Deciphera Pharmaceuticals Inc

F:D05

Earnings Call Analysis

QINLOCK Drives Revenue Growth and Expansion Plans

In 2023, QINLOCK's U.S. net product revenue reached $121.5 million, reflecting a 25% rise with solid demand. The Q4 revenue surged by 38% from the previous year's Q4 to $35.3 million. Anticipated continued growth in 2024 is underpinned by QINLOCK's standard of care status in fourth-line GIST, with gross to net estimates and Patient Assistance Program use remaining consistent. Internationally, QINLOCK gained traction, especially in Europe with a 56% Q4 revenue jump and expansion plans unfolding across Central and Eastern Europe, priming the international revenue for further growth. The U.S. market for TGCT is valued around $700 million, with Deciphera well-placed to grasp this opportunity. To broaden its therapeutic horizon, a Phase II study on vimseltinib for GVHD is set to start by year's end.

QINLOCK's Growth and Expected Performance

The year 2023 proved to be rewarding for QINLOCK in the U.S., with net product revenue reaching $121.5 million, a significant rise of 25% from the previous year. The robust financial results for QINLOCK are attributed to the growing demand in its core business, extending average treatment durations, and contributions from usage in unpromoted earlier lines. These factors, along with the expectation of consistent patient assistance program (PAP) engagement between 20-30%, and gross-to-net percentages between 15-20%, are poised to continue driving revenue growth for QINLOCK in 2024, offering optimism for both near-term and long-term value.

International Expansion and Market Potential

Beyond the borders of the United States, there is enthusiasm for expansion into new territories and achieving international growth. With a total addressable market for TGCT in the U.S. estimated at approximately $700 million and a significant overlap in the prescriber base for GIST and TGCT of 70% to 80%, the company is uniquely positioned to penetrate the market and leverage their existing commercial expertise to reach an untapped patient base. In Europe, the launch in Italy has been met with especially strong initial performance, and new distribution agreements are in place for Central and Eastern Europe with regulatory approvals expediting the time to commercialization. Furthermore, submissions for pricing and reimbursement in the Netherlands, along with ongoing price negotiations in Spain, France, and Switzerland, exemplify the company's focused strategy on broadening its geographical reach and driving revenue from international markets.

Financial Stability and Corporate Developments

The company displayed robust financial health, ending the year with approximately $352.9 million in cash, cash equivalents, and marketable securities. Reinforced by a prudent financial strategy, their cash runway has been projected to carry them into the second half of 2026. Such stability supports continuous commercial growth of QINLOCK, exploring regulatory approvals for their promising drug candidate vimseltinib, and advancing the clinical pipeline to foster the transition of the company into a self-sustaining entity with multiple approved medications.

Vimseltinib's Regulatory Path and Commercial Prospects

The confidence in vimseltinib is grounded on favorable outcomes from the MOTION study, including achieving the primary endpoint and key secondary endpoints, along with exhibiting a favorable tolerability profile within the patient population. Considering these achievements, the company is actively preparing to file the NDA for vimseltinib in Q2, featuring a subsequent submission for marketing authorization in Europe in Q3. The anticipation for how these regulatory reviews, including discussions on whether a priority or regular review will be granted by the FDA, is just one of the pivotal milestones for the company's future. Coupled with the synergetic commercial potential between QINLOCK and vimseltinib, there seems to be a clear strategic pathway for treating GIST and TGCT, respectively.

Earnings Call Transcript 2023-Q4

[Operator]

Good morning, everyone, and welcome to Deciphera Pharmaceuticals Fourth Quarter and Full Year 2023 Financial Results Conference Call.

Today's call is being recorded. At this time, I would like to turn the call over to Jen Larson, Senior Vice President of Finance and Investor Relations. Jen?

[Jennifer Larson, executive]

Thank you, operator. Welcome, and thank you for joining us today to discuss Deciphera's Fourth Quarter and Full Year 2023 Financial Results. I'm Jen Larson, Senior Vice President of Finance and Investor Relations.

With me this morning to discuss the financial results and provide a general corporate update are Steve Hoerter, President and Chief Executive Officer; Matt Sherman, Chief Medical Officer; Dan Martin, Chief Commercial Officer; Margarida Duarte, Head of International; and Tucker Kelly, Chief Financial Officer.

Before we begin, I would like to remind you that any statements we make on this call that are not historical facts are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Examples include our expectations for our preclinical and clinical programs, our commercialization of QINLOCK and guidance.

Forward-looking statements involve substantial risks and uncertainties that could cause actual results to differ materially from those expressed or implied by the forward-looking statements, and we cannot assure you that our expectations will be achieved. Such risks and uncertainties include those set forth in our most recent annual report on Form 10-K as well as our other SEC filings. We assume no obligation to update or revise any forward-looking statements.

Following this call, a replay will be available on the company's website, www.deciphera.com.

With that, I will now turn the call over to Steven Hoerter, President and Chief Executive Officer of Deciphera. Steve?

[Steven Hoerter, executive]

Thank you, Jen. Good morning, everyone, and thank you for joining us today as we provide an update from the fourth quarter and full year 2023, review our financial results and discuss our strategic outlook and planned corporate milestones for 2024.

2023 was a year of significant progress toward our goal of becoming a self-sustaining company with multiple approved medicines. Continued strong QINLOCK growth in the U.S. and internationally drove record annual revenue, demonstrating the global capabilities of our commercial organization.

With a highly successful Phase III study in TGCT, we expect vimseltinib to be our second approved medicine. We believe that at peak, QINLOCK and vimseltinib will be able to generate over $1 billion in global revenue. With a long IP runway for both products, we are actively pursuing label extension opportunities to create further value for patients and for our shareholders.

Beyond these late-stage programs, we continue to strategically invest in key earlier-stage programs to help build a sustainable pipeline of potential new medicines to improve the lives of people with cancer.

Last month, we outlined our key strategic priorities for 2024. We expect 2024 to be a year of continued growth in QINLOCK sales, driven by strong demand, both in the U.S. and internationally.

Meanwhile, our clinical team is working towards our goal of expanding QINLOCK's label based on the ongoing Phase III INSIGHT study in second-line GIST patients with mutations in KIT Exon 11 and 17/18, which has the potential to double peak sales.

A few weeks ago, we were thrilled to announce the publication in Nature Medicine of the exceptional results from the ctDNA analysis from the INTRIGUE study in second-line patients with mutations in KIT Exon 11 and 17/18, showing that QINLOCK provided significant progression-free and overall survival benefit compared to the current standard of care, sunitinib. Publication in one of the world's leading medical journals highlights the clinical importance of this compelling data and serves as strong validation for the ongoing INSIGHT study.

In addition to the Nature Medicine publication, we also recently presented the final overall survival results from the INTRIGUE study at the ASCO GI symposium, which showed that the overall survival rate was similar for both QINLOCK and sunitinib, and the treatment with QINLOCK continued to show a favorable safety profile compared to treatment with sunitinib. We believe that these results demonstrate the strong clinical activity of QINLOCK in the second-line GIST patient population studied in INTRIGUE.

For vimseltinib, building upon the exciting positive results of the MOTION Phase III study in patients with tenosynovial giant cell tumor, we remain on track to submit the NDA to the FDA in the second quarter of this year, and an MAA to the EMA in the third quarter of this year. With the potential approval of vimseltinib INSIGHT, we are also exploring potential indication expansion opportunities, including our plan to initiate a Phase II proof-of-concept study of vimseltinib for the treatment of chronic graft versus host disease, or cGVHD in the fourth quarter of 2024.

In addition, we're making focused investments in our earlier-stage pipeline, which we expect will fuel our future growth. For our ULK inhibitor, DCC-3116, our goal is to select a recommended Phase II dose later this year and move to our first expansion cohort.

For DCC-3084, our pan-RAF inhibitor, we expect to initiate a Phase I study in the first half of this year.

Finally, for DCC-3009, our new pan KIT inhibitor, we expect to submit an IND to FDA in the first half of this year and initiate a Phase I study in the second half of 2024.

We remain well [indiscernible] with $352 million in cash at the end of the year and a cash runway into the second half of 2026.

I'll now pass the call to Matt Sherman, our Chief Medical Officer, who will provide more detail on our development pipeline. Dan Martin, our Chief Commercial Officer, will then share insights on the U.S. commercial performance and outlook for the year ahead. Margarida Duarte, our Head of International, will provide an update on the progress of the ongoing QINLOCK launch in Europe for fourth-line GIST and its continued strong [indiscernible]. We'll end with Tucker Kelly, our Chief Financial Officer, who will review highlights from the fourth quarter and full year 2023 financial results. Matt?

[Matthew Sherman, executive]

Thanks, Steve. Together with our commercial success, we continue to make great strides with our development pipeline that we believe will provide continued growth for Deciphera over the coming years.

First, I'd like to start with our recent QINLOCK updates. As Steve mentioned, in January, we presented the final overall survival results from the INTRIGUE Phase III study at the ASCO GI conference. As you may recall, in the INTRIGUE trial, 453 patients with second-line GIST were randomized 1:1 to receive QINLOCK or sunitinib. The final analysis include [ 2 ] months of additional follow-up based on the data cut in March 2023. Median overall survival in the intent-to-treat population was very similar with QINLOCK at 35.5 months versus sunitinib at 31.5 months, resulting in a hazard ratio of 0.86.

The long-term safety profile was consistent with the primary analysis, showing fewer patients with Grade 3, 4 TEAEs and a lower rate of treatment discontinuations due to TEAEs with QINLOCK versus sunitinib. We also looked at whether treatment in the second line with QINLOCK versus sunitinib, any differential impact on clinical outcomes after third-line treatment. Irrespective of treatment with QINLOCK in the second line, the results show that the patient outcomes in the third line was similar.

Median PFS on the next line of therapy was 7.7 months for QINLOCK versus 7.4 months for sunitinib. These final results for INTRIGUE demonstrate that QINLOCK offers similar efficacy versus sunitinib in the second-line GIST population studied in INTRIGUE.

The Nature Medicine publication last month was another major achievement for Deciphera, showcasing the potentially practice-changing results from an exploratory ctDNA analysis from INTRIGUE in one of the world's leading medical journals. In second-line GIST patients with KIT Exon 11 and 17/18 mutations, treatment with QINLOCK resulted in a 78% reduction in the risk of disease progression, and a 66% reduction in the risk of death compared to sunitinib.

