Deciphera(DCPH) - 2024 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) This section presents the unaudited consolidated financial statements for the period ended March 31, 2024, including balance sheets, statements of operations and comprehensive loss, stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, revenues, marketable securities, inventory, stock-based awards, commitments, and subsequent events Consolidated Balance Sheets Consolidated Balance Sheets (in thousands) | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :-------------------------- | :----------------------------- | :----------------------------- | | Total Assets | $420,928 | $473,566 | | Total Liabilities | $104,878 | $122,650 | | Total Stockholders' Equity | $316,050 | $350,916 | - Total assets decreased by $52.64 million (11.1%) from December 31, 2023, to March 31, 2024[22] - Total liabilities decreased by $17.77 million (14.5%) from December 31, 2023, to March 31, 2024[22] Consolidated Statements of Operations and Comprehensive Loss Consolidated Statements of Operations and Comprehensive Loss (in thousands) | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Total Revenues | $44,999 | $33,445 | | Product Revenues, net | $42,550 | $33,222 | | Collaboration Revenues | $2,449 | $223 | | Total Cost and Operating Expenses | $93,846 | $86,702 | | Loss from Operations | $(48,847) | $(53,257) | | Net Loss | $(45,083) | $(49,609) | | Net Loss per Share—Basic and Diluted | $(0.52) | $(0.60) | - Net loss decreased by $4.53 million (9.1%) from Q1 2023 to Q1 2024[24] - Total revenues increased by $11.55 million (34.5%) from Q1 2023 to Q1 2024, driven by product and collaboration revenue growth[24] Consolidated Statements of Stockholders' Equity Consolidated Statements of Stockholders' Equity (in thousands) | Metric | December 31, 2023 (in thousands) | March 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :---------------------------- | | Total Stockholders' Equity | $350,916 | $316,050 | | Accumulated Deficit | $(1,428,305) | $(1,473,388) | - Total stockholders' equity decreased by $34.87 million from December 31, 2023, to March 31, 2024[27] - Stock-based compensation expense for Q1 2024 was $10.17 million[27] Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :--------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net cash flows used in operating activities | $(54,585) | $(49,455) | | Net cash flows provided by (used in) investing activities | $62,631 | $(35,414) | | Net cash flows provided by financing activities | $522 | $134,686 | | Net increase in cash and cash equivalents | $8,568 | $49,817 | | Cash and cash equivalents at end of period | $91,228 | $114,637 | - Net cash provided by investing activities significantly increased by $98.05 million, shifting from a net use of $35.41 million in Q1 2023 to a net provision of $62.63 million in Q1 2024[30] - Net cash provided by financing activities decreased substantially by $134.16 million, primarily due to a follow-on public offering in Q1 2023 that did not recur in Q1 2024[30] Notes to Consolidated Financial Statements 1. Nature of the Business and Summary of Significant Accounting Policies - Deciphera Pharmaceuticals, Inc. is a biopharmaceutical company focused on discovering, developing, and commercializing new medicines for cancer, leveraging its proprietary switch-control inhibitor platform[33] - QINLOCK is approved in multiple regions (Australia, Canada, China, EU, Hong Kong, Iceland, Israel, Liechtenstein, Macau, New Zealand, Norway, Singapore, Switzerland, Taiwan, U.K., U.S.) for fourth-line GIST[33] - The company has incurred recurring losses, with a net loss of $45.1 million for Q1 2024 and an accumulated deficit of $1.5 billion as of March 31, 2024[42] - Cash, cash equivalents, and marketable securities of $299.3 million as of March 31, 2024, are expected to fund operations for at least 12 months[42] - A pending merger with Ono Pharmaceutical Co., Ltd. is expected to close in Q3 2024; if it doesn't close, the company will need additional capital[43] 2. Revenues Revenue Breakdown (in thousands) | Revenue Type | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :------------- | :--------------------------------------------- | :--------------------------------------------- | | Product Revenues, net | $42,550 | $33,222 | | Collaboration Revenues | $2,449 | $223 | - Net product revenues increased by $9.33 million (28.1%) year-over-year[54] - Collaboration revenues increased significantly by $2.23 million, primarily from the Zai License Agreement (royalties) and Zai Supply Agreement[54][60][63] Revenue-Related Reserves (in thousands) | Revenue-Related Reserves | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :----------------------- | :---------------------------- | :----------------------------- | | Total Revenue-Related Reserves | $31,271 | $27,595 | 3. Marketable Securities and Fair Value Measurements Marketable Securities Estimated Fair Value (in thousands) | Security Type | March 31, 2024 (Estimated Fair Value in thousands) | December 31, 2023 (Estimated Fair Value in thousands) | | :-------------- | :----------------------------------------------- | :----------------------------------------------- | | U.S. government securities | $100,298 | $129,392 | | Corporate debt securities | $79,499 | $97,956 | | Commercial paper | $28,280 | $39,561 | | Money market funds | $43,773 | $29,829 | | Total | $253,846 | $299,237 | - The estimated fair value of marketable securities decreased by $61.33 million (22.8%) from December 31, 2023, to March 31, 2024[64] - Cash equivalents and marketable securities are primarily measured at Level 2 fair value, determined through third-party pricing services using observable market inputs[66][67] 4. Inventory Inventory Breakdown (in thousands) | Inventory Type | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :--------------- | :---------------------------- | :----------------------------- | | Raw materials | $4,934 | $4,934 | | Work in process | $16,968 | $18,253 | | Finished goods | $4,130 | $2,957 | | Total Inventory | $26,032 | $26,144 | - Total capitalized inventory remained relatively stable, with a slight decrease of $0.11 million from December 31, 2023, to March 31, 2024[70] - No inventory write-downs due to excess, obsolescence, or unmarketability occurred during Q1 2024 or Q1 2023[71] 5. Other Consolidated Financial Statement Detail Selected Financial Statement Details (in thousands) | Account | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :------------------------------------ | :---------------------------- | :----------------------------- | | Prepaid expenses and other current assets | $23,628 | $21,718 | | Accrued expenses and other current liabilities | $60,396 | $70,295 | - Prepaid expenses and other current assets increased by $1.91 million (8.8%) from December 31, 2023, to March 31, 2024[72] - Accrued expenses and other current liabilities decreased by $9.90 million (14.1%) from December 31, 2023, to March 31, 2024[73] - Interest income was $3.6 million in Q1 2024, a slight decrease from $3.9 million in Q1 2023[74] 6. Stock-Based Awards Stock-Based Compensation Expense (in thousands) | Expense Category | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :----------------------- | :--------------------------------------------- | :--------------------------------------------- | | Research and development | $4,731 | $5,455 | | Selling, general, and administrative | $5,443 | $7,059 | | Total stock-based compensation | $10,174 | $12,514 | - Total stock-based compensation expense decreased by $2.34 million (18.7%) from Q1 2023 to Q1 2024[78] - As of March 31, 2024, total unrecognized compensation cost related to unvested share-based awards was $78.1 million, expected to be recognized over a weighted average of 2.3 years[78] 7. Commitments and Contingencies - Contractual commitments for commercial supply agreements totaled $9.0 million as of March 31, 2024, expected to be paid within one year[79] - The company is not currently a party to any material legal proceedings[80] 8. Subsequent Events - On April 29, 2024, the company entered into an Agreement and Plan of Merger with Ono Pharmaceutical Co., Ltd. to be acquired for $25.60 per share in cash[84] - The merger is expected to close in the third quarter of 2024[84] - A termination fee of $78.8 million would be payable to Ono if the Merger Agreement is terminated under certain specified circumstances[84] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and operational results for the three months ended March 31, 2024, compared to the prior year, discussing revenues, expenses, liquidity, capital resources, and critical accounting policies, alongside an overview of the pending acquisition by Ono Pharmaceutical Overview - Deciphera Pharmaceuticals is a biopharmaceutical company focused on discovering, developing, and commercializing new medicines for cancer, utilizing its proprietary switch-control inhibitor platform[87] - QINLOCK is approved in multiple regions for fourth-line GIST, and the company's pipeline includes vimseltinib and DCC-3116[87] Pending Transaction with Ono Pharmaceutical Co., Ltd. - On April 29, 2024, Deciphera entered into a Merger Agreement with Ono Pharmaceutical Co., Ltd. for an acquisition at $25.60 per share, expected to close in Q3 2024[88] - A termination fee of $78.8 million is stipulated under certain termination conditions of the Merger Agreement[88] Components of Our Results of Operations Revenues Product Revenues, Net - QINLOCK sales are currently the company's sole source of product revenues[90] - Product revenues are recorded net of estimates for variable consideration, including reserves[90] Collaboration Revenues - Collaboration revenues are associated with the Zai License Agreement and Zai Supply Agreement[91] - The Zai License Agreement includes potential development and commercial milestone payments up to $173.0 million, in addition to tiered percentage royalties on net sales in the Territory[92] - Royalty revenues under the Zai License Agreement began in Q2 2021 following QINLOCK approvals in the PRC and Hong Kong[93] Cost of Sales - Cost of sales includes external costs for producing and distributing inventories related to product revenue and commercial inventories sold under the Zai Supply Agreement[95] - It also includes charges for inventory written down due to excess, obsolescence, unmarketability, or other reasons[95] Operating Expenses Research and Development Expenses - R&D expenses are expensed as incurred and primarily consist of external costs (consultants, CROs, CMOs) for preclinical and clinical development activities[99][100] - R&D expenses are expected to increase during the remainder of 2024 as programs progress and regulatory filing submissions for