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

Great. Good morning, everyone. Thank you so much for joining us. It's a pleasure to have the Denali team here with us. We have Ryan Watts, CEO; and Alex Schuth, CFO.

To start here, the recent approval of AVLAYAH in Hunter syndrome serves as Denali's first commercial launch and the first from the transport vehicle platform. In this context, can you frame the outlook for your vertical specifically, the blood-brain barrier vertical, your key priorities and the catalyst outlook as we look to the next 12 to 18 months?

Yes. Maybe before I talk about the future, I'll just have a comment or two about the past. We've been working on blood-brain barrier technologies for almost exactly 20 years. And in fact, it was 20 years ago that the first medicine was approved for Hunter syndrome idursulfase and so for us, it's been a journey of inventing a platform, I think, really pioneering this space for over 2 decades. And the last 2 or 3 months have been extraordinary for us. It's really exciting to be able to launch our first medicine, have the first FDA-approved blood-brain barrier enabled technology with AVLAYAH, and it's been an exciting time. And I think just -- I think an important point is this now becomes a new area of biotherapeutics where the competition is rising, which is great news. In biotech, whenever anything works, everyone jumps in. And so we're happy to be leading the way with transferrin receptor and with the TransportVehicle technology. Of course, this is just the beginning as well. And so talking about the next really 6 to 12 months, in addition to everything related to the launch, which is, of course, our focus of the commercial team, we also have the next enzyme replacement therapy, which is for Sanfilippo, where we'll complete the 49-week portion of that study in September, basically get the data ready, ideally present at world and then submit the BLA in 2027. What's exciting about that product is we're actually going to do the commercial manufacturing ourselves. Our original with AVLAYAH, we've worked with CDMOs. Now we're going to be manufacturing for Sanfilippo, and we think this is the beginning of many enzyme replacement therapies. The next will be in Pompe, where we're enrolling that study now, also looking at data in 2027. And then at the end of this year, we have -- we've sort of categorically put our progranulin program into the enzyme replacement therapy because it's very similar to enzyme replacement therapies, but we'll have our first look at the Cohort B3, that's sort of the highest dose for that study. That's coming up soon. Now I think what's happened for us is that we often get asked the question, why not just be an enzyme replacement therapy company. You know the technology works. You have your first launch, a lot of enthusiasm around that and in the community to bring forward other programs. But actually, we founded the company to ideally treat neurodegenerative diseases as well like Alzheimer's and Parkinson's. So we'll have our first 2 data readouts in Alzheimer's disease also in the next 12 to 18 months. One is an oligonucleotide that knocks down the gene that codes for tau and the other is an Abeta antibody, which we published last year in August 2025 in Science around our mechanism of basically removing amyloid plaque, which we hope safer and ideally subcu dosing. And so that's also what's on the horizon. And I know we'll go into each of those aspects, but a very exciting time at Denali.

Definitely. Perhaps we can just start on the Hunter syndrome program here. So given the first commercial patients have been treated and -- could you just speak to early launch dynamics to date, including the conversion rate from start forms to active patients and how the medical exemption process and reimbursement has evolved since approval?

I have to remind myself that it's been about 10 weeks or so since approval. And I think what happened first is let's get the drug in the channel. We were able to do that within 2 weeks, obviously, with the label. And then in 3.5 weeks, our first patient was dosed in the commercial setting. And this is not a patient that's switching over from trials. So it's really exciting. It actually wasn't at one of our trial sites. And now we have multiple patients who have been dosed in the commercial product. And so it's very early days to understand the dynamic of conversion from start forms to approval and getting the first dose, first infusion. But what we can say is that it's exceeded our expectations in terms of the enthusiasm from the field, and we're seeing really positive trends on time from start form to infusion.

And what is the mix of treatment-naive to newly diagnosed patients and those on prior standard of care? And has there been any pushback on patients or physicians on the need to return to clinic to initiate treatment though?

