dcph-20200331
10-QfalseMarch 31, 20202020Q1DCPHDeciphera Pharmaceuticals, Inc.0001654151--12-31YesfalseAccelerated FilertruetruetrueMAYesCommon StockNASDAQ55,859,274FALSETRUE00016541512020-01-012020-03-31xbrli:shares00016541512020-04-30iso4217:USD00016541512020-03-3100016541512019-12-31iso4217:USDxbrli:shares00016541512019-01-012019-03-310001654151us-gaap:PreferredStockMember2019-12-310001654151us-gaap:CommonStockMember2019-12-310001654151us-gaap:AdditionalPaidInCapitalMember2019-12-310001654151us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310001654151us-gaap:RetainedEarningsMember2019-12-310001654151us-gaap:CommonStockMember2020-01-012020-03-310001654151us-gaap:AdditionalPaidInCapitalMember2020-01-012020-03-310001654151us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-03-310001654151us-gaap:RetainedEarningsMember2020-01-012020-03-310001654151us-gaap:PreferredStockMember2020-03-310001654151us-gaap:CommonStockMember2020-03-310001654151us-gaap:AdditionalPaidInCapitalMember2020-03-310001654151us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-03-310001654151us-gaap:RetainedEarningsMember2020-03-310001654151us-gaap:PreferredStockMember2018-12-310001654151us-gaap:CommonStockMember2018-12-310001654151us-gaap:AdditionalPaidInCapitalMember2018-12-310001654151us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-12-310001654151us-gaap:RetainedEarningsMember2018-12-3100016541512018-12-310001654151us-gaap:CommonStockMember2019-01-012019-03-310001654151us-gaap:AdditionalPaidInCapitalMember2019-01-012019-03-310001654151us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-01-012019-03-310001654151us-gaap:RetainedEarningsMember2019-01-012019-03-310001654151us-gaap:PreferredStockMember2019-03-310001654151us-gaap:CommonStockMember2019-03-310001654151us-gaap:AdditionalPaidInCapitalMember2019-03-310001654151us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-03-310001654151us-gaap:RetainedEarningsMember2019-03-3100016541512019-03-310001654151dcph:FollowOnOfferingMemberus-gaap:CommonStockMember2018-06-012018-06-300001654151dcph:FollowOnOfferingMemberus-gaap:CommonStockMember2018-06-300001654151dcph:FollowOnOfferingMemberus-gaap:CommonStockMember2019-07-012019-09-300001654151dcph:FollowOnOfferingMemberus-gaap:CommonStockMember2019-09-300001654151dcph:FollowOnOfferingMemberus-gaap:CommonStockMember2020-02-012020-02-290001654151dcph:FollowOnOfferingMemberus-gaap:CommonStockMember2020-02-2900016541512019-01-012019-12-310001654151us-gaap:EmployeeStockOptionMember2020-01-012020-03-310001654151us-gaap:EmployeeStockOptionMember2019-01-012019-03-310001654151dcph:UnvestedTimeBasedRestrictedCommonStockUnitsMemberMember2020-01-012020-03-310001654151dcph:UnvestedTimeBasedRestrictedCommonStockUnitsMemberMember2019-01-012019-03-310001654151dcph:UnvestedPerformanceBasedRestrictedCommonStockUnitsMember2020-01-012020-03-310001654151dcph:UnvestedPerformanceBasedRestrictedCommonStockUnitsMember2019-01-012019-03-310001654151dcph:ZaiLicenseAgreementMember2019-12-310001654151dcph:ZaiLicenseAgreementMemberdcph:DevelopmentAndCommercialMilestoneMembersrt:MaximumMember2019-06-012019-06-300001654151dcph:ZaiLicenseAgreementMemberdcph:DevelopmentMilestoneMembersrt:MaximumMember2019-06-012019-06-300001654151dcph:ZaiLicenseAgreementMembersrt:MaximumMemberdcph:CommercialMilestoneMember2019-06-012019-06-300001654151dcph:ZaiLicenseAgreementMemberus-gaap:LicenseMember2019-04-012019-06-300001654151dcph:ZaiLicenseAgreementMember2019-04-012019-06-300001654151dcph:ZaiLicenseAgreementMemberdcph:DevelopmentMilestoneMemberdcph:IntrigueStudyRelatedMilestoneMember2019-04-012019-06-300001654151dcph:ZaiLicenseAgreementMemberus-gaap:LicenseMember2019-01-012019-03-310001654151dcph:ZaiLicenseAgreementMemberus-gaap:LicenseMember2020-01-012020-03-310001654151us-gaap:LicenseMemberdcph:ZaiSupplyAgreementMember2020-01-012020-03-310001654151us-gaap:LicenseMemberdcph:ZaiSupplyAgreementMember2020-03-310001654151us-gaap:CommercialPaperMember2020-03-310001654151us-gaap:CommercialPaperMember2020-01-012020-03-310001654151us-gaap:USGovernmentDebtSecuritiesMember2020-03-310001654151us-gaap:USGovernmentDebtSecuritiesMember2020-01-012020-03-310001654151us-gaap:CertificatesOfDepositMember2020-03-310001654151us-gaap:CertificatesOfDepositMember2020-01-012020-03-310001654151us-gaap:OtherDebtSecuritiesMember2020-03-310001654151us-gaap:OtherDebtSecuritiesMember2020-01-012020-03-310001654151us-gaap:CommercialPaperMember2019-12-310001654151us-gaap:CommercialPaperMember2019-01-012019-12-310001654151us-gaap:USGovernmentDebtSecuritiesMember2019-12-310001654151us-gaap:USGovernmentDebtSecuritiesMember2019-01-012019-12-310001654151us-gaap:CertificatesOfDepositMember2019-12-310001654151us-gaap:CertificatesOfDepositMember2019-01-012019-12-310001654151us-gaap:FairValueInputsLevel1Memberus-gaap:MoneyMarketFundsMember2020-03-310001654151us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel2Member2020-03-310001654151us-gaap:FairValueInputsLevel3Memberus-gaap:MoneyMarketFundsMember2020-03-310001654151us-gaap:MoneyMarketFundsMember2020-03-310001654151us-gaap:FairValueInputsLevel1Memberus-gaap:USGovernmentDebtSecuritiesMember2020-03-310001654151us-gaap:USGovernmentDebtSecuritiesMemberus-gaap:FairValueInputsLevel2Member2020-03-310001654151us-gaap:FairValueInputsLevel3Memberus-gaap:USGovernmentDebtSecuritiesMember2020-03-310001654151us-gaap:FairValueInputsLevel1Memberus-gaap:CertificatesOfDepositMember2020-03-310001654151us-gaap:CertificatesOfDepositMemberus-gaap:FairValueInputsLevel2Member2020-03-310001654151us-gaap:FairValueInputsLevel3Memberus-gaap:CertificatesOfDepositMember2020-03-310001654151us-gaap:CertificatesOfDepositMember2020-03-310001654151us-gaap:FairValueInputsLevel1Memberus-gaap:CommercialPaperMember2020-03-310001654151us-gaap:CommercialPaperMemberus-gaap:FairValueInputsLevel2Member2020-03-310001654151us-gaap:FairValueInputsLevel3Memberus-gaap:CommercialPaperMember2020-03-310001654151us-gaap:CommercialPaperMember2020-03-310001654151us-gaap:OtherDebtSecuritiesMemberus-gaap:FairValueInputsLevel1Member2020-03-310001654151us-gaap:OtherDebtSecuritiesMemberus-gaap:FairValueInputsLevel2Member2020-03-310001654151us-gaap:OtherDebtSecuritiesMemberus-gaap:FairValueInputsLevel3Member2020-03-310001654151us-gaap:FairValueInputsLevel1Member2020-03-310001654151us-gaap:FairValueInputsLevel2Member2020-03-310001654151us-gaap:FairValueInputsLevel3Member2020-03-310001654151us-gaap:FairValueInputsLevel1Memberus-gaap:MoneyMarketFundsMember2019-12-310001654151us-gaap:MoneyMarketFundsMemberus-gaap:FairValueInputsLevel2Member2019-12-310001654151us-gaap:FairValueInputsLevel3Memberus-gaap:MoneyMarketFundsMember2019-12-310001654151us-gaap:MoneyMarketFundsMember2019-12-310001654151us-gaap:FairValueInputsLevel1Memberus-gaap:CertificatesOfDepositMember2019-12-310001654151us-gaap:CertificatesOfDepositMemberus-gaap:FairValueInputsLevel2Member2019-12-310001654151us-gaap:FairValueInputsLevel3Memberus-gaap:CertificatesOfDepositMember2019-12-310001654151us-gaap:CertificatesOfDepositMember2019-12-310001654151us-gaap:FairValueInputsLevel1Memberus-gaap:CommercialPaperMember2019-12-310001654151us-gaap:CommercialPaperMemberus-gaap:FairValueInputsLevel2Member2019-12-310001654151us-gaap:FairValueInputsLevel3Memberus-gaap:CommercialPaperMember2019-12-310001654151us-gaap:CommercialPaperMember2019-12-310001654151us-gaap:FairValueInputsLevel1Memberus-gaap:USGovernmentDebtSecuritiesMember2019-12-310001654151us-gaap:USGovernmentDebtSecuritiesMemberus-gaap:FairValueInputsLevel2Member2019-12-310001654151us-gaap:FairValueInputsLevel3Memberus-gaap:USGovernmentDebtSecuritiesMember2019-12-310001654151us-gaap:FairValueInputsLevel1Member2019-12-310001654151us-gaap:FairValueInputsLevel2Member2019-12-310001654151us-gaap:FairValueInputsLevel3Member2019-12-310001654151us-gaap:LetterOfCreditMemberus-gaap:CertificatesOfDepositMember2020-03-310001654151us-gaap:LetterOfCreditMemberus-gaap:CertificatesOfDepositMember2019-12-310001654151dcph:TwoThousandSeventeenEquityIncentivePlanMember2020-03-310001654151dcph:EmployeeStockPurchasePlanEsppMember2020-03-310001654151us-gaap:ResearchAndDevelopmentExpenseMember2020-01-012020-03-310001654151us-gaap:ResearchAndDevelopmentExpenseMember2019-01-012019-03-310001654151us-gaap:SellingGeneralAndAdministrativeExpensesMember2020-01-012020-03-310001654151us-gaap:SellingGeneralAndAdministrativeExpensesMember2019-01-012019-03-310001654151dcph:PresidentAndChiefExecutiveOfficerMember2019-01-012019-03-31dcph:award0001654151dcph:KBAGrantsMember2013-12-312013-12-31utr:sqft00016541512019-04-012019-04-30
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________
FORM 10-Q
___________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                  to                 
Commission file number: 001-38219
___________________________________________
https://cdn.kscope.io/48c2de56ece95952649ce158bd9ae3c4-dcph-20200331_g1.jpg
DECIPHERA PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
___________________________________________
Delaware
(State or other jurisdiction of incorporation or organization)
30-1003521
(I.R.S. Employer Identification Number)
200 Smith Street, Waltham, MA
(Address of principal executive offices)
02451
(Zip Code)
(781) 209-6400
Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 Par Value Per ShareDCPHThe Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
As of April 30, 2020 there were 55,859,274 shares of Common Stock, $0.01 par value per share, outstanding.



