Shares of early-stage biopharma Deciphera Pharmaceuticals (NASDAQ: DCPH) dropped nearly 12% today after the company announced the pricing of a share offering that was first disclosed two days ago. Surprisingly, the stock has fallen today even though the 4.3 million shares being offered will come at a price of $40 apiece — above the current share price.
While it’s unusual for a stock to slide when an offering is priced above current share prices, investors are likely contending with the fact that the offering will result in dilution, no matter the value of the shares involved. Does that properly account for a recent clinical update, though?
As of 3:28 p.m. EDT, the stock had settled to a 9.8% loss.
The share offering is a wise move by management. That’s because Deciphera Pharmaceuticals stock was trading near $25 per share just a few days ago. The company announced an impressive clinical update at the 2018 American Society of Clinical Oncology (ASCO) Annual Meeting that lifted the company’s valuation to its current healthy level. It may have been deserved.
The lead drug candidate, DCC-2618, is being evaluated in an ongoing phase 1 trial as a potential treatment for gastrointestinal stromal tumors (GIST) with a specific genetic mutation — a common theme at this year’s ASCO meeting. Deciphera Pharmaceuticals reported an overall response rate of 24% when the drug candidate was used as a second- or third-line treatment (in 25 and 29 patients, respectively) and 9% when used as a fourth-line or later treatment option (in 91 patients). That’s well ahead of response rates for existing treatments, which sit at just 7% and 4.5%, respectively, for second- and third-line treatments.
Those results support the company’s plan to initiate a phase 3 trial evaluating DCC-2618 as a second-line treatment option for GIST. That also supports the recent share offering, which could provide up to $197.8 million in gross proceeds.
Stock dilution is not ideal, but management is executing the share offering with exceptional timing (immediately following an impressive clinical update that lifted the stock price) and at an exceptional price (higher than the current price). The amount of the offering — at nearly $200 million — is also encouraging, as it could alleviate the need for frequent financing going forward. Long story short, Deciphera Pharmaceuticals may not be on many biopharma investors’ radars, but it should be.
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