The vast majority of patients, especially early on, are going to be switched. If you think about it, there's 500 patients in the U.S. I think almost all patients are on idursulfase or the vast majority unless it's sort of like end of life. And so that dynamic, what's happened in the field is there's just real enthusiasm about the possibility of treating neurologic manifestations in addition to the fundamental treatment of the disease. We also saw our peripheral biomarkers were better than what has been shown for standard of care. And so we haven't seen really barriers to that. I think, again, the field is driving that enthusiasm. So most of the patients that are on drug now, our commercial patients have switched from idursulfase. A handful will be newly diagnosed, and that will just happen over time.

And the drug is priced at a premium to previous standard of care Elaprase. And so as you engage with payers, what has feedback been around pricing and weight-based dose -- the weight-based dose model?

I'll hand that to Alex.

Yes. I'll take that one. So the pricing does reflect the clinical profile. So what we've shown in the clinical studies is that we are able to normalize the key biomarkers, heparan sulfate and also neurofilament. And it is the one, the first and the only drug that treats the whole body, including the brain, and that is appreciated by payers. So we have not encountered pushback on the price by payers. It has not been a barrier to access at this point. The weight -- it is priced by weight. The weight-based model is very well understood. It's a very standard in enzyme replacement therapy, so we feel very good about the price.

And have your expectations for modest revenue this year changed as the payers come online and as you kind of watch the trends that are playing out, just given -- I think you've guided to kind of the whole year needed in order to get that payer dynamic settled before you see that inflection in revenue more in '27?

Yes. So this is -- as Ryan said, we're very pleased about how the launch is going. We're very pleased about the interest, about the engagements, about the enthusiasm in this product and also what's coming in the pipeline. What is expected in a rare disease launch, especially in a buy-and-bill setting, is that prescription activity will outpace revenues in the early stages of launch. And that's exactly what we're seeing right here. 2026 is the setup year. This is why we guide towards the modest revenue, and this is why we use the illustration of the S-shaped curve, right? We think '26 is the setup year, '27 will be the inflection year. We think in '27, once patients are on drug for a number -- for a period of time, but especially once all the payer engagement, once the payer policies are in place. We have guided that -- or we have stated that it's about 50-50 with respect to the payer mix. And it will take about 6 months or so for commercial insurance, 9 to 12 months for Medicaid. So that's when we then expect that in '27.

And what is the status of the European filing?

Yes, I'll go on -- I mean, European filing, but also really international. So the international market is very important. About 2/3 of overall Hunter market is internationally. And ultimately, our goal is to capture that full market and make sure that every patient that can benefit from AVLAYAH will have the opportunity to do so. So we're very actively engaged internationally. In some instances, we can work with accelerated or conditional approval settings. We can work with pharmaceutical product certification, which will allow us to capture part of the international market before COMPASS reads out, so that's with the current data set in hand. Now specifically with respect to Europe, we will need to wait until COMPASS reads out. So COMPASS was fully enrolled by the end of last year at a 2-year endpoint. So we expect it by then and then file in Europe.

On the confirmatory study, which includes patients up to 26 years of age, what is your current target for filing a supplemental BLA here to expand the label to include the adult Hunter syndrome patients?

I think there was two reactions to the approval of AVLAYAH. The first was enormous enthusiasm that there's finally a medicine that can treat the central nervous system, but the other was disappointment that the drug wasn't immediately made available to adults. And so obviously, that's one of the important focus for us. What's interesting is once you're on drug, you stay on drug. So it's not like as you transition to adult, you then come off AVLAYAH and go on idursulfase. And so that's important to note and clearly articulated in the label. The COMPASS study is a little bit more than 60 patients split into 2 cohorts, Cohort A, which focuses mainly on neurologic manifestations and then Cohort B, which has a broader age range, including adult. And so the key there, that's more peripheral, and we're looking for equivalency and frankly, ultimately, we should see data that's superior to standard of care, but it's powered to show sort of equivalency on biomarkers, things like liver and spleen volume and 6-minute walk. And so the goal is that totality of that data will put us in a position to go to Europe, which is the main focus of COMPASS, at least Germany, France, some of the countries that won't really recognize an accelerated path, but also to really focus on expanding the label.

