DNLI - MPS II And Beyond: Implications Of Denali's Promising Pipeline

2023-07-23 00:51:26 ET

Summary

• Denali Therapeutics is a promising underdog in the biotech sector, focusing on neurodegenerative diseases, with significant investments in scientific exploration and a robust financial health despite net losses.
• The company's pipeline includes seven clinical development programs, with four predicted to advance into clinical trials for diseases such as Parkinson's, Alzheimer's, and ALS, and interim results showing promising reductions in key biomarkers of neurodegeneration.
• Despite challenges such as effective drug delivery and potential side effects, Denali's innovative products and research methodologies set it apart from competitors, making it a compelling investment option.

In recent years, Denali Therapeutics (DNLI) has emerged as an enigmatic underdog in the biotech sector, armed with many promising drug candidates that could redefine how we perceive and handle neurodegenerative diseases. Despite its current financial position reflecting net losses, a closer examination reveals the company is strategically investing in scientific exploration with the potential for significant future returns. This forward-thinking approach may appeal to investors who recognize the value of long-term growth and are willing to look beyond immediate financial indicators.

For one, Denali's research and development (R&D) spending reveals a company that's deeply committed to innovation and progress, underpinned by its dynamic discovery department and growing staff numbers. Despite a slight decline in partnership income, Denali benefits from significant payments from key partners, ensuring promising revenue streams in the future. Additionally, the company's substantial cash reserves provide a strong buffer against potential challenges, indicating robust financial health and stability.

Interim trial results from its lead candidate, DNL310 , have shown remarkable reductions in key biomarkers of neurodegeneration, validating the company's embrace of biomarkers as reliable tools for diagnosis and treatment response. If Denali can repeat this success with its other drug candidates, the implications are significant.

Financials

Denali Therapeutics has showcased a promising financial overview , despite the expected investment doubts linked to net losses. While net losses amounted to $109.8 million in Q1 2023 and $65.2 million in Q1 2022, astute investors can recognize the value of the company's impactful scientific pursuits beyond immediate figures.

Even though there was a drop in partnership income from $42.1 million in Q1 2022 to $35.1 million in Q1 2023, this decline mainly originated from the finalization of major preclinical and research service agreements with Takeda and Biogen. Crucially, these fulfilled commitments denote forward progress rather than setbacks. Furthermore, the shortfall was effectively offset by the $25.0 million benchmark reached in January 2023 with Sanofi – a situation hinting towards another promising source of income.

Rising to $128.8 million in Q1 2023 from $86.1 million in Q1 2022, the heightened R&D expenses demonstrate Denali's robust dedication to inventiveness. Primarily, this approximately $42.7 million increase stemmed from essential external costs in the hopeful ETV:IDS venture and escalated facility expenses due to hastened depreciation on leasehold upgrades – outflows linked to expansion. In addition, the surge is reinforced by an increase in staff numbers and equity award disbursements, showcasing a strategic investment into the company's future potential.

Administrative and general expenses also climbed from $22.5 million in Q1 2022 to $27.1 million in Q1 2023, largely because of increased staff-related outlay and facility, consultancy, and legal service expenditures. This exemplifies Denali’s aim to bolster its human assets and strategy - an essential requirement for any forward-thinking enterprise.

Lastly, to overlook Denali's formidable financial health which boasts a striking $1.29 billion in cash and cash equivalents at the end of Q1 2023 would be a mistake. This substantial financial cushion empowers it to confidently invest in pioneering technology and groundbreaking research. With nearly $1.3 billion in cash, the runway still extends over 13 quarters at current burn rates, more than longer enough to sustain the development of the current pipeline candidates.

Pipeline

As 2023 unfolds, Denali Therapeutics is actively progressing on seven clinical development programs, four of which are predicted to evolve into advanced clinical trials for a range of diseases such as Hunter Syndrome (MPS II), Amyotrophic Lateral Sclerosis (ALS) , and Parkinson's disease . The company also operates a dynamic discovery department with a strong focus on harnessing and implementing groundbreaking insights into neurodegenerative biology.

A prime example of Denali's divisional pipeline is DNL310, a pioneering investigatory solution for MPS II. This biopharmaceutical employs ETV technology for brain penetration, with the intention of addressing cognitive, behavioral, and physical symptoms of this severe genetic aberration, caused by mutations in the IDS gene leading to a buildup of heparan sulfate. Presently, the drug is under Phase 3 trial scrutiny, with the major decisive evidence anticipated to emerge in the latter part of 2023.

