out at the time, both engineering small molecules and large molecules with the hope of developing a platform that allowed us to consistently bring medicines into the brain. And I think the last 9 years have been for us, nothing short of incredible and exciting and obviously challenging. I think, obviously, with the most recent news, we're now on our path to really our first approval of a medicine using the technologies that we've invented. So, that was really the ultimate goal. And now we see ourselves as hopefully, the leader in the field around blood-brain barrier engineering and the ability to get multiple modalities across the blood-brain barrier. And I'm sure we're going to go into many details about those programs now.

Great. Maybe let's start with the DNL310 for Hunter syndrome. The MPS II/III COMPASS study is expected to complete enrollment this year. Can you just talk about the study design?

Yes, I'd love to. In fact, I probably should just tell you a little bit about DNL310 and the alpha synuclein what it's called now and actually some recent news that we just shared a couple of days ago around our intention to file a BLA on the accelerated approval path based on our successful meeting with the FDA. But let's just step back a little bit and talk about the technology that enables that enzyme to cross the blood brain barrier. I think as many of you know, enzyme replacement therapies have been a very successful approach to treating monogenic diseases, specifically lysosomal stores diseases. The challenge has been that most enzymes, if not all of them, do not readily cross the blood-brain barrier. And so, the question is, how do you get an enzyme that can work in treating the body also treat the brain. And so, we began engineering technologies using an Fc portion of an IgG to bind the transparent receptor to cross the blood-brain barrier. And the first data that we got really proving that this technology could work was in 2020 showing that the primary substrate for the enzyme in the DNL310 program, which is either sulfate and Hunter syndrome, this MPS II disease that we could actually normalize the heparan sulfate in cerebrospinal fluid, showing that the enzyme could not only treat the periphery but also across the brain barrier and have this robust effect. And so, from that point, we began engaging with the FDA on what it would take to get an approval in this therapeutic area and a lot of discussion around the Phase III trial design. Our original design was no active comparator. I mean, frankly, most patients, if not all patients in these rare diseases do not want to go on either a placebo or active comparator. And at the time, the FDA was I think very adamant about an active comparator study. So, the COMPASS study has 2 arms. One focuses on the primary goal, which is neuronopathic Hunter syndrome. And it's a comparison basically in a 2:1 ratio of our active drug, TV denies alpha compared to either sulfate, right? So, head-to-head. The primary endpoint, a 2-year endpoint and 1-year endpoint of heparin sulfate and then basically looking at behavior and cognition at 2 years. But basically, as we engage with the FDA time and time again, we wanted to lay the foundation for potential accelerated approval path. And so, those conversations have been ongoing for 4 years since our initial clinical data. And then with the effort of basically the patient community, academic physicians and industry, we joined forces and worked with the Reagan-Udall Foundation to basically have a discussion around heparan sulfate heparin sulfate potential surrogate biomarker reasonably likely to predict clinical benefit, and that happened earlier this year. And after that, we start to see basically a change in the FDA's opinion around this potential biomarker. And very excited to report that we now have announced that we will be filing in early 2025 for accelerated approval for this particular program. And the COMPASS study continues to enroll. It's enrolled well. And obviously, that study will be an important confirmatory study for a shift to full approval based on the readout of that particular study.

For Hunter syndrome, how does the disease differ between neuronopathic and non-neuronopathic patients and how they're treated?

