Why Raymond James Is Bullish On Deciphera, Dova Pharmaceuticals

Raymond James launched coverage of two pharmaceutical names Tuesday afternoon with bullish ratings.

Deciphera Pharmaceuticals, Inc. DCPH is a clinical-stage biopharmaceutical company that addresses key mechanisms of tumor drug resistance. Dova Pharmaceuticals Inc DOVA focuses on treatment of rare diseases with a high unmet demand.

The Analyst

Raymond James' Laura Chico initiated coverage of Deciphera Pharmaceuticals with an Outperform rating and $47 price target. Chico initiated coverage of Dova Pharmaceuticals with an Outperform rating and $44 price target.

Deciphera Pharmaceuticals

One of the more notable trends in the biotechnology sector is the growth of gene therapy, CAR-T and other novel treatment modalities, Chico said in the initiation note. (See her track record here.) 

"Easy to overlook" kinase inhibitor companies like Deciphera Pharmaceuticals are operating in the sector, the analyst said. The company boasts a unique approach through its switch pocket inhibition strategy, she said. 

Deciphera's lead asset DCC-2618 for the treatment of gastrointestinal stromal tumors is "encouraging," Chico said. The therapy is undergoing Phase 3 studies and should come to the market by 2020 and generate $341 million in U.S. revenue by fiscal 2026, the analyst said.

The company's switch-pocket inhibitor platform gives management the opportunity to design novel and differentiated candidates, Chico said.

Deciphera is looking to begin a second Phase 3 study of DCC-2618 in earlier lines of treatment in a head-to-head design to compare the therapy to Sutent, she said.

The candidate demonstrates a strong potency with encouraging readouts and the potential to surpass rival products, including Sutent and Stivarga, Chico said. From a technical perspective, the stock looks attractive in the low $30s given a bear-case scenario downside target of $15 and an upside bull-case target of $60, she said. 

Dova Pharmaceuticals

The bullish case for Dova Pharmaceuticals is justified now that the company's Doptelet is approved for a domestic commercial launch, Chico said in the initiation note.

Firs hand checks and conversations suggest a disconnect between investor expectations for "modest" performance versus conversations with physicians who are aware of the recent approval and likely to prescribe the therapy over the next six months, the analyst said.

A risk always exists of physicians overestimating use, Chico said. 

Under a conservative assumption, Dova Pharmaceuticals will likely see $11 million in Doptelet sales, and the figure should grow to $1.037 billion by 2026, Chico said. Even assuming sales peak at $400 million by 2026, the downside case for the stock is to $18 per share given the company's net cash position of $5 per share, she said. 

The upside case is in the $60 per share range and can be achieved if Doptelet gains a better-than-expected share of the market, expanded use or if investors merely assign a higher multiple to the stock.

Price Action

Deciphera shares were trading 1.54 percent lower at $37.72 at the time of publication Wednesday, while Dova shares were rising 3.42 percent to $25.41. 

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