DECIPHERA PHARMACEUTICALS, INC.

(DCPH)
  Report
Delayed Nasdaq  -  04:00 2022-08-05 pm EDT
16.51 USD   -1.78%
08/05HC Wainwright Adjusts Price Target on Deciphera Pharmaceuticals to $20 From $15, Reiterates Buy Rating
MT
08/05JMP Securities Upgrades Deciphera Pharmaceuticals to Market Outperform From Market Perform; Price Target is $23
MT
08/04Piper Sandler Adjusts Deciphera Pharmaceuticals Price Target to $13 From $11, Maintains Neutral Rating
MT
SummaryQuotesChartsNewsRatingsCalendarCompanyFinancialsConsensusRevisions 
SummaryMost relevantAll NewsAnalyst Reco.Other languagesPress ReleasesOfficial PublicationsSector news

DECIPHERA PHARMACEUTICALS, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

05/04/2022 | 07:15am EDT
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and related notes appearing elsewhere in this Form 10-Q and our
Annual Report on Form 10-K (Form 10-K) for the year ended December 31, 2021 on
file with the SEC. Some of the information contained in this discussion and
analysis or set forth elsewhere in this Form 10-Q, including information with
respect to our plans and strategy for our business, includes forward looking
statements that involve risks and uncertainties. As a result of many factors,
including those factors set forth in the "Risk Factors" section of this Form
10-Q, our actual results could differ materially from the results described in,
or implied by, the forward-looking statements contained in the following
discussion and analysis.

Overview


We are a biopharmaceutical company focused on discovering, developing, and
commercializing important new medicines to improve the lives of people with
cancer. Leveraging our proprietary switch-control kinase inhibitor platform and
deep expertise in kinase biology, we design kinase inhibitors to target the
switch pocket region of the kinase with the goal of developing potentially
transformative medicines. Through our patient-inspired approach, we seek to
develop a broad portfolio of innovative medicines to improve treatment outcomes.
QINLOCK, our switch-control kinase inhibitor, was engineered using our
proprietary drug discovery platform and developed for the treatment of
fourth-line GIST. QINLOCK is approved in Australia, Canada, China, the EU, Hong
Kong, Switzerland, Taiwan, the U.S., and the U.K. for the treatment of
fourth-line GIST. We wholly own QINLOCK and all of our drug candidates with the
exception of a development and commercialization out-license agreement for
QINLOCK in Greater China. In addition to QINLOCK, we have identified and
advanced multiple product candidates from our platform into clinical studies,
including vimseltinib and DCC-3116.

Recent Developments

QINLOCK


QINLOCK, an orally administered kinase switch control inhibitor of the KIT and
PDGFRA kinases, is approved in nine territories for the treatment of fourth-line
advanced GIST. We also launched QINLOCK in Germany in January 2022 and received
authorization for a post-approval paid access program in France in April 2022,
and plan to provide access to QINLOCK to fourth-line GIST patients in additional
European countries through other channels.

Additionally, in February 2022, we announced that the National Comprehensive
Cancer Network (NCCN) Clinical Practice Guidelines in Oncology for GIST now
include the use of QINLOCK 150 mg twice daily (BID) after disease progression if
previously treated with QINLOCK 150 mg once daily in fourth-line GIST patients.

Vimseltinib

Vimseltinib is an investigational, orally administered, potent, and highly-selective switch-control kinase inhibitor of the colony stimulating factor 1 receptor (CSF1R).


We are currently studying vimseltinib in a pivotal Phase 3 study in patients
with TGCT (MOTION study). The MOTION study is a two-part, randomized,
double-blind, placebo-controlled study to assess the efficacy and safety of
vimseltinib in patients with TGCT who are not amenable to surgery. In January
2022, we announced that enrollment is currently underway in our Phase 3 MOTION
study.

We are also conducting an international, multicenter, ongoing open-label Phase
1/2 study designed to evaluate the safety, efficacy, pharmacokinetics (PK), and
pharmacodynamics (PD) of vimseltinib in patients with solid tumors and TGCT, and
we expect to provide updated data from the Phase 1/2 study in patients with TGCT
in the second half of this year.

DCC-3116

DCC-3116 is a potential first-in-class investigational, orally administered, potent, and highly selective switch-control inhibitor of the ULK kinase.


DCC-3116 is being studied in a Phase 1 study designed to evaluate the safety,
tolerability, clinical activity, PK, and PD of DCC-3116 as a single agent and in
combination with trametinib, a U.S. Food and Drug Administration (FDA) approved
MEK inhibitor, in patients with advanced or metastatic tumors with a RAS or RAF
mutation. In February 2022, we announced that we plan to continue to enroll
patients and expect to provide initial Phase 1 single agent dose escalation data
on DCC-3116 in the second half of 2022. We also announced that, following and
subject to the selection of a recommended Phase 2 dose of
                                       20

--------------------------------------------------------------------------------

Table of Contents


DCC-3116 from the monotherapy dose escalation portion of the Phase 1 study of
DCC-3116, in the second half of 2022 we plan to initiate the Phase 1 combination
dose escalation cohorts with trametinib and, subject to feedback from regulatory
authorities, with sotorasib, a mutant KRASG12C inhibitor, and binimetinib, a MEK
inhibitor. Following the dose escalation phase and subject to the selection of a
recommended Phase 2 dose of the combinations, expansion cohorts are currently
planned with (i) trametinib in patients with advanced or metastatic pancreatic
ductal adenocarcinoma with KRAS-driven mutations, non-small cell lung cancer
with RAF or RAS-driven mutations, and colorectal cancer with RAF or RAS-driven
mutations, (ii) binimetinib in patients with melanoma with NRAS-driven mutations
subject to feedback from regulatory authorities, and (iii) sotorasib in patients
with non-small cell lung cancer with KRASG12C-driven mutations subject to
feedback from regulatory authorities.

