A month has gone by since the last earnings report for Denali Therapeutics Inc. (DNLI Quick QuoteDNLI - Free Report) . Shares have added about 2.8% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Denali Therapeutics due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Q4 Earnings Miss, Pipeline in Focus

Denali 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.

Denali raised $500 million through a securities purchase agreement, which is expected to strengthen its cash position.

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 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 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, Denali 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 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). Sanofi 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.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

The consensus estimate has shifted 27.1% due to these changes.

VGM Scores

At this time, Denali Therapeutics has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Denali Therapeutics has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Denali Therapeutics is part of the Zacks Medical - Biomedical and Genetics industry. Over the past month, Halozyme Therapeutics (HALO Quick QuoteHALO - Free Report) , a stock from the same industry, has gained 2.6%. The company reported its results for the quarter ended December 2023 more than a month ago.

Halozyme Therapeutics reported revenues of $230.04 million in the last reported quarter, representing a year-over-year change of +26.7%. EPS of $0.82 for the same period compares with $0.48 a year ago.

Halozyme Therapeutics is expected to post earnings of $0.75 per share for the current quarter, representing a year-over-year change of +59.6%. Over the last 30 days, the Zacks Consensus Estimate has changed -2.1%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Halozyme Therapeutics. Also, the stock has a VGM Score of B.