Sarepta Therapeutics (NASDAQ:SRPT) was on fire in 2012, landing at the top of the list of The Motley Fool's best health-care stocks of the year. Now the company has announced its fourth quarter results. Are there signs that the fire will be quenched, or is the heat still on? Here are the important things that investors need to know.
What you need to know
At first glance, the last quarter for Sarepta looks horrible. Analysts were expecting a loss of $0.29 per share, but the company reported a much-worse loss of $2.36 per share. That result also compared poorly against the $0.06 per share loss from the fourth quarter of 2011. Were things that bad? Not really.
The culprit behind the seemingly horrible loss actually stemmed from good news. As many small biotechs do, Sarepta issued warrants in the past as part of its efforts to raise cash. These warrants must be adjusted to fair value every quarter. The stock's incredible rise in the fourth quarter resulted in a much higher non-cash impact to the bottom line. While the company reported a net loss of $62.1 million for the quarter, $51.8 million of that directly stemmed from these warrant adjustments.
Revenue for the quarter was $7.3 million, down from $13.6 million in the same period for 2011. This decrease was due to the cancellation of a government contract related to Ebola research and timing of activities related to another contract for Marburg virus research.
For the full year, Sarepta reported a net loss of $121.3 million, or $5.14 per share. That appears much worse than the $2.3 million, or $0.11 per share, loss from 2011. However, the warrant adjustments accounted for much of the year-over-year difference.
As of the end of 2012, the company had cash and cash equivalents of $187.7 million -- thanks primarily to its secondary public offering in the last half of 2012. Sarepta anticipates an operating loss in 2013 between $85 million and $115 million. The current cash balance should carry the company into 2014.
What we still don't know
Everyone who follows Sarepta would love to know if the company will file for accelerated approval for eteplirsen, its drug targeting treatment of Duchenne muscular distrophy, or DMD. They would also love to know how favorable the FDA will be. Those are still unanswered questions for now. Sarepta CEO Chris Garabedian said that no decision would be made until after the company meets with the FDA later this month. However, it's a no-brainer that the company would love to move forward more quickly.
The FDA's stance will hinge largely on how it views the safety profile of eteplirsen and how confident it is that Sarepta can manufacture the drug with high quality levels. Although clinical studies to date have only included a small number of patients, company management emphasized that by later this year several patients will have accumulated two years of taking eteplirsen at high dosages. They clearly hope that the pressing need for a treatment for DMD will help sway the FDA.
Recent concerns have been raised about GlaxoSmithKline's (NYSE:GSK) DMD drug, drisapersen. In particular, there were reports about the drug resulting in kidney toxicity. Garabedian alluded to FDA concerns about kidney toxicity and expressed confidence in the safety profile of eteplirsen in that regard.
Another thing that we still don't know is if Sarepta will seek Breakthrough Therapy designation for eteplirsen. This designation allows for a much quicker review and approval process. The company thinks that eteplirsen could be a good candidate and is considering pursuing the designation, but a decision won't be made until after talks with the FDA.
While shares were down around 4% in intraday trading, the outlook for Sarepta hasn't changed. If the discussions with the FDA go well later this month and the company pursues accelerated approval, I expect the stock will enjoy a nice bump. At this point, I think it's likely that this scenario will play out.
Of course, that doesn't mean that the FDA will go along with accelerated approval. There could be enough doubts about safety to cause the agency to proceed with caution. If that happens, the stock will undoubtedly take a hit. Regardless of the accelerated approval path, though, I like the prospects for Sarepta over the long run.