Early-Stage Research Programs


We are also making a focused investment in our next generation of research
programs, which are designed to provide first-in-class or best-in-class
treatments using our proprietary switch-control inhibitor platform. In February
2022, we announced that our goal for 2022 is to nominate a development candidate
for our pan-RAF research program, which targets inhibition of BRAF and CRAF
kinases. We also plan to continue to develop our in-licensed research-stage
program, pursuant to our agreement with Sprint Bioscience (the Sprint
Agreement), which targets the VPS34 kinase.

Coronavirus (COVID-19)


The full extent to which the COVID-19 pandemic, or the future outbreak of any
other highly infectious or contagious diseases, may impact our business,
including our preclinical studies, clinical trial operations, or
commercialization efforts will depend on continuously changing circumstances,
which are highly uncertain and cannot be predicted at this time, such as the
duration of such pandemic including future waves of infection, new strains of
the virus that causes COVID-19, or the impact of effective vaccines, the actions
taken to contain the pandemic or mitigate its impact, and the direct and
indirect economic effects of the pandemic and containment measures, among
others. The ongoing fluidity of this situation precludes any prediction as to
the full impact of the COVID-19 pandemic but it could have a material adverse
effect on our business, financial condition, and results of operations. The
COVID-19 pandemic may also have the effect of heightening the risks to which we
are subject, including various aspects of our preclinical studies and ongoing
clinical trials, the reliance on third parties in our supply chain for materials
and manufacturing of our drug and drug candidates, disruptions in health
regulatory agencies' operations globally, the volatility of our common stock,
our ability to access capital markets, and our ability to successfully
commercialize and generate revenue from QINLOCK.

We are continuing to assess the long-term impact of COVID-19 on our business
operations in an effort to mitigate interruption to our clinical programs,
research efforts, commercialization of QINLOCK, and other business activities
and to ensure the safety and well-being of our employees, as well as the
physicians and patients participating in our clinical studies. COVID-19
infections continue to fluctuate in the U.S. and in many countries worldwide as
local surges and new waves of infection continue to be reported, in particular
as caused by new variants of the virus that causes COVID-19 and the lack of
availability of effective vaccines in certain countries or regions, or failure
to utilize available vaccines in other geographies. Although some of the
restrictions aimed at minimizing the spread of COVID-19 have been and may from
time to time be eased or lifted in the U.S. and other countries from the height
of the pandemic, in response to local surges and waves of infection, including
those caused by certain variants of the virus, some countries, states, and local
governments have maintained or reinstituted these restrictions, or may
reinstitute these restrictions from time to time, in response to rising rates of
infection. In response to the COVID-19 pandemic, we have implemented
precautionary measures to protect the health and safety of our employees,
partners, and patients, including encouraging all employees, other than those
engaged in laboratory research activities, to work-from-home, and requiring
adherence to onsite occupancy limits and appropriate safety measures designed to
comply with federal, state, and local guidelines. These safety measures may be
eased, lifted, or reinstituted in accordance with updates to such guidelines.

Our ability to successfully commercialize and generate revenue from QINLOCK may
be adversely affected by the impact of the COVID-19 pandemic. While restrictive
safety measures are in place, limited hospital access for non-patients,
including our sales personnel, social distancing requirements, and precautionary
measures due to COVID-19 may impact the ability of our sales personnel to
interact in-person with customers in the same manner as they did before the
COVID-19 pandemic. In response, we have implemented a virtual sales model to
supplement traditional means of customer engagement. Although some of these
restrictions have been, and may continue to be lifted in certain healthcare
institutions, the impact of prior and continued COVID-19 related safety
measures, and the potential for reimposition of restrictions due to local surges
and new waves of infection, including those caused by certain variants of the
virus, may adversely affect the ability of our sales professionals to
effectively market QINLOCK to physicians, which may have a negative impact on
our sales and our market penetration. The persistence of the COVID-19 pandemic
could also impact the patient treatment paradigm and how patients are diagnosed
and monitored. In addition, in the U.S. we are utilizing various programs to
help patients afford our products, including patient
                                       21

--------------------------------------------------------------------------------

Table of Contents

assistance programs for eligible patients. Market disruption and higher levels of unemployment caused by the COVID-19 pandemic may lead to increased utilization of our patient assistance programs, which could reduce revenues.


In addition, we continue to actively monitor risks associated with potential
interruptions to our clinical studies due to the impact of COVID-19 and are in
frequent communication with clinical study sites and contract research
organizations (CROs). Some clinical trial sites have maintained or reinstituted
restrictions on site visits by sponsors and CROs, initiation of new trials,
patient visits, and new patient enrollment as a result of COVID-19. While all of
our studies remain open for enrollment, we have provided guidance to our
clinical trial sites that new patient enrollment may occur at sites where
resources allow these patients to be safely enrolled and closely monitored and
enrollment has slowed at, or has been or may in the future be temporarily paused
for new patients in some sites. In addition, we continue to work closely with
our study sites and CROs to allow for utilization of remote and local
assessments, such as televisits, in accordance with FDA and EMA guidance, as
well as to ensure availability of study drug for patients. While study
activities are continuing in the clinical trials we have underway in sites
across the globe, and although some of these restrictions have been, and may
from time to time, be eased or lifted, we cannot guarantee that COVID-19
precautions, either now or in the future, or the impact of the pandemic, will
not directly or indirectly affect the expected timelines for some of our
clinical trials.

