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

Deciphera Pharmaceuticals, Inc. (NASDAQ:DCPH) Q4 2023 Earnings Call Transcript February 6, 2024

Deciphera Pharmaceuticals, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, everyone, and welcome to Deciphera Pharmaceuticals Fourth Quarter and Full Year 2023 Financial Results Conference Call. Today’s call is being recorded. At this time, I would like to turn the call over to Jen Larson, Senior Vice President of Finance and Investor Relations. Jen?

Jen Larson: Thank you, operator. Welcome and thank you for joining us today to discuss Deciphera’s fourth quarter and full year 2023 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 a general corporate update are Steve Hoerter, President and Chief Executive Officer; Matt Sherman, Chief Medical Officer; Dan Martin, Chief Commercial 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 made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Examples include our expectations for our preclinical and clinical programs, our commercialization of QINLOCK, and guidance. Forward-looking statements 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, Jen. Good morning, everyone and thank you for joining us today as we provide an update from the fourth quarter and full year 2023, review our financial results and discuss our strategic outlook and planned corporate milestones for 2024. 2023 was a year of significant progress toward our goal of becoming a self-sustaining company with multiple approved medicines. Continued strong QINLOCK growth in the U.S. and internationally drove record annual revenue, demonstrating the global capabilities of our commercial organization. With a highly successful Phase 3 study in TGCT, we expect vimseltinib to be our second approved medicine. We believe that at peak, QINLOCK and Vimseltinib will be able to generate over $1 billion in global revenue.

With a long IP runway for both products, we are actively pursuing label expansion opportunities to create further value for patients and for our shareholders. Beyond these late-stage programs, we continue to strategically invest in key earlier-stage programs to help build a sustainable pipeline of potential new medicines to improve the lives of people with cancer. Last month, we outlined our key strategic priorities for 2024. We expect 2024 to be a year of continued growth in QINLOCK sales, driven by strong demand both in the U.S. and internationally. Meanwhile, our clinical team is working towards our goal of expanding QINLOCK’s label based on the ongoing Phase 3 INSIGHT study in second-line GIST patients with mutations in KIT Exon 11 and 17/18, which has the potential to double peak sales.

A few weeks ago, we were thrilled to announce the publication in Nature Medicine of the exceptional results from the ctDNA analysis from the INTRIGUE study in second-line patients with mutations in KIT Exon 11 and 17/18 showing that QINLOCK provided significant progression-free and overall survival benefit compared to the current standard of care sunitinib. Publication in one of the world’s leading medical journals highlights the clinical importance of this compelling data and serves as strong validation for the ongoing INSIGHT study. In addition to the Nature Medicine publication, we also recently presented the final overall survival results from the INTRIGUE study at the ASCO GI Symposium, which showed that the overall survival rate was similar for both QINLOCK and sunitinib and that treatment with QINLOCK continued to show a favorable safety profile compared to treatment with sunitinib.

We believe that these results demonstrate the strong clinical activity of QINLOCK in the second-line GIST patient population studied in INTRIGUE. For Vimseltinib, building upon the exciting positive results of the MOTION Phase 3 study in patients with tenosynovial giant cell tumor, we remain on track to submit the NDA to the FDA in the second quarter of this year and an MAA to the EMA in the third quarter of this year. With the potential approval of Vimseltinib INSIGHT, we are also exploring potential indication expansion opportunities, including our plan to initiate a Phase 2 proof-of-concept study of vimseltinib for the treatment of chronic graft versus host disease or cGVHD, in the fourth quarter of 2024. In addition, we’re making focused investments in our earlier-stage pipeline, which we expect will fuel our future growth.

