2023-10-31 14:28:31 ET
Summary
- Sarepta Therapeutics' stock plummets after its gene therapy drug ELEVIDYS fails to meet its primary endpoint in a confirmatory study.
- SRPT had previously secured accelerated approval for ELEVIDYS to treat Duchenne Muscular Dystrophy from the FDA.
- The market is uncertain about the future of ELEVIDYS as a commercial product, but some analysts believe it could still generate peak sales of up to $2 billion per year.
- Sarepta insists it will aim for a full approval with latest data - but the market sell-off suggests the drug risks being withdrawn from market.
- Sarepta is guiding for $925m revenues from its existing DMD portfolio but this is heavily loss making company that needs ELEVIDYS to be successful.
Sarepta Therapeutics ( SRPT ) shares are in free-fall today after its gene therapy drug ELEVIDYS, granted accelerate approval to treat DMD by the FDA in June, failed to meet its primary endpoint in a confirmatory study. In this post I discuss the background, fallout, how this study fail may affect the company going forward, and in what direction the stock price may move next.
Sarepta Therapeutics Investment Overview
I last covered Sarepta Therapeutics in a deep dive note for Seeking Alpha back in June, when the Cambridge, Massachusetts based biotech was set to hear from the Food and Drug Agency whether its latest therapy for Duchenne Muscular Dystrophy ("DMD"), SRP-9001, would be granted accelerated approval.
At the time of my last note, Sarepta marketed and sold 3 of the 5 FDA approved drugs for Duchenne Muscular Dystrophy - EXONDYS 51 (eteplirsen) injection, VYONDYS 53 (golodirsen) injection, and AMONDYS 45 (casimersen) injection, respectively indicated for the treatment of Duchenne in patients who have a confirmed mutation of the dystrophin gene that is amenable to exon 51 skipping, exon 53 skipping, and exon 45 skipping.
This franchise has gone from generating $381m of revenues in 2019, to $844m in 2022, and management is guiding for revenues of $925m in 2023, albeit whilst generating heavy losses. Net losses between 2022 - 2019 have been $(704m), $(419m), and $(554m), and $(715m).
In my note I suggested that Sarepta would secure an accelerated approval for SRP-9001, a gene therapy candidate that had made checkered progress through clinical studies, failing a Phase 2 study in early 2021 that led to Sarepta's stock price falling from ~$170, to ~$80 overnight - a loss of >50%.
Subsequent studies (see my previous note for more detail) suggested that the therapy may qualify for accelerated approval from the FDA - a process designed to fast-track "drugs for serious conditions that filled an unmet medical need to be approved based on a surrogate endpoint", and Sarepta's stock price regained much of its lost value, reaching a high of >$150 in mid-May this year.
On 22nd June, Sarepta was able to confirm the accelerated approval of SRP-9001 - to be marketed and sold as ELEVIDYS - for the treatment of ambulatory pediatric patients aged 4 through 5 years with Duchenne muscular dystrophy (DMD) with a confirmed mutation in the DMD gene.
This was a narrower label than analysts had hoped for - the drug had also been tested in patients aged 6-7, with less conclusive results - and as with all accelerated approvals, data from a confirmatory clinical study would be required to rubber-stamp the approval, garner a full approval, and potentially expand the label.
The study in question was Sarepta's EMBARK, described by the company as follows:
Study SRP-9001-301, also known as EMBARK, is a multinational, phase 3, randomized, two-part crossover, placebo-controlled study of ELEVIDYS in individuals with Duchenne muscular dystrophy between the ages of 4 to 7 years. The primary endpoint is change from baseline in NSAA Total Score at Week 52 following treatment. Eligible participants received a single dose of ELEVIDYS during either Part 1 or Part 2 of the study.
This data has now arrived, and unfortunately, the study failed to meet its primary endpoint of a statistical significant increase in North Star Ambulatory Assessment ("NSAA") scores at 52-weeks. As a result, the market is dumping Sarepta stock, which is down -42% in trading so far today. Sarepta's current market cap valuation has fallen <$6bn, when at the beginning of this week, it had been >$10bn.