vimseltinib are supported[101] Selling, General, and Administrative Expenses - SG&A expenses primarily include salaries, benefits, stock-based compensation, facility costs, and professional fees for executive, legal, finance, commercial, HR, and administrative functions[102] - SG&A expenses are anticipated to increase modestly in 2024 due to continued QINLOCK launches in additional jurisdictions and commercial preparations for a potential vimseltinib launch[103][105] Other Income (Expense) - Interest income is derived from cash, cash equivalents, and marketable securities balances[106] - Other income, net, includes miscellaneous income/expenses and impacts of foreign currency exchange differences[106] Income Taxes - The company became subject to U.S. federal and state income taxation after its IPO in October 2017[107] - No U.S. federal or state income tax benefits have been recorded for net losses or earned research and orphan drug credits due to the uncertainty of realizing a future benefit[108] Critical Accounting Policies and Significant Judgments and Estimates - Critical accounting policies involve significant judgment and complexity, particularly product revenue reserves, accrued research and development expenses, and stock-based compensation[109][111] - There have been no significant changes to critical accounting policies since December 31, 2023[110] Results of Operations Comparison of the Three Months Ended March 31, 2024 and 2023 Summary of Operations (in thousands) | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Total Revenues | $44,999 | $33,445 | | Total Cost and Operating Expenses | $93,846 | $86,702 | | Net Loss | $(45,083) | $(49,609) | - Net loss decreased by $4.53 million (9.1%) year-over-year[112] - Total revenues increased by $11.55 million (34.5%) year-over-year[112] Revenues Product Revenues, Net Product Revenues by Geography (in thousands) | Geography | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :---------- | :--------------------------------------------- | :--------------------------------------------- | | U.S. | $31,836 | $24,624 | | Rest of world | $10,714 | $8,598 | | Total | $42,550 | $33,222 | - U.S. net product revenues increased by $7.2 million, primarily due to a $6.1 million increase in sales volume (driven by increased demand, new patient acquisition, new prescriber growth, and increasing average duration of therapy) and a $1.1 million increase in net price[113] - Rest of world net product revenues increased by $2.1 million, mainly due to increased QINLOCK sales volume in Italy (launched Q3 2023) and other jurisdictions[114] Collaboration Revenues - Collaboration revenues increased by $2.2 million, primarily due to higher supply revenues under the Zai Supply Agreement and increased royalties under the Zai License Agreement[115] Cost of Sales Cost of Sales Breakdown (in thousands) | Cost Type | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :---------- | :--------------------------------------------- | :--------------------------------------------- | | Cost of product sales | $604 | $430 | | Cost of collaboration sales | $1,484 | $58 | | Total Cost of Sales | $2,088 | $488 | - Total cost of sales increased by $1.6 million, primarily due to an increase in cost of collaboration sales under the Zai Supply Agreement and higher U.S. cost of sales[116] - No inventory write-downs occurred in Q1 2024 or Q1 2023[116] Operating Expenses Research and Development Expenses - Research and development expenses related to QINLOCK were relatively flat, with increased Phase 3 INSIGHT study expenses offset by decreased Phase 3 INTRIGUE study expenses[119] - Vimseltinib R&D expenses increased by $1.6 million due to manufacturing process development and validation activities[120] - DCC-3116 R&D expenses decreased by $1.7 million in manufacturing, partially offset by a $0.7 million increase in clinical trial expenses[121] - Preclinical costs decreased by $2.4 million due to reduced early-stage drug discovery activities, partially offset by increases for DCC-3009[122] - Personnel-related and other R&D expenses increased by $2.5 million due to headcount growth, partially offset by a $0.7 million decrease in stock-based compensation[123] Selling, General, and Administrative Expenses - Selling, general, and administrative expenses increased by $2.6 million, primarily due to higher professional and consultant fees, including legal services and preparations for vimseltinib's potential commercial launch[125] - Personnel-related costs decreased by $0.2 million, mainly due to a $1.6 million decrease in stock-based compensation, partially offset by headcount growth[125] Interest and Other Income, Net - Interest and other income, net, remained relatively flat year-over-year, with increases from foreign exchange rate differences partially offset by a decrease in interest income[127] Liquidity and Capital Resources Cash Flows Operating Activities - Net cash flows used in operating activities increased by $5.1 million to $(54.59) million in Q1 2024 from $(49.46) million in Q1 2023[139][140] - The increase was primarily due to a $7.1 million decrease in net cash flows from changes in operating assets and liabilities and a $2.5 million decrease in net non-cash charges, partially offset by a $4.5 million decrease in net loss[140] Investing Activities - Net cash flows provided by investing activities increased by $98.0 