In light of the changing circumstances surrounding the COVID-19 pandemic, the
operating environment remains fluid and uncertain, and the full significance of
the impact of the COVID-19 outbreak on our business and the duration for which
it may have an impact cannot be determined at this time.

Components of Our Results of Operations

Revenues


QINLOCK is approved in Australia, Canada, China, the EU, Hong Kong, Switzerland,
Taiwan, the U.S. and the U.K. for the treatment of fourth-line GIST. We may
generate revenue in the future from a combination of product sales or payments
from collaboration, distribution, or any potential additional license agreements
that we may enter into with third parties. We expect that our revenue in the
foreseeable future will be derived primarily from sales of QINLOCK and, payments
owed to us under the license (the Zai License Agreement) and supply (the Zai
Supply Agreement) agreements we entered into with Zai in June 2019 and February
2020, respectively, including royalty revenues under the Zai License Agreement
following the approvals of QINLOCK in the PRC and Hong Kong in March 2021. We
cannot provide assurance as to what extent we will generate revenue from the
commercialization of QINLOCK or if, when, or to what extent we will generate
revenue from the commercialization and sale of our drug candidates for which we
may receive marketing approval, if any. Additionally, we cannot provide
assurance as to the extent of future royalty payments, the timing of future
milestone payments, or that we will achieve and receive any future milestone
payments at all. We may never succeed in obtaining regulatory approval for any
of our drug candidates other than QINLOCK.

Product Revenues, Net


During the three months ended March 31, 2022 and 2021, our only source of
product revenues was from the sales of QINLOCK. Product revenues are recorded
net of estimates of variable consideration. Please read Note 2, Revenues, to the
consolidated financial statements included in this Form 10-Q for further details
of the reserves recorded for variable consideration.

Collaboration Revenues

For the three months ended March 31, 2022 and 2021, collaboration revenues were associated with the Zai License Agreement and Zai Supply Agreement.

Zai License Agreement


Pursuant to the terms of the Zai License Agreement, we received an upfront cash
payment of $20.0 million and three development milestone payments totaling
$12.0 million and will be eligible to receive up to $173.0 million in potential
development and commercial milestone payments, consisting of up to $38.0 million
of development milestones and up to $135.0 million of commercial milestones. In
addition, during the term of the Zai License Agreement, Zai will be obligated to
pay us tiered percentage royalties ranging from low to high teens on annual net
sales of the Licensed Products in the Territory, subject to adjustments in
specified circumstances. Additionally, certain costs we incur associated with
the Zai License Agreement are reimbursed by Zai.
                                       22

--------------------------------------------------------------------------------

Table of Contents


During the second quarter of 2021, following the approvals of QINLOCK in the PRC
and Hong Kong in March 2021, we began recognizing royalty revenues under the Zai
License Agreement.

Zai Supply Agreement

Pursuant to the terms of the Zai Supply Agreement, costs incurred by us for
external manufacturing services associated with the production of QINLOCK for
use in the Territory for clinical trials and commercial inventory are reimbursed
by Zai. During the second quarter of 2021, following the approvals of QINLOCK in
the PRC and Hong Kong in March 2021, we began recognizing revenues associated
with sales of commercial inventory of QINLOCK under the Zai Supply Agreement.

Cost of Sales


Our cost of sales includes external costs of producing and distributing
inventories that are related to product revenue during the respective period of
the associated sales. In addition, shipping and handling costs for product
shipments are recorded in cost of sales as incurred. Further, cost of sales
includes the external costs of producing and distributing commercial inventories
sold under the Zai Supply Agreement. Cost of sales also includes charges related
to inventory written down as a result of excess, obsolescence, unmarketability,
or other reasons.

Cost of sales for newly launched products will not include the full cost of
manufacturing until the initial pre-launch inventory is depleted, and additional
inventory is manufactured and sold. The gross margin on sales of QINLOCK for the
three months ended March 31, 2022 and 2021 was enhanced by sales of the initial
pre-launch inventory, and therefore, use of active pharmaceutical ingredients
and components that were previously expensed as research and development
expenses prior to the launch of QINLOCK, referred to as zero cost inventories.
However, we do not expect that the cost of sales as a percentage of net sales of
QINLOCK will increase significantly after we have sold all zero cost inventories
and commenced the sales of inventories which will reflect the full cost of
manufacturing.

Operating Expenses

The successful development and commercialization of our drug and drug candidates is highly uncertain. This is due to the numerous risks and uncertainties, including the following:


•continuing to establish sales, marketing, and distribution capabilities to
support the commercialization of QINLOCK or our drug candidates, if and when
approved, whether alone or in collaboration with others such as Zai, our
licensee for QINLOCK in Greater China;

•successful completion of preclinical studies and clinical trials;

•receipt and related terms of marketing approvals from applicable regulatory authorities;

•acceptance of QINLOCK or our drug candidates, if and when approved, by patients, the medical community, and third-party payors;

•developing and implementing marketing and reimbursement strategies;

•raising additional funds necessary to fund ongoing operations and capital expenditure requirements, including to complete clinical development of and commercialize any current or future drug candidates for which we receive approval;

•making arrangements with third-party manufacturers, or establishing manufacturing capabilities, for both clinical and commercial supplies of our drug and drug candidates;

•maintaining a continued acceptable safety profile of our products following approval;

•obtaining and maintaining patent, trade secret, and other intellectual property protection, and regulatory exclusivity for our drug and drug candidates;

•protecting and enforcing our rights in our intellectual property portfolio;

•effectively competing with other therapies; and

•attracting additional licensees and/or collaborators or distributors with development, regulatory, and commercialization expertise.


