Deciphera Pharmaceuticals: Buy at the High?

One quick look at the stock chart of Deciphera Pharmaceuticals (DCPH +0.00%) shows a constant tension between optimism and pessimism. In the last two years, investors haven't been sure what to make of clinical updates from the clinical-stage pharma, especially in comparison to competitors. The latest results might make that decision a little easier.

Shares more than doubled in mid-August after the company reported solid results from a phase 3 trial investigating its lead drug candidate, ripretinib, as a treatment for advanced gastrointestinal stromal tumors (GIST). That gives the stock a one-year gain of just 6% after factoring in a massive $400 million public stock offering, but the results should be enough to earn marketing approval from the U.S. Food and Drug Administration (FDA). Is that enough to make Deciphera Pharmaceuticals stock a buy?

Image source: Getty Images.

A promising pipeline

Deciphera Pharmaceuticals is developing four small molecule drug candidates called checkpoint inhibitors. They're specifically designed to inhibit the function of enzymes called kinases that play a role in the growth, spread, and survival of cancer cells. According to Chemoth.com, "Of the 43 new drugs approved by the FDA for cancer from 2015 to 2018, 13 were kinase inhibitors." 

That shows how active the research area has become, but there's one major issue with checkpoint inhibitors: resistance. While stopping certain parts of a cancer's metabolism can help patients to manage their disease initially, many cancers adapt by mutating the structure of the targeted kinase and rendering the treatment ineffective. It's one of the biggest obstacles facing cancer therapeutics today.

Deciphera Pharmaceuticals thinks it can delay the onset of tumor resistance by developing checkpoint inhibitors capable of targeting specific kinases and many or all of the possible mutants. That's a big claim, and one reason for the stock's volatility in the last two years, as the clinical update in October 2018 raised some important questions. But the latest results suggest the company's approach may yet elevate the standard in GIST. 

Image source: Getty Images.

Solid clinical results 

Ripretinib is a kinase inhibitor aimed at tyrosine-protein kinase KIT, or KIT for short, and platelet derived growth factor alpha (PDGFRA). Considering over 90% of patients with KIT-driven GIST have multiple mutations of KIT, it's a promising target for treating the rare cancer. The drug candidate shone in two recent clinical trials. 

In a phase 3 trial evaluating patients with advanced GIST (fourth-line and above) who received at least three prior therapies, Deciphera Pharmaceuticals reported that ripretinib met its primary endpoint. Patients taking the drug candidate achieved a median progression-free survival (PFS) of 6.3 months, compared to just 1 month for individuals taking placebo, and saw their risk of disease progression or death decline by 85%. 

That should be enough for the company to file a new drug application (NDA) with the FDA in the first quarter of 2020. Deciphera Pharmaceuticals thinks the drug candidate's potential extends far beyond treating late-stage patients who've failed other therapies, however. In a separate phase 3 trial, ripretinib is being compared directly to Sutent from Pfizer, which generates over $1 billion in global annual revenue, as a second-line treatment option.

Deciphera Pharmaceuticals also recently announced encouraging results from a broad phase 1 trial evaluating the drug candidate's potential in treating second-line and above GIST. Consider the clear relationships among objective response rates (ORR; whether a patient responds to treatment), disease control rates (DCR; how many patients don't see disease progression), and progression-free survival (PFS) based on the severity of GIST observed as of the end of March 2019. 

Data source: Press release.

That may not seem like much, but existing second- and third-line GIST treatments achieve an ORR of just 7% and 4.5%, respectively. The question on the minds of investors is just how competitive ripretinib will be compared with other drug candidates barreling toward the market.

For instance, Blueprint Medicines (BPMC +0.00%) is developing its own kinase inhibitor, avapritinib, in second-line and above GIST. It also takes aim at KIT and PDGFRA. It's delivered impressive results to date with fewer side effects than ripretinib and existing treatments. And it's on track to earn marketing approval months before ripretinib. That's led several analysts to declare it the favorite in the race for the future of GIST treatments.

A deeper look reveals the matchup might be too close to call. While avapritinib achieved an ORR of 20% in fourth-line and later GIST,  it achieved a four-month DCR of 40% and a median PFS of 3.7 months. Ripretinib achieved an ORR of just 8% in the same patient population, but reported a three-month DCR of 70% and a median PFS of 6 months. It's too early to tell which drug might prove superior, but investors should get a more concrete answer as second-line studies are wrapped up in the next two years. 

Ready to hit the ground running

Deciphera Pharmaceuticals is well positioned to earn marketing approval for ripretinib in fourth-line and later GIST in late 2020. While that will lag months behind Blueprint Medicines, the clinical update from mid-August demonstrated that the smaller company shouldn't be written off just yet. Investors will now be eagerly awaiting study results from both companies in second-line and above GIST  to determine how market share might get divided.

However that shakes out, Deciphera Pharmaceuticals should be able to hit the ground running. It exited June with $225 million in cash and raised another $400 million in gross proceeds in mid-August. That should be enough to fund ongoing clinical trials and get ripretinib launched, although more cash will likely be needed in late 2020 or early 2021. 

So is Deciphera Pharmaceuticals a buy? There's no denying that a lot of success is priced into the current $1.3 billion valuation. Given the competition in GIST, investors would like to see competitive results as a second-line therapy and success in additional pipeline candidates. But investors with an appetite for risk may find it exciting to open a small position in the stock.