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

Great. Good morning, everyone. Welcome. My name is Jess Fye. I'm a biotech analyst at JPMorgan, and we are continuing the 43rd Annual Healthcare Conference today with Denali. First, you're going to hear a presentation from the company, then we're going to go into some Q&A. If you want to ask a question in the room, raise your hand. A mic will come to you, or you can submit them to me and I'll read them up here from the iPad. So with that, let me turn it over to the company's CEO, Ryan Watts.

It's great to be here again. Looking forward to sharing our progress over the last year and then focusing on what we plan to accomplish in 2025. Apologies for those who I can't see over there. It's sort of an odd room, but a great opportunity to give an update and talk about what's important to us. So Denali is focused on crossing barriers and defeating degeneration. And I think I would say the last year or so has really been the beginning of the era of blood-brain barrier crossing technologies and really tissue-targeting technologies to allow us to get medicines into specific sites within the body and in our case, also the brain. So I'll talk a little bit about the blood-brain barrier here just as an introduction. So the blood-brain barrier evolved in such a way to exclude most molecules. And in fact, molecules, in order to enter the central nervous system, need to be actively transported such as iron or glucose or neutral amino acids. There's a lot of directed transport across this blood-brain barrier. As a result, most medicines don't readily access the brain, and therefore, we wanted to invent a technology that allowed us to get medicines broadly into the brain. And what you're going to see today is, in almost a fortuitous way, these technologies also allow for better penetration throughout the body often like muscle and bone, specifically when we're going after the transferrin receptor, which is our primary target for crossing the blood-brain barrier. We see similar effects for CD98 and other blood-brain barrier targeting approaches, but this was ultimately the goal of Denali, was to invent a platform to get medicines, specifically biologics, into the brain. Now we are seeing that transition from rare diseases to more common diseases using this technology, and you'll see how that evolves throughout today's presentation. So what we've invented is called the TransportVehicle technology, and this is basically a new class of therapeutics. It's an Fc fusion protein, and using this technology, we can get enzymes, oligonucleotides and antibodies into the brain. In 2025, it's a unique year for us. We're preparing for our first launch, our first filing, our first launch. This will be the beginning of our enzyme franchise that we plan to build. And actually, today, I'm going to describe the expansion of that enzyme franchise, which we believe will be an important foundation for Denali. And then in addition to that, we're advancing more broadly the TV technologies, and I think very interested in solving diseases like Alzheimer's and Parkinson's, but there are many diseases in between those massive diseases and these monogenic diseases such as lysosomal storage disease, and we'll talk about a few of those today. So what is the TransportVehicle technology and how do we invent it? And we had the luxury when we began working on the TransportVehicle that there had been some progress made on blood-brain barrier crossing technologies, but no actual clinical validation at that point in time. So we set out to invent a platform that was unique from what was in the field, and I'd call them the conventional fab approaches or the conventional antibody approaches. This idea of using transferrin receptor or other blood-brain barrier receptors to get across the blood-brain barrier was not new. It was actually first proposed in the late 1980s. And we had, again, this advantage of what had happened in the past and we could invent a platform that was highly modular. So what we did is we engineered transferrin receptor binding into the Fc portion of an IgG. This is what we call the TransportVehicle technology. This is now supported with a large number of patents, some, I think, very important publications around how the TransportVehicle works and now a number of clinical programs, including a lead program in which we'll be filing a BLA this year. I think importantly, it's around optimizing affinity, valency, effector function and high fidelity to the natural protein itself. Integrating this binding site into the Fc allows us to use a really well-validated approach of Fc fusions as well as antibodies and other modalities. So it's highly modular. This is some of the data. In fact, what I'm showing you is a piece of data from each of the franchises, antibody, oligo and enzyme across multiple species, ultimately including human. So on the left-hand side is showing broad antibody distribution throughout a nonhuman primate brain compared to a control IgG. We see this for also our enzymes and oligonucleotides. In the center, I'll spend a little bit of time later on talking about our MAPT approach, which is the gene that codes for tau and how we have sustained knockdown of MAPT and a prolonged reduction in tau protein. This is in a humanized version of the mouse model that expresses both human MAPT and the human transferrin receptor. And then ultimately, and I think very excitingly, we see correction of neurodegeneration in humans. And in this case, it's in Hunter syndrome. And again, I'll show a little bit more detailed data on this particular program. So this is basically evidence around antibodies, oligonucleotides and enzymes using the TransportVehicle technology. So I think very exciting, the progress that we've made with tividenofusp alfa, or as we call it, tivi, on the path to approval here. We see this as really a market-leading profile in terms of the ability to normalize heparan sulfate and NfL, which has not been observed with other approaches. We're on the path for accelerated approval, again, filing early this year, and we have an ongoing Phase III trial, the COMPASS trial. Last week, we received U.S. FDA breakthrough therapy for this particular program. I think important -- not only is this program very important as a flagship program, but it sets the foundation for the rest of our programs, including one of the quick followers here, DNL126 for Sanfilippo. And we can apply the learnings. In this case, it's actually the same set of biomarkers, heparan sulfate, for example. And at