Sarepta Therapeutics' CEO Discusses Q2 2012 Results - Earnings Call Transcript

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 |  About: Sarepta Therapeutics, Inc. (SRPT)
by: SA Transcripts

Sarepta Therapeutics, Inc. (NASDAQ:SRPT)

Q2 2012 Earnings Call

August 07, 2012 05:00 pm ET

Executives

Erin Cox - Manager, Corporate Communications & IR

Chris Garabedian - President & CEO

Ed Kayne - CMO

Mike Jocobsen - VP, Finance.

Analysts

Steve Brozak, WBB Securities

Ed Tenthoff - Piper Jaffray

Charles Duncan - JMP Securities

Operator

Welcome to the Sarepta Therapeutics second quarter 2012 earnings call. My name is Leslie and I will be your operator for today. 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. And I will turn the call over to Erin Cox. Ms. Cox you may begin.

Erin Cox

Thank you, Leslie and thank you for joining today's call. Earlier today we released our financial results for the second quarter of 2012. The press release is available on our website at www.sareptatherapeutics.com and our 10-Q was filed earlier today. Joining me on the call today are Chris Garabedian, our President and Chief Executive Officer, Ed Kayne, our Chief Medical Officer, Diane [Veri] our Vice President of Global Health Policy and Government Affairs and Mike Jocobsen our Vice President of Finance.

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, clinical results, intellectual property position, revenues, expenses, 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. Any such risks could materially and adversely affect the business, results of operations and the trade practice of Sarepta’s common stock. For a detailed description of risks and uncertainties we face, you are encouraged to review the company's 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 CEO. Chris?

Chris Garabedian

Thank you, Erin. Good afternoon everyone and thank you for joining us. I'm pleased to provide you with an update and overview of our activities and accomplishments since our last earnings call along with our financial performance in the second quarter of 2012. We reached a very important milestone in our DMD program since our last earnings call.

We announced on July 24 that our Phase IIb study of eteplirsen in Duchenne Muscular Dystrophy showed significant clinical benefits after 36 weeks of treatment on the primary clinical outcome to 6-minute walk test.

As a reminder of the 36-week data that we shared two weeks ago in a conference call, which is available on our archive webcast through our website. We showed in our intent-to-treat population, using the predefined statistical analysis that was written in the statistical analysis plan for Study 201.

The placebo-delayed treatment cohort declined an average of 78 meters from their baseline 6-minute walk test distance or a decline of approximately 20% from their baseline score of 395 meters, compared to a decline of 8.7 meters in the eteplirsen 50 mg per kg weekly cohort or a decline of approximately 2% from their baseline score of 396 meters. And this difference resulted in a statistically significant benefit with a p value of 0.019.

Furthermore a statistically significantly benefit was also seen at the earlier time point of 32 weeks. Through 32 weeks, there was a 59.9 meter benefit with the eteplirsen based on an average decline in the placebo-delayed treatment cohort of 63 meters, while the eteplirsen 50 mg per kg cohort declined only 3 meters or an average of less than 1% from baseline.

This resulted in a p value of 0.045. The magnitude of this benefit is unprecedented for a disease modifying drug in DMD and is a greater effect than has been in other drugs that have been approved with 6-minute walk test as an end point, most of which have produced a benefit of 30 to 40 meters.

In summary, with this recent clinical finding we now have demonstrated the three key elements that we believe is required of a successful disease modifying drug for the treatment of Duchenne Muscular Dystrophy. First we have demonstrated as previously reported a statistically significant increase in novel dystrophin at 24 weeks with an average of more than 20% dystrophin positive muscle fibers as a percentage of normal and we will be capturing a third biopsy at the 48 week time point and expect to have the full dystrophin data set to share in October.

Secondly eteplirsen has been well tolerated and we have seen a favorable safety profile to date, an important characteristic for a disease that will likely require lifelong treatment. And thirdly and finally we have demonstrated an unprecedented and statistically significant benefit with eteplirsen on the standard measure of ambulation and progression of disease in DMD, the 6-minute walk test with a benefit of as I mentioned 69.4 meters after just 36 weeks.

