2023-08-16 11:12:46 ET
Summary
- Sarepta Therapeutics shows strong Q2 revenue growth and progresses in DMD treatment despite net losses.
- The company's liquidity position is robust with a cash runway of approximately 33 months.
- Sarepta's advancements in DMD treatment and ongoing clinical trials support an upgrade in investment recommendation to "Buy".
Introduction
Sarepta Therapeutics (SRPT) is a biopharmaceutical company focused on discovering and developing RNA-targeted therapeutics, gene therapies, and other genetic treatments for rare diseases. It has developed multiple FDA-approved products for Duchenne muscular dystrophy [DMD], utilizing proprietary technologies like exon-skipping and phosphorodiamidate morpholino oligomer [PMO] chemistry. The company's products, including EXONDYS 51, VYONDYS 53, AMONDYS 45, and ELEVIDYS, target specific mutations in the dystrophin gene, aiming to produce functional dystrophin proteins or deliver shortened forms of the gene to muscle cells.
In my previous analysis , I concluded that Sarepta Therapeutics had continued to pioneer RNA-targeted and gene therapies for rare diseases despite challenges. The narrow FDA approval of ELEVIDYS was seen as an important step, with confirmatory trial results anticipated by year's end. Although the company faced increased operational costs and a net loss, revenue growth suggested a positive market response. I noted that Sarepta's commitment, cash position, and the unmet need in DMD supported its potential as a long-term investment. I recommended holding Sarepta stock due to the uncertainty associated with drug approvals and clinical trials.
Recent developments: Sarepta Therapeutics reported Q2 earnings with a Non-GAAP EPS of -$0.85, beating estimates by $0.15. The company also posted revenue of $261.2M, an 11.9% increase year-over-year, beating expectations by $5.36M.
The following article highlights Sarepta Therapeutics' advancements in RNA-targeted and gene therapies for rare diseases. Despite net losses, Sarepta showed strong Q2 revenue growth and continues to progress in DMD treatment. The article upgrades its investment recommendation to "Buy" despite potential risks.
Q2 2023 Earnings
Looking at Sarepta's most recent earnings report, the company posted a GAAP net loss of $23.9M for Q2 2023, a significant improvement from a loss of $231.5M in the same period last year. However, the net loss for the first half of 2023 was $540.7M, an increase from $336.5M in H1 2022. Revenues reached $261.2M in Q2 2023, up from $233.5M in 2022, with net product revenues at $239M, driven by increased demand for PMO Products. Cost of sales decreased by $3.7M in Q2 2023 due to changes in royalty terms and a decrease in product write-offs. Research and development expenses were down by $10.4M, largely due to a decrease in manufacturing expenses. Selling, general and administrative expenses saw a $35.7M decrease, mainly attributed to a reduction in stock-based compensation expenses. Additionally, Sarepta gained $102M from selling the Priority Review Voucher received for ELEVIDYS approval.
Liquidity & Cash Runway
Turning to Sarepta Therapeutics' balance sheet , as of June 30, 2023, the company had total cash and cash equivalents of $851.9M, short-term investments of $1,008.8M, and no marketable securities listed. Adding these together, the total liquidity stands at $1,860.7M. On the other hand, for the six months ended June 30, 2023, the company's net cash used in operating activities was $331.6M, averaging to a monthly net burn rate of $55.3M. Dividing the total cash by the average monthly net burn, Sarepta Therapeutics has a cash runway of approximately 33.6 months. Looking at the company's debt, as of June 30, 2023, the company had long-term debt of $1,235.5M, which has been reduced from $1,544.3M at the end of the previous year. Considering the available liquidity and long cash runway, the company appears to be in a relatively strong financial position with no immediate need for additional financing. However, ongoing losses and net cash used in operating activities should be closely monitored.
Valuation, Growth & Momentum
According to Seeking Alpha data: Sarepta's capital structure consists of a small amount of debt relative to its market capitalization and a significant cash position. The company's enterprise value is $10.01 billion. It trades at a high EV/Sales multiple of 9.97, indicating market expectations of robust future growth. In terms of growth, the company is expected to see substantial improvements in earnings and sales over the next few years. Earnings are forecasted to grow from -$7.14 per share in 2023 to $10.57 per share by 2025, while sales are expected to nearly triple from $1.14 billion to $3.08 billion in the same period. Stock momentum has been somewhat weak, with the stock underperforming the S&P 500 over the past 3, 6, and 12 months, but has shown slight positive performance over the past 9 months and 1 year.