the end of last year, we had announced top line data that we're able to achieve normalization in Sanfilippo as well. So similar mechanisms, similar approaches is what we've observed in Hunter syndrome. I'd like to show you a bit of data from the tivi program that I think is foundational to the TransportVehicle technology. Let's start by introducing lysosomal storage diseases. These are basically single-enzyme deficiencies, monogenic diseases, roughly 30,000 people worldwide. There are many of them, probably about 70-plus lysosomal storage diseases. And a significant number of patients have CNS manifestations, meaning that as heparan sulfate is elevated in the brain, there's dysfunction in the brain, but also in peripheral organs. So traditional enzyme replacement therapies treat -- and I'd say somewhat partially treat the body but do not cross the blood-brain barrier. What we've discovered in the last 4 years is that not only do we see improvement in brain exposure of our medicines, but we're seeing better results in the periphery as well. So the goal is to treat both the brain as well as the body using the TransportVehicle technology, and I'll give you examples of that. In fact, this will be the pattern for the programs I discussed going forward, not just the tivi program for Hunter syndrome, but also in Pompe and in Gaucher. So first, what we see here is the ability to achieve normalization for both heparan sulfate and neurofilament, a marker of neurodegeneration. And notably, when we look at the periphery, we also see the ability to achieve normalization in these patients. And what that tells you is that likely, most patients are undertreated with the enzyme replacement therapies. We see this in other endpoints as well in terms of potential benefit in the periphery. In addition, we see improvement in behavior and cognition in this Phase I/II trial and improvement in hearing as measured by auditory brainstem response. So this is foundational data for the TransportVehicle technology, and we'd love to see our other programs mature with this type of dataset. And I think importantly, a lot has changed in the last year. In fact, I remember giving this presentation a year ago, and really, our plan there is enroll COMPASS, read out the Phase III and file for approval. But because of the efforts of many on our team and specifically our Chief Medical Officer, Carole Ho, we were able to engage with the FDA and importantly, with collaborators in the field, key opinion leaders and patient families and patient advocates, and worked with the FDA and the Reagan-Udall Foundation. This happened a month or 2 after last year's JPMorgan Healthcare Conference. And what we saw basically is a shift in the mindset that indeed, heparan sulfate is likely predicting clinical benefit as you can see in the data that we've presented here. This has now allowed us to pursue an accelerated approval for the Hunter program, and we expect the same for our Sanfilippo program. And now we're preparing for launch. This is an exciting time. I'll just talk a little bit about the MPS II landscape. And specifically in the U.S., about 400 to 500 patients, roughly 2,000 patients worldwide. There are 80 to 100 centers of excellence. We have engagement with all of these centers through our MSLs. And there are some key centers that are very involved in our clinical trials that will be important as we imagine delivering this medicine to patients. I think importantly, we're building a rightsized team for the commercial launch. And I think the way we think about this is this launch will also enable the launch in Sanfilippo and the other 2 programs that I'm going to talk about next for our Enzyme TransportVehicle. Our initial focus is in the U.S. and in certain countries in Europe and Canada, and we'll likely use a distributor model throughout the rest of world, but this is, again, an exciting time as we think about approval in the U.S. and how that will catalyze approval in other countries. So let's talk about expanding the ETV portfolio. So focused primarily on Hunter and on the Sanfilippo program, we continue. We're now enrolling Cohort B2 in our progranulin program. We've actually put the PTV progranulin program into our ETV franchise, mainly because the biology tells us that we're correcting lysosomal dysfunction with this particular approach. And today, I'm going to talk about 2 new programs, 1 in Pompe, both of these are an IND-enabling stage now, and the other targeting Gaucher and Parkinson's disease, specifically GBA Parkinson's disease. So very excited to present this data for the first time. This is data using the engineered human transferrin receptor mouse and a GAA knockout comparing against standard of care, Lumizyme and Nexviazyme. And what you can see that, as expected, we get reduction of glycogen load in the brain, very robust. This is shown in the graph up in the left-hand corner. And that's what you'd expect with the TransportVehicle technology. But what we're observing, and I think we know this about transferrin receptor, we also get better biodistribution to other tissues, specifically the muscle. And here, you can see a reduction in glycogen load in muscle. And we look more closely in these mice that have defects, specifically lysosomal defects in muscle, we can essentially completely correct this with ETV:GAA. And the reason for this is that the TransportVehicle enables broad distribution throughout the body, including the brain. So this program is now advancing rapidly to clinical studies. The second program, ETV:GCase, basically the genes that encode GCase with GBA. Mutations lead to either Gaucher, homozygous or heterozygous increased risk in Parkinson's disease. And I want to make 2 points here. One, we use the TV technology to improve GCase uptake in brain as shown in the first graph. But also interestingly, with this particular enzyme, it's intrinsically unstable. So we did further engineering of the enzyme to improve its stability, and what we see now is a robustly active molecule that has sustained exposure throughout the body. And you can see the difference between an engineered enzyme that can get across the blood-brain barrier that's wild-type, that's in green, and an enzyme that's engineered to have better stability using the TransportVehicle in orange and a very robust reduction in glucosylsphingosine. We see this not only in brain, but also in liver and serum. So again, the concept of treating both brain and the body using the TransportVehicle technology. So what's next? I mean we definitely want to build an