So, Hunter syndrome, again, monogenic disease, loss of iduronate-2-sulfatase, iduronate-2-sulfatase. The majority of patients have neurological deficits. And it's not an all or nothing. There's neuronopathic and non-neuronopathic but actually in reality, it's kind of a spectrum. More than 70% of patients have neurological deficits. And so, what happens is these patients primarily boys, it's an X-linked disease, develop relatively normally. And about age 2, you start to see in a 3, in particular, dropping off the developmental curve, where about 30% will continue actually to develop cognitively normally, generally speaking. But we'll have a lot of features, facial features and bone features because this is a whole-body disease. And so, the approved medicine can treat the body, but unfortunately does not treat the brain, doesn't cross the blood-brain barrier. So, example of that heparan sulfate, which is a biomarker we're talking about, is the substrate for the enzyme. The approved therapy will reduce heparan sulfate in the body, but remains very high in the brain, like tenfold elevated in cerebrospinal fluid. And so, it seems like there's 2 populations, but we've noticed that even in the non-neuronopathic there can be neurological symptoms and as you might expect, and based on the severity of the mutation. And that's how they basically differ. Our goal is to treat the whole body and brain. So, ours is an enzyme replacement therapy that can cross the blood-brain barrier, but the data that we just shared at SSIEM in addition to robust biomarker data in brain, we also see robust effects in the periphery as well, including liver volume. And so, that would be the ultimate goal is to replace the standard of care.

And mentioning about the data from SSIEM, can you just talk a little bit more about some of the highlights of the results that you guys have presented?

Yes. So, part of the press release on Tuesday. I mean, the major focus obviously was the agreement with the FDA on our path forward for accelerated approval. But the other portion is basically new data SSIEM. Let's put them into like 3 categories. So, one is CNS biomarker data. So, continued normalization of CSF heparan sulfate. That's greater than 90% reduction in HS and now out to plus 2 years and beyond. The second data, which I'm very excited about, is as a trained neuroscientist is that all patients have now shown normalization of NFL, which is a biomarker of neurodegeneration. And so, that ranges depending on what the starting point of NFL is anywhere between 50% to 80% or 90% reduction in NFL, but the reality is that they're all in a normal range. Interestingly, you can normalize heparan sulfate pretty rapidly, then you see these lysosomal biomarkers restore and then ultimately, NFL. But what we also showed is that NFL reduces more rapidly in younger patients. So, the sooner you can intervene, the more and normalizes the enzyme activity in brain, the sooner you actually see NFL normalizing in these younger patients, including patients that have either missense mutations or severe mutations. Then the other category of data was a continued improvement on behavior and cognition. And actually, what's interesting about the cognition scores is that a number of our patients age out or perform out of the Bailey and have to go to the Kaufman. So, we're seeing improvement in that category as well. And then as I already mentioned, peripheral endpoints, we're seeing even improvement relative to standard of care.

Maybe shifting to DNL 126. Can you just talk a little bit more about this program?

Yes. So, DNL126 is similar to DNL310. It's an enzyme engineered across brain barrier using the transport vehicle technology as well, again, binding to transferrin receptor and getting across the blood-brain barrier. And it's an MPS IIIA, so Sanfilippo, same basically biomarker, which is heparan sulfate. And I think the goal here is basically robust effects on heparan sulfate and benefit in terms of neurological symptoms. Now, the difference between Sanfilippo and Hunter syndrome is that, these patients are largely neurological in symptoms. And there is no standard of care because, as I mentioned before, enzymes don't readily cross the bureau. So, no enzyme has been developed that can really cross the blood brain barrier and treat Sanfilippo. So, that's unique. Hunter is both body and brain and Sanfilippo is largely just brain. Endpoints, however, like will be very similar, both the cognitive and behavioral endpoints but also the biomarkers were essentially be identical. So, we have these validated assays. We can use them in Sanfilippo as we have in Hunter syndrome. And maybe just one other point is with the shift in the FDA, which I think is a much-needed shift in using biomarkers in rare disease, we've also expanded our enzyme transport vehicle in terms of the number of targets. We've now added 2 additional targets. That would be 4. We believe we can build a lasting business basically a commercial foundation based on the enzyme transport vehicle as we then explore other areas like our oligo transport and our antibody transport.

And you kind of just touched upon this, but given the alignment with the FDA for 310, this seems to bode well for 126. Maybe you could just talk about your thoughts on the read-throughs between the programs from that?

