Down 17%: Is Sarepta a Bad News Buy?

Sarepta Therapeutics is down over 20% today on disappointing clinical trial news. Here's what you need to know.

Jul 10, 2014 at 11:36AM

Duchenne muscular dystrophy, or DMD, drugmakers have been on a win streak lately, with Prosensa (NASDAQ:RNA), Sarepta Therapeutics (NASDAQ:SRPT) and PTC Therapeutics (NASDAQ:PTCT) all hearing good news on the regulatory front. In each case,  the regulatory problems arose, for the most part, from issues with the clinical trial data for their respective drugs. And today that trend is continuing with a disappointing clinical trial update from Sarepta.

Specifically, Sarepta reported that patients in the mid-stage open-label extension study for eteplirsen experienced a dramatic decline in walking ability at the 144 week mark, assessed on the 6 minute walk test. According to the release, patients at week 144 receiving the 30 mg/kg and 50 mg/kg doses exhibited a decline of 33.2 meters, or about 8.5%, from baseline in walking ability. 

What's key to understand is that this is a drastic decline compared to previous updates, although Sarepta notes that these patients are still out-performing natural history data. 

Is this sell-off warranted?
My take is that a sell off is warrant but perhaps not to this degree. Duchenne muscular dystrophy is a devastating disease and eteplirsen was never meant to be curative. The fact that patients are performing comparatively well is a good sign, but this latest update should keep investors' collective hopes in check. The idea that Sarepta's exon-skipping platform was going to be a miracle cure for this disease was perhaps far-fetched in the first place.

And I think today's massive drop is indicative of the Street's over-enthusiasm for these drugs, in my opinion. Put simply, eteplirsen still looks like it provides important clinical benefits to patients with literally no treatment options, but investors might have placed too much hope in the drug's upside. 

So will eteplirsen be approved?
Sarepta has long wanted the Food and Drug Administration to accept dystrophin production as a proxy endpoint, rather than performance on the 6 minute walk test. And today's news clearly shows why. Eteplirsen undoubtedly increases dystrophin production and even appears to outperform Prosensa's DMD candidate in this regard. By the same token, both drugs appear to have minimal affects on walking performance over the long-term. In short, the hypothesis that fixing dystrophin production would automatically lead to better physiological performance appears to be going out the proverbial window.

That being said, I think the FDA is ultimately going to approve eteplirsen, with the caveat that Sarepta undertakes a large late-stage study with the 6 minute walk test as the primary endpoint. All told, patient advocate groups have placed tremendous pressure on regulatory agencies to allow some form of pharmacotherapy for DMD onto the market, which bodes well for all three of these companies.

Is Sarepta a bad news buy today?
I'm interested in the stock, and I think this was an overdone haircut. Sarepta's investors have been through a number of these volatile days and perhaps there were far too many investors anticipating yet another devastating clinical or regulatory update. Today's news isn't game changing and not entirely unexpected.

The bottom line is that the limited trial data so far suggests that eteplirsen slows disease progression and increases dystrophin production significantly. That should be enough to convince regulators to allow eteplirsen on the market via a conditional approval, in my opinion.

Foolish wrap-up
Biotechs are infamous for their volatile ways. And most of these extreme movements are overdone. I think today's action in Sarepta is symptomatic of this trend across the industry and this drop represents an attractive entry point for this clinical-stage biopharma. In fact, I think we'll see regulatory approvals for all three of these DMD drugmakers in the near future. Even so, investors should obviously keep a close eye on any required follow-up studies post-approval. And we're 

Leaked: This coming blockbuster will make every biotech jealous
The best biotech investors consistently reap gigantic profits by recognizing true potential earlier and more accurately than anyone else. Let me cut right to the chase. There is a product in development that will revolutionize not just how we treat a common chronic illness, but potentially the entire health industry. Analysts are already licking their chops at the sales potential. In order to outsmart Wall Street and realize multi-bagger returns you will need The Motley Fool's new free report on the dream-team responsible for this game-changing blockbuster. CLICK HERE NOW.

  

George Budwell has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers