DNLI - Denali Therapeutics: Pioneering The Neurodegenerative Space With Blood-Brain Barrier Innovations

2023-04-17 06:52:08 ET

Summary

• Denali Therapeutics is poised to revolutionize the industry with its proprietary Transport Vehicle (TV) technology, designed to effectively cross the blood-brain barrier.
• The company's robust and diversified therapeutic portfolio includes seven programs in clinical development, with a strong focus on diseases such as Hunter syndrome, frontotemporal dementia, Alzheimer's, and Parkinson's.
• Interim results from Denali's ongoing Phase 1/2 study of DNL310 in children with MPS II (Hunter syndrome) show promising efficacy, including improvements in adaptive behavior, cognition, and hearing function.

As a pioneer in the field of neurodegenerative and lysosomal storage diseases, Denali (DNLI) has established itself as a powerhouse in developing novel therapies that address the challenges associated with crossing the blood-brain barrier ((BBB)). Through its proprietary Transport Vehicle ((TV)) technology, Denali has made significant strides in enhancing the delivery of small molecules and biotherapeutics to the central nervous system ((CNS)), unlocking new treatment possibilities for patients in desperate need.

While Denali's financials have exhibited a trend of net losses, this is not uncommon for biopharmaceutical companies in the clinical development phase. Importantly, Denali's strategic collaborations and growing collaboration revenue, as seen in recent financial results, present a strong foundation for a favorable long-term outlook. Coupled with the company's commitment to advancing its investigational therapies through the clinical pipeline, I believe Denali's value proposition to investors is compelling.

Financial Situation

Denali Therapeutics reported net losses of $98.7 million for Q4 2022 and $326.0 million for the full year, which were up from $75.3 million and $290.6 million, respectively, in 2021. While these numbers may appear concerning to investors with a short-term outlook, they reflect the company's proactive decision to aggressively pursue R&D initiatives that are likely to bear fruit in the long term.

Of particular note is their increase in collaboration revenue for the year ended December 31, 2022: $108.5 million was reported, surpassing the previous year's total by $59.8 million. Although there was a dip in revenue for Q4 2022-down to $10.3 million from $12.5 million in 2021-this can be attributed mostly to fluctuations from strategic partnerships with Takeda (NYSE: TAK ) and Sanofi (NASDAQ: SNY ). The performance obligation satisfaction of Tau programs and milestone payments earned for collaborations during this period demonstrates Denali's success in securing high-value deals and making good on its commitments to its partners.

The company's total R&D expenses for Q4 2022 were $92.1 million, and $358.7 million for the full year. This reflects increases of approximately $24.2 million and $93.4 million from Q4 and the full year of 2021, respectively. While some may view the rise in expenses as a concern, it's essential to recognize that the company's investment in R&D is an investment in its future. The increase in expenses is primarily due to higher personnel-related expenses and external costs related to the progression of the DNL310, DNL593, and LRRK2 programs, as well as the advancement of the TV platform .

General and administrative expenses also increased for the year, reaching $90.5 million, up from $79.1 million in 2021. Although higher headcount and equity award grants were significant contributors, it's worth noting that increases in facilities and corporate services costs are also reflective of the company's expansion and growth initiatives.

Product Pipeline

Central to Denali's approach is its pioneering use of small molecules and biotherapeutics, both of which are designed to cross the blood-brain barrier through the application of Denali's proprietary Transport Vehicle technology.

Among its most promising TV-enabled programs is DNL310 , an investigational therapy targeting MPS II (Hunter syndrome). Utilizing Enzyme Transport Vehicle ((ETV)) technology, DNL310 delivers iduronate-2-sulfatase ((IDS)) across the BBB, addressing both the cognitive and physical manifestations of the disease, an unmet need not addressed by current enzyme replacement therapies. A key milestone for 2023 includes the continued recruitment for the Phase 2/3 COMPASS study, which is intended to support registration.

Denali is also progressing in its quest to address frontotemporal dementia-granulin with the investigational therapy DNL593 . By employing Protein Transport Vehicle ((PTV)) technology, DNL593 delivers progranulin ((PGRN)) across the BBB, with the potential to address PGRN deficiency , a key driver of FTD-GRN. The program expects final data from a Phase 1/2 Part A study in mid-2023.

Another innovative program is DNL919, an investigational therapy for Alzheimer's disease. As an Antibody Transport Vehicle ((ATV))-enabled TREM2 agonist , DNL919 aims to improve microglial function in AD, where LOF mutations in TREM2 are correlated with increased risk. Data from a Phase 1 study with healthy participants is anticipated by year-end 2023.

