Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH) Q4 2022 Earnings Call Transcript

Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH) Q4 2022 Earnings Call Transcript February 7, 2023

Operator: Good morning, everyone, and welcome to Deciphera Pharmaceuticals Fourth Quarter and Full Year 2022 Financial Results Conference Call. At this time all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Jen Larson, Senior Vice President of Finance and Investor Relations. Please go ahead.

Jen Larson: Thank you, operator. Welcome, and thank you for joining us today to discuss Deciphera’s fourth quarter and full year 2022 financial results. I’m Jen Larson, Senior Vice President of Finance and Investor Relations. With me this morning to discuss the financial results and provide general corporate update are Steve Hoerter, President and Chief Executive Officer; Dan Martin, Chief Commercial Officer; Matt Sherman, Chief Medical Officer; Margarida Duarte, Head of International; and Tucker Kelly, Chief Financial Officer. Before we begin, I would like to remind you that any statements we make on this call that are not historical facts are forward-looking statements reflecting the current beliefs and expectations of management made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Examples of forward-looking statements made during this conference call include our expectations for our preclinical and clinical programs, our commercialization of QINLOCK and 2023 guidance. Forward-looking statements made on this call involve substantial risks and uncertainties that could cause actual results to differ materially from those expressed or implied by the forward-looking statements and we cannot assure you that our expectations will be achieved. Such risks and uncertainties include those set forth in our most recent annual report on Form 10-K as well as our other SEC filings. We assume no obligation to update or revise any forward-looking statements. Following this call, a replay will be available on the company’s website, www.deciphera.com.

With that, I will now turn the call over to Steve Hoerter, President and Chief Executive Officer of Deciphera. Steve?

Steve Hoerter: Thank you, and good morning, everyone. Thank you for joining us today as we provide an update from the fourth quarter and full year 2022, review our financial results and provide additional context on our strategic outlook and planned corporate milestones for 2023. 2022 was a year of exceptional execution for Deciphera. Global QINLOCK product revenue grew 44% compared to 2021, driven by very strong performance in the U.S. as well as launches outside of the U.S. QINLOCK is now approved for fourth-line gastrointestinal stromal tumor, or GIST, in 12 jurisdictions around the world. Last month, we outlined our key strategic priorities for the year, which will enable Deciphera to continue its evolution towards being a fully integrated company with multiple approved medicines and capabilities ranging from international commercialization to early-stage discovery, all powered by our proprietary switch-control kinase inhibitor platform.

These priorities include expanding the market potential for QINLOCK into earlier lines of GIST by initiating the INSIGHT Pivotal Phase 3 Study of QINLOCK versus Sunitinib in second-line GIST patients with mutations in KIT Exon 11 and 17/18 in the second half of 2023. If successful, we believe the INSIGHT study has the potential to change practice in second-line KIT driven GIST and to double the U.S. revenues for QINLOCK. We were very pleased that the circulating tumor DNA, or ctDNA data, from our Phase 3 INTRIGUE study of QINLOCK in second-line GIST was selected for presentation at the ASCO Plenary Series Session a few weeks ago. Matt Sherman, our Chief Medical Officer, will review the data later in the call and outline our plans for the new Phase 3 INSIGHT study.

As we begin enrollment in the new Phase 3 INSIGHT study for QINLOCK, we also expect to readout another pivotal trial, the Phase 3 MOTION study of vimseltinib, our highly selective switch-control kinase inhibitor of CSF1 receptor in patients with tenosynovial giant cell tumor, or TGCT, in the fourth quarter of this year. We have been very pleased with the pace of enrollment and are excited to announce today that we now expect to complete enrollment in the MOTION study in the first quarter and report top-line data in Q4 of this year. For DCC-3116, our first-in-class inhibitor of the ULK1/2 kinases designed to inhibit autophagy, we expect to present updated data from the single-agent dose escalation portion of the Phase 1/2 study and initial combination data in the second half of 2023.