The dystrophin data set at 48 weeks that will answer many questions including how much the dystrophin levels increase in the 30 and 50 milligrams cohorts between 24 and 48 weeks and how much more dystrophin is produced at 50 milligrams at 48 weeks compared to 30 milligrams.

In addition we will have 24-week dystrophin data for two patients each at 50 and 30 mg per kg from the original placebo patients to compare to the previous cohorts where we have showed dystrophin production. The 48-week data set is very important to the company and that we think that the dystrophin data set could be meaningful to the FDA when we discuss our clinical study results as we believe dystrophin is the essential protein that is lacking in DMD patients and should be viewed as a surrogate marker that would reasonably predict a clinical benefit.

This is one of the key criteria for the FDA to consider drugs for accelerated approval. The recent passing of the PDUFA V reauthorization was signed into law by President Obama, had specific provisions that encouraged the use of accelerated approval for rare diseases.

We plan to prepare the 48-week dataset in a briefing document as part of a request for an end of Phase IIb meeting with the FDA to determine the design of a confirmatory study for a traditional approval pathway.

Additionally and assuming the 48-week dataset is consistent with our previous datasets in terms of dystrophin production, safety and clinical benefit, we will discuss the feasibility of an accelerated approval pathway based on our Phase IIb study and the previous clinical studies that have been conducted with the eteplirsen.

We plan on requesting the meeting with the FDA following our 48-week data release and we expect that meeting will happen around yearend in December or January. We will plan to present this data publicly at the World Muscle Society meeting that is taking place during the second week of October in Perth, Australia.

Although we still need to discuss our planned confirmatory or pivotal study with the FDA, we are still planning to initiate enrollment in a confirmatory study with eteplirsen in late 2013. Our broader DMD program also continues to show good progress with our two collaborations on Exon 45 and Exon 50 drug candidates where we are receiving grants to support the IND enabling work to move these two candidates into clinical development.

We are also in discussions with granting authorities and foundations for the pursuit of other Exon skipping drug candidates. A strategic partner that can bring more resources to bear on our broader DMD program should be a win-win for Sarepta and for the DMD community and that it may allow us to accelerate the development of other DMD drugs and towards an eventual class approval for our Exon skipping drug platform.

This will enable us to provide treatment sooner for the broader group of DMD patients who can benefit from our Exon skipping drugs.

Since we disclosed the 36-week clinical data, we’ve received a number of inquiries from potential partners to engage in further discussions and diligence on our DMD dataset and programs. Specifically, there were several potential partners that were not interested in meeting with us prior to the recent 36-week data, but reached out after we released the data and indicated that the recent data changed their thinking and willingness to discuss potential interest in a partnership.

With this increased interest from potential partners, since our 36 week data was released, we believe the potential of an ex-US partnership may exist where we can drive a revenue generating and ultimately cash flow positive business with eteplirsen in the US market while accelerating the development of our other Exons so that we can follow up eteplirsen with multiple DMD drugs for other Exon skipping targets.

Of course we're not waiting for a partner to continue to advance eteplirsen and the other Exon skipping drug in our broader DMD program.

Now I will turn our attention to the government-sponsored infectious disease programs. First I would like to address the stop-work order we received from the Department of Defense late last week with respect to our Ebola contract.

The stop-work order stated that the action is being taken due to recently imposed funding constraints and it does not apply to the company’s ongoing Marburg effort funded under the same contract.

The stop-work order will remain in effect until September 1st 2012 and by this date, the Department of Defense will either terminate the Ebola portion of the contract, cancel the stop-work order or extend the stop-work order period which would essentially delay the ultimate decision to continue or cancel the program.