A change in the outcome of any of these variables with respect to the
commercialization of QINLOCK or the development of our drug or any of our drug
candidates would significantly change the costs and timing associated with the
commercialization
                                       23

--------------------------------------------------------------------------------

Table of Contents

of QINLOCK or development of our drug or that drug candidate. We may never succeed in obtaining regulatory approval for any of our drug candidates other than QINLOCK.

Research and Development Expenses


Research and development expenses consist primarily of costs incurred for our
research activities, including our drug discovery efforts and the development of
our drug and drug candidates, which include:

•employee-related expenses, including salaries, related benefits, travel, and stock-based compensation expense for employees engaged in research and development functions;

•expenses incurred in connection with the preclinical and clinical development of our drug candidates, including under agreements with CROs;


•the cost of consultants and contract manufacturing organizations (CMOs) that
manufacture drug products for use in our preclinical studies and clinical trials
as well as all expenses associated with the pre-launch manufacturing of
commercial inventory of QINLOCK prior to FDA approval; and

•facilities, depreciation, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance, supplies, and technology-related costs.


We expense research and development costs to operations as incurred. Advance
payments for goods or services to be received in the future for use in research
and development activities are recorded as prepaid expenses within our
consolidated balance sheets. The prepaid amounts are expensed as the related
goods are delivered or the services are performed.

Our direct research and development expenses are tracked on a program-by-program
basis and consist primarily of external costs, such as fees paid to consultants,
central laboratories, contractors, CMOs, and CROs in connection with our
preclinical and clinical development activities. We do not allocate employee
costs, costs associated with our proprietary switch-control kinase inhibitor
platform technology, or facility expenses, including depreciation or other
indirect costs, to specific drug or drug candidate development programs because
these costs are deployed across multiple drug or drug candidate development
programs and, as such, are not separately classified.

Research and development activities are central to our business model. Drugs and
drug candidates in later stages of clinical development generally have higher
development costs than those in earlier stages of clinical development,
primarily due to the increased size and duration of later-stage clinical trials.
We expect research and development expenses associated with vimseltinib and
DCC-3116 will increase in 2022 as our drug and drug candidate development
programs progress. However, we expect research and development expenses will
decrease overall as compared to 2021 due to the cost reduction measures included
in the corporate restructuring implemented in the fourth quarter of 2021. We do
not believe that it is possible at this time to accurately project total
program-specific expenses through commercialization. There are numerous factors
associated with the successful commercialization of our drug and any of our drug
candidates, including future trial design and various regulatory requirements,
many of which cannot be determined with accuracy at this time based on our stage
of development. Additionally, future commercial and regulatory factors beyond
our control will impact our clinical development programs and plans.

Selling, General, and Administrative Expenses


Selling, general, and administrative expenses consist primarily of salaries and
related costs, including stock-based compensation, for personnel in executive,
legal, finance, commercial, human resources, and administrative functions.
Selling, general, and administrative expenses also include direct and allocated
facility- and technology-related costs as well as professional fees for legal,
patent, consulting, accounting, and audit services.

We anticipate that our selling, general, and administrative expenses will
decrease overall due to the cost reduction measures included in the corporate
restructuring implemented in the fourth quarter of 2021, despite increased
selling, general, and administrative expenses to be incurred related to the
launch of QINLOCK in Germany and France in 2022. We also anticipate that we will
continue to incur accounting, audit, legal, regulatory, compliance, and investor
and public relations expenses associated with the business and continued
operations as a public company.
                                       24

--------------------------------------------------------------------------------

Table of Contents

Other Income (Expense)

Interest and Other Income, net


Interest income consists of interest earned on our cash, cash equivalents, and
marketable securities balances. Other income, net, consists of insignificant
amounts of miscellaneous income and expenses unrelated to our core operations,
including the impacts of foreign currency exchange differences.

Income Taxes


On October 2, 2017, immediately prior to the completion of our initial public
offering (IPO), we engaged in a series of transactions whereby Deciphera
Pharmaceuticals, LLC became a wholly owned subsidiary of Deciphera
Pharmaceuticals, Inc., a Delaware corporation (the Conversion). Prior to the
Conversion, we were treated as a partnership for tax purposes and had not been
subject to U.S. federal or state income taxation. Upon the Conversion, we became
subject to typical corporate U.S. federal and state income taxation; however, we
do not have net operating loss carryforwards from periods prior to October 2,
2017 available to offset taxable income earned in future periods in which we
will be treated as a corporation.

Consistent with our income tax disclosures described under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Components of Our Results of Operations" in our Form 10-K for the
year ended December 31, 2021 on file with the SEC, as of March 31, 2022, we have
not recorded any U.S. federal or state income tax benefits for either the net
losses we have incurred or our earned research and orphan drug credits, due to
the uncertainty of realizing a benefit from those items in the future.

Critical Accounting Policies and Significant Judgments and Estimates


Our consolidated financial statements are prepared in accordance with generally
accepted accounting principles in the U.S. (GAAP). The preparation of our
consolidated financial statements and related disclosures requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenue, costs and expenses, and related disclosures in the consolidated
financial statements. We believe that our critical accounting policies that
involve the most judgment and complexity are those relating to:

•product revenue reserves;

•accrued research and development expenses; and

•stock-based compensation.


Accordingly, we believe the policies set forth above are critical to fully
understanding and evaluating our financial condition and results of operations.
If actual results or events differ materially from the estimates, judgments, and
assumptions used by us in applying these policies, our reported financial
condition and results of operations could be materially affected.

