Josh Schimmer from the Cantor Equity Biotech research team on the main stage with Denali Therapeutics and for good reason. I am joined by Ryan Watts, President and Chief Executive Officer. Congrats on the hard work that culminated in the approval of AVYLAH. Off to a good launch start. Maybe just initially frame where Denali is in the evolution of the company and maybe some aspects of Denali that you think investors should be paying more attention to better .
Yeah, okay, great. Great to be here. Thanks, Josh, and appreciate the opportunity to take the stage with you and to discuss an exciting time at Denali. I think the best way to frame Denali right now is that there are really four major aspects. The first is that we have our first product in AVYLAH, as you pointed out. It has been a very exciting year to launch our first medicine. That product ends up, for us, validating the platform. So we have product and then platform, and that platform has now led to a broad portfolio. We are going to get into some details, and I think the simplest way to view our portfolio is the enzyme replacement therapies, and then we have Alzheimer's as well, and a number of key readouts coming in in 2027.
The fourth point, so we have product, platform, pipeline, and the fourth point is having the capital now to execute into 2029, so about $1.1 billion in cash. Obviously we are spending a significant amount of our resources on the portfolio. We have, of course, early signs of a strong launch with AVYLAH. But I think what is probably not appreciated, as you pose that question is the fact that this platform has the ability to deliver now a number of products. We have five additional clinical stage programs with a lot of data coming out in 2027. So it is clearly an exciting time.
Obviously, we launched this product ourselves, as a company to go from discovery to development and now to delivering medicines to patients. I think, Josh, as we were just commenting before the fireside chat, it is really rewarding to be part of the patient community and actually delivering a medicine.
Always a little awkward to turn patients into numbers, but it is kind of what we do and need to do. As we think about the current indication and launch of AVYLAH and the addressable patient population, the kind of revenue numbers that may support, maybe you can help frame that for us.
Right. If you look at the label, it's essentially pediatric patients. The key term in the label which really differentiates it, I think, from obviously the standard of care is neurologic manifestations. This doesn't mean neuronopathic and non-neuronopathic, it means that the medicine is really approved for neurologic manifestations, which represents essentially all Hunter patients. For example, even attenuated patients have hearing loss, as I think one of the probably more powerful pieces of data that was published in our New England Journal article earlier this year. We're seeing benefit in hearing, obviously cognition, behavior, and it's using cerebrospinal fluid, heparan sulfate as the biomarker for this accelerated approval, but a lot of data supporting the fact that that was predictive of clinical benefit. If you look at the pediatric population, it's about 375 of the 500 patients.
Importantly, every year there's about 30 new Hunter patients. This is all just U.S. So worldwide, there's 2,000 worldwide, but we're just talking about U.S. numbers here with the U.S. accelerated approval. You can think about what that spectrum looks like. There's the newly diagnosed, there's the patients that are eagerly awaiting, there are those that are just about to become adult. There are many patients that have been on, for example, intrathecal delivery, and who have been also eagerly awaiting. There are older patients. That's how really the frame, the total patient population, about 375 patients today, the prevalent population, that are eligible for AVYLAH.
I guess almost by definition, because they're pediatric patients, they will also be lower weights?
That is right. There is a complexity, and I think this is where what we basically in our first quarter, we described obviously the revenue, and then we have given a revenue target for the next quarter and likely for the fourth quarter as well, early on. Part of that is because it is really complex, right? It is weight-based dosing. You have very small, young, pediatric, newly diagnosed, 10 kg. Then all the way up to 16-year-olds. That is exactly right. It is weight-based dosing, and there is a pretty broad spectrum.
The dose is also, I guess, ramped up to a steady state.
Right.
As we think about the performance in the second quarter, very good start, $3.6 million, guiding to $10 million-$12 million now in the third quarter. Is that primarily the continuation of the patients to a higher dose in a full quarter, or did you incorporate a meaningful number of new patients coming on the therapy?
Yeah. It is definitely a meaningful number of new patients coming on, but it is also the dose escalation, and it is exactly the reason why I think we took the unusual step of just guiding towards a revenue because of that complexity. The question itself sort of highlights the complexity. I think importantly, the vast majority of patients who have started are not crossing over from our clinical trials. That will, by end of year, most of the patients that are in the phase I/II will have crossed over to commercial product, but this first real set of revenue is coming majority from new patient starts. Most of those are switches. Most of those are patients who have been on Elaprase and are switching to AVYLAH.