Importantly, the Department of Defense issued a stop-work order for a competitive Ebola program and we believe it is important for the government to continue to support Ebola drug development programs. We hope the government will consider lifting the stop-work order or an extension of the stop-work order before they move to cancel the contract outright.

In light of the recent Ebola outbreak in Uganda, it highlights the high mortality rate and lethality of such a virus and the need to have effective treatments. We announced in the earnings release today that similar to Sarepta's single-agent Marburg drug, the food and drug administration has agreed to allow Sarepta to proceed with a single oligomer for our Ebola drug development program.

This Ebola single oligomer AVI-7537 is in studies in both humans and non-human primates that support the safety and efficacy of post exposure prophylaxis against Ebola virus infection.

We presented the data from this Ebola program at the Oligonucleotide and Peptide Research Technology and Product Development Conference also known as TIDES in May of this year where the data from a confirmatory study demonstrated survival of 75% and 63% in non-human primates administered both the single agent AVI-7537 and the combination AVI drug 6002 respectively compared to 0% in both the single agent AVI-7539 and placebo groups.

Based on these results, we concluded that AVI-7537 is the active component in AVI-6002 and that further development should proceed with this single-oligomer component AVI-7537.

We also announced this quarter, that our drug candidate for the Marburg virus AVI-7288 demonstrates up to 100% survival in non-human primate studies exploring the drug’s effect when treatment is delayed to the various high points post infection. The study demonstrates a significantly higher rate of survival among non-human primates treated with AVI-7288 when treatment was administered up to 96 hours post infection compared to none of the non-human primate surviving in the placebo treated group.

We believe these results are unprecedented in primates against such a leap of virus, and underscores the efficacy of our drug technology against infectious disease targets. Additionally, we believe these data enhances the value of developing our technology for applications that would benefit a broader civilian population where there maybe a delay distributing or administering the drug after exposure to lethal pathogens.

Accordingly, we are ensuring that other government agencies are aware of these data and the potential applications beyond the warfighter and for a general population. To achieve this goal, we note the safety profile of our drug technology and platform will be an important consideration to encourage development for a broader use in the civilian population. And to this end, we have planned our Multiple-Ascending Dose or MAD study in healthy volunteers for our Marburg drug, AVI-7288, in which this study we will be evaluating multiple doses and potentially higher doses than the 9 milligram per kilogram that we proved safe in single-ascending dose studies.

Lastly on the corporate front, as you know, we change the company name and ticker symbol to Sarepta Therapeutics and SRPT respectively on July 12. We also effected a one-for-six reverse stock split to strengthen our financial base. We previously had one of the highest number of shares outstanding before the reverse split for market caps of biotech companies in our trading range and it meant that we often dipped below $1 a share with fluctuations in our stock price, despite having a market cap, which was higher than most companies in our trading range.

As a result of our reverse split, we now have 22.6 million shares outstanding and we since experience our highest trading volume in the history of the company, two weeks ago with nearly 17 million shares traded post split.

We’ve also seen a significant increase in the price adjusted volume in the last couple of weeks and on an average in the time period post split. This also help to bring us back in compliance with NASDAQ's minimum $1 per share bid price requirement by a large margin and brings us more in line with the number of outstanding shares for a biotech company with our market cap and trading range.

We think these corporate level changes to our name or capitalization structure and our renewed focus on-late stage clinical development, especially on the heels of some compelling proof of concept data in both our rare and infectious disease programs, hence prepare the company for the future and to introduce the company to new customers, collaborators and investors for the long-term.

Lastly, I am excited to tell you that Sarepta was invited to ring the closing bell tomorrow at the NASDAQ market site in Times Square and we think it is an excellent time to celebrate what we see as a new era for the company.

NASDAQ has been the home of some of the greatest technology companies in history and many of these companies have made a big imprint in the world and we believe our technology has the same transformational potential in the treatment of disease and the future of medicine.

That concludes my corporate update and with that I will turn it over to Mike Jacobsen who will give you a financial update for this quarter. Mike?

