There are plenty of intriguing biotech stocks on the market right now, and many of them are trading at a steep discount due to the coronavirus pandemic. However, no matter how exciting a company's prospects might be, investors still need to do their due diligence before choosing to invest in any biotech stock.

Deciphera Pharmaceuticals (NASDAQ:DCPH) is one company on sale. Its lead drug candidate, ripretinib, is awaiting regulatory approval from the U.S. Food and Drug Administration (FDA) later this year. There's a lot of anticipation surrounding this decision; does this mean that now's a good time to buy this stock, or should you stay away from this company altogether?

Scientist holding a microscope in a laboratory.

Image source: Getty Images.

Understanding Deciphera's business

Deciphera has a few separate drug candidates in its pipeline right now; a couple of them are still in preclinical research, while others are just beginning phase 1 or 2 clinical trials. The most exciting part of Deciphera's pipeline is ripretinib, which treats a type of tumor that occurs in the stomach and small intestines known as a gastrointestinal stromal tumor (GIST). The drug works by targeting certain types of proteins (known as kinases) that are specifically involved in regulating the body's immune response. These types of drugs, also known as checkpoint inhibitors, end up amplifying the immune system's ability to attack cancerous cells in the body.

Overall, GIST is a pretty rare type of cancer, with only 5,000 patients or so being diagnosed in the U.S. each year. However, when you consider that some patients don't show major symptoms at all if their tumors are small enough, this figure may be much higher.

Shares of Deciphera almost doubled back in August when the company announced positive phase 3 trials for ripretinib. The trial in question, which compared the drug against a placebo, tested 129 patients with advanced GIST who had already tried previous cancer therapies. Ripretinib ended up meeting both its primary and secondary endpoints in improving patient survival times in comparison to the placebo.

Deciphera's New Drug Application (NDA) for ripretinib is currently undergoing a priority review by the FDA, with the decision scheduled to be announced by Aug. 13. Considering how positive the clinical data has been for ripretinib so far, the odds seem to be pretty good that the drug will be approved, although you can never be 100% certain how the FDA will rule on a decision.

What about the competition?

Eight different drugs have been approved by the FDA for use in treating GIST. One of the more notable ones is Gleevec, a cancer treatment produced by Novartis that received approval to treat GIST back in 2002. However, the drug has since lost its patent protection and has been losing market share at a significant rate.

Newer GIST treatments include Blueprint Medicine's Ayvakit, a GIST treatment that was approved in January. A 30-day supply of this drug carries a price tag of $32,000, and it wouldn't be surprising if Deciphera charges similarly for ripretinib.

GIST is a rare type of cancer, and there are already a significant number of other cancer treatments approved for the condition. Although Deciphera's new  drug could capture a significant chunk of the market, it's uncertain just how commercially successful ripretinib will be in comparison with some of its newer competitors.

Scientist in a laboratory with a pipette, microscope, and several bottles.

Image source: Getty Images.

What else does Deciphera have up its sleeve?

Putting aside GIST, ripretinib also is undergoing a separate phase 1 clinical trial to treat systemic mastocytosis, a condition where the body produces too many mast cells. These cells, which are involved in fighting off infections and allergic reactions, end up multiplying out of control in patients who have this condition. Systemic mastocytosis ends up becoming cancerous in up to 30% of all adult cases. However, it too is a fairly rare condition, affecting just 1 in 10,000 adults around the world.

Another drug Deciphera is working on is rebastinib, a tumor treatment meant to be used in combination with other cancer drugs. Rebastinib is currently undergoing two phase 2 trials involving tumors in breast, ovarian, and endometrial (a type of uterine) cancer. A second tumor drug, DCC-3014, is currently undergoing phase 1 trials as well.

Looking at the financials

Evaluating clinical-stage biotech stocks is a little different from evaluating most other companies. Because these companies have little in the way of revenue, potential investors should pay close attention tothe pipeline. Additionally, they should decide whether the company has enough cash on hand to finance its operations until any of its drug candidates get approved.

Deciphera has no revenue to speak of -- at all. Net losses for the fourth quarter of 2019 came in at $67.2 million, significantly worse than Q4 2018's net losses of $32.3 million. However, that's par for the course considering its main drug candidate went through two phase 3 trials, which tend to be quite expensive for smaller biotech stocks.

The good news is that Deciphera has more than enough cash to finance itself until ripretinib receives regulatory approval. The company has $120.3 million in cash and cash equivalents, alongside an extra $459.3 million in marketable securities if necessary. That comes to $579.6 million in total, which would be enough to last the company a couple of years at its current rate of cash expenditure.

Should you buy Deciphera right now?

The question really comes down to whether or not you think ripretinib will receive FDA approval this August. If that happens, which seems likely, then buying Deciphera's stock on that basis now could be a good idea.

However, there's a lot riding on this approval, and on the off chance that the FDA doesn't approve ripretinib, you can expect shares of Deciphera to tank. At the same time, there's still a fair bit of competition in the GIST arena, an already small market given how rare this type of cancer is.

Overall, if you're a high-risk, high-growth investor, I would be OK recommending picking up some shares of Deciphera right now in anticipation of the FDA's ruling. However, make sure to keep your position relatively small, especially since this is still a clinical-stage biotech stock with no revenue.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.