Wave Life Sciences (WVE +3.68%) and Sarepta Therapeutics (SRPT +2.92%) are both riskier than the typical biotech, even when considering their stage of maturity. But with more uncertainty often comes more upside for risk-tolerant investors, and both companies are without a doubt on the very forefront of medicine, pushing the envelope beyond what was previously possible.
Still, there's a clear winner here from an investment perspective, so let's analyze which is the better biotech stock so that daring investors will know which one to buy.
NASDAQ: WVE
Key Data Points
Wave's lead program could soon be a contender for market share
Wave is a genetic medicine-focused biotech that doesn't yet have any products on the market. But its phase 2 program for Duchenne muscular dystrophy (DMD) could be a winner, on the basis of the company's latest data update.
In case you're not familiar, DMD is a heritable, degenerative, and fatal disease affecting the muscle fibers, and it predominantly afflicts boys. The root cause of the disease is that due to a mutation in the patient's DNA, the patient's muscle cells do not produce a sufficient number of functional copies of the dystrophin protein, which is critical for their proper functioning.
So a key metric for genetic therapies for DMD is the percentage of functional dystrophin that a patient's muscle cells produce after treatment.
On Sept. 24, Wave reported some interim data from a phase 2 trial indicating that patients treated with its candidate for 24 weeks experienced, on average, muscle dystrophin content that was 5.5% of average healthy levels. That might not seem like much -- and it probably is not sufficient to restore patients to normal health, nor sufficient to prevent the disease's progression -- but compared to having zero dystrophin, it's a big improvement, and it could meaningfully prolong patients' lives.
Wave will report the full results of the trial in early 2025, and it'll also see if regulators at the Food and Drug Administration (FDA) are willing to give it the right to seek an accelerated approval. It already has a Rare Pediatric Disease designation, so the odds are in its favor, and attaining another designation would be a positive catalyst for its stock.
In terms of its balance sheet, it has $154 million in cash, cash equivalents, and short-term investments, and it just raised another $200 million in gross proceeds via a stock and pre-funded warrant offering. As its trailing-12-month operating expenses are just over $193 million, it should have enough cash to commercialize its DMD program whether or not it gets the designation it's seeking from the FDA.
NASDAQ: SRPT
Key Data Points
Sarepta's recent progress is at risk
In contrast to Wave, Sarepta already has several therapies for DMD on the market, which is how it brought in trailing-12-month net income of slightly more than $47 million. It also has a few more programs for DMD in its pipeline, though only one is clinical-stage.
On paper, that makes Sarepta a safer investment than Wave as it's established in its market and very unlikely to go out of business anytime soon. But having drugs on the market hasn't led to consistent profits yet; in the last five years, it only reached a positive trailing-12-month operating margin in the most recent quarter.
One recent catalyst that's being assumed as the cause for that growth, aside from margin improvements, is the FDA's assent to its petition for the expansion of the approved indications for its gene therapy for DMD called Elevidys. It'll now be marketable to a slightly larger patient population, increasing its addressable market.
Furthermore, sometime before the close of 2025, Sarepta will experience a catalyst in the form of a decision from regulators in the European Medicines Agency (EMA) regarding whether to approve Elevidys there. If the EMA gives the company the green light, it'll be a big expansion to its addressable market.
But Sarepta might struggle to get European regulators onboard despite the positive rulings of the FDA. In early 2024, the EMA opted not to renew a conditional approval of a therapy for DMD made by another biotech because the regulators didn't see the evidence for its efficacy as being ironclad. Similar concerns have been raised in the U.S. about Elevidys' efficacy by researchers at the prestigious Brigham and Women's hospital, one of whom was a regulator at the FDA.
In short, there is a distinct risk that shareholders will get a nasty shock if the EMA dissents from the FDA's decision regarding whether the company can commercialize its gene therapy in the E.U., and it might even result in reopening the case for its continued approval in the U.S. in a worst-case scenario. So, even if Sarepta has a clear pathway to continue adding to its revenue and earnings, it also needs to avoid a few big pitfalls to make it worthwhile for investors.
Go for the riskier option here
Despite being significantly riskier overall, Wave Life Sciences offers a better balance of risk to expected returns than Sarepta Therapeutics does at the moment. While Sarepta's portfolio of therapies for DMD position it as the market's leader in that segment, the fact that it's already established puts a cap on how much it stands to grow in the near term by commercializing new medicines, and the ongoing regulatory risks can't be ignored.
Of course, Wave could fail to bring anything to the market, thereby devastating the value of its stock and leaving it with a financial crunch. But if it succeeds with even one program, proportionally it'll experience vastly more growth than Sarepta could with the same accomplishment. And given the significant difficulty of developing drugs for DMD, even for a company that already did it successfully several times, it wouldn't make much sense to take on the risk exposure of Sarepta when the returns would be inherently lower.
