DCPH - Deciphera: Upside Potential For The Patient Investor

2024-01-09 04:37:11 ET

Summary

• Deciphera Pharmaceuticals has seen a 50% upside with successful phase 3 trial results.
• DCPH has achieved positive data in a subpopulation of patients with KIT exon 11 primary mutation.
• The company's pivotal phase 3 study of vimseltinib in TGCT has met primary and secondary endpoints, with a high objective response rate.

If somebody played Deciphera ( DCPH ) well, utilizing the October catalyst where its phase 3 trial came out successful, one could make a nice 50% profit in a stock even as broadly stagnant as DCPH. When I say "broadly" stagnant, I mean that despite the up and down in October, the stock is only up 5% from my June article, and only 3% from March. I have been covering DCPH for a while, having bought it in March and accumulating it at dips. DCPH has been a difficult stock for the long-term holder. It doesn't do what you want, go up 100% right after you buy. It stands there and broods.

DCPH is doing valuable science, I have no doubt about that at all. The October achievement speaks for its science, as do previous trial data. After ripretinib's trial failure, DCPH came back strong with solid data in a subpopulation of patients with KIT exon 11 primary mutation, which had much superior data. Usually, post hoc data does not convince me, but this one did enough for me to buy. Ripretinib was approved in 4th line GIST in 2020 - a smallish market. The trial they failed was for 2nd line GIST. Had they succeeded, we would be having this conversation in my private Lear - sort of. Jokes apart, 2nd line GIST is a much larger market, and imatinib refractory patients have Sutent or sunitinib as an option, which is what ripretinib was trying to compete with. The trial showed ripretinib's safety superiority. Like I noted in March:

In many respects, the trial did show the superiority of ripretinib - the AE profile, better tumor reduction in KIT exon 11 subtype patients than sunitinib, and so on. However, since the trial failed on efficacy, there was little chance of approval.

The other trial, where they did well in October, is the pivotal phase 3 study of vimseltinib in TGCT or Tenosynovial giant cell tumor, a rare, locally advanced neoplasm with a US prevalence of 1200-1500 patients. Key details :

- MOTION Study Met Primary Endpoint with Objective Response Rate (ORR) at Week 25 of 40% Compared to 0% for Placebo (p<0.0001) -

- MOTION Study Met All Key Secondary Endpoints with Statistically Significant and Clinically Meaningful Improvements at Week 25 Compared to Placebo, including ORR by Tumor Volume Score (TVS) of 67% vs. 0% (p< 0.0001) -

- Updated Results from Phase 1/2 Study of Vimseltinib Demonstrated Best ORR of 72% (Phase 1) and 64% (Phase 2 Cohort A) with Median Treatment Duration of 25.1 Months (Phase 1) and 21.0 Months (Phase 2 Cohort A) -

- Treatment with Vimseltinib was Well-tolerated with No Evidence of Cholestatic Hepatotoxicity in MOTION and Phase 1/2 Studies -

- Company Expects to Submit New Drug Application (NDA) in Second Quarter 2024 and Marketing Authorisation Application (MAA') in Third Quarter 2024 -

These numbers are superb. A molecule that is well-tolerated and so well-differentiated from placebo has almost no risk of regulatory failure in my opinion.

However, note carefully the adverse events profile. Here's a table showing TEAEs >15% in either arm during Part 1 of the study.

Discontinuation rate was 6% in this study in the drug arm, and these were due to treatment emergent adverse events. Among these, CPK increase of 24% across all grades and 10% grade 3 AEs was the most concerning. CPK or creatine phosphokinase is an indication of muscle damage. When muscle or heart tissue is damaged or stressed, such as in the case of a heart attack, trauma, or certain medical conditions affecting the muscles, CPK is released into the bloodstream. Therefore, measuring the levels of CPK in blood tests can be an indicator of muscle or heart damage.

Elevated levels of CPK in the blood can suggest various conditions, including muscle injury, myocardial infarction (heart attack), muscular dystrophy, inflammation of muscles (myositis), and other muscle-related disorders.

All those edemas occurring in the trial, like the CPK elevation, are related to muscle injury, as is the Arthralgia, or joint pain related to possible injury.

In October, the company also released open-label phase 1 data from the same molecule-indication combo. Here, too, CPK elevation was the main AE, and was seen in over 60% of patients at all grades, and over 30% as grade 3/4 AEs. These are not great numbers. I do not want to overemphasize the CPK metric because it appears that it was manageable. But the FDA might have questions about long-term implications and locational information of the edema. They will especially want to know of any possible CV implications of these AEs.

Financials

DCPH has a market cap of $1.12bn and a cash balance of $377mn. Total revenue for the third quarter of 2023 was $43.3 million, which includes $41.8 million of net product revenue of QINLOCK. Cost of sales were $1.3 million, R&D Expenses were $62.5 million, and SG&A Expenses were $33.3 million. Net loss was $49.6mn. Taking all of that together, and assuming a similar rate of revenue and expenses, they have a cash runway of 5-6 quarters.

Bottomline

DCPH is a stock that often trades sideways, and has done so over the last 12 months. However, with the new data, an upcoming NDA, a small if captive patient population, steady revenue from QINLOCK and prospect for some level of approval in 2nd line GIST, I see decent upside from current levels. DCPH is a buy at these prices.

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