Deciphera Pharmaceuticals: Updates To Thesis, Further Upside Ahead Post Phase 3 Win

Summary

  • Shares plummeted by almost 50% after my original article and have recently climbed back to about breakeven.
  • I provide a recap of the bullish thesis and certain recent events.
  • INVICTUS phase 3 data in 4th line GIST provides additional derisking and shows signs of a differentiated profile for ripretinib.
  • Detailed data presentations at major medical meetings in the near to medium term, as well as expansion into earlier lines of therapy, provide additional upside drivers.
  • Deciphera is a Buy. Pipeline looks intriguing, including DCC-3116 with potential to treat mutant RAS cancer. Key risks include competition and disappointing readouts in the future.
  • I do much more than just articles at ROTY : Members get access to model portfolios, regular updates, a chat room, and more. Get started today »

Shares of Deciphera Pharmaceuticals (NASDAQ:DCPH) have risen by just 1% since my September 2018 article suggested initiating a pilot position in the near term and accumulating weakness. To be fair, I had thought ESMO data for DCC-2618 would boost shares and instead they lost nearly half their value due to falling ORR (objective response rate).

Recently, well known ROTY member Biotech Phoenix submitted this one to Idea Lab, stating that pivotal data in 4th Line GIST was compelling with efficacy as good or better than approved therapies in the 2nd/3rd line setting. He also notes that the drug candidate (repretinib) appears differentiated with high selectivity against common mutations and potential to be best in class behind Gleevec (perhaps another takeout candidate in the targeted oncology space a la Array BioPharma and Loxo Oncology).

Given that recent data provides a high degree of derisking, secondary offering has bolstered cash reserves, and the firm has a deep pipeline, I'm looking forward to revisiting to determine if there's a near to medium term opportunity for us to take advantage of.

Chart

Figure 1: DCPH daily advanced chart (Source: Finviz)

When looking at charts, clarity often comes from taking a look at distinct time frames in order to determine important technical levels to get a feel for what's going on. In the above chart (daily advanced), we can see shares trading in the $20 to $25 range for much of the past year. After positive data was reported, the stock gapped up to $40 before pulling back (currently consolidating just under secondary offering price point of $37).

Overview

In my prior article, I touched on the following keys to the bullish thesis:

  • Leadership lineup appeared quite deep with key members of management hailing from the likes of Pfizer (NYSE:PFE), Amgen (NASDAQ:AMGN), Roche (OTCQX:RHHBY), Shire (OTCPK:SHPGF) (SHPG), Merck (MRK), GlaxoSmithKline (GSK). This included Chief Commercial Officer Daniel Martin (Senior VP at Heron Therapeutics) and Stephen Ruddy (prior VP of Pharmaceutical Development at Tesaro). I also was pleased with signs of institutional clustering (New Leaf Ventures, OrbiMed Advisors, Opaleye Management, etc.).
  • DCC-2618 (ripretinib) was an asset of interest and the subject of several trials, including phase 3 INVICTUS study in advanced GIST tumors where phase 1 data had shown durable disease control in heavily pretreated patients). The company was clearly a winner at the previous ASCO where updated phase 1 data showed ORR of 24% and 3-month DCR of 80% in 2nd and 3rd line settings (easily besting results from currently approved therapies, where ORR is in the mid-single-digits and DCR ranges between 50% and 63%). Also of interest, mutational profiling data demonstrated a range of KIT mutations in GIST and the ability of the drug candidate to reduce MAF (mutant allele frequency) by over 50%.
  • Market opportunity was quite sizable as compared to valuation at the time, another clue that good things were in store. To be fair, competition from Blueprint Medicines (BPMC) was a factor we took into consideration, especially in certain spaces such as systemic mastocytosis where this competitor's data shined.

Figure 2: Estimated market opportunity broken down (Source: corporate presentation)

  • Pipeline was another factor that made this one appealing, as management pointed out that combination data for CSF1R inhibitor DCC-3014 was of interest, considering its selectivity (100 to 1000 fold) and potential advantages in terms of tolerability. The strategy here was to be a fast follower to big pharmaceutical firms such as Bristol-Myers Squibb (BMY) and Roche as they accelerated investments in this space and unveiled data sets. For 3014, the idea was to eventually find an I-O partner, given complexities of larger scale combination trials.

Figure 3: Pipeline (Source: corporate presentation)

Let's fast forward to the recently unveiled data set, investigating its implications, the current state of the company and future milestones to look forward to.