Sarepta Defies Market - Says Data Supports A Full Approval Push
Reading Sarepta's press release issued October 30th, you could be forgiven for thinking the EMBARK study had been an outright success. The company framed the headline results as follows:
– Results support submission of an efficacy supplement to the BLA; US FDA has indicated openness to reviewing the data for label expansion based on the totality of evidence from EMBARK
– In EMBARK, participants treated with ELEVIDYS (delandistrogene moxeparvovec-rokl) showed an increase on the North Star Ambulatory Assessment, a measure of motor function, compared to placebo-treated patients at 52 weeks, although the primary endpoint was not met
– Robust, statistically significant results on all key pre-specified secondary endpoints, including time to rise (p=0.0025), and 10-meter walk test (p=0.0048), demonstrated evidence of a clinically meaningful treatment benefit that was similar in magnitude and statistical significance across all age groups
– No new safety signals were observed
The first headline is arguably correct - Doug Ingram, the President and chief Executive Officer of Sarepta commented in the release:
Based on the EMBARK results, we intend to move swiftly to request an update to expand the labeled indication to treat all patients. Importantly, we have shared the EMBARK topline results with FDA leadership and they have confirmed that, based on the totality of the evidence, they are open to such label expansion if supported by review of the data, and that they intend to proceed rapidly with consideration of the submission.
The CEO added that:
passing 5 seconds on time to rise is the strongest predictor of early loss of ambulation and in EMBARK, ELEVIDYS reduced those odds over 52 weeks by greater than 90 percent,
Will the FDA agree with the CEO that data supports a full approval, and potentially a label expansion also?
The primary endpoint data shows that "ELEVIDYS-treated patients improved 2.6 points on their North Star Ambulatory Assessment (NSAA) total score 52 weeks after treatment compared to 1.9 points in placebo-treated patients".
In a recent investor presentation , Sarepta notes that in an open label study, ENDEAVOR, involving 58 boys with Duchenne, a 3.8 point difference on NSAA in patients receiving SRP-9001 was observed at 1-year. In another study, STUDY-102, involving 41 ambulatory boys with Duchenne, 4-7 years of age, a "significant 5-point median NSAA difference from baseline in SRP-9001 patients compared to propensity-matched external control" was observed, and in a third study, admittedly in just 4 patients, a 9.9-point difference was observed.
To summarize, the improvement in NSAA observed in the EMBARK study does seem to be significantly below previous studies, and EMBARK was a 124-patient study - a significantly greater population than any of the others. The study the latest data seems to match most closely is the STUDY-102 Part 1, which I referred to in my intro, which was released in January 2021, prompting a similar market sell-off to the one experienced today. In that study, the data showed that:
SRP-9001-treated participants showed an increase in NSAA total score compared to placebo at 48 weeks; however, the difference was not statistically significant (P=0.37)
In this latest EMBARK study, the data showed that:
The difference of 0.65-points between treated and placebo groups did not reach statistical significance (n=125; p=0.24).
The p-value in EMBARK is better than STUDY-102, but still a long way short of statistical significance. You might ask, what is the point of establishing a primary endpoint if you choose to ignore it and pursue an approval anyway when it does not show in your favor?
What Happens Now - Is The Market Overreacting?
According to the Muscular Dystrophy Association:
Duchenne muscular dystrophy (DMD) is a genetic disorder characterized by progressive muscle degeneration and weakness due to the alterations of a protein called dystrophin that helps keep muscle cells intact.
DMD symptom onset is in early childhood, usually between ages 2 and 3. The disease primarily affects boys, but in rare cases it can affect girls.
In Europe and North America, the prevalence of DMD is approximately 6 per 100,000 individuals.
Until relatively recently, boys with DMD usually did not survive much beyond their teen years. Thanks to advances in cardiac and respiratory care, life expectancy is increasing and many young adults with DMD attend college, have careers, get married, and have children. Survival into the early 30s is becoming more common than before.
Sarepta is not the only company to have developed a therapy for DMD - according to the company's 2022 10K submission / annual report, in August 2020, Japanese Pharma Nippon Shinyaku Co. secured approval for VILTEPSO (viltolarsen) injection for patients with Duchenne who are amenable to exon 53 skipping therapy. Companies developing DMD therapies also include Wave Life Sciences ( WVE ), Daiichi Sankyo, and Pharma giant Pfizer ( PFE ), although none of these companies' candidates has reached the pivotal study stage (so far as I am aware).
As such, you could argue that the unmet need for ELEVIDYS is high, and if the drug is showing any kind of improvement on NSAA scoring, supported by the other encouraging secondary endpoints met, a full approval and even a label expansion would seem the right action for the FDA to take - although it is worth noting the study's improvement over placebo in children aged 6-7 years was even less pronounced than the results in children aged 4-5 years.
