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Denali Rises With $217M and Genentech Alumni to Fight Brain Diseases

Xconomy San Francisco — 

A group of investors is betting $217 million that a new drug company led by three Genentech alumni can break the frustrations of what, to now, has been a Sisyphean task: Finding treatments for the world’s most vexing neurodegenerative diseases, including Alzheimer’s and Parkinson’s.

The new startup, Denali Therapeutics, is debuting today with Marc Tessier-Lavigne as the chairman and Ryan Watts as CEO. Tessier-Lavigne is the president of Rockefeller University, where he runs a neuroscience lab, and a former chief scientific officer at Genentech. Watts, who is leaving Genentech for Denali, was the drugmaker’s director of neuroscience. Alex Schuth, who was Genentech’s top neuroscience dealmaker, is the third co-founder. Schuth and Watts left Genentech in February. Denali will be based in South San Francisco, which is also home to Genentech.

The pile of cash these ex-Genentechers are sitting on matches, at least rhetorically, the company’s namesake, which is the tallest mountain in North America. Several investors of various sizes have committed the $217 million, “and there’s additional funding beyond that,” says Bob Nelsen of Arch Venture Partners in Seattle.

Bob Nelsen

Bob Nelsen

Nelsen is a Denali board member, and he is getting together again with some of the bankrollers who launched Seattle’s Juno Therapeutics (NASDAQ: JUNO), the audacious venture that gathered several clinical cancer immunotherapy programs under one roof and raised $310 million in private funding before a record-setting $265 million IPO last December.

Other Denali investors include the State of Alaska’s Permanent Fund, which is also a Juno investor, Flagship Ventures, and Fidelity Biosciences. Unnamed pension funds, sovereign wealth funds, and family foundations are also on board.

Watts and others aren’t talking specifically about the science Denali is pursuing, although Watts says the company won’t chase the same targets many others have been, or continue to chase: amyloid beta, tau, and (for Parkinson’s) alpha-synuclein. Those are all proteins that go haywire in the brains of people with neurodegenerative disease, but it’s been difficult for scientists to establish whether the clumps and tangles they form are a cause or effect of these diseases.

Watts did say that Denali will go after new targets: genes that are implicated in disease (Watts calls them “degenogenes”) as well as biological processes that those genes trigger. From “the top of the cascade” to the “downstream effectors, we have a clear vision of where we want to go,” Watts says.

One of those downstream targets for exploration is the degeneration of axons, the part of a neuron that transmits electrical signals. Watts has studied axon degeneration for 15 years, he says, but no studies have reached the clinic. Another general target is inflammation, which is the immune system’s response to injury or infection, and can often make disease worse, not better.

Denali will do research from scratch, but it will also use its war chest to bring work in from the outside. Watts and Schuth declined to say where they were looking. When asked if they would license work from Genentech, where they both worked for a decade or more, they declined to comment. “We’re open to partnering with anyone,” says Schuth. “Partnering will be a central part of our strategy, especially in the beginning.” (Genentech’s parent company Roche is not an investor in Denali, Schuth says.)

Several factors have come together to make Denali possible. First, the biotech boom has opened an unprecedented financing window. Second, the cost of genomic sequencing has dropped while the sophistication has increased, opening new insights into disease biology. And a third factor, which Denali will lean on heavily, is a better ability to spot patients who are just showing signs of disease or aren’t showing symptoms at all. Denali, like many drug developers, wants to identify the right patients before embarking upon costly clinical trials. As recent failed Alzheimer’s trials have shown, treating people who are deep into the course of disease seems to have no effect.

“The earlier we can start a treatment, the more likely we are to change the course of disease,” says Denali board member Stacie Weninger. Weninger is executive director of the Fidelity Biosciences Research Initiative, which is part of financial giant Fidelity Investments’ biotech fund.

Other board members are Stephen Knight of Fidelity Biosciences, Doug Cole of Flagship Ventures, Illumina CEO Jay Flatley, Harvard Business School professor Vicki Sato, and Agios Pharmaceuticals CEO David Schenkein.

When asked about Flagship’s investment, the Cambridge, MA-based firm’s CEO Noubar Afeyan had this to say:

“We’ve been very reticent to be in this area for all the reasons that have caused many pharma companies to get out, but we don’t mind being contrarian when the conditions are ripe,” Afeyan said. “And we think that this has pretty interesting potential to be disruptive in an area where the need is huge.”

Marc Tessier-Lavigne

Marc Tessier-Lavigne

The Fidelity commitment is personal. The founder of the financial giant, Edward Johnson II, died of Alzheimer’s disease in 1984, prompting his son and successor, Edward “Ned” Johnson III, to start a huge commitment to fighting the disease. (One of those commitments has been Forum Pharmaceuticals, solely owned by Fidelity Biosciences for most of the past 14 years. As Xconomy reported last month, Forum, in part because of Fidelity’s transition to new CEO Abigail Johnson—Ned’s daughter—wants to bring new investors on board.)

Nelsen said he and Tessier-Lavigne have been talking for some time about starting a neuroscience company. Tessier-Lavigne is on the board of Juno and Agios, which Arch and Flagship both helped start. (He is giving up his board seat at Pfizer (NYSE: PFE).

“I’ve been wanting my entire career to do the ultimate CNS company,” said Nelsen, using the shorthand for “central nervous system,” “but the science was never ready.”

Photo of Denali courtesy of flickr user Nic McPhee via Creative Commons.