For a description of our critical accounting policies, please see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Critical Accounting Policies and Significant Judgments and Estimates"
in our Form 10-K for the year ended December 31, 2021 on file with the SEC.
There have been no significant changes to our critical accounting policies since
December 31, 2021.
                                       25

--------------------------------------------------------------------------------

Table of Contents

Results of Operations

Comparison of the Three Months Ended March 31, 2022 and 2021

The following table summarizes our results of operations for the three months ended March 31, 2022 and 2021:

                                                Three Months Ended March 31,
(in thousands)                                      2022                   2021
Revenues:
Product revenues, net                    $        28,809                $  19,962
Collaboration revenues                               414                    5,194
Total revenues                                    29,223                   25,156
Cost and operating expenses:
Cost of sales                                        382                      222
Research and development                          47,412                   55,681
Selling, general, and administrative              28,321                   

30,747

Total cost and operating expenses                 76,115                   

86,650

Loss from operations                             (46,892)                 

(61,494)

Other income (expense):
Interest and other income, net                         -                    

196


Total other income (expense), net                      -                      196
Net loss                                 $       (46,892)               $ (61,298)


Revenues

Product Revenues, Net

During the three months ended March 31, 2022 and 2021, our only source of
product revenues was from the sales of QINLOCK. During the three months ended
March 31, 2022 and 2021, net product revenues by geography consisted of the
following:

                                     Three Months Ended March 31,
(in thousands)                            2022                    2021
U.S.                          $        23,409                  $ 19,287

Rest of world                           5,400                       675
Total product revenues, net   $        28,809                  $ 19,962


For the three months ended March 31, 2022 compared to the same period in 2021,
net product revenues increased $8.8 million, primarily due to increased sales
volume in the U.S. and Germany, which launched in January 2022, as we continued
our commercialization efforts.

Collaboration Revenues


For the three months ended March 31, 2022 compared to the same period in 2021,
collaboration revenues decreased $4.8 million primarily due to a decrease in
milestone revenues of $5.0 million under the Zai License Agreement. The decrease
in milestone revenues was due to the recognition of a $5.0 million development
milestone in the first quarter of 2021 associated with the approval of QINLOCK
for the treatment of adult patients with advanced GIST who have received prior
treatment with three or more kinase inhibitors, including imatinib, by the China
NMPA in March 2021. The decrease in milestone revenue was partially offset by an
increase in revenues from the Zai Supply Agreement and an increase from royalty
revenues, which we began recognizing in the second quarter of 2021 following the
approvals of QINLOCK in the PRC and Hong Kong.
                                       26

--------------------------------------------------------------------------------

Table of Contents

Cost of Sales


During the three months ended March 31, 2022 and 2021, cost of sales by type
consisted of the following:

                                       Three Months Ended March 31,
(in thousands)                               2022                     2021
Cost of product sales         $           366                        $ 222
Cost of collaboration sales                16                            -
Total cost of sales           $           382                        $ 222


For the three months ended March 31, 2022 compared to the same period in 2021,
cost of sales increased $0.2 million, primarily due to increased product sales
of QINLOCK in the U.S. and Germany. During the three months ended March 31,
2021, cost of sales also included a charge of less than $0.1 million for
inventory written down as a result of excess, obsolescence, unmarketability, or
other reasons. Cost of sales associated with product sales of QINLOCK was
primarily related to the sales of zero cost inventories, which consisted of
packaging, labeling, shipping, and distribution costs. As a result, the full
costs of manufacturing QINLOCK inventory are not included in cost of sales
during the three months ended March 31, 2022 and 2021.

Prior to receiving FDA approval for QINLOCK in May 2020, we manufactured
inventory to be sold and recorded approximately $6.0 million related to this
inventory build-up as research and development expense. We did not record any
such costs related to the build-up of this inventory as research and development
expense during the three months ended March 31, 2022 and 2021.

Utilizing the actual direct costs to manufacture QINLOCK prior to receiving FDA
approval, had the previously expensed inventory been capitalized and recognized
when sold, the total cost of sales with these manufacturing costs included for
the three months ended March 31, 2022 would have increased by approximately $0.6
million and $0.4 million in the prior year comparative period.

We do not expect our cost of sales for QINLOCK to increase significantly as a
percentage of net sales in future periods as we continue to produce inventory
for future sales, which will reflect the full cost of manufacturing, and then
sell such inventory. We expect to continue to sell the zero cost inventories of
QINLOCK in the U.S. during 2022.

Operating Expenses

[[Image Removed: dcph-20220331_g2.jpg]][[Image Removed: dcph-20220331_g3.jpg]]

                                       27

--------------------------------------------------------------------------------

Table of Contents

Research and Development Expenses

QINLOCK


For the three months ended March 31, 2022 compared to the same period in 2021,
research and development expenses related to QINLOCK decreased primarily as a
result of decreased clinical trial expenses of $6.4 million and decreased
manufacturing costs of $1.9 million. Clinical trial expenses for QINLOCK
decreased primarily as a result of decreased expenses associated with INTRIGUE,
our Phase 3 study of QINLOCK for the treatment of second-line GIST, which we
initiated in December 2018 and for which enrollment was completed in December
2020, our Phase 1 trial of QINLOCK, and INVICTUS, our Phase 3 study of QINLOCK
for the treatment of fourth-line GIST, which we initiated in January 2018 and
announced top-line results from in August 2019. Manufacturing costs decreased
primarily due to timing of processing of inventory for clinical and commercial
use and due to the discontinuation of certain clinical trials as a result of the
corporate restructuring implemented in the fourth quarter of 2021.

Vimseltinib


For the three months ended March 31, 2022 compared to the same period in 2021,
expenses related to our vimseltinib program increased primarily as a result of
increases in clinical trial expenses of $1.7 million, partially offset by
decreases in manufacturing costs of $0.9 million. Clinical trial expenses
increased primarily due to increased activities associated with our Phase 3
study of vimseltinib in patients with TGCT, MOTION, which was initiated in the
fourth quarter of 2021 and increased clinical pharmacology study activities.
Manufacturing costs for the vimseltinib program decreased as a result of
increased manufacturing in the prior year period to prepare for the initiation
of the MOTION study.

