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By Carolyn Da Wang and Andrew McDonald, Ph.D.

In our last article Sarepta (NASDAQ:SRPT) Part I: Possible accelerated approval of eteplirsen, we discussed the possibility of a potential accelerated approval for Sarepta Therapeutics 's lead compound eteplirsen for treating the rare genetic disorder Duchenne Muscular Dystrophy (DMD) base on clinical data assessment. Investors are also concerned about competition from Prosensa/GSK's Phase III candidate PRO051, and potential IP issues. In this article, we will explore these topics and assess eteplirsen's market potential.

Competitive Analysis

The closest competition to eteplirsen is Prosensa/GSK's PRO051 (GSK2402968), which utilizes the same exon skipping mechanism but has different chemical scaffolds. PRO-051 is currently in a 180-patient Phase III clinical study and the results are expected to be released by the end of this year.

Figure 1: A list of past and ongoing trials for DMD

CompoundCompanyMechanism of actionPhaseStatus
PRO051Prosensa/GSKRNA-based therapy using exon skippingII/IIIOngoing
PRO044Prosensa/GSKRNA-based therapy using exon skippingI/IIOngoing
AVI-4838 (eteplirsen)SareptaRNA-based therapy using exon skippingIIbCompleted
PTC124PTC Therapeutics/GenzymeRNA-based therapy targeting nonsense mutationIIterminated due to lack of efficacy
ACE-031Acceleron/Shiregrowth inhibitor TGF-beta antagonistIIterminated due to severe AE (bleeding)

In terms of safety, eteplirsen demonstrated a much better safety profile without major AEs associated with treatment, while PRO051 causes proteinuria, a sign of kidney damage in all of the Phase I/II patients, raising concerns about the long-term use of this drug.

In the 96-week extension trial, 5 subjects had 1-2 treatment interruptions, mainly due to reduction in thrombocyte counts, changes in renal markers and inflammatory reactions.

PRO051 showed encouraging efficacy based on the extension trial results. Seven of the 12 subjects had an increase in 6MWT results at week 48, and 6 of them continued to improve into week 93. The numerical increase in 6MWT ranges was from 53m to 190m at week 96. These data provide clinical evidence supporting treatment by exon skipping, which increases our confidence in eteplirsen which utilizes the same mechanism of action.

From a clinical standpoint, eteplirsen appears to have more upside with a better safety profile. However, considering the stage of clinical development and potential IP issues, it is a reasonable asusmption that SRPT and GSK will split the market at this point.

From a clinical standpoint, a reasonable assumption at this stage is that SRPT and GSK will split the market, though eteplirsen has more upside with a better safety profile.

Figure 2. Clinical data comparison of eteplirsen and PRO051.

DrugPhaseTrial SizeTrial designDose (mg/kg)Duration (wks)6MWT distance baselineTreatment benefitResponse rateAvg. % of dystrophin positive fibersMajor adverse events
Eteplirsen
(AVI-4658)
I/II19Open label, dose escalation0.5 - 2012N.A.N.A.7/199%None
IIb12Blinded, placebo controlled, crossover30 & 504839667m,
p<0.001
12/1247%None
PRO051I/II12Open label, dose escalation & extention0.5 - 65 + 12384±12132±28, insignificant10/1253%Proteinuria (12)
Inflammation (9)

Intellectual Property

SRPT has a relatively solid IP position in the US. Sarepta holds the patent for exon skipping using a single antisense oligonucleotide which it licensed from University of Western Australia (US 7807816, filed in 2005). Prosensa does own a patent (US 7973015, filed in 2003) that describes a method of exon skipping using multiple antisense oligonucleotides. However, this should not block SRPT from commercializing eteplirsen since it's a single oligonucleotide therapy.

In Europe and Japan, Prosensa has a dominant IP position and SRPT currently cannot commercialize eteplirsen without a license for freedom of operation. Sarepta succeeded in invalidating some of the claims in the patent EP No. 1619249 held by Prosensa with the European authority in Nov 2011, however, the claims on the key genes exon 51 and 46 remain intact. Both parties hold the rights to appeal, and it would take multiple years to resolve. We would anticipate the IP war to continue as the drug candidates move along in the clinical development. Our base case assumes that Prosensa continue to hold the EU and JP IP, and SRPT will need to negotiate a royalty deal with its key competitor in order to market eteplirsen outside the U.S.

Market Opportunity Assessment

DMD - orphan drug opportunity: ~ 30,000 boys and young men in the addressable market (U.S., EU and Japan) are living with this rare muscle-wasting genetic disease, whose average life expectancy is only 25 yr. Currently there are no effective treatments for this chronically lethal disease. Steroids and physical therapy are used to alleviate the symptoms and improve quality of life. If approved soon, eteplirsen could be the first disease modifying drug that delays the disease progress and brings hope to the patients and their family.

