Short selling biotechnology stocks is a dangerous game to play. However, Deciphera Pharmaceuticals (NASDAQ:DCPH) has been a boon to the bears as DCPH stock is far below its peak price.
Don’t get me wrong — you don’t actually have to short the stock, as this could lead to substantial capital loss if the trade goes in the wrong direction. A more cautious approach would be to simply avoid DCPH stock altogether, or to unload your shares if you already own them.
We can certainly appreciate Deciphera’s clinical mission and vision. At the same time — and I’m sorry to say it — but this is not a company that’s been able to deliver results.
A Closer Look at DCPH Stock
DCPH stock was flying high in 2019, but then hit a hard resistance point three times in 2020.
In January, June and November of 2020, the Deciphera share price touched $65 but just couldn’t get above that level or even stay there for very long. That should have been a clear warning signal. 2021 has been a horrendous year for DCPH stock as it slid to $36 by late October.
Then, it only got worse. Nov. 5, to quote a U.S. president, would be a day that would live in infamy. Or at least, it would give grief to Deciphera’s shareholders. In a swift and shocking move, DCPH stock plummeted to $9 and change.
So, is this an opportunity to pick up shares at a bargain price?
More likely, it’s a consequence and a reflection of Deciphera’s problems — and another warning sign for prospective investors.
A Disappointing Result
To quote my fellow InvestorPlace contributor Chris MacDonald, who reported on DCPH’s slide on that fateful Nov. 5: “Any time a stock moves down 75% over a given period of time, investors have reason to be concerned.”
But, let’s back up and provide some background first.
Deciphera specializes in discovering, developing and delivering new medicines to treat cancer. Although Deciphera is developing three clinical-stage drug candidates, the company (by its own admission) has only one approved drug. That drug is called Qinlock, and it’s a proposed treatment for patients suffering from gastrointestinal tumors.
On Nov. 5, the day when DCPH stock plunged, Deciphera disclosed the top-line results from an INTRIGUE Phase 3 clinical study of Qinlock in patients with gastrointestinal stromal tumor(s) previously treated with imatinib.
You can probably guess where I’m going with this.
Unfortunately, compared with the standard-of-care sunitinib, the Qinlock study did not meet the primary endpoint of improved progression-free survival. Put simply, the drug didn’t work as well as they had hoped.
Hence, the 75% share-price haircut. That’s what can happen when a biopharmaceutical business focuses primarily on one drug.
It’s an all-or-nothing proposition for the shareholders — and this time, the slot machine landed on “TILT.”
A Definite Miss
All of this took place shortly after Deciphera had already released a depressing third-quarter 2021 financial report on Nov. 3.
For that period, the company’s net revenues totaled $23.2 million. That figure narrowly missed the Wall Street consensus estimate of $23.7 million.
The worst part, though, was that Deciphera posted a third-quarter 2021 earnings loss of $1.37 per share. Compared to Wall Street’s expectation of a $1.29 per share loss, and to the year-ago quarter’s per share loss of $1.13, this was a definite miss.
Apparently, the company’s earnings loss was attributable to increased research and development expenses.
In light of Deciphera’s recent clinical letdown with Qinlock, it appears that the company’s research and development efforts haven’t delivered the results that the investors were hoping for.
The Bottom Line on DCPH Stock
I hate to call Deciphera Pharmaceuticals the poster child of biotech business event risk, but it’s hard to interpret the situation any other way.
It might be tempting to bottom-fish with DCPH stock now that it’s trading at a much lower price point. However, the aforementioned data doesn’t support a long position now.
You don’t have to take a short position, either. Instead, its best just to watch from the sidelines and hope that Deciphera can deliver better outcomes in the future.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.