Table of Contents
Deciphera Pharmaceuticals, Inc.
INDEX
Page
Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019

2

Table of Contents
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (Form 10-Q) contains forward-looking statements, which reflect our current views with respect to, among other things, our operations and financial performance. All statements other than statements of historical facts contained in this Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plan, objectives of management and expected market growth are forward-looking statements. You can identify these forward-looking statements by the use of words such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "should," "seeks," "approximately," "predicts," "intends," "plans," "estimates," "anticipates," or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. We believe these factors include but are not limited to those described under "Risk Factors" and include, among other things:
the success, cost, and timing of our product development activities and clinical trials, including the timing of our ongoing Phase 3 trial of ripretinib for the treatment of second line gastrointestinal stromal tumors (GIST) patients and results therefrom;
our ability to obtain and maintain regulatory approval for ripretinib or any of our other current or future drug candidates, and any related restrictions, limitations, and/or warnings in the label of an approved drug candidate;
our expectations regarding the size of target patient populations for our drug candidates, if approved for commercial use, and any additional drug candidates we may develop;
our ability to obtain funding for our operations;
our ability to manufacture or obtain sufficient quantities of our drug candidates, including, without limitation, ripretinib, on a timely basis, to support our planned clinical trials and, if approved, commercialization;
our commercial preparedness efforts and our ability to be ready for commercial launch upon approval of a drug candidate, including, without limitation, ripretinib;
the commercialization of our drug candidates, if approved;
our plans to research, develop, and commercialize our drug candidates, including the timing of our ongoing Phase 3 trial of ripretinib for the treatment of second line GIST patients, and the timing of investigational new drug (IND) applications, including, without limitation, the success of IND-enabling studies for, and the expected timing of, an IND application for our DCC-3116 program;
the performance and experience of our licensee, Zai Lab (Shanghai) Co., Ltd. (Zai), to successfully develop and, if approved, commercialize ripretinib in Mainland China, Hong Kong, Macau and Taiwan, also referred to as Greater China or the Greater China region, under the terms and conditions of our license agreement;
our ability to attract additional licensees and/or collaborators or distributors with development, regulatory, and commercialization expertise;
our expectations regarding our ability to obtain, maintain, enforce, and defend our intellectual property protection for our drug candidates;
future agreements with third parties in connection with the commercialization of ripretinib, if approved, or any of our other current or future drug candidates;
the size and growth potential of the markets for our drug candidates and our ability to serve those markets;
the rate and degree of market acceptance of our drug candidates as well as the reimbursement coverage for our drug candidates, and the extent to which patient assistance programs are utilized;
regulatory and legal developments in the United States (U.S.) and foreign countries;
the performance and experience of our third-party suppliers and manufacturers;
the success and timing of competing therapies that are or may become available;
our ability to attract and retain key scientific or management personnel;
the accuracy of our estimates regarding expenses, future revenues, capital requirements, and needs for additional financing;
3

Table of Contents
the impact of global economic and political developments on our business, including economic slowdowns or recessions that may result from the recent outbreak of the novel coronavirus (COVID-19), which could harm our potential future commercialization efforts as well as the value of our common stock and the ability to access capital markets;
natural and manmade disasters, including pandemics such as COVID-19, and other force majeures, which could impact our operations, and those of our partners and other participants in the health care industry, and which could adversely impact our clinical studies, preclinical research activities, and drug supply;
the benefits of U.S. Food and Drug Administration (FDA) designations such as Fast Track and Breakthrough Therapy or priority review, and review of our New Drug Application (NDA) under the FDA's Oncology Center of Excellence (OCE) pilot program, Real-Time Oncology Review (RTOR), and the FDA's Project Orbis initiative (Project Orbis);
the timing or likelihood of approval of our NDA submission to the FDA in the U.S., our New Drug Submission (NDS) with Health Canada, or our market authorisation application (AUS MAA) with the Therapeutic Goods Administration (TGA) in Australia, for ripretinib, and potential regulatory approval for and commercial launch of ripretinib in these jurisdictions;
our expectations regarding the period during which we qualify as an emerging growth company under the Jumpstart Our Business Startups Act of 2012 (the JOBS Act); and
our use of the proceeds from our initial public offering and our follow-on public offerings and any other financing transaction we may undertake.
These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included elsewhere in this Form 10-Q and our prior filings with the Securities and Exchange Commission (SEC). The forward-looking statements contained in this Form 10-Q are made as of the date of this Form 10-Q, and we undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.
4

Table of Contents
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
Deciphera Pharmaceuticals, Inc.
Consolidated Balance Sheets
(Unaudited, in thousands, except share and per share amounts)
March 31, 2020December 31, 2019
Assets
Current assets:
Cash and cash equivalents$229,652  $120,320  
Marketable securities461,848  459,256  
Prepaid expenses and other current assets11,979  13,832  
Total current assets703,479  593,408  
Long-term investment—restricted2,125  1,510  
Property and equipment, net6,693  6,333  
Operating lease assets20,630  21,158  
Total assets$732,927  $622,409  
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable$11,337  $19,575  
Accrued expenses and other current liabilities32,234  38,716  
Operating lease liabilities1,501  1,747  
Total current liabilities45,072  60,038  
Operating lease liabilities, net of current portion15,595  15,904  
Total liabilities60,667  75,942  
Commitments and contingencies (Note 6)
Stockholders' equity:
Preferred stock, $0.01 par value per share; 5,000,000 shares authorized; no shares issued or outstanding
    
Common stock, $0.01 par value per share; 125,000,000 shares authorized; 55,681,027 shares and 51,617,639 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively
557  516  
Additional paid-in capital
1,231,726  1,033,819  
Accumulated other comprehensive income (loss)763  111  
Accumulated deficit(560,786) (487,979) 
Total stockholders' equity672,260  546,467  
Total liabilities and stockholders' equity$732,927  $622,409  
The accompanying notes are an integral part of these consolidated financial statements.
5

Table of Contents
Deciphera Pharmaceuticals, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(Unaudited, in thousands, except share and per share amounts)
Three Months Ended March 31,
20202019
Revenues$62  $  
Operating expenses:
Research and development51,388  35,789  
Selling, general, and administrative23,936  13,236  
Total operating expenses75,324  49,025  
Loss from operations(75,262) (49,025) 
Other income (expense):
Interest and other income, net2,455  1,654  
Interest expense  (13) 
Total other income (expense), net2,455  1,641  
Net loss$(72,807) $(47,384) 
Net loss per share—basic and diluted$(1.36) $(1.25) 
Weighted average common shares outstanding—basic and diluted53,567,434  38,057,018  
Comprehensive loss:
Net loss$(72,807) $(47,384) 
Other comprehensive income (loss):
Unrealized gains (losses) on marketable securities652  21  
Total other comprehensive income (loss)652  21  
Total comprehensive loss$(72,155) $(47,363) 
The accompanying notes are an integral part of these consolidated financial statements.
6

Table of Contents
Deciphera Pharmaceuticals, Inc.
Consolidated Statements of Stockholders' Equity
(Unaudited, in thousands, except share amounts)
Preferred StockCommon StockAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal Stockholders' Equity
SharesAmountSharesAmount
Balance, December 31, 2019  $  51,617,639  $516  $1,033,819  $111  $(487,979) $546,467  
Issuance of common stock sold in public offering, net of underwriting discounts, commissions and offering costs
—  —  3,659,090  37  188,348  —  —  188,385  
Issuance of common stock upon exercise of stock options
—  —  404,298  4  2,565  —  —  2,569  
Stock-based compensation expense
—  —  —  —  6,994  —  —  6,994  
Unrealized gains (losses) on marketable securities
—  —  —  —  —  652  —  652  
Net loss—  —  —  —  —  —  (72,807) (72,807) 
Balance, March 31, 2020  $  55,681,027  $557  $1,231,726  $763  $(560,786) $672,260  

Preferred StockCommon StockAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal Stockholders' Equity
SharesAmountSharesAmount
Balance, December 31, 2018  $  37,676,760  $377  $575,327  $  $(295,723) $279,981  
Issuance of common stock upon exercise of stock options
—  —  512,292  5  1,144  —  —  1,149  
Stock-based compensation expense
—  —  —  —  6,229  —  —  6,229  
Unrealized gains (losses) on marketable securities
—  —  —  —  —  21  —  21  
Net loss—  —  —  —  —  —  (47,384) (47,384) 
Balance, March 31, 2019  $  38,189,052  $382  $582,700  $21  $(343,107) $239,996  
The accompanying notes are an integral part of these consolidated financial statements.
7

Table of Contents
Deciphera Pharmaceuticals, Inc.
Consolidated Statements of Cash Flows
(Unaudited, in thousands)
Three Months Ended March 31,
20202019
Cash flows from operating activities:
Net loss$(72,807) $(47,384) 
Adjustments to reconcile net loss to net cash flows used in operating activities:
Stock-based compensation expense6,994  6,229  
Depreciation expense460  104  
Net accretion of discounts on marketable securities(1,532) (486) 
Changes in operating assets and liabilities:
Prepaid expenses and other current assets1,853  3,170  
Operating lease assets
528  143  
Accounts payable(8,511) 2,629  
Accrued expenses and other current liabilities(6,800) 2,637  
Operating lease liabilities(555) (148) 
Other long-term liabilities  100  
Net cash flows used in operating activities(80,370) (33,006) 
Cash flows from investing activities:
Purchases of marketable securities(203,527) (179,607) 
Maturities of marketable securities203,120    
Purchases of property and equipment(669) (41) 
Increase in restricted investments(614)   
Net cash flows used in investing activities(1,690) (179,648) 
Cash flows from financing activities:
Proceeds from public offerings, net of underwriting discounts and commissions189,175    
Repayment of notes payable to related party  (31) 
Payments of public offering costs(352)   
Proceeds from exercise of stock options2,569  1,149  
Net cash flows provided by financing activities191,392  1,118  
Net increase (decrease) in cash and cash equivalents109,332  (211,536) 
Cash and cash equivalents at beginning of period120,320  293,764  
Cash and cash equivalents at end of period$229,652  $82,228  
Supplemental disclosure of cash flow information:
Cash paid for interest$  $13  
Property and equipment purchases included in accounts payable and accrued expenses and other current liabilities
$152  $  
Offering costs included in accounts payable and accrued expenses and other current liabilities
$438  $  
The accompanying notes are an integral part of these consolidated financial statements.
8

Table of Contents
Deciphera Pharmaceuticals, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)