Right. If you are targeting the 370-500 Hunter syndrome patients, are they essentially all on Elaprase? Would a patient not be on Elaprase for some reason
Yeah
but come on to AVYLAH?
It is actually 90%-95%, so almost all of them are on Elaprase. I think the exception is usually end of life. If you think of how this disease progresses, even with standard of care, you have different severities of mutations, and the mutations that are the most severe, even on standard of care, the average lifespan is between 15 and 20 years of age. There are some patients that are no longer on treatment because they are palliative care at that point.
Okay, got it. You had mentioned clinical trial patients moving to commercial over time. How many in the U.S. would you anticipate that contributing?
Right. I don't think we've ever articulated exactly the split of the 47 patients that were in the phase I/ II. But there's a substantial U.S. as well as ex-U.S. I think as we've gone to COMPASS, we've gone more global, so COMPASS is our phase III study, but there's definitely a split between the U.S. and ex-U.S., and even in the 47 patients as well.
Was there any contribution from Medicaid patients in the second quarter? How do you expect that to evolve over time?
Yeah, so actually, yes. I think if you look at what ultimately the payer coverage will look like, it's about half- and- half in terms of private versus Medicaid. Right now we have payer policies for Medicaid in 14 states, which is great. So that's actually probably the most important part of the early momentum of the launch is the operations and getting payer coverage, and manage Medicaid as well. I think ultimately you'll see about a 50/50 split as this product evolves.
Okay. You've suggested that the prevalence pool may increase as patients live longer. What is typically the cause of premature mortality in this condition, and what gives you the confidence that AVYLAH can actually address that?
Yeah. So, obviously there's the severe neurologic component, but often what you're seeing is cardiovascular or cardiac effects. We've published some of these data, but what we see with AVYLAH, one of the key factors is that we really push dose. So the Fc portion of AVYLAH allows us to manufacture. Our cost of goods is substantially lower and we're pushing dose because we need better penetration throughout tissue. So one of the examples is we looked at cochlear changes, bone changes in the ear. We thought that hearing is both processing in the brain, but also the ear structure itself. In our animal studies, we saw a really robust effect as we sort of pushed dose with AVYLAH. So I think the key is that we're seeing benefits on peripheral endpoints in addition to CNS.
I think cardiac is one of the main reasons for death in these patients.
Okay. Now, is that something you'd expect AVYLAH to?
We hope so.
Benefit relative to Elaprase?
Yeah.
Can you prove that with data, and if so, in what form?
Yeah. I think the data, it's probably going to end up being mainly real world data because if you think of how you run that study, it's a very long multi-year study. The ultimate goal is to shift the prevalent population to this is a disease that you can live with. Because you have a drug that treats both brain and is given at doses that have better effects in the periphery, you can live much longer.
Where do you anticipate perhaps seeing more stickiness for Elaprase in patients who may not necessarily want to move over to AVYLAH?
Right. I think one of the concerns around the launch has been that these patients go back into the clinic and essentially Elaprase is given at home and AVYLAH will also be given at home. There will be at home infusions over time. But to go back as you start on AVYLAH and you go through the dose escalation protocol, it is three months to six months before you go back to at home infusions. That has been the question mark is will patients want to go back in the clinic? Especially those that are, I would say, categorically attenuated, that seem to be relatively well treated. That is not what we are seeing right now. We are seeing interest across the spectrum.
Part of that is I think just the fact that it is recognized that there are neurologic manifestations even in attenuated patients, if it is brain fog, if it is hearing, even visual. As a result, there is motivation to go back and go to the clinic and get these infusions. So I think that is the dynamic. If there were, as this launch continues to evolve, the stickiness would be those that are probably the most attenuated.
You have kind of framed the market in a very helpful way around a third of the patients that global population that are unlocked now with the U.S. launch, then another third coming on in 2027, 2028. When we are characterizing a third, is that patient number or dollar amount? Is that likely to be different as you expand to the next one third of the global population?
Yeah, it is a great question. I do not think I have the granularity to say. It is really, I think what is being asked is what do we expect the price of AVYLAH to be outside the U.S.? Yeah.
Incorporated.
I think let's say, stay tuned. But if you look, I'll just give one general comment. In these ultra-rare diseases and enzyme replacement therapies, there isn't such a big difference across global prices.
Which are the primary countries contributing to that kind of next wave of-.
I think the best way to look at it is the final third is the big European countries that are going to wait for the COMPASS readout, essentially. Every one in between are So like France and Germany and et cetera would be the final third where we would file based on the COMPASS data.