Just maybe broadening out on the TransportVehicle platform here following the preliminary Phase I/II data that was presented from DNL126 in Sanfilippo syndrome at the WORLD Symposium. How is your dialogue with the FDA evolved here regarding the use of heparan sulfate as a surrogate endpoint for the BLA filing? And does the 2027 filing remain on track at this point?

I thought this might be the first fireside chat where we don't get a question about the FDA. It's been an incredible journey for the last 2 or 3 years. You'll recall 2 or 3 years ago, we were talking about the inconsistency between CBER and CDER. With CBER, I think, being much more aggressive on biomarkers as a potential path to accelerate approval. And then in some ways, obviously, that switched as everything panned out over the last 9 to 12 months. And I think what's really been important for us is that the review team has been the same over that 3 years. And so the evolution of thinking about biomarkers has been with the same people who have seen, for example, the Reagan-Udall Foundation presentation now over 2 years or so ago that articulated why CSF heparan sulfate should be a surrogate endpoint reasonably likely to predict clinical benefit. And that was the foundation of that mindset shift. Those are all the same individuals. So those that were briefly concerned about it were the ones who then understood, agreed and then understood that the approval of AVLAYAH is setting and so our engagement with the FDA on DNL126 has remained consistent, obviously, setting a high bar. We saw, on average, 80% reduction of CSF heparan sulfate in Sanfilippo with the ability to normalize. What's different about Sanfilippo is that all patients are treatment naive. And so basically, you have to build tolerance and when you do, you're able to see this robust reduction in heparan sulfate. And the other thing that's like this very distinct about Sanfilippo over Hunter is it is a very aggressive degenerative disease. Patients will often have pretty significant volumetric loss even before we begin dosing. And so early is going to be really important. But our engagement with the FDA remains consistent. We've always, sort of, I would say the way we've approached it is around the review team. The review division is the most important relationship and interactions that we have for our medicine.

And given there's no standard of care therapy on the market for Sanfilippo here, how do you think the launch trajectory will pay out versus Hunters?

Yes. I think that's -- as I pointed out, no standard of care. It's not a switch dynamic. I think the other point is you need to find these patients and diagnose them. They often are diagnosed in the same center. So from a positive point of view, we -- it's the same physicians. We'll have the same commercial team. All the interactions are similar. The MPS society has been very involved with both Hunter, Sanfilippo, Hurler-Scheie. That part, I think that dynamic is going to be fantastic because we're -- you see the momentum of AVLAYAH, which will then feed into 126. But there is no standard of care. So I think it's important to continue to push for newborn screening. As I mentioned before, because of the rapidity of how quickly this disease degenerates, finding patients really early is ultimately going to be key to have the most robust clinical benefit. So with similar patient numbers ultimately. So we see the combination of AVLAYAH and 126 is probably $1 billion-plus opportunity worldwide with just those two products. And that's just the beginning of the enzyme TransportVehicle franchise.

Can you just remind us what the rationale was for Takeda's decision to end the collaboration on 593 in the frontotemporal dementia program?

Yes, I'll take that one. So Takeda made a strategic portfolio prioritization decision in the broader context of their restructuring of the rare disease and neurology portfolio. Takeda has been a great partner for 9 years since we started the partnership, but now we take the program forward ourselves. It's very strong biology. It's a very direct mechanism substituting progranulin, which is missing or lacking in these patients with that form of frontotemporal dementia. The study is ongoing. It's fully enrolled now, and we expect the data by the end.

And what specific biomarker thresholds are we looking for with that data read?