1. Nature of the Business and Summary of Significant Accounting Policies
Nature of the Business
Deciphera Pharmaceuticals, Inc. (the Company) is a clinical-stage biopharmaceutical company focused on improving the lives of cancer patients by tackling key mechanisms of drug resistance that limit the rate and/or durability of response to existing cancer therapies. The Company's small molecule drug candidates are directed against an important family of enzymes called kinases, known to be directly involved in the growth and spread of many cancers. The Company uses its understanding of kinase biology together with a proprietary chemistry library to purposefully design compounds that maintain kinases in a "switched off" or inactivated conformation. These investigational therapies comprise tumor-targeted agents designed to address therapeutic-resistance-causing mutations and immuno-targeted agents designed to control the activation of immunokinases that suppress critical immune system regulators, such as macrophages. The Company has used its platform to develop a pipeline of tumor-targeted and immuno-targeted drug candidates designed to improve outcomes for patients with cancer by improving the quality, rate, and/or durability of their responses to treatment that includes three clinical-stage, one preclinical-stage, and one research-stage program. The Company wholly owns all of its drug candidates with the exception of a development and commercialization out-license agreement for the Company's lead drug candidate, ripretinib, in Mainland China, Hong Kong, Macau, and Taiwan, also referred to as Greater China or the Greater China region.
The Company is subject to risks and uncertainties common to companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, ability to complete late-stage clinical trials, ability to obtain and maintain regulatory approvals, ability to prepare for and successfully launch drug candidates that are approved for marketing, compliance with government regulations, the impact of the novel coronavirus (COVID-19) pandemic on its operations, and the ability to secure additional capital to fund operations. Drug candidates currently under development will require significant additional research and development efforts, including extensive preclinical and/or clinical testing and regulatory approval, as well as further development of the Company's commercial capabilities and infrastructure, prior to commercialization for the Company's drug candidates, including ripretinib, if approved. These efforts require significant amounts of additional capital, adequate personnel and infrastructure, and extensive compliance-reporting capabilities. Even if the Company's drug development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.
The extent to which the COVID-19 pandemic, or the future outbreak of any other highly infectious or contagious diseases, may impact the Company's business, including its preclinical studies, clinical trial operations, or future commercialization efforts, will depend on future developments, which are highly uncertain and cannot be predicted at this time, including the scope, severity, and duration of such pandemic, 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 Company is monitoring the potential impact of COVID-19, if any, on its financial condition and results of operations. The rapid development and 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 the Company's business, financial condition, and results of operations. The COVID-19 pandemic may also have the effect of heightening the risks to which the Company is subject, including various aspects of the Company's preclinical studies and ongoing clinical trials, the reliance on third parties in the Company's supply chain for materials and manufacturing of the Company's drug candidates for its clinical trials and potential commercial launch, disruptions in health regulatory agencies' operations globally, the volatility of the Company's common stock, and its ability to access capital markets, and the Company's ability to successfully launch, commercialize, and generate revenue from a potential product launch.
In June 2018, the Company issued and sold 4,945,000 shares of its common stock in a follow-on public offering at a public offering price of $40.00 per share, resulting in net proceeds of $185.3 million after deducting underwriting discounts and commissions and other offering expenses. In the third quarter of 2019, the Company issued and sold 12,432,431 shares of its common stock in a follow-on public offering at a public offering price of $37.00 per share, resulting in net proceeds of $431.8 million after deducting underwriting discounts and commissions and other offering expenses. In February 2020, the Company issued and sold 3,659,090 shares of its common stock in a follow-on public offering at a public offering price of $55.00 per share, resulting in net proceeds of $188.4 million after deducting underwriting discounts and commissions and other offering expenses.
9

Table of Contents
Deciphera Pharmaceuticals, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)

Basis of Presentation
The accompanying consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets, and the satisfaction of liabilities and commitments in the ordinary course of business. Since inception, the Company has incurred recurring losses including net losses of $72.8 million and $192.3 million for the three months ended March 31, 2020 and the year ended December 31, 2019, respectively. As of March 31, 2020, the Company had an accumulated deficit of $560.8 million. The Company expects to continue to generate operating losses in the foreseeable future. The Company expects that its cash, cash equivalents, and marketable securities will be sufficient to fund its operating expenses and capital expenditure requirements through at least 12 months from the issuance date of these consolidated financial statements. The future viability of the Company is dependent on its ability to raise additional capital to fund its operations.
The Company expects its expenses to increase in connection with ongoing activities, particularly as the Company advances its clinical trials for its drug candidates in development and engages in efforts to support commercialization should ripretinib receive regulatory approval. Accordingly, the Company will need to obtain substantial additional funding in connection with continuing operations. If the Company is unable to raise capital when needed, or on attractive terms, it could be forced to delay, reduce, or eliminate its research or drug development programs or any future commercialization efforts. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all.
These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.
Unaudited Interim Financial Information
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S.) (GAAP).
The consolidated balance sheet at December 31, 2019 was derived from audited financial statements, but does not include all disclosures required by GAAP. The accompanying unaudited consolidated financial statements as of March 31, 2020 and for the three months ended March 31, 2020 and 2019 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the Company's audited financial statements and the notes thereto for the year ended December 31, 2019 included in the Company's Annual Report on Form 10-K (Form 10-K) on file with the SEC.
In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company's consolidated financial position as of March 31, 2020 and consolidated results of operations and comprehensive loss for the three months ended March 31, 2020 and 2019 and consolidated cash flows for the three months ended March 31, 2020 and 2019 have been made. The consolidated results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2020.
Other than those discussed within the section "Recently Issued Accounting Pronouncements", the significant accounting policies used in preparation of these consolidated financial statements for the three months ended March 31, 2020 are consistent with those discussed in Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements in the Company's Form 10-K for the year ended December 31, 2019.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, revenue recognition, the accrual for research and development expenses, and the valuation of stock-based awards. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.
10

Table of Contents
Deciphera Pharmaceuticals, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)

Net Loss per Share
Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per share is computed by dividing the diluted net income (loss) by the weighted average number of common shares, including potential dilutive common shares assuming the dilutive effect as determined using the treasury stock method.
For periods in which the Company has reported net losses, diluted net loss per common share is the same as basic net loss per common share, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. The Company reported a net loss for the three months ended March 31, 2020 and 2019.
The following potential dilutive securities, presented based on amounts outstanding at the end of each reporting period, have been excluded from the calculation of diluted net loss per share because including them would have had an anti-dilutive impact:
As of March 31,
20202019
Options to purchase common stock7,339,747  6,713,029  
Unvested time-based restricted common stock units283,690  77,000  
Unvested performance-based restricted common stock units57,000    
Total7,680,437  6,790,029  
Recently Issued Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies that the Company adopts as of the specified effective date. Unless otherwise discussed below, the Company does not believe that the adoption of recently issued standards have or may have a material impact on its consolidated financial statements or disclosures.
Credit Losses
In June 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). The FASB subsequently issued amendments to ASU 2016-13, which have the same effective date and transition date of January 1, 2020. This standard requires entities to estimate an expected lifetime credit loss on financial assets and report credit losses using an expected losses model rather than the incurred losses model that was previously used, and establishes additional disclosures related to credit risks. For available-for-sale debt securities with unrealized losses, the standard now requires allowances to be recorded instead of reducing the amortized cost of the investment. This standard limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and requires the reversal of previously recognized credit losses if fair value increases.
This standard became effective for the Company on January 1, 2020, and adoption of this standard did not have a material impact on the consolidated financial statements and related disclosures.
2. License Agreement
Zai License Agreement
In June 2019, the Company entered into a License Agreement (the Zai License Agreement) with Zai Lab (Shanghai) Co., Ltd. (Zai), pursuant to which the Company granted Zai exclusive rights to develop and commercialize ripretinib, including certain follow-on compounds (the Licensed Products), in Greater China (the Territory). The Company retains exclusive rights to, among other things, develop, manufacture, and commercialize the Licensed Products outside the Territory.
Pursuant to the terms of the Zai License Agreement, the Company received an upfront cash payment of $20.0 million and became eligible to receive up to $185.0 million in potential development and commercial milestone payments, consisting of up to $50.0 million of development milestones and up to $135.0 million of commercial milestones. In addition, during the term of the
11

Table of Contents
Deciphera Pharmaceuticals, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)

Zai License Agreement, Zai will be obligated to pay the Company tiered percentage royalties ranging from low to high teens on potential annual net sales of the Licensed Products in the Territory, subject to adjustments in specified circumstances.
Under the Zai License Agreement, the Company recognized revenue of $25.0 million during the second quarter of 2019, which consisted of the $20.0 million upfront payment and a $5.0 million INTRIGUE study-related development milestone payment, which the Company believed to be probable of achievement in the second quarter of 2019 and was achieved in July 2019.
No revenues were recognized under the Zai License Agreement during the three months ended March 31, 2020 or 2019.
Subject to the terms and conditions of the Zai License Agreement, Zai will be responsible for conducting the development and commercialization activities in the Territory related to the Licensed Products. Please read Note 3, License Agreement, to the consolidated financial statements in the Company's Form 10-K for the year ended December 31, 2019 for further details on the Zai License Agreement.
In February 2020, the Company entered into a Supply Agreement (the Zai Supply Agreement) with Zai, as required by terms in the Zai License Agreement, pursuant to which the Company will supply the Licensed Products to Zai for use in the Territory for clinical trials as well as commercial inventory, if ripretinib obtains regulatory approval in the Territory. Subject to the Zai Supply Agreement, costs incurred by the Company for external manufacturing services are reimbursed by Zai.
Under the Zai Supply Agreement, the Company recognized revenues of $0.1 million associated with external manufacturing services provided during the three months ended March 31, 2020. As of March 31, 2020, receivables of $0.1 million related to external manufacturing services were included within prepaid expenses and other current assets in the consolidated balance sheets.
3. Marketable Securities and Fair Value Measurements
The following tables present marketable securities by security type:
As of March 31, 2020 (in thousands)Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Commercial paper (due within one year)$270,577  $174  $(115) $270,636  
U.S. Government securities (due within one year)134,685  608    135,293  
Certificates of deposit (due within one year)45,836  84    45,920  
Other debt securities (due within one year)9,987  12    9,999  
Total$461,085  $878  $(115) $461,848  

As of December 31, 2019 (in thousands)Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Commercial paper (due within one year)$314,292  $74  $(23) $314,343  
U.S. Government securities (due within one year)78,612  48  (3) 78,657  
Certificates of deposit (due within one year)66,241  17  (2) 66,256  
Total$459,145  $139  $(28) $459,256  
12

Table of Contents
Deciphera Pharmaceuticals, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)

The following tables present information about the Company's financial assets measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values:
As of March 31, 2020 (in thousands)Level 1Level 2Level 3Total
Cash equivalents:
Money market funds$  $93,156  $  $93,156  
U.S. Government Securities  21,900    21,900  
Certificates of deposit  17,508    17,508  
Commercial paper  16,495    16,495  
Marketable securities:
Commercial paper  270,636    270,636  
U.S. Government securities  135,293    135,293  
Certificates of deposit  45,920    45,920  
Other debt securities  9,999    9,999  
Total$  $610,907  $  $610,907  

As of December 31, 2019 (in thousands)Level 1Level 2Level 3Total
Cash equivalents:
Money market funds$  $28,192  $  $28,192  
Certificates of deposit  20,500    20,500  
Marketable securities:
Commercial paper  314,343    314,343  
U.S. Government securities  78,657    78,657  
Certificates of deposit  66,256    66,256  
Total$  $507,948  $  $507,948  
The table above excludes certificates of deposit totaling $2.1 million and $1.5 million as of March 31, 2020 and December 31, 2019, respectively, that the Company held to secure a letter of credit associated with a lease and to secure a credit card account. The Company increased its credit card limit and corresponding certificate of deposit in the first quarter of 2020. The certificates of deposit are Level 2 instruments and are measured at carrying value in the consolidated balance sheets in long-term investment—restricted and approximate fair value. For additional information on the letter of credit associated with a lease, please read Note 6, Leases, to the consolidated financial statements in the Company's Form 10-K for the year ended December 31, 2019.
The fair value of Level 2 instruments classified as cash equivalents and marketable securities were determined through third-party pricing services. The pricing services use many observable market inputs to determine value, including reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, current spot rates, and other industry and economic events.
4. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
(in thousands)As of March 31, 2020As of December 31, 2019
External research and development expenses$22,979  $20,462  
Payroll and related expenses5,331  12,902  
Professional fees3,153  3,810  
Other771  1,542  
Total accrued expenses and other current liabilities$32,234  $38,716  
13

Table of Contents
Deciphera Pharmaceuticals, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)