Yes. So, I think the one thing I didn't mention is that because of the shift in the last several months with the FDA, we are rethinking the design of the Phase I/II study for the Sanfilippo program. Right now, it was very small dose finding, then LEAP to a Phase III, which is also it's rare disease, so, it's not enormous. But now what we want to do is really build out that Phase I/II to have the data package for an accelerated approval for 126 as well. And that's, I think, very important because the faster we can get to patients, the better, obviously, but heparan sulfate now being accepted as a potential surrogate biomarker reasonably likely to predict clinical benefit is exactly where we'd be going with DNA 126 and then as I mentioned, sort of beyond that, these other programs, we will focus on biomarkers as well as a potential path to accelerated approval.

I think we were expecting 126 Phase I/II biomarker and safety data by year-end, but you just mentioned how you're rethinking the design in the Phase I/II. So, are there any impacts to that readout?

Yes. I think in general; we're still guiding towards data by year-end, but obviously, it would be an interim look at an ongoing Phase I/II study. What matters most today is expanding that study, and we also receive start designation for that program that allows us to have more constant dialogue with the FDA, and it's perfect because now we're saying, okay, what is the data that we need for an accelerated path for 126? That's the purpose of start is to accelerate programs to approval. And our mindset now is how do we design that, but we still have intent to see interim data and share that data.

And so, what should we expect to see from that interim data? How should we judge whether it's a good update or not? And then maybe on timing because if you're rethinking any aspects of the Phase I/II, when might we hear more definitively what your…?

Yes, it's a good question. So, no change in guidance on timing, but I think the expectations are to see robust effects on heparan sulfate as a primary biomarker. I think we've learned a lot about NFL, and we've learned that it takes longer for that data to mature. And so, we're not guiding on any insight and NFL, no. And also, if we're fortunate to have younger patients or less severe patients, we may see more robust effects on certain biomarkers like NFL. But basically, it's showing that the drug is active, that's getting across the blood-brain barrier and we're having a robust effect on heparan sulfate would be like the initial look at that data. Now, my expectation from that is that this just further confirms that this platform has broad applicability. This is now a second disease. It's definitely a distinct disease, a distinct enzyme. But I think there's a lot of linearity in the enzyme replacement therapy filled and imagining these biomarkers translate into clinical benefit.

Let's shift to ATV:Abeta. Looking at the current landscape for Alzheimer's disease, what do you think is needed to move the needle meaningfully for uptake?

Yes. So, I want to go back to Denali's original goal, which was to defeat degeneration. And let's face it, like 9 years ago, setting that type of goal didn't make a lot of sense. Let's think about the last 2 years in the Alzheimer's space and leaps and bounds in terms of approved medicine. I know there's a lot of debate around the separation of those curves in terms of clinical benefit for patients. But the reality is that APP and specifically Abeta is linked to Alzheimer's disease, and now we have evidence that removing plaque can lead to clinical benefit. And I think the most important thing is to remove plaque early and, frankly, in a prevention setting. That would be, in my mind, removing plaque in our mid-60s would be the way I would approach the Alzheimer's field and then never really essentially having the risk of developing Alzheimer's disease. So, when we think about that, what does that mean? We need a safe and easy way of removing amyloid. And right now, the challenges to anti-Abeta approaches, and I think it's as much perception as anything is the safety profile for these molecules. And also, I think the onerous monitoring for safety effects, specifically ARIA, so amyloid-related imaging abnormalities in this vasogenic edema that was reported way back in 2008. And so, now the need is to develop a medicine that has robust plaque reduction but less ARIA. And we have a paper that's currently in review, it's accessible via bio archive that shows that the technology that we've invented can reduce plaque but have substantially less ARIA in animal models. And I think some of the early clinical data from competitors in the field may suggest as much. So, if you use transfer receptor to cross the blood brain barrier or CD98, it's possible that your bio distribution is different and you don't have this vascular accumulation that's affecting adversely the blood vessels in the brain, where you have cerebral amyloid angiopathy. So, right now, we're obviously very excited about ATV Abeta, where we have both the TFR and a CD98 approach that we're advancing. Now, independently, we will likely select one, but this is fast track for us to get into the clinic and show that we can reduce plaque more safely than what we see currently in the landscape.

