Sarepta On The Move

Oct.21.13 | About: Sarepta Therapeutics, (SRPT)

Last week Sarepta Therapeutics (NASDAQ:SRPT) held a development update meeting with representatives of various muscular dystrophy charities. Much of what follows is based on that meeting with analysis added.

In light of the recent failure of a large drisapersen trial conducted by Glaxo (NYSE:GSK) and Prosensa (NASDAQ:RNA), the question was raised whether the failure invalidates the whole exon-skipping concept.

Different drugs

In response, CEO Chris Garabedian said this:

"While the failed studies with drisapersen were a disappointment to the DMD community, we believe it underscores how important it is to have a chemistry that is not have dose-related toxicities that may prohibit a dose that is active enough to produce a clinical effect. Eteplirsen uses a very different chemical structure as what we call the drug's backbone and this unique chemistry allows us to achieve doses in our studies that are five to eight fold greater than those doses studied in the drisapersen trials.

And the dystrophin dataset, I described earlier, underscores the importance of achieving a dose that produces the type of robust and consistent response that we have seen in our studies. We understand the disappointment of the drisapersen trial participants particularly those who are discontinued from drisapersen treatment upon the announcement of the failed clinical trials."

Exon-skipping

Genes are divided into sections called exons and introns. Exons are sections of the DNA that code for a protein and are interspersed with introns, sometimes called "junk DNA," which are cut out and discarded in the process of protein production.

Exon-skipping causes cells to "skip" (leave out) certain exons during the protein production process. Leaving out these sections allows for the creation of shorter-than-normal, but partially functional dystrophin, the muscle protein missing in DMD.

In etiplersen a kind of "molecular patch" is designed to mask exon 53, so exon 51 can join up to exon 54 and continue to make the rest of the protein, with exons 52 and 53 missing in the middle.

Exon-skipping may reduce the symptoms of Duchenne muscular dystrophy, and makes it similar to the milder Becker muscular dystrophy that is not characterized by the progressive decline and early loss of walking ability observed in Duchenne.

Schedule

Sarepta has a busy schedule planned for the next 6 to 9 months.

In October, it has a CMC (Chemistry and Manufacturing Controls) meeting planned with the FDA to discuss manufacturing requirements for the new drug application to be submitted in the first half of next year.

At another FDA meeting in November, clinical issues will be discussed such as the design of the Phase 3 confirmatory study.

In the confirmatory study the first patient should be dosed in the first quarter of 2014. The company is looking at U.S. and Canadian trial sites right now and lining up support vendors for the trial. The study will be posted at the clinicaltrials.gov website.

Since the exon-skipping technology requires a separate drug for every mutation, a total of 20 drugs are planned. Following exon 51, the company will work on exons 45, 53, 50 and 44. For all of these, laboratory data will be developed so that the company can submit the total package as a class project to the FDA.

Class approval is needed to avoid separate trials for each genotype, which would be prohibitively expensive. A class application uses the same manufacturing process and drug dosage for each mutation.

At the moment the company is not developing drugs for duplication exons or mutations requiring a double skip, however, a network of academic scientists is involved to work on the problem.

Confirmatory study planned

The etiplersen confirmatory study will be an open label study enrolling 60 patients on the drug and 60 patients on placebo. The placebo group will include patients with mutations amenable to skipping exons 44, 45, 50, and 53, all mutations for which no drug is available at this time.

Biopsies will have to be taken to satisfy data requirements, but they are planned in a way that will reduce the burden on the patients and the families.

That means that not everybody will be biopsied; only about 40 patients and the biopsies will follow a staggered schedule. 10 of the boys will be receiving biopsies at week 24; 20 more at week 48 and the final 10 would have muscle biopsies during the extension phase.

Biopsies are necessary in order to compare the dystrophin data obtained in the Phase 2b study with data from the confirmatory study.

The 6MWD (six-minute walk distance) test will be the primary outcome measure, as this test was found to be the most sensitive endpoint to-date. The level of dystrophin production is the secondary measure. Participants will be all ambulatory (so the walking distance can be measured), seven years or older, and will have been on stable corticosteroid use.

From patients enrolled in the study, as a first step, baseline assessments will be obtained, followed by weekly infusions under the supervision of the clinical investigator at designated test sites.

