By: Ahmed Ishtiaq
Sarepta Therapeutics, Inc. (SRPT) is a biopharmaceutical company focused on the development of RNA-based therapeutics for the treatment of serious and life-threatening rare and infectious diseases. Its lead clinical candidate is Eteplirsen, which is in Phase 2 clinical stage for the treatment of Duchenne muscular dystrophy. Recently, the stock of the company went through the roof after it announced the results of its study. The phase II trials gave extremely encouraging results and met almost all the goals of the study. Sarepta is on the verge of developing a blockbuster drug, which can make it an important player in the orphan drug category. However, the company still has a few hurdles in its way before it can get the drug through the approval process.
Meanwhile, Sarepta has announced its third quarter results and made a presentation at the Lazard capital markets healthcare conference.
Third Quarter results:
The company reported an operating loss of $6.9 million, considerably less than an operating loss of $11.3 million for the same quarter of last year. The decrease in loss was mainly due to a cutback in research and development related to non-DMD programs. Sarepta generated revenue of $7.6 million, a $0.1 million increase from the third quarter of the last year. The increase was due to a $1.1 million increase from the Ebola Marburg Department of Defense Contract. However, the Department of Defense terminated the Ebola portion of the contract due to funding constraints.
On the expenses side, there was a substantial decrease in research and development expenses. The company spent $10.9 million for the third quarter, a $4.7 million decline from the same quarter of 2011. The decrease was mainly due to a $4.0 million fall in non-DMD research and a $1.3 million decline in DMD program costs. Furthermore, general and administrative expenses stood at $3.6 million, compared to $3.2 million for the same quarter last year.
The company reported a net loss of $49.6 million, compared to $4.0 million at the end of the third quarter of 2011. The net loss increased due to a $49.8 million loss on revaluation of Sarepta's warrants. The amount of the warrant liability increased due to changes in Sarepta's stock price. In the third quarter, the company reported a charge of $42.7 due to a change in the warrant liability. The increase in valuation expense was somewhat compensated by a decrease of $4.4 million in operating loss.
Furthermore, Sarepta had $38.0 million in cash, $13.5 million more than the previous quarter. Cash increased due to $19.9 million of net proceeds from stock sales, and $1.2 million from the exercise of stock options. On the other hand, the company spent $7.8 million in operations during the quarter. Moreover, the company received $16.4 million from sales of equity and $5.6 million from the exercise of warrants for a cash balance of $57.4 million.
Possibility of early approval:
At the moment, the drug affects almost 8,000 Americans. The FDA can grant early approval without the Phase III trials when a drug treating life threatening conditions shows large potential in earlier testing. Eteplirsen has an impeccable safety and efficacy profile. The drug can be given accelerated approval based on data showing that the drug successfully created dystrophin in the Phase IIb trial. In addition, there is a massive need for a drug and regular approval process can push approval into 2015. The company has the backing of most of the organizations and parents for the early approval of the drug. Based on the medical need in this area and the social pressure, FDA may want to speed up the process of bringing the drug in the market.
However, there are also negatives which can go against the company. Sample size is the biggest issue at the moment. Most of the experts believe that the sample size was too small, and full phase III studies should be conducted with a larger sample size. Further, the level of Dystrophin production may not be enough for the FDA to approve the drug based on the current results. The 50mg dose showed a 41.7% average change from the baseline of dystrophin fibers, whereas 30mg dose showed a 52.1% change.
Sarepta has a wonderful drug in its pipeline, which can dominate the market for years. Unlike many other drugs, Eteplirsen has support from the public who want this drug to be in the market. It has shown phenomenal results and may force the FDA to approve the drug without phase III trials. Regardless of early approval, the stock will continue to move up in the short and medium term. However, if the early approval is granted - the stock will move up rapidly. In addition, it is extremely unlikely that the company will face competition any time soon. I remain particularly optimistic and confident that Sarepta will provide massive returns to investors.