With that said, you might equally expect that a drug that fails to meet its most important endpoint - and misses by some way, rather than very narrowly, ought to be withdrawn from the market by the FDA given it has not demonstrated the required standard of efficacy. Based on the market's reaction to today's news, it seems a large proportion of Sarepta's shareholders favor the latter argument, and believe that ELEVIDYS may not have a future as a commercial product.
Some analysts have speculated that ELEVIDYS is likely to remain on the market - awarding this outcome an 80% probability - and that the drug could still generate peak sales around the $1bn mark. Should the FDA agree to expand the label to include older children, the drug could earn peak revenues of ~$2bn per annum.
Concluding Thoughts - Is SRPT Stock A Buy, Sell, Or Hold Based On Today's News?
In Q2 2023, Sarepta earned revenues of $261.2m, and a GAAP net loss of just $(23.9m). Unfortunately, this was primarily due to the company's sale of a Priority Review Voucher ("PRV") for >$100m - across the period 1H23, the company reported a GAAP net loss of $(540.7m), or $6.11 per basic and diluted share, compared to a GAAP net loss of $(336.5m) reported for the same period of 2022, or $3.85 per basic and diluted share.
Sarepta reported >$850m of cash as of Q2 2023, and >$1bn of short term investments, so the company is in no danger of running out of funding in the near term, and can continue to spend upwards of $80 per quarter on R&D in relation to ELEVIDYS, as it has been doing.
It seems unlikely that Sarepta will do anything other than push for the full approval of ELEVIDYS, and the label expansion, throwing as much of its resources towards this objective as necessary, although if the FDA were to force the drug to be permanently sidelined, it would certainly ease the company's financial problems, and there are other pipeline assets to focus on, including RNA targeted therapies, 4 separate gene therapies, and a gene-editing partnership alongside CRISPR Therapeutics ( CRSP ).
We know that Sarepta's stock price has already recovered once from a devastating share price drop, back in 2021, and the similarities between today and then, as I have noted above are clear, except today, ELEVIDYS is approved.
Before ELEVIDYS was approved, an FDA Advisory Committee met to discuss the benefits and risks of the drug, eventually voting 8-6 in favor of granting the drug accelerated approval.
In short, today's news brings all of the issues around ELEVIDYS that have caused Sarepta's share price to see-saw in the past few years, back under the spotlight, which is doubtless a situation the company will have been desperate to avoid.
When Biogen's ( BIIB ) Alzheimer's drug Aduhelm was controversially approved back in June 2021, the issue the company had was that the Centers for Medicaid and Medicare Services ("CMS") refused to provide any reimbursement for the drug outside of clinical studies, meaning Biogen effectively could not make any drug sales.
Announcing its Q2 2023 earnings on August 2nd, Sarepta stated that "the first patient received commercially reimbursed ELEVIDYS (delandistrogene moxeparvovec-rokl), earlier today", so it seems the company has secured some form of reimbursement for its gene therapy, but will that now change in light of the latest study endpoint miss? When approving the drug, the FDA addressed ELEVIDYS' safety profile as follows:
The most commonly reported side effects by individuals who received Elevidys were vomiting, nausea, acute liver injury, pyrexia (fever) and thrombocytopenia (abnormally low platelet count in the blood). Patients’ liver function should be monitored before treatment with Elevidys, and weekly for the first three months after treatment.
Patients given Elevidys may also be at risk for severe immune-mediated myositis (muscle inflammation). Additionally, myocarditis (inflammation of heart muscle) and elevations of troponin-I (a heart protein found in the blood after heart muscle injury) have been observed following use of Elevidys in clinical trials. Troponin-I levels should be monitored before administration of Elevidys and weekly for the first month after treatment.
Reviewing all of the above, the only investment rating I would be prepared to give Sarepta at this time is a "hold", although if pushed, the scale of unmet need in DMD, and the fact Elevidys has consistently demonstrated a clinical benefit, albeit marginal at times, suggests to me the drug won't be withdrawn, and therefore Sarepta's share price is likely to recover some of the value lost today.
The doomsday scenario is that the company burns through its cash attempting to push for full approval, and fails, and that newer therapies developed by rival pharmas eventually impede sales of its 3 other approved products. Given that risk seems tangible, I would advise against a contrarian bet on upside at this time.
For further details see:
Sarepta Stock Tanks As DMD Gene Therapy Fails Confirmatory Study, Risks Market Withdrawal