Why Takeda’s exit matters for Denali Therapeutics (DNLI)

Takeda’s decision to end its collaboration with Denali Therapeutics (DNLI) on DNL593 puts fresh attention on how this frontotemporal dementia program fits into Denali’s broader pipeline and investment story.

The move returns full control of DNL593 and its intellectual property to Denali, and Takeda has indicated the change is tied to its own portfolio priorities rather than efficacy or safety concerns around the drug.

At a share price of $18.30, Denali’s recent 1 day, 7 day and 30 day share price returns of 2.24%, 7.90% and 11.38% declines contrast with a 12.48% year to date share price gain and an 11.31% 1 year total shareholder return. Longer term total shareholder returns over 3 and 5 years remain negative, suggesting momentum has cooled even as the regained DNL593 rights refocus attention on the pipeline.

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With Denali trading at US$18.30 and sitting on negative 3 and 5 year total returns, yet carrying a value score of 1 and a large gap to analyst targets, is there a buying opportunity here, or is the market already pricing in future growth?

Price to book of 2.9x: Is it justified?

Denali trades at a P/B of 2.9x, which screens as good value versus its peer group average of 21.2x, even though the share price sits at $18.30.

P/B compares the market value of the company to its net assets on the balance sheet. This can be a useful lens for early stage or loss making biotechs where traditional earnings based metrics like P/E are not yet meaningful.

For Denali, the gap between its 2.9x P/B and the 21.2x peer average suggests investors are assigning a lower valuation to each dollar of net assets than for many other companies in the peer set, even as analysts see revenue growing faster than both the broader US market and the 20% per year benchmark.

However, the P/B of 2.9x is above the 2.2x average for the wider US biotechs industry. This points to a premium versus that broader group and leaves room for different interpretations about whether the stock is attractively valued or relatively expensive compared to that wider industry reference point.

Result: Price to book of 2.9x (ABOUT RIGHT)

However, you also need to weigh clinical trial setbacks or slower than expected progress across Denali’s multiple neuro and lysosomal programs, as well as the current annual net loss of US$512.54m.

Next Steps

Sitting with mixed signals on valuation and pipeline progress, it makes sense to move quickly and weigh both sides for yourself, starting with the 1 key reward and 2 important warning signs.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.