It's been a long and winding road for investors in Sarepta Therapeutics (SRPT 3.11%), but shareholders who stuck with the company through thick and thin finally have been rewarded for their patience.
In a move that stunned the markets, the Food and Drug Administration announced Monday that it had granted accelerated approval to Sarepta's drug, eteplirsen, as a treatment for Duchenne muscular dystrophy (DMD). Shares have skyrocketed on the news, and since this is the first and only treatment for DMD to reach the market in the U.S., expectations are running high.
So is right now a good time to consider buying shares?
First, some history
Patients with DMD have a rare genetic abnormality that prevents them from properly producing a protein called dystrophin, which is crucial to keeping muscle cells intact. Without proper levels of dystrophin, a patient's muscles start to waste away, eventually causing them to lose the ability to perform basic activities. Over time the disease can become life-threatening, and many patients with DMD don't live past age 30.
The huge unmet medical need for a DMD treatment led several different companies to have a go at developing one, and in the last 12 months, several of them have gone under the FDA's microscope.
Late last year, BioMarin Pharmaceutical (BMRN 1.80%) filed a new drug application with the FDA for drisapersen. Unfortunately for that company's shareholders, the FDA wound up rejecting it outright in January.
PTC Therapeutics (PTCT 1.84%) also made an attempt in early 2016 with a drug called Translarna. Many believed that Translarna stood a better-than-average chance of winning U.S. approval since it was approved for sale in the EU. However, those hopes were dashed when the FDA sent the company a "refuse to file" letter stating the the application wasn't complete enough to perform a review.
With BioMarin Pharmaceutical and PTC Therapeutics out of the way, Sarepta Therapeutics' eteplirsen was the last drug standing. However, during the drug's FDA advisory committee review in April, the panel of experts voted against recommending an approval by a margin of 7 to 6. In response, the agency delayed its approval decision, and asked the company for more clinical data.
Winning the green light
The FDA had never officially set an updated target decision date, so patients and investors were left in the dark about when an official ruling might come. Thus, when the agency issued its ruling, it truly took the markets by surprise.
The agency officially approved the sale of eteplirsen -- to be marketed as Exondys 51 -- for use in patients who have a confirmed mutation of the dystrophin gene amenable to exon 51 skipping. It is estimated that about 13% of patients with DMD fit that description, which is about 1,400 patients in the U.S.
Better yet, in addition to giving the drug a thumbs up, the FDA also issued Sarepta a rare pediatric disease priority review voucher, which allows Sarepta to cut the FDA review time of another one of its drugs to six months from the standard 10 month period. The company also could sell the voucher on the open market, a potentially profitable option; last year, such a voucher sold for $350 million.
Of course, it's worth pointing out that this FDA's approval requires Sarepta to conduct a follow-on study to confirm that Exondys 51 does improve motor function in patients with DMD. If the company fails to do so, then the FDA retains the right to remove Exondys 51 from the market.
In response to the news, Sarepta announced that it will launching Exondys 51 for sale "immediately."
Are shares a buy?
Management has stated that Exondys 51 will sell for roughly $300,000 per year. Based on that price level, Exondys 51 should generate global peak annual sales of over $1 billion. If that figure proves to be accurate, then Sarepta's current share price in the neighborhood of $56, giving it a market cap of around $2.7 billion, still looks to be an attractive entry point.
However, while I'm thrilled for Sarepta's shareholders and the DMD community at large, I continue to believe that there's still too much risk to warrant an investment. After all, the phase 2 data that was used to win approval was far from perfect, so there's a very real risk that the FDA will reverse its decision down the road.
Thus, while I'm keeping my fingers crossed that Exondys 51 proves to be the real deal, I continue to believe that the smart plan is to cheer Sarepta on from the sidelines.