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

Good afternoon, everyone. Thanks for joining us here at the Bank of America Healthcare Conference. I'm Tazeen Ahmad. I'm one of the senior SMID biotech analysts here. My next presenting company is Denali Therapeutics and sitting next to me on stage for the next 30 minutes is Ryan Watts, who is, of course, CEO. Ryan, thanks for making the trip down from California.

Yes. Great to be here. Looking forward to the conversation.

So I maybe want to start with a macro question since it is topical in my space, which I never would have thought to say out loud before. But you're not yet a commercial company, although you hope to be very, very soon. But let's stick to the noncommercial question that I've asked every company, which is FDA interaction. So you've had to have interactions with the agency over the last several months. And have you noticed any changes, particularly in the last 2 months as different changes have been occurring with staffing over there?

Yes. So I think that we're definitely a good company to ask that question to, especially with our BLA filing just last week. And so we've had a large number of interactions this year alone, started with breakthrough therapy designation for our Hunter program using, obviously, our transport vehicle technology to get enzymes across the blood-brain barrier. And that was the first breakthrough therapy designation given to a blood-brain barrier enabled technology, and we believe one of the first in MPS based on the data that we had generated in our Phase I/II. Interestingly, the breakthrough therapy designation requires some evidence of clinical benefit in addition, in our case, to robust biomarkers. So we're very happy to see that in light of all the changes that have started to happen at the FDA beginning with the new administration. And that was, I think, the first for us like positive catalyst internally. And our interactions with the FDA have been consistent and timely ever since that breakthrough therapy designation in January. So we understand all the uncertainty that's going on, and we certainly feel it. But actually, what's been impressive to us is our program managers engaged, quickly responded. We've met with the FDA in person, had multiple interactions on a number of our programs, mainly our Hunter and Sanfilippo programs. And I think the successful completion -- initiation of the rolling submission and the completion of that filing during this period of uncertainty is just example that the FDA is there functioning, operating and at least in our case, moving in a timely fashion.

Okay. So you just mentioned your first completed BLA filing. Congratulations. Can you just give us an overview of tivi for Hunter syndrome and kind of how you got to this point?

Yes. So tividenofusp alfa or as we like to call it tivi, is an enzyme that's engineered to cross the blood-brain barrier. And if I step back a little bit and think about enzymes and enzyme replacement therapy, this is one area of drug development that has had a long track record of success. I think on average, the probability of success of an enzyme replacement therapy actually making it to patients and ultimately being marketed is between 85% and 90%, which is really unheard of in the drug development space. The challenge has been that even though these enzymes have been around now for 2 to 3 decades, they do not effectively cross the blood-brain barrier. They don't get into the brain. And so you can treat peripheral disease, organ size, various deficiencies outside of the brain, but 70% of all lysosomal storage disease patients develop neurological symptoms. And so our goal is basically to solve that using the transport vehicle technology. So tivi is the first of a number of enzymes that we're developing using this technology. And I think that -- just as a quick summary, we're able to achieve normalization of the substrate for this enzyme in brain as measured through CSF. And I think importantly, we are able to show downstream biomarker benefits such as NfL, which is a marker of neurodegeneration. So that's a little bit of the background around tivi, and we see this as really the pioneering or flagship program for the transport vehicle.

Okay. So how big is this population? And what has been -- like what are the steps you've taken to be commercially ready?

Yes. So the population is roughly 500 patients in the U.S. and 2,000 patients worldwide. And I think our -- the beginning of our effort around commercialization is about 3 years ago when we hired our Chief Commercial Officer, Katie Peng. And Katie has experience in neuro, but also in rare disease. And we began the process of building, I think, a small but mighty team. We don't need a huge team to launch this medicine in the U.S. and in other territories that recognize the accelerated approval. But basically, probably the most important point here is medical education and medical awareness that in the broader population, including not just the neuronopathic patients, but patients that -- non-neuronopathic patients that this medicine will benefit them. And I think that's building strong ties with some of the key physicians who have pioneered enzyme replacement therapy and have been a big part of the development of tivi. And then, of course, payers, providers, understanding that dynamic. And this is obviously all the work that, that foundation is being laid now and much more. But again, rightsizing that team to be able to launch in the U.S. and to build that commercial foundation for the next set of medicines that we're going to bring forward.

How easy are these patients to find?

So actually, for Hunter, it's different than some diseases where the vast majority of patients that are diagnosed are treated with the standard of care, which is ELAPRASE. And so there's not a huge effort in terms of finding. It's really a question of switching. And if you look at our clinical data, almost all the patients were on ELAPRASE before they switched to tivi. And so our data package is really an example of what happens when you switch and the benefit you can receive by switching to tividenofusp alfa.

