BOTHELL Nov 8, 2019 (Thomson StreetEvents) -- Edited Transcript of Sarepta Therapeutics Inc earnings conference call or presentation Thursday, November 7, 2019 at 9:30:00pm GMT

* Alexander G. Cumbo

Sarepta Therapeutics, Inc. - Executive VP & Chief Commercial Officer

* Douglas S. Ingram

Sarepta Therapeutics, Inc. - President, CEO & Director

Sarepta Therapeutics, Inc. - Executive VP of R&D and Chief Medical Officer

* Ian M. Estepan

Sarepta Therapeutics, Inc. - Senior VP of Corporate Affairs & Chief of Staff

Sarepta Therapeutics, Inc. - SVP of Gene Therapy

Sarepta Therapeutics, Inc. - Executive VP, CFO & Chief Business Officer

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Christopher N. Marai

Nomura Securities Co. Ltd., Research Division - MD & Senior Analyst of Biotechnology

* Debjit D. Chattopadhyay

H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst

BTIG, LLC, Research Division - MD and Specialty Pharmaceutical & Biotechnology Research Analyst

Janney Montgomery Scott LLC, Research Division - Equity Research Analyst & Director of Biotechnology Research

Good day, ladies and gentlemen, and welcome to the Sarepta Therapeutics Third Quarter 2019 Earnings Call. (Operator Instructions) As a reminder, today's call is being recorded.

And now I'd like to introduce your host for today's program, Ian Estepan, Senior Vice President, Chief of Staff and Corporate Affairs.

Ian M. Estepan, Sarepta Therapeutics, Inc. - Senior VP of Corporate Affairs & Chief of Staff [2]

Thank you, Michelle, and thank you all for joining today's call. Earlier today, we released our financial results for the third quarter of 2019. The press release is available on our website at http://www.sarepta.com, and our 10-Q was filed with the SEC earlier this afternoon. Joining us on the call today are Doug Ingram, Sandy Mahatme; Bo Cumbo, Dr. Gilmore O'Neill; and Dr. Rodino-Klapac. After our formal remarks, we'll open up the call for questions.

I'd like to note that during this call, we'll be making a number of forward-looking statements. Please take a moment to review our slide on the webcast which contains our forward-looking statements. These forward-looking statements involve risks and uncertainties, many of which are beyond Sarepta's control. Actual results could materially differ from these forward-looking statements, and any such risks can materially and adversely affect the business, the results of operations and the trading prices of Sarepta's common stock.

For a detailed description of applicable risks and uncertainties, we encourage you to review the company's most recent quarterly report on Form 10-Q filed with the Securities and Exchange Commission as well as the company's other SEC filings. The company does not undertake any obligation to publicly update its forward-looking statements, including any financial projections provided today, based on subsequent events or circumstances.

And with that, let me turn the call over to our CEO, Doug Ingram, who will provide an overview on our recent progress. Doug?

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Douglas S. Ingram, Sarepta Therapeutics, Inc. - President, CEO & Director [3]

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Thank you, Ian. Good afternoon and evening, and thank you all for joining us for Sarepta Therapeutics Third Quarter 2019 Conference Call.

Our ambitious strategy involving one of the deepest multi-platform genetic medicine pipelines in biotech has required focused execution over the course of 2019. To remind you, we have more than 25 active programs across our RNA and gene therapy platforms, and we're either actively in or in late-stage planning for some 9 human clinical trials to advance our plans. I am pleased to say that over the course of 2019 and in the third quarter specifically, we have made very significant strides in advancing our programs and our strategic vision, and I'm excited to discuss those advancements. However, while doing so, I must also acknowledge what we all know that we had a setback in the third quarter. And rather than burying it among or after a discussion of our successes, I will begin by commenting on a CRL disappointment that occurred in August.

Having worked diligently on our submission for VYONDYS 53, the generic name of that is golodirsen, for well over a year and based on all of our interactions with the Division of Neurology Products, we were very confident that we would obtain an approval on our PDUFA date, which was August 19. Instead, as you know, we were surprised to have received a complete response letter, also known as a CRL, signed by the Office of Drug Evaluation I. Our disappointment extends beyond Sarepta to the 8% of exon 53 amenable DMD patients in the United States who degenerate every day while they await access to this therapy.

When I joined Sarepta, I made some commitments externally and to the Division of Neurology, that we intended to build a positive relationship with the Division of Neurology, one founded on transparency and on solid evidence-based science. And consistent with that commitment, we will work with the agency to address the reasons for the CRL and determine a pathway for a potential approval if one is possible.

