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

Okay. We're going to get started with our next session. I'm Andrew Tsai, Senior Biotech Analyst at Jefferies, and it's my pleasure to have the Denali team with me today. To my direct right, Ryan Watts, CEO; and to his right, Alex Schuth, CFO. Welcome, both of you.

Yes. Great to be here. Thanks.

Maybe we can spend a couple of minutes for those less familiar with the Denali story, talk about what you're working on, what you're trying to achieve, milestones that we can expect over the next 12 to 24 months, and then we go from there.

Great. Great to be here in London. Thanks for the invitation. Exciting time at Denali, exciting time in the tissue distribution, blood-brain barrier field, especially as we've been working on this for over, I guess, now 2 decades across multiple companies. And what you're seeing is, I think, the beginning of the next class of medicines using transferrin receptor for tissue distribution to brain, to muscle, to bone. And I think it's a very unique opportunity to open up a new class of medicines using transferrin receptor and other receptors to cross the blood-brain barrier. So just as a bit of background, we've invented the transport vehicle technology with the goal of doing 2 things. One is to cross the blood-brain barrier and the second is to defeat degeneration. And we believe in our first program, our Hunter program, we've achieved both, both at the biomarker level. And now as we start to see these patients who have been on medicine now over 4 or 5 years, really have substantial benefit in hearing and cognition and behavior. We're the first to submit a BLA using the transferrin receptor technology, of course, in the U.S. We have a program that's under review right now. This is tividenofusp alfa, formerly known as DNL310. And then we have another program on the heels of that in Sanfilippo as well. I think really exciting in the last quarter. We just filed our first regulatory filing for an Alzheimer's medicine, getting an oligonucleotide across the blood-brain barrier using again the transferrin receptor technology or the transport vehicle technology. So in terms of milestones, I think as we go through each program, we'll discuss them. It's worth mentioning that our ETV franchise is growing beyond Hunter, Sanfilippo with a regulatory filing an IND filing for Pompe. This is ETV:GAA. And then, of course, we see this near-term potential in our Alzheimer's portfolio with tau, but also with Abeta. So again, preparing for our first commercial launch, bringing multiple medicines forward. We had guided towards 1 to 2 new INDs this year. We ended up filing 2, and bringing these programs into the clinic. The same will be next year. We expect another Alzheimer's medicine, our Abeta program and then 1 or 2 others. And I guess with that, we'll dive into questions.

Okay. Sounds good. We'll tackle these one by one. But you are hosting an R&D Day, I think, December 4. Can you give us a teaser what you plan to share? Is it something across the pipeline? Or is it -- are you focused on 1 or 2 assets? And any color would be helpful.

Yes. Great. So there's really 3 major themes for R&D Day. This is on December 4 in New York. The first is around engineering brain and whole body delivery. So the details around transferrin receptor delivery around transport vehicle delivery. The second is laying the foundation for our ETV franchise, specifically the first commercial launch, the next product going into details, obviously, we'll have, I think, guest speaker talking about the opportunity in lysosomal storage diseases, and in Pompe, and then focusing on tivi and that launch. And I think the last piece will be around Alzheimer's disease. Obviously, there are many opportunities we can pursue with the transport vehicle technology, but it just happens to be that the most present one now is tau and Abeta. And so we'll focus on that. But I think woven into all of this are principles of engineering that set the transport vehicle apart from many of these other conventional fab-based approaches.

Great. And so let's shift gears to tivi, which has a PDUFA April 2026. So can you give us a sense of how big the Hunter's market is in terms of U.S. versus ex U.S. patients? What is the peak sales opportunity for your product?

Yes, I'll address that. So I mean, first, we're super excited to be at the start line to start commercializing tivi to launch our first drug. We hear tremendous enthusiasm from families and physicians who believe that the drug is clearly differentiated from the standard of care, being able to treat the whole body, including the brain, so to have the broad tissue distribution. With respect to the market opportunity, the best benchmark here is the standard of care is Elaprase. Elaprase has been on the market since 2006. Annual sales are between $650 million and $700 million. With respect to the global distribution, it's about 1/3 in the U.S., 1/3 in Europe and 1/3 in the rest of the world.

Understood. And let's just say this was approved. This is technically an accelerated approval. So when you launch, how will you be marketing this relative Elaprase because you don't necessarily have generated the confirmatory data that's going on to tell physicians we're superior to Elaprase. So what -- where is the low-hanging fruit when you launch exactly?

Yes. So the Phase I/II data, which is the basis for accelerated approval is actually a very robust study. The primary endpoint here was reduction, normalization of heparan sulfate, which is the substrate of the enzyme that is missing in these children with Hunter syndrome. Heparan sulfate is very well understood by physicians. It's actually measured routinely in clinical practice to measure the treatment effect of Elaprase. In addition to normalization of heparan sulfate, we've also shown normalization of neurofilament. So neurofilament is now an established marker of neuronal damage. And by normalizing neurofilament, damage is essentially halted in the brains of these children. And the third piece is that we have very encouraging clinical data with respect to behavior, cognition and improvement in hearing. So while this is in an open-label study, I think it does provide the robust package to show superiority to standard of care.

I'll just add one other point, which is it's recognized that there's significant room for improvement in patients that are treated with Elaprase, both I think, in dose and in biomarkers. And the majority of patients treated in our Phase I/II study actually are switching from Elaprase to tivi. So we get a good insight into what their biomarker profile is prior to treating with tivi. And then I think as Alex already highlighted, as our behavior cognition and specifically our hearing data matures, and other aspects, we're seeing pretty significant improvement.

