Over the past couple of weeks, the market has shaved a few billion dollars from Sarepta Therapeutics' (SRPT 1.88%) market value, thanks to a pair of upsetting developments.
Has this former top-performing biotech stock been beaten down too far, or should investors remain braced for more losses ahead? Here's what you need to know.
Sarepta's approved treatment, Exondys 51, racked up $181.7 million in sales during the first half of 2019, despite being limited to around 13% of those with Duchenne muscular dystrophy (DMD). Unlike Exondys 51, SRP-9001 is capable of treating the entire DMD population, which could drive annual sales past the $1 billion mark in a few years.
On Aug. 8, Sarepta stock tanked after SRP-9001, a still-experimental gene therapy candidate, showed up on a system the Food and Drug Administration (FDA) uses to track dangerous side effects associated with drugs that have already been approved. Apparently, a boy in a clinical trial with Sarepta's experimental gene therapy excreted a lot of creatine kinase, which can lead to permanent kidney damage.
The stock plunged further after the FDA sent Sarepta a complete response letter (CRL) regarding a completely different new drug candidate called golodirsen, or Vyondys 53. This exon-skipping treatment would have been the first available treatment option for around 8% of the DMD population. Instead of a new revenue stream in 2020, Sarepta will have to address the agency's concerns.
According to Sarepta, the FDA had already worked with the company to hammer out an official drug label for Vyondys 53, so the agency's CRL came as a complete shock. Also according to Sarepta, the letter generally cites just two concerns that must be addressed before the agency will consider reviewing the application: the risk of infections related to intravenous infusion ports that deliver Vyondys 53, and signs of kidney damage observed during non-human studies.
With respect to the company's experimental gene therapy, SRP-9001, the reported adverse event involved a patient who had dark-colored urine and elevated levels of creatine phosphokinase two weeks after receiving the experimental gene therapy. The patient was hospitalized for observation and discharged the following day.
Reasons to be nervous
Analysts who had confidently predicted an approval for Vyondys 53 initially considered the FDA's surprise response an act of pure spite. In 2016, the agency approved Exondys 51 despite a lack of credible evidence that the treatment provided a significant benefit. Although Sarepta agreed to perform a confirmation study to maintain the drug's approval, Sarepta has hardly started yet.
It's extremely unlikely that pure emotion was responsible for the FDA's rejection of Vyondys 53's application for accelerated approval. A randomized, placebo-controlled study with golodirsen is ongoing, and there's a good chance the FDA is simply waiting for outcome measurements that show a significant benefit. In other words, the agency probably wants to see evidence that one of Sarepta's exon-skipping DMD drugs actually slows down the progression of DMD. Sarepta has claimed the agency hasn't been clear about what a confirmatory study for Exondys 51 should look like, but investors are beginning to think the company's dragging its feet out of fear that it doesn't actually work.
It's also important to note that the agency may have cited more reasons that we'll never hear about, because most communication with the FDA is considered confidential and not subject to disclosure. According to Sarepta, the agency generally cited two minor concerns -- infections that are extremely common whenever children have infusion ports, and signs of muscle and kidney damage strongly associated with their disease.
The issues Sarepta described might hold up approval of a drug to be taken by millions of people who are generally healthy, but DMD is a rare and fatal disease. Moreover, Vyondys 53 is aimed at patients without any treatment options right now. The agency has usually been quick to grant accelerated approvals in these situations, which makes it hard to believe the CRL didn't highlight more pressing concerns.
Reasons to relax
Creatine phosphokinase is an enzyme that escapes damaged muscle tissue and floods the bloodstreams of DMD patients every time they move. The company didn't report the adverse event, and neither did the investigators in charge of the placebo-controlled study with SRP-9001, partly because there's a good chance the patient who presented the problem received a placebo.
There's still a lot that can go wrong for SRP-9001, but it appears Sarepta could have a leg up on a potential rival that Pfizer's (PFE -0.04%) developing. A handful of side effects observed in a trial with the pharma giant's DMD candidate this summer may have opened the door a little wider for Sarepta.
A buy now?
In 2016, FDA staff unhappy with the accelerated approval of Exondys 51 highlighted the fact that such approvals are almost never overturned. While the agency might be able to get away with pulling a cancer drug that fails confirmatory studies, there are plenty of available cancer drugs. When there's just one available treatment, as is the case with Exondys 51, post-marketing studies to confirm a benefit can be delayed for the drug's entire period of market exclusivity.
Unfortunately for bargain shoppers, Sarepta's still trading at around 19 times trailing sales when the average biotech stock usually trades at a mid-single-digit multiple of total revenue. Sarepta's situation isn't as dangerous as it could be, but the stock still isn't worth the risk at recent prices.