Market size - $1.4 B WW: The market potential for eteplirsen is estimated at $720M in the U.S. and $1.4B in developed market worldwide (see Figure 3: Market model). Here we assume $400K annual treatment cost (in par with Alexion's drug Soliris for treatment of another debilitating rare disease) for ~1,800 patients in the U.S. Additional upside could come from the exon 45 and exon 50 skipping agents that are still in early stage, which could double the size of the target market to $1.4B in the U.S. and $2.7B worldwide.

Peak sales projection - $560 M WW: SRPT's sales from eteplirsen could reach $430M in the US and $560M WW, assuming a 60% market share in the US, 50% market share ROW, 50%/50% profit sharing with the potential ROW commercialization partner, and 25% royalty to Prosensa/GSK for freedom of operation regarding the single exon skipping IP outside the U.S.

Figure 3. Market model

% of totalUSROWWW (US,EU,JP)
Total DMD pts.100%14,50015,50030,000
% pts. treatable by exon skipping83%12,03512,86524,900
% pts. treatable - exon 5115%1,8051,9303,735
% pts. treatable - exon 459%1,0831,1582,241
% pts. treatable - exon 505%6026431,245
Est. annual treatment cost $400 K$350 K
Total potential market
Exon 51 (eteplirsen, Phase II) $722 M$675 M$1,398 M
Exon 45 (pre-clinical) $433 M$405 M$839 M
Exon 50 (pre-clinical) $241 M$225 M$466 M
Total target market (51,45,50) $1,396 M$1,306 M$2,702 M
Est. market share 60%50%
% attributable to SRPT 100%38%
Est. peak sales
Exon 51 $433 M$127 M$560 M
Exon 45 $260 M$76 M$336 M
Exon 50 $144 M$42 M$187 M
Est. total peak sales $838 M$245 M$1,082 M

Financials & Valuation

SRPT burnt $65.5MM cash in operation during the last twelve months, though a fair amount of it was attributable to the other two government-funded antiviral programs. The company holds $24.5M cash and equivalents as last reported. It just announced a $40M at-the-market equity financing facility with Citadel Securities, which, together with revenue from government funding, should be sufficient to last for 12 months. SRPT has been in contact with potential partners for the commercialization of their DMD program outside of the U.S., which would significantly strengthen the company's financial and operational sources for the launch. Otherwise, SRPT may need to come back to the market for equity funding if a deal does not go through in time.

A quick calculation shows that SRPT stock is worth about $27 (market cap $587M) and $42 (market cap $918M) under the standard and accelerated approval scenarios. The valuation is based on 5.0x peak revenue of $560M 4 years after launch discounted to present at 25%. It should noted that there is significant EPS leverage in this model, as companies like ALXN gain significant operating leverage as the sales scales up. Additional upside can also come from indication expansions with other exon skipping therapeutics.

Several orphan drug companies have rewarded investors handsomely throughout their life cycle. Genzyme, which was later acquired by Sanofi-Aventis (NYSE:SNY) for $20B, was the pioneer in developing drugs for ultra rare debilitating diseases that have a well-understood genetic pathology but no effective treatments yet. Alexion Pharmaceuticals (NASDAQ:ALXN), the developer of Solaris for rare blood disorders, was up 400% through the past 5 years with a current market cap of $22B. Additional orphan drug players include BioMarin (NASDAQ:BMRN), Incyte (NASDAQ:INCY), ViroPharma (VPHM), etc. Vertex Pharma's (NASDAQ:VRTX) highly anticipated drug for cystic fibrosis Kalydeco is also an orphan play. Big pharma and biotech are also increasing their investments in this space given orphan drugs' relatively lower development cost, shorter time frame, favorable regulatory path, and substantial pricing power. SRPT could also be a takeout target in this case.

Figure 4. Comparable companies in the orphan drugs or RNA therapeutics space

TickerCompanyMkt Cap ($M)PriceNo. of shares (NYSE:M)% short as floatP/SReturn
- 3 mon
Return
- 1 yr
SRPTSAREPTA THERAPEU63127.892317.43%14.5618.1%421.3%
ALXNALEXION PHARM22,123114.591932.65%22.414.6%67.3%
VRTXVERTEX PHARM11,64353.952163.31%5.41.7%23.1%
BMRNBIOMARIN PHARMAC5,32343.081248.15%10.7-0.4%26.4%
INCYINCYTE CORP2,36118.0513117.38%13.7-30.8%19.6%
ISISISIS PHARM9689.6210110.18%7.8-24.0%31.3%
ALNYALNYLAM PHARMACE96618.49529.73%10.2-5.7%140.6%
VPHMVIROPHARMA INC2,03829.666912.80%4.130.3%46.5%

*Market data as of 10/19/2012, Source: Bloomberg

Source: Sarepta Part II: Commercial Potential Of Eteplirsen In The Next Hot Market For Orphan Drug