Yes. So I think as Alex mentioned, this form of FTD is a mutation in granulin, these are heterozygous carriers so they have one copy loss of function. We published a paper in 2021 in Cell categorizing a set of biomarkers that we think may be relevant that are downstream of this loss of function. And so there are lysosomal-related biomarkers like glucosylsphingosine and a number of like BMP and other biomarkers. Those are the proximal biomarkers. The distal biomarkers are the traditional degenerative biomarkers like NfL and GFAP. And so for us, we're interested in both proximal and distal. And our experience in Hunter syndrome and Sanfilippo is that you hit the proximal first, you establish dose and then over time, assuming that this is disease-modifying, you should expect the ability to reduce the distal biomarkers like NfL. And so that's what we're looking for early on here is early data trying to understand the proximal biomarker and dose that will then drive ultimately that what we believe will be the clinical benefit, which is then obviously looking at biomarkers like NfL. I think one challenge you have here is because it's a single copy loss of function, the signal to noise in your biomarkers is not the same as what you see in Hunter and Sanfilippo, where those are complete loss of function. Heparan sulfate is elevated tenfold, where like glucosylsphingosine is elevated 25%, 30%, not even twofold. And so that's a dynamic that we're -- we'll have to be prepared for and especially as we sort of select dose. And I think the ultimate goal would be to pin a decision on the distal biomarkers like NfL with longer-term data. And that's the other thing we've learned quite a bit from Hunter is that they have a fantastic medicine, but it took time to basically normalize NfL.

Following Biogen's recent data from its tau-targeted ASO in Alzheimer's, where we're going to see the full data, I guess, or whatever data we can midyear at the Alzheimer's conference in London. But they commented on demonstrating a slowing clinical decline in tau reductions, but they did not show a clear dose response. Maybe help us understand what you believe is the read-through to your own programs here.

I mean taken at face value, this could be historic. Why? There's really only one drug target in Alzheimer's that have shown clinical benefit, which is Abeta. This would be the second. So -- and if you look at the totality of the data, at least as articulated in the press release, what it tells you is reducing tau and slow cognitive decline. And that would then represent the second Alzheimer's target that has clinical validation. I think it's, as usual, complicated to read into dose response. I think added complexity with their particular program is that intrathecal delivery introduces a significant amount of heterogeneity in brain biodistribution. And so it will be very interesting to look at the data and understand how many patients were in each of the dose cohorts. If I understood correctly, there are 3 dose cohorts. But it's possible, for example, that the lower dose had fewer patients and then maybe more subject to heterogeneity. But I think the take-home message is reducing tau appears to result in a clinical benefit and a cognitive benefit. And I think that's historic actually because now it's like how do we improve Abeta, how do we improve tau. We have a real opportunity and I think then enter our approach, which is the transport vehicle that allows you to have much more consistency from patient to patient in terms of biodistribution. We saw this in our nonhuman primate studies with an intrathecal delivery and compared it to the oligo TransportVehicle. And with intrathecal, our monkeys, some had decent brain exposure and some had very little. So you had always had great spinal cord exposure because these are lumbar delivery, but you had very significant heterogeneity and how much gets into the brain. With the oligo TransportVehicle where you're delivering across capillaries, you have an even distribution, and it was consistent from monkey to monkey. And so I think that's just part of the dynamic. And I think we've seen it in the Abeta field as well is that as these new technologies, these brain shuttles and in our case, specifically the TransportVehicle they enter, you have now this ability to very rapidly reduce amyloid about 3x faster at maybe 1/5 the dose. And so I think it's very exciting. It's very exciting to see another target that may be clinically validated in Alzheimer's.

And remind us on the time lines for your program here?

Yes. So we're targeting 2027 for the first biomarker data. We're enrolling now rapidly the Alzheimer's patient study. It's a multiple dose out of the gates for OTV:MAPT. The key here is obviously to see tau reduction and understand the dose that drives tau reduction. And I think everything will follow the tau imaging PET and then ultimately running the study large enough to look at clinical benefit. Again, timing of intervention matters, and we'll also be at AAIC, very excited to be there. We'll be presenting there. I think the thesis that I like to articulate is that amyloid is a trigger, tau is an executioner. And then you have all these other contributors to disease that are these microglial targets. They probably contribute the inability to remove amyloid. But if you look at the data, it's pretty consistent that amyloid is at the top of the cascade, but tau, I mean, I think ultimately is driving neuronal loss. And so I think they're both obviously very interesting targets.