million to $62.63 million in Q1 2024 from $(35.41) million (used) in Q1 2023[139][141] - This increase was mainly driven by a $102.6 million decrease in purchases of marketable securities, partially offset by a $4.8 million decrease in proceeds from maturities and sales of marketable securities[141] Financing Activities - Net cash flows provided by financing activities decreased by $134.2 million to $0.52 million in Q1 2024 from $134.69 million in Q1 2023[139][142] - The significant decrease was primarily due to $134.5 million in net proceeds from a common stock offering in January 2023 that did not recur in Q1 2024[142] Funding Requirements - The company expects to incur significant expenses and operating losses for the foreseeable future due to QINLOCK commercialization, the Phase 3 INSIGHT study, and advancement of drug candidates (vimseltinib, DCC-3116)[143] - As of March 31, 2024, cash, cash equivalents, and marketable securities of $299.3 million, along with anticipated product, royalty, and supply revenues, are expected to fund operating expenses and capital expenditure requirements into the second half of 2026, but this estimate is based on assumptions that may prove wrong[153] - Substantial additional funding will be required to support continuing operations and growth strategy, potentially through equity, debt, or other financings, collaborations, and licensing arrangements[147] Contractual Obligations and Commitments - No material changes to contractual obligations and commitments outside the ordinary course of business have occurred since the Form 10-K for the year ended December 31, 2023[154] Off-Balance Sheet Arrangements - The company did not have any off-balance sheet arrangements during the periods presented[155] Recently Issued Accounting Pronouncements - No recently issued accounting pronouncements are expected to have a material impact on the company's financial position or results of operations[156] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company refers to its Form 10-K for the year ended December 31, 2023, for detailed disclosures on market risk, noting no material changes in market risk exposures since the last annual report - There have been no material changes to the company's disclosures about market risk since the Form 10-K for the year ended December 31, 2023[157] Item 4. Controls and Procedures This section details the evaluation of the company's disclosure controls and procedures, confirming their effectiveness as of March 31, 2024, and reporting no material changes in internal control over financial reporting during the quarter Evaluation of Disclosure Controls and Procedures - Management, with the participation of the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of March 31, 2024[158] - It was concluded that the disclosure controls and procedures were effective at the reasonable assurance level[159] Changes in Internal Control over Financial Reporting - No change in internal control over financial reporting occurred during the quarter that materially affected, or is reasonably likely to materially affect, internal control over financial reporting[160] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any material legal proceedings - The company is not currently a party to any material legal proceedings[162] Item 1A. Risk Factors This section outlines a comprehensive set of risks and uncertainties that could materially impact the company's business, financial condition, and operating results, including those related to the pending acquisition by Ono, commercialization efforts, clinical development, competition, financial stability, and intellectual property Risks Related to the Pending Transaction with Ono - The pending transaction with Ono may not be completed within the anticipated timeframe or at all, which could adversely affect business, financial results, and operations[165][167] - If the Merger Agreement is terminated under certain circumstances, the company may be required to pay Ono a termination fee of $78.8 million[168][172] - While the Merger Agreement is in effect, the company is subject to restrictions on business activities, potentially limiting strategic opportunities and effective response to competitive pressures[171] - Lawsuits may be filed against the company and its board related to the proposed merger, potentially causing delays, significant costs, and diversion of management attention[174][175] Risks Related to Our Business and Commercialization Risks Related to Business Development and Commercialization - Commercialization efforts for QINLOCK in the U.S. and key European markets may not be successful, potentially failing to generate expected revenues or achieve profitability[177][181] - The company has limited experience as a commercial entity, and the marketing and sale of QINLOCK or any future approved drugs may be unsuccessful or less successful than anticipated[182][183] - Relationships with customers and third-party payors are subject to applicable anti-kickback, fraud and abuse, and other healthcare laws and regulations, risking criminal sanctions, civil penalties, and reputational harm[184][187] - Failure to obtain or maintain adequate coverage and reimbursement for new or current products could limit the ability to market those products and decrease revenue generation[189][190] - Recently enacted and future legislation may increase the difficulty