Biotech stock investing is full of ups and downs. Anyone who's been watching ChemoCentryx (CCXI) and Deciphera Pharmaceuticals (DCPH -0.81%) lately can tell you all about the downs.
Shares of ChemoCentryx were soaring in 2020 until an FDA advisory committee vote pulled the rug out from under its stock price in May. As a result, shares of the biotech have lost around 77% of their value this year.
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Deciphera's first drug earned approval last year, but sales so far have been a disappointment. After giving up around 41% of its value this year, an upcoming clinical trial readout could allow shares of this biotech to bounce right back.
ChemoCentryx
This company doesn't have a steady source of revenue at the moment but that could change before the end of the year. On or before Oct. 7, the FDA will announce a long-awaited approval decision regarding a new drug application for ChemoCentryx's lead candidate, avacopan, for the treatment of anti-neutrophil cytoplasmic autoantibody (ANCA)-associated vasculitis.
Shares of ChemoCentryx were beaten down in May, when an FDA advisory panel voted 10-8 on whether avacopan's apparent benefits outweighed its potential safety concerns. The company has since submitted an amendment to the new drug application under review to address its shortcomings.
The FDA's willingness to incorporate the amendments is a positive signal because the agency doesn't do it very often. When major amendments are included, the agency ends up approving the new drug in question more often than not.
Avacopan is an oral drug that limits the activation of destructive white blood cells by blocking the C5a receptor. Overactive C5a receptor activity leads to ANCA-associated vasculitis, but standard treatment with steroids like prednisone broadly suppresses immune system activity and causes lots of unintended side effects.
As a tolerable alternative to traditional steroids, avacopan could generate more than $1 billion for ChemoCentryx within a few years of its initial launch.
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Deciphera Pharmaceuticals
This company currently markets Qinlock, a new treatment for gastrointestinal stromal tumors (GIST) a type of cancer that usually originates in the stomach and small intestine. The FDA approved Qinlock in 2020 for relapsing GIST patients who have already failed three different courses of therapy.
Sales of Qinlock have been disappointing in the limited fourth-line setting, which is keeping Deciphera Pharmaceuticals' stock price a lot lower than it could be. Before the year's finished, though, hope for a label expansion could push shares of this biotech stock into the clouds again.
In the fourth quarter, Deciphera will read out results from a head-to-head trial with Sutent, which is currently the standard for GIST patients who relapse after their first line of treatment. Sales of Qinlock are on pace to reach just $80 million this year, but successful expansion to the second-line setting could make it a blockbuster drug that adds more than $1 billion to Deciphera's top line year after year.
Beyond Qinlock, Deciphera Pharmaceuticals already has three more cancer drug candidates in clinical-stage testing. More revenue from a second-line indication for Qinlock would allow this company to develop the rest of its pipeline at a faster pace.
Time to buy?
Investors want to tread lightly with ChemoCentryx even though avacopan could produce blockbuster sales as a targeted treatment for ANCA-associated vasculitis and additional autoimmune disorders. The FDA's willingness to incorporate new information into the ongoing review process is encouraging, but the company shouldn't be in this position in the first place.
Throughout development, the FDA told ChemoCentryx its phase 3 trial design wouldn't be sufficient. Investors have no reason to be surprised if the FDA sends the company a complete response letter instead of a green light to market avacopan.
Deciphera Pharmaceuticals' market cap has fallen down to just $1.9 billion at recent prices. That seems really cheap for a company with several clinical-stage candidates when you consider it's already proven itself capable of shepherding new cancer drugs through the FDA's review process.