Rebastinib

For the three months ended March 31, 2022 compared to the same period in 2021,
expenses related to our rebastinib program decreased primarily as a result of
decreases in clinical trial expenses of $3.2 million and manufacturing costs of
$1.3 million. The decrease in clinical trial expenses and manufacturing costs
was primarily due to the discontinuation of our rebastinib program in the fourth
quarter of 2021 following the corporate restructuring implemented in the fourth
quarter of 2021.

DCC-3116

For the three months ended March 31, 2022 compared to the same period in 2021,
expenses related to our DCC-3116 program increased primarily as a result of
increased manufacturing costs of $1.7 million and increased clinical trial
expenses of $0.7 million associated with our Phase 1 study of DCC-3116, which we
initiated in June 2021.

Preclinical

For the three months ended March 31, 2022 compared to the same period in 2021, the increase in preclinical costs of $1.1 million, was primarily due to increased activities for our early-stage drug discovery programs.

Unallocated Expenses


For the three months ended March 31, 2022 compared to the same period in 2021,
the increase in unallocated research and development expenses were primarily
associated with increased personnel-related costs of $2.4 million, including
increases in stock-based compensation expense of $1.4 million, primarily due
stock-based compensation grants issued in the fourth quarter of 2021 in
connection with our corporate restructuring, as well as an increase in employee
expenses related to our international employees, who were primarily hired in the
second half of 2021.

We expect research and development expenses associated with vimseltinib and
DCC-3116 will increase in 2022 as we continue to invest in the development of
these programs. However, we expect research and development expenses will
decrease overall as compared to 2021 due to the cost reduction measures included
in the corporate restructuring implemented in the fourth quarter of 2021.

Selling, General, and Administrative Expenses


For the three months ended March 31, 2022 compared to the same period in 2021,
the decrease in selling, general, and administrative expenses was primarily
associated with a decrease in professional and consultant fees of $3.0 million.
The decreases in professional and consultant fees were primarily due to a
decrease in various advisory fees related to establishing, in the prior year
period, a targeted commercial infrastructure and commercialization preparedness
in key European markets to support the launch of QINLOCK in Germany, which
launched in January 2022, and the post-approval paid access program in France,
which received authorization in April 2022.
                                       28

--------------------------------------------------------------------------------

Table of Contents


We anticipate that our selling, general, and administrative expenses will
decrease overall due to the cost reduction measures included in the corporate
restructuring implemented in the fourth quarter of 2021, despite increased
selling, general, and administrative expenses to be incurred related to the
launch of QINLOCK in Germany and the post-approval paid access program in France
in 2022.

Interest and Other Income, Net


For the three months ended March 31, 2022 compared to the same period in 2021,
the decrease in interest and other income, net, was primarily due to decreased
interest income on our cash equivalents and marketable securities associated
with a decreased balance of our investment holding, offset by foreign currency
exchange differences.

Restructuring

In November 2021, we announced a corporate restructuring intended to prioritize clinical development of select programs, streamline commercial operations, maintain a focus on discovery research, and extend our cash runway in 2024.


As a result of the restructuring, we recognized a one-time charge in the fourth
quarter of 2021 of approximately $26.2 million. This charge includes
approximately $9.8 million of employee-related termination costs and
approximately $16.4 million of discontinuation costs such as contract
termination fees and non-cancellable commitments related to the rebastinib and
ripretinib programs.

The following table summarizes the charges and spending related to the Company's restructuring efforts during the first quarter of 2022:


                                                         Workforce          

Pipeline

(in thousands)                                           Reduction             Programs             Total

Restructuring reserve as of December 31, 2021 $ 7,383 $ 13,408 $ 20,791 Payments

                                                    (6,614)              (3,410)           (10,024)
Restructuring reserve as of March 31, 2022             $       769          

$ 9,998 $ 10,767

Liquidity and Capital Resources


Since our inception in 2003, we have focused substantially all of our efforts
and financial resources on organizing and staffing our company, business
planning, raising capital, developing product and technology rights, conducting
research and development activities for our drug candidates, building a
commercial and marketing organization, and commercializing our first approved
product, QINLOCK. Our only product approved for sale is QINLOCK and we have not
generated sufficient revenues to result in a profit.

As a result, we have incurred significant operating losses since our inception.
We have generated limited revenue to date primarily from our product sales and
under the Zai License Agreement and Zai Supply Agreement. QINLOCK is approved in
nine territories for the treatment of fourth-line GIST. During the three months
ended March 31, 2022 and 2021, our product revenues were primarily derived from
sales of QINLOCK in the U.S. We have also entered into exclusive distributor
arrangements to facilitate product sales of QINLOCK in select geographies where
we do not currently intend to distribute QINLOCK on our own. During the second
quarter of 2021, following the approvals of QINLOCK in the PRC and Hong Kong in
March 2021, we also began to recognize royalty revenues under the Zai License
Agreement. However, we cannot provide assurance as to what extent we will
generate revenue from the commercialization of QINLOCK by us or our partners. We
do not expect to generate revenue from sales of any drug candidates in the near
future, if at all, unless and until we obtain marketing approval for, and begin
to sell, such drug candidates. We may never generate revenues that are
significant enough to achieve profitability.