Okay. So how do you envision the launch curve to look like in the U.S., let's just say, in the first year or so?

Yes, that's a great question. And we will talk more about that at the Investor Day in December. But in general, launches in rare diseases based on the mechanics of a launch of getting patients on drug and then really working through the reimbursement typically follow an S-shape adoption. So with respect to the first year 2026, we probably expect modest revenues. But the real measure to look at with respect to the enthusiasm and the uptake is the number of patients that start treatment within the year. So that's what we will look at as a metric for our commercial team and to see if we're on the right track.

And can you give us a sense of pricing bookends? How much does Elaprase cost, for instance?

Yes. So Elaprase on a wholesale acquisition cost price is about $500,000 per patient per year. That's about for a 30-kilogram patient. Based on the clinical profile that we have, we do believe that a premium price is supported for tivi. We do have our field payer team in place, and that team has now spoken with the vast majority of payers, and we do feel that, that is understood and supported.

Great. And in the meantime, back to the PDUFA, technically got extended by the FDA. Long story short, it seems like it's more of an administrative benign issue than anything. Have you resolved that? And where are you -- has the FDA visited your manufacturing sites, for instance?

Yes. So as you can imagine, these BLAs are extraordinarily large and complicated. And I think what was interesting in this particular example is that through part of the usual request for information process was identified that there was a clerical error in the molecular weight calculation for tivi in a public database. Actually, there's 2 separate public databases and one has the correct molecular weight, one does not. And the one that does not was used for population PK analysis by a separate group. And essentially, it's a relatively easy fix. It's about a 5% difference, and there's no changes to the conclusions in terms of exposure or pharmacodynamic or associated safety. So we think that will be a very quick fix. I think logistically, it makes sense. I mean the FDA has the ability, especially late in the cycle. Our CMC evaluation is ongoing. We actually completed our late cycle meeting. So even with this delay, a lot of progress, and we see the FDA very engaged.

And what are the remaining questions? Are you in labeling discussions, for instance?

Yes. So those -- the label negotiations have begun. And I think I'd just say stay tuned. I think we're in a good spot. Obviously, the trial is designed to capture the vast majority of patients. We have both neuronopathic and non-neuronopathic patients in that study. And so we're excited to be at this point, also concerned with the major amendment that, that would be delayed, but that's actually ongoing now, both label negotiations and the completion of the late cycle meeting.

Great. And back to the launch, you mentioned modest -- expect modest in 2026, you'll be tracking patient sign-ups and so forth. How many sales reps do you ultimately need to launch this?

Yes, it's very -- the team is in place, both the field sales team, the MSL team and then the support team. So we will be ready to launch essentially on day 1 after we get the green light. It's a very small and focused team. In terms of the field sales, it's low double-digit individuals that are in field sales. And the reason here is that in Hunter syndrome, essentially, all patients are already identified because they are already on Elaprase. And all treating physicians are known as well. So from a commercialization perspective, that has the advantage that we can easily approach those and start the engagement and the education.

I see. And before -- I guess we -- it's a nice segue to Sanfilippo. Can you leverage the existing -- the sales force for Sanfilippo's launch eventually?

Yes, 100%. Sanfilippo patients or Sanfilippo is MPS IIIA. Hunter syndrome is MPS II. In many cases, early on, it's even a differential diagnosis in clinical practice. So the same physicians that treat Hunter also treat MPS IIIA or Sanfilippo. So from a -- there are a lot of synergies between these 2 programs, obviously, commercial, but then also from a clinical development and regulatory perspective, where we are using the same biomarkers and again, the accelerated approval pathway.

Great. And moving on to Sanfilippo then you've shared some initial data on an initial set of patients. I think you completed enrollment in 20 patients in November -- or actually this month. And you'll be sharing an update at World in February 2026. When exactly do you plan to file for this application for accelerated approval? And when could this launch relative to Hunters?

So just backing up a little bit, we provided early guidance on the data cut at the very beginning that we saw a robust reduction in CSF heparan sulfate. That was at 24 weeks with roughly the first 8 patients. We then made the decision at that time. And actually, when we started the Sanfilippo program, it wasn't clear that there was an accelerated approval path for tivi. And so it was a small Phase I/II that would then immediately go to a Phase III. But then basically, with progress with tivi, we've expanded the Phase I/II now to approximately 20 patients, completing that enrollment actually in September. We then -- in the most recent -- I think in the Q2, we gave an update that at 49 weeks, we see sustained robust reduction of CSF heparan sulfate. Now with the 20 patients enrolled, they're really focused on 2 things. One is completing that 49-week data in September of next year and then preparing for filing thereafter. So that would be the data cut, not giving an exact date on filing. What's notable about this particular filing is that we are manufacturing the Sanfilippo product ourselves. We've been using Lonza for tivi. So our products going forward are manufactured at now at Denali. So that will be our first filing out of our own facility, including producing commercial product. We're very excited about that. The world data cut will obviously not include all 20 patients seeing that the trial had just completed enrollment in September, but it will be essentially an interim look at the Sanfilippo data and then the final data set next September. So I guess some point after September as we complete the data, I actually think the rate-limiting step here will be nailing down manufacturing to be prepared to launch. That being said, it's -- we've seen a significant reduction in cost in doing our own manufacturing.

Got it. Got it. And one step back, big picture, what is the peak sales potential of Sanfilippo relative to Hunters?