On Tuesday, Jefferies maintained a Buy rating on Denali Therapeutics Inc. (NASDAQ: NASDAQ:DNLI) shares, with a price target of $45.00, despite the company reporting that its Phase II/III eIF2B study for ALS missed the primary endpoint. Currently trading at $19.82, the stock has significant upside potential according to analysts, with targets ranging from $24 to $90.
InvestingPro analysis suggests the stock is currently undervalued. The trial aimed to demonstrate a slowing of disease progression based on the ALSFRS-R score at six months but failed to meet this goal, as well as secondary endpoints related to muscle strength and respiratory function. However, the treatment was noted to be safe and well-tolerated.
Denali's competitor, a collaboration between ABBV and Calico, also reported a failure in their ALS trial on the same six-month endpoint. The Jefferies analyst pointed out that while Calico/ABBV's eif2b activator differs in chemical structure and their trial had less statistical power, they observed some non-significant differences in muscle strength and potential signs of improved respiratory function.
The analyst remarked on the recent decline in Denali's stock price, attributing it to broader market trends rather than company-specific news. Denali's stock pullback mirrors that of the XBI biotech index and is considered part of a general portfolio positioning shift, with potential reductions in biotech exposure by larger funds amid high interest rates.
The stock has experienced a 6.24% decline over the past six months, though InvestingPro data reveals strong financial health metrics, including a current ratio of 9.98 and minimal debt-to-equity of 0.04, suggesting robust financial stability. Discover more insights and 8 additional ProTips with an InvestingPro subscription.
Looking ahead, Denali plans to file its lead drug, DNL310 for Hunter Syndrome, for Accelerated Approval soon, with potential approval by the end of 2025. While the company holds more cash than debt on its balance sheet, providing financial flexibility for its development pipeline, analysts expect net income to remain negative this year. The next earnings report is scheduled for March 3, 2025, where investors can gain more clarity on the company's progress.
Positive topline data for another orphan disease drug, DNL126 for Sanfilippo Syndrome, has been reported, with additional data expected at an upcoming medical conference. The analyst anticipates that Denali's data will show better reductions in CSF heparan sulfate and lysosomal GAGs compared to its competitor RARE's gene therapy, which will present updated data at the WORLDSymposium in February.
In other recent news, Denali Therapeutics has experienced a series of significant developments.
The biotech firm's DNL343, a potential treatment for amyotrophic lateral sclerosis (ALS), failed to meet its primary and secondary endpoints in the phase 2/3 HEALEY trial. This led to H.C. Wainwright and BofA Securities reducing their price targets for the company, while still maintaining a Buy rating. Notably, Baird initiated coverage on Denali with an Outperform rating and set a price target of $31.00.
Despite the HEALEY trial results, analysts remain optimistic about Denali's prospects, particularly due to its Transport Vesicle (TV) platform and the promising prospects of Tividenofusp alfa. This drug is expected to be submitted for an accelerated approval pathway early this year. The company's financial position remains strong, with a current ratio of 9.98 and more cash than debt on its balance sheet.
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