Sarepta Expanding ELEVIDYS to Target More DMD Patients
Sarepta Therapeutics' recent earnings call revealed noteworthy advancements in their efforts to combat DMD. Management discussed the FDA's accelerated approval of ELEVIDYS for DMD treatment in patients aged four and five. They also mentioned the potential for widening the treatment's label to encompass a broader range of DMD patients by 2024, pending the success of the ongoing EMBARK confirmatory trial , designed to show significant benefits for patients aged four to seven.
In addition, the company has initiated a non-ambulatory trial, ENVISION (Study-303), and is preparing to launch two trials that aim to clear pre-existing antibodies. The goal is to eventually expand ELEVIDYS' label to cover up to 95% of DMD patients.
Management reported a positive launch for ELEVIDYS, with the first reimbursed infusion happening sooner than anticipated. They expect infusion numbers to increase significantly later this year, mainly due to payer logistics and the FDA release protocol.
Sarepta's R&D efforts continue to bear fruit, with progress on their next-generation PPMO, SRP-5051, and gene therapy for LGMD. By year's end, they will have 24 ongoing human clinical trials. The company is also working on their next-generation viral cassette, MyoAAV, and advancing manufacturing approaches to support their pipeline.
Sarepta reported strong Q2 performance, with total revenue reaching $261.2 million, exceeding both internal and analyst projections. The company remains confident in their full-year guidance of $925 million for total PMO net product revenue, with a slight bias towards exceeding that target. ELEVIDYS guidance is still under consideration.
To sum up, Sarepta continues to demonstrate its commitment to scientific progress and patient welfare, boasting four approved therapies and a promising pipeline. The company is set to achieve $925 million in revenue from three of their four approved therapies this year, with expectations of even higher revenues next year, including contributions from ELEVIDYS. With successful execution of their plans, Sarepta could achieve profitability in the upcoming quarters, showcasing their commitment to improving patient lives and successfully navigating the regulatory and commercial landscapes.
My Analysis & Recommendation
After the latest Q2 earnings report, it's clear that Sarepta Therapeutics remains at the forefront of RNA-targeted and gene therapies for rare diseases. Despite enduring a net loss, the firm has posted impressive revenue growth, likely due to the positive market reception of their DMD treatments. Sarepta's robust balance sheet further confirms their stable financial standing, boasting an ample cash runway of approximately 33 months. Though the substantial long-term debt and ongoing operating losses may necessitate additional financing, the company's healthy liquidity suggests that it can navigate through the upcoming years without any immediate financial concerns.
Sarepta's recent advancements in DMD treatment, coupled with their consistent progress in research and development, only strengthen their position as industry leaders in rare disease therapies. The company's ongoing and upcoming clinical trials offer a promising outlook for their pipeline, especially the EMBARK confirmatory trial, which aims to widen ELEVIDYS' label to a broader range of DMD patients by 2024. Moreover, the initiation of the non-ambulatory trial, ENVISION, and the two trials aimed at clearing pre-existing antibodies, further highlight Sarepta's commitment to catering to the needs of 95% of DMD patients.
Investors should closely monitor the outcome of the EMBARK confirmatory trial, as a successful result would lead to a broader label for ELEVIDYS, potentially driving significant revenue growth for Sarepta. Additionally, investors should keep an eye on the company's clinical trials, which are expected to reach a total of 24 by the end of the year. These trials offer valuable insights into the potential success of Sarepta's next-generation PPMO and gene therapies.
Considering the firm's overall positive trajectory, I am upgrading my investment recommendation from "Hold" to "Buy." Sarepta's robust revenue growth, strong cash position, and impressive progress in clinical trials demonstrate their ability to navigate through uncertainties in drug approvals and successfully pioneer RNA-targeted and gene therapies. Sarepta remains well-poised for future growth, and I believe their commitment to scientific progress and patient welfare presents a promising investment opportunity for long-term investors.
Risks to Thesis
When the facts change, I change my mind.
There are several risks to my "Buy" recommendation for Sarepta Therapeutics. Firstly, Sarepta faces uncertainty in the approval and success of their therapies, especially with the EMBARK confirmatory trial results pending. A failure in clinical trials or regulatory hurdles could hurt the stock. Secondly, Sarepta's financial health remains a concern. Despite a healthy cash position, the firm carries significant long-term debt and incurs regular operating losses. If R&D expenses rise or revenues don't grow as expected, the company may need additional financing, which could dilute the share price. Lastly, the competitive landscape of RNA-targeted and gene therapies is intense, and Sarepta will have to consistently innovate to stay ahead of competitors.
For further details see:
Sarepta Eyes Broadened Label For ELEVIDYS Amid Progress (Rating Upgrade)