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What: Sarepta Therapeutics (SRPT 5.86%) investors have been in a holding pattern since the FDA delayed a decision on the company's Duchenne muscular dystrophy (DMD) drug, eteplirsen. However, management updated investors on the company's financial condition this week, and investors exited the report increasingly hopeful for Sarepta Therapeutics' future. As a result, shares in Sarepta Therapeutics jumped by nearly 10% during the week.

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Awaiting a decision

In May, a key FDA advisory committee voted against the early approval of eteplirsen, determining that Sarepta's 12-person trial failed to adequately demonstrate eteplirsen's effectiveness.

However, industry-watchers have remained hopeful in spite of the rejection because the FDA doesn't have to follow the committee's advice, and key FDA leaders have indicated a willingness to bend the efficacy bar to get new DMD treatments to market.

DMD is a muscle wasting disease characterized by the inability to adequately produce dystrophin to support muscle development. While the disease is uncommon, there are limited treatment options for DMD patients, and most end up succumbing to their disease before they reach their 40s.

The FDA hasn't said how long they'll take before issuing a decision on eteplirsen, but following their decision to delay a determination, they requested information regarding dystrophin levels in DMD patients. Ostensibly, if data provided to the FDA by Sarepta Therapeutics supports eteplirsen's positive impact on dystrophin, then it could tilt the balance in favor of an approval.

Firming financials

Sarepta Therapeutics is a clinical-stage company and its research and development program costs tens of millions of dollars every quarter. As a result, investors remain concerned that a FDA no-go decision could significantly delay any chance at profitability, and conceivably could lead to a dangerous drawdown in Sarepta's cash position.

Fortunately, management recently took advantage of a June rally in shares to conduct a secondary stock offering that has improved Sarepta's financial situation. Specifically, the company sold $37.5 million in stock and as a result, its cash stockpile finished June at $134.7 million.

That extra cash is likely to come in handy. Sarepta's R&D expenses were north of $40 million last quarter, and it spent another $18 million on general and administrative expenses. Overall, the company lost $62 million last quarter.

Looking forward

It's anyone's guess what the FDA will decide, but the risk of a rejection is high. The FDA is basing a decision on eteplirsen on a small patient pool, and even though there's a big unmet need for new therapies, regulators may not want to risk setting a precedent of approving a medicine with unproven efficacy.

If the FDA does opt to reject an early approval of eteplirsen, Sarepta will need to either conduct a larger, more expensive late-stage confirmatory trial, or shelve eteplirsen to develop other drugs. If it decides to shelve eteplirsen, then investors could end up waiting a while for other pipeline candidates to advance to commercialization. The company's most advanced studies other than eteplirsen are vaccines for Ebola and Marburg, and those studies are only in phase 1 trials.