SRPT Sarepta Therapeutics Inc's CEO Discusses Second Quarter 2013 Results - Earnings Call Transcript

Aug. 8.13 | About: Sarepta Therapeutics, (SRPT)

Sarepta Therapeutics Inc (NASDAQ:SRPT)

Q2 2013 Earnings Conference Call

August 08, 2013 / 8:00 a.m. ET

Executives

Erin Cox – IR

Chris Garabedian – President & CEO

Ed Kaye – SVP & Chief Medical Officer

Sandy Mahatme – CFO

Analysts

Liisa Bayko – JMP Securities

Ritu Baral – Canaccord Genuity

Brian Skorney – Robert W. Baird & Company, Inc.

Tim Lugo – William Blair & Company

Chris Marai – Wedbush Securities

Robin Karnauskas – Deutsche Bank

Bill Tanner – Lazard Capital Markets

Joseph Schwartz – Leerink Swann & Company

Chad Messer – Needham & Company

Debjit Chattopadhyay – Emerging Growth Equities

Operator

Welcome to the Q2 2013 Sarepta Therapeutics earnings call. My name is Dawn and I will be the operator for today's call.

At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Erin Cox. You may begin.

Erin Cox

Thank you, Dawn, and thank you for joining today's call. Earlier today, we released our financial results for the second quarter of 2013. The press release is available on our website at www.sarepta.com and our 10-Q was filed earlier this morning.

Joining me on the call today are Chris Garabedian, our President and CEO, Sandy Mahatme, our Chief Financial Officer, and Ed Kaye, our Chief Medical Officer.

I would like to note that during this call, we will make a number of statements that are forward-looking including statements about the development and clinical status of Sarepta's product candidates and the potential efficacy, safety and clinical results from ongoing or future studies involving product candidates.

The potential and timing for regulatory review and approval of Sarepta's product candidates, the potential for an accelerated approval by the FDA for eteplirsen, the potential for dystrophin as a surrogate marker, the amount and type of data that will be necessary for the FDA's regulatory determinations. The impact of manufacturing and development activities on NDA submission timelines, the potential pricing and market opportunity for our product candidates, our ability to manufacture candidates, our ability to protect our intellectual property rights. Future financial performance including revenues, expenses and financing, sufficiency of our cash reserves, potential funding from the government and other sources and collaboration and partnering opportunities.

These forward-looking statements involve risks and uncertainties, any of which are beyond Sarepta's control. Actual results could materially differ from these forward-looking statements as any such risk can materially and adversely affect the business, results of operations and the trading price of Sarepta's common stock. For a detailed description of risks and uncertainties we face you're encouraged to review the Company's most recently filed 10-Q and other official corporate documents filed with the Securities and Exchange Commission.

With that let me turn the call over to Chris Garabedian, Sarepta's President and Chief Executive Officer. Chris?

Chris Garabedian

Thank you, Erin. Good morning everyone and thank you for joining us today for our quarterly financial and corporate update for the second quarter of 2013.

I'm very pleased to provide you an update on the key developments at Sarepta since our last quarterly earnings call. It's an exciting time at Sarepta as we are looking ahead toward a significant milestone for the Company as we recently announced that we will be submitting a New Drug Application to the FDA for our drug for the treatment of Duchenne muscular dystrophy. It will be the first NDA submission in the Company's history and represents an important step on the path toward an FDA review and potential approval of eteplirsen.

Additionally, we are pleased to announce that a manuscript of our Phase IIB trial results was accepted for publication by the Annals of Neurology, a leading publication, and arguably, the most influential journal among the neurology clinical community and it is currently available online awaiting print publication in an upcoming issue. In a few moments, Ed Kaye will give you an update on our recent clinical activities and Sandy will review our financial results for the quarter, but first I will provide a regulatory update and provide the appropriate context for the recent news related to our plans for an NDA submission for eteplirsen.

A couple of weeks ago we announced the outcome of our follow-up meeting with the FDA that took place in July and announced our plan to submit an NDA or New Drug Application for eteplirsen in the first half of next year. This decision was based on discussions with the agency and the Division of Neurology Products where they indicated that based on the Phase II data we've shared with them, they are open to considering an NDA filing. This feedback is particularly encouraging because it recognizes that our Phase IIB study data set is sufficient for the FDA to consider a filing and allows us to initiate the first step of the registration process for approval of a new drug.

There are a number of distinct steps that form the registration process in getting a new therapy approved the FDA. The first step is the submission of a New Drug Application by a sponsor, which is essentially a request by the sponsor asking the FDA to consider approving a new drug for a particular disease.

Often a sponsor does not seek guidance from the FDA on the feasibility of whether or not an NDA submission would be acceptable for filing and review because there are general guidelines on the evidence that is required to consider an NDA for filing. However because Carpet studies with eteplirsen produced a compelling and favorable data set on a mid stage or smaller trial it was important for us to gain feedback from the FDA if an NDA filing would be acceptable.

Specifically, we wanted to understand if it was possible for the FDA to consider an NDA filing and potential review without having to complete a confirmatory study to form the basis of approval. Again, we are encouraged we have accomplished this goal by obtaining feedback from the FDA that confirms our Phase II data set is sufficient for them to consider an NDA filing.