And so, on that last point, I guess, when you're looking at TFR versus CD98, can you just talk about the relative advantages between the 2 methods and how you'll decide going forward?

So, in addition to the paper that I just mentioned or the data that we have on bio archives, we have a second one that compares head-to-head the bio distribution between CD98 and TFR. And we had recently last year presented our first transport vehicle targeting CD98. Obviously, in 2020 was the first publication on transfer receptors. And now we have these 2 different receptors. And what's interesting is that their kinetics are quite different. So, transfer receptor drives a very large Cmax. So, it's perfect for enzymes. It's actually perfect for antisense all it goes because not only does it get across the blood brain barrier, but transparent receptor also drives some cellular internalization for lysosomes for, in particular, antisense oligos, TFR seems to be the ideal receptor. CD98 has a slower uptake, but a more sustained exposure. And essentially, what we have to do is just compare them head-to-head to see which one is better based on mainly antibody targets. So, enzymes, it's really TFR. Antisense oligos, it's really TFR, but it's these other molecules that fall in that sort of middle category, especially the antibodies like basically Abeta or TREM2 or HER2 in the case of oncology, where we will be comparing head-to-head with CD98. So, this gives us another option of a molecule with a different profile, different kinetic profile, and I think that's why we find it exciting.

Now, Biogen recently terminated its license to the ATV Abeta program. Can you just talk about this update what led to Biogen's decision? And if there's any read through to BIIB122?

Yes. So, obviously, BIIB122 is our LRRK2 inhibitor, so, a very different category. Basically, there's been a lot of shifts in Biogen's strategy around neuro and around Alzheimer's. When we did the deal originally, it was the era of aducanumab that was in 2020, and a lot of that's evolved. Earlier this year, Biogen returned the rights of aducanumab basically completely discontinued out of helm. And the way that, deal was structured is that Biogen had rights to essentially an Abeta arm and associated backups. So, the first thing that we do when we get this program back is basically to replace those arms with arms that we've been working on for CD98 and again, compare them head-to-head and move forward. We're very excited to have the program back. And that being said, we have had and continue to have a great collaboration with Biogen on LRRK2. That's really the remaining molecule in that collaboration. I think what we're happy about is that we have a lot of flexibility on our TV platform in terms of ownership of all the vast majority of our molecules going forward. We do have several programs in collaboration with Takeda, which have also been, I think, really productive collaborations. So, the short answer to your question is that there's no effect on BIIB 122, which is the LRRK2 inhibitor. That particular program is in a large Phase II/III essentially Parkinson's disease study 640 patients is continuing to enroll with a 1-year-endpoint on UPDRS. And that's being operationalized by Biogen.

So then did Biogen have the opportunity to license your CD98 or TFR candidates? And what gives you confidence? You kind of touched upon that you since looked at yours compared to head-to-head, but maybe can you just talk a little bit more about that and what gives you confidence on those compared to the Biogen license candidate?

Yes. So, Biogen has no more -- so the short answer is I hear that Biogen did not have the ability to access CD98. The deal was very specific to TFR and very specific to selected Abeta arm. So, we could not replace the Abeta arms once they were selected. So, that's, I think, probably the driving force behind really the discontinuation of that particular program. At this point, our collaboration with Biogen is solely on the LRRK2 small molecule program. I will add one point that we also initiated a biomarker study for LRRK2. You may recall that in our collaboration with Biogen, we discontinued the LIGHTHOUSE study, which was a large LRRK2 study, and we folded really LRRK2 carriers into the LUMA study. But we realized that there's a whole population of patients that are not having access to drug, and we're not getting the biomarker data that we could use for maybe accelerated path. And so, we separately initiated a basically Phase II a biomarker-focused study. So, that's the breadth of that. But going forward, we will not be working with Biogen on any of the transport vehicle technology programs.

And so, what do you hope to learn from that Phase IIa since LUMA is still ongoing?

