As part of new focus, Denali reorganizes and sends staff packing

As Denali Therapeutics narrows in on large molecule biotherapeutics, the company is reorganizing, laying off an undisclosed number of workers and sending some to a new small molecule spinout.

California-based Denali confirmed the reorganization in an email to Fierce Biotech on Monday morning. While the number of employees being laid off is not being disclosed, the spokesperson said the workforce reduction was “considerably less than 10%” of the total team, adding that the company currently has around 400 employees.

As part of the recent “resource realignment,” select other positions are not being retained, according to the Denali spokesperson. Denali employed 427 full-time workers as of Dec. 31, 2022, according to a 10K document that was filed in February 2023 with the Securities and Exchange Commission.

Denali previously shared plans to spin off its preclinical small molecule portfolio into a new, independently funded company at this year’s J.P. Morgan Healthcare Conference. A team of Denali CNS drug developers are moving over to lead the new company, according to that Jan. 8 release. The spokesperson told Fierce Biotech that Denali will continue to advance its clinical-stage programs, building out manufacturing capabilities and a commercial readiness team.

The company has four late-stage clinical assets, including DNL310, a recombinant Iduronate 2-sulfatase (IDS) enzyme designed to cross the blood-brain barrier to treat forms of mucopolysaccharidosis type II (MPS II), a rare genetic condition also known as Hunter syndrome. The candidate is currently being assessed in a phase 1/2 trial and phase 2/3 study, and Denali has said it is working with the FDA to determine the fastest path to approval.

Word of the layoffs comes ten days after the failure of Sanofi-partnered SAR443820 in a phase 2 trial for amyotrophic lateral sclerosis (ALS) was announced. In a Feb. 16 financial filing, Denali revealed that the study failed to meet the primary endpoint. 

Sanofi continues to study SAR443820 in a phase 2 multiple sclerosis (MS) trial, which began dosing 13 months ago, triggering a $25 million milestone payment to Denali. Enrollment wrapped up at the end of 2023.  

The MS study is part of a dwindling list of opportunities available under the Sanofi-Denali RIPK1 collaboration. In 2018, Sanofi paid $125 million to buy into the program but hit an early bump in the road when the partners switched to a backup compound in response to chronic toxicity data on the lead asset.

In parallel, the partners also worked on another RIPK1 inhibitor, dubbed eclitasertib, in peripheral inflammatory diseases, but suffered setbacks. Sanofi stopped work on cutaneous lupus erythematosus last year in response to phase 2 efficacy data, though the pharma continues to run a mid-stage study in ulcerative colitis.

The most recent Sanofi fumble follows another setback that occurred in August 2023, when Denali and partner Takeda made the joint decision to end work on their Alzheimer’s disease therapy. The decision came after early phase 1 data examining the asset—an antibody transport vehicle called DNL919 or TAK-920—suggested they couldn't pursue the highest dose tested.

Editor's note: This story was updated at 1:15 p.m. ET, Feb. 26, to clarify that the layoffs at Denali didn't stem from a recent trial failure but are the result of a previously announced spinout.