Deciphera Pharmaceuticals (NASDAQ:DCPH) is a biotech company that develops drugs mainly for the treatment of cancer. Right now, DCPH stock shares are down nearly 85% year-to-date (YTD), at $7.70 as of the close of Nov. 29.
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Of course, with Thanksgiving just over, it’s probably appropriate to note that I’m thankful for biotech companies like Deciphera. After all, these names are only trying to help patients beat cancer. But when it comes to reality, things do not look so good for DCPH stock.
No doubt, the mission is hopeful here. But Deciphera’s financial performance and recent key catalysts are a sadder story. Biotech companies can provide investors tons of excitement, but they can often bring tons of drama, too. Looking at this company’s weak Q3 earnings report and poor clinical trials, it seems like DCPH is currently getting caught up in the latter.
DCPH Stock and the Disappointing Phase 3 Results
Make no mistake, Deciphera has a diverse pipeline. The lineup consists of a handful of products as well as some undisclosed additional programs in the pre-clinical stage. That said, the company only has one approved medicine presently: ripretinib.
On Nov. 5, the company also announced results from its INTRIGUE Phase 3 Clinical Study. The announcement stated, “The study did not meet the primary endpoint of improved progression-free survival (PFS) compared with the standard of care sunitinib.” CEO Steve Hoerter noted the following:
“While we are disappointed with these results […] we believe this was a robust, well-designed, and well-executed study. The full results from the INTRIGUE Phase 3 clinical study are expected to be presented at an upcoming medical meeting.”
Biotech names either surge or tank on announcements related to clinical trials. Unfortunately for DCPH stock shareholders, this one plummeted over 75%, closing at $8.82 on Nov. 5. That’s compared to a close of $36 on the day before.
On the positive side, Deciphera has had some good news recently. The company announced that “the European Commission (EC) has approved QINLOCK (ripretinib) in the European Union (EU) for the treatment of adult patients with advanced gastrointestinal stromal tumor (GIST).” Hoerter added the following:
“The European Commission’s approval of QINLOCK marks the eighth regulatory approval of this transformative medicine worldwide and is an important milestone for patients.”
Still, risks remain for Deciphera. It has a very limited range of products approved as well as increased research and development expenses. It’s also not profitable and is burning cash — typical traits of a biotech company.
Widening Net Losses on Increased Revenue
Trials aside, there’s something that’s maybe even more concerning for me here: the financials. For the third quarter of 2021, Deciphera reported total revenues of $23.22 million as well as a net loss of $79.83 million. These numbers were worse than the company’s Q3 2020 figures. Last year, the Q3 total revenue and net loss had come to $15.45 million and $63.7 million, respectively.
Another negative factor for DCPH stock is the dilution that has happened this year. For Q3, the number of weighted average common shares outstanding (basic and diluted) was 58.1 million. That’s compared to 56.4 million in Q3 2020.
On top of these financials, though, it’s hard for me to swallow the 52-week range of this stock. Currently, the range is $7.63 to $62.94. This demonstrates a common quality among biotech stocks: volatility.
Finally, analyzing its financial performance on a five-year trend, it’s hard to find any more positive factors for this pick. That is, other than the 68% increase in revenue from 2019 to 2020. For that period, revenue surged from $25 million to $42.1 million.
The Bottom Line on DCPH Stock
When it comes down to it, Deciphera has been unprofitable for years, with widening rather than narrowing losses. The same unfavorable trend is also true for its free cash flow (FCF).
Of course, with a very low debt-to-equity ratio (0.07) and a high cash-to-debt ratio (11.47), one could argue that the balance sheet is strong. No need to worry, right? Well, the opposite is true.
I argue that, with an Altman Z-Score of -0.77 (in the distress zone) and burning cash, there are too many things to worry about with DCPH stock right now. I also wouldn’t suggest trying to catch a falling knife after this sharp selloff. Deciphera is trying to beat cancer, but unfortunately it’s losing deep in its financial performance.
On the date of publication, Stavros Georgiadis, CFA 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.
Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.