For our ULK inhibitor DCC-3116, our goal is to select a recommended Phase 2 dose later this year and move to our first expansion cohort. For DCC-3084, our pan-RAF inhibitor, we expect to initiate a Phase 1 study in the first half of this year. Finally, for DCC-3009, our new pan-KIT inhibitor, we expect to submit an IND with the FDA in the first half of this year and initiate a Phase 1 study in the second half of 2024. We remain well capitalized with $352 million in cash at the end of the year and a cash runway into the second half of 2026. I’ll now pass the call to Matt Sherman, our Chief Medical Officer, who will provide more detail on our development pipeline. Dan Martin, our Chief Commercial Officer, will then share insights on the U.S. commercial performance and outlook for the year ahead.

Margarida Duarte, our Head of International, will provide an update on the progress of the ongoing QINLOCK launch in Europe for fourth-line GIST and its continued strong momentum. We’ll end with Tucker Kelly, our Chief Financial Officer, who will review highlights from the fourth quarter and full year 2023 financial results. Matt?

Matt Sherman: Thanks, Steve. Together with our commercial success, we continue to make great strides with our development pipeline that we believe will provide continued growth for Deciphera over the coming years. First, I’d like to start with our recent QINLOCK updates. As Steve mentioned, in January, we presented the final overall survival results from INTRIGUE Phase 3 study at the ASCO GI conference. As you may recall, in the INTRIGUE trial, 453 patients with second-line GIST were randomized one-to-one to receive QINLOCK or sunitinib. The final analysis included 18 months of additional follow-up based on the data cut in March 2023. Median overall survival in the intent-to-treat population was very similar, with QINLOCK at 35.5 months versus sunitinib at 31.5 months, resulting in the hazard ratio of 0.86.

The long-term safety profile was consistent with the primary analysis showing fewer patients with Grade 3/4 TEAEs and a lower rate of treatment discontinuations due to TEAEs with QINLOCK versus sunitinib. We also looked at whether treatment in the second-line with QINLOCK versus sunitinib had any differential impact on clinical outcomes after third-line treatment. Irrespective of treatment with QINLOCK in the second-line, the results show that the patient outcomes in the third-line were similar. Median PFS on the next line of therapy was 7.7 months for QINLOCK versus 7.4 months for sunitinib. These final results for INTRIGUE demonstrate that QINLOCK offers similar efficacy versus sunitinib in the second-line GIST populations studied in INTRIGUE.

The Nature Medicine publication last month was another major achievement for Deciphera, showcasing the potentially practice-changing results from an exploratory ctDNA analysis from INTRIGUE in one of the world’s leading medical journals. In the second-line GIST patients with KIT Exon 11 and 17/18 mutations, treatment with QINLOCK resulted in a 78% reduction in the risk of disease progression and a 66% reduction in the risk of death compared to sunitinib. Median PFS was 14.2 months for the QINLOCK patients compared to only 1.5 months for the sunitinib patients. Median overall survival for QINLOCK was not reached versus 17.5 months for sunitinib. QINLOCK showed an objective response rate of 44% compared to 0% for sunitinib. Together, the data represents a striking clinical benefit for these second-line GIST patients when treated with QINLOCK.

We’re excited that our INSIGHT pivotal Phase 3 study in the same patient population is now actively enrolling patients. If positive, we believe the results of the INSIGHT study will support an extended label for QINLOCK and significantly improve clinical outcomes for patients based on a precise understanding of the GIST tumors. We are also working hard to get our second potential approved medicine to patients as quickly as possible. We remain on track to submit an NDA for vimseltinib for patients with TGCT in the second quarter of 2024 and an MAA in the third quarter of 2024. These filings are supported by the outstanding success of the Phase 3 MOTION study, which achieved its primary endpoint of ORR at week 25, as well as all six key secondary endpoints.

In a disease such as TGCT, the secondary endpoints are critical measures of clinical benefit. These outcomes of how patients feel and function play an incredibly important role in treatment decisions as well as for patients’ interest in starting and staying on drug therapy. TGCT can be a difficult chronic condition associated with severe pain, swelling, stiffness, and loss of mobility. All of these can severely limit patients’ daily activities and quality of life, including their ability to continue to work or function independently. Without an effective treatment, a TGCT diagnosis can have a profound impact on their ability to lead a normal, active and healthy life, and we look forward to making this important new medicine available to these patients as quickly as possible.