Finally, we were very pleased to announce a clinical trial collaboration and supply agreement with Pfizer for a new combination dose escalation study of DCC-3116 and encorafenib and cetuximab in colorectal cancer that we plan to initiate in the second half of this year. We look forward to presenting the preclinical data supporting this new combination cohort in the first half of this year, along with additional new preclinical data for DCC-3116. We continue to complement these commercial and clinical stage advancements with investment in our research pipeline. Our discovery platform continues to drive new growth opportunities with potential first-in-class or best-in-class precision oncology agents, including DCC-3084, our newly nominated pan-RAF clinical development candidate for which we expect to present preclinical data in the first half of this year and to file an investigational new drug application in the second half of the year.

DCC-3084 was discovered using the same proprietary switch-control kinase inhibitor platform that has brought us QINLOCK, vimseltinib and 3116, and we look forward to quickly advancing this program to the clinic. In addition, we plan to debut a new development candidate from our proprietary discovery engine in the coming months as well as preclinical data from other research programs our team has been working on. Matt Sherman, our Chief Medical Officer, will provide more detail about upcoming milestones for our pipeline programs on today’s call. Dan Martin, our Chief Commercial Officer, will then share insights on the U.S. commercial performance for the quarter and Margarida Duarte, our Head of International, will provide an update on QINLOCK’s ongoing fourth line launch in Europe, which has sustained its strong momentum throughout 2022.

We’ll end with Tucker Kelly, our Chief Financial Officer, who will review highlights from the fourth quarter and full year 2022 financial results and the recent highly successful follow-on equity offering that will allow us to continue to execute on our goals. First, I’ll turn the call over to Matt Sherman to provide an update on our R&D efforts. Matt?

Matt Sherman: Thanks, Steve. We are thrilled with the progress we have made across our clinical and preclinical pipeline in 2022 and already in the first few weeks of this year. As Steve mentioned, it was our privilege to present additional ctDNA data from the INTRIGUE Phase 3 study at QINLOCK at the ASCO Plenary Session last month, which we believe represents a potential practice-changing event in the treatment of second line KIT-driven GIST. The results strongly support our planned INSIGHT study and the potential to expand QINLOCK’s label which, if approved, will allow physicians for the first time to optimize treatment for patients in the second-line setting based on the mutational profile to improve outcomes over the current standard of care.

In the ctDNA analysis for patients with KIT Exon 11 and 17/18 mutations, QINLOCK showed a striking benefit compared to sunitinib across all efficacy measures, beginning with a 44% confirmed objective response rate with all patients on QINLOCK achieving either a partial response or stable disease. In contrast, there were no objective responses in the sunitinib arm. Similarly, QINLOCK demonstrated a greatly improved PFS with a median of 14.2 months compared to only 1.5 months for sunitinib. In fact, half of the patients receiving sunitinib had progressed or died by their first restaging scan at six weeks. This resulted in a hazard ratio of 0.22, meaning that treatment with QINLOCK resulted in a 78% reduction in the risk of disease progression or death.

We also saw a strong trend for overall survival in favor of QINLOCK in the subgroup of patients. The OS results are based on an updated data cut as of September 2022 and showed that the QINLOCK arm still had not reached the median while patients randomized to sunitinib had an overall survival of 17.5 months. This resulted in a hazard ratio of 0.34 or a 66% reduction in the risk of death. And the landmark analysis showed that the number of patients alive at 30 months on QINLOCK was estimated to be nearly twice that of patients randomized to sunitinib. QINLOCK was generally well tolerated and the subgroups’ safety and tolerability profile was consistent with the primary analysis of the INTRIGUE study. For patients with mutations in KIT Exon 11 and 17/18, fewer patients in the QINLOCK arm experienced grade 3, 4 treatment-emergent adverse events compared to sunitinib.

Based on the INTRIGUE ctDNA data and regulatory input, we plan to initiate INSIGHT, a new pivotal Phase 3 study of QINLOCK versus sunitinib in this group of second-line GIST patients. If positive, we believe the results of the INSIGHT study will support as an expanded label for QINLOCK in select second-line GIST patients and transform how physicians treat these patients. Moving from one pivotal Phase 3 program to another, I now want to talk about vimseltinib, which we believe will become the second approved product from our proprietary switch-control kinase inhibitor platform. We are strongly encouraged by the compelling clinical data we have generated to date supporting the potential of vimseltinib to be the standard of care treatment for patients with TGCT non-amenable to surgery.