I've heard from those who would prefer that I speak more often and more publicly on this issue and/or that I would attempt to engage the patient community or others to assist, for instance, in applying external pressure to bring this therapy along faster. I have no intention of doing either of those things. If we can win the day with this therapy and with this issue, we will have done so on the science and on the regulations and in collaborative evidence-based discussions with our reviewers at the FDA.

Now I've also heard some speculation about the implications of the CRL. So let me take a moment to address these as well. First, the VYONDYS CRL does have implications for our submission for our next PMO, casimersen. As they are closely related, we will await clarity on the VYONDYS matter before we submit for casimersen in the United States. But let me [just dissuade] anyone who might have concerns for our other programs. The CRL does not have any read-through to our micro-dystrophin gene therapy program. The CRL involves 2 safety signals in connection with an application for an accelerated approval. Our micro-dystrophin program is overseen by a different part of the FDA, CBER, and we are not seeking accelerated approval there. There is simply no overlap in either substance or personnel.

Secondly, to those who may believe that the CRL suggests some sort of bias on behalf of the Division of Neurology towards Sarepta, I would unequivocally and emphatically disagree. Let me reiterate that I remain convinced that we were treated very fairly and professionally by the Division of Neurology. Also, I'm very proud of the Sarepta team and how they comported themselves during this review. From my perspective, we have gone a long way in the last 2.5 years in forging a positive evidence-based working relationship with the division. We will work diligently to address the VYONDYS CRL. But with that, I do not intend to provide a prediction on outcome or on timing or to provide interviews during the process. However, I will provide an update to the patient, physician and investment communities once we have definitive clarity on the outcome of those discussions.

Now moving to our positive achievements in the quarter. We have made some enormous amount of progress in this third quarter. EXONDYS continues to perform well with third quarter sales above consensus at $99 million. That is a 26% increase over the same quarter last year. Commenting for a moment on a confirmatory trial for EXONDYS, to remind you, this trial comprises 3 arms: one with EXONDYS at 100 mg per kg and another at 200 mg per kg versus our current dose at 30 mg per kg. The trial design, which was an FDA requirement, will answer whether higher doses of EXONDYS provide even more benefit than the currently approved dose. Now since the comparator arms involve higher doses than the currently approved dose, we were required to begin our confirmatory trial with a healthy human volunteer study. We have completed this trial, and based on the results, we have initiated the main confirmatory trial. We will begin dosing this quarter.

Staying on our RNA franchise. We have moved to our multi-ascending dose trial for our next-generation RNA platform, the PPMO, and we are dosing trial participants now. We will have safety and dosing insight in 2020. If our PPMO shows encouraging results, in addition to SRP-5051, that's the construct that we're currently in a multi-ascending dose regarding, we have 5 additional constructs that have already been built, which in total have the potential to treat as much as 43% of the DMD community. We are also conducting research now on new therapeutic targets that could be served by our PPMO platform.

Moving next to our gene therapy platform. As you know, we are spending enormous resource and energy to build out our vision of an enduring gene therapy engine. Between our research and clinical-stage programs, we have more than 14 therapeutic candidates advancing through research and development. We have made great progress thus far this year and quarter, led by our most advanced program, SRP-9001, for DMD, which, at least to my knowledge, is the highest-potential late-stage gene therapy program currently in biotech. As you should be aware, our double-blind, placebo-controlled SRP-9001 micro-dystrophin trial, the trial that we call Study 2, was fully dosed by midyear, but we took advantage of the availability of additional study material and previously announced that we had increased the study n from 24 patients to 40 patients, significantly increasing the study power and confidence in this study. In addition to our initial site with Dr. Jerry Mendell at Nationwide Children's Hospital, we have added a second site at UCLA with Dr. Perry Shieh. And I'm very proud to be associated with that clinician and investigator. Both sites are actively dosing patients, and we remain on target to complete our dosing by year-end.

Micro-dystrophin manufacturing is progressing well. From a capacity perspective, Brammer has now completed the buildout of our single-use micro-dystrophin manufacturing facility in Lexington, Massachusetts. We also have dedicated suites with Paragon in Maryland with actually substantially greater capacity than our dedicated Lexington facility, which means we have robustly secured capacity well in advance of launch.

Our analytical development work proceeds well, and we continue to make progress on process development and yield optimization. Given our recent capacity, analytical development and process development progress, we remain on track to commence our next trial, Study 301, with commercial development supply by mid-2020. Now Study 2 is being conducted with clinical material from Nationwide Children's Hospital. Study 301 will be a multicenter, multi-country, placebo-controlled trial using commercial process material from our hybrid manufacturing model with Brammer and Paragon. The main study will include DMD patients ages 4 to 7, but we are also planning a separate study for older and non-ambulatory patients as well.