Michael Jacobsen

Thanks Chris and hello everyone. In the second quarter of 2012, we reported an operating loss of $5.6 million compared with an operating loss of $10.1 million in the second quarter of 2011. The decrease was primarily due to reduced research and development expenses along with some lower G&A costs.

Revenue for the second quarter of 2012 was $11.2 million virtually the same as $11.6 million one year ago. During this quarter, we had an increase of $600,000 in our Ebola Marburg contract revenue primarily due just the timing of subcontracting activities. This increase was offset by a $900,000 decrease in revenues due to completion of the H1N1 flu contract in June of last year.

With regards to R&D, our expenses were $13.8 million in the second quarter of 2012, a decrease of $3.9 million from the prior year quarter. The decrease was primarily due to a $2.1 million reduction in personnel related costs and proprietary research, a $1 million decrease in our DMD program costs based only on the timing of clinical and manufacturing activities and $800,000 decrease in cost associated with the completion again of the H1N1 US government contract last year.

SG&A expenses in the second quarter of $2.9 million compared to $4 million in the second quarter of 2011. The $1.1 million decrease was primarily due to reduced employee related cost but that now let me look a little bit at the year-to-date comparisons.

For the first six months of 2012, our operating loss was $12.4 million compared with an operating loss of $15.7 million in the first half of 2011. The $3.2 million decrease was a result of $6.7 million of reduced operating in cost partially offset by reduced revenues and completion of the H1N1 contract.

Revenue for the first six months of 2012 was $22.4 million, the decrease of $3.5 million from 2011 and again this decrease was primarily due to the H1N1 flu contract. R&D expenses are $28.7 million so far this year, which is a reduction of $3.9 million from the prior year.

The decrease was primarily due to $1.9 million reduction in cost associated with the completion of the H1N1 government contract at $1.3 million decrease in personnel related cost and proprietary research and additional $6,000 decrease in spending on the Ebola and Marburg government contracts.

G&A expense in the first six months was $6.2 million and this is a decrease of $2.8 million from the prior year. The decrease is primarily due to $2 million reduction in employee related costs and a $400,000 reduction in professional service costs.

In the second quarter of this year, we had net income of $8 million or $0.36 per basic share compared to net income of $1.3 million or $0.06 per basic share in the second quarter of last year.

For the first six months of this year, our net loss was $9.7 million or $0.43 per basic share compared to the net income of $3.1 million or $0.15 per basic share in the prior year.

For all periods, the earnings loss per basic share has been restated to reflect the one-for-six reverse stock split that the shareholders approved and we put in place in July. For both the quarter and the year, the large fluctuation in our liabilities for the outstanding warrants is one of the major drivers impacting our net income and loss.

In the second quarter of this year, the downward revaluation of our outstanding warrant liability increased other income by $13.5 million compared to $11.3 million increased in the second quarter of 2011.

For the first six months of this year, the downward reevaluation of our warrant liability increased other income by $2.6 million compared to an increase of $18.5 million in the first six months of last year. And one thing to note on this is that change is a non-cash charge.

Looking at our balance sheet, at the end of the quarter we had cash and cash equivalents of $24.5 million. This is a reduction of $6.1 million from the first quarter and reflects the $3.3 million reduction in our cash burn rates for the first quarter of this year.

We are continuing to take a hard look at our cash burn as well as exploring additional sources of fund including stock, debt offering, and as Chris talked about, potential partnerships. Taking into consideration of the funding from only our Marburg government contract, we’re comfortable that we have sufficient cash to fund our operations for at least the next 12 months.

Now let me just spend a minute, talk about revised guidance, and the impact of stock, Ebola portion of our US government contract and some of the cost savings we've put in place.

Based on the Ebola change in cost saving measures, we previously implemented an additional cost savings, we are in the process of implementing, we anticipate our 2012 full-year revenue will be in the $37 million to $43 million range and our operating loss will be reduced by approximately $5 million [albeit] in the $25 million to $30 million range.