We began enrolling patients in the Phase 3 MOTION study in early 2022, and I’m very pleased to announce today that we now anticipate completing enrollment this quarter, enabling us to readout the top-line results in the fourth quarter of this year. We also expect to present updated data from the Phase 1/2 study of vimseltinib in the second half of this year that will focus on longer-term safety and efficacy and provide additional support for the clinical and commercial opportunity for vimseltinib. Turning now to DCC-3116. We were excited to announce our first clinical trial collaboration and supply agreement for the program a few weeks ago. Under the agreement, Pfizer will supply encorafenib at no cost as part of the new dose escalation combination evaluating 3116 with encorafenib and cetuximab in patients with colorectal cancer.

Additionally, we plan to present updated data from the single-agent dose escalation cohorts and initial data from the combination dose escalation cohorts of the Phase 1/2 study and initiate one and more expansion cohorts in the second half of this year in combination with the MEK inhibitors, trametinib or binimetinib or the KRASG12C inhibitor sotorasib. We remain optimistic about the potential for DCC-3116 to broadly impact the treatment of cancer as a first-in-class autophagy inhibitor based on the strong preclinical in vitro and in vivo data we have generated showing additive or synergistic activity in combination with multiple agents targeting the RTK, RAS and MAP kinase pathways. Finally, the next program slated to enter the clinic is DCC-3084, our pan-RAF inhibitor for which we expect to submit an IND in the second half of this year.

We plan on presenting in vitro and in vivo data in the coming months demonstrating its preclinical profile as a potent and selective inhibitor of BRAF/CRAF-kinases with optimized pharmaceutical properties for potential development in both single agent and combination opportunities, as well as data from additional undisclosed research programs and look forward to the expected nomination of our newest development candidate. I’ll now turn the call over to Dan Martin, our Chief Commercial Officer, to provide an update on the U.S. commercial efforts. Dan?

Dan Martin: Thanks, Matt. In 2022, we continued to execute on our commercial goals for QINLOCK in the U.S., further reinforcing its status as the clear standard of care in fourth-line GIST, irrespective of mutational profile while continuing to expand our prescriber footprint. U.S. net product revenue was 25.6 million in Q4. And for the full year 2022, QINLOCK sales grew to 97.2 million, representing an increase of about 20% over 2021. Approximately half of this growth came from increased demand volume with the remainder coming from net price growth and a lower percentage of patients receiving free drug under our patient assistance program or PAP. The higher demand volume seen in 2022 was driven principally by an increasing average duration of therapy as the real world persistency curve continues to mature and more fully reflects the impact of patients who received prolonged clinical benefit from QINLOCK.

Specifically, we estimate that the average duration of therapy in 2022 grew to approximately seven months. We expect the average duration of therapy to continue to increase gradually over time and could ultimately reach as high as eight to eight and a half months. As expected, the percentage of patients receiving free drug under our PAP program increased in the fourth quarter versus the prior quarter. Consistent with what we saw in Q4 of 2021, the PAP percentage was slightly above the high end of our estimated annual range of 20% to 30%. This PAP seasonality is common and is driven by patient affordability challenges that tend to increase as the year progresses due to the Medicare Part D drug benefit design. The development and approval of QINLOCK for fourth-line GIST addressed a major unmet medical need and fundamentally changed the treatment paradigm in advanced GIST.

Based on the compelling data from the ctDNA analysis of INTRIGUE, we are eager to start the INSIGHT study and we believe to prove for this new indication, QINLOCK has a potential to advance the GIST treatment paradigm yet again. This time in the second-line setting based on mutational profile, we believe that if we are successful in expanding the label with a second line KIT exon 11 plus 17 or 18 indication that it would double the QINLOCK peak revenue potential to 350 million to 400 million in the U.S. alone. Turning to vimseltinib. With the readout of the Phase 3 MOTION study fast approaching, the commercial team continues to prepare for a potential approval and launch. We remain highly encouraged by the market opportunity in TGCT where we have estimated a total adjustable market of $850 million in the U.S. With a potentially best-in-class product profile, we believe vimseltinib is uniquely positioned to address the high unmet medical need within TGCT and given the approximately 90% overlap among GIST and TGCT prescribers.