enzyme franchise. And I think what I really like about the ETV:GCase program is it's not only treating Gaucher, this, say, traditional lysosomal storage disease, but also has the potential to treat Parkinson's disease. So this will be the first of a number of programs that we're developing in these broader, more common neurodegenerative diseases. And what I'd like to talk about next is our tau program and our Abeta program using this technology. I think importantly, there are many indications that sort of are in between this lysosomal storage disease as well as these broader degenerative diseases in which this technology would be useful, and maybe I'll comment on those towards the end. So let's talk first about the oligonucleotide transport vehicle. This is a very competitive space. I'm sure some of our competitors are probably here today and would love to talk about this particular technology, the ability to get oligonucleotides across the blood-brain barrier. We first showed this several years ago, and this past year, we published our work in Science Translational Medicine. I think probably the most robust example of injecting a oligonucleotide systemically, but modulating gene expression in brain, I think something that we thought would be very unlikely to achieve. This data on the left-hand side is part of that publication. On the right-hand side, we're showing for the first time the ability to have a sustained reduction in gene expression and the subsequent impact on protein expression for the tau protein. So we dose for 2 weeks, and then we basically wait and see how long can we keep tau suppressed in the brain of these humanized mouse models that express human MAPT. What you can see is a very robust, prolonged reduction. Now I'll turn my attention to our other Alzheimer's program, and this one's actually received a lot of attention, I think, a very interesting field. It's very clear that the Alzheimer's field has evolved over the last 3 or 4 years, but there's a lot of room for improvement, better plaque reduction, ultimately better outcomes in terms of cognitive benefit and specifically safety. So what we've done here is we've applied the TransportVehicle technology to antibodies targeting amyloid. On the left-hand side shows basically our ability to reduce plaque is about 2x to 3x better than a standard Abeta antibody given at the same dose. And in the next graph, we're measuring the amount of free oligomeric Abeta. And this is the first time we've shown this data, but basically, we can capture the vast majority of oligomeric Abeta in this particular mouse study given at the same dose as a standard Abeta antibody. The reason why we believe this is the case is because we have about 5- to 15-fold more concentration of antibody in brain. So not only can we have more robust plaque reduction, but we capture what may be forms of toxic amyloid beta. In addition, we see a reduction in ARIA. And the argument around this is that these molecules cross capillaries as opposed to accumulating in the perivascular space. And even though we can have better plaque reduction, we see less ARIA. And we think that this is actually translating more broadly into the clinic with others that are using brain shuttle technologies for amyloid beta-targeting molecules. I think most importantly here is the safety profile. So by engineering the Fc in such a way that the molecule, when bound to transferrin receptor, is immune-silent, but when bound to amyloid plaque is immune-active, it's basically an on-off switch, this cisLALA mutation, we can basically negate the effects on these immature reticulocytes that express high levels of transferrin receptor while still maintaining very robust plaque reduction. So we see this as a potential best-in-class approach for Abeta. In addition to this, which is using transferrin receptor in parallel, we continue to advance our CD98 platform looking at Abeta as well as other targets for antibodies. So now I can basically summarize where we are. And I think what happened in the last year, our goal was to accelerate and to expand. And the acceleration we're observing with our actual programs in terms of filing and preparing for our first commercial launch and our expansion includes introduction of GAA and GCase's new IND-enabling programs in addition to MAPT, SNCA and Abeta and IDUA. So we have a very robust IND-enabling portfolio. We also have a robust clinical portfolio with both advanced and earlier-stage programs. We continue to look forward to data in our LRRK2 program in partnership with Biogen. And I think maybe my last point is that these discovery examples are not just written on the slide for fun. We actually have data around all of these therapeutic areas, including our oncology efforts, where we actually could advance 2 additional molecules into the clinic. The challenge is we can't do it all today. And so we have a great opportunity to use the TransportVehicle technology to enable brain uptake and broad distribution of our molecules. So with that, let me highlight our 2025 priorities. So priority number one, prepare to launch. Priority number two, continue to expand the ETV franchise and prepare for IND and CTA filing. We plan to bring 1 to 2 molecules into the clinic per year beginning this year. We have a pool of about 9 IND-enabling ready programs, and part of this is the plug-and-play. And the question will be the sequencing of these particular programs. That's part of the expansion of the ETV franchise. And we're very excited to be advancing and I'd say, leading the blood-brain barrier field. A lot of exciting work being done more broadly in the field. And for someone like myself who's worked in the field for 20 years, it's fantastic to see where the field is today and the progress being made, especially with the clinical data being generated. I'd just end by saying that each of these photos on the right-hand side have very specific meaning and have very specific experiences. I think a lot of times in biotechnology, especially in these types of conferences, we just talk about the value we can create. Obviously, the value for investors, the value for your employees, but most importantly, the value for patients. And I've had an incredible privilege to interact with a number of patients, especially in the rare disease space, and realize that there remains a huge unmet need. And it's our responsibility to bring medicines that can actually really transform their lives, and that's what we're seeing right now with the TransportVehicle. And I think with that, we'll take questions.