Advancing further, Denali is investing heavily on DNL151 - a microcompound controller of a prominent neurodegeneration and inflammation stimulator known as leucine-rich repeat kinase 2 ( LRRK2 ) for Parkinson’s disease. The disease typically manifests in motor-related and non-motor impairments, and DNL151 aims to abate the LRRK2 activity to moderate neuronal loss and dysfunction. The launch of this product's phase 3 testing is earmarked for the commencement of 2023.

Targeting ALS, a devastating neurodegenerative disorder which erodes motor neurons leading to muscular weakness and eventual respiratory collapse, the company has initiated the development of DNL343. Much like DNL151, this also operates as a neuronal protection agent against RIPK1 signalling, thus averting inflammation and protecting motor neurons. The drug is currently scheduled for a Phase 2/3 trial, set to begin in early 2023.

Yet another promising RIPK1 blockading candidate, DNL788 , is being readied for advanced testing for Alzheimer’s disease. This common cause of dementia, resulting in cognitive deterioration and memory loss, could potentially be mitigated with DNL788 by buffering neurons from inflammation and death. This experimental drug is heading towards Phase 2b/3, scheduled for later in 2023.

Alongside these four drugs under development, three additional promising compounds - DNL758 , DNL593 , and DNL919 - are being nurtured. All three are geared towards combatting Alzheimer’s and are currently situated in early-stage testing. Each holds a unique angle: promoting amyloid-beta disposal by obstructing Signal-regulating protein (SIRP?) and CD47 interaction, stimulating phagocytic and anti-inflammatory functions via TREM2 activation, and limiting long-term inflammation and neuronal death by downregulating NLRP3, a critical factor in neurodegenerative diseases. Interim data from these trials can be anticipated towards the conclusion of 2023.

DNL310: Groundbreaking MPS II Treatment Advances

Denali has shared interim results from the Phase 1/2 trials for DNL310 – a breakthrough enzymatic remedy aimed at mitigating and possibly reversing MPS II. MPS II is a progressive lysosomal storage disease that severely affects cognitive, physical, and behavioral well-being. The findings of this trial are encouraging and feature a notable 64% decrease in serum neurofilament light (NfL), a key biomarker for neurodegenerative conditions.

The importance of this reduction is significant, especially considering the U.S. Food and Drug Administration's (FDA) recent guidance to Denali to observe NfL levels as an investigational endpoint. The rationale for this is based on the increasing acknowledgment of NfL as a reliable tool in the diagnosis, prognosis, and response to treatment in neuronopathic MPS II. The striking interim data consists of results from 13 trial participants who had undergone two years of treatment, a favorable outcome that gives hope for the future effectiveness of DNL310.

The advancements made by Denali are further backed by the remarks of Joseph Muenzer, MD, PhD, who considered the reduction of NfL and the ability of DNL310 to bring CSF heparan sulfate – a major contributor to neurodegeneration in MPS disorders – back to normal, as particularly enticing. He envisaged the influential role both these elements could have in hastening the approval of treatment for those with MPS II. Denali's concentration on these biomarkers is consistent with its original research on biomarkers downstream of heparan sulfate, complementing their ongoing DNL310 clinical development program.

Denali's substantial achievements in the realm of biomarkers like NfL, a known marker of neuroaxonal damage, have already been widely recognized. The production of such a drastic reduction in NfL through DNL310, a first for MPS II treatments, has been met with laudatory feedback from experts like Henrik Zetterberg, MD, PhD. He juxtaposed the findings with the successful employment of NfL as a biomarker in dealing with various other degenerative diseases such as CLN2 , Multiple sclerosis ( (MS)), Spinal muscular atrophy ( (SMA)), and ALS, reinforcing the potential of Denali's results.

To sustain this positive trajectory and ensure transparency, Denali will share additional interim results from the Phase 1/2 trial at the Society for the Study of Inborn Errors of Metabolism ( SSIEM ) Annual Symposium 2023, providing the public with updated insights into their ongoing progress.

Denali's Pipeline: Treatments and Unique Challenges

Denali Therapeutics' pipeline of potential drugs in development all hold immense potential, but also face their respective challenges. Amongst these, DNL310, a hopeful treatment for MPS II, utilises ETV technology to deliver the IDS enzyme replacement to the brain, aiming to address the cognitive, behavioural, and physical symptoms. However, questions surround its ability for effective brain penetration and consistent delivery to affected tissues. Dosage optimization and persistent immune responses or adverse reactions to the enzyme replacement might also affect the treatment outcome.

Similarly, while DNL151 shows promise concerns on the inhibitor's specificity and selectivity arise. Ensuring that DNL151 selectively inhibits LRRK2 without interfering with other key cellular pathways is paramount to circumvent unintended side effects. Additionally, long-term safety and the potential disruption of normal physiological functions from the inhibitor's chronic use necessitate careful evaluation.