In terms of doctor education, what's been the feedback so far?

Yes. I think this is -- I mean it's an interesting population because I feel, again, enzyme replacement therapies are a prime example where physicians have really led a revolution in these engineered medicines. And so they pick it up very quickly and then that information is disseminated very rapidly. But I think the education is we're really driving for normalization, and we think normalization is what's required to have an effective cure ultimately. And so if you look back, a lot of the enzyme replacement therapies are underdosed and do not normalize substrate, and these are the standard of care. And a part of that is, I think what we realize is that these enzymes are intrinsically immunogenic. And so you'll select a dose that may be working initially, but over time, because of antidrug antibodies, they essentially neutralize the efficacy of the enzyme. That's a big part of the education is. With tivi, we've been really driving dose to be able to dose over the antidrug antibodies and look for -- essentially strive for normalization, not only in the brain but also in the body as well.

Okay. So you mentioned ELAPRASE. Does that mean that every patient is on it?

Vast majority. I think the patients who are no longer on ELAPRASE are usually those who -- their neurological symptoms have advanced so much that it's no longer beneficial, which is, of course, the tragic decision at the end. But essentially, as far as we can tell, I'd say 95-plus percent of patients that are diagnosed with Hunter syndrome take the standard of care.

Okay. So in terms of how you're thinking about it, the majority would have to be switch patients. And what do you think the cadence of the switches will be?

Yes. So I think that's obviously something we'll guide to as we get closer to our launch. It's a fair question. What I'd do is I'll point back to the data, which I think is really fascinating. Even in peripheral biomarkers such as urine heparan sulfate, we're seeing a robust effect with tivi. We're seeing even a further decline in normalization. So in other words, the standard of care is not effectively treating it. And so that information and that -- those data have been broadly communicated and are understood, especially with the key opinion leaders in the field who are prescribing the medicine. That's going to be the most important part around switching. Also, think about newly diagnosed patients and then certainly, those patients that have obvious neurological deficits. And I think what we've seen in our data set that was part of this BLA filing that's 47 patients that range a very -- it's a very large age range from 2 to 12 and then they've been on drug sometimes 3 or 4 years, up to 14, 15 years of age. And we're seeing benefit in hearing in patients that we start to intervene at like age 8 or 9. And so it's really important to highlight that it's never too late to basically normalize heparan sulfate and start to see a benefit for patients. So that's also an important dynamic when we think about switching.

Okay. Are you expecting a priority review?

We likely should. I mean, again, breakthrough therapy designation, we're hoping for, obviously, as the PDUFA date be made aware of a priority review as well.

And then thoughts about an Ad Comm.

Yes. We -- I think the way we look at the Ad Comm is we'll be prepared. We don't really have an expectation one way or the other. I will say that the robustness of the data package, it's pretty linear. If you believe heparan sulfate leads to clinical benefit, there's not a lot to discuss from that perspective, but we'll be prepared.

Okay. Why did you choose Hunter as your first indication?

That's a great question. I mean when people look back a decade ago, we actually launched, tomorrow will be 10 years from our like official launch, I think everyone thought, all right, Denali is setting off to solve Alzheimer's, which is still true. And we'd love to be able to defeat degeneration, we'd love to be able to go after these big indications. What we wanted to do is we wanted to separate the technical risk from the biological risk. And in neurodegeneration like Parkinson's and Alzheimer's and think back a decade ago or even 5 years ago, where there has been really no progress on effective medicines in Parkinson's and Alzheimer's, we wanted to select indications where we knew that the drug would work if we could get it into the brain. And that's why we picked Hunter and Sanfilippo. And there's a dozen enzyme replacement therapies in which we can enable and create actually a really robust commercial franchise with these enzyme replacement therapies. And that's exactly what ended up happening. The goal is to essentially cross the blood-brain barrier and defeat degeneration. The thing that I didn't realize at the time is that Hunter syndrome has a big degenerative component to it. And Sanfilippo is essentially really accelerated neurodegeneration, the same biomarkers such as neurofilament. So in that first medicine, we've proven that the technology works, and we've also been able to defeat degeneration in that disease where there's a defined genetic cause. And so I think what you're going to see in the next 5 years is now the expansion into Alzheimer's and Parkinson's, but also indications in between where the transport vehicle technology can enable biodistribution. And I think the one last point, which has been most interesting from Hunter and in some ways fortuitous, we've been thinking a lot about the brain, but we're seeing improvement in peripheral endpoints as well. So better muscle biodistribution, bone biodistribution, bone structures are changing, hearing is improving, which is both peripheral and central. And that actually opens up the transport vehicle for indications even outside of the traditional neurological or neurodegeneration area.