We believe vimseltinib will be an excellent addition to our commercial business and that QINLOCK and vimseltinib together have the potential to generate in excess of $1 billion in global peak revenue. I will now turn the call over to Margarida Duarte, our Head of International to discuss the progress of our QINLOCK launch in Europe. Margarida?

Margarida Duarte: Thanks, Dan. We are very proud of the strengths and sustained momentum of QINLOCK’s European market entry. 2022 was a key year that solved very successful execution in two critical markets. Our launch in Germany and the post-approval paid access program in France. It was also a year in which we made significant progress towards market access in other major European markets. With the submission of the reimbursement application to NICE for access in England and in Wales and to AIFA for access in Italy. And the initiation of the market access process in Spain. For the full year 2022, international net product sales were 28.3 million, up significantly from 5.9 million in 2021. These strong results reflect QINLOCK’s best-in-class clinical profile in fourth-line GIST and the significant unmet need.

And I’m very proud of the team’s super execution of our launch strategy that enabled such exceptional performance. Our fourth quarter international net product revenue of 7.3 million was driven primarily by continued growth in demand in Germany and in France. However, net product revenue for the fourth quarter did include a one-time reserve for QINLOCK’s product sales in Germany. It would change in Germany law effective as of November 2022, shortening the free pricing period retroactively to six months from 12 months. In Germany, our team is in the last stages of the price negotiations. And although we are not yet in a position to disclose the details, we remain confident that our final negotiated price will reflect the high value that QINLOCK brings to patients and payers in Germany.

We also continue to advance our access discussions with NICE as well as with the authorities in Italy and Spain and look forward to sharing update on future calls. Turning to rest of the world. We were pleased to see that the National Reimbursement Drug List released by China’s National Healthcare Security Administration was recently updated to include QINLOCK, which will provide access to QINLOCK for many more patients in China for our partner Zai Lab. In 2022, we recognized 8.5 million in collaboration revenue and our agreement with Zai and look forward to their continued strong commercial execution in Greater China. In addition, we are excited to announce that we recently received approvals for QINLOCK in New Zealand, Israel, and Macau, increasing the number of jurisdictions around the world to 12 in which QINLOCK is approved for fourth-line GIST.

I will not turn the call over to Tucker Kelly, our Chief Financial Officer, to review the fourth quarter and full year financial results and recent financing. Tucker?

Tucker Kelly: Thanks, Margarida. Total revenue for the fourth quarter was 36.3 million, which included 32.9 million in net product revenue QINLOCK and 3.4 million in collaboration revenue. With a full year, total revenue grew 39% to 134 million including net product sales of 125.5 million in collaboration revenue of 8.5 million. Cost of sales in the fourth quarter was 3.2 million, including 0.7 million in cost of net product revenue and 2.5 million in cost of collaboration revenue. For the full year, cost of sales was 8.8 million, including 2.7 million in cost of net product revenue and 6.1 million in cost of collaboration revenue. In 2021, total cost of sales was 2.9 million of which 1.6 million was cost of collaboration revenue, and 1.3 million was cost of net product revenue.

In the third quarter of 2022, we completed the sale of zero cost inventories that had been expensed as R&D prior to FDA approval in 2020. In Q4, total operating expenses were 83.5 million compared to operating expenses of 112.6 million in the same period in 2021. For the full year 2022, total operating expenses were 316.8 million, a decrease of approximately 20% compared to operating expenses of 396.2 million in 2021. Research and development expenses in the fourth quarter of 2022 were 48.1 million compared to 74.9 million for the same period in 2021. In 2022, R&D expenses were 187.8 million compared to 257 million in 2021. Selling, general, and administrative expenses in the fourth quarter were 32.2 million compared to 37.2 million in Q4 of 2021.

