Snag a much-needed Food and Drug Administration approval? Check. Increase the company's market cap by over 120% in a matter of days? Check. Sarepta Therapeutics (NASDAQ:SRPT) managed to do both, thanks to a stunning regulatory win for Duchenne muscular dystrophy (DMD) drug Exondys 51. Removed risk for investors? Check back later.
The reality is that there's still significant risk for Sarepta and its shareholders. How can that be with Exondys 51 cleared to go to market?
Approval with an asterisk
Buried in the midst of the great news about the FDA's accelerated approval of Exondys 51 were these two sentences: "A clinical benefit of Exondys 51 has not been established. Continued approval for this indication may be contingent upon verification of a clinical benefit in confirmatory trials." That's no ringing endorsement for the DMD drug.
The FDA advisory committee that reviewed Exondys 51 didn't endorse it, period. The Peripheral and Central Nervous System Advisory Committee voted six to seven against the finding that Exondys 51 induces production of dystrophin to a level that is reasonably likely to predict clinical benefit. The committee voted three to seven against the finding that Sarepta's drug is effective for treatment of DMD.
Exondys 51 still obtained accelerated approval, though, thanks to intense lobbying from the DMD patient community and support from the FDA's Dr. Janet Woodcock. That approval came with the asterisk of more confirmatory testing needed. Sarepta is working with the FDA to define the testing protocols required to obtain a full-blown approval. Although the biotech has a couple of clinical studies in the works already, the FDA could require even more testing.
To say that there are serious doubts about Sarepta's drug is an understatement. In his objection to the approval of Exondys 51, the FDA's Dr. Ellis Unger called the drug "essentially a scientifically elegant placebo." Unger went on to warn that accelerated approval would give patients "a false perception" that Exondys 51 is effective.
And skepticism isn't just reserved to the efficacy of Exondys 51. Only a few dozen patients have been treated with the drug so far. As a result, its safety profile isn't well defined. There is a possibility that toxicity could be identified as more patients take Exondys 51.
Dr. Unger's concerns go beyond this one drug approval. He maintained that "accelerated approval [of Exondys 51] would lower the evidentiary standard for effectiveness to an unprecedented nadir." This stance stemmed from Unger's view that the scientific grounds for approving Sarepta's DMD drug were so weak that if the same level of evidence was used in the future, many totally ineffective drugs would be approved by the FDA.
A rival rising from the ashes?
There is also another threat for Sarepta unrelated to whether or not Exondys 51 should have been approved. Biomarin (NASDAQ:BMRN) isn't giving up on laying claim to part of its rival's profits.
Biomarin attempted to win FDA approval of its own DMD drug, Kyndrisa, earlier this year. The company also recently lost a patent trial to Sarepta. That didn't end the biotech's quest to become a winner in the DMD market, though. Biomarin plans to appeal the ruling of the of the United States Patent and Trademark Office's Patent Trial and Appeal Board rulings in favor of Sarepta.
The good news for Biomarin is that it already won a prior U.S. patent skirmish with Sarepta over the method of use of exon 51 skipping antisense oligonucleotides to treat DMD. Biomarin has also won a patent decision in Europe.
Edward Kaye, Sarepta's interim CEO and chief medical officer, said he thinks his company will ultimately prevail and preserve its patent protection for Exondys 51. Biomarin begs to differ. The final decision from its appeal should be handed down in late 2017 or early 2018. If Sarepta loses, some of the dollars that the company is counting on making will go to its rival.
Many DMD patient advocates worked hard to lobby the FDA to approve Exondys 51. I don't blame them. After all, DMD is a horrible disease with no cure. Any hope is better than none for those who are suffering and for their loved ones.
Investing in Sarepta is a separate matter altogether, though. Granted, everything could go fine. Further testing could demonstrate the efficacy and safety of Exondys 51. Biomarin could lose its patent appeal. However, Sarepta still has significant risks ahead. Buyer beware.