Biotech stocks are often challenging for investors to evaluate without having a full scientific context, and Sarepta Therapeutics (SRPT 1.08%) is no exception. With multiple successful products on the market but no profits to speak of, it's a bit of an oddity -- but keen investors recognize that weirdness is often the first sign of an untapped opportunity.
So, with that idea in mind, let's examine three other tidbits that smart investors know about this company.
1. It has three different technology platforms
Sarepta aims to develop advanced therapies for rare diseases, especially for Duchenne muscular dystrophy (DMD), which is its focus. DMD only affects 1 out of 3,500 male newborns worldwide, and it's a hereditary degenerative disease that quickly takes a serious toll on patients.
Like most biotechs, the company is testing a number of different approaches to see which works the best. It has four medicines for DMD on the market and five candidates in pre-clinical studies or clinical trials. But unlike its peers, Sarepta is going big on technology development to the point where it has more than one platform to work with, which is something that smart investors appreciate.
In fact, it has three platforms, two of which are proven in the sense that they've produced therapies that are approved for sale today. One platform seeks to use a technique called exon skipping to enable a patient's cells to temporarily work around specific detrimental mutations, enabling the production of healthy proteins for a time. Another is a gene therapy technique that adds copies of synthetic genes to replace the patient's missing or malfunctioning copies of those genes, potentially leading to long-term benefits.
The third platform is based on using gene editing technology to remove certain mutations to restore functionality to the gene they're in, which could be curative -- but the only therapies in development using the approach are in pre-clinical studies at present.
The presence of multiple platforms has a few implications. The most important implication is that Sarepta has more than one way to try to crack difficult technical problems like treating DMD, so in the long run, its chances of success with drug development are higher. Most biotechs do not have a single platform that's demonstrated to work, never mind two.
Another implication is that its research and development (R&D) costs are likely to consistently run higher as a proportion of its revenue than competitors with leaner operations.
2. It's only early days in penetrating its key market
Wise investors see that Sarepta's strategy of owning the entire market for DMD is just picking up speed. With its three commercialized exon-skipping therapies, the company estimates that it's reaching around 30% of the DMD market in the U.S. In the future, that figure could be even higher. However, clever investors also know that the process will take a lot of time.
One of the key properties of DMD as a hereditary illness is that it can be caused by mutations at a few different locations in the patient's dystrophin gene. That means the company can't develop a one-size-fits-all therapy and expect it to work for all patients.
While it doesn't need to go back to the drawing board to make a drug for each and every possible mutation, as its therapy platforms can be tweaked to operate at a different location in a gene without an abundance of additional manufacturing effort, the fact that each of its candidates needs to be tested in a specific patient population is a significant complicating factor.
In short, activities like clinical trial recruitment, which are already challenging in the context of rare diseases, are at a high risk of taking far longer than anticipated, which is something that smart investors take into account when considering whether to buy the stock.
3. It could become profitable soon
Finally, smart investors recognize that Sarepta could soon be consistently profitable for the first time ever.
Thanks to the launch of Elevidys in the third quarter, which brought in more than $69 million in the period, the company only reported operating losses of $21 million, down from $133 million in the prior quarter. Elevidys' sales are likely to continue to ramp up sharply for at least another year and a half or so. It's already profitable on a non-GAAP (adjusted) basis, and generally accepted accounting principles (GAAP) profitability is likely right around the corner.
Reaching profitability will demonstrate that its business model of focusing on rare diseases like DMD is viable, so it could be a decent catalyst for its share price as well.
