Markets Slowly Wise Up To Sarepta's 'elegant Placebo'

| About: Sarepta Therapeutics, (SRPT)
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With Sarepta’s (NASDAQ:SRPT) share price this week slumping below $30 a psychologically important point has been reached: virtually all the gains resulting from September’s shock US approval of its controversial muscular dystrophy drug Exondys 51 have been erased.

The problem seems to lie in severe restrictions that insurers have put on Exondys 51; if payers quickly wised up to this “scientifically elegant placebo”, as one FDA expert called it, the markets are only now catching up. Not fast enough, reckons Leerink’s Joseph Schwartz, who in a forensic analysis this week exploded some investors’ exuberance.

His argument is based on an analysis of the emerging picture of reimbursement denials for Exondys 51 on one hand, and the market’s reduced but still overblown sales expectations on the other.

Despite the sell-off, Mr Schwartz writes that “the Street estimates [still] project that Exondys 51 will outpace the majority of prior orphan drug launches during its first three years”. This would see Sarepta’s sales hitting about $380m three years after launch, on a par with Alexion’s (NASDAQ:ALXN) Soliris and bettered only by Vertex’s (NASDAQ:VRTX) Kalydeco among the 16 orphan drug launches considered.

EvaluatePharma bears this out, showing 2022 revenue expectations of a whopping $934m, according to sellside consensus dating from late October. This puts Exondys 51 on a trajectory ahead of such rare disease successes as Biomarin’s (NASDAQ:BMRN) Vimizim, Shire’s (NASDAQ:SHPG) (OTCPK:SHPGF) Cinryze and Sanofi’s (NYSE:SNY) Fabrazyme.

Just considering the fact that Exondys 51 is at best a niche drug, the highly dubious clinical benefit it has shown, and the internal battle that went on at the FDA before it was approved, that sounds rich (Sarepta, patients win – but what of regulatory oversight?, September 19, 2016).

Repeated denials

Mr Schwartz goes further, pointing to conversations with payers indicating that, while some have taken an “accommodative stance”, others are denying all patients, including after repeated appeals. Reportedly Anthem (NYSE:ANTM), Humana (NYSE:HUM) and United Healthcare have either denied or restricted coverage of Exondys 51.

This all links closely to a Sarepta program called Sareptassist, which aims to help patients secure reimbursement for the drug. At issue is the success rate that a patient is likely to have in getting coverage after submitting an enrollment “start form”.

Leerink had previously assumed that, based on management guidance, some 200 start forms needed to have been submitted by early January for Exondys 51 to hit consensus sales of around $20m in the first quarter of 2017. Now it has had to rein back that estimate, saying at least 250 would be needed – and even this assumes that 80% succeed in getting reimbursement within two months.

While this might to some be mere confirmation of Exondys 51’s irrelevance, it partly vindicates its approval by the US FDA. The agency is only responsible for ruling on safety and efficacy – though it could still be argued that it failed on this count – and it is happy to leave a drug’s real-world performance for payers to sort out.

True, Mr Schwartz concedes that matters could improve, but this would require insurer denials to abate and patient start form submissions to surge. While he cut Sarepta’s target to $33 a share, this is still above the group’s current stock price.

For Sarepta fourth-quarter revenue numbers will show just how bad things have been. In the meantime, investors could do worse than looking carefully to patient start form submission numbers as an indicator of a further market pullback.

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