This guidance conservatively assumes the only activity associated with the Ebola portion of the contract will be close-out activities which we just don’t have a definitive answer on.

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

Chris Garabedian

Okay, thank you Mike. Operator, we can open up the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) First question is from Ed Tenthoff. Please go ahead.

Ed Tenthoff - Piper Jaffray

It seems like Sarepta is a good new name for the company and you guys are really excelling since the change. So following up a little bit more on the data we have seen in Duchenne Muscular Dystrophy; I appreciate the update on kind of the clarity with respect to accelerated approval based on the 48 week data when we get that. Is there any specification in terms of what kind of patient number might be required for accelerated review?

Chris Garabedian

Yeah, so Ted, I don’t think there is a hard and fast rule as it relates to that. I look at this as there are a couple things that the FDA is going to be looking at and you can break that into having proven efficacy and again under accelerated approval it’s that you have a marker that would reasonably predict a clinical benefit.

And I think from an efficacy standpoint, the FDA has seemingly not been as concerned with the number of patients to show an effect and you can look to Alexion's drug Soliris was approved for a second indication on 13 evaluable patients. You can look at a drug like Afinitor that was approved Tuberous Sclerosis on nine patients out of 28 patient open-label study that showed response of brain lesion reduction. There are many other examples that have been highlighted in terms of proof of efficacy.

I think the question is, what is the safety data base that is going to be required for an accelerated approval. And again, we are encouraged by our safety profile and we believe that that should give the FDA more comfort, we have other studies in which we have had eteplirsen exposed to patients, our dose-ranging study with 19 patients we did a IM study with eteplirsen prior to that. And of course we would commit to a confirmatory study and they would know that we would be evaluating a larger dataset moving forward.

So you know we are not in position to make any declarations at this point. We want to wait for the 48 week data. We want to see what it’s telling us and we want to prepare a briefing document to discuss with the FDA, the feasibility of accelerated approval. But until we have that 48 week dataset and really until we have that conversation with the FDA, it’s hard for us to make clear assessments of the probability of that.

Ed Tenthoff - Piper Jaffray

And one another quick question if I may, with respect to OUS partner, have you had any conversations with EMEA yet in terms of what’s their view of the dataset is and kind of their expectations might be for a path to approval?

Chris Garabedian

You know we have not, but we watched the EMA closely in terms of their decisions on other rare disease drugs and we are very encouraged that in some cases they seem very amenable to take Phase II dataset and consider that for -- they have a different term than accelerated approvals for extraordinary circumstances. And so we will be preparing a briefing document that we think just as we would discuss with the FDA, we think that would easily be prepared for an EMA discussion as well.

Operator

And our next question comes from Charles Duncan [JMP Securities]. Please go ahead.

Charles Duncan - JMP Securities

My first question is regarding The World Muscle Biology Conference in October you mentioned, Chris I am wondering when the abstracts are due. I think you mentioned that you would be filing a late breaking abstract and if so if there would be a PR around that and if it would include any data?

Chris Garabedian

Yeah, so the abstract dead line is in late August and we; this is a single track muscle disease meeting, so unlike society meetings that are multi-track and there's a lot more competition for abstract, we believe that this definitely will be of interest for presentation and so we will be submitting an abstract for a 48 week data presentation by the end of August.

However, we will not have data to put into that abstract, so we will put the 36 week data into that abstract with a understanding that we will have 48 week data ready for presentation at the meeting, but we do not expect to have a press release with any additional data at the time we submit that abstract.

Charles Duncan - JMP Securities

Second one is with regard to the time and cost of Phase III. I understand the prospects for the upside for an accelerated approach, but could you help us understand what could be the rate limiting steps to starting a Phase III at the end of ’13. Is it safety and how much safety do you have to show before that or are there some other rate limiting steps before the start of Phase III?