Denali's commitment to lysosomal storage disorders is further exemplified by DNL126 , an investigational therapy for MPS IIIA . DNL126 utilizes ETV technology to target N-sulfoglucosamine sulfohydrolase (SGSH) deficiencies and reduce heparan sulfate, a key factor in neurodegeneration associated with MPS IIIA. The company plans to submit an IND application in the first half of 2023.

Denali's Oligonucleotide Transport Vehicle ((OTV)) platform aims to revolutionize the treatment of neurodegenerative diseases by enabling peripheral administration of antisense oligonucleotides (ASOs) for broad brain biodistribution. The company has selected five ASO targets for development, with a focus on two OTV candidates. Lastly, Denali is advancing DNL151 , a small molecule LRRK2 inhibitor for Parkinson's disease. By inhibiting LRRK2, a key enzyme implicated in PD pathology, DNL151 may restore impaired lysosomal function, contributing to the development of effective treatments for Parkinson's.

Sanofi Partnership: DNL788 Phase 2 Initiated

Denali recently announced a significant milestone in its partnership with Sanofi. Sanofi has initiated a Phase 2 study for SAR443820 (DNL788), a CNS-penetrant investigational small molecule inhibitor for RIPK1, for the treatment of multiple sclerosis ((MS)). This marks an important step forward in Denali's pursuit of novel therapies for neurodegenerative diseases and lysosomal storage diseases.

MS is a chronic neurodegenerative condition characterized by inflammation-mediated mechanisms that lead to disability. Current treatment options are limited in their ability to address disease progression. The introduction of SAR443820 as a novel RIPK1 inhibitor presents a unique therapeutic approach with the potential to reduce inflammation and cell death, hallmarks of MS progression. In Phase 1 studies, SAR443820 showed compelling target engagement and CNS penetration, all while being well tolerated in healthy volunteers. The initiation of the Phase 2 study reaffirms the commitment of both Denali and Sanofi to address unmet medical needs by exploring the potential of this innovative approach.

This development builds on the momentum established by the initiation of the Phase 2 HIMALAYA study in amyotrophic lateral sclerosis (ALS) with SAR443820 last year. The successful progression of the RIPK1 program is a testament to Denali's scientific capabilities and collaboration with Sanofi. The role of RIPK1 as a critical signaling protein in inflammatory and cell death pathways, and its association with neuroinflammation and neurodegeneration, positions it as a key target for intervention in ALS, MS, Alzheimer's disease, and other neurodegenerative conditions.

Denali's collaboration with Sanofi, established in 2018, emphasizes the development and commercialization of both CNS-penetrant and peripherally restricted RIPK1 inhibitors. As part of the agreement, Denali will receive a $25 million milestone payment for the initiation of the Phase 2 study in MS and is eligible for additional payments based on developmental and regulatory milestones. Profit-sharing and royalties arrangements further underscore the collaborative nature of the partnership.

It is noteworthy that Sanofi is researching and conducting studies involving another RIPK1 inhibitor, SAR443122 (DNL758), for cutaneous lupus erythematosus as well as ulcerative colitis. This peripherally restricted RIPK1 inhibitor, discovered by Denali scientists, expands the potential applications of RIPK1 inhibitors beyond neurodegenerative diseases.

DNL310 Phase 1/2 Results

The new data suggests that DNL310 effectively reduces heparan sulfate levels in cerebrospinal fluid ((CSF)) to normal levels, an achievement not previously seen with any other therapy. Notably, treatment with DNL310 over a 49-week period was associated with positive changes in adaptive behavior, cognition, and hearing function. The study's progress and the pursuit of the global Phase 2/3 COMPASS study indicate a deep commitment to exploring the potential of DNL310 to benefit the MPS II patient population.

The findings are especially significant given the additional data that suggests hearing improvements within a year of treatment with DNL310 in patients previously treated with idursulfase. The strong biomarker data and observed improvements in behavior, cognition, and hearing, coupled with a safety profile in line with standard care, suggest that DNL310 has robust central nervous system and peripheral activity. These data support continued recruitment for the Phase 2/3 COMPASS study and emphasize Denali's broader mission to address unmet medical needs in individuals living with other MPS diseases.