Great. So we're joined up here by the company's Chief Commercial Officer, Katie Peng; Chief Medical Officer, Carole Ho; and I believe CFO and COO, Alex Schuth. So I guess just to start out, the -- with tivi, you previously talked about a potential early '25 BLA filing. Where does that currently stand? And how confident are you in approval?

So Carole?

Yes. So that is on track, and we're currently summarizing all of the data for the filing. I would say that also with this recent announcement of breakthrough designation, we are quite confident about our success and path forward for the tivi program for filing this year.

And can you recap the market size, both in the U.S. and ex U.S.? And maybe talk about how investors should think about or kind of envision the initial launch ramp?

Katie?

Yes. So the overall market opportunity, we use Elaprase as an analog. It's about $600 million to $700 million. And for the U.S., for this disease area, it's about 30% of that total market, looking at Elaprase today. In terms of ramp, I think Ryan mentioned we've been laying the groundwork already with our medical affairs team. We believe tivi has the option or the potential to become the new standard of care in MPS II. And we've engaged with almost all of the prescribers, and we've identified the centers of excellence. And right now, in terms of prelaunch, we have high awareness of tivi and the data, and we know that not just the prescribers, but the community is extremely excited about this potential launch. So in terms of launch uptake and how we think about it, we're focused on awareness, specifically understanding the differentiation of our data as well as payer -- payers' ability to cover and approve as well as our patient support programs. Those are the things we're working on to ensure we have a strong launch uptake.

Just to follow up on that a little bit. I feel like a lot of people talk about how rare disease patients can be sticky with their existing treatment. But on the flip side, I kind of wonder like who leaves their child on the old product? Can you just kind of expand a little bit on how you guys think about that kind of push and pull?