Once an NDA submission is accepted by the FDA, it then begins the review process. It is in the FDA's purview to determine the type of review to apply based on the totality of the data included in an NDA. This means that the FDA can choose to review an application under the accelerated approval pathway, on the basis of a surrogate end point such as dystrophin, or under a full approval pathway, on the basis of a clinical end point such as the six minute walk test.

As part of our application, the FDA will have the totality of our data available to it including a robust biochemical effect in the form of dystrophin production, positive clinical outcome data including the six minute walk test results, and a favorable safety profile in patients who will have more than two years of treatment at the time of submission, as this week represents the two year mark of the first patients who were dosed in our Phase IIB study.

As part of our dialogue with the FDA, including two ends of Phase II meetings, we asked for specific feedback on the acceptability of dystrophin as a surrogate end point to better understand whether the FDA would review our application under an accelerated approval pathway.

As we were not sure if they would consider the acceptance of an NDA filing on the basis of our clinical outcomes data and felt that accepting dystrophin as a potential surrogate marker that would reasonably predict clinical benefit would be one possible pathway that they would consider. In response, the FDA stated it would review the potential for dystrophin as a surrogate end point during the review following their acceptance of the NDA.

By considering the acceptance of an NDA for filing, it indicates that they would evaluate the totality of the data and consider all pathways for approval of eteplirsen and will determine if the agency's review will be under an accelerated approval pathway or a full approval pathway after an NDA filing.

During our recent meeting, we had a productive discussion about dystrophin as an acceptable surrogate end point and the agency shared feedback on what it would like to see in the application including information on the methodology of our analyses and the potential verification of the dystrophin quantification data. While we have not yet received meeting minutes and we expect further discussion with the agency in the coming months, we believe based on the feedback so far we have received to date that we will be able to address their needs in our NDA submission.

Now that I've outlined the submission and review process specifically, I'd like to describe the key activities and communications that will take place over the next year to 18 months as it relates to eteplirsen. As we stated we plan on submitting a New Drug Application for eteplirsen in the first half of 2014. the specific timing of the NDA will be based on our continued interactions with the FDA and clarification of any additional information they may need as part of an NDA submission as it relates to our dystrophin data set and requirements for the CMC section of an NDA.

Approximately 60 days after the NDA submission, the agency will provide notice of whether or not they accept the application for filing. If the application is granted a priority review, the FDA will aim to make a decision on approval of eteplirsen within six months following an NDA filing as compared to a standard 10 month review.

A clarifying point of semantics is the NDA is considered filed at the time when the FDA accepts the submission, which occurs approximately 60 days after receipt of the NDA submission. While Carpet submits an application, it is at the discretion of the FDA to accept and file the NDA.

Once accepted for filing, the NDA is considered to be in review. After acceptance of the NDA filing, the FDA will provide what is referred to as a Day 74 letter, which is provided 74 days after receipt of the NDA submission or 14 days after the approximate date of the NDA filing decision and this is when the sponsor is notified if the agency plans to hold an advisory committee meeting to discuss the NDA filing and the merits for approval of the drug.

As you know, the advisory committee is an independent body of experts who review the data and hear perspectives from the FDA and the Company to help them make a recommendation for or against approval. If the FDA were to recommend an advisory committee be convened to discuss eteplirsen, the committee may be asked to consider approval of eteplirsen or be asked to vote on the basis of accelerated approval, which would consider dystrophin as a surrogate that is recently likely to predict clinical benefit. And to also vote on the basis of a full approval which would consider the clinical outcomes and the six minute walk test end point.

If the FDA convenes an advisory committee, they will consider the recommendations of this committee but are not obliged to follow their recommendations as they can sometimes approve a drug in which a panel recommends against approval or they can decide not to approve a drug even if the panel recommends in favor of approval.

To sum up our progress to date we believe the FDA's willingness to consider an NDA based on our Phase II data set represents a tremendous achievement for our Company. The significance of the FDA's feedback, which again provides us an opportunity to clear the first the hurdle in the registration process, was highlighted by all of the major DMD advocacy groups in the US in supportive public comments after our announcement.

These groups and their families they represent understand better than anyone the devastating impact of this disease and the urgent need for treatments. We deeply appreciate their continued support as well as their eagerness to independently share perspectives with the agency on the appropriate risk benefit for new DMD treatments.

So while we certainly have a long way to go and I don't want to make light of the challenges we face, we recognize and I think the DMD community recognizes, this is a positive development for the patients and families living with Duchenne muscular dystrophy and provides tremendous hope that a potential treatment option might become available.

Of course, eteplirsen would only treat a subset of DMD patients, that is those with genotypes amenable to an exon 51 skip but Sarepta is focused on developing follow on drugs that will treat all of the patients that may benefit from this same exon skipping technology. With this in mind, I'd like to turn the call over to Ed Kaye, our Chief Medical Officer, who will describe our clinical development efforts and the status of our eteplirsen confirmatory trial and our follow on exon skipping drugs. Ed.

Ed Kaye

Thanks, Chris.