Okay. Well, why don't we get to COMPASS then? That seems to be a very important clinical trial. Just remind us the design, the endpoints, and the timing.
Right. COMPASS is fully enrolled. There are about 65 patients, 44 of which are in cohort A, which is, I think, sort of categorically neuronopathic. These would be patients that are younger, ages two to six, that have severe mutations, sort of categorized by both mutation stats, but also an external panel that will determine if they would be neuronopathic. The others are put in sort of an attenuated bucket, less severe mutations up to age 26. I think one of the key points with COMPASS is our goal to expand the label to include adult as well. Really, cohort A is a two-year endpoint, co-primary endpoint based on two things, CSF heparan sulfate, and the other is the Vineland, which we've shared data at various conferences, but basically a behavioral scale. A key secondary endpoint will be Bayley, which is a cognitive scale.
The study design is really based on our experience, both with the phase I/II, but also just looking at as much natural history data that we can get from, for example, the intrathecal trial, which ends up having a significant number of patients where you can look at that rate of decline. I think our confidence in this trial is knowing that between ages two and six, it's where you see a real separation in patients, especially age three, four, and five, where if you have neuronopathic disease, you start to see a significant separation in terms of cognitive and behavioral performance.
It is a small cohort of neuronopathic, which means you're not powered to detect a subtle benefit. It really does need to be substantial.
That's right.
What gives you that confidence that across the trials, open label type setting, converting into a placebo control setting, that magnitude of effect will be seen?
I think it's a balance of what's a practical study design with what is an ideal study design. As we engage with the FDA, I mean, obviously for many of these, it would be great to power them with hundreds of patients. They don't even actually exist. You have to do partly what's practical. But I think I go back to my original point, which is there's a point in time where you start to really see that separation, and so enriching in two to four-year-old sort of populations, where you have the highest probability of seeing that separation over a two-year period.
I think that combined with our phase I/II data, and I think what's been really compelling is to look at a number of our sibling pairs, where you start treatment at age two versus age six, and we shared this at, for example, our R&D day, and it's pretty dramatic to see those patients treat over two years, three years, four years, the separation in the sibling pairs. I think we're confident in the efficacy, but you have a good point. A blinded study, the readout will ultimately tell us.
Do we need to be flexible as we interpret the data, particularly on the P value? It feels like it's so binary around P of 0.05.
Yeah.
But that may not be the best way to approach the dataset, given how small the population is. If you've got a powerful trend, is that good enough?
Yeah, I think the short answer is likely yes. This is where regulators really see the totality of the data. It's the phase I/II. It's the real-world data. It's the COMPASS study, the phase III study, and there is what, again, I'll go back to my point, what would ideally be done versus what's actually realistic in a small patient population.
Got it. In a scenario where you're not seeing meaningful separation on the Vineland score, what do you think the implications are?
Yeah, it's a good question. I don't have an-.
I hate to ask her.
No, it's a fair question. I think, again, going back to the totality of the data is going to be key here.
Okay. As you think about the evolution of AVYLAH globally, do you anticipate this product being a product that alone can drive Denali to profitability? Do you see this more as an important driver of revenue to fund all the ambitious work you have and how much work there is to do across the portfolio?
Yeah. Also, it's a good question. I think it's early innings on the launch. Very promising, I think, start. There's a real opportunity, a real market here, especially globally. That's not the goal. The goal for Denali is not a single product. In fact, the way we think about the enzyme portfolio is that there's probably $7 billion-$9 billion of opportunity in terms of peak sales across multiple indications, including Sanfilippo, Pompe, Gaucher, Hurler. These are all products that we have, some more advanced than others, with, for example, Sanfilippo, with a BLA filing next year. I think the way to look at this is that the enzymes have a high probability of success. We can drive towards profitability with the enzyme franchise in totality.
Then, of course, we have our Alzheimer's programs, which are much bigger, binary, and give us a lot of optionality, also reading out in 2027.
I guess another question that comes up often with investors is the MPS IIIA program, which I guess is even a smaller patient population than Hunter, to the point that I think many wonder if it's more of a rounding error or not going to contribute meaningfully to top or bottom-line objectives. How do you address that?
I think the epidemiology is less clear with Sanfilippo. There is no standard of care. The thing about Hunter is we know exactly, it's $700 million in revenue for Elaprase. We know worldwide patient numbers. We just don't know that as well for MPS IIIA. It's interesting. It depends. Regionally, it's as prevalent or more prevalent than Hunter, but in other regions it's not. For example, in Asian populations, there's much less Sanfilippo IIIA as an example. So, obviously we've seen a lot of interest in this product. It's using the same transport vehicle technology. The goal there is, now that we have a path forward in Hunter, to apply that to these other medicines. In the case of Sanfilippo, it's the same biomarker, it's the same rationale.