We plan to present results from the MOTION study at a major medical meeting in the second quarter of 2024 as well as updated results from the ongoing Phase 1/2 study in the second half of this year. Deciphera remains committed to ensuring that the full therapeutic potential our medicine and product candidates are explored. To that end, we plan to initiate a Phase 2 proof-of-concept study of vimseltinib and chronic GVHD based on its potential as a best-in-class CSF1 receptor inhibitor. Chronic GVHD affects 30% to 50% of allogeneic hematopoietic stem cell transplant recipients, with an estimated 14,000 prevalent patients in the U.S. There is a significant unmet medical need in this setting, with 50% of patients being refractory to treatment with steroids and an overall desire to move towards combination therapy.

Inhibiting CSF1 receptor expressing proinflammatory and profibrotic macrophages has been clunkily validated for patients with GVHD based on a recent pivotal study with an antibody targeting the CSF1 receptor. As an oral agent, vimseltinib may offer a best-in-class CSF1 receptor option as a single agent or in combination with other oral therapies. We expect to initiate a proof-of-concept study by the end of this year, putting us on a path to potentially expand the utility of vimseltinib for patients in the future. Beyond QINLOCK and Vimseltinib, we remain very excited about the potential for our clinical and research pipeline to fuel Deciphera’s growth. As Steve mentioned earlier, we expect to select a recommended Phase 2 dose for DCC-3116 in 2024 to move into our first expansion cohort.

We also expect to initiate a Phase 1 study for DCC-3084 in the first half of 2024. Finally, we expect to submit an IND for DCC-3009 with the FDA in the first half of 2024 and initiate a Phase 1 study in the second half of 2024. I will now turn the call over to Dan Martin to discuss our U.S. commercial updates. Dan?

Dan Martin: Thanks, Matt. 2023 was a very successful year for QINLOCK in the U.S., with net product revenue growing to $121.5 million, a 25% increase over 2022. In the fourth quarter, U.S. net product revenue was $35.3 million, a 38% increase over Q4 2022. These record results were driven by strong demand in our core fourth-line business, increasing average duration of therapy and contribution from unpromoted earlier line use. In Q4, the percentage of total demand that was fulfilled through our Patient Assistance Program or PAP was at the high end of our 20% to 30% expected range and gross to net was between 15% and 20%. Looking at 2023 as a whole, consistent with prior years, PAP was between 20% and 30%, and we expect the PAP percentage to be similar in 2024.

Gross to net in 2023 was between 15% and 20% and we expect it to be in a similar range in 2024 as a result of the Medicare inflation rebates required by the Inflation Reduction Act. We expect continued QINLOCK revenue growth in 2024, driven by a physician as the standard of care in fourth-line GIST, potential, unpromoted off-label use in earlier lines of therapy based on physician decision, as well as increasing average duration of therapy. Further, we expect quarterly revenues this year to follow a similar pattern to what we have seen in prior years, including Q1 seasonality consistent with industry dynamics. We remain confident in the strength of our business and the potential for another record year for QINLOCK in 2024. Now, I will turn to the exciting opportunity we see in TGCT with Vimseltinib, our potential second approved medicine.

Based on our analysis of U.S. claims data, we believe the total addressable market for TGCT in the U.S. is approximately $700 million. Based on the estimated 1,400 treatment incident patients who are diagnosed, receive systemic therapy and have recently engaged with an oncologist. This U.S. opportunity does not include the estimated 9,000 treatment prevalent patients seen by oncologists or the estimated 1,300 treatment incident patients seen by surgeons. We believe there is a comparable number of patients in the five largest European markets where there are no approved treatments. We recently provided additional insight into the treatment landscape for these 1,400 treatment incident patients in the U.S. that has increased our confidence in the market opportunity and in our commercial team’s ability to reach these patients given our deep experience in GIST.