We have very pleased to have received this feedback from the FDA and to know the FDA is open to considering an application for eteplirsen. It provides us the clarity we need to implement critical clinical and regulatory activities in the near term. We believe that we are well prepared for the tasks ahead and we appreciate the urgency to make this drug available to boys with DMD. We have assembled a seasoned team with decades of experience in regulatory affairs, statistics, data management and clinical development. While this will be the first New Drug Application for Sarepta, many of us across the organization have extensive experience with successful regulatory submissions.

In terms of next steps, we have begun drafting the various sections of the application. As you know, this will be a tremendous effort over several months and will include compiling all of the non-clinical, clinical, and manufacturing information, including other data.

As we have previously discussed with you, the specific timing of our submission in the first half of next year will depend on some additional feedback from the agency. We continue to expect to meet with the FDA later this quarter to further discuss the requirements for the chemistry manufacturing and controls or CMC section of the application.

Moving on to recent clinical activities, last quarter, we reported very encouraging 84 week results from the long term Phase IIB extension study with eteplirsen. We think the most important takeaways from these updated data are that we continue to see a stabilization of walking ability across all of the ambulatory eteplirsen treated boys and the long term data offer increasing confidence in the potential benefit and safety profile of the drug. As we know from the natural history in DMD, we would not expect to see stabilization in these boys who are now on average about 11 years of age.

Also, as you know, we have reported individual patient results showing increases in novel dystrophin expression in all of the patients and also a stabilization of walking ability and those boys who remain evaluable on the six minute walk test. We continue to follow the two boys who essentially lost ambulation by the time we were able to confirm dystrophin in their muscle biopsies. Data from other clinical outcome measures such as pulmonary function suggests that these boys are also stable.

In addition, we continue to see a favorable safety profile for eteplirsen with no clinically significant treatment related adverse events through about a year and a half of study. There had been no discontinuations, withdrawals, or hospitalizations and all of the patients continue to receive drug.

Looking forward to our next data update, we expect to present 96 week data at the World Muscle Society Congress in October in California. We are also making good progress with plans for the confirmatory study of eteplirsen and we continue to expect to initiate dosing in the first quarter of next year. We know that the six minute walk test will be a primary end point in the study and therefore we will be enrolling boys who are still remaining ambulatory.

We are continuing to have discussions with the FDA about other design elements including the use of a placebo or a matched control patients who are amenable to treatment with exon skipping therapies targeted to other exons such as exon 45, 53, 50, and 44. While we do not yet know for sure if the FDA will accept this masked arm as a potential control for the study, we are planning to include this arm nonetheless. Early on, it will help us collect additional natural history data and it may accelerate our development and approval path for our follow on exon skipping therapies.

Finally, we are making good progress with our pipeline programs. We completed a pre-IND meeting for our exon 45 skipping product candidate and initiated the required pre-clinical testing in the second quarter. We also expect to have a pre-IND meeting for our exon 53 product candidate before the end of this year and plan to start preclinical testing later this quarter.

We have identified a lead sequence for exon 50 and are conducting lead sequence election for exon 44. We plan to speak to the FDA about the incremental requirements for an IND filing for these compounds later this year. We are still on target to submit an IND for at least one of these drugs by mid 2014 and two or more by the end of next year.

Our government sponsored infection disease programs remain on track. Phase I multiple ascending dose studies of our investigational medicines for Marburg hemorrhagic fever virus and also for influenza are continuing as planned. Now I'll turn the call back over to Chris to provide an update on our manufacturing. Chris?

Chris Garabedian

Thank you, Ed. I'd like to turn to a brief update on our manufacturing scale up activities for eteplirsen.

As we reported last month we have successfully manufactured a test batch that would be described as a reduction to practice batch that is at a scale between small scale and mid scale production where we can learn about any operational problems that might occur with our progress at a larger scale, and allow us to deconstruct the steps of the process and make any tweaks that might be required.

I'm very pleased to report that our test batch provided product comparable to that currently in the field with operational yields similar to those observed with our small scale process. This gives us confidence as we proceed with our mid scale production runs that we are on track to generate the drug supply needed to initiate our confirmatory study in the first quarter of next year.

Furthermore, we have made significant progress with our various contract manufactures within our supply chain and have a clear idea of our timeline as it relates to drug supply in the event of a commercial approval in late 2014. While there are no guarantees, if we use the yield assumption from our test run and do not encounter problems with our mid scale production runs and eventual large scale production runs, based on a 30 mg per kg per week approved dose of eteplirsen, we believe we could have drug supply for more than half to all of the potential market demand for eteplirsen in the US by the fourth quarter of 2014. This is important as we prepare for the potential approval and availability of eteplirsen and the expected demand, as we understand the urgency of making treatments available to patients living with this progressive, irreversible and deadly disease.

Now I'll turn the call over to Sandy Mahatme, our Chief Financial Officer, to review our second quarter financials.

Sandy Mahatme

Thanks, Chris. Good morning, everyone.

This morning's press release provided details for the second quarter of 2013 in both an adjusted or non-GAAP basis as well as a GAAP basis. The press release is available on the SEC & Company websites. The non-GAAP results we'll discuss on this call provide a more accurate picture of our ongoing operations and the impact of operations on our cash balance.