The Data

On August 13th, the company announced positive top-line results from the INVICTUS phase 3 study of ripretinib in patients with fourth-line and fourth-line plus gastrointestinal stromal tumors (GIST). Management highlighted significant treatment benefit in improved progression free survival (PFS) and magnitude of benefit in overall survival. In the study patients with advanced GIST (previous therapies included at least imatinib, sunitinib, and regorafenib) were randomized 2 to 1 to receive study drug or placebo, with median PFS of 6.3 months as compared to 1 month in placebo arm. Risk of disease progression or death was reduced by 85% (HR of 0.15, p<0.0001) compared to placebo. As for key secondary endpoints, ORR was 9.4% (placebo = 0%, p-value = 0.0504) and median overall survival of 15.1 months compared very well to 6.6 months for placebo arm (HR = 0.36, nominal p-value = 0.0004).

As for safety profile, repretinib was considered generally well tolerated with 49% Grade 3 or 4 treatment-emergent adverse events comparing favorably to 44% on placebo arm. To be fair, certain side effects (bilirubin increase, alopecia, fatigue, nausea, etc.) were far more pronounced in the treatment arm.

INVICTUS Phase 3 Clinical Study

Treatment Emergent Adverse Event

Placebo

Ripretinib

(N=43)(1)

150mgDaily

(N=85)(1)

Any event

42 (98

%)

84 (99

%)

Alopecia

2 (5

%)

44 (52

%)

Fatigue

10 (23

%)

36 (42

%)

Nausea

5 (12

%)

33 (39

%)

Abdominal pain

13 (30

%)

31 (36

%)

Constipation

8 (19

%)

29 (34

%)

Myalgia

5 (12

%)

27 (32

%)

Diarrhea

6 (14

%)

24 (28

%)

Decreased appetite

9 (21

%)

23 (27

%)

Palmar-plantar erythrodysesthesia syndrome

0

18 (21

%)

Vomiting

3 (7

%)

18 (21

%)

Headache

2 (5

%)

16 (19

%)

Weight decreased

5 (12

%)

16 (19

%)

Arthralgia

2 (5

%)

15 (18

%)

Blood bilirubin increased

0

14 (16

%)

Oedema peripheral

3 (7

%)

14 (16

%)

Muscle spasms

2 (5

%)

13 (15

%)

Figure 4: Tolerability/safety profile for INVICTUS trial (Source: press release)

As a result of these impressive results, the company will be submitting its New Drug Application to the FDA in the first quarter of 2020. Additional results from the INVICTUS trial are expected to be presented at an upcoming medical meeting.

On the same day, updated phase 1 data was released as well in patients with second-line through fourth-line plus GIST (additional results to be presented at upcoming medical meeting). Data included an additional six months of maturity from last cut-off and continued to support development of ripretinib across multiple disease settings (justified continued progress with INTRIGUE pivotal phase 3 study comparing study drug to sunitinib in second line GIST patients).

Figure 5: Updated Results Across All Lines of Treatment ≥100 mg/d (Source: corporate presentation)

Ripretinib was generally well tolerated, and updated adverse events were consistent with previously presented phase 1 data in patients with GIST (little in the way of surprises at this point). Note that 17% of patients experienced treatment-emergent adverse events that led to dose reductions and 49% of patients had TEAEs leading to study drug interruption.

On the conference call, management pointed out that patients are being treated well beyond RECIST progression (this dynamic could be due to receiving clinical benefit from repretinib beyond progression). For example, in 4L/4L+ cohort showed mean treatment duration of 41 weeks as compared to median PFS of 24 weeks.

Management wisely took advantage of the gap up in stock price to access financing, raising around $400 million in secondary offering priced at $37 per share. Investment banks involved included J.P. Morgan, Piper Jaffray, Jefferies, Guggenheim Securities, and SunTrust Robinson Humphrey.

Other Information

For the second quarter of 2019, the company reported cash and equivalents of $225.4 million as compared to net loss of $21.5 million (doesn't include proceeds from recent secondary offering). Research and development expenses nearly doubled to $34.8 million, while G&A almost tripled to $13.2 million. Also keep in mind that management recently executed an agreement with Zai Lab (ZLAB) to commercialize ripretinib in Greater China Area ($20 million upfront cash payment, up to $185 million in potential milestone payments plus royalties in low to high teens).

