Denali Therapeutics Inc. (DNLI) Earnings

Management highlights

- Company Strategic Positioning * This was a transformative quarter for Denali: it completed the first full quarter of AVLAYAH launch, advanced two Alzheimer's disease programs into clinical development, and strengthened its balance sheet. AVLAYAH is the first FDA-approved therapy for Hunter syndrome in nearly 20 years, the first approved therapy using Denali's transport vehicle (TV) platform, and the first FDA-approved biologic specifically designed to cross the blood-brain barrier (BBB), proving the platform's commercial viability. Denali maintains its D3x3 strategy (deliver, develop, discover) targeting 2 commercial brands, 5 clinical proofs of concept, and 4-6 new clinical programs between 2026 and 2028. - AVLAYAH Commercial Launch Progress * AVLAYAH's U.S. addressable market includes ~375 eligible pediatric patients (75% of the ~500 total U.S. prevalent Hunter syndrome patients), with ~30 newly diagnosed patients added annually. The launch follows four core strategies: community-centered patient outreach, physician engagement and treatment center support, patient access navigation, and accelerated payer coverage. As of Q2 end, 80% of targeted healthcare organizations have been reached for launch education, more than 100 eligible U.S. families (over 25% of the eligible population) have been engaged, and commercial payer coverage has been established for over 50% of covered lives, with 14 state Medicaid programs already publicly listing AVLAYAH as covered. Early demand from engaged waiting patients has been stronger than expected, with broad interest across all pediatric age groups, and 90% of early patients expected to switch from existing conventional enzyme replacement therapy. - Pipeline Progress * Two TV-enabled Alzheimer's disease programs have advanced to clinical development: DNL921 (anti-amyloid antibody) and DNL628 (anti-tau antisense oligonucleotide), both designed to address limitations of current approved/experimental therapies via more even brain distribution across the capillary network. Initial clinical data for both programs is expected in 2027. For DNL593 (progranulin replacement for FTD-GRN), Denali regained full ownership from Takeda earlier in 2026, extended the observation period for the Phase I/II open-label extension to better capture changes in the neurofilament light chain (NfL) biomarker, and now expects data in H1 2027 (updated from prior year-end 2026 expectation). The FDA recently granted orphan drug designation to DNL593 for FTD-GRN. Denali is preparing for a potential 2027 launch of DNL126 (zafinofusp alfa) for Sanfilippo syndrome. - Financial Position * Denali ended Q2 2026 with ~$940 million in cash, cash equivalents, and marketable securities. After receiving $195 million in proceeds from selling its rare pediatric disease priority review voucher in July 2026, pro forma total cash position exceeds $1.1 billion. Capital allocation priorities are: 1) investing in portfolio execution including AVLAYAH commercialization, DNL126 launch preparation, and clinical program advancement; 2) building internal infrastructure including the Salt Lake City manufacturing facility for speed and cost efficiency; 3) maintaining balance sheet flexibility for potential future partnerships.

Guidance

- AVLAYAH Q3 2026 net product revenue is guided to the range of $10 million to $12 million, reflecting stronger-than-expected early demand and positive momentum across all launch leading indicators. * During the early launch period, Denali will provide quarterly net product revenue guidance for the upcoming quarter to give investors clear visibility into the adoption trajectory, given variable patient journey timelines and weight-based dosing that impacts per-patient revenue. * Denali confirms its expectation that AVLAYAH will follow an S-shaped adoption curve, with management focused on accelerating the inflection point of growth as payer coverage expands and adoption spreads to the broader eligible patient population. 2026 is viewed as a foundational year to get as many eligible patients on therapy as possible. * DNL593 Phase I/II data is now expected in H1 2027, revised down from the prior expectation of data by the end of 2026, to allow for extended observation of gradual biomarker changes including NfL. * Initial clinical biomarker data for DNL628 is expected in H1 2027, with initial safety and proof of concept data for DNL921 expected in 2027. * Full annual operating expense guidance is typically provided at the start of each calendar year, with no full-year 2026 revision provided in this call.