Beginning in the first quarter of 2013, we have presented non-GAAP results primarily due to the significant non-cash impact that the valuation of our outstanding warrants has on our net results. These results also exclude the impact of stock based compensation and our relocation to Cambridge, which is now wrapping up. Please refer to our press release for a full reconciliation of GAAP to non-GAAP.

In the second quarter of 2013, we reported an adjusted or non-GAAP operating loss of $14.6 million or $0.46 per share compared with an operating loss of $5 million or $0.22 per share in the second quarter of 2012. The incremental operating loss is a result of an $8.3 million decrease in government contract revenue and a $1.2 million increase in operating expenses.

Revenue for the second quarter of 2013 was $3 million, down from $11.2 million in the second quarter of 2012. The decrease was due to the August 2012 stop work order and subsequent termination of the Ebola portion of the Ebola-Marburg US Government contract due to a lack of available US government funding, as well as timing of activities associated with the Marburg portion of the contract. These decreases were partially offset by revenue from the 2012 intramuscular administration contract with the US Government for the Marburg virus.

Adjusted Research and Development expenses were $12.2 million for the second quarter of 2013 compared to $13.6 million in the second quarter of 2012, which is a decrease of $1.4 million.

General and administrative expenses as adjusted in the second quarter of 2013 were $5.3 million compared to $2.7 million in the second quarter of 2012. We ended the second quarter of the year with cash, cash equivalents and invested cash of $164 million, which is a decrease of $11.2 million from the $175.2 million cash balance at the end of the first quarter of 2013.

Since the end of the second quarter, we have sold approximately 1 million shares through our previously announced after market equity financing facility and have raised proceeds of $37.9 million. This cash is in addition to the $164 million quarter ending cash that I referenced earlier.

We anticipate our cash burn will accelerate in the second half of the year as we project increased investments relating to scaling of manufacturing capacity and due to expenses required to support our upcoming confirmatory clinical study for eteplirsen.

With that, I'd like to turn the call back over to Chris.

Chris Garabedian

Thank you, Sandy. Operator we can open up the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions)

Our first question comes from Liisa Bayko from JMP Securities. Please, go ahead.

Liisa Bayko – JMP Securities.

Hi, thanks for taking my call and congratulations on all of the progress this quarter.

I just wanted to get a little bit more peculiar it on when we will know and when will you articulate to us, which route to approval FDA is going to consider on the accelerated or the full. I just wasn't totally clear on if there's a discrete point in time where you're sort of going down one path or whether that’s, you know, and how that would be communicated.

Chris Garabedian

Yes, Lisa. There's not a point where they identify that discrete path, so what I was trying to emphasize in my prepared comments was that when we submit our NDA and the fact that the FDA was open to considering an NDA filing, without a priority weighing in on dystrophin, it sent us a signal that they would consider the totality of the data.

And so if they accept our NDA for filing and it goes into review, it means that the FDA can use their discretion to determine all the different pathways and they have a lot of latitude. They've shown a lot of flexibility in granting full approval, not accelerated approval, to many drugs for rare and orphan disease indications.

This has been outlined by a nice paper that was published by NORD, authored by Frank Sasinowski that showed the number of flexible approvals, full approval that the FDA has granted but the NDA is not identified as an accelerated approval NDA or a full approval NDA. An NDA is an NDA, and then the FDA can use their discretion on how they form the basis of approval. So, we like the idea that they could consider all different pathways for approval but there's no discrete point in which they will identify whether they will consider this for accelerated approval or full approval.

Liisa Bayko – JMP Securities.

Great. That's helpful. Thanks.

And then, just wanted to clarify, is your assumption when you talk about half to all patients being satisfied by your manufacturing based on the 30-milligram dose? Just wanted to clarify that. Thanks.

Chris Garabedian

Yes. It is based on the 30-milligram per kilogram per week dose. However, we also have dialed in fairly aggressive assumptions for product adoption. I've referenced previously that Kolitico is an example of how quickly demand for a genetic-based therapy might be, and so we're preparing for that type of demand. And again, this assumes that there's not competition in the marketplace, so I would venture to say we're being somewhat conservative in terms of our assessment of half to all because it's assuming that demand could be very steep initially and that assumption goes without competition in the marketplace.

Liisa Bayko – JMP Securities.

Thanks.

Operator

Thank you. Thank you. Our next question comes from Ritu Baral from Canaccord. Please go ahead.

Ritu Baral – Canaccord Genuity

Good morning guys. Thanks for taking the question.

Chris, and Ed, could you talk to the breadth of data that you might be submitting as part of the package? Chris, you made a reference to FDA's consideration of the totality of data so I'm sort of wondering what we're up to as far as patient counts, patient years, and the just amount of data you could be submitting.

Chris Garabedian

Yes. So, Ritu, I'll let Ed describe it in more detail but basically it's everything that we have collected to data cross all of our studies, not just our current ongoing Phase IIB extension, and Ed, do you want to describe what that entails?

Ed Kaye

Right. So Ritu, what we'll be doing is, remember it's not just the initial study but all of the follow on information and especially long term safety, because now we have over two years of safety. We have in essence over 30 years of safety data, all of that will be compiled.

