You might think that a biotech with a recent FDA regulatory win would automatically be a better investing pick than another biotech with no approved products. That's sometimes the case, but not always. Sarepta Therapeutics (NASDAQ:SRPT) now has an FDA-approved drug, while Alnylam Pharmaceuticals (NASDAQ:ALNY) doesn't and even recently experienced major clinical setback. But which of these two biotech stocks is actually the better buy?
The case for Alnylam
Alnylam's development program focuses on a rare genetic disease called hereditary ATTR amyloidosis. This disease affects an estimated 50,000 patients across the world. The only approved treatments are liver transplantation and Pfizer's Vyndaqel, which won regulatory approval in Europe, Japan, and some Latin American countries but failed to secure FDA approval.
Until recently, Alnylam had two hATTR drugs in late-stage development, patisiran and revusiran. Initial phase 2 results for both drugs were encouraging, showing evidence of improvement or no change in the mean neuropathy impairment score, a measure of the severity of a peripheral nerve disease.However, Alnylam announced that it was discontinuing development of revusiran on October 5 after patient deaths were reported. The company stated that this setback doesn't impact development of patisiran, though.Alnylam expects to report results from the phase 3 study of patisiran in mid-2017.
Peak annual sales for patisiran are expected to top $750 million, assuming the drug wins regulatory approval. Alnylam wouldn't get the entire amount, though, even if all goes well. The biotech licensed some marketing rights for both patisiran and revusiran to Sanofi.
In the meantime, Alnylam looks to be in good financial shape for a clinical-stage biotech. The company reported cash, cash equivalents and marketable securities, and restricted investments of $1.28 billion as of June 30, 2016. Alnylam expects to finish the year with at least $1 billion in cash.
The case for Sarepta
Sarepta Therapeutics has managed to accomplish what no company has done before: win approval for a Duchenne muscular dystrophy (DMD) drug. The rare disease affects around one in every 3,500 to 5,000 males born across the world.
That regulatory win for the drug, Exondys 51, didn't come easy. An FDA advisory committee voted against recommending approval of the drug, and the decision caused a huge disagreement within the FDA. Although the FDA did ultimately approve Exondys 51, additional confirmatory testing is required.
Sarepta surprised many observers by announcing a price tag for Exondys 51 that amounts to around $300,000 per year. As big as that number might seem, it's actually lower than what was expected. Given this pricing, the drug could bring in close to $850 million annually at its peak.
As Exondys 51 only treats a small fraction of DMD patients, Sarepta's pipeline also includes a couple of other drugs targeting different subsets of the DMD population. In addition, Sarepta has early stage development in progress for three anti-viral drugs.
At current share prices, Sarepta's market cap stands at $3.3 billion. If Exondys 51 performs as well as anticipated, the stock seems to be attractively priced. Indeed, it wouldn't be a shock if a larger drugmaker decided to buy Sarepta.
In my view, the choice between Alnylam and Sarepta comes down to math. Alnylam's lead drug patisiran is expected to generate less revenue than Sarepta's Exondys 51 -- plus Exondys 51 is already approved. Meanwhile, Sarepta's market cap is well below Alnylam's. I think the better buy, therefore, is Sarepta.
Sarepta does have risks. There's a possibility that the additional testing won't be enough to maintain FDA approval. But in a binary decision between these two biotechs, Sarepta is the winner -- especially in light of Alnylam's setback with revusiran.