Is It Time to Go Long Sarepta Therapeutics?

Shares of Sarepta Therapeutics (NASDAQ: SRPT  ) jumped a princely 18% last Friday and only continued their steep ascent in after-hours trading. The jump in SRPT is presumably due to the failure of drisapersen to meet its primary endpoint in its pivotal Phase III trial. Specifically, drisapersen is an antisense oligonucleotide that induces skipping of exon 51, and is indicated for the treatment of Duchenne muscular dystrophy. To date, drisapersen is the only potential rival to Sarepta's eteplirsen, another exon skipping drug currently in advanced Phase II studies. Prior to this this failure, drisapersen was being co-developed by Prosensa (NASDAQ: RNA  ) and GlaxoSmithKline (NYSE: GSK  ) . Per GSK's press release, the future of the drug's developmental program is uncertain at this time.

While the failure of drisapersen was clearly seen as a positive for Sarepta by traders, a number of biotech writers immediately raised the spectator of caution, suggesting that this may bode poorly for the potential early approval of eteplirsen next year. For investors new to this story, Sarepta has announced that they plan on filing a New Drug Application (NDA) with the U.S. Food and Drug Administration in the first half of 2014 after meeting with the agency last July, where they presented results from their 12-patient Phase IIb study. As such, biotech analysts and writers have cogently argued that the FDA may now want to see a large Phase III trial prior to approving eteplirsen, based on the failure of drisapersen.

In stark contrast, Deutsche Bank Markets Research analyst Robyn Karnauskas raised the firm's short-term price target on SRPT shares to $71, with longer terms targets going up to $125. Deutsche Bank's optimism stems from the sheer lack of competitors to eteplirsen in the DMD market. In his particularly bullish note, Karnauskas assigned eteplirsen a 75% chance of approval success, even in the wake of drisapersen's marked failure. Moreover, this bullish sentiment on SRPT is widely shared by institutional investors, with institutions now hold 71% of outstanding shares.

The key question for retail investors going forward is simple: Should I thrown in with the Big Boys or exercise caution? To be upfront, I believe the approval of eteplirsen after a mere 12-patient Phase IIb trial is far from a slam dunk. While the trial did show a significant clinical benefit to patients suffering from DMD, I caution investors against trying to read the tea leaves on any NDA with the FDA, much less one with a relatively small patient base. Remember, even institutional investors with their stellar research teams have a poor track record of predicting FDA decisions. For example, institutions widely believed Arena Pharmaceutical's (NASDAQ: ARNA  ) NDA for Belviq would be flatly rejected (it was approved), whereas many of the same institutions bet heavily on the approval of Dynavax Technologies Corporation's (NASDAQ: DVAX  ) Heplisav (it was rejected).

Bottom line
FDA approvals are never a sure bet, especially when the initial NDA is based on limited trial data (12 patients). The recent failure of a similar drug to eteplirsen may be viewed as a cautionary tale by the FDA, but I believe it's a fool's game to try to predict how the FDA will ultimately interpret these events in regards to Sarepta's looming NDA (if at all). Investors willing to speculate on an early approval should be ready to buckle up for a possible rejection, followed by a lengthy Phase III trial. The good news is that Sarepta does have over $155 M in cash and cash equivalents according to their latest 8-K, meaning that Sarepta could potentially fund most of a costly Phase III trial without resorting to heavy dilution. In sum, I wouldn't bet the farm on an early approval of eteplirsen, but Sarepta does have the resources to carry out a Phase III trial if needed, without wiping out investors that choose to speculate now.

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  • Report this Comment On September 24, 2013, at 12:12 PM, EllenBrandtPhD wrote:

    "Is it time?"

    The time (on the latest move) was a month or so ago, when many of us said to buy in the $31-33 range.

    Afterwards, Insiders bought large blocks of shares on the OPEN MARKET in the $34-37 range. The latest was the beginning of last week, when Dr. Kathleen Behrens bought a whopping quarter million dollars of new shares on the OPEN MARKET at over $37.

    Longs, of course, have hardly missed the boat, just the last best boat. With the - how many was that? 98? - OK, more like 6 - analyst upgrades the past few days, it is quite likely the MMs, who are mostly on the Long side here, will choose to test the price all the way up to 55 or 56, where most Long analyst targets now stand, although some are considerably higher.

    IMO, they will do this by this Friday, in case there is a US government shutdown next Tuesday - and there may well be, although it does not affect this sector, unless companies are planning on holding meetings in national parks.

    The relevant meeting for actual new news is the end of next week, so the stock will probably base before it.

    On the very possible bright side, Chris Garabedian strongly hinted at MS and Baird that there might be an announcement at the next meeting of good news BEYOND the MD arena. There have been mentions - on the website, yet - of 2 new drug introductions by 1st quarter 2014. As we know, Sarepta's technologies are being tested for influenza and similar diseases and against the world's most horrible viruses, like Marburg and Ebola, which could also potentially be used as biological weapons by Very Bad Baddies.

    There are also some collaborations with research centers in Europe, which may affect Sarepta's chances of getting new Euroland acceptance as Prosensa fades into oblivion.

    In any case, it is a pity the Fool community was mostly Short on this one. They shouldn't have been - a mistake which now needs to be corrected.

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