We'll look at a summary of efficacy, we'll include our study 28 which was done in humans, we have an intramuscular study, all of the preclinical data so really literally you're talking over 100,000 pages of information that will be submitted that they will have an opportunity to look at and they will make their decision based on all of that data.

Ritu Baral – Canaccord Genuity

And what are you up to as far as total DMD patients treated with eteplirsen whether it's IM or across the trial?

Ed Kaye

Yes. We have a total of 38 that have been exposed.

Ritu Baral – Canaccord Genuity

Okay, and moving on to the technology portion which Chris mentioned, I guess what are the different quantification methodologies that are open to you and how are they viewed by either the community in general or FDA?

Ed Kaye

Yes. So, the focus of course is on the immunofluorescent so we're looking at the number of positive fibers and the intensity an that's really the focus. And the FDA I think is becoming understanding why we have chosen this and it's a reasonable process going forward.

Ritu Baral – Canaccord Genuity

Are there any new technologies as far as quantification?

Chris Garabedian

Ritu, we've commented on this before. There's a lot of investigational assays and methods to try to get a better understanding, but these are all really in the early stages of validation. And we have gone with what is most commonly used, that's had the most in the literature, and we pre define this, when we submitted our original protocol to the FDA that we were going to use immunofluorescents and positive fibers as the primary end point of dystrophin.

Of course, we follow the field, we see all the new investigational approaches that are being used, and we will likely incorporate those, as they become further validated in future studies. But at this time, we're going to be using what we've collected in our studies.

Ed Kaye

And Ritu, also there was just a recent report from Treat MD, and they looked at five different laboratories and what their conclusion was is that immunofluorescence was the most sensitive and reliable method and also there was problems with the western, they couldn't confirm it in all of the different laboratories. And their statement was that the mass spectrometry method was not really evaluated and it can't be used for clinical studies, so if there's something better, we will use it and right now, I think we feel pretty confident that the immunofluorescence is the best path.

Ritu Baral – Canaccord Genuity

That's very helpful. Thanks guys for taking the questions.

Chris Garabedian

Thanks, Ritu.

Operator

Thank you. Our next question comes from Brian Skorney from Robert Baird. Please go ahead.

Brian Skorney – Robert W. Baird & Company, Inc.

Hey. Good morning guys. Thanks for taking the question and congrats on the manuscript.

I guess my first question is just in terms of the potential for the control arm that you've discussed using non-exon 51 amenable patients. I'm just wondering if you can review the evidence that there's not genotypic differences based on the different frameship mutations out there that would support their inclusion as a control as opposed to exon 51 amenable patients. And do you feel that any variability can be controlled by just having criteria based on baseline dystrophin level?

Ed Kaye

Right, that's an excellent question. I think what has occurred in the last year, there's been a number of publications that have come out from both the US, Italy, and confirming that these patients are very similar, there's some – obviously there's some variabilities. The most important distinction to try to choose the patients is what's their baseline status so their ability for six minute walk.

There is no correlation between the dystrophin level and their ability but you can correlate based on the inclusion criteria. So,, I think we feel pretty comfortable and we've been reassured by three independent investigators that this is a reasonable path forward and it also gives us an opportunity for going forward to look at the other exons and we'll have a better understanding of the natural history of the entire population.

Brian Skorney – Robert W. Baird & Company, Inc.

Great, thanks that's very helpful.

And I know a lot of people have been kind of discussing what eventually the cost will be or your COGS would wind up being in terms of the eteplirsen cost. So, I've been doing research on what clinical cost for some of the other backbones and I wonder is it fair to kind of look at the PO backbone and CGMP manufacturing cost for that backbone is as the ultimate hurdle that you guys think would be achievable for the PMO backbone?

Chris Garabedian

Yes, Brian. We've provided some guidance on this of a range of what the cost of goods are given a assumption which is not our guidance on price of the drug but if you look at comparable rare disease price points of 3 to 500,000, we have given a range of what that cost of goods might be and that's been in the 15% to 25% cost of goods range. Now obviously, we're getting more information as we scale up. We're getting better understanding of yields and comparability and obviously, it's our best intention to try to improve processes yields over time to bring down cost of goods as much as we can. But at this time, we're not prepared to give any different guidance than the 15% to 25%.

Brian Skorney – Robert W. Baird & Company, Inc.

Great. And if I could just sneak one final one in, sort of based off of Richard's question actually, when you think about what's being submitted safety wise for eteplirsen, and given that there's probably very low potential for an off target in terms of oligobinding, will you be submitting data from other clinical data with the PMO backbone? Will that be valid for the FDA to review, as any safety issues probably more related to the backbone structure than the oligo sequence.

Chris Garabedian

Yes. So Brian, I'm going to answer that in two ways. So, one, we have had a lot of experience with this backbone in other trials, other disease areas, and the FDA said that they would consider that and a lot of that has been filed with the FDA in terms of some of those early experience studies and other disease areas. But I think more importantly was what they were suggesting might be helpful as they consider approval of eteplirsen assuming they accept an NDA filing.

Ed, do you want to describe what that might look like?

