Deciphering Pharmaceuticals (NASDAQ:DCPH) is a biotechnology company that develops drugs primarily for the treatment of cancer. Currently, DCPH shares are down almost 85% year-to-date (YTD), to $ 7.70 at the close on November 29.
Of course, with Thanksgiving just ended, 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 don’t look so good for the DCPH stock.
No doubt, the mission is full of hope here. But Deciphera’s financial performance and recent key enablers are a sadder story. Biotech companies can provide investors with tons of excitement, but they can also often bring tons of drama. Looking at this company’s weak third quarter earnings report and poor clinical trials, it looks like DCPH is currently trapped in these.
DCPH stock and disappointing results of phase 3
Make no mistake, Deciphera has a diversified pipeline. The line consists of a handful of products as well as some additional programs that were not disclosed at the preclinical stage. That said, the company currently only has one approved drug: ripretinib.
On November 5, the company also announced results of its INTRIGUE phase 3 clinical study. The ad stated, âThe study did not meet the primary endpoint of improvement in progression-free survival (PFS) compared to standard sunitinib therapy. CEO Steve Hoerter noted the following:
âAlthough we are disappointed with these results [â¦] we think it was a solid, well-designed and well-executed study. The full results of the INTRIGUE phase 3 clinical study are expected to be presented at a future medical meeting. “
Biotech names either surge or tank on clinical trial announcements. Unfortunately for DCPH shareholders, it fell more than 75%, closing at $ 8.82 on November 5. That’s compared to a $ 36 close the day before.
On the positive side, Deciphera recently had some good news. The company announced that âthe European Commission (EC) has approved QINLOCK (ripretinib) in the European Union (EU) for the treatment of adult patients with advanced gastrointestinal stromal tumor (GIST)â. Hoerter added the following:
âThe approval of QINLOCK by the European Commission marks the eighth regulatory approval of this transformative drug worldwide and is an important milestone for patients. “
Yet risks remain for Deciphera. It has a very limited range of approved products as well as increased research and development expenses. It is also not profitable and it burns money – typical traits of a biotech company.
Increase in net losses on increase in income
Aside from testing, there is something that is perhaps even more concerning for me here: finances. For the third quarter As of 2021, Deciphera reported total revenue of $ 23.22 million as well as a net loss of $ 79.83 million. Those numbers were worse than the company’s third quarter 2020 numbers. Last year, the total revenue and net loss for the third quarter were $ 15.45 million and $ 63.7 million, respectively.
Another negative factor for the DCPH titer is the dilution that has occurred this year. For the third quarter, the weighted average number of common shares outstanding (basic and diluted) was 58.1 million. This is against 56.4 million in the third quarter of 2020.
In addition to this financial data, however, 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, by analyzing its financial performance over a five-year trend, it is difficult to find other positive factors for this choice. In other words, in addition to the 68% increase in revenue from 2019 to 2020. For this period, revenue increased from $ 25 million to $ 42.1 million.
The result on the DCPH stock
In the end, Deciphera was unprofitable for years, with losses increasing rather than decreasing. The same unfavorable trend also applies to its free cash flow (FCF).
Of course, with a very low debt ratio (0.07) and a high 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 burn money, there is too much to fear with the actions of DCPH at this time. I also wouldn’t suggest trying to catch a falling knife after this massive sell-off. Deciphera is trying to beat cancer, but unfortunately he is deeply losing his financial performance.
As of the publication date, Stavros Georgiadis, CFA does not have (directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to the publication guidelines of InvestorPlace.com.
Stavros Georgiadis is a CFA Chartered Equity Research Analyst and Economist. He focuses on US stocks and has his own stock blog at thestockmarketontheinternet.com. He has written various articles for other publications in the past and can be contacted on Twitter and on LinkedIn.