Median PFS was 14.2 months for the QINLOCK patients compared to only 1.5 months for the sunitinib patients. Median overall survival for QINLOCK was not reached, versus 17.5 months for sunitinib. QINLOCK showed an objective response rate of 44% compared to 0% for sunitinib. Together, the data represents a striking clinical benefit to these second-line GIST patients when treated with QINLOCK.

We're excited that our INSIGHT pivotal Phase III study in the same patient population is now actively enrolling patients. If positive, we believe the results of the INSIGHT study will support and extend label for QINLOCK and significantly improve clinical outcomes for patients based on the precise understanding of the GIST tumors.

We are also working hard to get our second potential approved medicine to patients as quickly as possible. We remain on track to submit an NDA for vimseltinib for patients with TGCT in the second quarter of 2024, and an MAA in the third quarter of 2024. These filings are supported by the outstanding success of the Phase III MOTION study, which achieved its primary endpoint of ORR at week 25 as well as all 6 key secondary endpoints.

In a disease such as TGCT, the secondary endpoints are critical measures of clinical benefit. These outcomes of how patients deal and function plays an incredibly important role in treatment decisions as well as for patients' interest in starting and staying on drug therapy. TGCT can be a difficult chronic condition associated with severe pain, swelling, stiffness and loss of mobility. All of these can really limit patients' daily activities and quality of life, including their ability to continue to work or function independently.

Without an effective treatment, a TGCT diagnosis can have a profound impact on their ability to lead a normal, active and healthy life. And we look forward to making this important new medicine available to these patients as quickly as possible.

We plan to present results from the MOTION study at a major medical meeting in the second quarter of 2024, as well as the updated results from the ongoing Phase I/II study in the second half of this year.

Deciphera remains committed to ensuring that the full therapeutic potential of medicine and product candidates are explored. To that end, we plan to initiate a Phase II proof-of-concept study of vimseltinib and chronic GVHD based on its potential as a best-in-class CSF1 receptor inhibitor. Chronic GVHD affects 30% to 50% of allogeneic hematopoietic stem cell transplant recipients, with an estimated 14,000 prevalent patients in the U.S. There is a significant unmet medical need in this setting, with 50% of patients being refractory to treatment with steroids, and overall, decide to move towards combination therapy.

Inhibiting CSF1 receptor in pro-inflammatory and pro-fibrotic macrophages has been clinically validated for patients with GVHD based on the recent pivotal study, with an antibody targeting the CSF1 receptor.

As an oral agent, vimseltinib may offer a best-in-class CSF1 receptor option as a single agent or in combination with other oral therapies. We expect to initiate a proof-of-concept study by the end of this year, putting us on a path to potentially expand the utility of vimseltinib for patients in the future.

QINLOCK and vimseltinib, we remain very excited about the potential for our clinical and research pipeline to fuel to Deciphera's growth.

As Steve mentioned earlier, we expect to select a recommended Phase II dose for DCC-3116 in 2024 to move into our first expansion cohort. We also expect to initiate a Phase I study for DCC-3084 in the first half of 2024. Finally, we expect to submit an IND for DCC-3009 with the FDA in the first half of 2024 and initiate a Phase I study in the second half of 2024.

I will now turn the call over to Dan Martin to discuss our U.S. commercial updates. Dan?

[Daniel Martin, executive]

Thanks, Matt. 2023 was a very successful year for QINLOCK in the U.S., with net product revenue growing to $121.5 million, a 25% increase over 2022. In the fourth quarter, U.S. net product revenue was $35.3 million, a 38% increase over Q4 2022. These record results were driven by strong demand in our core [indiscernible] line business, increasing average duration of therapy and contribution from unpromoted earlier line use.

In Q4, the percentage of total demand that was fulfilled through our [ patient ] assistance program, or PAP, was at the high end of our 20% to 30% expected range and gross to net was between 15% and 20%. Looking at 2023 as a whole, consistent with prior years, PAP was between 20% and 30%, and we expect the PAP percentage to be similar in 2024.

Gross to net in 2023 was between 15% and 20%, and we expect it to be in a similar range in 2024 as a result of the Medicare inflation rebates required by the Inflation Reduction Act.

We expect continued QINLOCK revenue growth in 2024, driven by a physician as the standard of care in fourth-line GIST, potential unpromoted off-label use in earlier lines of therapy based on physician decision, as well as increasing average duration of therapy.

Further, we expect quarterly revenues this year to follow a smaller pattern to what we have seen in prior years, including Q1 seasonality consistent with industry dynamics. We remain confident in the strength of our business and the potential for another record year for QINLOCK in 2024.

Now, I will turn to the exciting opportunity we see in TGCT with vimseltinib, our potential second approved medicine. Based on our analysis of U.S. claims data, we believe the total addressable market for TGCT in the U.S. is approximately $700 million based on the estimated 1,400 treatment [indiscernible] patients who are diagnosed, received systemic therapy and have recently engaged with an oncologist. This U.S. opportunity does not include the estimated 9,000 prevalent patients seen by oncologists or the estimated 1,300 treatment incident patients seen by surgeons.

We believe there is a comparable number of patients in the 5 largest European markets where there are no approved treatments. We recently provided additional insight into the treatment landscape for these 1,400 treatment incident patients [indiscernible] that has increased our confidence in the market opportunity and in our commercial team's ability to reach these patients given our deep experience in GIST.

