Will Sarepta Find a Floor? Print
By Brian Wilson - Lead Contributor   
Thursday, 14 November 2013 10:27

For those who weren’t aware, it Sarepta Therapeutics ($SRPT) recently received feedback from the FDA that implied in its commentary that the company’s chances for early approval were shot, and that the Phase IIb data that seemed to assure investors of approval for the Duchenne Muscular Dystrophy drug eteplirsen was questionable.

In particular, there seems to be a lot of concern on the dystrophin-related data.

This essentially stems from the failure of another Duchenne Muscular Dystrophy drug developer named Prosensa (RNA)

Notes on Eteplisen:

“Eteplirsen is an antisense oligonucleotide that silences a specific region of the gene coding for dystrophin, allowing muscular dystrophy patients to produce semi-functional dystrophin instead of dysfunctional protein.

Although there were only 12 patients in the now-famous Phase IIb trial, Sarepta proponents point out that enrollment for a full-scale DMD trial would have been extremely difficult due to the tiny patient population. Comparison of the efficacy data was also unnecessary due to the lack of any FDA approved treatments for the disease, although more efficacy data will be gathered in a future Phase III trial. The real question for Sarepta investors currently is whether or not the drug could see accelerated approval (AA), since the market is expected to react – dramatically – to this FDA announcement. Given smooth planning, an accelerated approval would probably allow Sarepta to introduce eteplirsen to the market DMD population as early as Q4 2014.”

This sent SRPT into a jaw-dropping plunge from the upper $30’s into the low teens. At time of writing, the company at $13.61, not too far from the $12.12 floor that was made in Wednesday’s trading.

Cowen is currently defending Sarepta, saying that the FDA is not questioning the 6-minute walk test data that caused part of the massive rally in October 2012. The firm also seems to believe that the company is undervalued based on its pipeline and the chances for FDA approval for eteplirsen in the DMD indication after a Phase III trial.

Investors should certainly be cautious about Eteplirsen, although they should also realize that the company does have a huge advantage on the financial side. The company is currently holding $274 M in cash, which helps to bring the company’s net worth to $247 M. The enterprise value of eteplisen and less important pipeline components (plus the technology) is close to $250 M. If eteplirsen is approvable in 2015/2016 after Phase III, there is a lot of potential for the equity on the long side.

However, investors are still worried about the company going forward due to very low chances for FDA accelerated approval (and possibly approval in general). This delays the potential FDA approval date for eteplirsen by approximately one year, and possibly more. The company’s cash burn rate will probably increase, and investors won’t have Phase III trial data for quite some time. Enrollment for the trial (depending on structure) may also be exceedingly difficult, because muscular dystrophy patients are young, few in number, and in constant pain. Tests to measure the efficacy of eteplirsen include unpleasant muscle biopsies.

This situation is not too dissimilar from the event that tanked shares of Amarin (NADSAQ: AMRN) a few weeks ago. FDA caution on trial data seems to be on an uptick, which may be a necessary catalyst to bring biotech stocks back to more reasonable levels. While Amarin’s needed Phase III seems to be a bigger challenge from a financial standpoint, the company does have an FDA approved drug that is growing sales. Sarepta’s emergence from penny stock territory was entirely based on eteplirsen and the application of their RNA platform to muscular dystrophy patients.


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