Denali Therapeutics Surges on $275M Royalty Deal for Brain Disease Drug
Shares jumped over 6% after the biotech firm secured funding from Royalty Pharma for its promising Hunter syndrome therapy, de-risking development ahead of a key FDA decision.
Denali Therapeutics Inc. (NASDAQ: DNLI) shares surged in morning trading after the company announced a significant funding agreement with Royalty Pharma plc, securing up to $275 million for its lead drug candidate designed to treat the rare neurodegenerative disorder Hunter syndrome.
The deal provides Denali with a substantial financial runway as it navigates the final stages of regulatory review for DNL310, also known as tividenofusp alfa. Shares of the South San Francisco-based biotech firm climbed over 6.5% to $19.00 on the news, reflecting investor optimism in the drug's potential and the validation that comes with a partnership with a major life sciences investor like Royalty Pharma.
Under the terms of the agreement, Denali will receive payments contingent on future regulatory milestones. An initial payment of $200 million is tied to the U.S. Food and Drug Administration's (FDA) approval of DNL310, with an additional $75 million payable upon approval from the European Medicines Agency (EMA). In exchange, Royalty Pharma will receive royalties on worldwide net sales of the drug, starting at 4.5% and potentially decreasing to 2.25% if certain sales thresholds are met.
"This strategic agreement with Royalty Pharma provides Denali with non-dilutive capital, enabling us to fully support the commercial launch of tividenofusp alfa, if approved, and to continue advancing our broad pipeline of therapeutic candidates for neurodegeneration," said Ryan Watts, Ph.D., CEO of Denali, in a joint press release.
De-Risking the Path to Market
The funding is particularly crucial as Denali approaches a key regulatory decision. The FDA has designated DNL310 as a Breakthrough Therapy and is reviewing it under an accelerated approval pathway. However, the agency recently extended its Prescription Drug User Fee Act (PDUFA) target action date for the drug to April 5, 2026, citing the need to review updated clinical pharmacology information. While such delays can sometimes worry investors, Denali clarified the extension was not related to the drug's efficacy or safety data.
The partnership with Royalty Pharma effectively de-risks the financial path to commercialization, ensuring Denali is well-capitalized to launch the drug without tapping equity markets, especially in a challenging capital environment for many biotech firms.
A Novel Approach to a Devastating Disease
Hunter syndrome, or Mucopolysaccharidosis type II (MPS II), is a rare genetic disorder that primarily affects males and leads to severe cognitive and physical decline. DNL310 is an enzyme replacement therapy engineered to cross the blood-brain barrier, a significant challenge in treating neurological diseases. This allows the therapy to address both the systemic and neurological symptoms of the disorder.
Data from Denali's Phase 1/2 study has been encouraging, showing that DNL310 led to significant biomarker improvements and normalized levels of heparan sulfate in cerebrospinal fluid, an indicator of the drug's activity in the brain. Analysts have responded positively to the drug's progress, with Stifel recently reiterating a "Buy" rating and a $37 price target, according to market reports. The current consensus target price among analysts sits at $32.00.
This agreement is the latest in a series of strategic collaborations for Denali, which has existing partnerships with major pharmaceutical companies like Biogen, Takeda, and Sanofi to develop therapies for diseases such as Parkinson's and Alzheimer's. The company's focus on unlocking the blood-brain barrier has positioned it as a leader in the neurology space, with a market capitalization now exceeding $2.6 billion.
The deal with Royalty Pharma not only bolsters Denali's balance sheet but also serves as a strong external endorsement of its scientific platform and the commercial potential of its lead asset as it moves closer to a pivotal regulatory decision.