Ed Kaye

Sure, so typically the FDA will request information from an ongoing clinical trial so they may ask for a cut of safety data that will supplement and just to give them confidence that we're not seeing safety signals. So, that would be pretty typical and something that we might expect a request from.

Brian Skorney – Robert W. Baird & Company, Inc.

Got you. Thanks guys.

Ed Kaye

Thanks, Brian.

Operator

Thank you very much. Our next question comes from Tim Lugo from William Blair. Please go ahead.

Tim Lugo – William Blair & Company

Thanks for taking my questions and congratulations on the progress. I guess can you discuss further the pulmonary function stabilization of the non-ambulatory patients and maybe review some of the natural history and what it would suggest if those patients, should they be further – seeing further declines at this stage of their disease?

Ed Kaye

Yes. You know, there's not as much information on the natural history of pulmonary function but what we know that occurs is that over time, pulmonary function continues to decline, especially when the boys become non-ambulatory it accelerates. So, what we've looked at is very carefully and we are not seeing the expected decline and also we are not seeing decline in the two non-ambulatory boys so we will have further information as we gather data over next couple of years.

Tim Lugo – William Blair & Company

Thanks. And can you maybe just discuss well the nature of any questions in your mind that may be answered when you receive the meeting minutes coming up?

Chris Garabedian

Well Brian, obviously, we felt comfortable with putting out a communication following the meeting and so if there was a lot of information that we were awaiting in the minutes, we probably wouldn't have been as confident in communicating the plans for a submission of an NDA.

But there are always details to be worked out and as we prepare the activities in the sections of the NDA, there is a dialogue just clarifying exactly what they would like to see in that NDA. And we've indicated that there may be further information and specific information about the dystrophin methodology and the how it was quantified in verification of that.

But again, as we stated, we believe all of the potential requests we could still meet and submit our NDA in the first half of next year. We don't know the details at this point. We will look for some of that in the meeting minutes and there will likely be ongoing discussion for us to clarify exactly what they're looking for in the NDA. But again, as we get more information and we're more clear on what is going to be required we will communicate that.

Tim Lugo – William Blair & Company

Thank you.

Operator

Thank you. Thank you. Our next question comes from Chris Marai from Wedbush. Please go ahead.

Chris Marai – Wedbush Securities

Hi. Good morning guys, thanks for taking my questions, also, congratulations on your recent publications.

Reading through that I found it really interesting that two of the boys who rapidly declined also showed significant fibrosis, muscle fibrosis by MRI and I know guys will do a follow-up paper regarding that. I was wondering if you intend to use MRI for stratification of patients in confirmatory trials or trials of follow on compounds and also I was wondering if there have been additional studies using MRI that could hint that this could be used for stratification. Thanks.

Ed Kaye

Thanks, Chris.

There is a number of studies that are ongoing. Unfortunately, the data is not available and we haven't reviewed all of the data, so my guess is it will probably take another year or two. So, I think it's too premature to assume we could stratify based on the MRI, but I think as we've learned more about the MRI, it would become an important tool that will help determine what kind of response we might be able to see.

Chris Garabedian

Yes, Chris. We haven't decided whether or not MRI will be a component in our pivotal, in a subset of patients at this time, but as Ed says we continue to monitor the findings of the various MRI studies that are out there.

Chris Marai – Wedbush Securities

Great. Thanks. Congrats on the quarter.

Chris Garabedian

Thanks, Chris.

Operator

Thank you. Our next question comes from Robin Karnauskas from Deutsche Bank. Please go ahead.

Robin Karnauskas – Deutsche Bank

Hi, guys. Thanks for taking my question.

I was just wondering on the accelerated approval versus full approval, how common is that for the FDA to give that option out after an FDA meeting when you file for accelerated approval for them to remind you that it could be full approval. And then maybe if you give us some precedence for an accelerated approval filing originally turning into a full approval.

And then last question is what is the most important factor for manufacturing that could introduce variability when you scale up? So what's the one thing that you're looking for to go smoothly for scale up into the next scale of manufacturing? Thanks.

Chris Garabedian

Robin, so there's a few questions in there, so I think we can address all of them. So, first, regarding how common it is, again I'd say what's less common is a company going to the FDA and clarifying if a data set is sufficient for acceptance of an NDA submission.

We believe that because it was a small Phase II study but because the results were quite robust, both biochemically, clinically and safety wise, that it might warrant a review and potential approval. And so this is why the Company has put a lot of effort into getting guidance from the FDA on the feasibility of this data set to form the basis of approval.

Now, we focused initially on dystrophin as a surrogate under an accelerated approval pathway because it was our primary end point. We had every patient that showed dystrophin. We believed we had levels that were high and kind of reproducible and consistent across many samples.

And we believe we had, and still believe we have a very strong basis that the dystrophin that we're producing is validating the clinical outcomes that we're seeing and should be acceptable as a surrogate end point under the accelerated approval pathway. So we focused on that and we believed that the FDA might say dystrophin could be considered as a surrogate end point but we're not going to weigh in on the clinical outcomes and the rest of the data set as a basis of approval.

