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Why Sarepta Therapeutics' Shares Are Skyrocketing 25% Today

By Todd Campbell – Sep 14, 2016 at 12:34PM

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The departure of a critic of its Duchenne muscular dystrophy drug from the FDA is sparking optimism that an approval may be forthcoming.

Image source:Getty Images.

What happened

Optimism that the departure of Ronald Farkas from the FDA will clear a path to an important drug approval has sent Sarepta Therapeutics' (SRPT -1.54%) shares soaring 25% as of 12:15 p.m. EDT.

So what

In April, a key FDA advisory committee opted against recommending eteplirsen for early approval for the treatment of Duchenne's muscular dystrophy, or DMD, a life-shortening muscle-wasting disease.

Farkas served as the FDA's cross-disciplinary team leader in reviewing Sarepta Therapeutics' eteplirsen application data. In the FDA's advisory committee briefing document, Farkas wrote, "Although approvability of a drug reflects a benefit-risk assessment, the decision about approvability is necessarily stepwise, requiring first that the drug be found effective, prior to consideration of benefit-risk."

After listening to presentations from both the FDA and Sarepta Therapeutics, and weighing eteplirsen's pros and cons, the committee voted 7 to 6 that there was inadequate evidence that eteplirsen induces dystrophin production to levels likely to predict a clinical benefit, and 7 to 3 that results from a single historically controlled trial showed eteplirsen to be an effective DMD therapy. 

Now what

The FDA doesn't have to follow the committee's advice, and after the committee's vote, the FDA decided to postpone a decision on eteplirsen indefinitely while it collects and debates more information.

Ostensibly, Farkas' belief that efficacy should be considered prior to benefit and risk considerations suggests that he might have been one of the least likely committee members to favor eteplirsen's approval. If so, his leaving could make it easier for Sarepta Therapeutics to argue that the benefit-to-risk implications that the drug's approval hinges on are favorable.

That may or may not be true, given that Farkas hasn't been the only person to express doubt about eteplirsen's efficacy.

Overall, an approval of eterplirsen would be important because Sarepta Therapeutics is spending a lot of money every quarter on research and development, as well as on selling, general, and administrative expenses, and it could use some revenue to offset its cash burn. Given the uncertainty of an FDA decision and Sarepta Therapeutics' current valuation, investors should approach this stock cautiously.

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. Like this article? Follow him on Twitter where he goes by the handle @ebcapital to see more articles like this. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Stocks Mentioned

Sarepta Therapeutics Stock Quote
Sarepta Therapeutics
$121.06 (-1.54%) $-1.90

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