Based on our claims analysis, we believe there is a 70% to 80% overlap in the prescriber base for GIST and TGCT, and that we are uniquely positioned to drive awareness and use in both the academic and community segments. We have tested a blinded product profile of vimseltinib versus pexidartinib, which is approved in the U.S. but not in Europe, and versus [indiscernible], which is commonly used off-label to manage patients with TGCT.

The results from the qualitative market research showed that vimseltinib is rated the highest across the key measures of efficacy and tolerability that physicians tell us they view as most important when selecting the TKI to treat their TGCT patients. In the same market research study, 100% of physicians surveyed selected the vimseltinib profile as their preferred agent for managing patients with TGCT.

We are working diligently on prelaunch activities as we prepare to leverage our strong commercial capabilities to launch vimseltinib rapidly upon approval.

I will now turn the call over to Margarida Duarte, our Head of International, to discuss the progress of the QINLOCK launch in Europe. Margarida?

[Margarida Duarte, executive]

Thanks, Dan. We are very enthusiastic about the notable achievements we made in 2023 in our international business, delivering strong results that accounted for more than 25% of Deciphera's total revenue while laying the foundation for future growth.

In 2023, QINLOCK generated $37.5 million in international net product revenue, up 33% from 2022, as well as $4.3 million in collaboration revenue from our partner, Zai Lab in Greater China.

For the fourth quarter of 2023, international net product revenue increased 56% from fourth quarter of last year to $11.4 million, and collaboration revenue was an additional $1.6 million.

Last year was a milestone year for Europe, with growth across the entirety of the business, strong price outcomes, significant progress in market access in multiple countries and the launch in Italy, which is off to an excellent start. The initial strong results we are seeing in Italy are a testament to the high unmet medical needs, the exceptional [ KOL ] advocacies, and a remarkable full innovation rating granted to QINLOCK by the Italian authority, the highest for a noncurative disease, which has significantly accelerated the launch in the many Italian regions. Our recent entry in Italy is a good example of the type of opportunity that remains to be unlocked in Europe, and underscores the importance of geographic expansion to overall growth in the business.

Last month, we announced a new distribution agreement with GENESIS Pharma for Central and Eastern Europe to expand the geographic reach of QINLOCK to 14 European Union countries, with a combined population of 118 million people. QINLOCK has already received regulatory approval in all of these countries under the [ EMI ] umbrella, which will significantly accelerate the time to commercialization for Central and Eastern Europe.

We are also excited to announce that we have submitted pricing and reimbursement in the Netherlands, and continue to address price negotiations in Spain, France and Switzerland. Our key growth drivers for 2024 include a continued focus on geographic expansion and open new markets to buy successful launches. We are very pleased by the strength of our execution, and we expect our international revenue to continue to grow as reimbursement agreements and approvals are achieved alongside the growth from our [ initial ] launch markets, positioning QINLOCK to reach more patients around the world.

Secondly, there is a possible excitement in Europe surrounding the outstanding Phase III MOTION data, we believe the number of patients is comparable to the U.S. in the 5 largest European markets and [indiscernible] is higher as there are no approved treatments.

We are working hard towards our first initial engagement with HTA agencies earlier this year, and I look forward to the [ NIA ] submission in the third quarter and preparing for the commercial launch.

I will now turn the call over to Tucker Kelly, our Chief Financial Officer, to review the fourth quarter and full year financial results. Tucker?

[Thomas Kelly, executive]

Thanks, Margarida. Total revenue for the fourth quarter was $48.3 million, which included $46.7 million in net product revenue of QINLOCK, and $1.6 million in collaboration revenue.

For the full year, total revenue grew 22% to $163.4 million, including net product sales of $159.1 million and collaboration revenue of $4.3 million.

Cost of sales in the fourth quarter was $1.8 million, which includes $900,000 in cost of product sales compared to cost of product sales of $700,000 for the fourth quarter of 2022. For the full year, cost of sales were $3.7 million, including $2 million in cost of product sales, compared to cost of sales of $8.7 million in '22, including cost of product sales of $2.7 million.

As a reminder, in the third quarter of 2022, we completed the sales of 0 cost inventories of QINLOCK that had been expensed as R&D prior to FDA approval in 2020.

Research and development expenses for the fourth quarter of 2023 were $58.6 million, compared to $48.1 million for the fourth quarter of 2022, and $234.1 million for the full year compared to $187.8 million in 2022.

Selling, general and administrative expenses in the fourth quarter were $39.1 million compared to $32.2 million in the fourth quarter of 2022. For the full year, SG&A was $136.5 million compared to $120.2 million in 2022. We ended the year with cash, cash equivalents and marketable securities of approximately $352.9 million.

In January, we announced that we had extended our cash runway guidance into the second half of 2026, which remains unchanged.

With that, I'll now turn the call back over to Steve.

[Steven Hoerter, executive]

Thanks, Tucker. We're very excited for 2024 as we continue to drive commercial growth at QINLOCK, seek regulatory approval for vimseltinib and TGCT, and advance our clinical pipeline, including our plans to develop vimseltinib in GVHD.