What we ended up getting was a yes answer to the bigger question which is an NDA filing acceptability based on the totality of our data, so while they decided to say that they would make a decision on dystrophin after an NDA filing and during the review process, they told us yes, we would consider an NDA filing on the totality of the data and that would include the clinical outcomes.

So again, many sponsors who might do two large well controlled studies where they know based on the guidelines that it would be acceptable for an NDA filing, we wanted to get guidance a priority before we put all of the effort that Ed described is needed to submit an NDA.

And so we got our answer and this is why we're very confident in moving forward with that NDA submission. I would point you to the NORD white paper which describes all of the orphan drug approvals that the FDA has granted outside of solid tumor oncology and the large majority of those that are described were approved under full approval, not accelerated approval, with a lot of flexible standards, many small studies, many open label single arm studies.

And there are many examples, so rather than to point to any single one I would point you to that paper, but I'll have Ed describe the various approvals that Genzyme, his experience at Genzyme demonstrated on relatively small samples in various forms.

Ed Kaye

Sure. So, when I was at Genzyme, my teams had four drugs approved and they all took slightly different paths so for Fabry we had a reduction in glycolipid, and that was the basis for approval so that was an accelerated approval. But we also had full approvals for Gaucher, for Myozyme, and I think one important aspect to remember is when they say they look at the totality of the data, if you can show a clinical improvement and the drug is acting in the same biologic way that you expect it such as you have a dystrophin deficiency, you replace it, you see a clinical benefit, then it helps again to allow them to make a decision. Because you have scientific and clinical evidence that the drug is doing what you're supposed to do.

Chris Garabedian

I think Robin you had a question about the manufacturing. Again, we are on track to provide study drug for our confirmatory study. This is a case where no news is good news and we, obviously as we get more information around the mid scale production batches and comparability and purity, we'll communicate that as appropriate. But again, we're on track and we've again reiterated our guidance that we would be prepared for a commercial launch at the end of 2014 based on the test runs that we've had to date, so again we're very confident with our activities on the manufacturing front.

Robin Karnauskas – Deutsche Bank

Okay, thank you.

Operator

Thank you. Our next question is from Bill Tanner from Lazard Capital Markets. Please go ahead.

Bill Tanner – Lazard Capital Markets

Thanks for taking the questions.

I guess both of these may be for you, Ed. Just on the quantification of the dystrophin production, can you comment as to whether, do you have a sense that the FDA is looking for some kind of a threshold in terms of the production or are they looking for a correlation between the amount produced and what the clinical benefit that's been demonstrated thus far?

Ed Kaye

Yes, Bill. I think we have an opinion based on looking at all of the data that it's a threshold effect and anything over the 15% to 20% seems to correlate in a clinical outcome so I think the FDA is not disagreeing with that and, but we haven't been asked any further specific questions in that.

Bill Tanner – Lazard Capital Markets

And then as it relates I don't know if you can, and I've not looked at your paper yet, I don't know if its mentioned in there but can you comment as to the extent of a correlation between the dystrophin production and the six minute walk test and whether or not you think that that's going to be something that is actually going to be important to have?

Chris Garabedian

Bill, this is Chris. Here is what we are ready to say at this point. Every patient showed dystrophin levels positive fibers between 30% to 60% after 48 weeks of treatment. Every patient whose evaluable on six minute walk has stabilized their six minute walk test distances. We think that the range we're showing on immunofluorescence of dystrophin is clearly above that threshold that Ed's describing because every patient that we follow, the individual patient data we've shared have all stabilized.

The last 84 week update from the last time point before dystrophin was confirmed, not one patient declined by more than 5% from that last time point before dystrophin was confirmed at the levels I'm describing, so again, we think that correlation is very clear. We've shared all that data with the FDA. And again, we're confident that that helps validate this dystrophin end point, but obviously, that's ultimately the FDA's call and they've indicated that that will be a review issue before they make that determination.

Bill Tanner – Lazard Capital Markets

Okay, and thanks for that.

Maybe just a follow-up for you, Ed. I note that you're the senior author on the Annals of Neurology paper, so maybe as a window into how the FDA could be looking at the data, any commentary you could provide to us as to in the review, and I don't know how long the review process took, it seems like it must have been pretty rapid, but could you, would you care to comment as to what sticking issues were or clarification issues were that the reviewers actually needed in the review of the data before the publication?

Ed Kaye

No, and you're correct. It was a very rapid turnaround, so when we submitted the data, they had a few questions, we did not have to submit any further data, we were able to answer all of their questions and then it was accepted right after.

Bill Tanner – Lazard Capital Markets

Okay, thanks very much.

Operator

Thank you. Our next question comes from Joseph Schwartz from Leerink Swann. Please go ahead.

Joseph Schwartz – Leerink Swann & Company

Hi, thanks very much.

I was wondering about the two patients that lost ambulation and they are discussed in a little more detail in the Annals of Neurology paper, and in particular, I was struck by the fact that they had a similar increase to the mean in terms of the dystrophin that was put back into their muscles.

I would have thought that based on the discussion in there regarding MRI assessments et cetera that their muscles seem to be more fatty and fibrotic, so how is it that they are able to take up the dystrophin in the muscle and then still advance? What does that say about the limits of the technology?