The oral presentation at the WORLDSymposium provided further details on the study's interim results, including assessments of adaptive behavior and cognitive skills. The results demonstrate sustained normalization of heparan sulfate levels in CSF and reduction of lysosomal lipid biomarkers , indicative of improved lysosomal function. Furthermore, auditory brainstem response testing revealed significant improvements in hearing, reinforcing the value of DNL310 as a treatment option.

The interim results have elicited a positive response from an independent data monitoring committee, which recommended the continuation of the study without modifications. Overall, these developments are highly encouraging for Denali Therapeutics and represent a significant step forward in the field of neurodegenerative and lysosomal storage diseases. With DNL310's potential to provide meaningful benefits to patients with MPS II , Denali is poised to contribute significantly to advancing innovative treatments and improving patient outcomes.

Potential Mechanism Risks

In evaluating the potential challenges associated with the mechanisms of action of Denali's investigational drugs, it is important to recognize the potential pitfalls that could impact their success. For DNL310, one concern is the possibility of immunogenicity , where patients may develop an immune response against the enzyme transport vehicle or the iduronate-2-sulfatase enzyme, potentially reducing therapeutic efficacy or causing adverse effects such as infusion reactions . Additionally, suboptimal crossing of the blood-brain barrier could limit the delivery of adequate amounts of the IDS enzyme to the brain, thereby restricting neurocognitive benefits. Off-target effects from unintended interactions with other biochemical pathways could also lead to adverse effects.

With DNL593, dosage optimization poses a challenge, as excess progranulin may lead to adverse effects, while insufficient PGRN may not adequately address disease progression in frontotemporal dementia-granulin. Furthermore, the delivery of exogenous PGRN may not fully restore the biological functions of endogenous PGRN, potentially limiting therapeutic impact. Achieving appropriate distribution of PGRN to affected brain regions could also impact efficacy.

For DNL919, the efficacy of the TREM2 agonist depends on its potency in stimulating microglial function; suboptimal potency may result in inadequate therapeutic response for Alzheimer's disease patients. Overstimulation of microglial function could exacerbate neuroinflammation, leading to unintended consequences. Lastly, the specificity of the TREM2 agonist is crucial; lack of specificity may result in off-target interactions and potential adverse effects. Overall, careful consideration of these potential pitfalls is critical to ensuring patient safety and advancing the development of these therapies.

Advantages Over Competitors

Competitors in the field of neurodegenerative diseases and lysosomal storage diseases have primarily relied on traditional enzyme replacement therapies and small molecules that face challenges in crossing the BBB and achieving sufficient efficacy in the central nervous system. ERTs often have limitations in treating neurocognitive manifestations , as they are unable to effectively penetrate the BBB and reach the brain. Additionally, traditional small molecules may lack the specificity and precision required to target key disease-driving mechanisms, leading to suboptimal clinical outcomes.

Denali's approach, however, has addressed these limitations through the use of TV technology, which enables targeted delivery of enzymes, proteins, and oligonucleotides across the BBB. For instance, DNL310 addresses both cognitive and physical manifestations-an unmet need that traditional ERTs for MPS II have failed to address.

Similarly, DNL593's targeted approach distinguishes DNL593 from competitors that lack the ability to effectively deliver therapeutic proteins to the CNS. Denali's DNL919 demonstrates the potential of Antibody Transport Vehicle technology - this targeted approach addresses a key genetic risk factor for AD and sets it apart from competitors whose AD therapies do not effectively target TREM2.

Denali's Oligonucleotide Transport Vehicle platform has the potential to revolutionize the treatment of neurodegenerative diseases by enabling broad brain biodistribution of antisense oligonucleotides via peripheral administration, overcoming the limitations of direct CNS injections used by competitors.

Conclusion

In conclusion, Denali Therapeutics is poised to make a lasting impact on the biopharmaceutical landscape as it continues to advance its mission to address neurodegenerative and lysosomal storage diseases. The company's dynamic approach to crossing the blood-brain barrier through its proprietary Transport Vehicle technology underscores its commitment to innovation and distinguishes it as a leader in its field.

Despite the company's financials exhibiting net losses, which are not uncommon for clinical-stage biopharmaceutical companies, Denali's strategic collaborations and growing collaboration revenue provide a compelling case for its future financial stability. Recent financial results have showcased an increase in collaboration revenue, primarily driven by milestone payments earned and the satisfaction of performance obligations under key collaboration agreements. This positive trend reinforces the notion that Denali is a company with a vision for the future and supports a bullish outlook developing over the near future.

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