Building off our momentum in 2023, we're pleased by our late-stage clinical execution and global commercial excellence as we continue our evolution into a self-sustaining company with multiple approved medicines.

With that, operator, I'd now like to open the call for Q&A.

[Operator]

[Operator Instructions] Our first question comes from Jessica Fye with JPMorgan.

[Jessica Fye, analyst]

Two from me. First, what's the latest you're hearing about when doctors are turning to QINLOCK for second line just in the unpromoted [indiscernible] use? Is this happening mainly with QINLOCK experienced treaters who are otherwise using it for fourth line? Or are you seeing any pickup of new prescribers as a result of that type of use?

And second, I appreciate the details on vimseltinib. Can you just frame a little bit more how you think about the shape of that launch ramp?

[Steven Hoerter, executive]

It's Steve. Thanks for the 2 questions. I'll ask Dan to take both of those questions, the one with respect to unpromoted off-label use of QINLOCK in the second line based on physician decision, and then the expected ramp for a potential vimseltinib launch here in the U.S. Dan?

[Daniel Martin, executive]

Yes. So as it relates to your question about QINLOCK, as we've noted, it is challenging to measure exactly what and where we're seeing in terms of the contribution of earlier line use, the data sources for us to be able to do that just aren't great.

We do believe that it's been a mix of existing and new prescribers. So we really think that it's something that reflects a broad appreciation for the role of ripretinib for patients across lines of therapy in GIST. Of course, I always want to underscore that, that's an unpromoted use. So of course, we're not out there promoting that, and it needs to happen spontaneously based on physician decision.

With respect to your second question on the launch ramp, the shape of the ramp, we'll have the opportunity to get into more details about launch strategy and expectations as we draw closer to a potential approval. But what we're focused on right now is a significant unmet need that we know exists in the space with patients who are suffering from the significant morbidity of [ DTT ], and what physicians keep telling us, that there's a real opportunity to improve upon the existing therapies.

So we look forward to continuing to work really hard to be ready to launch vimseltinib as rapidly as possible pending approval.

[Operator]

Our next question comes from Tyler Van Buren with TD Cowen.

[Tyler Van Buren, analyst]

Congrats on the progress during the quarter. Can you, guys, discuss what else needs to be done to have the vimseltinib filing ready for submission next quarter?

And related to that, what is your confidence that you will not see a REMS program or a black box warning upon approval?

[Steven Hoerter, executive]

Tyler, it's Steve. So first, we remain very much on track for the filing of the NDA for vimseltinib here in quarter 2 coming up and then the MAA to the EMA in Q3. So it's really just the usual and customary activities as we prepare for that filing that we are engaged in.

We remain very confident in the profile of vimseltinib based on the MOTION data. As you know, the study achieved the primary endpoint in all 6 key secondary end points, and also demonstrated that the drug is well tolerated in the patient population. So we believe we have a very clean and well-characterized safety profile with the drug and continue to have the expectation that we would -- there's no reason to expect a REMS program or a black box warning for the potentially fatal hepatotoxicity that is seen with pexidartinib, and is believed to be an off [indiscernible] effect.

So we remain on track for the filings, and we're excited to bring our potential next approved medicine forward to patients.

[Operator]

Our next question comes from Eun Yang with Jefferies.

[Eun Yang, analyst]

So QINLOCK's second line of [indiscernible] use, is that -- is it largely driven by patients who were intolerant to [ Sutent ] or patients with Exon 11 and 17/18 mutations?

[Steven Hoerter, executive]

Eun, this is Steve. I'll ask Dan to take the question on the off-label use that we're seeing in earlier lines based on physician decision. Dan?

[Daniel Martin, executive]

Yes, Eun. So we believe that the 2 significant ends that occurred last year are what's behind the contribution that we've seen from earlier line use, on promoted earlier line use. So there was the, as you noted, the NCCN listing for patients who are intolerant of [ Sutent ] in the second line, as well as the really exceptional data that was presented and now recently published in Nature Medicine, showing the dramatic treatment and fit that ripretinib can offer patients with the Exon 11 17/18 mutation.

We think that both of those certainly have increased the noise level. Again, I always score, this is something we don't promote, but just through that natural dissemination of this information, the presentation, the publication certainly have raised the noise level.

So it's hard to discern which patient, which bottle is being driven by those factors, but we think that both are reflective of real interest in opportunities to use ripretinib in patients with GIST. And of course, we think that -- it's important to note the level of energy that we see around the [indiscernible] study and the excitement that we have for a potential approved indication pending a positive study.

[Eun Yang, analyst]

And I have 1 question for Tucker.

So OpEx in 4Q sequentially is down slightly but SG&A is up. So could you give us some guidance on how OpEx level would be in 2024 as well as the collaboration revenue line?

[Thomas Kelly, executive]

Sure. So on the OpEx side, it was a little higher sequentially than in the SG&A. There's some one-off items and end of year items that we think are more exceptional. So we wouldn't expect necessarily to have that [indiscernible] run rate going forward for SG&A. We will have some, in the second half of the year, expenses as we prepare for the launch of vimseltinib as well.

