Should Sarepta's Shares Be Tumbling?

Sarepta (NASDAQ: SRPT  ) has been one of biotech's biggest hit-and-miss stocks over the past year. Shares have surged higher and fallen dramatically lower over and over as investor enthusiasm has brightened and faded for Sarepta's Duchenne muscular dystrophy drug, eteplirsen.

Unfortunately for investors, Sarepta's latest move is down following an update to its trial evaluating walking distance in patients receiving eteplirsen. However, those results appear solid and while they may fall short of investors hopes, they appear to pose little risk to Sarepta's planned FDA filing.

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First, a bit of background
Duchenne's, or DMD, is a rare form of muscular dystrophy that affects children. Sadly, most DMD patients fail to live beyond 25. There are few treatment options and drugmakers have struggled to find therapies that can delay its progress.

Source: Sarepta

One recent failure came from GlaxoSmithKline and Prosensa's (NASDAQ: RNA  ) R&D departments. Following success in phase 2 trials, patients held high hope for the companies' drisapersen, but an inability to outperform placebo during phase 3 derailed Glaxo and Prosensa's program.

That failure resulted in Sarepta's shares dropping from nearly $55 to less than $15 as investors worried that the FDA would be less willing to consider approving eteplirsen, which works similarly to drisapersen, without data confirming its efficacy in phase 3 -- something Glaxo and Prosensa weren't able to deliver.

But Sarepta's fortunes turned positive again this spring once management reported that discussions with the FDA had indicated the door hadn't been shut on considering eteplirsen with just phase 2 data in hand.

Source: Sarepta

Heading toward the finish line
During phase 2b trials, eteplirsen patients saw a 40-meter improvement on a six minute walking test. That was far better than the 10-meters notched by patients in Glaxo and Prosensa's failed phase 3 trial. Additionally, while patients in Glaxo and Prosensa's phase 3 trial showed excessive protein in their kidneys, there were no similar reports in eteplirsen's phase 2 trial.

Today, Sarepta updated data from its trial to reflect six minute walking test results at 144 weeks of treatment. The findings show that patients receiving eteplirsen could walk further than those on placebo, but that the distance had still declined from the initial baseline.

Investors seem to be interpreting that to mean that the drug isn't as good as they once hoped it might be, but the fact that there was a 75 meter walking distance treatment benefit in the current data suggests that investors may be over-reacting.

Getting crowded again
The FDA has not only indicated to Sarepta that it would still consider eteplirsen, but it's also said the same thing to Prosensa (GlaxoSmithKline shifted its rights to the drug back to Prosensa earlier this year).

That gives Prosensa an opportunity resurrect drisapersen, but since drisapersen and eteplirsen work similarly and target the same type of gene mutation found in just 15% of DMD patients, the two would have to face-off with each other in a very small market if both drugs are eventually approved.

PTC Therapeutics is also making its way to market with a DMD drug after winning the backing of a key European Union advisory committee earlier this year that could clear the way for an EU approval soon.

Fool-worthy final thoughts
There's no question that there is a dramatic need for DMD therapies; however, Sarepta's phase 2 trial is unquestionably small at a dozen patients. For comparison, Prosensa's drug was studied in 186 boys.

So while this data would seem to still support Sarepta's planned FDA application later this year, there's no telling what may happen in a larger confirmatory trial. Given that and the whipsaw nature of these stocks, I'm content to watch from the sidelines.

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