Chris Garabedian

You know, again Charles, we've guided that we believe we can initiate enrollment of a pivotal study by the end of 2013. We have some ideas and again, Ed Kayne and his team and myself we’ve been thinking and debating various designs that we would propose to the FDA and discuss with them. And so we want the benefit of accessing the 48 week dataset to help us guide the design, the powering of that study and then we're going or look to analog in rare disease space of what we think of reasonable safety database that would be require for a confirmatory pivotal study.

We will be putting as much preparation in place to think about that, but we really aren’t going to aggressively pursue a strategy until we talk to the FDA, which I mentioned we expect to have a meeting by the end of year or January. And from that discussion, I think that will hopefully give us the right type of feedback that will guide our decision on the right pivotal study.

With respect to rate limiting steps to start that or the financial requirements to do that, there is not much expense that’s required in planning all of that and it really, once you really start with enrollment and securing the sites and working with CROs to prepare for that, then you start to incur cost, but as you know, the bulk of the costs are once you started rolling and you start dosing the patients etcetera, we would also need to ramp-up the drug supply in anticipation of the study.

So I envision that in 2013, that there would be costs required to produce drug supply and until we know what that sample size is going to be, I think it’s hard to guide exactly what that’s going to cost. But I will tell you, generally what I have been saying is that we think a pivotal study the size of about 60 patients may be that’s 40 treated versus 20 placebo or something in that range, we believe would be sufficient to power for clinical outcome and to satisfy the safety requirement of the FDA. So hopefully that gives you the guides that are you looking for in terms of preparing for that pivotal.

Charles Duncan - JMP Securities

And then one last strategy question, it sounds like you are getting some good response out of perspective partners. But I wasn’t clear if you are saying that you would do just an OUS partner or that’s your target and then keep the drug for US and perhaps mount to commercial -- establish a commercial effort in the States; I am not sure if what your strategy is there?

Chris Garabedian

So let me clarify that Charles, so its interesting, my answer on that question might have been different a few weeks ago, and I think even on the last earnings call post 24 week data, we suggested that all options are on the table.

I think our preference if we decided to pursue a partnership is to retain the US market and the reason is this, we have done a lot of the heavylifting we believe to prepare for an FDA approval. We think that commercially we have expertise to know how to prepare for that and it would not require a huge amount of resources to sell the drug. And we think that that’s achievable and we can manage our bottomline more effectively, we can build a revenue generating and cash flow positive business on a US commercial launch.

When you look at companies like Alexion or others and the multiple you get from developing your own commercial infrastructure and generating that revenue and income that's very appealing. However, to do that globally right, is a different effort. It requires more resources and while we could achieve that we think that with a partner we could accelerate the development of the other Exons. We think they could bring their resources to bear to get the broader DMD program to the market and that includes beyond eteplirsen, the other Exon-skipping drugs and ultimately a class approval and we believe that would be a win, win for Sarepta, for a partner and for the DMD community to get drugs to market more quickly and that would be our preference.

And again the amount of interest we are getting in this program now that we have this clinical benefit that we've shown in 36 weeks, reason to believe that we would be able to orchestrate an ex-US partnership. Of course, we need to look at the economics versus going alone. We need to weigh that and what’s in the best interest of the program for shareholders of Sarepta and we haven’t made a decision either way, but we are definitely exploring the prospect of a partnership and would lean more heavily toward an ex-US deal.

Charles Duncan - JMP Securities

And I guess I assume that could be signed before the commencement of a pivotal study if one needs to be pursued?

Chris Garabedian

Yeah, most definitely it could be commenced before then. I think because we’re getting close to the 48-week data, it's unclear if we could get a deal done. I mean I think some times these can happen very quickly.

And so I think what we're focusing on now is preparing these companies with diligence, with the meetings to understand what type of structures in terms would be acceptable and you know, potentially we would be ready to move quickly if the right deal structure and economics came to bear. But it's really hard to guide on timing on that. But think it's fair to say, if we pursue the partnership, that would likely commence prior to a pivotal study.