5. Stock-Based Awards
The Company grants stock-based awards under its 2017 Stock Option and Incentive Plan (the 2017 Plan) and is authorized to issue common stock under its 2017 Employee Stock Purchase Plan (ESPP). The Company also has outstanding stock options under its 2015 Equity Incentive Plan but is no longer granting awards under this plan. As of March 31, 2020, 1,878,252 shares of common stock were available for issuance under the 2017 Plan. As of March 31, 2020, 1,409,433 shares of common stock were available for issuance to participating employees under the ESPP.
Stock-based compensation expense was classified in the statements of operations and comprehensive loss as follows:
Three Months Ended March 31,
(in thousands)20202019
Research and development expenses$3,271  $1,692  
Selling, general, and administrative expenses3,723  4,537  
Total stock-based compensation$6,994  $6,229  
As of March 31, 2020, total unrecognized compensation cost related to the unvested share-based awards was $102.4 million, which is expected to be recognized over a weighted average of 2.9 years. During the three months ended March 31, 2019, the Company recorded $2.4 million of stock-based compensation expense related to the modification of stock options pursuant to the transition agreement with its former President and Chief Executive Officer.
6. Commitments and Contingencies
KBA Grants
Prior to 2014, the Company received funding from two research and development grants from the Kansas Bioscience Authority (KBA), totaling $2.0 million and no further amounts will be received under these grants. Pursuant to Kansas law, the Company may be required to repay some or all of the financial assistance received from the KBA, subject to the discretion of the KBA, if the Company relocates the operations in which the KBA invested outside of the State of Kansas, if the Company initiates procedures to dissolve and wind up or cease operations within ten years after receiving such financial assistance or upon certain significant changes to ownership of the Company. The Company will only account for the repayment of the grants if it becomes probable that the Company will be required to repay any funds previously received.
Lease and Associated Letter of Credit
In April 2019, the Company amended its lease for office space at 200 Smith Street in Waltham, Massachusetts (the Premises), to add an additional 38,003 square feet of space. In addition to paying its share of operating expenses, taxes, and other expenses related to the additional leased premises, the Company will also be required to increase the amount of cash to secure its letter of credit associated with its lease at the Premises upon substantial completion. As of March 31, 2020, the Company had not been required to record an operating lease asset or any lease liabilities associated with this lease within its consolidated balance sheets or increase the amount of cash related to the letter of credit. For additional information, please read Note 6, Leases, to the consolidated financial statements in the Company's Form 10-K for the year ended December 31, 2019.
Purchase Commitments Associated with Commercial Supply Agreements
The Company has entered into commercial supply agreements related to the supply of ripretinib that require the Company to make binding forecasts for a certain amount of purchases. The related cancellation clauses would as a general matter require the Company to pay the full amount of these binding forecasts. As of March 31, 2020, the Company's contractual commitments for such obligations were $4.6 million, which are expected to be paid within one year.
Legal Proceedings
The Company is not currently a party to any material legal proceedings. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the
14

Table of Contents
Deciphera Pharmaceuticals, Inc.
Notes to the Consolidated Financial Statements
(Unaudited)

authoritative guidance that addresses accounting for contingencies. The Company expenses the costs related to its legal proceedings as they are incurred.
Indemnification Agreements
In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its board of directors and senior management that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company is not aware of any claims under indemnification arrangements, and it has not accrued any liabilities related to such obligations in its consolidated financial statements as of March 31, 2020 or December 31, 2019.
15

Table of Contents
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
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, 2019 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 clinical-stage biopharmaceutical company focused on improving the lives of cancer patients by tackling key mechanisms of drug resistance that limit the rate and/or durability of response to existing cancer therapies. Our small molecule drug candidates are directed against an important family of enzymes called kinases, known to be directly involved in the growth and spread of many cancers. We use our deep understanding of kinase biology together with a proprietary chemistry library to purposefully design compounds that maintain kinases in a "switched off" or inactivated conformation. These investigational therapies comprise tumor-targeted agents designed to address therapeutic-resistance-causing mutations and immuno-targeted agents designed to control the activation of immunokinases that suppress critical immune system regulators, such as macrophages. We have used our platform to develop a diverse pipeline of tumor-targeted and immuno-targeted drug candidates designed to improve outcomes for patients with cancer by improving the quality, rate, and/or durability of their responses to treatment that includes three clinical-stage, one preclinical-stage, and one research-stage program. We wholly own all of our drug candidates with the exception of a development and commercialization out-license agreement for our lead drug candidate, ripretinib, in the Greater China region.
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, and building a commercial and marketing organization. We do not have any products approved for sale and have not generated any revenue from product sales.
On October 2, 2017, we completed an initial public offering (IPO), of our common stock, pursuant to which we issued and sold 7,500,000 shares of common stock at a public offering price of $17.00 per share, resulting in net proceeds of $114.1 million after deducting underwriting discounts and commissions and other offering expenses. On October 4, 2017, we issued and sold an additional 666,496 shares of our common stock at the IPO price of $17.00 per share, pursuant to the underwriters' partial exercise of their option to purchase additional shares of common stock, resulting in additional net proceeds of $10.5 million after deducting discounts and commissions.
On June 11, 2018, we issued and sold 4,300,000 shares of our common stock in a follow-on public offering at a public offering price of $40.00 per share, resulting in net proceeds of $161.0 million after deducting underwriting discounts and commissions and other offering expenses. On June 20, 2018, we issued and sold an additional 645,000 shares of our common stock at the public offering price of $40.00 per share, pursuant to the underwriters' full exercise of their option to purchase additional shares of common stock, resulting in additional net proceeds of $24.3 million after deducting underwriting discounts and commissions.
On August 19, 2019, we issued and sold 10,810,810 shares of our common stock in a follow-on public offering at a public offering price of $37.00 per share, resulting in net proceeds of $375.4 million after deducting underwriting discounts and commissions and other offering expenses. On September 3, 2019, we issued and sold an additional 1,621,621 shares of our common stock at the public offering price of $37.00 per share, pursuant to the underwriters' full exercise of their option to purchase additional shares of common stock, resulting in additional net proceeds of $56.4 million after deducting underwriting discounts and commissions.
On February 19, 2020, we issued and sold 3,181,818 shares of our common stock in a follow-on public offering at a public offering price of $55.00 per share, resulting in net proceeds of $163.7 million after deducting underwriting discounts and commissions and other offering expenses. On February 25, 2020, we issued and sold an additional 477,272 shares of our common stock at the public offering price of $55.00 per share, pursuant to the underwriters' full exercise of their option to purchase additional shares of common stock, resulting in additional net proceeds of $24.7 million after deducting underwriting discounts and commissions.
16

Table of Contents
Prior to our IPO, we had funded our operations primarily with proceeds from the sales of preferred shares, proceeds from the issuance of convertible notes, payments received under a concluded collaboration agreement, borrowings under a repaid construction loan and research, and development grants from the Kansas Bioscience Authority (KBA).
Since our inception, we have incurred significant operating losses. Our ability to generate product revenues sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our drug candidates. Our net loss was $72.8 million for the three months ended March 31, 2020 and $192.3 million for the year ended December 31, 2019. As of March 31, 2020 we had an accumulated deficit of $560.8 million. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. We expect that our expenses and capital requirements will increase in connection with our ongoing activities, particularly as we:
continue enrollment in and proceed with the expansion cohorts of our Phase 1 clinical trial for ripretinib;
continue with our ongoing pivotal Phase 3 clinical trial of ripretinib;
continue with our ongoing and planned clinical programs for DCC-3014 and rebastinib;
conduct IND-enabling studies and potential development of DCC-3116;
develop any other future drug candidates we may choose to pursue;
continue research and development and drug discovery and initiate additional clinical trials;
seek marketing approval for any of our drug candidates that successfully complete clinical development, including ripretinib;
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, including without limitation, our efforts to scale up drug substance and drug product manufacturing capabilities for commercial-grade product;
maintain, expand, protect, and enforce our intellectual property portfolio;
develop and expand our sales, marketing, and distribution capabilities for our drug candidates, including ripretinib, for which we obtain marketing approval, if any, including potential international capabilities; and
expand our operational, financial, and management systems and increase personnel, including to support our clinical development and commercialization efforts and our operations as a public company, including potential international operations.
We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our drug candidates. As we continue to seek regulatory approval for our drug candidates, including ripretinib, we expect to incur significant expenses related to developing and maintaining 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 incur additional costs associated with continuing to operate as a public company.
As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt 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. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back, or discontinue the development and commercialization of one or more of our drug candidates.
Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. 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 reduce or terminate our operations.
As of March 31, 2020, we had cash, cash equivalents, and marketable securities of $691.5 million. We believe that our cash, cash equivalents, and marketable securities as of March 31, 2020, will enable us to fund our operating expenses and capital expenditure requirements into the second half of 2022. This excludes any potential milestone payments, royalty payments, or
17

Table of Contents
payments for external manufacturing services, if any, that we may receive pursuant to our license and supply agreements with Zai. For additional information, please read the "Liquidity and Capital Resources" section included below.
Recent Developments
Equity Offering
In February 2020, the Company issued and sold 3,659,090 shares of its common stock in a follow-on public offering at a public offering price of $55.00 per share, resulting in net proceeds of $188.4 million after deducting underwriting discounts and commissions and other offering expenses. For additional information, please read the "Overview" section included above.
Coronavirus (COVID-19)
The 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 future commercialization efforts will depend on future developments, which are highly uncertain and cannot be predicted at this time, including the scope, severity, and duration of such pandemic, 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 rapid development and 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 candidates for our clinical trials and potential commercial launch, disruptions in health regulatory agencies' operations globally, the volatility of our common stock, and our ability to access capital markets, and our ability to successfully launch, commercialize, and generate revenue from a potential product launch.
We are actively monitoring the evolving impact of COVID-19 on our business operations in an effort to mitigate interruption to our clinical programs, research efforts, 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. Because COVID-19 infections have been reported throughout the U.S. and worldwide, certain national, state, and local governmental authorities have issued orders, proclamations, and/or directives aimed at minimizing the spread of COVID-19. Additional, more restrictive orders, proclamations, and/or directives may be issued in the future. As a result of these developments, in early March 2020, we began precautionary measures to protect the health and safety of our employees, partners, and patients during the COVID-19 pandemic, including the adoption of a work-from-home policy for our employees with limited exceptions for certain business-critical activities including ongoing laboratory research activities. For business-critical employees, we have implemented appropriate safety measures designed to comply with federal, state, and local guidelines.
In addition, we are actively monitoring 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 imposed 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 some sites have temporarily paused enrollment of new patients. In addition, we are working closely with our study sites and CROs to allow for utilization of remote and local assessments, such as televisits, in accordance with recent FDA 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, we cannot guarantee that COVID-19 precautions, or the impact of the pandemic, will not directly or indirectly affect the expected timelines for some of our clinical trials.
At this stage of the COVID-19 pandemic, the operating environment remains fluid and uncertain, and our outlook is based on the assumption that the most severe impacts are of a short-term nature over the next few months, rather than a prolonged and sustained disruption to everyday life.
As of this time, while there has been a slowdown in patient enrollment in the current environment, we currently expect to achieve our previously stated clinical milestones in the second half of 2020, including:
full enrollment in our Phase 3 INTRIGUE study in second-line GIST patients;
updated clinical data for DCC-3014 from the dose escalation portion of the study in patients with tenosynovial giant cell tumor (TGCT), and both of the Phase 1b/2 studies in our rebastinib program;
selection of a Phase 2 dose for DCC-3014 and opening the expansion portion of the study in TGCT patients; and
18