Yes. So as you're probably aware, 2/3 of the patients have some CNS symptoms. And so the current standard of care does not address that. So there's -- this is why there is a lot of excitement of the potential of tivi coming to market. In addition, we believe because even today, even the CNS patients have -- are being treated with Elaprase. So we know where the patients are. And so launch -- at launch, more than likely, these patients will be switching to the better product.

And maybe I'll just add one other point. So the trial, the majority of patients in the Phase I/II trial and even in the Phase III trial have been on Elaprase since switch, right? So there's that experience of switching to tividenofusp alfa, which is part of the -- and the data, as you look at it, that initial data point is often on standard of care. So that's -- it's a little bit unusual from that perspective.

What about the possibility of pursuing an accelerated path to approval outside of the U.S.? Where does that stand?

Carole?

Yes. So the equivalent of accelerated approval in Europe is the conditional marketing authorization approach. And at this time, there has not been consensus for using a biomarker to support accelerated approval in the EU. However, I think similarly, it's worth noting that with the emerging science, we really had to convene with the community along with the FDA to really understand that science and support this path forward, which happened in 2024. There are similar efforts ongoing now in the European market as well.

Yes. And I think that those efforts are really catalyzed obviously, with the success of what happened with the Reagan-Udall Foundation meeting. Also, a large portion of our COMPASS trial is enrolled in Europe, and so we have built a lot of connections in Europe. We have a site in Europe that really drives the clinical trial enrollment. And so we have every plan to advance the program in Europe as well, and broadly, the ETV franchise.

What about manufacturing? Where do you guys stand with kind of commercial manufacturing readiness? How many patients could you support at launch? And what's the right way to think about gross margins for a product like this?

Yes. So in terms of manufacturing, actually last year, when we didn't feel like there was necessarily an accelerated approval path, we made the proactive decision to just continue full speed ahead for manufacturing and preparedness for commercial launch. And we've been working with Lonza for that, sort of very strong position at launch in terms of material. In addition to that, we've built our own manufacturing facility. That will not support the commercial launch of the Hunter program, but it will support the rest of our portfolio. And we began manufacturing in that facility at the end of last year. And I think as you look at the expansion of our portfolio, the intent of that facility is to reduce the cost to be able to produce many different products at scale. And so I think that, that's an important piece. The other thing that's interesting about the enzymes and I think maybe not recognized historically, the cost of goods is very high for enzyme manufacturing. The difference is all of our enzymes are Fc fusions, and therefore, we can use like a traditional protein A column to purify. And you don't need many, many columns to sort of uniquely purify the enzyme. That's dramatically reduced the cost of manufacturing for every one of these products, also improves the stability that Fc provides, both the ability to capture and the stability of that product. And we really like that part of -- I mean it was -- ended up being not the original reason we designed it that way, but it's very much advantageous from a manufacturing perspective.

So is that to say that if we kind of think to the future where you might have multiple of these products, we could think of the company's gross margins as being higher than what you would otherwise think of our traditional enzyme business?

Alex?

No, I think with respect to the cost of goods, we expect them to be in the normal range for an enzyme. So we expect under about 20% of sales. This is for the first product, which is manufactured by Lonza as Ryan mentioned. As we scale up, as we potentially bring in manufacturing for other programs in-house, we do think that, that number could actually go down over time.

Okay. What about the COMPASS trial? When do we expect that to read out? And should we expect the data both from the neuronopathic and non-neuronopathic patients at the same time?

Carole?

Yes. So we've completed our target enrollment of the neuronopathic patients at the end of last year as we projected. The non-neuronopathic patients, they have a shorter follow-up time of 1 year, so they are not on critical path. So we would expect both cohorts to read out at the same time.

And when is that?

Yes. So we completed our targeted enrollment. We have 15 countries, 30 sites that we're currently working through to understand patients that may still be in screening, and then we'll make a decision and communicate timing.

Maybe switching to Sanfilippo and DNL126. Can you just highlight kind of -- [indiscernible] passed on the presentation a little bit. Can you highlight some of the data that you recently announced for that product?

I'll let Carole answer that. She's probably as excited as I am to talk about the data.

Yes. So the data that we shared, we didn't share specifics. It's a very competitive environment, but we were able to achieve normalization in that program. And based on that, we have actually expanded that study now from 2 cohorts to 5 cohorts to enable us to generate the data to potentially support an accelerated approval pathway, similar to the pathway that we've taken with the Hunter tividenofusp program.