Commenting on a few of our other gene therapy programs. Following exceptional expression and biomarker results in our first 3-patient cohort dosed with our construct for limb-girdle 2E, in October, we announced positive 9-month functional results in that same cohort. Consistent with robust expression of the native beta-sarcoglycan protein, that is the cause of the disease, all patients improved on every functional endpoint by the 9-month time point. Consistent with the protocol, we will treat an additional 3-patient cohort with a higher dose, and then in early 2020, we will decide on the dose for what we hope to be the pivotal trial. These results will help inform dosing not only of our 2E program but also on the other limb-girdle programs in our pipeline. We will also meet with the FDA in the near term to discuss the development pathway for our limb-girdle programs. And informed by this and further work on manufacturing, we will provide an update on the clinical pathway and the timing for our limb-girdle portfolio in 2020.

Next, led by our partner Lysogene, the AAVance gene therapy study for MPS IIIA, also known as Sanfilippo Syndrome Type A, is proceeding well with 13 patients having been dosed to date. MPS IIIA is a rare autosomal recessive lysosomal storage disease that primarily affects the brain and the spinal cord, causing severe cognitive decline, motor disease, behavioral decline and unfortunately death at a young age. AAVance is a single-arm trial evaluating the safety and efficacy of an rh10-mediated gene therapy to deliver the missing SGSH gene with the goal of robustly expressing the missing enzyme in the brain that is the cause of MPS IIIA.

Moving to Charcot-Marie-Tooth, or CMT. Dr. Zarife Sahenk of Nationwide Children's Hospital intends to commence dosing of the proof-of-concept study for CMT 1A subject only to obtaining final release of trial material for that study. CMT is the largest inherited neuromuscular disease in the world. And CMT 1A, a devastating peripheral nerve disease, is also the most prevalent form of CMT. Dr. Sahenk's gene therapy is an AAV 1-mediated construct to deliver the neurotrophic factor-3, NT-3. In animal models, NT-3 has been shown to promote nerve regeneration, improved motor function, histopathology and electrophysiology of peripheral nerves. And in early proof-of-principle studies, NT-3 has shown markers of clinical benefits in patients with CMT 1A when administered subcutaneously.

In summary, we have made great progress in the third quarter and over the course of 2019 toward our ambitions, advancing our RNA and gene therapy platforms, advancing our many development programs, building out our gene therapy manufacturing capacity and building out our tower. As with any ambitious strategy, our progress this quarter was met with an obstacle in the form of VYONDYS CRL. The breadth of our ambition inevitably comes with challenges and obstacles to address and to overcome. But to those who might at times feel discouraged or disheartened by the need to overcome the occasional barrier, we should keep top of mind what we are doing with all of this. If we are successful in our mission, we will not merely be among the most significant gene therapy and genetic medicine biotechnology companies in existence, but we will have, more importantly, extended, improved and saved the lives of countless patients who would otherwise have been left hopeless.

And with that, I will turn the call over to Sandy to provide an update on the financials. Sandy?

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Sandesh Mahatme, Sarepta Therapeutics, Inc. - Executive VP, CFO & Chief Business Officer [4]

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Thanks, Doug. Good afternoon, everyone. Let me start by saying that we had another strong quarter both in terms of financial performance and in progress towards the pipeline and manufacturing capabilities. With a current top line run rate of approximately $400 million and a cash balance over $1 billion, we are in a strong position to continue to accelerate our strategic imperatives and invest in the growth of Sarepta. Net product revenue for the third quarter of 2019 was $99 million compared to $78.5 million for the same period of 2018. The increase primarily reflects higher demand for EXONDYS 51.

On a GAAP basis, the company reported a net loss of $126.3 million and $76.4 million or approximately $1.70 and $1.15 per share for the third quarter of 2019 and 2018, respectively. We reported a non-GAAP net loss of $84.4 million or $1.14 per share compared to non-GAAP net loss of $37.1 million or $0.56 per share in the third quarter of 2018.

In the third quarter of 2019, we recorded approximately $13 million in cost of sales compared to $8.7 million in the same period of 2018. The increase was primarily driven by inventory costs related to higher demand for EXONDYS 51 during the third quarter of 2019 as well as accrued royalty payments to BioMarin and the University of Western Australia.

On a GAAP basis, we recorded $133.9 million and $86.6 million of R&D expenses for the third quarters of 2019 and 2018, respectively, which is a year-over-year increase of $47.3 million. R&D expenses were $110.5 million for the third quarter of 2019 compared to $64.2 million for the same period of 2018, an increase of $46.3 million. The year-over-year growth in non-GAAP R&D expense was driven primarily due to continuing ramp-up of our micro-dystrophin program, our ESSENCE program and initiation of certain post-marketing studies for EXONDYS 51.

Turning to SG&A. On a GAAP basis, we recorded $75.4 million and $53 million of expenses for the third quarters of 2019 and '18, respectively, a year-over-year increase of $22.4 million. On a non-GAAP basis, the SG&A expenses were $59.6 million for the third quarter of 2019 compared to $42.5 million for the same period of 2018, an increase of $17.1 million. The year-over-year increase was primarily driven by significant organizational growth and continued expansion to support a commercial launch -- to support our commercial launch plans globally and almost 30 therapies in various stages of development across several therapeutic modalities.

On a GAAP basis, we recorded $2.5 million in other expenses for the third quarter of 2019 compared to $7 million for the same period of 2018. The favorable change is primarily driven by the payoff of certain debt instruments during the third quarter of 2018 as well as a higher return on investments over the third quarter of 2019.

We had approximately $1.1 billion in cash, cash equivalents and investments as of September 30, 2019.

With that, I'd like to turn the call over to Bo for a commercial update. Bo?

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Alexander G. Cumbo, Sarepta Therapeutics, Inc. - Executive VP & Chief Commercial Officer [5]

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Thank you, Sandy. Good afternoon, everyone. To begin, we are pleased with the continued strong performance of EXONDYS 51 in the third quarter. Total revenues reached $99 million. We were also pleased to be in a position to increase our 2019 revenue guidance range from $365 million to $375 million to a range of $370 million to $380 million for EXONDYS 51. Sales have increased quarter-over-quarter for over 3 years now, and we continue to see consistent demand for EXONDYS 51 as we speak today.

Compliance and adherence have remained high and stable since launch and to date continue to remain steady. It should be noted that in the past 2 years, we've experienced ordering volatility at the end of the year and suspect that we could see a change in ordering patterns with both Christmas and New Year's falling in the middle of the week. Internally, we are assuming the pattern from previous years could be more extreme this year due to both holidays falling midweek. With that said, we feel comfortable with the guidance provided.

The success we achieved this year reflects the impact EXONDYS 51 continues to have on patient lives. We remain the leading voice with KOLs and payers across the world in support of Duchenne patients and are recognized as the leader in RNA and gene therapies within the Duchenne field. Our strategy to advance the very best science, build awareness and appreciation for Duchenne and pave new pathways so Duchenne patients gain access to therapy have resulted in the successful trajectory of EXONDYS 51 since its approval just over 3 years ago and will play a role for future therapies.

As for golodirsen, if approved, we will be ready to launch, leveraging our knowledge and experience to facilitate rapid access to individuals amenable to exon 53. Our work is focused on delivering, and grounding us in all we do is the patient. That journey begins with identifying patients in our core therapeutic areas: Duchenne, the limb-girdle muscular dystrophy and MPS IIIA. Patient identification will be central to the commercial organization for the balance of 2019 and leading into 2020 and beyond. The genetic testing program, Decode Duchenne, which we started with PPMD many years ago, consistently identifies patients. We are also in the process of building genetic testing programs for our other disease states we are working on as well. We believe patient identification will always be one of our primary commercial goals, and we will continue to place resources on these programs.

Another important goal will be gene therapy site readiness. We are already working on global site readiness for our DMD micro-dystrophin program and working with many of the Zolgensma and Spinraza sites treating SMA. Based on the very strong results Novartis demonstrated with their recent launch of Zolgensma and understanding the label and the differences in patient population sizes between the 2 disease states, we believe having a strong network of sites ready and trained to handle gene therapies will be critical. We will continue to focus on this as we move through worldwide development and, if successful, commercialization.

We also believe it is critical to focus on access and reimbursement as early as possible. We're already speaking to and educating large to midsized insurance plans as well as CMS and Medicaid providers on the differences between chronic therapies and onetime gene therapies and the importance of quickly gaining access to these therapies for diseases like Duchenne. We have built constructive relationships with payers over time and look forward to continuing to work with them to support broad access.