Operator

(Operator Instructions) We will take the next question from Chris Murray.

Unidentified Analyst

Looking at other DMD candidates, I was just wondering beyond Exon 45 and Exon 50, you noted your partnership could trigger further development of other candidates into the clinic. How far long are any of those candidates or how long do you think or do you estimate it would take to bring those candidates in to the clinic and initial study?

Chris Garabedian

Yeah. So Chris, the two collaborations we have ongoing on Exon 45 and Exon 50, we have guided that the pre-clinical program we believe could be ready to submit an IND by the end of next year. That’s our goal and again we're preparing and planning a program for those two drug candidates that would allow us to prepare an IND and presumably be ready for clinical studies in 2014. What's required for an additional Exon skipping drug, that’s a discussion we also want to have with the FDA. We think that this is part of a three-step process to gain a class approval.

And we want to discuss this strategy with the FDA. We know that we need to prove safety and efficacy with our lead program eteplirsen, so first things first. We want to get to the 48-week dataset. We want to understand what a confirmatory study needs to look like in the FDA side to get a traditional approval.

We also want to understand what is the burden of safety in efficacy on additional Exon skipping drugs in the clinic to get approval for those and we know that in a rare genetic disease like this where it's feasible to do clinical study on the first you know most prevalent Exon skipping drugs we treat the most prevalent mutations. But beyond that there is a long tail and it becomes prohibitive to do traditional safety and efficacy studies once you get beyond the first a handful of Exon skipping drugs.

So the second step, we believe is approving similar safety pharmacokinetics with a standard dose with additional Exon skipping drugs. That might be Exon 45 and Exon 50, may be adding Exon 53 or something else into a companion clinical program and then beyond that, we want to discuss with the FDA what would be required to assuming we prove safety and efficacy with the first few Exon skipping drugs.

What is going to be required to get approval for Exon-skipping drugs that would treat a rare set of mutations and have a lower prevalence of patients that would benefit where it would be in feasible and maybe possible to really do clinical studies the traditional way, and this is something that there's been discussions informally and formally around what that might look like.

There's not clear guidance but we do believe the FDA is thinking about this the right way and I believe the regulators and the FDA included understand that they have to approach these rare genetic diseases where a technology is truly needs to be personalized to the genetic mutation that the patient has, have to be considered differently in terms of what's required for drug approvals.

And I think it starts with again our lead program, some additional proof of concept where we can maintain the same backbone chemistry, prove sequence independent safety pharmacokinetics that has metabolized, execrated the same way and that we have sequence dependent efficacy or sequence dependent ability to produce dystrophin and again this is a broader strategy for the program that we need to have a discussion with the FDA around.

Unidentified Analyst

And if I could really quickly to the DoD and perhaps maybe could you give us some color on maybe why they chose the Ebola versus the Marburg program in terms of which one they wanted to do a stop work order on obviously you got two there, are you further along on Marburg, is that a more interest of them?

Chris Garabedian

Yeah, I have Diane Barry here who heads up our global health policy in government affairs and Diane will answer that.

Diane Barry

So, we had no indication that they are prioritizing Marburg over Ebola or Ebola over Marburg. I think it clearly the fact that with our Marburg program, currently we are the farthest along in development. We don’t have a competitor that’s also funded by TMT and the reality of the situation is that DoD is under some tight fiscal constraints and the Ebola program that they are funding two competing candidates that are relatively at the same stage of development. So they have to make some tough decisions there, but I have been saying that both people are hardworkers still till a priority for both DoD and for the civilian community and their share requirement is a huge gap and our medical countermeasure stockpile. I will leave it at that.