Due to the nature of the disease, CEO Garabedian remarked that running a large placebo control arm may not be feasible (for ethical reasons), but in the end the company will probably do what the FDA tells it to do.

Helping participants of the failed study

The Prosensa kids, patients in the failed drisapersen trial are not getting any medication now. Sarepta will try to help as many of them as possible.

The company is facing patent challenges in Europe that makes it difficult offering the drug at European sites. But it plans to enroll kids who participated at U.S. or Canadian sites assigned to the placebo arm and never received drisapersen.

But there may not be enough of Sarepta's drug to go around and the eteplirsen confirmatory study will have priority to the supply. So the drisapersen patients, handled as a separate group, probably will not be treated until the second quarter of 2014. In that group Sarepta will accept all kids regardless of their ambulatory status.

Charities

Sarepta warmly welcomes opportunities to collaborate with DMD charities.

As an example, the company supports PPMD's (Parent Project Muscular Dystrophy) project offering a genetic testing program to sick boys to determine which drug technologies they may benefit from and what clinical trials they could apply for.

Information about the program will be presented on a newly designed "Let's Skip Ahead" website. The site will feature the latest information on exon-skipping, genetic testing and clinical trials for patients with DMD, their families and healthcare providers who treat DMD patients. Sarepta is great in public relations, as it should be.

Dystrophin

The production of dystrophin is a key issue, since the lack of it causes the disease in the first place.

It was found in trials that after 12 weeks, an increase in the level of dystrophin could not be observed at all in muscle biopsies, despite the fact that exon-skipping was verified in 100 percent of the patients by using the RT-PCR test. The mechanism was working, but apparently it takes anywhere from 12 to 24 weeks for the production of dystrophin to materialize. An increase in dystrophin levels was consistently observed after 24 weeks.

In addition to biopsies, a trained neuropathologist was employed to verify dystrophin production under controlled and blinded conditions. Also, a computer-generated quantification process was used to look at dystrophin signal intensity by applying immunofluorescence.

Dystrophin intensity levels of more than 25 percent on average was observed after 48 weeks of treatment and more than 15 percent in absolute increases on average after 48 weeks of treatment. The absolute increases are measured as a change from the baseline signal intensity.

This data is statistically significant and it correlates with the increases observed by the trained pathologist and the computer-generated assessment of the same biopsy samples.

Only two patients did not observe an increase in dystrophin signal intensity of more than 10 percent after 24 and 48 weeks of treatment: the two non-ambulant twins.

The dystrophin data support the biochemical effect of eteplirsen across the patient population and across the five genotypes studied and explain the positive clinical outcomes and stability seen in the trial.

Investors' summary

Many contrarian investors feel that a high short-interest ratio is bullish, because eventually there will be significant upward pressure on the stock's price as short sellers buy back the stocks they borrowed to return to the lender.

This is what could have happened to Sarepta's shares during the sharp run up in September.

Sarepta carries a large short interest. At the end of September, 10.56 million shares were short against a public float of 31.81 million shares, a 33.20 percent ratio -- quite high.

What could be the reason for the high short interest? One obvious reason is the failure of the Glaxo/Prosensa trial, which used the same approach, exon-skipping, and some investors are unable to see the difference between the two drugs. The other reason is the small number (12) of participants in Sarepta's trial.

On the optimistic side, Deutsche Bank's analyst Robyn Karnauskas is setting a price target at $71.00 and commenting that the fair value of the stock could be as high as $213.

She writes:

"We could see fair value in the $98-$125 range if we assume 100 percent probability to eteplirsen and 80-100 percent market share in treated patients. If we assume 100 percent probability to their other exon program, we get to Sarepta fair value of $213 per share."

This stock is not for the nervous investor. Short attacks can be expected at every opportunity, like a recent one in early October when the pessimistic Favus report came out.

But the stock price is above both the 50 days and 200 days simple moving average. Also the company's cash position is strong.

Sarepta ended the second quarter with cash and cash equivalents 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. But since the end of the second quarter, the company sold approximately 1 million shares and raised $37.9 million on top of the $164 million already in its coffers.

Sarepta anticipates an acceleration of the cash burn in the next 6 to 9 months as the manufacturing capacity is built up for eteplirsen and the expenses rise related to the confirmatory trial.

The crucial point is that as long as the clinical promise holds up, this is a good company and a promising investment.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.