Last September 3rd I penned an article on Seeking Alpha introducing Sarepta Therapeutics (SRPT) and its flagship drug Eteplirsen for Duchenne Muscular Dystrophy (DMD). Sarepta had indicated that sometime in October it would be releasing 48 week data from the Phase IIB study it was conducting with Eteplirsen for DMD and I believed there was strong evidence supporting a positive data set. One month later, on October 3rd, Sarepta announced positive 48 week data and the stock exploded from just under $15.00 per share to an intraday high of $45. Over the last few months the stock price has stabilized and built a firm base in the mid-to-high twenties.
Once again, I believe Sarepta is poised for another break to the upside and this time I believe it will surpass the 2012 high of $45 per share. There are multiple catalysts ready to launch Sarepta shares in the next few months:
1) 1st Quarter End Of Phase II Clinical Data Meeting With FDA. According to Sarepta CEO Chris Garabedian, during his presentation at the JP Morgan healthcare conference on January 10th, Sarepta will meet with the FDA in the first quarter to discuss end of Phase II data and will decide whether to pursue accelerated approval after meeting with the FDA.
Garabedian on accelerated approval:
But most importantly we are achieving alignment with all the stakeholders in the DMD community, so we've been working with patient advocates, with investigators who are experts in Duchenne, and we believe the FDA has really signaled in several ways their openness and willingness to consider accelerated approval and for other expedited paths to approval for these types of devastating illnesses and including in the rare disease space.
2) Rest Of World Partnerships - During the 2012 Q3 conference call Garabedian also confirmed enthusiastic interest from multiple drug companies and also confirmed multiple discussions are occurring between Sarepta and those companies for rest-of-world Eteplirsen partnerships.
Garabedian on partnerships:
We have received a tremendous amount of interest from potential partners, including large pharma, large biotech, and midsized biotech companies that are interested in the rare disease and/or neuromuscular disease area. We have been contacted by about a dozen companies and are at various stages of discussions with each of them.
3) Strong Cash Position and Follow-On Stock Offering - Sarepta currently has $187M cash on hand and on December 12th, 2012 announced a secondary stock offering. Sarepta originally intended to sell about $75M of stock offered at $25.25, however demand was so strong from institutional investors it upped the offering to $125M.
From a Garabedian interview with The Street's Adam Feurstein:
We went out with a target of raising $75 million but by the time we were ready to close the book we were more than three times oversubscribed, almost four times...The book was full of top quality institutional investors, many of whom were not going to get the allocation they wanted, so we decided to upsize the offering.
4) 74 Week Eteplirsen Data - At the JP Morgan Healthcare Conference Garabedian states the 74 week Eteplirsen data should be out in the first half of 2013.
We will have additional efficacy and safety data, 74 week data that have to be determined sometime in the first half of this year.
5) Bullish Analyst Sentiment & Price Targets - Analysts covering Sarepta are bullish on the company's prospects - some examples from StreetInsider:
- Wedbush - Outperform/$70
- Burrill - Outperform/$54 price target
- Cowen - Outperform initiated on 1/25/2013
- Dawson James - Outperform
- ThinkEquity - Buy
Lazard Capital - Lazard Capital analyst William Turner said Eteplirsen maximum U.S. rev. opportunity is $750 million and applying 3x-5x market cap/revenue multiple leads to fair value of $83-$139/share.
6) Large Short Position - There are approximately 3.5M out of a 23M share float sold short as of the last reporting period on 1/15/2013 - this could create a rather painful squeeze as these catalysts approach. On 1/30/2013 somebody created a fake twitter account posing as an influential short-seller Citron Research and posted false information alleging bogus data regarding Eteplirsen. Sarepta's stock reacted by dropping nearly 5pts with 700,000 shares traded in less than a minute. The company issued a statement that it would take appropriate action for anybody communicating false or misleading information that negatively impacts the company.
I have focused on Eteplirsen in this article, however Sarepta has several other programs including different exon-skipping genes and infectious disease treatments it is pursuing. These important programs are also adding value and depth to the company. I believe 2013 will bring significant appreciation in the share price of Sarepta and a further understanding and unlocking of Sarepta's future value.
Disclosure: I am long SRPT. This article is my opinion and intended to spur thought and discussion. This article is NOT a substitute for your own extensive due diligence and does NOT qualify as investment advice. DO NOT BUY OR SELL STOCKS BASED ON THIS ARTICLE. I do not short stocks nor do I invest in options.