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Denali's (DNLI) Q4 Earnings Miss, Pipeline in Focus, Stock Up

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Denali Therapeutics (DNLI - Free Report) incurred a loss of 86 cents per share in fourth-quarter 2023, wider than the Zacks Consensus Estimate of a loss of 82 cents and the year-ago quarter’s loss of 75 cents on higher expenses.

In the absence of a marketed product, the company only recognizes revenues from ongoing collaborations in the top line. Denali did not generate any collaboration revenues in the reported quarter. The Zacks Consensus Estimate for revenues was pegged at $12 million. In the year-ago quarter, the company recorded collaboration revenues of $10.3 million.

Despite disappointing fourth-quarter financial results, with earnings and revenues missing expectations. DNLI’s stock rallied almost 38.3% in the last trading session. The upside was driven by a $500-million funding raised by the company through a securities purchase agreement, which is expected to strengthen its cash position.

In the earnings release, the company announced entering into a securities purchase agreement with certain existing accredited investors, through a private investment in public equity (PIPE) financing. Gross proceeds of approximately $500 million are expected to be generated from the PIPE.

Considering the anticipated proceeds from the PIPE financing, Denali expects the company’s cash runway to extend into 2028.

In the past year, shares of DNLI have lost 14.3% compared with the industry’s 6.1% decline.

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Quarter in Detail

Research and development expenses increased 17% to $107.8 million in the quarter. The hike was due to increases in ETV:IDS and eIF2B programs’ external expenses reflecting the continued progress of these programs in clinical trials during 2023. Increases in personnel-related expenses, as well as net cost sharing with collaboration partners, also contributed to the rise.  

General and administrative expenses increased 6% to $24.8 million.

Cash, cash equivalents and marketable securities were $1.03 billion as of Dec 31, 2023, compared with $1.12 billion as of Sep 30, 2023.

2023 Results

Total collaboration revenues for the full year were clocked at $330.5 million, which missed the Zacks Consensus Estimate and our estimate of $338.9 million and $337.5 million, respectively. Collaboration revenues increased 205% from the last year’s figure of $108.5 million.

Loss per share for the full year was $1.06, wider than the Zacks Consensus Estimate of a loss of $1.01 but narrower than our estimate of a loss of $1.07. In the year ended 2022, Denali had incurred a loss of $2.60 per share.

2024 Financial Guidance

Denali anticipates its operating expenses to be less than or equal to those in 2023 based on the prioritization of its portfolio. 

Pipeline Updates

Denali has two wholly-owned, late-stage development programs — DNL310 (ETV:IDS) for MPS II (Hunter syndrome) and DNL343 (eIF2B activator) — for amyotrophic lateral sclerosis (ALS).

The company is currently evaluating DNL310 in two separate clinical studies. A phase I/II study is evaluating the candidate in children for the treatment of MPS II (Hunter syndrome). Another global phase II/III COMPASS study is also evaluating the candidate for the same indication. The COMPASS study is expected to complete enrollment in 2024.

DNL343 is being evaluated in a phase II/III HEALEY study to treat ALS and is also currently enrolling patients, anticipating completion in 2024.

Denali and Biogen (BIIB - Free Report) were conducting two late-stage studies on BIIB122/DNL151 (a small-molecule inhibitor of LRRK2) — the phase IIb LUMA study in participants with early-stage Parkinson’s disease (PD) and the phase III LIGHTHOUSE study in participants with PD and a confirmed LRRK2 pathogenic variant. However, due to timeline and resource considerations, the two companies decided to terminate the phase III LIGHTHOUSE study.

Consequently, Biogen and Denali modified the LUMA study’s enrollment criteria to allow for the inclusion of eligible participants with PD and a confirmed pathogenic variant of LRRK2, in addition to continuing to enroll eligible participants with idiopathic early-stage PD.

In the fourth-quarter earnings release, DNLI announced the execution of a collaboration agreement in January 2024, with a third party related to a global phase IIa study of BIIB122/DNL151. The study will evaluate safety and biomarkers associated with BIIB122 in participants with PD and confirmed pathogenic variants of LRRK2.

Denali and partner Sanofi (SNY - Free Report) are co-developing SAR443820/DNL788. Sanofi is conducting the global phase II HIMALAYA study for participants with ALS. Previously, Sanofi had reported that the HIMALAYA study failed to meet the primary endpoint of change in the ALS Functional Rating Scale-Revised.

However, Sanofi continues to evaluate SAR443820 in another phase II study for the treatment of multiple sclerosis (MS). SNY anticipates the outcome of the HIMALAYA study to have no impact on the ongoing MS study.

Both companies are also developing SAR443122/DNL758 (eclitasertib), a peripheralRIPK1 inhibitor, for the treatment of ulcerative colitis (UC). Sanofi is currently conducting a phase II study of the UC treatment candidate.


Zacks Rank and Stock to Consider

Denali currently carries a Zacks Rank #3 (Hold).

A better-ranked stock from the drug/biotech industry is Puma Biotechnology, Inc. (PBYI - Free Report) , sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 30 days, the Zacks Consensus Estimate for Puma Biotech’s 2023 earnings per share (EPS) has remained constant at 73 cents. During the same time frame, the consensus estimate for Puma Biotech’s 2024 EPS has increased from 69 cents to 71 cents. Over the past year, shares of PBYI have surged 60.7%.

PBYI beat estimates in three of the last four quarters while missing on one occasion, delivering an average earnings surprise of 76.55%.

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