DNLI - Diving Into Denali Therapeutics

2023-12-12 03:49:29 ET

Summary

• Today, we take a deeper look at Denali Therapeutics, a biotech company focused on developing treatments for neurodegenerative and lysosomal storage diseases.
• Denali's developmental focus has drawn several collaboration partnerships from much larger drug companies like Biogen.
• The company has a strong balance sheet with $1.12 billion in cash and marketable securities and no long-term debt.
• An analysis around Denali Therapeutics is presented in the paragraphs below.

Most men would rather deny a hard truth than face it .” ? George R.R. Martin

Today, we are putting Denali Therapeutics ( DNLI ) in the spotlight for the first time. This clinical stage biotech concern has several candidates within its pipeline and is partnered with some large drug makers on some of its developmental efforts. The company also has a clean balance sheet with more than $1 billion in net cash to fund developmental efforts. An analysis follows below.

Company Overview

Denali Therapeutics, Inc. is headquartered in South San Francisco, CA. The company is focused on developing a broad portfolio of product candidates engineered to cross the blood-brain barrier for the treatment of neurodegenerative diseases and lysosomal storage diseases.

Management has embraced the use of biomarkers as reliable tools for diagnosis and treatment response within its developmental efforts. The stock currently trades just north of $18.00 a share and sports an approximate market capitalization of $2.6 billion.

The company has numerous compounds in various stages of development which can be seen above. Several of Denali's development efforts are within collaboration deals with larger drug concerns like Takeda ( TAK ) , Sanofi (SNY) and Biogen ( BIIB ) .

Recent Developments:

The most important potential near term catalyst for the company is the developmental success or failure of its lead product candidate. This is an investigational iduronate-2-sulfatase (IDS) fusion protein delivered via a weekly IV dubbed DNL310 that is targeting MPS II also known as Hunter Syndrome.

Data from a Phase 1/2 study were encouraging, and the company is currently enrolling via multiple sites for a registrational Phase 2/3 trial 'COMPASS'. Hunter Syndrome is a rare genetic disorder and a form of lysosomal storage disease. Patients with this affliction have large sugar molecules called glycosaminoglycans build up in their body tissues. This disease causes abnormalities in many organs. These include the skeleton, heart, and respiratory system. This can lead to death in severe cases during the teenage years. Only around 500 individuals have this disease in the United States and approximately 2000 worldwide. The current treatment option is enzyme replacement treatment, which cannot cross the blood-brain barrier in its current form. DNL310 is designed to treat the behavioral, cognitive, and physical manifestations of this disease.

Denali has a half dozen other candidates in various and earlier stage of development. Management gave a solid run down on where development is with each of these efforts within their third quarter earnings press release .

The company gets a considerable amount of funding via its collaboration deals with large drug concerns, and these tend to be 'lumpy' on a quarterly basis due to milestone payments and other events. Denali reported $294.1 million of collaboration revenue for the third quarter of this year. The compares to just $52.5 million in the same period a year ago and $35.1 million from 2Q2023. Total quarterly operating expenses also vary but generally fall in the $115 million to $155 million per quarter.

Analyst Commentary & Balance Sheet

Since Denali Therapeutics posted its third quarter results on November 7th, a half dozen analyst firms including Oppenheimer and BTIG have reissued/assigned Buy/Outperform ratings on the stock. Price targets proffered range from $28 to $60 a share. In the second half of November, JPMorgan reinstated coverage on Denali with an Outperform rating and $28 price target and the following commentary:

Denali could see appreciation ahead of several readouts slated for 2025, in addition to a Phase 2 data for its ALS drug candidate DNL788 expected in the first half of 2024. There are “multiple avenues for value creation” from the biotech’s pipeline, adding that “we are still in the early innings of the potential value” presented by the company’s BBB-crossing TV platform. "

Just over seven percent of the outstanding float in this stock is currently held short. Several insiders have been frequent, consistent but generally smallish sellers of the shares throughout 2023. So far in the second half of the year, they have disposed of nearly $1.5 million worth of equity collectively. Denali ended the third quarter with $1.12 billion worth of cash and marketable securities on its balance sheet after posting a net loss of $99.4 million in the third quarter. The company has no long-term debt.

Verdict

Denali Therapeutics is a complicated story given the amount of moving parts. As can see above, leadership has highlighted its key priorities going forward and Denali has a busy year ahead of it. There is a lot to like about the potential for the company. Denali has an intriguing developmental approach that has attracted the interest and collaboration of major drug concerns. The pipeline has multiple ' shots on goal ' and Denali's balance sheet is in good stead. The stock is also well liked in the analyst firm community.

That said, it is likely to be several years before any potential commercialization. Therefore, the shares only merit a small ' watch item' holding by aggressive investors within a well-diversified biotech portfolio. Denali has posted a recent company presentation that provides more detail on candidate development and trial results that provide additional data for those considering DNLI stock for investment. This is a story we will circle back on in the second half of 2024 to see how Denali is progressing.

Cherish those who seek the truth but beware of those who find it .” ? Voltaire

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