You also have the beta-amyloid program that's moving forward. Can you just walk us through the learnings that have played out with the programs that are approved also in the clinic and how that translates to your program?

So both OTV:MAPT, which is our tau reducer and then ATV:Abeta as the rest of our portfolio uses the TransportVehicle, so it's transferrin receptor to get across the blood-brain barrier. And what we've learned about Abeta in particular, there's room for improvement. I mean, one, it used to be thought very simply, you remove amyloid, you cause vasogenic edema or what is now termed ARIA. But now that's disconnected. You can remove amyloid much more rapidly and have less ARIA. And it's probably around the biodistribution, similar to what we were just discussing with intrathecal for oligonucleotides. In the case of antibodies for Abeta, when you deliver using the TransportVehicle technology, you don't have extraordinarily high concentrations in these perivascular spaces that cause breakdown the blood-brain barrier and vasogenic edema. Instead, you get this even distribution throughout brain. And we show that in our science publication in August of last year, how that is differentiated. The other important point is we can preserve the effector function. We can preserve the immunological function of the antibody when bound to amyloid plaque. But when bound to transferrin receptor, we can silence it. And that is through a unique engineering insight where we create a mutation on the Fc that makes it silent when bound to transferrin receptor. That is distinct and I think is unique to the architecture of the transport vehicle. And so our expectation is a safer profile, the binding to transferrin receptor is integrated to less immunogenicity than what I think is being seen for other brain shuttles and then ultimately, subcu dosing where you have rapid plaque reduction and less ARIA.

And what are the key metrics from the initial Phase I trial in Pompe disease that we should look to understand how that's working out specifically as we look to understand the impact on muscle and bone.

Yes. So shifting gears now back to the enzyme TransportVehicle. Here, we're delivering GAA. There's a series of medicines in Pompe that are enzyme replacement therapies for Pompe. What we're seeing is that there's not fantastic delivery in particular to skeletal muscle. So even with standard of care, there's still a significant unmet need. I think major advances in cardiac, obviously, overall survival is better for IOPD, but a real unmet need. And the question is why. As we engage with -- by the way, the same investigators in Hunter and Sanfilippo are also made of these investigators seeing Pompe patients. And the general thesis is that standard enzyme replacement therapy for Pompe relies on this mannose-6-phosphate receptor in muscle, which apparently is not highly expressed. And so there's not great distribution of muscle. And so what we see is a very substantial differentiation with any of the standard of care in Pompe when you use the TransportVehicle. This is now enhanced delivery to muscle. Obviously, we'll have delivery to the CNS, which standard enzymes don't have. So that's going to be important. That would be more in IOPD. But what we're looking at in these early studies, so Pompe is enrolling now, 2027 data as well. And the goal there are these glycogen products to show that we've got the right dose target engagement and then rely on the biology where we have improvement in muscle delivery, which should ultimately lead to clinical differentiation.

Great. And just on the small molecule pipeline here. So following the announcement that the Phase IIb study in idiopathic Parkinson's did not meet its primary endpoint, were there any analyzable trends that you can talk to that played out in these LRRK2 patients?

Yes. I'll take LRRK2. And as you mentioned, the LRRK2 inhibitor was part of our legacy portfolio of small molecules, so completely separate from the TransportVehicle. As you mentioned [Technical Difficulty] which was time to confirm worsening [Technical Difficulty] Part 2 and 3 and importantly, in the idiopathic Parkinson's population. So essentially the all-comers Parkinson's population. The study was well designed. It was well executed. The molecule performed as expected. We saw very strong target engagement and acceptable safety. But I think we have to conclude that LRRK2 inhibition is not the path at least in idiopathic Parkinson's [Technical Difficulty]. Now importantly, we have another study ongoing in parallel of the BEACON study, which is purely focused on LRRK2 carriers. So that is 50 LRRK2 carriers, biomarker study, we expect to see those data by the end of the year. In LUMA, the number of LRRK2 carriers was too small to really look for a signal in the subset. There were only about 10 LRRK2 carriers out of the 650 patients. So that really does not give us any [Technical Difficulty].