Based on our claims analysis, we believe there is a 70% to 80% overlap in the prescriber base for GIST in TGCT and that we are uniquely positioned to drive awareness and use in both the academic and community settings. We have tested a blinded product profile of vimseltinib versus pexidartinib, which is approved in the U.S. but not in Europe, and versus imatinib, which is commonly used off-label to manage patients with TGCT. The results from the qualitative market research show that vimseltinib is rated the highest across the key measures of efficacy and tolerability that physicians tell us they view as most important when selecting the TKI to treat their TGCT patients. In the same market research study, 100% of physicians surveyed selected the vimseltinib profile as their preferred agent for managing patients with TGCT.

We are working diligently on pre-launch activities as we prepare to leverage our strong commercial capabilities to launch vimseltinib rapidly upon approval. I will now turn the call over to Margarida Duarte, our Head of International, to discuss the progress of the QINLOCK launch in Europe. Margarida?

Margarida Duarte: Thanks, Dan. We are very enthusiastic about the notable achievements we made in 2023 in our international business, delivering strong results that accounted for more than 25% of Deciphera’s total revenue while laying the foundation for future growth. In 2023, QINLOCK generated $37.5 million in international net product revenue, up 33% from 2022, as well as $4.3 million in collaboration revenue from our partner Zai Lab in Greater China. For the fourth quarter of 2023, international net product revenue increased 56% from the fourth quarter of last year to $11.4 million and collaboration revenue was an additional $1.6 million. Last year was a milestone year for Europe, with growth across the entirety of the business, strong price outcomes, significant progress in market access in multiple countries and the launch in Italy, which is off to an excellent start.

The initial strong results we are seeing in Italy are a testament to the high unmet medical need, the exceptional KOL advocacy and the remarkable full innovation rating granted to QINLOCK by the Italian authorities, the highest for a non-curative disease, which has significantly accelerated the launch in the many Italian regions. Our recent entry in Italy is a good example of the type of opportunity that remains to be unlocked in Europe and underscores the importance of geographic expansion to overall growth in the business. Last month, we announced a new distribution agreement with GENESIS Pharma for Central and Eastern Europe to expand the geographic reach of QINLOCK to 14 European Union countries with a combined population of 118 million people.

QINLOCK has already received regulatory approval in all of these countries under the EMA umbrella, which will significantly accelerate the time to commercialization for Central and Eastern Europe. We are also excited to announce that we have submitted for pricing and reimbursement in the Netherlands and continue to advance price negotiations in Spain, France and Switzerland. Our key growth drivers for 2024 include a continued focus on geographic expansion and open new markets to drive successful launches. We are very pleased by the strengths of our execution and we expect our international revenue to continue to grow as reimbursement agreements and approvals are achieved alongside the growth from our initial launch markets, positioning QINLOCK to reach more patients around the world.

Touching on Vimseltinib, there is a palpable excitement in Europe surrounding the outstanding Phase 3 MOTION data where we believe the number of patients is comparable to the U.S. in the five largest European markets and the unmet need is higher as there are no approved treatments. We are working hard towards our first initial engagement with HCA agencies early this year and I look forward to the MAA submission in the third quarter and preparing for the commercial launch. I will now turn the call over to Tucker Kelly, our Chief Financial Officer, to review the fourth quarter and full year financial results. Tucker?

