Sarepta Therapeutics: FDA Approval Reinstalls Confidence In The Pipeline – Seeking Alpha

Posted: December 17, 2019 at 7:47 pm

Sarepta Therapeutics (SRPT) recently publicized that the FDA approved Vyondys 53. This approval came only a few months after the drug received a CRL due to concerns over the risk of infection at the infusion site and renal toxicity. The company filed an appeal and it looks like the matters raised in the CRL were quickly resolved. SRPT has shot up over 30% following the news, and but is still trading well under its 52-week high of $158.80. Not only is this approval important for the companys commercial outlook, but it also reinstalls some confidence in the companys gene therapy pipeline and technology. Despite the recent big move to the upside, I still see SRPT to be discounted at this current price and could be a lucrative long-term investment.

I intend to provide a brief background on Vyondys 53 and its journey through the FDA. In addition, I discuss why I still think SRPT is still worth a speculative investment. Finally, I reveal my plans for my SRPT position for 2020.

Vyondys 53 is similar to Sareptas Exondys 51, which allows the skipping over gene mutation that inhibits patients with DMD from producing dystrophin. Exondys 51 works in roughly 13% of the roughly 15K boys in the U.S. who have DMD. Although Vyondys 53 will only take aim at 8% of the DMD population, it is still the second most common DMD mutation. Vyondys 53 will be priced at $300K a year per 20kg, so some patients could be paying over $1M a year for the treatment.

Figure 1: DMD and Exon Skipping (Source: SRPT)

Vyondys 53 was an accelerated approval, so Sarepta will need to conduct post-marketing studies to confirm its safety and efficacy. Sarepta is already enrolling patients in their confirmatory trial and should have the results in 2024.

Back in August, Vyondys 53 received a CRL primarily due to renal toxicity concerns from pre-clinical a dose 10 times greater than what was submitted in the NDA. I have seen some ridiculous reasons for the FDA sending a CRL, but citing preclinical data at 10x dosage was by far the most outrageous. I have to imagine almost every drug or therapy is toxic at a 10x dosage. To be honest, I was convinced the FDAs CRL was more than suspicious, but it appears they have backtracked and granted Sarpetas appeal.

Not only is this a win for Sarepta, but it is also a win for gene therapy and the companies who are attempting to develop gene therapeutics. Most of the leading gene therapy stocks took a hit following the CRL as the prospects for gene products making through the FDA's scrutiny seemed to be degrading. Now that the FDA has recognized their error, investors should have renewed confidence in the regulatory and commercial outlook for gene therapies in the US.

As I mentioned before, Vyondys 53 approval has reassured the market that Sarepta's platform and technology are capable of producing more marketable gene therapies. Looking at Sarepta's pipeline (Figure 2) the company can see a great amount of potential value.

Figure 2: SRPT Pipeline (Source: SRPT)

Sarepta is now pushing their next-generation PPMO RNA platform. The company will have safety and dosing insight in 2020. If Sareptas PPMO shows encouraging results they plan to conduct additional research on new therapeutic targets using the PPMO platform.

In terms of microdystrophin manufacturing, the company has completed building out of Sareptas single-use microdystrophin manufacturing facility in Lexington, Massachusetts. In addition, the company also has dedicated suites with Paragon in Maryland, which is expected to have a greater capacity than the Lexington facility. So, it appears the company will have the capacity to support more commercial products as they continue to cross the FDA finish line.

Not only is the company have a strong R&D department, but their commercial team has demonstrated some success with payers, physicians, and prospective patients. The company has recorded revenue growth since Q4 of 2016 and is expected to continue to record sequential revenue growth for the next 7 years (Figure 3).

Figure 3: SRPT Estimated Annual Revenue Growth (Source: Seeking Alpha)

Exondys 51 continues to perform well with Q3 sales above consensus at $99M, which was a 26% increase over Q3 of last year. This prompted the company to boost the 2019 revenue guidance range from $365M to $375M to a range of $370M to $380M for Exondys 51. In fact, Exondys 51 numbers have grown quarter-over-quarter for over the past 3 years.

Another reason to be bullish on SRPT is the companys current financial position, which over $1B. Their healthy cash position will allow the company to fast-track Sareptas growing pipeline and support company operations. Indeed, the company revealed a net loss of $126.3M in Q3, so the company is still incinerating cash. However, Sarepta recently announced an agreement with Pharmakon Advisors, LP, for $500M to be given two $250M tranches. The first will be obtainable after closing and the second will be available at Sareptas option until December 31st of next year. This recent funding not only allows the company to keep the pedal down on R&D, but it was a non-dilutive fundraising event.

What is more, one of Sarepta's potential competitors Wave Life Sciences (WVE) recently announced that it has decided to drop its DMD exon skipping programs. This decision comes after some disappointing data for their exon 51 and exon 53 skipping product candidates. Not only has Sarepta lost a potential competitor, but Wave's exit from DMD shows how advanced Sarepta's exon-skipping products really are.

As a result, I believe Sarepta has the products, pipeline, commercial ability, manufacturing capacity, and the financials to execute on their long-term growth strategy. Returning to figure 3, I expect Sarepta to follow this growth trajectory for the next several years, and will rapidly grow into its current valuation. Sareptas aspiring strategy has created one of the biggest multi-platform genetic medicine pipelines in biotech, which contains over 25 active programs across Sareptas RNA and gene therapy platforms that will be providing multiple catalysts in the coming years. Considering the points above, I still see SRPT to be worthy of speculative buy that could become a lucrative long-term investment.

What's My Plan?

I took a leap of faith following the CRL and added to my speculative SRPT position. Now that I am in the green, I plan on holding my shares for at least four more years and will consider holding if the company is able to get their current pipeline across the finish line. In the meantime, I am going to take advantage of SRPT's volatility and will wait for a pull-back to add to my position. However, I am not going to go all-in until the company has completed their confirmatory studies.

What is more, Sareptas approval has bolstered my confidence in my other gene therapy investments and will look to add to those positions in the near future.

Disclosure: I am/we are long SRPT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Sarepta Therapeutics: FDA Approval Reinstalls Confidence In The Pipeline - Seeking Alpha

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