DNLI - Denali: Cash Big Pharma Partnerships And High Potential For MPS-II Do Not Warrant A Buy

2024-06-06 12:16:37 ET

Summary

• Denali Therapeutics is a biotech company focused on developing novel treatments for neurodegenerative diseases.
• The company has partnerships with big pharma companies Biogen, Sanofi, and Takeda, but the progress of these partnerships has been mixed.
• Denali's in-house programs, particularly its MPS II program, show promise, but the market size for MPS II is relatively small compared to the company's valuation.

Thesis

Denali Therapeutics ( DNLI ) is a biotech company and forerunner in the field of novel treatments for neurodegenerative diseases, trying to identify novel targets in light of evolving science, and creating drug candidates that allow modulation of such targets. Additionally, the company has created a transport vehicle program that should allow payload delivery across the blood-brain-barrier.

Denali’s lead program is with DNL310 in the orphan disease MPS II. Denali regularly communicates data from a Phase 1/2 trial in that indication, is having talks with the FDA on accelerated approval, and should report topline data on its Phase 2/3 Compass trial later this year. That data looks promising, but this is a 2,000-patient per year indication, which I believe is not a reason to invest in Denali at the current valuation. There are some other programs in the in-house pipeline for ALS and MPS III that are interesting, but not compelling to me.

Denali has an extended portfolio including partnerships with big pharma names Biogen ( BIIB ), Sanofi ( SNY ) ( SNYNF ) and Takeda ( TAK ) ( TKPHF ) . The Biogen collaboration is based around a LRRK2 inhibitor for Parkinson’s disease and a drug removing beta-amyloid. I find the LRRK2 inhibitor for Parkinson’s most interesting, but little data is communicated as to efficacy, and Biogen has already terminated the Phase 3 trial for monogenic LRRK Parkinson’s. The Sanofi partnership was based on RIPK1-inhibition, and may turn out a complete fail. The Takeda partnership for frontotemporal dementia with a progranulin-mutation and Alzheimer’s targeting TREM2 is interesting, but either early-stage or facing competitive threats....

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