Yes. So, that Phase II a is all about LRRK2 carriers and a broader inclusion criterion and everything related to LRRK2 downstream biomarkers. So, one of the things that we learned early on is that when you inhibit LRRK2 in LARG2 carriers, there is a lipid profile that's what you might expect to see in GBA mutation carriers, which in and of itself is super interesting. So, suggesting that LRRK2 and GBA have a relationship, we can actually correct that fossil lipid profile in CSF. And what we want to do is get a more robust data set showing that we can achieve that in clinical testing and then associated downstream biomarkers, for example, like NFL, as we've already discussed, NFL at length for Hunter syndrome that seems to be like the bar linked to neurodegeneration. So, that would be some of the endpoints in that biomarker-focused study.

Maybe moving on to RIPK1. What gives you confidence in the oral inhibitors for MS and ulcerative colitis. I guess given that one is CNS and one is peripheral disease, how do your 2 RIPK1 compounds differ?

Yes. So, maybe I'll step back and just talk about the small molecule portfolio that we have in the partnership. So, we just discussed at length LRRK2 and our collaboration with Biogen. The RIP kinase collaboration has been another fruitful collaboration where essentially, Sanofi has really led the effort to explore RIPK inhibition in a number of diseases, MS, ALS, ulcerative colitis, actually some very interesting data that was published in a post. I think it will probably be published if not published soon in text. We looked at RIPK inhibition in COVID and sort of acute response, looking at inflammatory response and associated cytokines and saw a robust effect that was with a peripheral inhibitor, but it was at a time where the vaccines were just coming online. And so, Sanofi has just been an incredible partner to explore this mechanism across many different disease areas. So, in terms of like expectations, that's really a question for them. And that was why we did this deal is that they have expertise in immunology and what explored in indications that we either don't have expertise or actually have not invested in understanding the biology. I think the confidence in RIPK is that RIP kinase 1 is downstream of TNF receptor 1. So, from really a validated immunological pathway, there are very few pathways as validated as TNF and TNF receptor 1. The question is, in that signaling cascade, how important is RIP kinase in each of those diseases? So, in many ways, it's a very attractive pathway in search of the right indication. And I think Sanofi has been willing to place these Phase II bets to look at biomarkers and to look at clinical endpoints to identify the right indication where RIP kinase inhibition would be effective.

And can you just talk about the Phase II study for DNL758, kind of the rationale behind that in ulcerative colitis? And what would you want to see to consider a success?

Yes. So, again, the way that this particular collaboration has evolved in the way that it was originally designed is that is entirely Sanofi's effort. The peripheral inhibitor is something that we invented and they licensed. We essentially out-licensed it. So, I'm not the right person to ask. I appreciate the question, but I would ask our colleagues at Sanofi, ultimately what they are looking for in that ulcerative colitis study.

Okay. Maybe to briefly touch upon DNL343 and the Phase II/III HEALEY ALS platform trial. Just given how difficult it is to develop therapies for ALS. What would you want to see to have confidence in the program? And when could we expect to see data?

Yes. ALS has been a pretty up and down in drug development therapeutic area. And I think rightly so, there's been a lot of focus from legislators from the patient community really driving for faster trials and faster solutions in ALS. I think what's really interesting is if you frame the most recent drug development efforts in ALS, let's take like Tofersen as an example, very robust biomarker data, not obviously robust data as it comes to the 6-month clinical endpoint. And what we thought about is with our ALS efforts, obviously, we have one recent failure as well, RIP kinase inhibitor fell in ALS. It was a large study, 300-plus patients, great data, very clear result. We are confident that RIPK inhibition does not lead to a clinical benefit in ALS. So we have an answer. The advantage of HEALEY for us is the ability to operationalize that study. So, HEALEY is like extraordinary being able to enroll these studies where, I think, regimen G. They've done a number of regimens, and the model is that patients have a high probability of getting active drug in the disease that's essentially a death sentence. Most people that are diagnosed with ALS live for about 2 years. And so, the study is designed, that's a 3:1 ratio and of active drug to placebo, we have 240 patients. And the goal here is to see early client signs of clinical efficacy to decide if we would invest more in the program. I think maybe 2 years ago or a year ago, most people would hope that these would be registrational. I'm not convinced that the data within the last year or 2, build confidence that 6-month studies are really designed to be registrational in terms of clinical efficacy, so, we'll have to wait and see. But that's basically the background around HEALEY. A comment or 2 around eIF2B, so, eIF2B is a translation initiation factor. And the way that we went after this particular program is that when you activate eIF2B, you put cells that are otherwise in what we call the integrated stress response or in a stressed environment, they no longer translate proteins, and you can reinitiate protein translation with the eIF2B activators. And so, it's a very broad mechanism. And what we've seen is TDP-43 aggregates can be dissolved when you treat with DNL343 or eIF2B activators. So, that's the underlying mechanism.