In the limb-girdle muscular dystrophy, we are focused on disease education and identifying patients. The limb-girdle muscular dystrophies are a family of diseases, over 30 subtypes in all. Therefore, patient identification is of critical importance. Our plan is to leverage our knowledge and experience to ensure that we're able to serve these communities as we have in Duchenne. We've already attended limb-girdle muscular dystrophy conferences, held educational symposiums at major neuromuscular conferences, held advisory boards to understand how physicians identify and treat patients and already have a digital presence within the community. All of this will help us prepare for the potential to support multiple launches in the years to come.

Sarepta's prospects to transform the lives of patients with rare diseases is unparalleled in the industry. We have the largest neuromuscular RNA and gene therapy pipeline in the industry, and we understand the responsibility that comes with such an important mission.

With that, I will turn the call back to Doug for closing remarks.

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Douglas S. Ingram, Sarepta Therapeutics, Inc. - President, CEO & Director [6]

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Thank you, Bo. So looking forward, we have a number of significant milestones to achieve over the rest of 2019 and through 2020. First, we intend to complete dosing of our SRP-9001 Study 2, that's our micro-dystrophin study, by year-end with functional readout 48 weeks thereafter. We soon intend to launch process development for SRP-9001, not manufacturing for purposes of conducting our next clinical trial, gain insight from the agency on CMC and on our trial itself and then to commence Study 301 by mid-2020. We intend to dose an additional high-dose cohort for limb-girdle 2E and then make a dose selection. We intend to gain regulatory and manufacturing insight and to present an update on the development pathway and time line for our entire limb-girdle program in 2020. Dr. Sahenk intends to commence a proof-of-concept study for CMT gene therapy, NT-3. And we intend to obtain safety and dosing insight for our PPMO program in the first half of 2020. So we obviously have a lot to do but a lot of milestones as well over the coming months and quarters.

Thank you all for joining us tonight, and I'll open up the line for questions now.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Alethia Young of Cantor Fitzgerald.

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Alethia Rene Young, Cantor Fitzgerald & Co., Research Division - Head of Healthcare Research [2]

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Congrats on all the progress over the quarter. This may be a simple one, but I was just curious to get your perspective around Zolgensma partial hold. And like should we -- is there any -- are there any reads to potentially make thinking about other gene therapy programs?

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Douglas S. Ingram, Sarepta Therapeutics, Inc. - President, CEO & Director [3]

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Thank you for that question, Alethia. Okay. So well, first, let me say this. Let's make sure we're all on the same page. For those of you maybe unaware, I expect everyone is aware, Novartis recently announced that their clinical trial for their AAV9-mediated SMA gene therapy for intrathecal administration was placed on a partial clinical hold due to neurotoxicity that was seen in animal models. So first, understand this, we do not have a unique insight into the Zolgensma clinical hold itself or the Zolgensma program. Certainly, one should look at Novartis to gain accurate insight on that program and those issues.

So with that said, I should tell you, we see no read-through to our program, and there's a host of reasons for that. First, understand that we are dosing peripherally with IV administration. We're not dosing intrathecally as was the issue, as announced by Novartis, regarding that partial clinical hold. And second of all, understand that we're not using AAV9. Dr. Louise Rodino-Klapac who is with us tonight and Dr. Jerry Mendell chose rh74 for a number of specific attributes. One of the significant ones was that rh74, unlike AAV9 as an example, does not promiscuously cross the blood-brain barrier. And unlike SMA where that would be of value, there is absolutely no value to these micro-dystrophin constructs in the CNS at all. They have promoters that wouldn't turn on in the CNS, so there would be no value there. So this seems to have been a very wise choice.

And also note this, that we have an enormous amount of preclinical and animal model evidence with respect to rh74. And even at doses that are multiples higher than we're using in our clinical trial, we have never seen evidence of neurotoxicity as relates to AAVrh74.

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Operator [4]

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Our next question comes from Whitney Ijem of Guggenheim.

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Whitney Glad Ijem, Guggenheim Securities, LLC, Research Division - Senior Analyst of Biotechnology [5]

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Congrats on all the progress. I'll ask a question on the original 4 micro-dystrophin patients. Curious if we'll get an update on them in 2020 either in an update from you or possibly a publication from Dr. Mendell.

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Douglas S. Ingram, Sarepta Therapeutics, Inc. - President, CEO & Director [6]

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Yes. Thanks for that question. Thank you for your comments. So yes, Dr. Mendell has always had a keen interest in publishing the 1-year data on the 4 patients, and he is working on the manuscript even as we speak. So I feel very confident that we'll have a publication in 2020 on the first 4 patients.

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Edited Transcript of SRPT earnings conference call or presentation 7-Nov-19 9:30pm GMT - Yahoo Finance

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