As for upcoming catalysts, above, I mentioned that updated phase 1 data for ripretinib and results from INVICTUS pivotal study will be presented at upcoming major medical meetings (followed by regulatory submission for 4th line GIST). Enrollment continues for the phase 3 INTRIGUE trial in 2nd line GIST patients. As for the company's TIE2 kinase inhibitor rebastinib, initial data from a phase 1 study (combined with carboplatin in patients with advanced or metastatic solid tumors) is expected in the second half of 2019. Moving on to DCC-3014 (CSF1R inhibitor), phase 1 data in patients with advanced malignancies (dose escalation portion) is expected later this year as well. An asset of particularly high interest is DCC-3116, which inhibits cancer autophagy via inhibition of ULK kinase. IND filings are expected in mid-2020, and here, there is potential to treat mutant RAS cancers in combination with inhibitors of downstream RAS effector targets, including RAF, MEK, or ERK inhibitors as well as with direct inhibitors of mutant RAS).

Figure 6: Preclinical data for DCC-3116 shows potent inhibition of ULK in multiple RAS cancer cell lines (Source: corporate presentation)

Figure 7: DCC-3116 + MEK inhibitors show reduced tumor growth in KRAS in vivo cancer models (Source: corporate presentation)

Normally, I wouldn't give much attention to assets in preclinical stage, but we've already observed the increase in valuations in certain companies as a result of KRAS hype (Amgen with promising initial data presented at June, sympathy move for Mirati Therapeutics (MRTX)).

ChartData by YCharts
ChartData by YCharts

In regards to competition from the likes of Blueprint Medicines' avapritinib, it was noted that their ORR data looks better (22% versus 9% for repritnib) while Deciphera carries the advantage in terms of PFS benefit. The landscape is constantly evolving here, and it'll be interesting to see how it plays out over time (Blueprint does have the first mover advantage), especially as differentiation for repretinib continues to emerge with additional data.

ChartData by YCharts

A valuation comparison is suggestive of further upside for Deciphera, although I'll be the first to admit it's not an apples to apples comparison (Blueprint has deeper and more advanced pipeline, including differentiated RET inhibitor and other assets of interest).

As for institutional investors of note, major holders include OrbiMed Advisors, New Leaf Ventures, RedMile Group, Deerfield Management and others. History of insider selling does not inspire confidence.

Final Thoughts

To conclude, INVICTUS data has given us the element of derisking we look for in ROTY, and secondary offering has bolstered cash reserves (making further dilution unnecessary in the near to medium term). Recent data sets unveiled give us incrementally more confidence in ripretinib's prospects in other settings, such as second line GIST (benefits like increased duration of treatment continue emerge as points of potential differentiation). Furthermore, as stated above, targeted oncology continues to be an attractive space to operate in where consolidation via M&A is and will continue to be the norm.

For readers who are interested in the story and have done their due diligence, I suggest initiating a pilot position in the near term. From there, I'd only add to the position as strength, stability, and news flow provide the necessary confirmation.

Risks include disappointing data (including upcoming presentations), high bar being set by competition including Blueprint Medicines' avapritinib, setbacks in ongoing and planned studies, and negative regulatory feedback. After the recent capital raise, dilution in the near term appears unlikely. Also, keep in mind that repretinib failed to achieve one its key secondary objectives as ORR failed to reach statistical significance. Consider that for the INTRIGUE trial the bar is being set much higher (head to head against Sutent in GIST patients who failed only one treatment), although recent clinical results have likely added an element of derisking.

As for downside cushion and elements of derisking, cash position accounts for around 40% of current market capitalization and INVICTUS data unveiled so far gives additional cushion. Keep in mind there are about 6,000 addressable 4th line patients in US/EU/Japan markets.

For our purposes in ROTY, I plan to continue monitoring this one as additional data emerges so I can gain a better grasp of competitive landscape, including positioning as contrasted to avapritinib.

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This article was written by

Jonathan Faison profile picture
16.18K Followers
Community of Biotech Investors Focused on Value & Clinical Momentum

Founder of ROTY (Runners of the Year), a 500+ member community of biotech investors & traders. Big believer in quality over quantity, my goal is to add value for ALL readers.





Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Disclaimer: Commentary presented is NOT individualized investment advice. Opinions offered here are NOT personalized recommendations. Readers are expected to do their own due diligence or consult an investment professional if needed prior to making trades. Strategies discussed should not be mistaken for recommendations, and past performance may not be indicative of future results. Although I do my best to present factual research, I do not in any way guarantee the accuracy of the information I post. I reserve the right to make investment decisions on behalf of myself and affiliates regarding any security without notification except where it is required by law. Keep in mind that any opinion or position disclosed on this platform is subject to change at any moment as the thesis evolves. Investing in common stock can result in partial or total loss of capital. In other words, readers are expected to form their own trading plan, do their own research and take responsibility for their own actions. If they are not able or willing to do so, better to buy index funds or find a thoroughly vetted fee-only financial advisor to handle your account.

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