Deciphera Pharmaceuticals (NASDAQ:DCPH) stock absolutely imploded in November. Shares lost more than two-thirds of their value virtually overnight.
DCPH stock plunged after the company released surprising trial results. The company’s phase 3 trial was supposed to affirm that its ripretinib drug was more effective than the current standard of care. Instead, it failed to meet that, and DCPH stock collapsed. So, is there a path forward for the company?
The Trial Failure: A Big Surprise
In November, Deciphera presented its clinical results for ripretinib compared to the current standard of care drug, sunitinib. Deciphera’s drug failed to show statistically significant improvement compared to the existing benchmark.
Investors hadn’t expected such a negative response out of this clinical readout. After all, ripretinib had already secured Food and Drug Administration (FDA) approval last year for advanced gastrointestinal stromal tumor. The drug had a commercial name, Qinlock, and started to generate revenues.
Most biotech companies never make it to generating commercial revenue. So Deciphera already appeared to be a winner in the fraught field of young biotech firms. However, ripretinib wasn’t able to stand up to the scrutiny of another trial. What changed?
Previously, ripretinib was up against a placebo in patients that had exhausted other clinical options, and showed strong comparative results. However, ripretinib wasn’t able to pull off a repeat performance in a more challenging trial against another active drug. Management acknowledged the setback, and didn’t try to spin the results. Instead, Deciphera will be reducing its focus on ripretinib and turning to other more promising early-stage projects in its clinical pipeline.
Has Cash To Keep Going
As of the September quarter end, Deciphera had $392 million in cash on hand. That’s a sizable sum. It will have to spend roughly $32 million to wind down its clinical research program for ripretinib and pay compensation to the 35% of its workforce that it is terminating. Still, it will have a lot left over in the treasury.
Given Deciphera’s old levels of corporate overhead, that cash still would have run out fairly quickly. The company an operating loss of $274 million over the past 12 months, primarily tied to its large research & development budget. Now though, management projects that with the new leaner corporate layout, its cash will last through 2024.
That should give the company enough time to potentially generate interesting results from its upcoming early phase trials on its newer drug candidates. Of course, that’s nowhere near as good as having its drugs producing strong revenues or being near a potential FDA decision. Deciphera has taken a massive setback here, and that’s why the stock price isn’t coming back anytime soon. But Deciphera isn’t out of the ballgame entirely, either.
DCPH Stock Verdict
So, how to decipher the current situation with DCPH stock? There’s two ways of looking at a company like this one.
First, there’s the trading reaction. DCPH stock just plummeted from $35 to $8. Is there a chance of it making a rapid bounce back up to $20 or $30? Almost certainly not. With a busted biotech company such as this one, if the drug doesn’t live up to expectations, the stock simply isn’t going to return to prosperity in the near-term. Rather, the company will have to come up with a new clinical program that will generate new shareholder interest.
So, if you’re looking at DCPH stock simply for a quick flip, you’ll probably be disappointed. This isn’t the sort of stock that will make a V-shaped recovery.
On the other hand, if you’re a long-term investor, perhaps there is some value in DCPH stock. Given the company’s change in strategic direction, it has the cash to carry on operations until 2024. And this management team achieved a significant degree of success; it got a drug approved by the FDA in 2020 after all. So this isn’t the worst biotech on which to bet. Just don’t expect that second act to be an overnight success.
On the date of publication, Ian Bezek 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.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.