And in terms of collaboration revenue, as we've always said, that's composed really a couple of components. One is the royalty revenue that we get from our collaborations. And then secondly, there's often supply revenue. The supply revenue is much more episodic. So some quarters, we have it, in some quarters, we don't. There was some supply revenues, you'll see in the cost of goods line for the collaboration revenue this quarter, and that's difficult to predict. So I think we always try and guide people to focus on the expectation for the royalty revenue. And then there'll be upside in quarters where we do have supply [indiscernible] coming.

[Operator]

Our next question comes from Michael Schmidt with Guggenheim Securities.

[Michael Schmidt, analyst]

I had one on vimseltinib as of your plans in GVHD, and how do you think about potential differentiation of vimseltinib and GVHD from somebody who's like [indiscernible]? And can you comment about the possibly sign of your planned Phase II study? Will that be in [indiscernible] naive patients? Will you include pretreated patients on that space?

[Steven Hoerter, executive]

Yes, Michael, it's Steve. I'm happy to take the question. So.

First, we're excited about the potential to expand vimseltinib and its utility beyond TGCT, and a new potential indication in chronic GVHD. And certainly, one of the factors that enables us to do that in addition to the strong data we have now in TGCT is the very long IP runway that we have in vimseltinib, the composition of matter patent that takes us to 2034, plus PTE, which we believe takes us to the end of the decade, and that doesn't include secondary patents for vimseltinib. So ample opportunity for us to make additional investments in them to take it into additional indications where we'll have the opportunity to benefit patients.

So in terms of the landscape of GVHD and how we see differentiation at this early stage, first, I would just comment that certainly, the target CSF1 receptor is now clinically validated in this disease, which is very important. So it's a derisked mechanism in GVHD. We believe the data that merited in [indiscernible] giant cell tumor demonstrates that we have a very potent and selective inhibitor against the target. And in a disease where the current backbone of treatment is all oral regimens, we believe that an oral agent like vimseltinib and oral CSF1 receptor inhibitor could play an important role as an add-on therapy, in addition to a monotherapy in later lines, but as an add-on therapy to current standard of care, whether that be a JAK inhibitor or whether it be a drug like [indiscernible] as an example.

So we haven't yet disclosed full details of our clinical development strategy in GVHD. I'm sure we'll have incremental additional disclosures over time, particularly once we get the Phase II study stood up at the end of this year. But we're excited about the potential now to expand the places where vim can benefit patients.

[Operator]

Our next question comes from Christopher Raymond with Piper Sandler.

[Christopher Raymond, analyst]

Just another question, I guess, on vimseltinib. And this is on the adjuvant opportunity. I know this has come up in the past. But what do you guys see as sort of the go to no-go points to running a study in the adjuvant setting? As you guys even noted in your market landscape slide, that's a pretty sizable opportunity. Just any sort of plan there that you guys can articulate?

And then maybe a second part of that question is, is there an opportunity or a chance that you get a broad label that could be potentially inclusive of the adjuvant setting?

[Steven Hoerter, executive]

Yes, Chris, it's Steve. Really good questions. So of course, excited about the data from MOTION, which will give us this initial label in tenosynovial giant cell tumor.

As you'll remember, the patient population that we treated in the MOTION study is patients who are not amenable to surgery. So it's too early for me to comment on what ultimately FDA will decide as the indication statement or the label for vimseltinib in [indiscernible]. But we, too, have heard also from investigators interest in exploring a role of an inhibitor like vimseltinib in other lines or earlier lines of treatment for tenosynovial giant cell tumor.

So recall, this is a disease that, particularly, in the localized form of the disease is often curable through surgery alone. So we'd probably be speaking about a patient population that would not be amenable to surgery, but potentially could be made amenable to surgery with adjuvant or neoadjuvant treatment.

So again, too early for us to comment on any specific plans. But certainly, with the evidence that we have now in the patient [indiscernible] study, it's very clear we have strong activity in this disease with vimseltinib, and there may be opportunity for us to pursue whether label-enabling studies or nonlabel enabling studies to further characterize the potential of vimseltinib to benefit patients here.

[Operator]

Our next question comes from Andrew Berens, Leerink Partners.

[Unknown Analyst]

This is [indiscernible] on for Andrew B. So you guys, I think, have been saying that the average duration for QINLOCK in the fourth-line setting has started to come [indiscernible], about 7 months now, increasing potentially up to 8.5.

I'm wondering, do you have any color on the penetration in the fourth line? Where that could be right about now?

[Steven Hoerter, executive]

Yes. Dan, would you like to take that?

[Daniel Martin, executive]

Sure. Absolutely. So yes, you had mentioned about the average duration of therapy. In fact, we think that's a really important [indiscernible] to our continued growth as we think about 2024. We look to the continued strength in our fourth line opportunity, we look to continuing increasing average duration of therapy, and as we've noted in earlier questions, contribution from unpromoted earlier line use.

So as we think about the opportunity for 2024, we're looking forward to another potential record year in the U.S. for QINLOCK.

As it relates to penetration in the fourth-line setting, as we've said in the past, we feel as though we've done a really good job penetrating that opportunity and that it's a pretty highly penetrated opportunity as a result of not only a really strong drug at high unmet need and our ability to execute over the last number of years.

[Operator]

Our next question comes from Brad Canino with Stifel.

[Bradley Canino, analyst]

Another question for me on vimseltinib. I wonder how many doses do you think you plan to use in the proof-of-concept study in chronic GVHD? And I'm asking in light of the inverse dose response noted for the antibody and the working hypothesis there around allowing for some degree of macrophage function recovery.

