Analyst: Denali Therapeutics' Neuroscience Work Could Lead To Near-Term Upside

A Morgan Stanley analyst predicts near-term upside for the shares of Denali Therapeutics Inc. (NASDAQ: DNLI), thanks to its work in neuroscience and particularly its lead programs in Parkinson's and Alzheimer's.

The Analyst

Morgan Stanley analyst Matthew Harrison initiated coverage of Denali Therapeutics with an Overweight and $25 price target.

The Thesis

Denali's proven management team, distinctive drug development process and focus on neuroscience keeps the company on track to access large, underpenetrated markets, Harrison said in a Tuesday note. (See the analyst's track record here.) 

The company targets diseases with high unmet need and high historical failure rates, including Alzheimer's disease, Parkinson's disease and amyotrophic lateral sclerosis, or ALS, Harrison said. 

Morgan Stanley expects the Alzheimer's market to grow to $300 billion and Parkinson's to $25 billion. 

"Denali has assembled a proprietary pipeline of small and large molecules coupled with a distinctive approach to neuroscience development that we believe can upend the long history of industry failures and take significant share of this large, underpenetrated market," Harrison said. 

While noting that the two lead programs of the company are DNL201/151 for Parkinson's disease and DNL747 for ALS and Alzheimer's disease, Morgan Stanley said it expects news on target engagement and dose selection in 2018. Key clinical data is expected in 2019, Harrison said. 

Central nervous system drugs have historically low R&D success, but Denali is working to derisk with differentiated drug development, including the use of biomarkers, genetically validated targets and parallel compound investments, Harrison said.

A Denali platform for crossing the blood-brain barrier provides "differentiated upside potential" and is projected by Morgan Stanley to enter the clinic in 2019.  

The Price Action

Denali Therapeutics shares are trading below their IPO price of $18, despite the 19-percent gain they notched on their Dec. 8 debut. 

At the time of writing, the shares were rallying 2.36 percent to $16.51. 

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