Sanfilippo, if anything, is even more neurologic than Hunter syndrome, so a stronger rationale around targeting the central nervous system. There are some peripheral effects in Sanfilippo, but it's largely neurological. So I think that it's probably correct that it's slightly smaller than Hunter, but it remains to be seen with no standard of care.
Slightly smaller population, can you even out the differential in revenue by pricing it at an even higher
Yeah. It's a good question. Obviously too early to discuss pricing, but hopefully with BLA filing next year
Okay.
That may be the goal.
What are the gating steps for the filing?
At this point, we have 20 patients that are going into the BLA. We have completed that portion of the study, and we are locking the database. We plan to share data at WORLDSymposium in 2027 and then file basically in 2027. Probably the rate limiting step for us is that we are manufacturing Zafi on our own. The reason we are doing that is that after having really launched AVYLAH, we realized that we can bring many products forward, and so we have to find ways to even further reduce cost of goods. We built our own manufacturing facility. This will be the first product launched out of our own facility. In our opinion, that is the rate limiting step for filing, getting that locked down and ready to go.
I think the upside of that is that we will have even better cost of goods for this product.
Now you need COMPASS to unlock part of the world for Hunter. Do you need an equivalent trial for MPS III to unlock that same fiber?
Yeah.
Is this a different-.
That is a fantastic question. In fact, we recently at WORLDSymposium, which is a conference focused on inborn errors of metabolism, we highlighted some of our phase III design. It is very different. For example, it is not a placebo control. I think it is really challenging ethically to give a placebo in Sanfilippo, right? There is a delayed start for one of the arms, and the other is just young patients, younger than 28 months. It is a very different study design, and those study designs reflect both the U.S. FDA and EMA . I think there is open-mindedness. We really think about Europe and the U.S. I think the path is going to be different for Zafi than it was for tividenofusp alfa, for AVYLAH.
When do we get the COMPASS data? When is that expected by?
The study will complete at end of 2027. I would say mid-2028, basically, as we get the data.
I guess I am wondering the extent to which the COMPASS data may read through to the MPS and kind of really informing, maybe not the specific program, but the biology, if there were any concerns.
Yeah.
That any of the regulators might have.
Yeah. I would say that the design is very different. In some ways, the phase III design for Zafi for MPS IIIA, is a little bit like our phase I/ II for AVYLAH. It is open label. Even the number of patients is less than our phase I/ II for AVYLAH. We had 47 patients in that phase I/ II, in part because it was the very first PTV program, and we just wanted a really robust data set. Frankly, when you think of return on investment, you cannot invest enormous amounts of money in each one of these indications. First of all, they are very small patient populations, it takes time to enroll these studies. That is the dynamic, and the idea is that the Hunter program de-risks the other programs, essentially.
As we went through the experience with AVYLAH, I am sure we both remember quite clearly how the NfL levels
Yeah.
weren't really changing, but then you got to a certain point in time, and it really started to decline substantially.
Right.
Let's come to 593 for FTD, Ryan, the program you just got back and provide a little bit of color in terms of what you had been seeing, what you're hoping to see. Are there clear parallels in terms of the signal that you've generated thus far for 593 compared to AVYLAH? Are there big differences that we don't quite understand in terms of, well, why is the neurofilament falling in one setting but not in another?
Yeah. So just for everyone here, 593 is our PTV progranulin program, so this is for FTD, for frontotemporal dementia. There's a subset of patients with FTD that have progranulin haploinsufficiency, so they have loss of one copy of progranulin that eventually leads to frontotemporal dementia. What we've discovered over the last decade is that progranulin is very similar to all these enzyme replacement therapies or all these lysosomal storage diseases. When you have a loss of progranulin function, you have lysosomal dysfunction, so there's a set of lysosomal biomarkers. The difference is that the lysosomal biomarkers are modestly changed relative to Hunter and Sanfilippo, where you have 10 to 15-fold elevation in heparan sulfate. You see very modest changes because it's haploinsufficiency. It's just loss of one copy. But interestingly, NfL is about four-fold elevated, so it's really substantial, as you'd expect for FTD or ALS.
