Source: Pixabay 

What: In what's turned into a recurring theme, shares of the clinical-stage biotech Sarepta Therapeutics (SRPT -2.89%) are getting hammered yet again on negative regulatory news for eteplirsen, its experimental Duchenne muscular dystrophy (DMD) drug.

Specifically, the biotech's shares fell by as much as 41% in early trading Thursday after the FDA released its updated briefing documents ahead of eteplirsen's scheduled advisory committee meeting next Monday.

Despite Sarepta's attempts to bolster eteplirsen's regulatory application by submitting additional data, the agency apparently hasn't changed its negative view of the drug's clinical profile, based on this latest internal review. 

So what: Sarepta's shares had been on the rebound heading into this advisory committee meeting due to the renewed optimism among bulls that eteplirsen would somehow garner a conditional approval this year. In particular, the optimists seemed to think that the additional data -- combined with the overwhelmingly strong support from many patients who participated in eteplirsen's mid-stage trial -- would be enough to get the drug over the hump, so to speak. The FDA, though, clearly has different ideas, even reaffirming its earlier statement that eteplirsen's mid-stage trial was so small that "a single patient could change the results substantially."

Now what: Sarepta and the FDA will go toe-to-toe next Monday over their varying interpretations of eteplirsen's clinical results. Unfortunately, Sarepta's argument for a conditional approval seems to be coming apart at the seams. The overarching problem is that eteplirsen's mid-stage trial -- which is being used as the basis for this regulatory filing --  is simply too small to enable a robust statistical analysis. So, I think investors need to prepare themselves for the high probability that the FDA will  reject eteplirsen's regulatory application, in spite of the documented need for new DMD treatments.

Looking ahead, I think the agency is going to recommend that Sarepta complete its ongoing pivotal-stage trial before refiling. The bad news is that the trial won't wrap up until 2019, meaning that Sarepta could be several years away from finally transforming into a commercial operation. As such, Sarepta's steep risk profile looks to me like it greatly outweighs its upside potential right now.