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

Hi, everyone. Thank you for joining us in the room and online for the third day of TD Cowen's 46th Annual Healthcare Conference. I'm Joe Thome, one of the Senior Biotech Analysts here on the team at TD Cowen. And it's my pleasure to have with me today Denali Therapeutics. And up here with me, we have Co-Founder, CFO and COO, Alex Schuth. So thank you very much for being here. Maybe before we dive into the individual programs, if you want to just give a brief kind of high-level overview of kind of where the company is at and what we should expect for the rest of 2026.

Absolutely. I mean, first of all, Joe, thanks so much for the invitation to the conference and for the great coverage, always. I do want to highlight the title of your last note, which I really enjoyed, must-see TV ready for prime time. So thanks for that. So 2026, we're very excited. It's a big year for us. It's actually -- we founded the company back in 2015 with the premise with the idea that the blood-brain barrier is breaking open, that we can pioneer a technology that can deliver large molecules through the blood-brain barrier and open up the brain for treatments that were not possible before. So 2026, first and foremost, eagerly awaiting our PDUFA date for our first drug for Tividenofusp alfa for Hunter syndrome. That is April 5. We feel very good about the ongoing dialogue with the FDA, and I'm sure we can talk more about that. On the heels of 310, there is DNL126, which is Sanfilippo syndrome, which is also enzyme replacement therapy, follows a very similar trajectory as 310 does. Here, we just presented data at the WORLD meeting in San Diego, and we feel that those data support the accelerated approval path, and we plan to file early next year and then launch next year. So together, these two programs has about a $1 billion market opportunity and will be the foundation for the company, the commercial foundation for the company. Beyond those two, there are two key clinical data readouts. First, there is the LRRK2 inhibitor study, which is in Parkinson's disease, that's midyear. And then there is the progranulin program in FTD later in the year. And then we'll start 3 more clinical studies, first-in-human studies, expanding the transport vehicle into more common neurodegenerative diseases with two Alzheimer's programs, targeting Abeta, one targeting tau. And then there is another enzyme program for Pompe, which is our first entry into peripheral muscle disease, where also transferrin receptor enables higher uptake into muscle, and we're excited about that. So big year ahead. We did raise capital at the end of last year. So we're well financed with just under $1 billion at the end of the year. And with approval, there would be another $200 million coming in from the Royalty Pharma deal that we entered into in December. So yes, big year ahead.

Great. Maybe we'll start with Tivi. Can you, yes, just highlight a little bit where you're at with the FDA now, maybe your confidence in a positive decision? And maybe what led to the 3-month delay and your confidence that you've addressed that?

Yes. So as I said, we do feel very good about the ongoing dialogue with the FDA. It's productive. It's collaborative. We're in frequent conversations. We have stated before that we're in label discussions. We're discussing the post-marketing commitments. In our conversations, the FDA has actually always been very consistent. Since that meeting 2 years ago, the Reagan-Udall meeting where the FDA essentially validated heparan sulfate -- CSF heparan sulfate as the surrogate biomarker that is reasonably likely to predict clinical outcome. Since then, we've had a very straightforward conversation with the FDA. We did have the hiccup with a 3-month delay, which was caused by an error in the chemical structure in the public database, which then led to a miscalculation on the molecular weight by one of our collaborators. And we caught that. We fixed that. It had no impact on efficacy or safety. But molecular weight is an important calculation and everything from dose to exposure. So it had to be fixed and that led to the major amendment, which led to the 3-month delay, which was frustrating, but we're beyond that, and now we look at April 5.

Awesome. And a competitor in the field did recently receive a CRL for the same indication, and we have been receiving some questions on it, and I know you're differentiated here. But I think it would be helpful to kind of point out what are the considerations that investors should be thinking about before trying to kind of cross examine that experience? How is your profile maybe different than the ReGenX program?