[Steven Hoerter, executive]

Yes, Brad. Matt, would you like to take that on GVHD?

[Matthew Sherman, executive]

Sure. Brad, yes, this is Matt. So yes, so what you're referring to is the pivotal segments done with [indiscernible] in GVHD, where we tested 3 dose levels and different schedules as well, too. And what they did demonstrate in inverse dose response, where some of the lower doses had [indiscernible] much tolerated in the higher doses. And that may be more unique to antibodies because as we know the antibody inhibition of T cell [indiscernible] has led to a much more prolonged on-target effect and it's been difficult in other indications to develop those antibodies clinically.

So as Steve said earlier, excited about moving forward with our proof-of-concept study in the second half of this year in GVHD. We haven't yet given the details of the study. But as we are closer to the initiation of that study, [indiscernible] to the design of that study and what we expect to achieve.

[Operator]

Our next question comes from Reni Benjamin with [indiscernible] JMP.

[Reni Benjamin, analyst]

Congratulations on the progress. Maybe just to start off, Steve, can you give us any sort of color on the INSIGHT study and how that's progressing? Have you kind of hit all the trial sites, are they all kind of already -- are you still ramping that up? Any sort of color as to how that's progressing because that seems to be key in terms of unlocking the second line just opportunity.

And then just as a follow-up with vimseltinib, you're filing the NDA and MAA. Any chance that we could get some sort of a priority review? Or is the best case scenario a standard review both in the U.S. as well as Europe? And how long does it take in Europe just to get the decision?

[Steven Hoerter, executive]

Ren, it's Steve. So first, for INSIGHT, as you're aware, I should first note that we published the results from the analysis of INTRIGUE in Nature Medicine last month. So really exciting to see the data in such a top-tier journal. And the noise that, that analysis has generated, both with presentations at ASCO and now with the publication in Nature Medicine, has been a real tailwind in terms of building enthusiasm for the ongoing INSIGHT study.

So we continue to make really good progress in getting sites open, actively screening and enrolling patients in that study. And the enthusiasm from investigators, really [indiscernible], I think they're really excited, not only about the data that's been published and presented so far from the analysis of INTRIGUE, but just also the potential to be part of advancing how second-line GIST is treated based on insights into a patient's tumor using circulating tumor DNA. So drawing a simple tube of blood in order to understand a secondary mutation status. That is an aim or a goal, I think, that the field and thought leaders in the field are really excited about, and their participation on the INSIGHT study, we believe will help us to achieve that goal of demonstrating prospectively this outsized benefit of QINLOCK versus sunitinib in the selected patient population.

So we continue to be moving forward very much on schedule and on track with the INSIGHT study and we'll have further updates. I'm sure, over the coming queries on our progress with that specific study in second line is GIST.

Your second question was related to vimseltinib and what our expectations are in terms of regulatory review and timing, and your specific question was with respect to whether we may enjoy priority review with the application.

So it's too soon for us to comment on that. And certainly, the FDA will make that determination as whether we're not the application qualifies for priority review. As you may remember, the ENLIVEN study and the application for pexidartinib was reviewed by FDA with priority review status. So that certainly is the present, if you will, in this disease. So we're looking forward to our ongoing and continued productive dialogue with the FDA as we prepare to file in the second quarter, and we'll, of course, make appropriate disclosures at the right time in terms of whether that is a priority review or a regular review at the FDA's discretion.

And then in terms of the European review process, that, as you may remember, is a lengthier process. So we would expect that, that will take potentially longer than the FDA review. But as we get into our further dialogue with the EMA, being able to better cast a timeline as to when we might expect action on the application once it gets filed.

But we remain super excited about the profile of the drug. The MOTION data are very clear and compelling, and we're looking forward to delivering our second potential approved medicine to patients.

[Reni Benjamin, analyst]

Great. And then if I can just have a follow-up regarding vimseltinib and what could ultimately be involved in prelaunch activities. Is this something that we should just be -- just given the overlap, I think that Dan mentioned in the call, is this something that could just be as easy as kind of dropping it into the bag of sales and they're sort of off and running? Or are there significant prelaunch activities that need to be conducted given this market?

[Steven Hoerter, executive]

Yes. I'll ask Dan to comment on the prelaunch activities. But you're right, Ren, we believe there is 70% to 80% overlap in terms of the prescriber base. So a really meaningful opportunity both in the U.S. as well as in Europe for meaningful synergy with our existing commercial organization.

Dan, do you want to comment further on the prelaunch activities?

[Daniel Martin, executive]

Yes, absolutely. Thanks, Ren, for the question. So we think that investment in market development or prelaunch activities is important. Our focus will be on disease education, largely to make sure that all potential treaters of TGCT are thoroughly educated on the -- how common TGCT is and the burden these patients deal with. This is a really debilitating disease. It's something that isn't a lethal disease, of course, but it is one that can be very locally aggressive and really have a significant impact on how patients feel and function. And we want to really paint that patient picture, bring that to light, raise that awareness.

So certainly, that, coupled with our med affairs, organization and data from our studies, all of this will be part of making sure that prior to launch, physicians, appropriately so, know the information that they need.

