The word "revolutionary" sometimes gets thrown around a lot, but it certainly applies to Sarepta Therapeutics (SRPT 4.81%). This midcap biotech company has developed several treatments for Duchenne muscular dystrophy (DMD) -- even earning approval for the first gene therapy for the rare genetic illness.
However, none of that has done much to help Sarepta Therapeutics' stock performance this year, as it has severely lagged the broader market. Still, there are excellent reasons to remain optimistic about the company's future. Let's take a look at them.
It hasn't been smooth sailing
DMD is a progressive disease that affects patients' muscles. Sarepta currently has four approved products, all targeting this condition. However, the company has encountered several clinical and regulatory issues this year that explain its poor performance.
First, the U.S. Food and Drug Administration (FDA) delayed the approval of Sarepta's gene therapy for DMD, Elevidys, a one-time treatment that targets the underlying causes of the disease. It earned the green light eventually, but biotech investors don't like such delays.
NASDAQ: SRPT
Key Data Points
Second, although Sarepta is seeking to earn a label expansion for Elevidys in treating patients aged four to seven (it is currently approved for those between the ages of four and five), it hit a severe obstacle along those lines. The biotech recently reported that a phase 3 study to that effect failed to hit its primary endpoint.
Sarepta still plans on requesting a label expansion for the medicine, explaining that Elevidys hit all secondary endpoints in the study and regulators in the U.S. are open to the possibility. Still, with an additional approval now a bit uncertain, it's no surprise that investors reacted by selling off Sarepta Therapeutics' stock.
Why Sarepta Therapeutics is still a buy
Despite challenging news on the clinical and regulatory fronts, Sarepta Therapeutics' financial results continue to move in the right direction. In the third quarter, the company's revenue of $331.8 million increased by about 44% year over year. Sarepta remains unprofitable, but the bottom line improved as well -- it reported a net loss per share of $0.46, substantially better than the net loss per share of $2.94 recorded in the year-ago period.
Sarepta Therapeutics also ended the period with $1.8 billion in cash, equivalents, and restricted cash, compared to $2 billion as of the end of 2022. Importantly, the small biotech has partnered with Switzerland-based pharmaceutical giant Roche to develop Elevidys. Between that and its healthy cash balance, funding shouldn't be too much of a problem.
Finally, the company has over 40 pipeline programs, including more potential DMD therapies. Although Elevidys' failure to hit its primary endpoint in its latest phase 3 study was a setback, Sarepta Therapeutics' well-established innovative ability is a major strength that should help it develop and market newer and better treatments. Further, as the biotech noted, Elevidys could still earn the label expansion it seeks.
And if it does, Sarepta has estimated that it could hit peak annual sales of about $4 billion. In my view, there is still a good chance it will cross this regulatory hurdle. There aren't dozens of therapies for DMD around, and the FDA tends to be slightly more forgiving when considering medicines that target rare diseases with few effective treatments.
However, even if the regulatory agency decides not to approve it, Sarepta's existing lineup and deep pipeline should lead to more products and stronger financial results down the road. Biotech investors focused on the long game should seriously consider adding shares of Sarepta Therapeutics to their portfolios.