On October 2, 2017, we completed an IPO of our common stock. Since October 2017,
we have primarily supported our operations by completing issuances of our common
stock through our IPO, subsequent follow-on offerings, including our
underwritten public offering announced in April 2022, and an Open Market Sale
Agreement? (the Sales Agreement) with Jefferies LLC (Jefferies). Through such
issuances, we have issued and sold 37,170,625 shares of our common stock and
pre-funded warrants to purchase 9,748,761 shares of our common stock resulting
in net proceeds of $1.1 billion after deducting underwriting discounts and
commissions and other offering expenses.
                                       29

--------------------------------------------------------------------------------

Table of Contents


In August 2020, we entered into the Sales Agreement with Jefferies, pursuant to
which we may issue and sell shares of our common stock having aggregate offering
proceeds of up to $200.0 million (the Shares) from time to time through
Jefferies as our sales agent. Upon delivery of a placement notice and subject to
the terms and conditions of the Sales Agreement, Jefferies may sell the Shares
by any method permitted by law deemed to be an "at the market offering" as
defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as
amended. We may sell the Shares in amounts and at times to be determined by us
from time to time subject to the terms and conditions of the Sales Agreement,
but we have no obligation to sell any Shares under the Sales Agreement. We or
Jefferies may suspend or terminate the offering of Shares upon notice to the
other party and subject to other conditions. On April 26, 2022, we delivered
written notice to Jefferies that we were suspending and terminating the
prospectus related to our common stock (the ATM Prospectus) issuable pursuant to
the Sales Agreement. As a result, we will not make any sales of our securities
pursuant to the Sales Agreement, unless and until a new prospectus, prospectus
supplement or a new registration statement is filed. Other than the termination
of the ATM Prospectus, the Sales Agreement remains in full force and effect.

In April 2022, we entered into an underwriting agreement with J.P. Morgan
Securities LLC and Jefferies, as representatives of the several underwriters
named therein, relating to the issuance and sale of an aggregate of 7,501,239
shares of our common stock at a public offering price of $10.00 per share of
common stock to certain investors. In addition, we offered pre-funded warrants
to purchase 9,748,761 shares of our common stock at a purchase price of $9.99
per pre-funded warrant, which equals the public offering price per share of the
common stock less the $0.01 exercise price per share of each pre-funded warrant.
The offering closed on April 29, 2022, resulting in net proceeds of
$163.4 million after deducting underwriting discounts and commissions and other
offering expenses.

Cash Flows

As of March 31, 2022, our principal sources of liquidity were cash, cash equivalents, and marketable securities of $275.4 million.

The following table summarizes our sources and uses of cash and cash equivalents for each of the periods presented:

                                                                      Three Months Ended March 31,
(in thousands)                                                           2022                  2021
Net cash flows used in operating activities                       $       (51,352)         $ (67,682)
Net cash flows provided by investing activities                            59,652            123,908
Net cash flows provided by financing activities                                83              9,524
Net increase in cash and cash equivalents                         $         8,383          $  65,750


Operating Activities

During the three months ended March 31, 2022 compared to the same period in
2021, net cash flows used in operating activities decreased $16.3 million,
primarily resulting from a decrease in our net loss of $14.4 million and
increases in net non-cash charges of $3.2 million, primarily due to an increase
in share-based compensation of $3.1 million, partially offset by increases in
net cash flows related to changes in our operating assets and liabilities of
$1.3 million. The increase in net cash flows related to changes in our operating
assets and liabilities were generally due to the timing of vendor invoicing and
payments, capitalization of inventory and settlement of accounts receivable.

Investing Activities


During the three months ended March 31, 2022 compared to the same period in
2021, net cash flows from investing activities decreased $64.3 million,
primarily resulting from a decrease in proceeds from maturities of marketable
securities, partially offset by a decrease in purchases of marketable securities
and a decrease in purchases of property and equipment.

Financing Activities


During the three months ended March 31, 2022 compared to the same period in
2021, net cash flows provided by financing activities decreased $9.4 million,
primarily resulting from a decrease in net proceeds from offerings of our common
stock of $8.6 million and a decrease in proceeds from stock option exercises and
employee stock purchase plan activity of $0.9 million.
                                       30

--------------------------------------------------------------------------------

Table of Contents

Funding Requirements


Our ability to generate product revenues sufficient to achieve profitability
will depend heavily on the successful commercialization of QINLOCK and eventual
commercialization of one or more of our drug candidates. Our net loss was $46.9
million for the three months ended March 31, 2022 and $300.0 million for the
year ended December 31, 2021. As of March 31, 2022, we had an accumulated
deficit of $1.1 billion. We expect to continue to incur significant expenses and
operating losses for the foreseeable future. We expect that our expenses and
capital requirements will increase in connection with our ongoing activities,
particularly as we:

•continue to commercialize QINLOCK in the U.S., and continue to build our global commercial capability as we actively prepare to bring QINLOCK to eligible patients around the world, including in key European markets;

•continue with our ongoing and planned clinical programs for vimseltinib as a potential single agent therapy for the treatment of TGCT;

•develop DCC-3116, our ULK kinase inhibitor, for the potential treatment of mutant RAS or RAF cancers;

•continue research and development and drug discovery activities and initiate additional clinical trials;

•seek marketing approval for our drug or any of our drug candidates that successfully complete clinical development;

•develop and scale up our capabilities to support our ongoing preclinical activities and clinical trials for our drug candidates and commercialization of any of our drug candidates for which we obtain marketing approval;

•make payments, if any, pursuant to any license or collaboration agreement we may enter into, including those associated with the Sprint Agreement;

•maintain, expand, protect, and enforce our intellectual property portfolio; and


•maintain our operational, financial, and management systems and personnel,
including to support our clinical development and commercialization efforts and
our operations as a public company, including international operations in key
European markets and other potential geographies.