Yes. So obviously, it's the same indication, Hunter syndrome, but it almost -- that's almost where it ends. It's obviously a different modality. One is gene therapy, where, in a way, traditional enzyme replacement therapy enabled by our transport vehicle. It's also different divisions, CBER versus CDER. But I think more importantly, it's really the data package, right? So it's the extent, it's the robustness of our data package. We have 47 patients followed now for up to 4 years. We have rapid and durable normalization of the key biomarker, heparan sulfate, total heparan sulfate, not just D2S6, a subtype. That reduction is also accompanied by improvement or stabilization in patients in neurocognitive outcomes. We see neurofilament normalization. We see improvement in hearing. We see normalization in liver function. So kind of like more longer and better data. Maybe just on -- because we all -- now that the FDA, it is -- we actually think it's very helpful that the FDA has the transparency of making CRLs public because we can all learn from that. Really, the importance of total heparan sulfate, which is the aggregate of at least four subtypes of which D2S6 is one. And back to the Reagan-Udall Foundation meeting, it was total heparan sulfate, which was validated. So that's one. And the other point that was highlighted was around the genetic classification of patients. And here, we have a very robust mechanism. We have an independent genetic evaluation committee which consists of three geneticists and a neuropsychologist and a medical geneticist, so five people. And they have -- and there is an algorithm they have to really align on is this mutation one that indicates that this patient may develop a neuropathic disease. So there's lots of differences. And as I said, we continue to feel good about the strength of our data.

And maybe can you talk about your initial launch preparation? Kind of what are you doing now to make sure that once approval is hopefully in hand, you can have sort of an effective launch? Any commentary on how discussion with the payer community is going? Anything helpful there?

Yes. So we've been preparing for upcoming approval, the hopeful potential approval for a while. Katie Peng, our Chief Commercial Officer, joined us actually 4 years ago and has been -- and has since then essentially been in launch preparation. Now those accelerated mid last year once we filed the BLA. We now at our Q, we declared what we call commercial readiness. So all of the preparations are done. The team is in place and all the infrastructure prework has happened. So on the team side, it is both the field sales team, which is a small and focused and very experienced team. Remember, in Hunter syndrome, 95% of patients are currently treated. So it's also known where they are and what centers they are. So that helps us with the targeted force. So the field team is in place. The MSL team actually has been in place for a number of years now in connection with the scientific community. And then on the infrastructure, everything from distribution to supply chain to the patient support hub to the payer engagement. To your question on payer engagement, we have engaged with essentially all the payers in the U.S. Payers understand the unmet need. It's very straightforward. Traditional enzyme replacement therapy doesn't get into the brain. Ours gets into the brain. So it's -- they understand the unmet need. They also understand the robustness of our data package. So the initial conversations have been very productive with payers. Obviously, the price will depend on the label, and we'll have to have that conversation at that point. But so far, we feel good about it.

And if you do go for a premium pricing strategy, which is something that the company has suggested before, I guess, do you think patients would need to demonstrate any sort of progression on CNS manifestations of the disease or anything that would kind of clearly outlay that a CNS penetrant therapy over Elaprase would be recommended? Or how do we think about that?

Yes. I think both physicians, definitely families, but also payers understand that Hunter syndrome is really a whole body disease and that the delineation between a neuronopathic and non-neuronopathic disease is somewhat arbitrary. The consensus and the more and more growing consensus is that essentially all patients develop neuronopathic symptoms at some point. Also remember, neuronal symptoms are not just in the CNS. There are peripheral neuronal symptoms like carpal tunnel syndrome and others. So there is -- there are definitely more severe and less severe forms of the disease. That's probably the better way to delineate rather than around a certain set of symptoms.

And can you talk a little bit about the rate of switching that you anticipate maybe based on the KOL conversations that you've had? How frequently do these patients come into the doctor to even get that initial touch point? And then what proportion do you think would switch pretty readily versus maybe some that may kind of wait a little bit of time?

Yes. So ultimately, we -- the goal is to become the standard of care and that at some point in the future, all patients with Hunter syndrome are -- have access to and are treated with Tivi. With respect to the switching or the adoption will probably first be newborn patients. And now newborn screening, by the way, is in 50% of newborns in the U.S. are actually now have access to newborn screening. So newborn patients, probably more severe patients, probably early on, patients with more overt neuronal symptoms, those will start first. Other parts of the patient segment will probably take some time. To your question around how often they come in, it varies. It's a very good question and obviously, that we ask as well. Some come in as frequently as quarterly, others come in once a year, depending on how well the patient and the family feels that their patients are treated. So that will take time. The switching logistics, also remember that many patients right now receive home infusions. When they switch to Tivi, they would most likely do the first few number of infusions in a clinical setting to deal with potential infusion-related reactions. So there are some mechanics that we -- what we guide to, what we believe in what we guide to is that it's an S-shaped adoption curve. So we think very modest probably to minimal revenues in 2026. It's really about bringing patients on board. And then 2027 will be the inflection year when we feel we see actually the uptick in revenues.