Yes. So talk about maybe other indications that you could expand into.

Right. So the 2 bookends, enzyme replacement therapy and lysosomal storage diseases, Alzheimer's disease, Parkinson's. And then in terms of other areas where we've had actually a pretty significant effort, and I've talked about it very little is oncology, not just like primary brain tumors or CNS metastases, but what's interesting about the transport vehicle and transferrin receptors it's highly expressed on dividing cells. And so we see an enhancement of efficacy for a number of our oncology assets. And I would just say stay tuned. You'll hear more about that and other indications. But just imagine an indication in which transferrin receptor will enhance biodistribution of a large molecule that's where the technology is most effective.

Okay. So we'll be -- that will be exciting to hear about. So maybe let's talk about other MPS indications.

Right. So up next for us is Sanfilippo. What's great about Sanfilippo for us is that it's the same biomarkers. So all the work we've done to file this BLA and validate all of these biomarkers are the exact same biomarkers we're using for Sanfilippo. Heparan sulfate in CSF, we top line at the end of last year. We had the initial 8 patients. We have the ability to normalize CSF heparan sulfate. We've since expanded that trial to include over 20 patients and have been engaged with the FDA on the design of the Phase III study, which, in some ways, we have to nail down before we nail down the accelerated approval path. So that would be the next enzyme replacement therapy. And then beyond that, Pompe, so GAA for Pompe, which is primarily muscular, although infantile IOPD has a neuronal component as well and then Gaucher, Parkinson's. So there's -- and that particular program actually has a great bridging to a larger indication. So it's, of course, Gaucher, but it's also Parkinson's disease that are caused by mutations in GBA.

Okay. A couple of those that you mentioned actually do have therapies available. So Pompe, for example, has, I think, 2.

Yes.

How are you thinking about how your approach could be differentiated there?

Right. So in fact, with Pompe, there are 3...

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Yes, exactly. That's exactly right. And so what we've done is actually, I think with Hunter, there's one with ELAPRASE. What we always do is start with the standard of care. And then we ask, we make the standard of care or purchase the standard of care, we then engineer our transport vehicle-enabled GAA. And Pompe is a fantastic example where certainly, when we look at the brain, if it's LUMIZYME or NEXVIAZYME, we can see that there is no effect for those enzyme replacement therapies in brain, and we can solve that piece. But what's been most interesting is a substantial improvement in muscle. And that's where there's still significant unmet need besides the subset of patients that have neurological symptoms. And so we're seeing a clear differentiation in muscle where we think we can have improved efficacy relative to these other -- the standard of care or the new medicines that have recently been approved.

So when should we expect to see data in any of these programs?

Right. So obviously, we just discussed Sanfilippo that's ongoing. I should mention we have a third transport vehicle-enabled clinical stage program, which is for progranulin. That's been a longer-term effort mainly because FTD is somewhat of a rare disease, although maybe similar to ALS, but you're looking at a subset of patients with progranulin mutations. So we're continuing to generate data in FTD granulin with our PTV progranulin program. The next set of enzyme replacement therapies are just on the cusp of IND filing and will be entering the clinic. We've guided basically to 1 to 2 INDs per year beginning this year, and we have 6 in IND-enabling phase right now. And frankly, the rate-limiting step is just making sure we rightsize our portfolio and are wise about our burn, especially as we prepare to launch our first medicines. And so we have -- what I'd like to see is really 3 molecules, an enzyme, an oligonucleotide and an antibody is really the next 3 that enter the clinic because that represents the entire like power of the transport vehicle platform.

And in terms of indications, how did you pick these ones that you just mentioned now?

Right. So I think each indication, probably there are 2 requirements. Number one that the transport vehicle will create a best-in-class or first-in-class for that molecule. And I think for enzyme replacement therapies with the exception of Sanfilippo, where there's no standard of care, it's all about enabling brain exposure and better tissue distribution, right? I think the second is that we want to go now into larger indications. And I think once you've taken away the technical risk, then it's okay to take the biological risk. And there, if you look back a decade and then 5 years ago, in Alzheimer's disease, there are now approved medicines targeting amyloid beta where there's a need for more rapid likely plaque reduction, a more robust cognitive benefit and a better safety profile. So that's another example where it's a large indication and the transport vehicle can enable that unique profile.

