What: Shares of Sarepta Therapeutics (NASDAQ:SRPT), a clinical-stage biopharmaceutical company primarily focused on discovering RNA interference-based therapies to fight Duchenne muscular dystrophy, fell $0.41, or 3%, to close at $13.49 on Monday after receiving a substantial price target cut from research firm Needham & Co.
So what: Chad Messer, the covering analyst at Needham, said he believes Sarepta remains on track to discuss its phase 3 confirmation studies for eteplirsen with the Food and Drug Administration in the second quarter, as well to complete enrollment for two of its three confirmation phase 3 studies before the end of the year. The third study, Study 203, should begin enrolling next quarter and will likely complete enrollment early next year.
Additionally, Messer anticipates Sarepta will begin its exon-45 and exon-53 skipping trials by mid-2015. In other words, Needham still anticipates eteplirsen will ultimately gain FDA approval.
Then why did Messer maintain his firm's buy rating on the company but reduce its price target by 27%, to $38 from $52? This had to do in part with Sarepta's fourth-quarter results, which showcased an adjusted loss of $38.6 million, $9.5 million more than the year-ago quarter, as increased operating expenses and lower revenue took their toll.
It might also have to do with Sarepta's 168-week update on eteplirsen, which showed a decline from baseline in the six-minute walk test, or 6MWT, of 76.7 meters in the intent-to-treat group. While that was still a 65.4-meter advantage over the control group, there has been a steep drop-off in the past 48 weeks in the 6MWT from 15 meters lost from baseline at week 120 to 76.7 meters at week 168.
Now what: Should investors panic following this steep price target cut?
As always, I'd suggest investors pay minimal credence to Wall Street price actions as they rarely are a long-term determinant of a stock's share price. This case is no different. Even though the price target cut is sizable, it still suggests nearly 200% upside to Sarepta's shares based on Monday's closing price.
The true gut test for investors is this: How risky are you feeling? On one hand, exon-skipping represents Sarepta's entire platform. Eteplirsen would cover 13% of all DMD cases, while eteplirsen and seven other preclinical and discovery phase exon-skipping drugs would combine to beat about half to 80% of all DMD cases. If the FDA fails to approve eteplirsen, or it flops in confirmatory trials like drisapersen did, Sarepta's value will likely take a huge hit.
Of course, there's also data to suggest eteplirsen will be a success. Even though the past 48 weeks demonstrated a notable decline in the 6MWT, eteplirsen still appears a better option than anything else available for DMD patients. If approved, eteplirsen would make Sarepta's current price appear pretty cheap.
While I'd like to see eteplirsen approved, Sarepta's bungled talks with the FDA and the agency's skepticism of dystrophin production as an endpoint have me just skeptical enough that I'd suggest waiting on the sidelines until after the FDA makes its decision. Even if you miss the initial pop, there's plenty of money that could be made in partnerships and additional exon-skipping studies. Plus, if eteplirsen doesn't pass muster, you'll be thankful you sat this one out!