And maybe can you talk about potential opportunities ex U.S. Kind of what's the strategy there? Is the treatment kind of paradigm and similarities exist in the U.S. and ex U.S. and kind of your appetite in other geographies?

Yes. So a very important point about -- if you look at Elaprase, the standard of care, been on the market since 2006 as a benchmark, about 2/3 of the revenues are ex U.S. revenues, right? It's a dynamic that you often see in rare diseases. So the ex U.S. market is very -- or the international market, as we call it, is very important to us. We do believe that -- and roughly the revenues is about 1/3 U.S., 1/3 Europe and 1/3 rest of the world. We do believe that with the accelerated approval in the U.S. we probably have access to about 60% of global patients before the confirmatory Phase III study, the COMPASS trial will read out. So those are some countries that directly follow U.S. regulation. And then there are some other countries where some -- with additional regulatory documentation, we feel we can have access. So with accelerated approval, 1/3 of the patient population accessible in the U.S. and then about up to 60% with approval. And then the rest of the world, we would have to look at the COMPASS data. So the COMPASS trial, that's the Phase II/III confirmatory trial, fully enrolled the cohort A, that's the neuronopathic cohort and which has a 2-year treatment duration. So that fully enrolled at the end of '25. So end of '27, we'll have the data, and then we'll look to file that in '28.

Great. And then maybe we'll jump over to 126 for MPS IIIA. Recently presented some data at World. I guess, what about the profile do you think rings kind of most heavily with physicians there? And how much can we extrapolate from the experience in Hunter directly kind of to the experience in IIIA?

Yes. So MPS IIIA, Sanfilippo Syndrome, a very closely related to MPS II. So both from a patient perspective and from a treating physician perspective. So it's almost exactly the same treating physicians. But there are two key differences. One, MPS IIIA is a more aggressive disease. It is a more predominantly neurocognitive disease. But also there is no standard of care. right? So there hasn't -- and there's never been an attempt to develop a standard of care with traditional -- or attempt to develop a care with traditional enzyme replacement therapy because it wouldn't cross through the blood-brain barrier. So there was really no hope to have an effective medicine. So the data we presented at WORLD, we are very excited about this. This was from our dose escalation cohorts from our dose-finding cohorts. And we showed a mean reduction in heparan sulfate about 80%, including normalization in some patients. We have had ongoing conversations with the FDA about this program for a while. As you'll remember, we were selected in what's called the START program, which was a program instituted about 2 years ago, which enables more frequent interactions with the FDA. Through that program, we have alignment on the accelerated approval path. And we feel that this data set will support that filing in 2027 and -- early in '27 and then hopefully approval in late '27.

And you mentioned that the data that you presented were from the sort of dose finding work. I guess, the optimized dosing strategy then, I guess, do you think there's areas to kind of improve on what you showed historically? Or kind of how do you think about what was left on the table kind of in the dose-ranging part that you can kind of optimize?

Yes. So we do believe that the optimized dose data should be at least as good as what we see right now in the dose ranging. Dose ranging, we did dose escalate. That was one. But we also experimented with dosing frequency. We got so excited about the preclinical data that we had seen that we thought maybe we can enable more convenience to patients by having every other week dosing and sparing them a trip to the hospital, for the families, which can be very, very taxing over time. We did, however, see an increase in infusion-related reactions with less frequent dosing, which from a biologic perspective, makes sense as you develop tolerance, it's actually better, more frequent dosing is better. So we went back to weekly dosing, which is the standard of really almost all enzyme replacement therapies are dosed weekly. So those are two elements where there is reason to believe that the final data would be at least as good as what we've seen in dose ranging.

And when we think about the commercial opportunity between Sanfilippo and Hunter, I guess, how do you see those kind of separate between those two opportunities? Obviously, the different dynamics with kind of the currently available standard of care and one. So how do you see those kind of panning out?