Table of Contents
filing of an IND for DCC-3116, our ULK kinase inhibitor.
In addition, we believe we have commercial drug supply sufficient to support the potential launch of ripretinib in fourth-line GIST. Based on current inventories and plans, we do not anticipate any COVID-19-related supply interruptions to our clinical programs at this time.
Given the evolving landscape, we have also been preparing for a potential launch of ripretinib in a healthcare environment with limited to no physical, in-person promotional activities and therefore we have been preparing for the possible need to launch and promote using a virtual interaction model, if necessary.
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.
Ripretinib Development Update
We are studying our lead drug candidate, ripretinib, in INTRIGUE, our ongoing Phase 3 study, to evaluate ripretinib compared to sunitinib in 426 patients in second-line GIST, and in an ongoing Phase 1 trial in patients with multiple advanced malignancies, including GIST. In December 2019, we submitted a NDA to the FDA for ripretinib, for the treatment of patients with advanced GIST who have received prior treatment with imatinib, sunitinib, and regorafenib. Our NDA is based on positive results from our first Phase 3 study, INVICTUS, in fourth-line and fourth-line plus GIST patients, for whom there are currently no approved therapies in the U.S. other than avapritinib which is approved for GIST patients with PDGFRα exon 18 mutations only (estimated to be approximately 6% of all patients with newly-diagnosed GIST).
In February 2020, the FDA accepted our NDA for ripretinib for the treatment of patients with fourth-line and fourth-line plus GIST, granted priority review and set an action date of August 13, 2020, under the Prescription Drug User Fee Act (PDUFA).
Rebastinib Development Update
Rebastinib is an investigational, orally administered, potent, and selective inhibitor of TIE2 kinase, which plays an important role in regulating tumor angiogenesis, invasiveness, metastasis, and immunotolerance. We are currently studying rebastinib in two Phase 1b/2 studies in combination with chemotherapy, one with paclitaxel and one with carboplatin. Both studies are divided into two parts. Part 1 of each study was designed to select a combination dose of rebastinib with each chemotherapy agent. Part 2 of each study is designed as a Simon 2-stage design; in the first stage, the combinations are being evaluated in multiple solid tumor cohorts in up to 18 patients each. If there are more than four responses in a given cohort, that cohort is expanded to up to a total of 33 patients.
Rebastinib in combination with paclitaxel: In May 2020, we announced that we have observed in the paclitaxel combination study the required number of responses in both the endometrial and ovarian cancer cohorts, two of the cohorts in Part 2 of this study, triggering the expansion of enrollment in these cohorts. In addition, based on the clinical activity observed in Part 1, we have added a cohort for patients with carcinosarcoma in Part 2 of the study.
Rebastinib in combination with carboplatin: In January 2020, we activated Part 2 of this Phase 1b/2 study in combination with carboplatin. We continue to enroll patients with breast cancer, ovarian cancer, and mesothelioma in Part 2 of the study at the recommended Phase 2 dose of 50 mg twice daily (BID), which was reduced from 100 mg BID based on the observed frequency of muscular weakness in preliminary data from the ongoing Part 2 portion of the study.
Components of Our Results of Operations
Revenue
To date, we have not generated any revenue from product sales and may not generate any revenue from the sale of products in the near future, if ever. If our development efforts for our drug candidates are successful and result in regulatory approval, including ripretinib, we may generate revenue in the future from product sales. If we enter into collaboration agreements, distributor arrangements, or additional license agreements with third parties, 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, if any, in the near future will be derived primarily from the license agreement (the Zai License Agreement) and supply agreement (the Zai Supply Agreement) we entered into with Zai in June 2019 and February 2020, respectively, as well as any collaborations, distributor arrangements, or additional license agreements that we
19

Table of Contents
may enter into in the future. We cannot provide assurance as to the timing of future milestone or royalty payments or that we will receive any of these payments at all. We cannot predict if, when, or to what extent we will generate revenue from the commercialization and sale of our drug candidates. We may never succeed in obtaining regulatory approval for any of our drug candidates.
License Agreement
Pursuant to the terms of the Zai License Agreement, we received an upfront cash payment of $20.0 million and became eligible to receive up to $185.0 million in potential development and commercial milestone payments, consisting of up to $50.0 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 potential annual net sales of ripretinib, including certain follow-on compounds (the Licensed Products) in the Greater China region (the Territory), subject to adjustments in specified circumstances.
Under the Zai License Agreement, we recognized revenues of $25.0 million during the second quarter of 2019, which consisted of the $20.0 million upfront payment and a $5.0 million INTRIGUE study-related development milestone payment, which we believed to be probable of achievement in the second quarter of 2019 and was achieved in July 2019.
No revenues were recognized under the Zai License Agreement during the three months ended March 31, 2020 or 2019.
The next development milestone under the Zai License Agreement that we may achieve in the future would be upon the submission of the Regulatory Approval Application by Zai in the People's Republic of China for ripretinib for fourth-line GIST. If this milestone is achieved, we would be entitled to receive a $2.0 million payment.
Supply Agreement
Pursuant to the terms of the Zai Supply Agreement, costs incurred by the Company for external manufacturing services are reimbursed by Zai.
Under the Zai Supply Agreement, the Company recognized revenues of $0.1 million associated with external manufacturing services provided during the three months ended March 31, 2020.
We do not expect to recognize significant revenues associated with external manufacturing services during 2020.
Operating Expenses
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 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 manufacturing of ripretinib inventory to be sold if ripretinib is approved by the FDA; and
facilities, depreciation, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance, and supplies.
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 kinase switch control
20

Table of Contents
inhibitor platform technology, or facility expenses, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple product development programs and, as such, are not separately classified.
The successful development and commercialization of our drug candidates is highly uncertain. This is due to the numerous risks and uncertainties, including the following:
successful completion of preclinical studies and clinical trials;
receipt and related terms of marketing approvals from applicable regulatory authorities;
raising additional funds necessary to complete clinical development of and commercialize our drug candidates;
obtaining and maintaining patent, trade secret and other intellectual property protection, and regulatory exclusivity for our drug candidates;
making arrangements with third-party manufacturers, or establishing manufacturing capabilities, for both clinical and commercial supplies of our drug candidates;
developing and implementing marketing and reimbursement strategies;
establishing sales, marketing, and distribution capabilities and launching commercial sales of our drug candidates, if and when approved, whether alone or in collaboration with others such as Zai, our licensee for ripretinib in the Greater China region;
acceptance of our products, if and when approved, by patients, the medical community, and third-party payors;
effectively competing with other therapies;
the ability to obtain clearance or approval of companion diagnostic tests, if required, on a timely basis, or at all;
obtaining and maintaining third-party coverage and adequate reimbursement;
protecting and enforcing our rights in our intellectual property portfolio; and
maintaining a continued acceptable safety profile of our products following approval.
A change in the outcome of any of these variables with respect to the development of any of our drug candidates would significantly change the costs and timing associated with the development of that drug candidate. We may never succeed in obtaining regulatory approval for any of our drug candidates.
Research and development activities are central to our business model. 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 costs to increase for the foreseeable future as our drug candidate development programs progress. However, 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 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, and administrative functions. Selling, general, and administrative expenses also include direct and allocated facility-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 increase in the future as we increase our headcount to support our continued research activities and development of our drug candidates and to support commercialization should ripretinib receive regulatory approval. We also anticipate that we will continue to incur increased accounting, audit, legal, regulatory, compliance, and investor and public relations expenses associated with growth of the business and continued operations as a public company.
21

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.
Interest Expense
Interest expense for the three months ended March 31, 2019 consisted of interest expense associated with a previously outstanding construction loan from a related party. We anticipate that we will not have interest expense in 2020 as the outstanding balance of notes payable to a related party was repaid in December 2019.
Income Taxes
We are 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 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, 2019 on file with the SEC, as of March 31, 2020, 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, assumptions, 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 of our critical accounting policies described under the heading "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, 2019 on file with the SEC, the following involve the most judgment and complexity:
revenue recognition;
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.
22

Table of Contents
Results of Operations
Comparison of the Three Months Ended March 31, 2020 and 2019
The following table summarizes our results of operations for the three months ended March 31, 2020 and 2019:
Three Months Ended March 31,
(in thousands)20202019
Revenues$62  $—  
Operating expenses:
Research and development51,388  35,789  
Selling, general, and administrative23,936  13,236  
Total operating expenses75,324  49,025  
Loss from operations(75,262) (49,025) 
Other income (expense):
Interest and other income, net2,455  1,654  
Interest expense—  (13) 
Total other income (expense), net2,455  1,641  
Net loss$(72,807) $(47,384) 
23

Table of Contents
Operating Expenses
https://cdn.kscope.io/48c2de56ece95952649ce158bd9ae3c4-dcph-20200331_g2.jpghttps://cdn.kscope.io/48c2de56ece95952649ce158bd9ae3c4-dcph-20200331_g3.jpg
Research and Development Expenses
Ripretinib
For the three months ended March 31, 2020 and 2019, expenses related to our ripretinib program increased primarily as a result of an increase in manufacturing costs of $2.8 million. Manufacturing costs for the ripretinib program increased primarily as a result of increased activities to support anticipated drug requirements for commercialization and clinical trials. Clinical trial expenses for the ripretinib program decreased $0.1 million during the three months ended March 31, 2020 compared to the same period in 2019. The decrease in clinical trial expenses was primarily related to decreased costs associated with our pivotal Phase 3 trial in fourth-line and fourth-line plus GIST, INVICTUS, which we initiated in January 2018 and with respect to which we filed an NDA in December 2019, partially offset by increased costs related to our pivotal Phase 3 trial in second-line GIST, INTRIGUE, which we initiated in December 2018 and which is ongoing.
Rebastinib
For the three months ended March 31, 2020 and 2019, expenses related to our rebastinib program increased primarily as a result of an increase in clinical trial costs of $1.1 million and manufacturing costs of $0.8 million. The increase in clinical trial costs was due to our Phase 1b/2 trial of rebastinib in combination with paclitaxel, which we initiated in October 2018 and moved to Part 2 of the Phase 1b/2 trial in the second quarter of 2019, and our second Phase 1b/2 clinical trial of rebastinib in combination with carboplatin, which we initiated in January 2019 and moved to Part 2 of the Phase 1b/2 trial in January 2020. Manufacturing costs for the rebastinib program increased as a result of increased activities to support clinical trials.
24

Table of Contents
DCC-3014
For the three months ended March 31, 2020 and 2019, expenses related to our DCC-3014 program increased primarily as a result of an increase in clinical trial costs of $1.0 million, an increase in manufacturing costs of $1.0 million, and an increase in preclinical costs of $0.8 million. The increase in clinical trial costs was due primarily to our ongoing dose escalation Phase 1 trial of DCC-3014 to assess the safety, tolerability, pharmacokinetics, and pharmacodynamics in patients with advanced malignancies and TGCT. Manufacturing costs for the DCC-3014 program increased as a result of increased activities to support clinical trials. The increase in preclinical costs was primarily due to ongoing studies.
DCC-3116
For the three months ended March 31, 2020 and 2019, expenses related to our DCC-3116 program increased as a result of preclinical activities, including IND-enabling studies, related to this new drug candidate, which we announced as an addition to our pipeline in June 2019.
Unallocated Expenses
For the three months ended March 31, 2020 and 2019, the increase in personnel-related costs included in unallocated expenses was primarily due to an increase in headcount and stock-based compensation expense in our research and development functions. Personnel-related costs for the three months ended March 31, 2020 and 2019 included stock-based compensation expense of $3.3 million and $1.7 million, respectively. The increase in stock-based compensation expense was primarily related to headcount increases and increased valuations of share-based awards granted to our employees. The increase in preclinical and other costs included in unallocated expenses was primarily due to increased consultant fees of $0.6 million.
We expect research and development expenses will continue to increase during 2020 as compared to 2019 as we continue to expand our clinical development activities.
Selling, General, and Administrative Expenses
For the three months ended March 31, 2020 and 2019, the increase in personnel-related costs was primarily a result of increases in headcount in our selling, general, and administrative functions. Personnel-related costs for the three months ended March 31, 2020 and 2019 included stock-based compensation expense of $3.7 million and $4.5 million, respectively. The decrease in stock-based compensation expense was primarily related to the modification of stock options pursuant to the transition agreement with our former President and Chief Executive Officer during the three months ended March 31, 2019 resulting in expense of $2.4 million, which was partially offset by increased headcount and increased valuations of share-based awards granted to our employees during the three months ended March 31, 2020. The increase in professional and consultant fees was primarily due to an increase in various advisory fees, including those related to commercialization preparedness. The increase in facility related and other costs was primarily due to increased expenses incurred in connection with our new headquarters that commenced in October 2019 and technology related costs to support the growth of the business.
We expect selling, general, and administrative expenses will continue to increase during 2020 as compared to 2019 as we continue to build our commercial organization.
Interest and Other Income, Net
For the three months ended March 31, 2020 and 2019, the increase in interest and other income, net, was primarily due to an increase in interest income earned on our invested cash, cash equivalents, and marketable securities balances resulting from our follow-on public offerings in the third quarter of 2019 and February 2020.
Liquidity and Capital Resources
Since our inception, we have incurred significant operating losses. We have generated limited revenue to date from our license and supply agreements with Zai, a concluded collaboration agreement, and research and development grants from the KBA. We have not yet commercialized any of our drug candidates and 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, ripretinib, or our other drug candidates.
Since October 2017, when we completed the IPO of our common stock, we have issued and sold 29,203,017 shares of common stock through our initial public offering and subsequent follow-on offerings, resulting in net proceeds of $930.1 million after deducting underwriting discounts and commissions and other offering expenses.
25