Another late-stage product, DNL343 has effective delivery of the inhibitor to affected motor neurons is vital, with achieving adequate concentrations, especially in the spinal cord, being crucial. However, due to ALS's multifaceted nature, singularly addressing RIPK1 might not be enough. Combinational therapies or targeting other pathological agents could become essential to optimize outcomes.

Likewise, DNL788 has potential challenges like achieving effective delivery to the brain, long-term inhibition of RIPK1 disrupting normal cellular processes, and potential risk of adverse effects still need thorough investigation.

Lastly, the early-stage products DNL758, DNL593, and DNL919 intended for Alzheimer's disease each face respective challenges. DNL758 works by blocking the SIRP?-CD47 interaction, aiming to increase amyloid beta clearance. Yet, balancing the enhanced clearance with potential immune dysregulation remains a concern. DNL593 operates by TREM2 activation, which could affect the broader immune response and inflammation modulation, while DNL919 works by inhibiting NLRP3, raising concerns about potential unintended immune suppression and long-term effects on the inflammasome signaling pathway, which requires careful evaluation.

Competitors

While a variety of biotech firms strive to create impact within the realm of neurodegenerative diseases, Denali Therapeutics consistently showcases distinct superiority, thanks to its innovative products, novel technologies, and astute research methodologies.

Shire, a Takeda company , currently produces Elaprase , an enzyme replacement therapy for MPS II, but its inability to reach the brain limits its effectiveness as the disease impacts neurocognition significantly. Denali's DNL310, on the other hand, is designed specifically to deliver the enzyme to the brain using its proprietary ETV technology, paving the path for improved neurocognitive outcomes in MPS II patients.

When considering the competitive landscape surrounding Parkinson’s disease, multiple competitors such as Denali's LRRK2 inhibitor, DNL151, and Biogen’s BIIB094 ( BIIB ), a LRRK2 antisense oligonucleotide, coexist. However, subtle distinctions set these two apart. While Biogen's product reduces LRRK2 protein using genetic interference, Denali's DNL151 targets LRRK2 activity at the molecular level. This offers a more direct approach, positioning DNL151 as a potentially more effective therapy.

Meanwhile, in the ALS arena, companies such as Biogen and Ionis Pharmaceuticals ( IONS ) have Tofersen, an SOD1 antisense oligonucleotide , and Novartis has Branaplam ( NVS ), an SMN2 splicing modulator. These target specific gene mutations found in only a fraction of ALS patients. In contrast, Denali’s DNL343 inhibits RIPK1, a more universally involved protein in ALS regardless of genetic background. This permits DNL343 to potentially benefit a broader ALS population and display an elevated efficacy.

Similarly, in the crowded Alzheimer’s disease space, solutions like Biogen’s Aduhelm (aducanumab), an anti-amyloid beta monoclonal antibody , and Eli Lilly’s Donanemab , another anti-amyloid beta monoclonal antibody, are under fire for their high cost and limited effectiveness. Denali's DNL788, by inhibiting RIPK1, takes a more holistic approach, potentially reducing inflammation and protecting neurons across the board, representing a potentially superior therapeutic intervention.

Yet more differentiation comes from Denali's early-stage Alzheimer’s therapeutics - DNL758, DNL593, and DNL919. Whereas Roche's anti-tau antibody, Semorinemab , and Biogen and Eisai's anti-amyloid beta antibody, Lecanemab , are strictly targeted therapies, Denali's candidates influence broader cellular mechanisms. DNL758 enhances amyloid-beta clearance through microglial activation, DNL593 fosters phagocytic and anti-inflammatory actions, and DNL919 aims to attenuate chronic inflammation and neuronal death by inhibiting NLRP3. These approaches might yield more comprehensive neuroprotection and prevent disease progression compared to narrow targeted therapies.

Conclusion

Denali stands out as a compelling investment option due to its unwavering dedication to groundbreaking scientific research and bold preclinical initiatives. While the current financials may not fully reflect the company's potential, Denali's strategic focus on leveraging its strengths for future growth sets it apart.

Yes, there's a challenge in embracing a company that reports consistent net losses, but wise investors who appreciate the transformative potential of biotechnology understand that this is a space where near-term red ink might foretell future profitability. Denali's deliberate increase in R&D expenses showcases a company that's not shying away from its mission but rather sinking its resources heavily into finding potential cures for diseases that many companies don't have the capacity to tackle.

The fluctuations in their partnership incomes should not be seen as a drawback, but as evidence of Denali’s evolving strategy towards its continued growth. Major collaborations with giants like Takeda and Biogen, along with milestones, such as the one accomplished with Sanofi, are all just part of its larger financial plan. Importantly, its robust cash reserve allows it to sail through its current financial course with a healthy level of assurance.

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