and cost for obtaining marketing approval and commercializing drugs, and decrease the prices obtainable for approved drugs[191][193] - QINLOCK or any current drug candidates (vimseltinib, DCC-3116) may cause undesirable side effects, limiting commercial profile, delaying approval, or requiring restrictive labeling[202][205] - The company may incur significant liability if enforcement authorities allege or determine that it is engaging in commercial activities or promoting QINLOCK or any future approved drug in a way that violates applicable regulations, such as off-label promotion[206] - Laws and regulations governing international operations (e.g., FCPA, U.K. Bribery Act) may preclude developing, manufacturing, and selling certain drug candidates and products outside the U.S. and require costly compliance programs[208][211] - Governments outside of the U.S. tend to impose strict price controls, which may adversely affect revenues[212] - Failure to comply with evolving privacy and data protection laws (e.g., GDPR, CCPA) could adversely affect business, results of operations, and financial condition through fines, litigation, and reputational harm[213][216] Other Risks Related to Our Business - The business could be negatively affected by cybersecurity threats, including information theft, data corruption, operational disruption, damage to reputation, or financial loss[252][255] - Increased dependence on critical, complex, and interdependent information and technology (I&T) systems and data, including third-party providers, makes the company vulnerable to cybersecurity attacks and incidents[256][257] - Artificial intelligence presents risks and challenges, including security risks to confidential information, proprietary information, and personal data, and an uncertain regulatory environment may result in reputational harm or liability[263][264] - The increasing use of social media platforms presents new risks and challenges, including potential noncompliance with regulations, inappropriate disclosure of sensitive information, or negative/inaccurate posts[265] - The effects of enacted tax legislation and other legislative, regulatory, and administrative developments to the business are uncertain, and increased costs could adversely affect financial condition and results of operations[266] - The ability to utilize net operating loss carryforwards and certain other tax attributes may be limited due to 'ownership changes' under Sections 382 and 383 of the Internal Revenue Code[267] - Failure to comply with environmental, health, and safety laws and regulations could result in fines, penalties, or incur costs that could harm the business[268][272] - The company or third parties upon whom it depends may be adversely affected by natural disasters or global health crises, and business continuity and disaster recovery plans may not adequately protect from serious disasters[273][276] Risks Related to Clinical Development, Regulatory Review, and Approval of Our Drug and Drug Candidates Risks Related to Clinical Development - The pivotal Phase 3 INSIGHT study of QINLOCK versus sunitinib in second-line GIST patients with specific KIT mutations may not be successful, and prior exploratory results may not be predictive[277][278] - Clinical drug development involves a lengthy and expensive process, and the company may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of its drug and drug candidates[281][284] - Delays or difficulties in patient enrollment in clinical trials, including the ongoing Phase 3 INSIGHT study and Phase 1/2 study of DCC-3116, could delay or prevent necessary marketing approvals[285][288] - If serious adverse events or unacceptable side effects are identified during the development of drugs or drug candidates, the company may need to abandon or limit such development[289] - The company currently has no products approved for sale with the exception of QINLOCK; failure to successfully develop and commercialize QINLOCK or other drug candidates would materially harm the business[290][295] - Future changes to the manufacturing process for clinical supplies to satisfy greater drug requirements for commercialization may require comparability studies, potentially causing substantial delays or supply constraints[298] Risks Related to the Industry - The marketing approval process is expensive, time-consuming, and uncertain; delays or failure to obtain required regulatory approvals for drug candidates (e.g., vimseltinib) or expand QINLOCK's marketing would materially impair revenue generation[299][301][304] - The company may not be able to obtain or retain orphan drug exclusivity for its drug or drug candidates, which could expose them to competition[305][308] - Interim, 'top-line,' and preliminary data from clinical trials that are announced or published may change as more patient data become available, may be interpreted differently, and are subject to audit and verification procedures that could result in material changes in the final data[309][311] - Failure to successfully develop companion diagnostic tests for drug candidates that require such tests, or experiencing significant delays, may prevent or delay approval and limit the full commercial potential of these drug candidates[312][313] - A fast track designation or Breakthrough Therapy Designation (BTD) by the FDA for drug candidates may not actually lead to a faster