Table of Contents
For further details on our recent follow-on offering in February 2020, please read the "Overview" section included above.
Cash Flows
As of March 31, 2020, our principal sources of liquidity were cash, cash equivalents, and marketable securities of $691.5 million.
The following table summarizes our sources and uses of cash and cash equivalents for each of the periods presented:
Three Months Ended March 31,
(in thousands)20202019
Cash flows used in operating activities$(80,370) $(33,006) 
Cash flows used in investing activities(1,690) (179,648) 
Cash flows provided by financing activities191,392  1,118  
Net increase (decrease) in cash and cash equivalents$109,332  $(211,536) 
Operating Activities
During the three months ended March 31, 2020, operating activities used $80.4 million of cash, primarily resulting from our net loss of $72.8 million and cash used in changes in our operating assets and liabilities of $14.0 million, partially offset by net non-cash charges of $5.9 million, primarily resulting from share-based compensation expense of $7.0 million. Net cash used in changes in our operating assets and liabilities for the three months ended March 31, 2020 consisted primarily of a $15.3 million decrease in accounts payable and accrued expenses and other current liabilities, partially offset by a decrease in prepaid expenses and other current assets of $1.9 million. Changes in accounts payable, accrued expenses, and prepaid expenses were generally due to the timing of vendor invoicing and payments.
During the three months ended March 31, 2019, operating activities used $33.0 million of cash, primarily resulting from our net loss of $47.4 million, offset by non-cash charges of $5.8 million and cash provided by changes in our operating assets and liabilities of $8.4 million. Net cash provided by changes in our operating assets and liabilities for the three months ended March 31, 2019 consisted primarily of a $5.3 million increase in accounts payable and accrued expenses and other liabilities, partially offset by an increase in prepaid expenses and other current assets of $3.2 million. Changes in accounts payable, accrued expenses, and prepaid expenses were generally due to growth in our business.
Investing Activities
During the three months ended March 31, 2020, investing activities used $1.7 million of cash, consisting of $0.7 million to purchase property and equipment, an increase in our restricted investments by $0.6 million to increase our Company credit card limit to support the growth of the business, and $0.4 million for the net purchases of marketable securities.
During the three months ended March 31, 2019, investing activities used $179.6 million of cash, primarily consisting of $179.6 million for the net purchases of marketable securities.
Financing Activities
During the three months ended March 31, 2020, net cash provided by financing activities was $191.4 million, consisting of proceeds from our follow-on public offering in February 2020, net of underwriting discounts and commissions, of $189.2 million and the exercise of stock options of $2.6 million, partially offset by $0.4 million of payments of offering costs.
During the three months ended March 31, 2019, net cash provided by financing activities was $1.1 million, primarily consisting of proceeds from the exercise of stock options of $1.1 million.
Funding Requirements
We expect our expenses to increase in connection with our ongoing activities, particularly as we advance clinical trials for our drug candidates in development and engage in efforts to support commercialization, should ripretinib receive regulatory approval. In addition, we expect to incur additional costs associated with supporting the growth of the business and continued operations as a public company. The timing and amount of our operating expenditures will depend largely on:
the timing and progress of preclinical and clinical development activities;
26

Table of Contents
successful enrollment in and completion of clinical trials;
the timing and outcome of regulatory review of our 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, if any of our drug candidates are approved, commercial manufacturing;
addition and retention of key research and development and commercial, including sales and marketing, personnel;
our efforts to enhance operational, financial, and information management systems and hire additional personnel, including personnel to support the business;
the costs and timing of future commercialization activities, including product manufacturing, marketing, sales, and distribution, for any of our drug candidates for which we obtain marketing approval, and advance preparations therefor;
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.
As of March 31, 2020, we had cash, cash equivalents, and marketable securities of $691.5 million. We believe that our cash, cash equivalents, and marketable securities as of March 31, 2020, will enable us to fund our operating expenses and capital expenditure requirements into the second half of 2022. This excludes any potential milestone payments, royalty payments, or payments for external manufacturing services, if any, that we may receive pursuant to our license and supply agreements with Zai. 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.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances, and marketing, distribution, or additional licensing arrangements. 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 our license agreement with Zai), we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates, or grant licenses on terms that may not be favorable to us. 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 future commercialization efforts or planning or grant rights to develop and market drug candidates that we would otherwise prefer to develop and market ourselves.
Contractual Obligations and Commitments
We have entered into commercial supply agreements related to the supply of ripretinib that require us to make binding forecasts for a certain amount of purchases. The related cancellation clauses would as a general matter require us to pay the full amount of these binding forecasts. As of March 31, 2020, our contractual commitments for such obligations were $4.6 million, which are expected to be paid within one year.
As of March 31, 2020, there have been no other 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, 2019, which primarily consisted of our obligations under non-cancellable operating leases.
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.
27

Table of Contents
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 1, Nature of the Business and Summary of Significant Accounting Policies, to our consolidated financial statements included in this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Our cash, cash equivalents, and marketable securities as of March 31, 2020 consisted of cash, money market funds, commercial paper, certificates of deposit, U.S. government securities, and other debt securities. The primary objectives of our investment activities are to preserve principal, provide liquidity, and maximize income without significantly increasing risk. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of interest rates. Because of the short-term nature of the instruments in our portfolio, we believe that a sudden change in market interest rates would not be expected to have a material impact on our financial position or results of operations. A potential change in fair value for interest rate sensitive instruments, which include marketable securities, has been assessed on a hypothetical 100 basis point adverse movement across all maturities. As of March 31, 2020, we estimate that such hypothetical 100 basis point adverse movement would result in a hypothetical loss in fair value of approximately $4.6 million to our interest rate sensitive instruments.
We do not believe that our cash, cash equivalents, and marketable securities have significant risk of default or illiquidity. While we believe our cash, cash equivalents, and marketable securities do not contain excessive risk, we cannot provide absolute assurance that in the future our investments will not be subject to adverse changes in market value, including changes resulting from the impact of the COVID-19 pandemic. In addition, we maintain significant amounts of cash, cash equivalents, and marketable securities at one financial institution that are in excess of federally insured limits.
We contract with vendors in foreign countries. As such, we have exposure to adverse changes in exchange rates of foreign currencies associated with our foreign transactions. We believe this exposure to be immaterial. We do not hedge against this exposure to fluctuations in exchange rates.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2020. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, 2020, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
28

Table of Contents
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
We are not currently a party to any material legal proceedings.
Item 1A. Risk Factors.
Our business is subject to numerous risks. You should carefully consider the risks and uncertainties described below together with all of the other information contained in this Form 10-Q, including our consolidated financial statements and the related notes, and in our other filings with the SEC. If any of the following risks actually occur, our business, prospects, operating results and financial condition could suffer materially. In such event, the trading price of our common stock could decline and you might lose all or part of your investment.
Risks Related to Our Financial Position and Need for Additional Capital
We have incurred significant operating losses since our inception and have not generated any revenue from product sales. We expect to incur continued losses for the foreseeable future and may never achieve or maintain profitability.
Investment in pharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We are a clinical-stage biopharmaceutical company that was formed and commenced operations in 2003. We have no approved products for commercial sale and have not generated any revenue from product sales to date. We continue to incur significant research and development and other expenses related to our ongoing operations. As a result, we have never been profitable and have incurred losses in each year since inception. For the three months ended March 31, 2020 and the year ended December 31, 2019, we reported a net loss of $72.8 million and $192.3 million, respectively. As of March 31, 2020, we had an accumulated deficit of $560.8 million.
Since our inception, we have focused substantially all of our efforts and financial resources on developing our proprietary compound library, including, without limitation, the preclinical and clinical development of our drug candidates, ripretinib, DCC-3014, rebastinib, and DCC-3116, as well as our ongoing preclinical research and discovery programs. To date, we have funded our operations primarily with proceeds from the sales of our common stock in public offerings, sales of preferred shares, proceeds from the issuance of convertible notes, payments received under a concluded collaboration agreement, upfront and milestone payments received under our license agreement with Zai, borrowings under a repaid construction loan, and research and development grants from the KBA. Since our inception, we received an aggregate of $1.2 billion in net proceeds from such transactions. As of March 31, 2020, our cash, cash equivalents, and marketable securities were $691.5 million.
We expect to incur increasing levels of operating losses over the next several years and for the foreseeable future, particularly as we advance our drug candidates. Our prior losses, combined with expected future losses, have had, and will continue to have, an adverse effect on our stockholders' equity and working capital. We expect our research and development expenses to significantly increase in connection with our ongoing and additional clinical trials for ripretinib, DCC-3014, and rebastinib, our preclinical studies for DCC-3116, and development of any other future drug candidates we may choose to pursue. In addition, if we obtain marketing approval for ripretinib, or any of our other drug candidates, we will incur significant sales, marketing, and outsourced manufacturing expenses. We have and will continue to incur costs associated with advance preparations for a possible marketing approval for ripretinib. We have and will also continue to incur additional costs associated with operating as a public company. As a result, we expect to continue to incur significant and increasing operating losses for the foreseeable future. Because of the numerous risks and uncertainties associated with developing pharmaceutical products, we are unable to predict the extent of any future losses or when we will become profitable, if at all. Even if we do become profitable, we may not be able to sustain or increase our profitability on a quarterly or annual basis.
Our ability to become profitable depends upon our ability to generate revenue. To date, we have not generated any revenue from our drug candidates, and we do not know when, or if, we will generate any revenue. We do not expect to generate significant revenue unless and until we obtain marketing approval for, and begin to sell, ripretinib, or our other drug candidates. Our ability to generate revenue depends on a number of factors, including, but not limited to, our ability to:
successfully complete our second Phase 3 clinical trial of ripretinib for the treatment of second-line GIST;
initiate and successfully complete other later-stage clinical trials that meet their clinical endpoints;
initiate and successfully complete all safety studies and related reports required to obtain U.S. and foreign marketing approval for ripretinib as a treatment for GIST or other indications;
29

