Third Quarter 2026 Financial Results and Business Highlights - DENALI THERAPEUTICS INC

Explicit Guidance:

• Q4 2026 Revenue: Forecasted between $30 million and $32 million, representing >65% sequential growth from Q3 ($17.8M).
• Long-term Revenue Strategy: Expects the steepest part of the S-curve revenue inflection to occur in 2027, driven by expanded payer access and patient adoption; early growth drivers (e.g., Phase 1-2 patient transitions) were pulled forward to Q3.
• Annual Guidance Status: No decision made yet on providing annual revenue guidance; will evaluate metrics as the launch evolves.
• Capital Efficiency: Operating expenses for Q3 2026 and YTD were flat year-over-year despite commercial build-out and pipeline progress.
• Cash Position: Ended Q3 2026 with ~$1.01 billion in cash, cash equivalents, and marketable securities, providing capital to execute 3-year goals through 2028.

Business-Segment Outlook:

• Avalaya (Hunter Syndrome/MPS II):
  • Commercial Trajectory: Expects to become the U.S. market leader and standard of care; aims to treat the estimated 375 eligible pediatric patients in the U.S. and expand to ~2,000 patients in accessible geographies (LatAm, GCC, APAC) via distributors.
  • Launch Dynamics: Payer coverage expanded from 50% to 70% of commercial lives; Medicaid coverage expanded to 20 states (from 14) as of Q3. Permanent J-code effective Oct 1 to streamline billing.
  • COMPAS Trial: Enrollment completed (65 participants total across Coorts A/B); study aims for U.S. full approval and label expansion to adults. Data expected H1 2028, study completion around end of 2027.
• Zephyrnifus Alpha (Sanfilippo Syndrome Type A/MPS3A):
  • Development Timeline: Phase 1-2 primary endpoint treatment duration completed; data analysis ongoing. BLA submission targeted for 2027, with data presentation at a medical congress in Q1 2027.
  • Label/Approval Path: Siting for accelerated approval based on CSF heparin sulfate (CSF HS) reduction (reasonably likely surrogate endpoint); Phase III confirmatory study startup initiated.
• Alzheimer's Franchise (DNL628 & DNL921):
  • DNL628 (Anti-Tau ASO): Phase 1b data on initial clinical biomarkers expected H1 2027; dose selection will be driven by CSF tau reduction.
  • DNL921 (Anti-Amyloid Antibody): Phase 1/1b data on initial safety and proof-of-concept expected 2027; exploring subcutaneous (Sub-Q) administration for future convenience; differentiating via low immunogenicity and sustained brain exposure.
• Other Pipeline (2027 Readouts):
  • FTD-GRN (DNL593): Initial data expected H1 2027; focus on NFL reduction as primary endpoint (targeting 4-5x elevated NFL reduction).
  • Pompe Disease (DNL952): Initial data expected in 2027; looking at urine GLC4 and serum creatine kinase biomarkers.

Market and Competitive Outlook:

• Penetration & Share: Management expects 100% penetration of eligible U.S. pediatric patients over time; believes the S-curve inflection is arriving sooner than previously anticipated due to strong execution.
• Differentiation: Competes against intrathecal delivery methods and shuttle architectures; emphasizes unique transferrin receptor (TFR) binding integrated into the Fc region for better tolerability and plaque reduction (Alzheimer's) and brain/body delivery (MPS).
• Payer Dynamics: Commercial and Medicaid reimbursement processes are accelerating; expects persistence to be high given the lifelong nature of the disease and chronic therapy model.

Macro / Industry Outlook:

• Regulatory Environment: Leveraging FDA alignment on CSF HS as a surrogate for accelerated approval in MPS3A; pursuing priority review vouchers for enzyme replacement therapies (ERTs).
• Market Size: ERT market (conventional) >$9B; next-gen TFR-enabled products expected to significantly expand this by reaching the CNS. Neurodegenerative indications (Alzheimer's/Parkinson's) represent >$5B commercial potential per indication.
• Competition: Acknowledges increasing competition in the BBB field (e.g., Biogen Tau, Takeda Alipraiz switching dynamics) but maintains confidence in the platform's ability to deliver robust biomarker reductions and clinical benefit.

Strategic Initiatives:

• "D3 by 3" Goals (through 2028):
  1. Build two growing commercial brands.
  2. Establish five clinical proofs of concept.
  3. Bring four to six additional programs into the clinic.
• Manufacturing: Building own facility for Zephyrnifus Alpha to control COGS and ensure supply for the first self-launched product.
• Commercial Infrastructure: Leveraging the existing Avalaya launch infrastructure (similar customer base) to expedite Zephyrnifus Alpha launch (~2 years out).
• Global Expansion: Working with distributors in Latin America, GCC, and Asia Pacific; expecting support from "Compass" for broader European/global approvals.

Risks and Headwinds to Outlook:

• Manufacturing Timelines: BLA filing timing for MPS3A is contingent on Module 3 (manufacturing) readiness; delays here could push filing beyond 2027.
• Regulatory Uncertainty: Approval timing is less certain than filing; potential for data gaps in COMPAS (e.g., Vineland score miss despite CSF HS normalization) requiring "totality of evidence" arguments.
• Adverse Events: Infusion-related reactions (IRRs) and anti-drug antibodies (ADAs) are common in ERTs; management must manage tolerance protocols and dosing.
• Clinical Success: Future milestones (FTD-GRN, Alzheimer's) depend on achieving robust, believable biomarker reductions (NFL, Tau, Amyloid) that translate to clinical benefit.
• Execution: Patient access speed and reimbursement variability (commercial vs. Medicaid) remain key drivers for the "persistence" of the patient base.

Management Tone on the Future:

• Confidence: Highly confident and optimistic; describes the quarter as "defining" and the launch as "ahead of plan."
• Strategic Pivot: Views the early strong revenue growth not as a run rate but as the steepening of an S-curve, with the "steep part" arriving in 2027.
• Execution Focus: Emphasizes capital efficiency (flat opex) and the ability to fund the portfolio internally ($1B+ cash) without immediate need for partnering, though partnerships remain a long-term option for neurodegeneration.
• Patient-Centricity: Repeated references to family trust and the responsibility of delivering life-changing therapies; confidence that "all eligible patients should be on Avalaya."

Miscellaneous:

• Pricing: Avalaya price is $5,200 per vial; average cost for a 30kg patient ~$811,000 annually (subject to dose escalation and weight variability).
• Product Availability: Avalaya is the first new FDA-approved therapy for Hunter Syndrome in nearly 20 years; the first TFR-enabled medicine.
• Financial Results: Q3 2026 Net Income: $70.1 million, driven by a one-time gross proceeds of $195 million from the sale of a Priority Review Voucher (PRV).
• Pipeline Ownership: Denali now has full control/ownership of the Progranulin (FTD) program following a decision made in mid-2026 to extend endpoints to 1 year.