Tucker Kelly: Thanks, Margarida. Total revenue for the fourth quarter was $48.3 million, which included $46.7 million in net product revenue of QINLOCK and $1.6 million in collaboration revenue. For the full year, total revenue grew 22% to $163.4 million, including net product sales of $159.1 million and collaboration revenue of $4.3 million. Cost of sales in the fourth quarter was $1.8 million, which includes $900,000 in cost of product sales compared to cost of product sales of $700,000 for the fourth quarter of 2022. For the full year, cost of sales were $3.7 million, including $2 million in cost of product sales compared to cost of sales of $8.7 million in ’22, including cost of product sales of $2.7 million. As a reminder, in the third quarter of 2022, we completed the sales of zero-cost inventories of QINLOCK that had been expensed as R&D prior to FDA approval in 2020.

Research and development expenses for the fourth quarter of 2023 were $58.6 million, compared to $48.1 million for the fourth quarter of 2022 and $234.1 million for the full year, compared to $187.8 million in 2022. Selling, general and administrative expenses in the fourth quarter were $39.1 million, compared to $32.2 million in the fourth quarter of 2022. For the full year, SG&A was $136.5 million, compared to $120.2 million in 2022. We ended the year with cash, cash equivalents and marketable securities of approximately $352.9 million. In January, we announced that we had extended our cash runway guidance into the second half of 2026, which remains unchanged. With that, I’ll now turn the call back over to Steve.

Steve Hoerter: Thanks, Tucker. We’re very excited for 2024 as we continue to drive commercial growth with QINLOCK, seek regulatory approval for Vimseltinib in TGCT and advance our clinical pipeline, including our plans to develop Vimseltinib in GVHD. Building off our momentum in 2023, we’re pleased by our late-stage clinical execution and global commercial excellence as we continue our evolution into a self-sustaining company with multiple approved medicines. With that operator, I’d now like to open the call for Q&A.

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Q&A Session

Operator: [Operator Instructions] Our first question comes from Jessica Fye with JPMorgan. You may proceed.

Jessica Fye: Hi guys. Good morning. Thanks for taking my questions. Two from me. First, what’s the latest you’re hearing about when doctors are turning to QINLOCK for second-line GIST in the unpromoted real-world use? Is this happening mainly with QINLOCK experienced treaters who are otherwise using it for fourth-line, or are you seeing any pickup of new prescribers as a result of that type of use? And second, appreciate the details on vimseltinib. Can you just frame a little bit more how you think about the shape of that launch ramp? Thank you.

SteveHoerter: Hi, Jess, good morning, it’s Steve. Thanks for the two questions. I’ll ask Dan to take both of those questions. The one with respect to unpromoted off-label use of QINLOCK in the second-line based on physician decision, and then the expected ramp for a potential vimseltinib launch here in the U.S. Dan?

DanMartin: Yes. Thank you, Jess, for the questions. And good morning. So as it relates to your question about QINLOCK, as we’ve noted, it is challenging to measure exactly what and where we’re seeing in terms of the contribution of earlier-line use. The data sources for us to be able to do that just aren’t great. We do believe that it’s been a mix of existing and new prescribers. So we really think that it’s something that reflects a broad appreciation for the role of ripretinib for patients across lines of therapy in GIST, of course, I always want to underscore that that’s an unpromoted use, so of course we’re not out there promoting that, and it needs to happen spontaneously based on physician decision. With respect to your second question on the launch ramp, the shape of the ramp, we’ll have the opportunity to get into more details about launch strategy and expectations as we draw closer to a potential approval.

But what we’re focused on right now is a significant unmet need that we know exists in the space with patients who are suffering from the significant morbidity of TGCT, and what physicians keep telling us that there’s a real opportunity to improve upon the existing therapies. So we look forward to continuing to work really hard to be ready to launch vimseltinib as rapidly as possible, pending approval.

Jessica Fye: Thank you.

Operator: Thank you. One moment for questions. Our next question comes from Tyler Van Buren with TD Cowen. You may proceed.

Tyler Van Buren: Hi, guys. Good morning. Congrats on the progress during the quarter. Can you guys discuss what else needs to be done to have the vimseltinib filing ready for submission next quarter? And related to that, what is your confidence that you will not see a REMS program or a black box warning upon approval?