Table of Contents
obtain marketing approval for ripretinib in the U.S. pursuant to our NDA, and, subject to obtaining favorable results from our Phase 3 trial for ripretinib for the treatment of second-line GIST, completing all requirements for the submission of a supplemental NDA, and applying for and obtaining marketing approval;
complete all requirements for the submission of a marketing authorisation application (EU MAA) to the European Medicines Agency (EMA) and obtain marketing approval for ripretinib in the European Union (EU);
successfully manufacture or contract with others to manufacture ripretinib and our other drug candidates;
commercialize ripretinib, if approved, by building and deploying a sales force and marketing ripretinib in the U.S. and other jurisdictions where we receive approval, assisting our licensee, Zai, in its efforts to develop and, if approved, commercialize ripretinib in Greater China, and/or entering into additional license and/or collaboration agreements and/or distribution arrangements with third parties;
obtain, maintain, protect, and defend our intellectual property portfolio; and
achieve market acceptance of ripretinib in the medical community and with third-party payors.
To become and remain profitable, we must succeed in developing, and eventually commercializing, products that generate significant revenue. This will require us to be successful in a range of challenging activities, including completing preclinical testing and clinical trials for our drug candidates, discovering additional drug candidates, establishing arrangements with third parties for the manufacture of clinical and, if applicable, commercial supplies of our drug candidates, obtaining marketing approval for our drug candidates, and manufacturing, marketing, and selling any products for which we may obtain marketing approval. We are only in early stages of many of these activities. We may never succeed in these activities and, even if we do, may never generate revenues that are significant enough to achieve profitability.
Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses we will incur or when, or if, we will be able to achieve profitability. If we are required by the FDA, the EMA, or other regulatory authorities to perform studies in addition to those currently expected, or if there are any delays in establishing appropriate manufacturing arrangements for, or in completing our clinical trials for, the development of any of our drug candidates, or as a result of impacts from the COVID-19 pandemic, our expenses could increase materially.
Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would cause significant harm to our financial position, adversely impact our stock price and impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our product offerings, or even continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.
We will require substantial additional funding. If we are unable to raise capital when needed, or on attractive terms, we could be forced to delay, reduce, or eliminate our research or drug development programs or any future commercialization efforts.
We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance our drug candidates, ripretinib, DCC-3014, rebastinib, and DCC-3116, and seek to identify lead drug candidates in our discovery programs. We expect increased expenses as we continue our research and development and initiate additional clinical trials and establish arrangements with third parties for the manufacture of clinical and commercial supplies of and seek marketing approval for our lead program and our other drug candidates. In addition, if we obtain marketing approval for any of our drug candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales, and distribution. Furthermore, we expect to continue to incur costs associated with operating as a public company.
Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed, or on attractive terms, we could be forced to delay, reduce, or eliminate our research or drug development programs or any future commercialization efforts.
We believe that our cash, cash equivalents, and marketable securities as of March 31, 2020 will enable us to fund our operating expenses and capital expenditure requirements into the second half of 2022. This excludes any potential milestone payments, royalty payments, or payments for external manufacturing services, if any, that we may receive pursuant to our license and supply agreements with Zai. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect.
30

Table of Contents
Our future capital requirements will depend on many factors, including:
the scope, progress, costs, and results of our clinical trials of ripretinib;
the scope, progress, costs, and results of drug discovery, preclinical development, and clinical trials for our other drug candidates;
the number and development requirements of other drug candidates that we pursue, including ones we may acquire from third parties;
the costs and timing of arrangements with third parties for the manufacture of clinical and, if applicable, commercial supplies of ripretinib and our other drug candidates;
the costs, timing, and outcome of regulatory review of ripretinib and our other drug candidates;
the costs and timing of future commercialization activities, including product manufacturing, marketing, sales, and distribution, for ripretinib and any of our other drug candidates for which we obtain marketing approval, as well as infrastructure costs in the U.S. and in other jurisdictions where we may seek marketing approval and choose to sell or enter into distribution arrangements;
the revenue, if any, received from commercial sales of ripretinib and our other drug candidates for which we obtain marketing approval, if any;
the achievement of milestones or occurrence of other developments that trigger payments, including, without limitation, milestone or royalty payments, to us under our license agreement with Zai or any collaboration, distribution, or other license agreements that we may enter into in the future, if any;
the costs and timing of preparing, filing, and prosecuting any patent applications, maintaining and enforcing our intellectual property rights, and defending any intellectual property-related claims;
our ability to establish license, distributor, and/or collaboration arrangements with other biotechnology or pharmaceutical companies on favorable terms, if at all, for the development or commercialization of our drug candidates; and
the extent to which we acquire or in-license other drug candidates, technologies, and associated intellectual property rights.
Identifying potential drug candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive, and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our drug candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available until the FDA approves those product candidates, if at all. Accordingly, we will need to obtain substantial additional funds to achieve our business objectives. Adequate additional funds may not be available to us on acceptable terms, or at all.
Raising additional capital may cause dilution to our stockholders, restrict our operations, or require us to relinquish rights to our technologies or drug candidates.
Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, and marketing, distribution, or licensing arrangements. We do not currently have any committed external source of funds. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of our securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. 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, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates, or grant licenses on terms that may not be favorable to us. 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 future commercialization efforts, or grant rights to develop and market drug candidates that we would otherwise prefer to develop and market ourselves.
31

Table of Contents
We have a limited operating history, have not successfully completed late-stage clinical trials for any drug candidate other than ripretinib, and have not generated revenue from product sales or profits. We may never obtain approval for any of our drug candidates or achieve or sustain profitability.
We commenced operations in 2003. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, conducting research and development, filing patents, identifying potential drug candidates, undertaking preclinical studies, initiating and conducting clinical trials, and establishing arrangements with third parties for the manufacture of initial quantities of our drug candidates. We have not yet demonstrated our ability to successfully complete any Phase 2 or Phase 3 clinical trials other than for ripretinib in fourth- and fourth-line plus GIST, obtain marketing approvals, timely manufacture ourselves or via a third party a commercial product on a commercial scale, or build a commercial organization and infrastructure and conduct sales, marketing and distribution activities necessary for successful product commercialization, and we have not generated revenue from product sales or profit from our operations. Consequently, we may never achieve or sustain profitability and any predictions you make about our future success or viability may not be as accurate as they could be if we had an operating history with these activities.
In addition, as a growing business entering into new stages of pharmaceutical development, we may encounter unforeseen expenses, difficulties, complications, delays, and other known and unknown factors. We will need to transition from a company with a research and development focus to a company capable of supporting commercial activities. While these efforts are underway, some of the activities are in the early stages and all are subject to numerous risks and uncertainties; accordingly, there can be no assurance that we will be successful in such a transition.
Risks Related to the Discovery and Development of Our Drug Candidates
We currently have no products that are approved for sale. All of our drug candidates target key interactions with kinase switch regions to inhibit kinase activity. If we are unable to commercialize our drug candidates or experience significant delays in doing so, our business will be materially harmed.
We currently have no products that are approved for sale. While ripretinib is a later-stage asset with respect to fourth- and fourth-line plus GIST, we are early in our development efforts for ripretinib in other indications and for all of our other drug candidates. Two of our drug candidates are only in Phase 1 or Phase 1b/2 clinical trials. We initiated our first Phase 3 clinical trial for our lead drug candidate, ripretinib, in January 2018, for which we announced top-line data in August 2019, and our second Phase 3 clinical trial for ripretinib in second-line GIST in December 2018. In December 2019, we submitted a NDA to the FDA for ripretinib for the treatment of patients with advanced GIST who have received prior treatment with imatinib, sunitinib, and regorafenib. In February 2020, the FDA accepted our NDA for ripretinib for the treatment of patients with advanced GIST, granted priority review and set an action date of August 13, 2020, under the PDUFA.
All of our drug candidates target key interactions with kinase switch regions to inhibit kinase activity. There are no currently approved kinase switch control inhibitors and there can be no assurance that kinase switch control inhibitors will ever receive regulatory approval. We discontinued an earlier drug candidate that also targeted key interactions with kinase switch regions to inhibit kinase activity. Its development was discontinued due to strategic and competitive reasons. There can be no assurance that our current drug candidates will achieve success in their clinical trials or obtain regulatory approval.
Our ability to generate product revenues, which we do not expect will occur unless and until the FDA approves any of our product candidates, if ever, will depend heavily on the successful development and eventual commercialization of one or more of our drug candidates. The success of our drug candidates, including ripretinib, will depend on several factors, including the following:
successful completion of preclinical studies and clinical trials;
receipt and related terms of marketing approvals from applicable regulatory authorities;
raising additional funds necessary to complete clinical development of and commercialize our drug candidates;
obtaining and maintaining patent, trade secret, and other intellectual property protection and regulatory exclusivity for our drug candidates;
making and maintaining timely and cost effective arrangements with third-party manufacturers, or establishing manufacturing capabilities, for both clinical and commercial supplies of our drug candidates;
developing and implementing marketing and reimbursement strategies;
32

Table of Contents
establishing sales, marketing, and distribution capabilities and launching commercial sales of our drug candidates, if and when approved, whether alone and/or in collaboration with others, such as Zai, our licensee for ripretinib in Greater China, and building infrastructure to support such sales;
acceptance of our products, if and when approved, by patients, the medical community and third-party payors;
effectively competing with other therapies;
the ability to obtain clearance or approval of companion diagnostic tests, if required, on a timely basis, or at all;
obtaining and maintaining third-party coverage and adequate reimbursement;
protecting and enforcing our rights in our intellectual property portfolio; and
maintaining a continued acceptable safety profile of our products following approval.
If we do not achieve one or more of these factors in a timely manner, or at all, we could experience significant delays or an inability to successfully commercialize our drug candidates, which would materially harm our business. For example, our business could be harmed if updated preliminary or final results of our ongoing Phase 3 clinical trial of ripretinib or our ongoing Phase 1 clinical trial of ripretinib vary meaningfully from our expectations.
Interim, "top-line" and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available, may be interpreted differently if additional data are disclosed, and are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we may publicly disclose preliminary or "top-line" data from our clinical trials, which may be based on a preliminary analysis of then-available data in a summary or "top-line" format, and the results and related findings may change as more patient data become available, may be interpreted differently if additional data are disclosed at a later time and are subject to audit and verification procedures that could result in material changes in the final data. If additional results from our clinical trials are not viewed favorably, our ability to obtain approval for and commercialize our drug candidates, including ripretinib, our business, operating results, prospects, or financial condition may be harmed and our stock price may decrease.
We also make assumptions, estimations, calculations, and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the preliminary or top-line results that we report may differ from future results of the same trials, or different conclusions or considerations may qualify such results, once additional data have been disclosed and/or are received and fully evaluated. Such data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, preliminary and "top-line" data should be viewed with caution until the final data are available. We may also disclose interim data from our clinical trials. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. For example, in 2019, we announced preliminary results from the initial three diffuse-type TGCT patients enrolled in the dose-escalation portion of our Phase 1 study of DCC-3014. Adverse differences between preliminary or interim data and final data could significantly harm our business prospects.
Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions, or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular drug candidate or product, and our business in general. In addition, in regards to the information we publicly disclose regarding a particular study or clinical trial, such as "top-line" data, you or others may not agree with what we determine is the material or otherwise appropriate information to include in such disclosure, and any information we determine not to disclose – or to disclose at a later date, such as at a medical meeting—may ultimately be deemed significant with respect to future decisions, conclusions, views, activities, or otherwise regarding a particular drug, drug candidate, or our business. If the "top-line" data that we report differ from actual results or are interpreted differently once additional data are disclosed at a later date, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for and commercialize our drug candidates, our business, operating results, prospects, or financial condition may be harmed or our stock price may decline.
33