And then as Steve mentioned, at launch, yes, we think there's tremendous synergy. We think we're really uniquely positioned to take advantage of both the opportunity in GIST with QINLOCK and the opportunity in TGCT with vimseltinib.

[Operator]

[Operator Instructions] Our next question comes from Peter Lawson with Barclays.

[Peter Lawson, analyst]

Great. I guess, two, first just on the seasonality and how we should think about that for the U.S. versus ex U.S., as you've invested model out 2024 revenue.

And then just moving into GVHD, just your thoughts on differentiation as well around safety and potential efficacy versus an antibody and the ability to combine with other regimens in that GVHD space.

[Steven Hoerter, executive]

Peter. So I'll ask Dan and Margarida to comment on expectations for the year broadly in 2024 and our expectation of the usual seasonality patterns. And then I'll ask Matt to take your second question with respect to vimseltinib and GVHD.

Dan, do you want to go first?

[Daniel Martin, executive]

Sure, absolutely. So as we noted on the call, we feel really excited and pleased with the progress that we've made in the -- I'll speak to the U.S. specifically, in the fourth quarter, delivering $35.3 million in net product revenue, which was a 38% year-over-year increase for the full year 2023, $21.5 million, which is a 25% year-over-year increase. So we feel really pleased with that.

And as we look to 2024, we think some of the core drivers of our recent success will continue to be the core drivers of what we expect to be another record year for QINLOCK, specifically strength in our core business, increasing average duration of therapy. And then as noted earlier, contribution from unpromoted earlier line use.

So when we take a step back and look at the year as a whole, those are sort of the themes and the reason for our excitement. As we think about just the quarter-to-quarter pattern, we wanted to note that we would expect a pattern similar to past years, which reflects some seasonality dynamics, specifically as it relates to Q1, very common in the industry to see a strong quarterly buying pattern at the end of the year that can potentially impact Q1 as well as some early in the year, sort of post holiday demand seasonality or demand softness.

Of course, the other factor that we've noted in the past and would expect this year to also play out true to form is the PAP dynamic, which we typically see a lower PAP percentage in the early part of the year with a gradual increase throughout the year.

So those are some of the moving parts that we wanted to note. Margarida?

[Margarida Duarte, executive]

Sure. So regarding ex U.S., I mean, let me start by saying that we are delighted with the launch, how it's going and the strong revenue growth from last quarter, which was driven by strong performance in existing markets, but also the contribution from the launch in Italy.

So I would say that as we continue to successfully advance our price and reimbursement and launch in new markets, we expect QINLOCK to continue to grow in international. It is always difficult to predict when new markets will open, given the different reimbursement processes and different timelines in each market. But assuming we get there, I expect this to happen more towards the second part of 2024.

So another thing to note is that while we expect future growth, we cannot exclude quarter-over-quarter variability. So we have seen this in the past, and we may see this again in the future.

So I would like -- all in all, geographic expansion is a key focus for us in 2024. QINLOCK is well positioned for growth. and the recent deal with GENESIS for Central and Eastern Europe is a good example of the type of transactions that you can expect from the future.

[Steven Hoerter, executive]

Great. Matt, do you want to take those vimseltinib question?

[Matthew Sherman, executive]

Yes. Yes. So in regards to your question, vimseltinib in TGCT -- I'm sorry, in graft versus host disease and our ability to be able to differentiate this, we do remain very excited about plans to initiate our proof-of-concept study in the [indiscernible] half of this year.

And also, we have a very large database of safety based on vimseltinib and TGCT, both from the MOTION Phase III study as well as from the Phase I/II study. And [indiscernible] is a chronic disease, and particularly with the skin and joint involvement, there can be some limitations of patients of mobility, and the antibody therapy would have to be given intravenously, every 2 weeks for a chronic disease such as GVHD. That's a pretty significant burden on patients.

So one of the major features of using vimseltinib as an oral agent will be to combine with other oral therapies. As you know, the standard of care now consists primarily of oral agents, whether it's a JAK2 kinase inhibitor or [indiscernible] inhibitor, and in fact, on steroids as well, too. And so our ability to differentiate from the antibody is pretty, pretty significant with vimseltinib in our Phase II study.

[Peter Lawson, analyst]

Is there any way from, I guess, preclinical data to see any differentiation of an oral drug versus an antibody? If you think that could drive differences in efficacy or durability or safety?

[Matthew Sherman, executive]

I think most of the preclinical data just speaks to the role of the macrophage and the profibrotic medicine [ stations ] of the disease. And that's particularly important in several organs, as I mentioned, particularly the skin because these patients can have pretty severe [indiscernible] skin lesions and even joint contractions. And also, particularly in the ones [indiscernible], too, and fibrosis [indiscernible] is currently -- is not a satisfactory treatment [indiscernible] current regiments for GVHD.

So the role in macrophaging, in macrophages in those particular organs could really be a benefit for vimseltinib in these disease.

[Operator]

I would now like to turn the call back over to Steve Hoerter for any closing remarks.

[Steven Hoerter, executive]

Yes. Thank you for joining us on today's call, and thanks for your support. We look forward to keeping you updated on our continued progress here at Deciphera during the course of the year. Hope you have a great day.

[Operator]

Thank you for your participation. You may now disconnect.