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The Good, the Bad, and the Ugly of a Competitor's Failure

http://www.fool.com/investing/general/2013/09/20/the-good-the-bad-and-the-ugly-of-a-competitors-fai.aspx

Brian Orelli
September 20, 2013

Prosensa (NASDAQ: RNA) blew up on Friday after announcing the failure of a phase 3 trial that its partner, GlaxoSmithKline (NYSE: GSK), was running on their Duchenne muscular dystrophy drug drisapersen.

Fellow Fool Keith Speights has a rundown of the data. Shade your eyes; it isn't pretty.

As is often the case in biotech, one drugmaker's loss is another drugmaker's gain. Sarepta Therapeutics (NASDAQ: SRPT), which is developing its own Duchenne muscular dystrophy drug, eteplirsen, is up big today. While I generally agree that this is good news for Sarepta, investors should realize this isn't as black and white as the double-digit gain would suggest.

The good: No more competition
Best case scenario, drisapersen is dead and Sarepta has the entire Duchenne muscular dystrophy market to itself. Worst case scenario, Glaxo figures out what the problem is, runs a second phase 3 trial, and Sarepta is either well ahead -- if the FDA gives eteplirsen accelerated approval -- or in the same time frame if the agency makes Sarepta run a phase 3 trial prior to approval.

If drisapersen had passed its phase 3, it looked like the best Sarepta could do was to launch at the same time as drisapersen, and if it had to wait for a standard approval, could have been a year or more behind. In that regard, drisapersen's failure is clearly good news for Sarepta in the long term.

The bad: Same fate?
Drisapersen has the same mechanism of action as eteplirsen. They work to restore dystrophin production by skipping the mutated exons in Duchenne muscular dystrophy patients. The question is whether the failure was a problem specific to drisapersen or with the mechanism.

At this point, it seems reasonable to assume that the issue is drisapersen-specific. Eteplirsen's phase 2 data generally look better than the phase 2 data for drisapersen, including better dystrophin production. With just a failure of just one exon-skipping drug, it seems unreasonable to make assumptions about the whole class.

Of course, if drisapersen had passed its phase 3 trial, the worry wouldn't be there, so we'll leave it in the bad category even if there's only a small chance of it being an issue.

The ugly: FDA unknowns
It's unclear how d