Sarepta Therapeutics: Tomorrow's Monster Stock

Stocks climbing to 10 times their original price are rare breeds -- but they're not impossible to find. Especially when you have Fools for friends.

The market's best stocks include companies that have risen dozens of times in value by taking advantage of the market's weaknesses. These aren't penny stocks; they're viable companies with sound business prospects that are achieving phenomenal returns. Finding just one or two of these monstrously successful firms can help you establish a winning portfolio.

Stalking the monster
To find tomorrow's winners, we've enlisted the help of the monster trackers at Motley Fool CAPS, the 180,000 member-driven investor community where informed opinion is translated into stock ratings of one to five stars. We'll be peering in on the picks of those who have successfully chosen stocks that doubled, tripled, or even quadrupled in price, and this week All-Star member quinpeung gives us biotech Sarepta Therapeutics (SRPT 1.08%) as his next monster pick. He made his mark with Indevus Pharmaceuticals, which surged over 250% when it was acquired by Endo Health Solutions (ENDP) after he picked it to outperform the S&P 500, which actually lost 40% in the same time frame.

Of course, you shouldn't jump into the breach just because an All-Star stock picker did. Just consider this as a starting point for your own research of extreme buying opportunities.

Sarepta Therapeutics snapshot

Source: FinViz.com. N/A = not available; Sarepta doesn't pay a dividend.

Walk this way
If Sarepta's Duchenne muscular dystrophy therapy eterplirsen makes it through to FDA approval, it will have the playing field to itself for sometime as GlaxoSmithKline (GSK 0.49%) won't have its competing treatment on the market for several years yet. And with positive mid-stage trial results setting it up for phase 3 clinicals, it certainly looks on the path to success.

Eteplirsen improved the ability of boys suffering from the rare degenerative disease that causes progressive muscle loss to walk further than those taking a placebo. More importantly, it showed an average increase of 27 meters in the distance walked over the treatment period, a significant improvement over previous results that had actually shown a decline when the drug was taken for shorter periods of time.

A fickle master
Yet the stock going vertical last month seems a bit premature considering the long road it still has before it. It's got a better view of the goal now, to be sure, but investors have been plagued by these binary events before. Keryx Biopharmaceuticals (KERX) plunged 60% after its colorectal-cancer treatment perifosine failed to achieve its goals. Chelsea Therapeutics (NASDAQ: CHTP) surprised the market when an FDA panel recommended its drug Northera receive approval, only to get crushed when the regulatory agency rejected the recommendation.

As investors are all too familiar with, the FDA can and does march to its own tune so the developments with Sarepta, while certainly better than failure to meet endpoints in clinical trials, are no guarantee of success.

Money, money, money!
The drug developer has sufficient cash on hand now after two rounds of raising money, a common enough event that shouldn't alarm investors. Arena Pharmaceuticals (ARNA), for example sold shares ahead of the approval of its obesity drug Belviq, and if it can get it further through the FDA gaunlet investors will be well served as partners will be more attracted to Sarepta because of it.

Yet it can't be denied one reason for having to get cash while it could was the cancellation of its Defense Department contract for developing ways to fight the Ebola virus. Last year, it lost out on DoD influenza contracts. So the success of eterplirsen becomes all the more important. Moreover, the DMD trials were completed with only 12 patients, typically too small of a sample to submit the results to the FDA, but according to Forbes, Serapta says it's following a path previously blazed by Alexion Pharmaceuticals  (ALXN) and Sanofi (SNY -0.47%) the received approval because they developed drugs for rare diseases despite small sample sizes.

A chance for scary growth
Although the stock has given back 37% of its recent gains, I'm leery that Sarepta won't be as successful and will fall further so I'm rating it to underperform the market indexes, but tell me in the comments section below if you have a similarly gloomy outlook for its chances.