development or regulatory review or approval process, nor does it increase the likelihood of marketing approval[314][317] Risks Related to Drug Discovery - Results of preclinical studies and early clinical trials of drug candidates may not be predictive of results of later studies or trials, and drug candidates may not have favorable results in later clinical trials or receive regulatory approval[318][320] - The company may expend its limited resources to pursue a particular drug candidate or indication and fail to capitalize on drug candidates or indications that may be more profitable or for which there is a greater likelihood of success[322] - The company may not be successful in its efforts to discover additional potential drug candidates, which would limit its potential to generate revenues and harm its business and prospects[323] Risks Related to Litigation - Product liability lawsuits against the company could cause it to incur substantial liabilities and limit commercialization of its approved drug or any drug candidates, potentially exceeding insurance coverage[325][326] - The company could be subject to securities class action litigation, which could result in substantial costs and a diversion of management's attention and resources[327] Risks Related to Intellectual Property Litigation - The company may become involved in lawsuits or administrative disputes to protect or enforce its patents or other intellectual property, which could be expensive, time-consuming, and unsuccessful, potentially leading to invalidation or narrow interpretation of patents[328][331] - If the company is sued for infringing, misappropriating, or otherwise violating intellectual property rights of third parties, such litigation could be costly and time-consuming and could prevent or delay development or commercialization, with an unfavorable outcome harming the business[332][335] - The company may be subject to claims by third parties asserting misappropriation of their intellectual property by employees or consultants, or claiming ownership of what the company regards as its own intellectual property, leading to potential loss of rights or personnel[336][337] Risks Related to Our Financial Position, and Capital Needs, and Ownership of Our Common Stock Risks Related to Our Financial Position - The company has incurred significant operating losses since inception ($45.1 million net loss in Q1 2024, $1.5 billion accumulated deficit) and expects continued losses, potentially never achieving or maintaining profitability[338][341][345] - The company has a limited operating history and has not generated sufficient revenue to result in a profit from product sales or operations, making future success or viability predictions uncertain[346][347] - Engaging in strategic transactions (e.g., acquisitions, licensing) could impact liquidity, increase expenses, and present significant distractions to management[349] - Management has broad discretion in the use of working capital, and ineffective application could harm the business and fail to yield favorable returns for stockholders[350][353] Risks Related to Our Capital Needs - The company will require substantial additional funding to cover significant ongoing expenses related to QINLOCK commercialization, the Phase 3 INSIGHT study, and advancement of drug candidates[354][355] - Current cash, cash equivalents, and marketable securities ($299.3 million as of March 31, 2024), along with anticipated revenues, are expected to fund operating expenses and capital expenditure requirements into the second half of 2026, but this estimate is based on assumptions that may prove wrong[356] - Inability to raise capital when needed, or on attractive terms, could force delays, reductions, or elimination of research, drug development programs, or commercialization efforts[355] Risks Related to Ownership of Our Common Stock - Raising additional capital through equity or convertible debt securities may cause dilution to existing stockholders' ownership interest and may include liquidation or other preferences that adversely affect common stockholders' rights[359] - Operating results are expected to fluctuate in future periods, which may adversely affect the stock price if results fall below expectations of securities analysts and investors[361] - Executive officers, directors, and principal stockholders, if they choose to act together, will continue to have the ability to significantly influence all matters submitted to stockholders for approval, potentially delaying or preventing a change in control[362] - Provisions in the corporate charter, under Delaware law, and in certain contractual agreements could make an acquisition of the company more difficult and may prevent attempts by stockholders to replace or remove current management[363][364] - The amended and restated by-laws designate specific courts as the exclusive forum for certain types of actions and proceedings, which could limit stockholders' ability to obtain a favorable judicial forum for disputes[365][368] - The market price of common stock may be volatile and fluctuate substantially due to various factors, including commercial success, competitive developments, clinical trial results, regulatory changes, and general economic conditions[369][370] - Failure to maintain proper and effective internal control over financial reporting could impair the ability to produce