Chris Garabedian

Chris, I will just add. I mean the two programs that are being funded by TMT for Ebola were both issued to stop work order and you know, again as I mentioned in my script, I believe they need to support in Ebola drug development program and we think that the Ebola program that we have provides a lot of leverage in that when you combine the Ebola program that we have with our Marburg program. It really supports a platform approach of our technology. We have the same PMO plus backbone that we're using in both programs. They’re both single agents. The only difference is the sequence and we believe that the value of maintaining both of these programs to not only the DoD but to other government agencies who are looking for a platform technology that could be applied to other viral targets and other pathogens is important.

So again, it’s unfortunate the fiscal constraints that the government and the DOD is under to have to make these decisions, but we are still hopeful that they will see the value in maintaining the Ebola program. Again, we will know by September 1st, if they will cancel the Ebola program, if they will cancel the stop work order and allow us to continue or if they will delay that decision with a extension of the stop work order.

Unidentified Analyst

And then just real quick, the competitor doesn’t have another sort of similar platform program with another DOD candidate; do they?

Chris Garabedian

Not that I am aware of.

Operator

We have a follow-up question from Charles Duncan [JMP Securities]. Please go ahead.

Charles Duncan - JMP Securities

I had kind of a follow-up for I guess Mike related to that stop work order. I am wondering if you could clarify, you gave new guidance on both revenue and expenses, I am assuming they are both going down if there is stop work through the rest of the year? And then also if you could help us understand the percentage of overhead or so that was taken care by the Ebola part of that contract?

Mike Jocobsen

With regards to the guidance, our previous revenue guidance was in the $40 million to $50 million range and now we are at $37 million to $43 million based on the assumptions that the Ebola work will be significantly curtailed just from the financial conservative point of view of that.

With regard to operating loss, our old guidance was $30 million to $35 million. Since we initially gave that guidance and as we have looked and made adjustments to our operating burn rates and that kind of stuff, we were able to bring that down.

I think as Chris has talked on earlier calls, our margins and etcetera on the government contracts isn’t huge; it is a way that helps us develop and move our technology forward, it’s a way that helps cover certain operating costs, but the margins aren’t huge. And I don’t think that’s something we have previously disclosed with regards to the margins and so.

Chris Garabedian

Well, so what we have guided it depends on how you assess huge or not, but we’ve guided about 8% cash flow, these are cost plus arrangements and so the cash flow is not significant to offset burn on the proprietary programs.

The margins with overhead and G&A kickers, we have guided that we believe they are in excess of 20%, but just to answer your question Charles, we have not really provided guidance historically on expenses, okay. The expenses on the government programs are very proportional right; the margin that I mentioned is on top of it in terms of revenues, but they are very proportional to the revenues that we book on those programs. So imagine 75% to 80% of the revenues we book there is expenses attached to that that supports government programs.

In order to figure out expenses on the proprietary basis, well then that’s our operating loss; it’s a proxy for that, plus some of the margins were offset that we would have from the government programs could be applied. So I hope that answers the question you were looking for.

Charles Duncan - JMP Securities

Yeah, it does sounds like not a big deal. Just one additional clarification on that if there is a stop work that remains in existence, you would be free to use all the information and work and go beyond them if you had another government contract?

Chris Garabedian

You know, some of this -- like we own the product and data from the program, but we would want to discuss with our government collaborators, because they are still our collaborators on Marburg and they potentially could be collaborators on future programs and we also know that the agencies talk to each other and they are aware of the various programs that are being funded. And so it’s been our best interest to keep good relations and to make sure we understand what their expectations are and you know what our plans are. And as long as we keep that good dialogue and communication you know TMT and DOD has been great partner in trying to navigate any types of issues like this. So I don’t want to make any strong declarations, but we would talk with our collaborators and we would figure out the best things for Sarepta and for the government going forward.

Charles Duncan - JMP Securities

Makes sense again congrats on the DMD data; looking for that 48 week data and appreciate the added color.

Chris Garabedian

Operator, I think that concludes the time we have today. I just want to say, we are we are very excited about the recent developments on both the Duchenne and some of the Marburg data more recently and thank all the listeners for continued support of Sarepta until the next call. Thank you.

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