Yes. So you mentioned wanting to be cognizant of managing a launch. How many programs do you think -- you talked about like the types of molecules that you'd like to have, but how many programs do you think a company the size of Denali should be working on at any given time?

Yes. I mean I think if you look at it as entirely stand-alone and what Denali can do on its own, there is a certain number. Then if you look at strategic partnerships, that number changes. And if you look at our history, our partnering has always allowed us to expand the portfolio or pursue therapeutic areas that we are not pursuing ourselves. And I think we have 3 examples of that. And so we'll continue that strategy going forward where we consider, is there a way to look at strategic partnerships, allow us to expand our portfolio and go after indications where maybe the strategic partner already has expertise in that particular area. That being said, I can't give you a number, right? Because it's interesting, the -- for the -- we made a decision a year -- a little about 1.5 years ago to stop working on small molecules and really focus on the transport vehicle. And a little more than a year ago, we raised capital with the intent to accelerate and to expand. So even though we made this decision to focus on just the transport vehicle, we've built our own clinical manufacturing facility that allows us to manufacture medicines faster and substantially cheaper here in the United States. And basically, now what -- we don't know what that number is because we're improving our efficiency, and we've focused in on the transport vehicle, and we've subsequently accelerated the portfolio and effectively expanded it.

Okay. You mentioned Alzheimer's, so let's move on to that topic. Can you talk to us about where you are in development of Alzheimer's, like you said 10 years ago, I think the main focus from investors on the company was Alzheimer's. It's not an easy space to break into. But where are you now? And where should we be thinking about the next data catalysts?

We have 2 IND-enabling programs targeting the 2 most common pathologies in Alzheimer's, amyloid beta and tau neurofibrillary tangles. So the approach -- there are 2 different approaches in the sense that the amyloid beta approach is the well-known antibodies to Abeta that can remove plaque. But in this case, it's enabled by the transport vehicle, it gives you even distribution throughout the brain. And as we've seen in the competitive landscape with trontinemab from Roche, lower ARIA rates -- substantially, probably very significantly lower ARIA rates. But what we've done with our transport vehicle is we need to make the molecule immune silent when bound to the transferrin receptor, but immune active when bound to the plaque. And we've been able to do that with an engineering trick. We call it the [ cis-LALA ] mutation. It's very technical, but it allows the molecule to essentially be off from an immune perspective when bound to transferrin receptor. Why is that important? Because actually, if you engage the immune system when bound to transferrin receptor, you can deplete immature reticulocytes that give rise to red blood cells. And so when you're seeing anemia in some of these studies, it's related to impacting the hematological pathways and specifically these immature reticulocytes. We've been able to achieve that. We've shown that differentiation, and now we're on the cusp of our first clinical study using that molecule. The second technology is an oligonucleotide transport vehicle. And this is -- was a crazy idea. In fact, we were looking at a time line early today. And in 2021, just 4 years ago, was the first time we had the idea of taking an oligonucleotide and getting into the brain. And so we used basically an oligonucleotide against a reporter gene called MALAT1 and essentially showed that we can attach this oligonucleotide to the transport vehicle, get it into the brain and regulate gene expression in the brain. So in this case, the lead program there is MAPT, which codes for tau, the protein that forms neurofibrillary tangles. And the goal here is not to have to inject the oligonucleotide into your spine, but rather just give a systemic delivery and have even distribution throughout the brain. So those are the 2 programs. They're both in IND-enabling phase. They're both -- we're manufacturing those medicines ourselves. We're going to get those in the clinic. And then it's as much time as it takes from initiating the study to getting your first clinical readout. And in the case of tau, it will be measuring tau levels in CSF. There's also tau imaging. And in the case of amyloid beta, it will be measuring plaque by imaging of plaque.

What's your view about removal of plaque and improvement of Alzheimer's?

