DCPH - Deciphera Pharmaceuticals: Moving The Needle Where It Counts

2024-01-07 23:48:01 ET

Summary

• Deciphera Pharmaceuticals continues to make progress with its flagship drug ripretinib, with positive phase 3 results and ongoing trials.
• They are also working on commercializing the CSF1R inhibitor vimseltinib, with promising response rates in phase 1/2 and phase 3 trials.
• Financially, DCPH has a strong cash position and increasing revenues, but high expenses and the need for profitability remain challenges.

Topline Summary

Deciphera Pharmaceuticals ( DCPH ) is an equity I've covered a few times in the past, most recently back in August , where I suggested that they're continuing to make progress in clawing their way back from years of setbacks. With a positive phase 3 under their belt and another critical big trial underway, I continue to think they're worth a deep look and consideration for a position in your portfolio. This article outlines why.

Pipeline Updates

Ripretinib

DCPH's main flagship remains the KIT inhibitor ripretinib, which has had its ups and downs over the years. They continue to enroll patients into the INSIGHT study, a phase 3 trial intended to confirm the substantial benefit suggested by an exploratory analysis of their INTRIGUE study (which failed its primary endpoint in the overall population ). In the subgroup of patients with exon 17 and 18 activation loop mutations or exon 11 mutations driving resistance to sunitinib, ripretinib still had benefits.

These findings were recently published in Nature Medicine, showing that patients with these mutations had median progression-free survival of 14.2 months and a response rate of 44.4% with ripretinib, but only 1.5 months and no responses with sunitinib, the standard of care in this setting.

Because these findings come from an exploratory analysis, the study wasn't powered to show definitively that ripretinib is better in this population of patients, hence the ongoing INSIGHT study.

But the signal is undeniably very interesting, and it has reignited some market interest in DCPH over the past few years.

Vimseltinib

DCPH is also working on commercializing the CSF1R inhibitor vimseltinib, with its first likely approval coming in a rare tumor called tenosynovial giant cell tumor. In my last article , I highlighted encouraging response rates from an ongoing phase 1/2 study reported in 2022, but at the time we did not know the results of the ongoing, registrational phase 3 trial.

Back in October, the company provided an update on that phase 1/2 trial, continuing to support favorable response rates and showing a large proportion of patients who remain on treatment in the study. They also provided top-line findings from the phase 3 MOTION study, showing response rates of 40% and 0% for vimseltinib and placebo.

These findings confirm both the response rates shown in the phase 1/2 study, as well as demonstrate clear efficacy (at least in terms of tumor shrinkage) compared with placebo.

Considering this form of tumor frequently does not become malignant, but causes tissue damage and complications from growth, this is one time where tumor response rate is an appropriate endpoint for full registration, in my opinion.

DCPH guides that they intend to submit an NDA for vimseltinib in Q2 2024.

Financial Overview

As of their Q3 filing , DCPH held $417.6 million in total current assets, with $108.1 million in cash and equivalents and another $231 million in short-term marketable securities. They also had approximately $40 million in long-term investments.

Their total revenues reached $43.3 million, up from $37.3 million in the prior quarter. Total operating expenses were $97.0 million. After interest and other income, the net loss for the quarter was $49.6 million, up from $43 million in Q3 2022. Year-to-date net losses increased from $133 million by Q3 2022 to $147.8 million in Q3 2022, due mainly to growth in R&D expenses.

Strengths and Risks

As I pointed out before, DCPH had cash sufficient to get them through reporting their phase 3 MOTION study results. This is obviously a positive catalyst for the stock, as will be an NDA submission. How much can an approval for such a rare tumor improve the bottom line? That's anybody's best guess, but it's very likely that DCPH can achieve strong penetration into whatever market does exist since there are currently no effective systemic therapies in use.

Ripretinib continues to look good in the exploratory patient group, but as has been the case for the last few years, it's still going to take a while to mature and improve the outlook for the KIT inhibitor. Now, there's a potential for an early trial closure due to overwhelmingly positive activity, if the INSIGHT study will reproduce the massive benefit (14.2 vs 1.5 months) observed in the INTRIGUE exploratory study. However, it would be more prudent to assume it's going to need to go the distance, which would be the primary completion date of early 2026.

Costs still remain high relative to the revenues they're generating, as well, and I don't see much hope for growing current revenues past their expenses with current approvals. The recent launch of ripretinib in Italy has helped, of course, and it demonstrates their ongoing efforts to expand the ripretinib franchise. Cash-wise, DCPH has continued falling behind the revenue vs expense tug of war, and it's unclear whether a vimseltinib approval (which appears highly likely) will make the difference.

Bottom-Line Summary - Why No Change in Rating?

DCPH continues to face headwinds and unanswered questions. They need a lot to go their way if they're to reach profitability. They have multiple years of cash on hand, even without sales growth from here, so there is time to realize as much potential from ripretinib and vimseltinib as they can before they run into more dire straits on the business end. To me, when you consider a relatively small market cap of $1.23 billion, there is still a lot of upside potential as they continue to mature. Obviously, there are plenty of risks, too, since their main ripretinib study could still fail, and that would be a really nasty shock and a serious negative catalyst. However, they've got too much positive building up to ignore at this point.

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