3 Key Takeaways From Sarepta's Q2 Results

Sarepta Therapeutics (NASDAQ: SRPT  ) announced its second-quarter results on Thursday. The company reported a non-GAAP net loss of $14.6 million, or $0.46 per share, which was better than the $0.67 per share expected by analysts. The important information from the second-quarter results, though, didn't relate to earnings. Here are three key takeaways from the update.

1. Plenty of cash on hand with the possibility to raise more
The key financial metric for Sarepta at this point relates to the size of its cash stockpile. On that score, the company looks to be in good shape. Sarepta reported cash, cash equivalents, and restricted investments related to its letters of credit totaling $164 million as of the end of the second quarter.

Since the end of the quarter, Sarepta sold around 1 million shares that raised an additional $37.9 million. The company also recently entered into an equity offering sales agreement with Further Lane Securities L.P. that allows it to sell up to $125 million of shares as needed.

While Sarepta doesn't need more cash right now, that could change in the not-too-distant future. Management expects that cash burn will increase during the rest of 2013. This anticipated increase stems from scaling up manufacturing capabilities for Duchenne muscular dystrophy, or DMD, drug eteplirsen and moving forward with a confirmatory clinical study for the drug.

2. Same story, different results
On July 24, Sarepta announced that it planned to move forward with a New Drug Application, or NDA, for eteplirsen. The immediate pre-market reaction sent shares upward. However, as investors digested the full story, the stock came back down.

Sarepta held a conference call that morning providing more details about the company's discussions with the Food and Drug Administration. The more Sarepta CEO Chris Garabedian spoke during that call, the more the stock dropped -- ultimately falling around 15% by the end of the day.

As always, Sarepta also held a conference call accompanying its earnings announcement on Thursday. Garabedian and the rest of the management team really didn't reveal any information differing from what they said a few weeks ago. This time, though, Sarepta shares moved up around 2% in early trading before giving back some of the gains later in the day.

Probably the biggest difference is that there wasn't a shock factor with the most recent update. Sarepta will submit the NDA for eteplirsen in early 2014. They feel pretty good about their chances of an approval, but there's no guarantee.

3. What the FDA will do is still anyone's guess
Anyone looking to find more clues about what decision the FDA will make from comments made by Sarepta's management in the second-quarter update call will probably be disappointed. The FDA could grant accelerated approval based on increased dystrophin production as a surrogate endpoint. It could grant full approval based on improved walking ability for patients taking eteplirsen. And, of course, it could reject the NDA and require more clinical studies.

As he did a few weeks ago, Garabedian pointed to a paper written by Frank Sasinowski (link opens PDF) about the FDA's orphan drug approval process. In this paper, published by the National Organization for Rare Diseases, or NORD, Sasinowski noted several orphan drugs that that were approved by the FDA despite having clinical studies involving small numbers of patients.

One of the drugs referenced in the paper was Baxter Healthcare's (NYSE: BAX  ) Ceprotin. The drug is used as a treatment for patients with severe congenital Protein C deficiency. The FDA approved Ceprotin in 2007 based on a study of only 18 patients.

Sasinowski also mentioned Shire's (NASDAQ: SHPG  ) VPRIV. The FDA approved the Gaucher disease drug based on a pivotal study including 25 patients. The broader development program for VPRIV had involved around 100 patients.

By comparison, Sarepta's phase 2 study of eteplirsen involved 12 patients. Garabedian's reason to bring up the paper published by NORD is to emphasize that the FDA can approve and has approved drugs targeting rare diseases based on small clinical studies. Whether it will do so for eteplirsen, through either accelerated approval or full approval, is still anyone's guess.

Looking ahead
The next big move for Sarepta is the actual submission of the NDA for eteplirsen sometime in the first half of 2014. About 60 days later, the FDA will announce its decision on whether the NDA will be accepted for review. I expect that decision will be positive for Sarepta and will be a priority review rather than a standard 10-month review.

What could be interesting is the time frame for Prosensa (NASDAQ: RNA  ) and GlaxoSmithKline (NYSE: GSK  ) with their approval pathway for their DMD drug drisapersen. The FDA could very well be looking at eteplirsen and drisapersen at the same time.

Prosensa and Glaxo partnered in the development of drisapersen, which is currently in a phase 3 study involving 186 patients. The drug received breakthrough-therapy designation from the FDA in June. This opened the door for an expedited approval process.

My view continues to be that both eteplirsen and drisapersen will ultimately gain FDA approval. As for Sarepta, I think shares will be a lot higher by the end of 2014 than they are now. But it could be a while before there are any real catalysts for the stock.

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