SteveHoerter: Hi, Tyler, it’s Steve. Good morning. Thanks for the question. So first, we remain very much on track for the filing of the NDA for Vimseltinib. Here in quarter two coming up, and then the MAA to the EMA in Q3. So it’s really just the usual and customary activities as we prepare for that filing that we are engaged in. We remain very confident in the profile of vimseltinib based on the MOTION data. As you know, the study achieved the primary endpoint in all six key secondary endpoints, and also demonstrated that the drug is well tolerated in this patient population. So we believe we have a very clean and well-characterized safety profile with the drug and continue to have the expectation that we would — there’s no reason to expect a REMS program or a black box warning for the potentially fatal hepatotoxicity that is seen with pexidartinib and is believed to be an off-target effect.

So we remain on track for the filings and we’re excited to bring our potential next approved medicine forward to patients.

Operator: Thank you. One moment for questions. Our next question comes from Eun Yang with Jefferies. You may proceed.

Eun Yang: Thank you. So QINLOCK’s second-line off-label use, is that largely driven by patients who are intolerant to Sutent or patients with Exon 11, 17/18 mutations?

SteveHoerter: Hi, Eun. Good morning. This is Steve. I’ll ask Dan to take the question on the off-label use that we’re seeing in earlier lines based on physician decision. Dan?

DanMartin: Yes. Hi, Eun. Good morning. Thanks for the question. So we believe that the two significant events that occurred last year are what’s behind the contribution that we’ve seen from earlier line use, unpromoted earlier line use. So there was the, as you noted, the NCCN listing for patients who are intolerant of Sutent in the second-line, as well as the really exceptional data that was presented and now recently published in Nature Medicine showing the dramatic treatment benefit that ripretinib can offer patients with the Exon 11, 17/18 mutation. We think that both of those certainly have increased the noise level. Again I always score this is something we don’t promote, but just through the natural dissemination of this information, the presentation, the publication, certainly have raised the noise level.

So it’s hard to discern which patient, which bottle is being driven by which of those factors, but we think that both are reflective of real interest in opportunities to use ripretinib in patients with GIST. And of course, we think that it’s important to note the level of energy that we see around the INSIGHT study and the excitement that we have for a potential approved indication pending a positive study.

Eun Yang: Thank you. And I have one question for Tucker. So, OpEx in 4Q sequentially, R&D is down slightly, but SG&A is up. So could you give us some guidance how OpEx level would be in 2024, as well as a collaboration revenue line? Thank you.

Tucker Kelly: Sure. So on the OpEx side, Eun, it was a little higher sequentially, you mentioned in SG&A. There’s some one-off items and end-of-year items that we think are more exceptional. So we wouldn’t expect necessarily to have that good a run rate going forward for SG&A. We will have some kind of second half of the year expenses as we prepare for the launch of vimseltinib as well. And in terms of collaboration revenue, as we’ve always said, that’s composed really of a couple of components. One is the royalty revenue that we get from our collaboration with Zai. And then secondly, there’s often supply revenue. The supply revenue is much more episodic, so some quarters we have it, in some quarters we don’t. There was some supply revenue, as you’ll see in the cost of goods line for the collaboration revenue this quarter, and that’s difficult to predict.

So I think we always try and guide people to focus on the expectation for the royalty revenue, and then there’ll be upside in quarters where we do have supply revenue coming through.

Eun Yang: Thank you.

Operator: Thank you. One moment for questions. Our next question comes from Michael Schmidt with Guggenheim Securities. You may proceed.

Michael Schmidt: Hi guys, good morning. Thanks for taking my questions. I had one on vimseltinib, as of your plans in GVHD, and how do you think about potential differentiation of vimseltinib and GVHD from some of the antibodies like axatilimab. And can you comment about the possible design of your planned Phase 2 study? Will that be in axatilimab naive patients? Will you include pretreated patients, how do you think about sort of that space? Thanks.