For the full year, SG&A was 120.2 million compared to 136.3 million in 2021. We ended the year with cash, cash equivalents and marketable securities of approximately 339 million. In January of this year, we raised an additional 134.7 million in net proceeds through a very successful public offering that further strengthened our financial position and extended our cash runway into 2026. The strong support we received from both existing and new investors in the offering will allow us to increase shareholder value as we strive to become a company with multiple approved products. With that, I’ll now turn the call back over to Steve.

Steve Hoerter: Thank you, Tucker. The outstanding progress we’ve made at Deciphera over the past year, along with our plan 2023 milestones puts us firmly on the path to becoming a company with multiple approved products around the world. As we near enrollment completion and prepare to announce top line results from our Phase 3 MOTION study, we look forward to also initiating our Phase 3 INSIGHT study later this year. We are proud to leverage our proprietary switch-control kinase inhibitor platform and deep pipeline to make a difference for people living with cancer. With that operator, I would like to now open the call for Q&A.

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Q&A Session

Operator: Our first question comes from Daniel Wolle with JPMorgan. Your line is now open.

Daniel Wolle: Good morning everyone. Thank you for taking my question. Just a couple of questions. First, for INSIGHT, with the idea of combining QINLOCK with €“ considered for the pivotal trial. Second, you’re able to refine the timeline for enrollment completion for MOTION from first half 2023 to 1Q 2023? What can you attribute this acceleration to? And then for DCC-3116, while results from the dose escalation combination study are not expected until second half, what should investors expect with initial data? And specifically, should there be an expectation for antitumor activity? Thank you.

Steve Hoerter: Yes, hi. Good morning, Daniel. Thanks for joining and thanks for the three questions. So let me take those in order. First, you broke up on the first part of your question with respect to INSIGHT. I believe it was related to a combination. Can you just repeat that for me? Operator

Daniel Wolle: Yes.

Steve Hoerter: Go ahead.

Daniel Wolle: Sure. I guess the question was, was the idea of combining QINLOCK would considered as one arm of the pivotal study?

Steve Hoerter: I see. Okay. Thanks for that question. So I’ll take the question on INSIGHT and on MOTION, then ask Matt just to speak to 3116 and expectations here in the second half for the combination dose escalation data. So first, Daniel, with respect to INSIGHT, the data that we presented at the ASCO Plenary Series Session just last month and we, of course, disclosed at the beginning of the year, we view as being very, very clear, very compelling in terms of the activity of QINLOCK in this group of patients relative to Sutent. So no, as a result, we did not consider adding a third arm to the study looking at a combination because we don’t believe that a combination with Sutent in particular, would add additional activity in the selected group of patients.

With respect to MOTION, we were very pleased as we announced today that we’ll be reaching full enrollment in the MOTION study in quarter one instead of quarter, the first half of this year, still reporting out in quarter four of this year. And the enrollment in the study, as we’ve been telegraphing over the course of the last six to nine months, we’ve been really pleased with the pace of enrollment how enthusiastic investigators and patients are to enroll in the study. And it’s really that enthusiasm and the pace of enrollment that allowed us to enroll the study faster than we previously anticipated and is going to allow us to get to full enrollment here in this first quarter. So we look forward to reporting out the study in quarter four of this year.

Matt, do you want to speak to the 3116 question?

Matt Sherman: Yes, hi. Daniel, it’s Matt. So yes, in regards to the 3116 program, as you know, at ESMO last year, we were able to present the monotherapy dose escalation data and we’re very pleased with the results showing that we had good dose proportional PK, that we had a very good safety profile and also we’re able to inhibit the target of autophagy in patients treated with 3116. So as we announced earlier as well, taking that forward in the combination escalation cohorts with 2 MEK inhibitors, binimetinib and trametinib, as well as the KRASG12C inhibitor sotorasib. So as we’ve announced, we’ll expect to have an update on the combination cohorts in the second half of this year and our expectation there will be to continue to show the PK as well as the safety profile of the drug.