Sarepta Therapeutics Inc

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The Stock Market May be Making an Enormous Mistake on this Biotech


Sarepta Therapeutics

Written by Ophir Gottlieb, 10-15-2015

There's just no ther way to say it, the stock market reaction for SRPT of late has been abrupt and utterly bizarre if not confounding.

I originally posted an article on SRPT on July 9th, 2015. The quick and dirty is that the firm has a drug in the final phase of approval from the FDA and the stock was ripping, up from $11 to nearly $40. It has a competitor in the field, BMRN, also ready to get a drug approved. Here's where everything went sideways for SRPT, with the stock down 30% in a few weeks.

Why SRPT Stock is Collapsing
Two things have happened, neither of which are bearish.

First, in an odd twist, the date expected for the FDA committee to meet was Nov. 23 and 24th and all parties believed that both BMRN and SRPT would both be reviewed on those days. It turns out BMRN will in fact meet with the FDA committee on Nov 23rd, but SRPT has been bumped to Jan. 22, 2016. That's not because the drug is less promising, it's simply because SRPT is just a little behind BMRN in its submission of data. Nothing has changed and tentative FDA schedules surprise people all of the time. In fact, by most accounts, SRPT's drug candidate is far superior to BMRN's.

Second, SRPT offered 3.25 million shares in a public offering at $39 per share. Sarepta plans to use the net proceeds from the offering for product and commercial development and general corporate purposes. That's a good thing. But.. Here's the stock price chart since 10-5-2014 through today (10-15-2015).

The Bizarre Over Reaction
The market is punishing SRPT because its drug (if approved) will be two-months behind BMRN for release. Friends, this is a public company with a remarkable drug that will likely get approved and two-months means nothing to the stock price. This is not a one-time drug sale, it's a magnificent pipeline and treatment with decades of sales ahead of it.

Even more bizarre, the PDUFA date, which is the date that the drug gets an actual approval or disapproval status, was always going to be two-months behind BMRN. This was a known entity for now more than three-months and was never disputed. Yes, this two-month gap has always been known. I quote myself from the prior article in September:

"BioMarin Pharmaceutical (BMRN) also has a drug under FDA review called drisapersen (from Prosensa in acquisition). Interestingly, Drisapersen's PDUFA date is Dec. 27, 2015 two months before SRPT gets its big day."
Source: A Small Cap Biotech Ready to Explode

Details about SRPT and its Drug
Sarepta Therapeutics, Inc., is a biopharmaceutical company that focuses on the treatment of rare, infectious, and other diseases. The company has no products out to market and no revenue, but has a market cap of $1 billion

SRPT has a drug candidate called eteplirsen that addresses Duchenne muscular dystrophy (DMD), a rare disease that affects the protective sheath surrounding muscle fibers.

The FDA announced that it had in fact accepted Sarepta's new drug application filing for eteplirsen, granting it priority review status and setting its PDUFA decision date for Feb. 26, 2016. "Priority Review Status" is designated to drugs that offer benefit over existing therapies, or provide a treatment where no adequate therapy exists.

SRPT has had its ups and down, seeing its stock price trade as low as $11 and as high as $37 in the last year, alone. It's management appears to have totally botched an advisory committee request and in a rather unusual moment, the FDA itself clarified its points on the development timeline. But after a very (very) long trial for its DMD drug, things look good. When I say "good," I mean, it has reached the final endpoint and the data looks promising.

An FDA advisory committee will judge the drug and the FDA will take that into account and make a final decision. The addressable market for this drug has been estimated to be about $700 million in sales which isn't quite blockbuster status, but it's a non-trivial win if it goes through and the $1 billion market cap as of today would represent less than a 2:1 price to sales. SRPT would instantaneously become a takeover candidate for any number of mega cap biotechs.

The stock drop of late apprears to be a bizarre over-reaction to essentially, no news at all.

Disclosure: I am long SRPT shares.