Yes. So I have very strong feelings in Alzheimer's disease that both Abeta and tau play a major role. The challenge has been that with amyloid beta, our removing of amyloid beta happens so late in the disease. That's why we're seeing marginal but real benefits, right? So if you look at lecanemab and donanemab data, it's actually intervening when you've had a 15 to 20 years of plaque-wreaking havoc. Interestingly, that plaque formation then catalyzes these neurofibrillary tangles, which then could also spread on their own. So I think the reason why I have sort of strong scientific opinions about this is that we -- in a former life before founding Denali, we had discovered a mutation in a gene that protects people from Alzheimer's disease. If they carry the APOE4 allele, which is a very high risk factor, those particular individuals have threefold to 14-fold higher risk of developing Alzheimer's. If they carry this protective gene, it substantially decreases the risk. And that protective gene is actually amyloid precursor protein, but it was a mutation that reduces the amount of Abeta that you produce rather than increasing. And so it was the genetic bookend proving that amyloid beta is both necessary and sufficient to cause Alzheimer's disease. This was the first sort of direct link to protecting people from Alzheimer's with reduced amyloid. It was now called the Icelandic mutation in APP. So it's really just a question of when you intervene. It's not if it will be protective. And I think that's the challenge with the clinical trials today. And I think you'll see more and more data where individuals will be imaged and their plaque will be removed before cognitive deficits and you'll really delay that onset. But in order to do that, you have to have a really safe and effective medicine. And I think a lot of concern right now in the field is around vasogenic edema or also known as ARIA and hemorrhages caused by removing amyloid from the vasculature, which you see less of with these blood-brain barrier technologies.

So developing any kind of Alzheimer's therapy is time consuming and it's also expensive. So where do you see Denali kind of taking these programs to in development before potentially considering partnering?

Yes. So I think it's -- I'll frame the question just a little bit differently. Where do we see Denali in 10 years, in 20 years, in 30 years. And I think we -- what I've really enjoyed as a sort of student of scientific history and biotech history is the survivors analysis. What takes -- what does it take for a company to really independently succeed in biotech, which is a very rare thing. And basically, it's the ability to not only develop medicines that are effective, but over time, you increase the impact of those medicines or you go after larger and larger indications. It isn't necessarily like very first drug you develop is in a huge indication. Actually, those companies are usually acquired pretty quickly because they create a lot of revenue early on. And what we -- what I imagine is that the enzyme franchise builds that foundation. And there is a bit of an incremental build from Hunter to Sanfilippo. But then the question is, how do you go from here to this massive therapeutic area like Alzheimer's and Parkinson's. And I actually think that it depends on how quickly you build that commercial foundation in the enzyme replacement therapies. But one obvious way to do that is find the right strategic partner. But the question is when do you do that? If you can actually prove that your drug is working in the clinic, the value you generate is enormous. And at that point, you find the right partner, maybe it's a global partnership, maybe it's an ex U.S. partnership, but that's the type of strategy that allows you to continue to create value over time, but also go after those larger indications.

So based on where you are right now in clinic, when should we expect to see some data?

For our Alzheimer's program.

Yes.

Yes. So we're not guiding directly on data. So I should mention that the 2 programs I brought up, MAPT and Abeta are in IND-enabling phase, so have not filed yet. But I would say, on average, you're looking at 6 months to a year after your filing as you start to generate your first clinical data.

Okay. Got it. And I guess connected to that, can you talk to us about your cash runway?

Yes. So we just reported last week, we have $1.05 billion in cash and guiding towards cash into 2028. Obviously, the resources this year are focused on that continued expansion of the portfolio, which is, I think, maybe an unusual thing to do at a time where, in general, biotech is contracting, but we believe that this is an extraordinarily competitive space with the transferrin receptor-enabled transport vehicle, but also preparing for our first commercial launch. We're not guiding -- I think we're guiding to about 10% to 15% increase in spend this year relative to last year, but we're still looking into 2028.

And how do you think about -- you've got a lot going on internally, but how do you think about biz dev?

Yes. So I think we got to that a little bit with Alzheimer's. And I think there's different ways to imagine business development. I also think in that survivor's analysis, which I think a lot of us are in a survival mindset right now in biotech, partnerships are key. And there's -- you can do an enormous amount with the right partnerships. I think we've entered into over 40 partnerships, small, bringing technologies in, both academic companies acquired, at least 2 small companies early on for our technology. We've entered into large partnerships, and they have been really important and key during that time to basically share risk and hopefully share upside. We'll continue to be strategic about that. And I think one thing to note is that the blood-brain barrier technologies have received an enormous amount of interest in the last 2 years. 10 years ago, it's the backwaters of drug discovery, drug delivery. But in the last 2 years, you've seen either small companies be acquired that have blood-brain barrier technologies, companies that traditionally had like antibodies now shifting and doing blood-brain barrier technologies, large companies building their own platforms. And as a result, the last 2 years, we've seen the most significant interest in partnerships. And I think for us, it has to -- it can't -- it's not about just capital. It's about expansion and acceleration of our portfolio if we're going to enter into partnerships.

Okay. With that, we're just about out of time. So I wanted to say thanks for spending the last half hour with us and making the trip again. And thanks, everybody, for joining us for the fireside.

Yes. Thank you.