Sarepta Reports Good News -- Time to Sell?

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Good news doesn't always immediately result in good outcomes.

A case in point for this maxim can be found in Sarepta Therapeutics (NASDAQ: SRPT  ) . The biotech announced today what should be viewed as good news. Shares went up, right? Try again. Sarepta's shares were down nearly 5% in early trading before regaining ground. What gives?

Walking strong
Let's first look at that good news. Sarepta reported that after 96 weeks in a phase 2 study, patients with Duchenne muscular dystrophy, or DMD, who took eteplirsen are still experiencing good results. The study already met its primary endpoint of increased dystrophin production back at week 48, but it's now in the long-term extension stage where researchers are continuing to monitor patients.

To be specific, those good results that Sarepta announced were that patients taking 30 mg/kg and 50 mg/kg dosages of eteplirsen experienced less than a 5% decline in walking ability compared to baseline as measured by the six-minute walking test. Patients in the eteplirsen cohorts of the study continue to show significant improvement over those patients taking placebo.

From a safety standpoint, everything still seems to be looking good as well. There have been no clinically significant treatment-related adverse events, no treatment-related serious adverse events, and no hospitalizations or discontinuations during the 96 weeks.

A yo-yo no-no
As mentioned earlier, Sarepta shares bounced back for the most part after the drop out of the gate. This is being written prior to the market close on Thursday, but I wouldn't be surprised if the stock actually closes the day on a positive note. 

Why did the initial start of a sell-off happen at all? Some of it could simply be profit-taking. 

Sarepta is up 25% in just the last week or so. The announcement on Sept. 20 by Prosensa (UNKNOWN: RNA.DL  ) and its partner GlaxoSmithKline (NYSE: GSK  ) that DMD drug drisapersen failed to meet primary and secondary endpoints in a phase 3 study has served as a major catalyst for Sarepta. Prosensa's loss has certainly been Sarepta's gain.

However, the market reaction immediately following the Prosensa/Glaxo announcement sent Sarepta's shares down in pre-market trading. The stock quickly rebounded, though, and the surge was on.

The bottom line is that there continues to be a high amount of volatility with Sarepta. More than 39% of the stock's float is currently sold short. A lot of people are betting that shares come down. Even though Prosensa's drisapersen failure could help Sarepta, the disappointing late-stage study results also reminded many that Sarepta could face significant hurdles in gaining regulatory approval for eteplirsen.

What should investors do -- sell, buy, wait? I'm not going to make a call on this one, because I do think there's still plenty of uncertainty. What I will say, though, is that you probably won't win by trying to time buying or selling on every company announcement.

Over the long run, we'll find out how successful eteplirsen and Sarepta will be. In the meantime, Sarepta's stock will probably continue to exhibit a yo-yo effect. Trying to time the market on when to buy and sell  -- whether it's good news or bad news -- will most likely lead to bad outcomes.

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Editor's note: A previous version of this article included a section that didn’t take into account that the delayed-treatment cohort started eteplirsen treatment after the first 25 weeks of the study. The Fool regrets the error.

Read/Post Comments (3) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 26, 2013, at 2:42 PM, EllenBrandtPhD wrote:

    Shorts will not be coddled very much longer.

    Maybe not even today.

  • Report this Comment On September 26, 2013, at 2:52 PM, namis wrote:

    So, in other words, the stock will go up and go down going forward. Thanks for the profound insight!

  • Report this Comment On October 02, 2013, at 4:06 PM, EllenBrandtPhD wrote:

    Anyone silly enough to remain Short SRPT desperately needs to look at the new medical journal study published today.

    We know about tuberculosis and Marburg/Ebola.

    If SRPT's technology also has important possibilities in heart disease - all I can say is, if the company doesn't spark a heated bidding war well before the MD approval, I will gladly eat crow, opossum, and armadillo - which is possibly the menu at Pete's Fast Food Yurt in Outer Mongolia.

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