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Sarepta's $37m Offering: Part Of A Bigger Picture?

|Includes: IBB, Sarepta Therapeutics, Inc. (SRPT), XBI

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Busy 2 Weeks For Sarepta Therapeutics

It's been an active and volatile two weeks for Sarepta Therapeutics, as one might expect. First the FDA announced that they wouldn't meet the offical decision deadline for the review of Sarepta's DMD drug, Eteplirsen. Then, the FDA updated their application process for "compassionate use." Even though they said it had nothing to do with Sarepta, investors weren't fully convinced as the shares took a beating. Monday we heard that the FDA asked Sarepta for more information on dystrophin. Today Sarepta announced a $37.5 million offering of common stock.

Why the capital raise?

Why would Sarepta raise $37 million if they knew the FDA was not likely to approve Eteplirsen? Our theory is that the FDA will wait a bit longer for fresh data from the confirmatory study, and use that data as evidence enough to approve Eteplirsen. The $37 million raise (equivalent to about 1 quarter of cash burn) suggests the company could be expecting an approval within the next 3-6 months. With only $48 million left in the coffers, Sarepta is raising extra cash to ensure they can keep operating in that time period. We'll offer more evidence below as to why Sarepta is not facing Eteplirsen rejection (in our opinion).

The Lobbying Worked, Now The FDA Just Needs An Excuse

If you've been following the Sarepta story at all, you're aware of the strong public and professional campaigning Sarepta and their supporters have put together to get the FDA to approve this drug. It's probably one of the best lobbying campaigns ever pulled off in the history of biotechnology. At the Advisory Committee meeting, there were United States Senators and other public figures, as well as tons of professionals and patients lobbying for a positive vote from the panel. Many people believe the lobbying efforts paid off, and the FDA is now looking for an excuse to approve the drug. Think about it…

The Evidence Proves It

Even the strongest Sarepta supporters have to admit the trials weren't the best. The patient pool was small(I know, I know, it's a rare disease) and the data was fuzzy. Hell, even Chris Garabedian, the previous CEO was feeling the heat, and stepped down in the spring of 2015. With that said, the FDA could see that the drug clearly did something for the boys, since their physical abilities were still strong at a late age, and there were no side effects. Consider this:

  1. By requesting more data, the FDA has shown that they're trying to work with Sarepta and they want a scientific reason to approve the drug, even if it's not as much evidence as is typically required for drug approval. Keep in mind this is a rare disease with no other treatments.
  2. If the FDA thought there was no possible way to approve Eteplirsen at this point, they'd have rejected it already. Just like they did with Biomarin's drug.
  3. If Sarepta had a feeling Eteplirsen rejection was coming, wouldn't they raise more money to keep operations going for a longer time?

All in all, we think the capital raise today was a positive signal. The naysayers are right about the quality of the trial data, but this is about far more than that. At this point, after looking at the whole picture, we think eventual approval is likely for Eteplirsen.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.