Ed Kaye

Yes. No. I think remember that the biopsies were done in the upper extremities and the boys lost ambulation so we weren't testing, to finalize we weren't testing the upper extremity. So, I think what happens is that the muscle that's remaining is able to take up the dystrophin and produce novel dystrophin, but unfortunately once that muscle is fibrotic, we can't repair it and based on all of the data it appears that it was too late for these boys. We couldn't get dystrophin.

We couldn't change the process and turn the disease process around fast enough. But what we have seen is that the upper extremity function seems to have been stabilized and pulmonary and cardiac function is also stable, so the remaining muscle seems to be responding to the dystrophin, so I wouldn't look at this, as they are non-responders. I think their legs were too far gone before we could make a difference.

Joseph Schwartz – Leerink Swann & Company

Okay, did they have a lower baseline level of dystrophin?

Ed Kaye

No, they were well within the average of the entire group.

Joseph Schwartz – Leerink Swann & Company

Okay, thanks very much.

Operator

Thank you. Our next question comes from Chad Messer with Needham & Company. Please go ahead.

Chad Messer – Needham & Company

Yes. So how concerned are you, and what preclinical data do you have, if any, that when you move on to creating drugs to skip other exons that the dystrophin you end up producing, so you're going to have a slightly different protein every time is going to be as functional as you're getting now?

Chris Garabedian

Chad, I think we've described what our pathway is and we have to continue to discuss this with the FDA, but obviously, we do a lot of in vitro screening with various cell lines on exon-skipping efficiency based on optimized sequences. At the end of the day, the proof of this applicability to other exon targets is going to be in human sample biopsies where we show similar dystrophin levels that we've shown with eteplirsen.

We obviously would be doing safety testing in animals; we have done a lot of surrogate efficacy work in the MDX mouse. There's published papers with morpholinos in the dystrophic dog model. So, again, we believe that once we prove in the follow on patients, in the follow on exon study, that we'll be able to extrapolate that and work with the FDA on accelerated approval.

But again, prior to that, I think it's going to be a tougher leap to just base it on the preclinical because there aren't good models for all of the individual exons that we would be developing.

Ed Kaye

Also just there is some information in humans and we know that certainly for exon 51, there are boys with milder disease, Beckers Variant that have exactly the same length protein, and that's not only for the exon 51 skips, but for other skips, so there is a human experience in nature that suggests if you create a shorter dystrophin, it should work and it should be a milder disease.

Chad Messer – Needham & Company

Great. Thank you very much.

Operator

Thank you. Our next question comes from Debjit Chattopadhyay from Emerging Growth Equities. Please go ahead.

Debjit Chattopadhyay – Emerging Growth Equities

Hey, good morning, and thank you with the questions. I have two, if I may.

The first one would be how much additional safety data do you need to submit with the NDA? And how are you modeling your trial enrollment and potential timing of your filing based on the additional safety data, and the second would be if the FDA does accept your submission, how does your strategy evolve as it relates to exon 51 in Europe? Do you start planning for a Phase III head-to-head eteplirsen after it gets approved? Thank you.

Chris Garabedian

Yes. So Debjit, first related to safety, again there was not a specific requirement outlined for number of patients or timing of exposure to any of the patients in our confirmatory. But it was merely a discussion that if we are enrolling patients who have exposure to eteplirsen while eteplirsen may be under review.

Again the comments from our April 15th communication has the exact commentary from the FDA is that they could consider additional safety data from those early months in that confirmatory study but did not suggest that that was required prior to submission of an NDA or prior to acceptance of the filing of the NDA.

In fact, they were pretty clear that additional safety data, whatever we may have at the time, could be submitted during the review process to help them form the basis of approval, so obviously we don't know how many patients and how long the exposure will be at that time. I'm sorry your second question, Debjit?

Debjit Chattopadhyay – Emerging Growth Equities

The second question was if the of the submission how does your strategy evolve as it relates to the exon 51 in Europe? Do you start outlining for head-to-head eteplirsen trial if eteplirsen gets approved in the fourth quarter next year?

Chris Garabedian

Yes. I think we've communicated a lot about Europe as it relates to eteplirsen. We had a patent opposition hearing in November 2011. We have submitted a notice of appeal of that decision, but at this time, we haven't communicated our longer term strategy as it relates to Europe and believe that if we tried to commercialize eteplirsen, we may be met with an infringement or freedom to operate claim. So, at this time, we haven't shared our specific European strategy as it relates to eteplirsen.

Debjit Chattopadhyay – Emerging Growth Equities

Thank you.

Operator

Thank you. I will now turn the call back to Chris Garabedian for closing comments.

Chris Garabedian

Okay, thank you, operator.

I want to reiterate that we are very pleased to have achieved some clarity with the FDA on the regulatory path forward for eteplirsen, and we are hopeful that our application will be filed for review and that eteplirsen will be considered for approval. There is still significant work to do and many steps to the regulatory review process but we have clear priorities and are focused on the critical activities head in the remainder of this year and into next year.

We are well positioned for success and we have clear direction, the right talent and a strong financial footing to execute on the Company's objectives. We at Carpet appreciate your interest in Carpet and all of those who have supported us in our efforts, thank you.

Operator

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

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