accurate and timely financial statements, harming operating results, investors' views, and the value of common stock[371][373] - The company does not anticipate paying any cash dividends on its capital stock in the foreseeable future, making capital appreciation the sole source of gain for stockholders[374] Risks Related to Our Dependence on Third Parties - The company relies, and expects to continue to rely, on third parties (CROs) to conduct clinical trials and preclinical studies; unsatisfactory performance or delays could harm regulatory approval and commercialization[376][379] - Reliance on sole source third-party suppliers for manufacturing QINLOCK and drug candidates increases the risk of insufficient quantities, unacceptable cost or quality, or delays, which could harm commercialization ability[380][381] - Third-party manufacturers may not be able to comply with the FDA's cGMP regulations or similar foreign regulatory requirements, leading to sanctions, delays, or product recalls[387] - The company currently relies on foreign CROs and CMOs, including WuXi, to manufacture clinical materials, which exposes it to U.S. legislation, sanctions, trade restrictions, and other foreign regulatory requirements, potentially increasing costs or reducing supply[391] - The company may enter into license and/or collaborations with third parties (e.g., Zai for Greater China); if these arrangements are not successful, the company may not be able to capitalize on the market potential of its approved drug or drug candidates[392][396] - If the company is not able to establish licenses and/or collaborations, or distribution arrangements with distributors, it may have to alter its development and commercialization plans, potentially requiring additional capital or delaying programs[397][402] Risks Related to Our Intellectual Property Risks Related to Patents - If the company is unable to obtain and maintain sufficient patent protection for its approved drug or drug candidates, or if the scope of patent protection is not sufficiently broad, third parties, including competitors, could develop and commercialize similar products, adversely affecting commercialization success[417][419] - Enforcing intellectual property rights throughout the world would be prohibitively expensive, and foreign laws may not protect rights to the same extent as U.S. laws, potentially allowing competitors to use technologies in jurisdictions without patent protection[404][405] - If the company is unable to protect the confidentiality of its trade secrets (e.g., proprietary switch-control kinase inhibitor platform), the value of its technology could be materially adversely affected and its business harmed[407][409] - Failure to comply with obligations under any license, collaboration, or other agreement may require the company to pay damages and could lead to the loss of intellectual property rights necessary for developing and protecting its drug or drug candidates[410][412] - Intellectual property rights have limitations and may not adequately protect the business or permit the company to maintain its competitive advantage, as others may develop similar products or technologies without infringing existing rights[416] - The term of patents may be inadequate to protect the competitive position on products, potentially expiring before or shortly after commercialization, allowing competitors to enter the market sooner[428][429] - Obtaining and maintaining patent protection depends on compliance with various procedural, documentary, fee payment, and other requirements imposed by governmental patent offices; non-compliance could result in abandonment or lapse of patent rights[430] - Changes to patent law in the U.S. and other jurisdictions could diminish the value of patents in general, thereby impairing the ability to protect products[431][432] - Issued European patents could be subject to the jurisdiction of the recently formed Unified Patent Court (UPC), and a successful challenge there could result in loss of patent protection in numerous European countries[433][434] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - No unregistered sales of equity securities or use of proceeds were reported[435] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - No defaults upon senior securities were reported[436] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable[437] Item 5. Other Information The company disclosed that two executive officers adopted and subsequently terminated Rule 10b5-1 Trading Plans during the quarter ended March 31, 2024 - Daniel Martin (Chief Commercial Officer) and Jama Pitman (Chief Development Officer) adopted Rule 10b5-1 Trading Plans in January and February 2024, respectively[439] - Both Rule 10b5-1 Trading Plans were terminated in April 2024[439] Item 6. Exhibits This section lists all documents filed as exhibits to the Form 10-Q, including key agreements and certifications - Exhibit 2.2 is the Agreement and Plan of Merger, dated April 29, 2024, by and among Ono Pharmaceutical Co. Ltd., Topaz Merger Sub, Inc. and Deciphera Pharmaceuticals, Inc.[441] - Includes Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) and 18 U.S.C. Section 1350[441] Signatures The report is duly signed on behalf of Deciphera Pharmaceuticals, Inc. by its Chief Financial Officer - The report was signed by Thomas P. Kelly, Chief Financial Officer, on May 10, 2024[445]