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Here's Why Deciphera Pharmaceuticals Tumbled Today

By Maxx Chatsko - Feb 13, 2020 at 12:46PM

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The company announced a public stock offering as it prepares for a potential regulatory approval in 2020.

What happened

Shares of Deciphera Pharmaceuticals (DCPH 7.63%) fell as much as 16.1% today after the company announced a proposed public offering of common stock. The pre-revenue pharmaceutical company intends to raise gross proceeds of up to $287.5 million, although the number of shares offered won't be known until the pricing is announced. 

The new funds will pad a balance sheet that sported $634 million in cash, cash equivalents, and marketable securities at the end of September. Although it may seem unnecessary, Deciphera Pharmaceuticals is preparing for a busy year. The company is expanding its pipeline, conducting an important late-stage trial for its lead drug candidate, and preparing for the potential market launch of the same experimental therapy in the second half of 2020. 

As of 12:31 p.m. EST, the pharma stock had settled to a 14.9% loss.

A pink arrow crashing through the bottom of a chart.

Image source: Getty Images.

So what

The fundraising announcement comes on the heels of news that the U.S. Food and Drug Administration (FDA) accepted the new drug application (NDA) for the company's lead drug candidate, ripretinib, as a fourth-line treatment option for gastrointestinal stromal tumors (GIST). The FDA is expected to make a decision by Aug. 13, 2020, which means the drug candidate could launch in the second half of 2020. 

Ripretinib is widely expected to receive marketing approval. In a phase 3 clinical trial, the drug candidate achieved a median progression-free survival (PFS) of 6.3 months, compared to only one month for placebo. It achieved an 85% reduction in risk of disease progression or death compared to placebo. There are currently no approved fourth-line treatment options for GIST, which gives investors confidence that approval is imminent. 

The strong showing in advanced GIST has also made investors confident that the drug candidate can significantly improve outcomes in less advanced cases of the illness. By the second half of 2020, Deciphera Pharmaceuticals expects to complete enrollment in a phase 3 study evaluating ripretinib as a second-line treatment option for GIST. In a best-case scenario, analysts expect the drug candidate to achieve peak annual sales of $1 billion or more. 

Now what

Investors shouldn't be surprised by the proposed public offering of common stock. Deciphera Pharmaceuticals expects to have a busy -- and expensive -- year of operations in 2020. It's wise to stay ahead of an accelerating cash burn and to take advantage of a soaring stock price. All eyes will be on the next formal update from management: the fourth-quarter and full-year 2019 earnings conference call in the coming weeks.

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