As we continue to seek regulatory approval for our drug candidates, we expect to
incur significant expenses related to our ongoing clinical development efforts
and activities related to maintaining and expanding our internal
commercialization capability to support product sales, marketing, and
distribution except to the extent we enter into a commercialization partnership
that covers such expenses. Further, we expect to continue to incur costs
associated with operating as a public company.

As a result, we will need substantial additional funding to support our
continuing operations and pursue our growth strategy. Even if we are able to
generate substantial product sales of QINLOCK, we may not become profitable.
Until we become profitable, if ever, we expect to finance our operations
primarily through a combination of equity, debt, or other financings,
collaborations, strategic alliances, and marketing, distribution, or additional
licensing arrangements. We may be unable to raise additional funds or enter into
such other agreements or arrangements when needed on favorable terms, or at all.
Market volatility resulting from the COVID-19 pandemic or other factors could
also adversely impact our ability to access capital as and when needed. If we
are unable to raise additional funds through equity or debt financings or other
arrangements when needed, we may be required to delay, limit, reduce, or
terminate our research, product development, or commercialization efforts or
grant rights to develop and market drugs and drug candidates that we would
otherwise prefer to develop and market ourselves.

To the extent that we raise additional capital through the sale of equity or
convertible debt securities, the ownership interest of existing equity holders
will be diluted, and the terms of these securities may include liquidation or
other preferences that adversely affect the rights of common stockholders. Debt
financing and preferred equity financing, if available, may involve agreements
that include covenants limiting or restricting our ability to take specific
actions, such as incurring additional debt, making acquisitions or capital
expenditures, or declaring dividends. If we raise additional funds through
collaborations, strategic alliances or marketing, distribution, or licensing
arrangements with third parties (such as the Zai License Agreement), we may have
to relinquish valuable rights to our technologies, future revenue streams,
research programs, drugs, or drug candidates, or grant licenses on terms that
may not be favorable to us.

Because of the numerous risks and uncertainties associated with pharmaceutical
product development and commercialization, we are unable to accurately predict
the timing or amount of increased expenses and capital requirements or when or
if we will be able to achieve or maintain profitability. If we fail to become
profitable or are unable to sustain profitability on a continuing basis, then we
may be unable to continue our operations at planned levels and be forced to
further reduce or terminate our operations. The timing and amount of our
operating expenditures will depend largely on:

•the timing and progress of preclinical and clinical development activities;

                                       31

--------------------------------------------------------------------------------

Table of Contents

•successful enrollment in and completion of clinical trials;

•the success of our commercialization efforts and market acceptance for QINLOCK or any of our future approved drugs;

•the timing and outcome of regulatory review of our drug and drug candidates;

•the cost to develop companion diagnostics as needed for each of our drug candidates;

•our ability to establish and manage agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing;

•addition and retention of key research and development and commercial, including sales and marketing, personnel;

•the costs and timing of commercialization activities, including product manufacturing, marketing, sales, and distribution, for QINLOCK, including our commercial launch of QINLOCK in key European markets, and any of our drug candidates for which we obtain marketing approval;

•the legal and patent costs involved in prosecuting patent applications and enforcing patent claims and other intellectual property claims; and


•the terms and timing of any collaboration, license, distribution, or other
arrangement, including the terms and timing of any upfront, milestone, and/or
royalty payments thereunder.

We believe that our cash, cash equivalents, and marketable securities as of
March 31, 2022 of $275.4 million, together with anticipated product, royalty,
and supply revenues, and the net proceeds from our underwritten public offering
completed in April 2022, but excluding any potential future milestone payments
under our collaboration or license agreements will enable us to fund our
operating expenses and capital expenditure requirements into 2025. We have based
these estimates on assumptions that may prove to be wrong, and we could utilize
our available capital resources sooner than we expect.

Contractual Obligations and Commitments


As of March 31, 2022, there have been no material changes to our contractual
obligations and commitments outside the ordinary course of business from those
that were presented in our Form 10-K for the year ended December 31, 2021.

Off-Balance Sheet Arrangements


We did not have during the periods presented, and we do not currently have, any
off-balance sheet arrangements, as defined in the rules and regulations of the
SEC.

Recently Issued Accounting Pronouncements

Based on our review of recently issued accounting pronouncements, we do not believe there are any such pronouncements that will have a material impact on our financial position or results of operations.

© Edgar Online, source Glimpses

All news about DECIPHERA PHARMACEUTICALS, INC.
08/05HC Wainwright Adjusts Price Target on Deciphera Pharmaceuticals to $20 From $15, Reiter..
MT
08/05JMP Securities Upgrades Deciphera Pharmaceuticals to Market Outperform From Market Perf..
MT
08/04Piper Sandler Adjusts Deciphera Pharmaceuticals Price Target to $13 From $11, Maintains..
MT
08/04Deciphera Pharmaceuticals' Q2 Loss Narrows, Revenue Rises
MT
08/04TRANSCRIPT : Deciphera Pharmaceuticals, Inc., Q2 2022 Earnings Call, Aug 04, 2022
CI
08/04DECIPHERA PHARMACEUTICALS : Announces Second Quarter 2022 Financial Results - Form 8-K
PU
08/04DECIPHERA PHARMACEUTICALS, INC. Management's Discussion and Analysis of Financial Cond..
AQ
08/04Earnings Flash (DCPH) DECIPHERA PHARMACEUTICALS Posts Q2 Revenue $32.5M
MT
08/04Earnings Flash (DCPH) DECIPHERA PHARMACEUTICALS Posts Q2 Loss $-0.60
MT
08/04Deciphera Pharmaceuticals, Inc. Announces Second Quarter 2022 Financial Results
BU
More news
Analyst Recommendations on DECIPHERA PHARMACEUTICALS, INC.
More recommendations