Forget Sarepta Therapeutics, This DMD Stock Could Be A Better Buy

Image source: PTC Therapeutics

The pending FDA decision on Sarepta Therapeutics' (SRPT 0.14%) eteplirsen, a drug designed to treat Duchenne muscular dystrophy, is taking the company's shareholders on a roller coaster ride, but PTC Therapeutics (PTCT -2.27%) may make more sense for most investors to buy now.

Market presence

While Sarepta Therapeutics is trying to get eteplirsen approved, PTC Therapeutics has already won conditional approval in Europe for its DMD drug, Translarna.

Although PTC Therapeutics' application for approval got rejected earlier this year by the FDA, EU regulators gave Translarna the nod in 2014, and its sales have been growing rapidly ever since.

Translarna sales were $33.7 million last year, and they hit $18.9 million in the first quarter of 2016. That Q1 sales performance was a 49% increase from the fourth quarter, and it puts Translarna on a trajectory to deliver on management's guidance for full-year sales of at least $65 million.

Sales of Translarna could continue climbing if PTC Therapeutics negotiates pricing deals with additional EU member countries, and in other markets, such as the Americas. In April, the U.K.'s National Institute for Health and Care Excellence (NICE) recommended Translarna for ambulatory patients aged five years and older with nonsense mutation DMD. Assuming final contract negotiations go off without a hitch, Translarna sales could begin in the U.K. soon.

Additionally, the door may still be open for Translarna's eventual use in the United States. On the company's first quarter conference call, CEO Stuart Peltz indicated that management is still chatting with the FDA about the drug.

Even if Translarna can't secure approval in the U.S., there's enough potential growth in other markets to drive PTC Therapeutics' revenue higher. As of January, Translarna was being used to treat 206 patients and management estimates that the target market for ambulatory DMD patients outside the U.S. is 2,000 patients.

Also, Translarna is being studied in an ongoing phase 3 study in cystic fibrosis patients with nonsense mutations. If that study pans out, it could open Translarna up another 4,000 patients outside of the United States, or 14,000 patients globally.

Meanwhile, Sarepta Therapeutics came away from April's FDA advisory committee with anything but a surefire lock on U.S. approval. After considering eteplirsen's pros and cons, the committee voted 7 to 6 against early approval. 

There's still a possibility that the FDA will diverge from the committee's vote when it issues its official decision on May 26, but that's something of a long shot.

Firmer financials

Researching cures for rare diseases is costly, and the operating expenses at both of these companies are high enough to call into question when (or if) they'll become profitable.

That being said, PTC Therapeutics appears to have an edge over Sarepta Therapeutics by virtue of being on firmer financial footing.

PTC Therapeutics exited March with $299 million in cash on its books. Despite guidance that it will spend at least $185 million this year, management still thinks it will have about $200 million in cash on hand at the end of 2016.

For its part, Sarepta Therapeutics spent $38.8 million on R&D and another $20.9 million on general and administrative expenses last quarter, and that caused cash to fall from $192 million in December to $129 million exiting March. That's some serious cash burn -- especially since its expenses will increase regardless of how the FDA decision unfolds later this month.

If the FDA gives Sarepta Therapeutics the go-ahead on eteplirsen, the company will probably have to conduct a pricey confirmatory trial and fund launch expenses. If it rejects eteplirsen, then Sarepta would need to conduct an expensive phase 3 study in order to get the data that might allow it to refile for approval later. Or the company might shelve the drug to focus on other prospects. In any of those scenarios, a dilutive stock offering is more likely at Sarepta Therapeutics than it is at PTC Therapeutics.

Looking ahead

PTC Therapeutics holds important advantages over Sarepta, but it's far from a risk-free investment.

Translarna's conditional EU approval means that the drug gets reviewed annually by regulators. If they don't like what they see, they could revoke the treatment's access to the market. If that were to happen, it would significantly change the financial picture for PTC Therapeutics.

Nevertheless, PTC Therapeutics' potential to keep its drup on the market overseas and to eventually expand into treating cystic fibrosis makes it more intriguing to me than Sarepta Therapeutics, especially since PTC Therapeutics market cap is only $223 million, or less than a third of Sarepta Therapeutics $797 million market cap. In either case, investors will need to watch these stocks very closely. Sarepta Therapeutics decision date is fast-approaching and a go-ahead could cause shares to soar. Meanwhile, the EU's review of Translarna is coming up, and that outcome could be a needle-mover too.