Segment performance

Denali Therapeutics has one core commercial product segment, AVLAYAH for Hunter syndrome (MPS II), which generated $3.6 million in net product revenue during Q2 2026, its first full quarter of commercial availability. All other programs are still in clinical development, with no revenue contribution. Selling, general, and administrative expenses increased to $36.3 million in Q2 2026 from $32.3 million in Q2 2025, driven by investments in the AVLAYAH commercial launch. Research and development expenses decreased to $97 million in Q2 2026 from $102.7 million in Q2 2025, primarily due to timing of AVLAYAH commercial supply manufacturing in the prior year and lower external spending on small molecule programs.

Risks & headwinds

- AVLAYAH adoption trajectory depends on continued expansion of payer coverage, efficient processing of reimbursement requests (including prior authorizations and medical exceptions where formal policies are not yet published), and treatment center infusion capacity, with significant variability in timelines to move patients from prescription to first infusion early in the launch. * Clinical development of pipeline programs for neurodegenerative diseases (including Alzheimer's and FTD-GRN) is inherently uncertain, and outcomes may differ from preclinical expectations. There is no guarantee that biomarker data will support accelerated approval pathways, as any such path requires alignment with regulatory agencies. * Competition from other pipeline and approved therapies for Hunter syndrome and other indications in Denali's portfolio may impact AVLAYAH's adoption and market share. * Variable biodistribution of intrathecal-administered tau therapies may limit their efficacy, but there is no guarantee that Denali's TV-enabled systemic delivery will result in superior clinical outcomes compared to competing approaches. Co-pathologies common in Alzheimer's disease may also complicate efficacy readouts and clinical development.

Analyst Q&A

• Q: What supports Q3 guidance, can this growth trajectory continue, and will future OpEx guidance be provided? /

  A: All leading launch indicators are positive: high physician awareness and motivation to switch eligible patients, strong family engagement, successful reimbursement navigation via medical exceptions, and over 50% of commercial lives already covered. Management confirms growth momentum will continue. Denali kept OpEx flat year-over-year in Q2 2026 while advancing the launch and pipeline, and will continue to provide full-year OpEx guidance at the start of each calendar year.

• Q: Is the strong early AVLAYAH demand just a larger-than-expected initial bolus, or is sustained growth into the broader patient population expected? /

  A: Management expected an initial bolus of highly engaged patients who followed AVLAYAH's development, and this bolus has been larger than originally expected. Critically, adoption is already expanding beyond this initial group to the broader eligible patient population, so sustained growth across the full 375-patient eligible pool is expected as coverage expands and positive patient experiences are shared through the community.

• Q: What are Denali's thoughts on Biogen's recent Phase II tau therapy dataset, and what explains the lack of dose response in that trial? /

  A: This is the first dataset to show that tau lowering may produce clinical benefit, with consistent signals across multiple clinical endpoints, which is encouraging for the entire field. The lack of clear dose response is likely tied to higher rates of adverse events and discontinuations in the higher dose groups, which may mask underlying efficacy; intrathecal administration is also known to commonly cause transient adverse events. Denali looks forward to additional data that will clarify these dynamics.

• Q: What is the current status of the AVLAYAH adult confirmatory COMPASS study, and will label expansion for adults change launch pricing? /

  A: The COMPASS Phase II/III study is on track to read out at the end of 2027, and will support label expansion for adults in the U.S. as well as potential global launches. There is significant unmet need and patient interest in AVLAYAH among adult Hunter syndrome patients, but no change to existing launch pricing is expected even after label expansion.

• Q: How does CSF tau biomarker data from Denali's systemic TV-delivered DNL628 compare to data from intrathecally delivered tau therapies? /

  A: Direct comparison of percent tau reduction is not appropriate, because intrathecal administration produces regional high drug concentrations in CSF that do not reflect uniform deep brain exposure, unlike Denali's uniform distribution across the brain's capillary network. Denali's CSF tau levels will still be informative to confirm target engagement, similar to how CSF heparan sulfate was informative for AVLAYAH, but percent reductions will not be comparable to intrathecal results. Denali notes that the heterogeneity in efficacy seen in intrathecal trials is likely tied to uneven biodistribution, which its platform is designed to address.