Alex, another question for you here. You've been busy in terms all along since the genesis of this company with partnering and business development strategy. Maybe talk to the types of deals that make sense for you from here?

Yes, absolutely. Thank you for that question. I mean partnering business development is a key part of our strategy. We have a track record. We set up collaborations early in the phase of Denali until about half of our portfolio was partnered. Then there was a period when we prioritized wholly-owned programs and advancing those. And now we're at the stage where essentially our portfolio is almost entirely wholly-owned. So that opens up a lot of new partnering opportunity. The blood-brain barrier field has been very active in the last 2 years. 10 years ago, we were essentially the only ones, but now we see a lot of activity. There's a lot of interest from large pharma. There are a number of smaller companies as well. We've been engaged in many of those conversations. But right now, we're very well financed. We ended Q1 with just over $1 billion in cash. So we have the ability to really advance the program to the right moment in time of when we would do a deal. I think really to highlight, we are one of the few companies to have a wholly-owned Alzheimer's portfolio as we just discussed, right? There is Abeta, there is tau. There's a lot of preclinical expertise on additional mechanisms, which, at some point, will be a very obvious partnering opportunity. We can definitely generate clinical proof of concept, high-quality clinical proof of concept in patients, and that's probably the time when we would look for the partner.

Follow-on one of the points you made. The space has been really busy around blood-brain barriers and you have some of these larger companies working on their own programs. How do you think about yours, just given the validity here through the commercial assets that are coming out and the defensibility of kind of -- and differentiation of it versus what's playing out in the competitive landscape?

The idea of crossing the blood-brain barrier using transferrin receptor was first proposed in the late 1980s, so this is like the typical story of biotech and discovery and iteration, the industrialization from that academic proposal has been a journey. We started on that journey, as I mentioned, 20 years ago in 2006, that was prior to founding Denali. And what we did is we just made every existing platform that was out there to say, do any of these cross the blood-brain barrier in therapeutic concentrations. And 20 years ago, the answer to that was actually no. There was no existing platform that we had actually tried that was working. And so began the process of the industrialization. The question is what was wrong? And I think the first challenge was that most of them -- most of the technologies were getting trapped in the blood vessel. You were not getting therapeutic concentrations across the BBB. So now I think of the 20-plus competitors that we count, there's probably 30 that have bonafide blood-brain barrier platforms. 97% of them, 95% of them or 90% of them are all using the original sort of conventional Fab approach. So it's an antibody approach. It's a Fab fusion. And when we founded Denali 11 years ago, we wanted to build a platform that was highly modular, that didn't give up an arm of the antibody or didn't have to, in an unnatural way, attach an arm of the antibody, but integrate the binding into the Fc similar to the FcRn or Fc gamma, and that began the engineering quest to build that in. And we knew that because we'd already seen the first-generation brain shuttles that were out there. We had already 5, 10 years of experience, and we knew the limitations, which was stability, immunogenicity. That's the challenge with a lot of these Fab fusion, and that was actually in the original publications. And so we built the TransportVehicle in a way that we integrated the binding into the Fc. And it is now and still the only molecule that does that very distinct from all the conventional Fabs. And as you point out, it's now the only molecule that has -- is FDA approved. We will have commercial validation as well, and that allows us now to create an entire portfolio. Now we had a decision 10 years ago, and as Alex mentioned the partnering strategy, our decision was not to create a technology to enable the world, but to create a technology to enable our medicines and then find a way to collaborate on medicines, not on the platform. But there are other BBB technologies and strategies where the strategy is to out-license the platform. But those, again, are the conventional Fab approaches. And so the transport vehicle is definitely distinct in the way that we engineered it, also have the advantage of a decade worth of experience before building it.

Great. Well with that, Ryan and Alex, thank you so much. We appreciate your time today.

Thank you.