Morgan Stanley: Denali’s third-quarter drug sales beat expectations, with some growth pulled forward into 2026

How much did AVLAYAH sales exceed expectations?

Denali’s Hunter syndrome drug AVLAYAH generated 17.8 million dollars in net product revenue in the third quarter of 2026, its second full quarter since launch. This was above the company’s previous guidance of 10 million to 12 million dollars and above both the market consensus and Morgan Stanley’s estimate of 11 million dollars.
The company’s fourth-quarter sales guidance was 30 million to 32 million dollars, above the market consensus of 17 million dollars and Morgan Stanley’s prior estimate of 22 million dollars. Based on the guidance, full-year sales in 2026 are estimated at approximately 51 million to 53 million dollars.

Management attributed the third-quarter performance to expanded insurance coverage and patients switching to commercial drug use: the share of people covered by commercial insurance rose from more than 50% in the second quarter to more than 70%, while the number of state Medicaid programs covering the drug increased from 14 to 20. A permanent J-code took effect on 1 October.
Most eligible participants in the 1/2 trial switched to commercial drug use earlier than planned and had already reached their target doses, so they contributed a full quarter of revenue in the third quarter.
Management said some growth originally expected in 2027 was pulled forward into 2026. The revenue jump from the third to the fourth quarter should not be viewed as a sustainable growth rate; revenue is expected to grow more steadily thereafter as new patients start treatment, access processes shorten, and doses increase.

Morgan Stanley raised its sales forecasts for AVLAYAH in 2026 through 2028 to 52 million, 120 million, and 195 million, respectively, from previous estimates of 43 million, 98 million, and 163 million. The 2027 forecast is roughly equivalent to extrapolating the fourth-quarter guidance on a straight-line basis for the full year.
The drug’s sales beat did not eliminate operating losses: third-quarter total revenue was approximately 18 million dollars, below the market consensus of approximately 42 million dollars; the operating loss for the quarter was approximately 127 million dollars. Net income for the quarter was approximately 70 million dollars, including 195 million dollars in proceeds from a priority review voucher within other income.
The firm expects operating losses of approximately 509 million, 420 million, and 390 million dollars in 2026 through 2028, respectively. Morgan Stanley maintained its Overweight rating and raised its price target from 40 dollars to 42 dollars.

The confirmatory COMPASS study of AVLAYAH is expected to be completed around the end of 2027, with data expected in the first half of 2028. The data are intended to support full approval in the United States, expansion to an adult indication, and regulatory and reimbursement applications outside the United States.
Additional data for DNL126 in MPS IIIA are expected in the first quarter of 2027. The company still plans to submit a biologics license application seeking accelerated approval in 2027.
Data for DNL593 are expected in the first half of 2027, later than the previously expected end of 2026, to extend follow-up of biomarkers including NfL. Management said whether to explore a biomarker-based accelerated-approval pathway depends on the data and regulatory feedback.