Table of Contents
Clinical drug development involves a lengthy and expensive process. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of ripretinib and our other drug candidates.
We currently have several drug candidates in clinical development and their risk of failure is high. We are unable to predict when or if any of our drug candidates will prove effective or safe in humans or will obtain marketing approval. Before obtaining marketing approval from regulatory authorities for the sale of any drug candidate, we must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of our drug candidates in humans. Clinical testing is expensive, difficult to design and implement, and can take many years to complete and is uncertain as to the outcome. A failure of one or more clinical trials can occur at any stage of testing. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim or preliminary results of a clinical trial do not necessarily predict final results. In particular, the small number of patients in our early clinical trials may make the results of these trials less predictive of the outcome of later clinical trials. In addition, although we observed encouraging preliminary efficacy results including disease control rates, objective response rates (best response), and progression free survival in our Phase 1 trial of ripretinib, the primary objectives were to determine the safety, tolerability, and maximum tolerated dose of ripretinib and to determine a recommended Phase 2 dose and not to demonstrate efficacy. The assessments of efficacy from the Phase 1 clinical trial of ripretinib were not designed to demonstrate statistical significance and may not be predictive of the results of further clinical trials of ripretinib, including our ongoing Phase 3 clinical trial. These factors also apply to the Phase 1 and Phase 1b/2 trials for our other drug candidates. We did not observe a maximum tolerated dose in the dose escalation stage of our Phase 1 trial of ripretinib. The FDA has stated that our initiation of Phase 3 clinical trials prior to the completion of our Phase 1 trial, and with limited dose-response information at the various dose levels, may place our development program at risk if we have not identified the optimal dosing regimen.
We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to obtain marketing approval or commercialize our drug candidates, including:
regulators may not authorize us to commence or continue a clinical trial or may impose a clinical hold or may limit the conduct of a clinical trial through the imposition of a partial clinical hold;
institutional review boards (IRBs), may not authorize us or our investigators to commence or continue a clinical trial at a prospective trial site or an IRB may not approve a protocol amendment to an ongoing clinical trial;
we may experience delays in reaching, or fail to reach, agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;
clinical trials for our drug candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials, delay planned trials, or abandon product development programs;
the number of patients required for clinical trials for our drug candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate, participants may drop out of these clinical trials at a higher rate than we anticipate, or the duration of these clinical trials may be longer than we anticipate, particularly in light of the COVID-19 pandemic;
our third-party contractors, including investigators, may fail to meet their contractual obligations to us in a timely manner, or at all, due to interruptions to their business, including those impacts caused by the outbreak of COVID-19, or may fail to comply with regulatory requirements;
we may have to suspend, change, or terminate clinical trials for our drug candidates for various reasons, including a finding that the participants are being exposed to unacceptable health risks, including potential exposure to COVID-19 in their geography;
our drug candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators, or IRBs to suspend, change, or terminate the trials;
unforeseen global instability, including political instability or instability from an outbreak of pandemic or contagious disease, such as COVID-19, in or around the countries in which we conduct our clinical trials or where our third-party contractors operate, could delay the commencement or rate of completion of our clinical trials, or those expected to be conducted in China under our collaboration with Zai;
the cost of clinical trials for our drug candidates may be greater than we anticipate, particularly in light of the uncertainties associated with the outbreak of COVID-19; and
34

Table of Contents
the supply or quality of our drug candidates or other materials necessary to conduct clinical trials for our drug candidates may be insufficient or inadequate and result in delays or suspension of our clinical trials, including those caused by the COVID-19 pandemic.
While we designed ripretinib to inhibit the full spectrum of the known mutant or amplified KIT and PDGFRα kinases that drive cancers such as GIST, we may find that patients treated with ripretinib have or develop mutations that confer resistance to treatment. We are aware of a secondary mutation in PDGFRα, in a patient not treated with ripretinib, where the potency of inhibition determined in in vitro assays by ripretinib suggests that this mutation may confer resistance to ripretinib in patients. We may identify additional mutations in PDGFRα or mutations in KIT that are resistant to ripretinib. If patients have or develop resistance to treatment with our drug candidates, we may be unable to successfully complete our clinical trials, and may not be able to obtain regulatory approval of, and commercialize, our drug candidates.
Our product development costs will increase if we experience delays in preclinical studies or clinical trials or in obtaining marketing approvals. We do not know whether any of our planned preclinical studies or clinical trials will begin on a timely basis or at all, will need to be restructured, or will be completed on schedule, or at all. Our ongoing trials of ripretinib continue to generate additional data that may be requested by the FDA. The FDA may request additional information or data and any such requests could result in clinical trial delays. Furthermore, the FDA could place a clinical hold, either another partial clinical hold or a full clinical hold, on our ripretinib trials if they are not satisfied with the information we provide to them, which could result in delays for the trial. Significant preclinical study or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our drug candidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our drug candidates and may harm our business and results of operations.
We may utilize companion diagnostics in our planned clinical trials in the future in order to identify appropriate patient populations for our drug candidates. If a satisfactory companion diagnostic is not commercially available, we may be required to create or obtain one that would be subject to regulatory approval requirements. The process of obtaining or creating such diagnostic is time consuming and costly.
The current pandemic of COVID-19 and the future outbreak of other highly infectious or contagious diseases, could seriously harm our research, development and potential future commercialization efforts, increase our costs and expenses and have a material adverse effect on our business, financial condition, and results of operations.
Broad-based business or economic disruptions could adversely affect our ongoing or planned research and development activities. For example, in December 2019, an outbreak of a novel strain of coronavirus originated in Wuhan, China, and has since spread to a number of other countries, including the U.S. To date, the COVID-19 pandemic has caused significant disruptions to the U.S. and global economy and has contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak is continually evolving and, as additional cases of the virus are identified, many countries, including the U.S., have reacted by instituting quarantines, restrictions on travel and mandatory closures of businesses. Certain states and cities, including where we or the third parties with whom we engage operate, have also reacted by instituting quarantines, restrictions on travel, "shelter in place" rules, restrictions on types of business that may continue to operate, and/or restrictions on the types of construction projects that may continue. For example, on March 23, 2020, the Governor of Massachusetts ordered all individuals living in the Commonwealth of Massachusetts to stay at their place of residence for an indefinite period of time (subject to certain exceptions to facilitate authorized necessary activities) to mitigate the impact of the COVID-19 pandemic.
The extent to which the COVID-19 pandemic, or the future outbreak of any other highly infectious or contagious diseases, impacts business, including our preclinical studies, clinical trial operations or future commercialization efforts will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of such pandemic, 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 rapid development and 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, and it may have the effect of heightening many of the risks described herein, including the below.
We are currently conducting numerous clinical studies. We believe that the COVID-19 pandemic has had, and will likely continue to have, an impact on various aspects of our ongoing clinical trials. For example, some clinical trial sites have imposed restrictions on site visits by sponsors and CROs, the initiation of new trials, and new patient enrollment to protect both site staff and patients from possible COVID-19 exposure and to focus medical resources on patients suffering from COVID-19. While all our studies remain open for enrollment, some sites in each of our studies have temporarily paused enrollment of new patients and we have provided guidance to all of our clinical trial sites that
35

Table of Contents
new patient enrollment may occur at sites where resources allow these patients to be safely enrolled and closely monitored.
Other potential impacts of the COVID-19 pandemic on our clinical trials include difficulties associated with patient visits for screening enrollment and study conduct, and study monitoring, which may be paused or delayed due to changes in policies at various clinical sites, federal, state, local, or foreign laws, rules, and regulations, including closure of site access to outside monitors, quarantines, or other travel restrictions, prioritization of healthcare resources toward pandemic efforts, including diminished attention of physicians serving as our clinical trial investigators and reduced availability of site staff supporting the conduct of clinical trials, heightened exposure of patients, principal investigators, and site staff to COVID-19 if an outbreak occurs in their geography, or other reasons related to the COVID-19 pandemic. We are working closely with our study sites and CROs to allow for utilization of remote and local assessments, such as televisits, in accordance with recent FDA guidance, as well as to ensure availability of study drug for patients, but we cannot assure you these efforts will be successful or that our clinical trial activities will not be adversely affected, delayed, or interrupted by COVID-19. Despite our efforts to address these risks, some patients and clinical investigators may not be able to comply with clinical trial protocols if quarantines or travel restrictions impede movement or interrupt healthcare services or if medical resources are reallocated to focus on patients suffering from complications related to COVID-19. If patients choose to withdraw from our studies or we choose to or are required to pause enrollment and/or patient dosing or other clinical trial related activities in order to preserve health resources, protect trial participants from being exposed to unacceptable health risks or comply with other access restrictions resulting from COVID-19, our studies and related timelines may be adversely affected. It is unknown how long these pauses or disruptions could continue. In addition, other aspects of our clinical trials may be adversely affected, delayed, or interrupted if the COVID-19 pandemic continues, including, for example, site initiation, patient recruitment, availability of clinical trial materials and data analysis.
We currently rely on third parties to, among other things, manufacture raw materials, manufacture our product candidates for our clinical trials and potential commercial launch, ship investigational drug supply for use in clinical trials or by patients, perform quality testing, and supply other goods and services to run our business. If any such third parties in our supply chain for materials are adversely impacted by restrictions resulting from the COVID-19 pandemic, including staffing shortages, production slowdowns and disruptions in delivery systems, our supply chain may be disrupted, limiting our ability to manufacture our product candidates for our clinical trials and conduct our research and development operations, or for potential commercial launch of any of our product candidates, if approved.
We have closed our offices and requested that most of our personnel, including all of our administrative employees, work remotely, restricted on-site staff to only those personnel and contractors who must perform essential activities that must be completed on-site and limited the number of staff in any given research and development laboratory. Our increased reliance on personnel working from home may negatively impact productivity, or disrupt, delay, or otherwise adversely impact our business. In addition, this could increase our cyber security risk, create data accessibility concerns, and make us more susceptible to communication disruptions, any of which could adversely impact our business operations or delay necessary interactions with local and federal regulators, IRBs, and ethics committees, manufacturing sites, research or clinical trial sites, and other important agencies and contractors. Our business operations may be further disrupted if any of our employees, officers, or board of directors contract an illness related to COVID-19 and are unable to perform their duties.
Our employees, and employees of third-party contractors responsible for conducting research activities may not be able to access laboratories for an extended period of time as a result of the temporary closure of such workspaces and the possibility that governmental authorities further modify current restrictions. As a result, this could delay timely completion of ongoing preclinical activities, including completion of IND-enabling studies, our ability to select future development candidates, and initiation of additional clinical trials for our other product candidates.
Health regulatory agencies globally may experience disruptions in their operations as a result of the COVID-19 pandemic. The FDA and comparable foreign regulatory agencies may have slower response times or be under-resourced and, as a result, review, inspection, and other timelines may be materially delayed. For example, in April 2020, the FDA stated that its New Drug Program was continuing to meet program user fee performance goals, but due to many agency staff working on COVID-19 activities, it was possible that the FDA would not be able to sustain that level of performance indefinitely. It is unknown how long these disruptions could continue, were they to occur. Any elongation or de-prioritization of our clinical trials or delay in regulatory review resulting from such disruptions could materially affect the development and study of our product candidates.
Health regulatory agencies may refuse to accept data from our clinical trials due to mitigation strategies we utilize in response to the COVID-19 pandemic and current regulatory guidance, which could delay, limit, or prevent marketing
36

Table of Contents
approval of a drug candidate. For example, the FDA may find our actions, including the use of televisits and local labs and physicians to conduct clinical trial activities, fail to comply with evolving regulatory guidance and may decide that our data are insufficient for approval and require additional nonclinical, clinical, or other studies.
The trading prices for our common stock and other biopharmaceutical companies have been highly volatile as a result of the COVID-19 pandemic. As a result, we may face difficulties raising capital through sales of our common stock or such sales may be on unfavorable terms. In addition, a recession, depression, or other sustained adverse market event resulting from