When we received the full rights back, we stepped back and because of our experience with NfL we asked ourselves the question: what's the highest probability and the fastest path for this to become a medicine? Frankly, in some ways it's kind of going for the home run, but if you have a believable and robust change on NfL, then we believe we have a medicine. As you point out with Hunter, six months, not much happened, and then after six months, there was a really robust and steady decline. It ended up being about a 75% reduction and normalization of NfL. That included patients who had probably had elevated NfL for a decade. So, like a 10-year-old that then starts taking AVYLAH, you will see it takes a bit of time and then this really robust reduction in NfL.
Using that mindset of this is a lysosomal storage disease, and in the case of FTD-granulin, it's a very, let's call it a mild lysosomal storage disease. Which, by the way, Parkinson's disease is similar. There's many similar genes in Parkinson's disease as there are in lysosomal storage disease. So we wanted to give ourselves really the highest probability of seeing an effect on NfL because of our experience.
Yeah.
Without looking, without having any data in hand, we said, "Okay, let's extend this. Let's really go for a longer period of time and say, do we see a change?" Then, if so, engage with regulators and see if there's an accelerated path for FTD-granulin.
How much follow-up for these patients do you have? Have you reached a point of follow-up where you would've expected to see something by now or not quite?
Yeah. Interestingly, there was a study on NfL half-life, and it's like 260 days. This is an in-human study done by WashU where they were basically looking at a pulse chase labeling and asking how long does NfL sort of exist. We've always wondered, in Hunter syndrome, why is it that you get such a robust heparan sulfate normalization, and then within 3 months, you get all these other lysosomal markers also normalized, but then it takes a year plus to see NfL normalization. I think part of that may be the half-life of NfL. Now, if that's true, obviously the kinetics are different, and you've done this analysis, and we have as well, where you look across all these various diseases at NfL.
We just want to be in a position where we have enough data, enough patients that have reached beyond a year so that we can know the trajectory of NfL. Like, are you actually having an effect? The reality is, either we will or we won't, and the question is, do we have a high enough dose or do we not? These are the other dynamics, but a real accelerated path has to come down to some type of believable biomarker like NfL.
When do you expect to have more data on NfL, whether it is moving or not?
I think we guide towards mid-2027 is essentially where we will read out. This is the highest dose, a year plus of data. That is the key.
Maybe quickly on the Pompe program, which you know I have been super enthusiastic for. Now, that said, we recently had the update from Avidity.
Yeah.
Novartis program, where the transferrin approach to muscle did not translate into clinical benefit. Are there substantial differences that you see between that program and Pompe that still keep you very enthusiastic for a similar transferrin receptor targeting approach?
Yeah. It's a great question. I guess I haven't looked at it that way. Avidity is a very different architecture than the transport vehicle, right? We have monovalency. We have moderate affinity. We've done a lot of work in muscle. All of our comparisons for Pompe disease have been against standard of care, right? We're really looking at the other enzymes, GAA comparisons for NEXVIAZYME and others, where we compare in animal models, and we see a very robust difference in muscle uptake. I think what's believed in the field is that in Pompe disease, there's a limited amount of mannose 6-phosphate receptor that internalizes GAA in muscle, and that's what ultimately limits the amount of uptake. Therefore, transferrin receptors should enhance that. I think DM1, and again, I don't want to speak out of turn. I'm not an expert here.
The dynamic is different with splicing and siRNA and ASO. This is different than an enzyme replacement therapy where there's a proof of concept, and now we're enhancing that for muscle delivery.
Got to talk about Alzheimer's, but we don't have time for a full discussion. Maybe just give us some sense of what we should be looking for from the Alzheimer's programs in 2027 and beyond.
Yeah. As we're limited on time, we have two Alzheimer's medicines, one targeting amyloid beta, the other targeting tau. It's been an, obviously, very exciting and meaningful year in Alzheimer's, as tau may be one of the next validated targets for Alzheimer's, with some, obviously, complication. In our case, we're delivering the antibody and the oligonucleotide using the transport vehicle technology, and we have biomarker readouts in 2027 for both of those programs. Back to the original thesis, we have an enzyme franchise that we can build, but these opportunities using the transport vehicle in Alzheimer's, which I think are also very important programs.
Excellent. Well, a lot of years of work put in. It must be super exciting to see the culmination of the efforts in terms of being able to deliver value to patients, and you're just getting started. Looking forward to-.
Yeah, definitely just getting started.
a lot more updates from Denali.
Yeah. Thank you.
Thanks so much, Ryan. Thanks, everyone.
Thank you.