3 Key Questions For Denali Therapeutics Investors

Denali Therapeutics Inc. DNLI, a biotech company focusing on therapies for neurodegenerative disorders, IPO-ed in Dec. 2017, offering 13.9 million shares at $18 each. 

The Analyst

Goldman Sachs analyst Salveen Richter initiated coverage of Denali Therapeutics with a Neutral rating and a 12-month price target of $19.

The Thesis

Richter raised three key questions for Denali Therapeutics in a Tuesday note: 

• Can the company successfully develop its novel pipeline of drugs?
• When will early proof of concept emerge from the platforms?
• What is the value of the pipeline?

Denali Therapeutics is taking a three-pronged approach to drug development, Richter said: 

• Targeting genetic pathways.
• Engineering an efficient and safe blood brain barrier delivery platform.
• Using biomarkers to assess efficacy and aid in patient selection.

The three-part approach "should maximize the pipeline's probability of success," Richter said. (See the analyst's track record here.) 

Goldman Sachs expects early target engagement data from the small molecule programs DNL201 and DNL151 in Parkinson's Disease and DNL747 in diseases including Alzheimer's and ALS in healthy volunteers in 2018 and in patients with the respective diseases at the year's end. 

Goldman estimates 2037 worldwide peak unadjusted sales of $7.5 billion for Denali Therapeutics from the pipeline of six drugs, including two molecules and four biologics, Richter said. Goldman is also projecting non-dilutive financing from commercial and R&D partnerships.  

Within Goldman's coverage universe, Denali has a high-risk, high-reward setup with a lack of near-term catalysts, the analyst said. 

The Price Action

Denali Therapeutics made a gain of about 19 percent on its debut on Wall Street on Dec. 8. Since the debut, shares have lost about 27 percent and are trading below their IPO pricing.

At the time of writing, Denali Therapeutics shares were up 3.90 percent at $16.25. 

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