Shares of Denali Therapeutics, Inc. DNLI have gained 33.1% in the last three months compared with the industry’s growth of 7.4%. The stock has outperformed the sector and the S&P 500 Index during this time frame.
DNLI Outperforms Industry, Sector & S&P 500 Index
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The rally is largely attributed to investor optimism surrounding encouraging initial uptake of its lead drug, Avlayah, for the treatment of Hunter syndrome, as well as other regulatory updates.
While Avlayah approval and initial uptake serve as a major catalyst, a deeper assessment of the company's growth drivers and potential risks will be essential to determine whether current levels represent an attractive entry point.
Avlayah Approval Positions DNLI for Long-Term Upside
In March 2026, the FDA granted accelerated approval to Avlayah (tividenofusp alfa-eknm) for the treatment of neurologic manifestations in patients with Hunter syndrome or mucopolysaccharidoses II (MPS II) when initiated in presymptomatic or symptomatic pediatric patients weighing at least 5 kg prior to advanced neurologic impairment.
Tividenofusp alfa-eknm (ETV: IDS) is an ETV-enabled enzyme replacement therapy designed to deliver iduronate 2-sulfatase (IDS) throughout the body, including across the blood-brain barrier, to address the neurologic manifestations of Hunter syndrome.
The launch began in April 2026, providing the company with its first commercial revenue opportunity and a potential foundation for future growth.
However, the accelerated approval is based on a surrogate endpoint, reduction in CSF HS, and continued approval is contingent on confirming clinical benefit in the ongoing global phase II/III COMPASS trial.
The COMPASS study is intended to support generation of confirmatory evidence, expansion of the U.S. label to adult patients and future global regulatory submissions.
The U.S. launch of Avlayah gained strong traction during its first full quarter of commercialization, driven by favorable uptake among patients, caregivers and physicians, encouraging early treatment experiences and the rapid expansion of payer coverage.
Initial demand for Avlayah has exceeded Denali's internal expectations, with early patient interest in initiating treatment tracking ahead of projections.
In its first full quarter following commercial launch, Avlayah generated $3.6 million in net product revenues. Denali projects third-quarter 2026 Avlayah net product revenues of $10 million to $12 million.
The company also monetized the Rare Pediatric Disease Priority Review Voucher received with Avlayah’s approval for $195 million, strengthening its cash position and providing additional financial flexibility to support commercialization and pipeline development.
DNLI’s Other Pipeline Candidates
Denali's clinical-stage portfolio includes key pipeline candidates like zafinofusp alfa (DNL126) for Sanfilippo syndrome type A (MPS IIIA) and DNL593 for GRN-related frontotemporal dementia (FTD-GRN).
Zafinofusp alfa (DNL126) is an investigational intravenously administered ETV-enabled SGSH replacement therapy being developed to target the neurological and systemic manifestations of the disease by delivering the enzyme to both the brain and body.
Preliminary results from the ongoing phase I/II study showed that zafinofusp alfa significantly reduced cerebrospinal fluid (CSF) and urine heparan sulfate (HS) levels, including normalization of CSF HS, while demonstrating a safety profile generally consistent with established enzyme replacement therapies. Preparations are underway for a global phase III confirmatory study, with Denali anticipating a biologics license application submission and potential accelerated approval for zafinofusp alfa in Sanfilippo syndrome type A in 2027.
DNL593 is an investigational Protein TransportVehicle (PTV)-enabled therapy designed to deliver progranulin across the blood-brain barrier for FTD-GRN. In August 2026, the FDA granted Orphan Drug Designation to DNL593. Enrollment in the phase I/II study is complete, with 40 participants, and results are now expected in 2027 (updated from its prior expectation of results by the end of 2026) to allow additional time to evaluate biomarker responses, including neurofilament light chain.
In April 2026, Denali announced that partner Takeda decided to terminate their collaboration for DNL593 in FTD-GRN.
The termination returns full rights to the program to Denali. According to DNLI, Takeda's decision was driven by strategic priorities rather than any efficacy or safety concerns.
However, Takeda’s exit raise concerns. Even though the decision was not tied to safety or efficacy, the loss of a large pharma partner removes external validation and shared financial burden.
Denali is also developing DNL952, an ETV-enabled enzyme replacement therapy for the treatment of Pompe disease. Dosing has begun in the phase I study of DNL952 in participants with late-onset Pompe disease, with initial clinical data expected in 2027.
Denali has collaborated with Biogen (BIIB) for BIIB122/DNL151 for Parkinson's disease. Biogen led the global phase IIb LUMA study, evaluating BIIB122's impact on disease progression in early-stage Parkinson’s disease.
However, in May 2026, DNLI and BIIB announced that the global phase IIb LUMA study of DNL151 failed to meet its primary and secondary endpoints in early-stage Parkinson’s disease, leading to the discontinuation of further development in idiopathic Parkinson’s disease.
Denali continues the phase IIa BEACON study of DNL151 in genetically confirmed LRRK2 variant carriers, with data expected in the first half of 2027.
The company is also advancing several early-stage pipeline candidates.
Denali’s Valuation and Estimates
Going by the price/book ratio, DNLI’s shares currently trade at 4.88X, higher than its mean of 3.02X and the industry’s mean of 3.66X.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for 2026 loss per share has narrowed to $2.59 from $2.72 over the past 60 days, while that for 2027 loss has narrowed to $2.42 from $2.47 in the same time frame.
Image Source: Zacks Investment Research
Stay Invested in DNLI Stock
The approval of Avlayah represents Denali’s transition into a commercial-stage company and a potential inflection point in its long-term growth trajectory. As its first marketed product, Avlayah introduces a new revenue stream, though the pace and scale of commercialization will be critical in determining its ultimate financial impact.
Beyond near-term revenues, the approval also validates Denali’s proprietary TransportVehicle platform, which is designed to enable biologic therapies to cross the blood-brain barrier — an area that has historically posed significant challenges.
However, Avlayah has been granted accelerated approval and continued approval is contingent on confirming clinical benefit. This represents an important regulatory and investment risk until confirmatory data are available.
On the financial front, Denali appears well capitalized, ending the second quarter with approximately $940 million in cash and investments. This provides sufficient runway to support ongoing clinical development and strategic initiatives.
That said, recent pipeline setbacks and the loss of Takeda as a partner add to the company’s risk profile.
While existing shareholders may consider maintaining their positions to capitalize on further growth opportunities, prospective investors may want to watch and wait until there is greater clarity on Avlayah’s commercial traction and the confirmatory clinical data.
Denali currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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