Maybe one question on your OTV platform. Can you just talk about this platform? What are you most excited about? And which targets do you think like we get prioritized early on?

Yes. So, we started off this conversation talking about the enzyme transport vehicle platform or what we call the franchise. Now, we're at a point where we think we can launch multiple enzymes. I think for us, the next really exciting franchise is the oligo transport vehicle franchise. And the OTV franchise is basically an approach to get antisense oligos across the blood-brain barrier. And we just recently published this work in Science Translational Medicine. And I have to admit, like stepping back, I didn't think that this would work in our Chief Scientific Officer at the time, JOE LEWCOCK, we initiated a collaboration to test it. And we were surprised to see that basically we get ASOs across the blood-brain barrier using the transport vehicle of technology. And so, as we thought about this, this field is evolving pretty rapidly using transfer receptor to deliver the muscle using transferrin receptor to deliver to brain, ASOs, enzymes. And we wanted to make sure that our initial programs proved brain delivery, okay? And we could have considered going after muscle or other areas or we could go after, for example, like SMA where it's spinal cord, but we really wanted to go after targets that prove the technology. So, our first selection of targets was those that I think are the most exciting and may have the biggest impact. So, MAPT, which codes for tau and that would be in Alzheimer's disease and tauopathies. And SNCA which codes for alpha-synuclein, which, of course, would be for Parkinson's disease. So, those are the 2 most advanced programs. Earlier this year, we raised additional capital that allowed us to selectively expand our franchisees and to accelerate. So, as you saw earlier this week, we have a major effort on accelerating our first approval and building out the enzyme franchise. But in terms of expansion, we're looking at areas like the OTV, other targets that may not be the huge Alzheimer's and Parkinson's targets. And so, we have a number of ASO programs are in sort of that midsized, we think, high probability of success area that will be used in the OTV. But as of today, the IND-enabling programs are MAP and SCA for the OTV.

Now, with the updates earlier this week that gives you a faster path to market potentially. And then given the amount of cash that you have, that obviously can exceed most of the readouts in the near term, how are you thinking about capital allocation? Maybe you can talk about that because obviously, you guys have a lot of different programs?

Yes. So, we were funded, we think, well into 2028. Obviously, with selective expansion and acceleration, we're going to put allocation to areas that we think can drive success in the near term. The enzyme franchise would be one of those examples. Another area that is a near-term capital need, but long term really benefits us is building our own clinical manufacturing. So, later this year, our clinical manufacturing facility will be online. We predict for each enzyme, we'll save almost 40% per enzyme in manufacturing costs by doing it ourselves, which is pretty substantial. And that's as you think about expanding this. So, we see that as a near-term capital expenditure that will give this long-term benefit in our ability to manufacture to move fast and to have the flexibility. I think if we just step back and look at Denali, we have the commercial foundation on the horizon for the enzyme transport vehicle, that franchise. We'd love to see that transition for the oligo transport vehicle and for the antibody transport vehicle. The most advanced antibody transport vehicle molecule will be Abeta. So, obviously, that's going to be a significant spend, but a very significant upside. And then we have, of course, MAPT and SNCA. And so, we will see this building of the enzyme franchise, launching there and then feeding that into these other indications as we build Denali over time.

Well, let's leave it there. Thanks so much for your time.