Is Denali Therapeutics Stock A Buy?

Denali Therapeutics Inc (NASDAQ:DNLI) is a biopharmaceutical company developing therapeutic candidates to treat neurodegenerative diseases. These diseases have a negative impact on a person’s quality of life.

It’s estimated that over five million Americans suffer from Alzheimer’s, ten million people worldwide suffer from Parkinson’s, and 15,000 people in the U.S. suffer from Amyotrophic lateral sclerosis (ALS) at any given time.

There’s no denying the work Denali is doing is important, but what matters is the progress it made since it began the fight in October 2013. CEO Ryan Watts has been at the helm since August 2015, and the company went public in December 2017. But is Denali Therapeutics a Buy?

Let’s dive into the company’s public research and financials to determine the answer to that question. We’ll start with the business itself.

Denali Therapeutics Treats The Brain 

Denali Therapeutics is based in San Francisco and has a wide drug pipeline with treatments targeting the brain without disrupting the blood-brain barrier.

This barrier acts as a filter for certain substances, and Denali’s most valuable IP isn’t any one drug, but actually its proprietary enzyme transport technology that crosses the blood-brain barrier to treat and relieve many neurological disorders.

This opens it up to a variety of neurological treatments. It has several FDA-approved drugs and several in various stages of clinical trials, including:

DNL310 is an enzyme replacement therapy for patients with a rare lysosomal storage disorder called mucopolysaccharidosis II (MPS II), commonly known as Hunter Syndrome. This syndrome causes cognitive impairment and other medical issues because of an enzyme deficiency.

This intravenous treatment is a recumbent replacement enzyme that binds to natural vasculature receptors in the brain to help keep the disease’s progression.

DNL151 and DNL201 are LRRK2 inhibitors for patients with Parkinson’s disease. Each is undergoing Phase 1 clinical trials to determine how well they filter pS935 LRRK2 and pRAB10 in blood.

This defective gene’s replication causes many of the flair ups associated with the disease, and if it works, it could be a breakthrough that greatly increases life quality and longevity in patients while slowing the progression of the disease.

These are just a few of its wide drug funnel, and combined, they’re generating a lot of revenue for this company.

Is Denali Therapeutics Stock A Buy?

The company has had a lot of recent successes, including both an Orphan Drug Designation and a Rare Pediatric Disease Designation for DNL310 that is worth anywhere from $80 million to $350 million.  

It also received over $1 billion ($560 million in cash and $465 million in equity) from Biogen to develop DNL151 and has two other major partnerships.

Its revenue in the first half of 2020 is $9.363 billion, up from $8.209 billion in the first half of 2019. Its total assets are at $647 million, and the company has a $3.74 billion market cap.

Its December 7, 2017 IPO raised $248 million at a price of $18 per share, giving the company a $1.7 billion market valuation at the time.

DNLI is trading in the $30-$40 range, and that may be a bargain if the company’s clinical trials go through and open more revenue streams. This could send the stock soaring, something that Biogen and other larger partners are counting on.

Biogen itself is a company with a nearly $45 billion market cap, and it’s drawing around $15 billion in annual revenue. That’s right on par with Denali, a good sign that it could be a value Buy. Of course, just because the industry appears to be rallying around this company doesn’t mean its treatments are guaranteed to be approved.

Let’s look at the risks of investing in DNLI.

Risks of Buying Denali Therapeutics Stock

While bulls are rushing to Denali, its price is creeping upward. There’s always the chance that its clinical trials fail or the company fails to generate enough revenue off its products.

Still, the company is flush with cash and has no noticeable issues coming up in its immediate road map. The biggest issue is whales coming in to buy large amounts and drive the price higher before you get a chance to jump on.

Hedge funds are definitely interested, and retail investors could get squeezed out of this market opportunity. There’s also a chance the company runs into competition.

Denali Therapeutics Vs Biogen Idec

Although it’s looking to be the first company to cross the blood-brain barrier, Denali Therapeutics isn’t the only company seeking to treat neurodegenerative diseases.

In fact, even Biogen has its own product line that it’s only supplementing with Denali’s treatments. It also faces competition from companies like Bluebird Bio that are hard at work on researching degenerative diseases. Merck discontinued its own Parkinson’s treatment, as generic versions of its controlled release Sinemet overshadowed them.

Still, if Denali receives FDA approval for its latest clinical trials, this will give it temporary exclusivity to create licensing deals that generate a lot of recurring income. If it runs into any trouble, it can always be bought out by a larger competitor.

Is Denali Therapeutics Stock A Buy? The Bottom Line

Denali Therapeutics is a biopharmaceutical company working on treatments for degenerative diseases. While it has a few existing treatment options for Parkinson’s, ALS, and Hunter’s Syndrome in the making, it’s the company’s proprietary brain-blood barrier vehicle transport that will really drive revenue growth in the 2020s.

Early clinical data looks positive, and receiving approvals would make it a first-of-its kind neurological treatment that opens new paths for curing these diseases.

Investors are bullish on Denali Therapeutics heading toward the end of 2020. It has comparative revenue to companies trading for 10x more on the market. This gives it plenty of room to grow and create a healthy return on investors’ capital.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.