Will Sarepta Therapeutics Benefit From GlaxoSmithKline's Exit?

Sarepta Therapeutics (NASDAQ: SRPT  ) shares were up nearly 5% midday Monday after GlaxoSmithKline (NYSE: GSK  ) backed out of a competing drug for a rare condition with unmet needs. But does Glaxo's retreat indicate a market ripe for the picking-or signal further problems ahead for Sarepta's drug?  

GlaxoSmithKline returned full rights of Duchenne muscular dystrophy drug drisapersen to partner Prosensa (NASDAQ: RNA  ) . Duchenne muscular dystrophy, or DMD, is a rare disorder that leads to muscle degeneration and an early death. No treatments for DMD currently exist on the market, which meant that drisapersen and Sarepta's eteplirsen were closely watched through their respective development pipelines. Unfortunately those pipelines had some clogs.

But will the setbacks continue for Sarepta? And can Prosensa's DMD projects succeed without GlaxoSmithKline?  

Why Glaxo stepped out 
Drisapersen failed a phase 3 trial last fall by missing a primary endpoint measuring how far patients can walk over the course of six minutes. The distance improvement over the course of 48 weeks wasn't significantly better than placebo. 

Sarepta shares spiked on drisapersen's setback because eteplirsen looked set for an accelerated approval and a straight shot to market monopoly. But Sarepta received its own bad news the following month when the Food and Drug Administration advised against filing for the accelerated approval and Sarepta's shares tumbled nearly 60% on the news. 

But while eteplirsen was knocked back a peg, it's too soon to count the drug out of contention. 

Will eteplirsen make it to approval? 
Eteplirsen reported positive phase 2b results met the six-minute walk endpoint and an additional endpoint that measured levels of dystrophin-a muscle fiber protein normally decreasing in DMD patients. The drug achieved statistically significant results on both  measures, but the trial was quite small with only 12 patients, which made it unlikely that the FDA would allow for an accelerated approval.

But then the phase 3 failure of drisapersen complicated matters. The FDA said that Glaxo-Prosensa's failure cast "considerable doubt" on Sarepta's mid-stage data. That's because the failed trial showed that the dystrophin biomarker used might not actually indicate a clinical benefit. And the FDA also questioned whether the six-minute walk results were as significant as it seemed.  

So eteplirsen now heads into late-stage trials early this year. And it's those results that will ultimately decide eteplirsen's fate. Sarepta investors hope for further data proving eteplirsen's potential. But the fear is that eteplirsen will follow drisapersen's path of positive mid-stage data followed with a late-stage failure.

Is Prosensa out of contention? 
This week's announcement marks the end of the DMD partnership Prosensa and Glaxo formed in 2009. Glaxo had the exclusive worldwide license for drisapersen's development and commercialization plus the options on three more DMD pipeline projects . Prosensa received $25 million upfront and was eligible for milestone payments of up to $655 million if all four DMD drugs proved successful. The company also had participatory rights and the choice to expand its commercial rights in Europe. 

Glaxo has now walked away from the entire partnership. Prosensa has regained or retained rights to all four DMD drugs in its pipeline.  Prosensa hasn't specified its next step but the company has to stick with its DMD pipeline considering those are the only drugs that have made it past the preclinical stage. And the entire pipeline is finished off with two additional drugs for Huntington's disease and myotonic dystrophy. 

But Prosensa will have trouble making it to market without Glaxo's monetary backing. And the company's sole late-stage candidate is essentially dead in the water. Time will tell if one of the early stage DMD drugs shows any promise but Sarepta will have an outcome long before Prosensa could come back as a strong contender. 

Foolish final thoughts 
GlaxoSmithKline didn't have much of an investment in DMD, but the company's drop-out further weakens Prosensa's near-term prospects. Sarepta and Prosensa are both overly dependent on their respective drugs receiving approval. Sarepta looks to have a better shot at this stage of the game but it's the late-stage data that will make or break the drug.

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