Last week, Sarepta Therapeutics (SRPT 1.72%) unveiled early stage data from trials evaluating a gene therapy for Duchenne muscular dystrophy, and the results were really impressive. Based on increases in micro-dystrophin production and decreases in markers of muscle damage, the company's plan to insert a gene in patients that produces dystrophin may help over half of those diagnosed with this devastating disease.

In this clip from Industry Focus: Healthcare, host Kristine Harjes and Motley Fool contributor Todd Campbell explain how Sarepta's approach could revolutionize treatment.

A full transcript follows the video.

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This video was recorded on June 20, 2018.

Kristine Harjes: We started the segment by talking about PTC Therapeutics' investors enjoying their start to the week after a nice pop. But that celebration was short-lived. The very next day, Tuesday, PTC fell 31% back to $33 per share, after Sarepta announced data for its gene therapy for a different indication called Duchenne muscular dystrophy, or DMD.

Todd Campbell: Right. One of the things we really didn't really talk about before when we were talking about PTC was that they already have a couple drugs on the market. Both of those drugs, though, are used in DMD. So, when Sarepta came out with their interesting news -- which we're going to tell you in a minute; again, this is pretty revolutionary and crazy science, too -- people started to think, "Well, maybe all of the revenue that we're currently getting right now from PTC could disappear in a few years if it moves over to Sarepta because of what Sarepta is doing now in terms of gene therapy."

The data that was released at Sarepta's investor day, their research day -- it was from a very limited group of people. I'm just going to say that straight out. There were only three people that we got information on. But, what they were able to show us was pretty remarkable, especially when you consider -- I mean, I don't want to say it's a very low bar for approval, but Duchenne muscular dystrophy, there really are not a lot of good treatment options out there. There really aren't any. There's Translarna, which is approved in Europe. That's the PTC drug. There's Exondys 51, which is the drug that Sarepta already has on the market. But in both of those cases, that only addresses about 10-13% of patients with this muscle-wasting disease. That's a big problem, because most of these patients tend to succumb to their disease by the time they're in their 30s.

Harjes: Yes. So, investors went pretty wild on Tuesday when this news came out. At its peak, the stock was up 68%. It simmered down to a gain of around 37% for Sarepta by the end of the day.

Like you said, Todd, this is pretty early stage. It was a Phase I/IIa trial, and it read out only about three patients. But, with those three patients, the drug -- which, I know we say all the time on this show that we can't pronounce these names, but this one is actually probably the most absurd name I've ever seen.

Campbell: [laughs] I'll give you an extra bonus if you tell everybody what it is.

Harjes: Sure. I'm just going to spell it -- AAVrh74.MHCK7.micro-Dystrophin. You can't even pronounce that! So, we're just going to call it "the Sarepta drug." Bear with me, apologies. Don't blame me, blame whoever decided on that.

Anyway, it significantly increased the level of the missing structural protein in those first three patients that were involved in the study. They also noted that the same patients all exhibited significantly lower serum creatine kinase levels following the treatment, which is pretty important because that enzyme is very strongly associated with the muscular damage that results from the progression of the disease.

It's early goings. From here, the study will eventually involve 12 total boys. It still won't have a control. Again, because it's early stage, the No. 1 thing we're looking for here is safety. But, as usual in early stages, when you see a great amount of efficacy, investors tend to get pretty excited.

If all goes extremely well -- and by that, I do mean flawlessly -- this therapy could hit the market within two years, which is pretty amazing. You can see just by the reaction of the scientists, too, that were working on this -- the guy that's leading the project, his name is Jerry Mendell, he noted, "If you were me, looking under the microscope, you would be so amazed you wouldn't sleep at night," which are pretty strong words. It really does show that there's a huge amount of potential for this drug in a disease that's very devastating.

Campbell: One of his comments was, "I've been waiting my entire 49-year career to find a therapy that dramatically reduces CK levels and creates significant levels of dystrophin." Here, he was able to work on this drug -- we'll call it the micro-dystrophin drug -- that does that. And, I think we need to see more data for durability and all this other stuff that goes into figuring out whether or not a drug can win approval. But, what's interesting about this is, remember that dystrophin itself -- which isn't produced in these patients, and that's why the muscles waste away, because you're not producing the dystrophin -- is too large to be able to deliver that gene into a patient's body using the technology that we have today, which are basically viral vectors or viruses that are turned off so that they can't infect you, but they can be used to deliver a new gene into the body. It's too big. So, what they had to do is, they had to take a look at the dystrophin gene and break it up into little chunks, and then pair up those or glue those chunks together again into a much smaller framework, which gives you the micro-dystrophin.

So, the question that I would have, then, is, we're seeing an increase in micro-dystrophin production. Would that result in the same kind of clinical benefit or clinical outcome as dystrophin itself? Maybe. Sure, right? Why not? The other part could be, what kind of a benchmark will the FDA want to see? Will they want to see that it's safe? So far, it looks like it's safe, that's great. When they looked at approving Exondys 51, they basically said, "Well, there's some improvement, even though it's very small, in dystrophin production." Will they also only need to have a small amount of improvement in micro-dystrophin production? Maybe, maybe not.

There could also be some issues tied to antibodies because of the viral vector that's used. They'll have to keep an eye on that. And, at this point, it doesn't look like you can have multiple doses of this. So, your question is going to be, after one dose, do you get the durability of effect out six months, 12 months, 18 months? What ends up happening?

Still, that being said, this is a pretty remarkable advance, and it certainly points you in the direction of thinking that other things that Sarepta is working on -- including things like CRISPR/Cas9, gene editing-type things -- could really reshape outcomes for these patients within the next five to ten years.

Harjes: And it's important to note, too, the historical context surrounding Exondys 51. There was quite a controversy about this drug getting approved. The expert panel that makes recommendations to the FDA recommended that the drug not be approved. And yet, there was one champion at the FDA that said, "I really do want to approve this drug." It was basically her pushing -- her name is Janet Woodcock -- it was her championing this drug that ended up getting the drug approved. Meanwhile, it wasn't approved in the E.U. It's only approved in the U.S.

It's ramped up pretty quickly. Sales in 2017 were $155 million, which isn't really a ton, but when you look at Q1 of 2018, sales were up 300% year over year. The drug is out there, and it's starting to gain market share. I think many people would probably look at that and assume that Sarepta has a fairly low bar to clear when it comes to proving the efficacy of these drugs. Again, that relates to just how devastating this disease is.

If you look at the story of Exondys 51's approval, a lot of it had to do with the patient population and the families of the people with the disease, they really rallied around somewhat anecdotal evidence that the drug was changing their lives. This could be something that you see play out again. I'll definitely be interested to watch it.

In the meantime, I have to imagine that the stock's going to continue to be incredibly volatile. As fool.com writer Brian Orelli put it in his article on PTC Therapeutics' pop and subsequent drop on Monday and Tuesday of this week, welcome to biotech investing. Buckle up. [laughs]

Campbell: [laughs] Absolutely! [...] are back. One of the things that's interesting, too, about Sarepta, and investors should bear this in mind -- I think the market cap is like $10 billion now, which is pretty crazy. I mean, that's 65X trailing 12-month sales. You're really banking on these next generation DMD therapies succeeding, getting approved, and not only that, but also racking up billions of dollars in sales.

A lot of things can and often do go wrong in biotech investing, so just make sure that, if this is something that's interesting to you, like anything else that we talk about on the show: diversify, diversify, diversify. Make sure it's part of a diversified portfolio. That way, if something does go wrong, you're not left with one stock that declines significantly in your portfolio.