Why Sarepta Therapeutics Inc. Stock Collapsed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Sarepta Therapeutics (NASDAQ: SRPT  ) , a clinical-stage biopharmaceutical company primarily focused on developing therapies to treat Duchenne muscular dystrophy (DMD), tumbled as much as 28% after the company reported fresh data at the 144-week mark for its phase 2b long-term study involving eteplirsen for DMD.

So what: Two factors are playing into today's monstrous stumble in Sarepta shares. First, the data showed that patients treated with eteplirsen experienced an average decline in walking ability (based on the six-minute-walk-test (6MWT) of 33.2 meters from baseline. By comparison, a statistically significant benefit of 75.1 meters was observed relative to the placebo group. Despite the statistical significance, this was a marked drop-off from the 13.9 meter decline noted at the 120-week mark in January. Even though the benefit between eteplirsen and the placebo grew wider (which would be construed as a good thing), the more than 19-meter decline in a 24-week assessment period could place a cap on eteplirsen's benefit period.

Secondly, an article published, and since corrected, by The Wall Street Journal implied that Sarepta would delay the filing of its new drug application based on today's data. This actually wasn't the case as Sarepta's press release notes that it remains on track to file its NDA before the year is out and will use this additional phase 2b data from the 144 week mark as further evidence to eteplirsen's efficacy.

Now what: It's not hard to understand why investors have been so hypercritical of Sarepta considering the failure of Prosensa's drisapersen in a previous phase 3 study after it performed so well in a prior phase 2 study. This big concern from today's data is merely whether or not there's a time benefit limit for eteplirsen. Either way it would appear that investors are generally overreacting to today's news as the data thus far has demonstrated a statistically significant benefit to placebo with a favorable risk profile. Of course, that doesn't mean eteplirsen will be approved by the Food and Drug Administration, which has expressed skepticism that increased dystrophin production can be a viable efficacy endpoint. Still, I remain slightly more optimistic than pessimistic at the moment and expect Sarepta to file its NDA before the end of the year.

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