Yes. We look at them almost as a pair of programs sort of as the commercial foundation. Again, we hope to have two programs. By the end of next year, we hope to have two programs on the clinic, which share a lot of the -- back to the synergy and the similarity in the treating physician population. So what we look at is that these programs together have about $1 billion-plus market opportunity. And that's -- they -- from an epidemiological perspective, they're about the same size. So Hunter syndrome is about 2,000 patients worldwide. Sanfilippo, the epidemiology is not as good as Hunter because there is no treatment. But generally, it's believed to be about the same size, maybe a tad bit smaller. Some say it's larger, but we think it's probably the same. Hunter syndrome has Elaprase as a benchmark. Elaprase sells about $650 million a year. Sanfilippo doesn't have a standard of care. So if you take those, it will take a little longer maybe with Hunter than it might with Sanfilippo. So together, $1 billion plus.

Great. And maybe we'll jump on to some of the other programs. As you mentioned, there's 2 kind of shots on goal with Alzheimer's and different targets. I guess, why -- I guess, can you kind of walk us through the differences in targets and obviously, different aspects of the platform that are going after these? And how will you analyze kind of what's the right target? What do you want to see?

Yes. So back to sort of our core technology, we call the transport vehicle, so to deliver biologics through the blood-brain barrier into the brain. Also when we started the company 10 years ago, [ defeating neuro-degeneration ] was our core purpose. We think that, that is the ultimate -- probably the biggest unmet medical need in at least our part of the world at this point is dementia and is probably Alzheimer's disease. Antibodies couldn't really treat -- couldn't really be developed because they don't get into the brain themselves, but now is a different time, right? So Alzheimer's, Abeta antibodies have shown some -- they have shown ability to clear plaque and that has translated to some extent into efficacy on slowing the rate of progression of decline. Roche has shown quite impressive data with trontinemab, which is also a blood-brain barrier enabled Abeta antibody that showed that not only can plaque be cleared faster than a standard antibody, but also really importantly, the safety profile is superior because it can avoid what's called ARIA, the Amyloid-Related Imaging abnormalities, which are a key safety concern. So our technology, the transport vehicle is clearly differentiated from the brain shuttle. It's really the architecture about how we enable transferrin receptor binding. We're the only ones, and that was intentional to use the Fc of an antibody and not to have appended sequences, which helps with stability, infusion-related reaction, immunogenicity and everything. So we believe that there is a key differentiation on Abeta. Tau, so that's -- so Abeta and tau, the two hallmark pathologies of Alzheimer's, and we go after both of them. Differentiation on Abeta. Tau, here, it's really the differentiation against or from intrathecally administered ASOs. Biogen has a program together with Ionis, intrathecally administered ASO. It will read out in the middle of the year. Early data, Phase I data was quite encouraging with respect to tau reduction. Our differentiation here is that it's IV administered, which is not only more convenient for the patient and safer for the patient than intrathecal in the lumbar tract, but also has better distribution in the brain. Because intrathecal administration, you will have a high gradient of drug. You'll have lots of drug in the spinal tract, but actually very little drug in the actual brain, especially in the deeper regions. If you go through the bloodstream, the brain with 300 miles of blood vessels and every neuron with its adjacent capillary, you have the perfect delivery mechanism to deliver drug to each cell. So that's why we're excited about those two Alzheimer's programs.

Great. And obviously, with the Hunter and Sanfilippo and similar size opportunities, it's very straightforward maybe for the company to commercialize those opportunities. I guess what's the appetite if you see a signal in Alzheimer's for Denali to run sort of the larger programs here versus when is the right time to maybe bring in a partner after signal finding? How do you think about your options there?

Yes. So partnering has always been a key part of our strategy. And early on, we entered into three relatively sizable partnerships with Biogen, Sanofi and Takeda. And those partnerships were also for the large neurodegenerative diseases. So overall, our plan is that in the rare diseases, just as you say, we will probably go alone on those and build the infrastructure, sizable. There's lots of synergies. We can do that. For the large indications, we will most likely team up with a partner that has the global development capabilities, the global commercial capabilities. There has been tremendous interest to this point. We feel that we can generate clinical proof of concept or we should generate clinical proof of concept ourselves. Thereafter, we have flexibility to go forward, but I think the base case would be that we team up with a partner at that point.

And speaking of partnerships, obviously, you mentioned that the LRRK2 data are coming up. I guess what would you want to see in that data set that would give you and Biogen confidence to, you think, move forward in the indication?

Yes. So this is the LRRK2 inhibitor program, which is a bit of a legacy program because it's a small molecule. It's our only program that we participate in clinical development that is not enabled by the transport vehicle. Here -- so LRRK2, very exciting biology. LRRK2 is one of the strongest genetic risk factors for Parkinson's disease. And LRRK2 as it's a kinase and it regulates lysosomal function. If LRRK2 is overactive, lysosomal function is impaired and impaired lysosomal function is a hallmark feature of Parkinson's disease. You can even think about sort of GBA. GBA in the homozygous form causes Gaucher, a lysosomal storage disease and the heterozygous form is a risk factor for Parkinson's. So the therapeutic hypothesis here is that inhibiting LRRK2 will boost lysosomal function and boosting lysosomal function will improve signs and symptoms of Parkinson's disease. This clinical study will always -- will be the almost definitive test of that hypothesis. 650 patients, a very well designed, very well run global clinical study with UPDRS, so a clinical endpoint. We're looking at the time to worsening in that endpoint. Biogen is controlling -- is running the study. We participate financially. It's a 50-50 deal. Biogen guided towards data in the middle of the year. So we're eagerly waiting in anticipation of those data.

And I guess when you think about moving forward, I guess, will you need both data from LUMA and BEACON to make that decision? And then maybe relatedly, obviously, there's been a lot of talk about changes at the FDA and sort of single study approvals and potential there. I guess, do you think any language coming out of that could benefit this PD program at all?

Yes, thanks for asking. That's a good nuance here. So the LUMA study that Biogen is running is essentially an all-comers Parkinson's study within 2 years of diagnosis. So it's early Parkinson's. In parallel, what we are running is a study specifically in LRRK2 carriers. So about 2% to 3% of Parkinson's patients have a LRRK2 mutation. So that's about 30,000 patients in the U.S. So it's rare, but it's not super rare. And we have a separate study only in those. That study will read out later in the year. So by the end of the year, we and Biogen will have the benefit of having both data sets. Now with respect to LUMA, it was intentionally and prospectively designed to be potentially registrational. The base case is that it would be one of the two registrational studies. So if positive, we would run another study with the hope that with a positive study, the second study would enroll really quickly and we could move. Now we also follow and read the FDA's interest in accelerating development, and we'll have to see what the data look like. But the study design was very robust, and we'll see what the readout is.

Great. And maybe the last program we'll touch on is the FTD GRN program that you have. We're going to have some interim data later this year. Maybe what are the key points that differentiate this program from maybe others in the space? And I guess, will we -- will these patients be followed enough to see a true treatment effect at this point? Or how do you think about what you'll be able to see in this update?

Yes. So Frontotemporal Dementia, especially patients in Frontotemporal Dementia, especially those with a progranulin mutation have a deficiency in progranulin. Progranulin is a lysosomal protein. So the way you can think about this, it is a protein deficiency situation akin to a Lysosomal Storage disease. Our approach is very direct. So we substitute the protein that is missing. That's very different from other approaches, approaches that target sortilin receptor, which were intended to block sortilin receptor and thereby to increase extracellular progranulin. Progranulin is an intracellular protein. It's a lysosomal protein we substitute it. So it's -- the mechanism is ours is very direct, others was indirect. It's almost as if in a Lysosomal Storage disease, you would hope to have a treatment effect by blocking the internalization of the enzyme from the extracellular space. That's not going to work. With respect to the study, it is a biomarker study, right? So what we will look at here is obviously PK/PD and safety. We will look for markers of lysosomal function. We also will look for markers of neuronal damage. It is the -- we have data points at 6 months and at 12 months. So we will need to look at the totality of the data, but it is, first and foremost, a biomarker study.

And maybe on that point, what does the overall development path look like in this indication? What would be sort of the next step after that point, assuming you do see signals in the biomarkers?

Yes I think the base case would be a broader study with a clinical endpoint. Now if the biomarker data are striking, is it impossible that there is an accelerated approval pathway? Maybe not, but the base case is definitely a broader clinical study.

Awesome. Great. With that, we're out of time. So thank you very much.