2023-03-04 09:00:00 ET
Summary
- Sarepta Therapeutics recently reported their Q4 and full-year 2022 earnings with a minor miss on EPS and a solid beat on revenue. The market reacted positively moving SRPT up.
- The company continues to report solid growth trends for EXONDYS, VYONDYS, and AMONDYS. Notably, this growth is not coming from increases in prices.
- The company also reported that “there is no need for an advisory committee meeting for SRP-9001 BLA.” This typically bodes well for approval.
- Sarepta's growth trends are strong, and they could accelerate if SRP-9001 hits the market. I need to update my Buy and Sell levels to adjust for my fresh outlook.
- Despite my bullish outlook, SRPT is not risk-free. Therefore, I give it a conviction level of 3 out of 5.
Sarepta Therapeutics (SRPT) recently publicized their Q4 and full-year earnings with a slight miss on EPS and a solid beat on revenue. In addition, Sarepta also revealed that they still have a healthy cash position of $2B at the end of 2022. The company also provided some updates regarding pipeline programs, including an update regarding SRP-9001's BLA. The earnings and SRP-9001's update triggered a buying frenzy over the past few days moving from around $118 per share to fresh 52-week highs of over $150 per share. It appears Sarepta is gaining momentum as we move into 2023 as it continues to report substantial growth to put it on track to potentially report a positive EPS in 2024.
SRPT has been one of the longstanding tickers in my Compounding Healthcare "Bio Boom" portfolio due to the company's leadership in DMD and their gene therapy technology. Unfortunately, SRPT has been trading at a hefty premium over the past couple of years, and my position has been leaning out as I extract profits when the ticker hits some of my Sell Targets. As I look at the company's near-term prospects next to my anemic position, I realize I have work today to get equipped for a likely transformative year for both the company and the ticker.
I intend to review the company's Q4/2022 earnings and company updates. In addition, I discuss why my SRPT position was dormant over the past few years. Finally, I update my "Buy Targets" and "Sell Targets" in order to reactivate my buying activity in anticipation of a volatile 2023 that could be filled with numerous opportunities.
Q4 and Full-Year Earnings Highlights
The company's three approved therapies: EXONDYS, VYONDYS, and AMONDYS continue to record significant growth that helped produce $235.9M in net product revenue versus $178.7M for Q4 of 2021. In total, the company pulled in $258.4M compared to $201.5M for the same period of 2021, an increase of $56.9M over the same quarter of the prior year.
For the Full-year, Sarepta's total revenue came in at $933M and net product revenue was $843.8M, which was a 38% growth year-over-year. The company reported growth across all three of their RNA-based PMO therapies thanks to solid reauthorization rates, high adherence rates, and strong ex-U.S. EXONDYS 51's revenue grew around 13% to hit approximately $511M. VYONDYS 53, pulled in $117.4M in total net product revenue, up 30% over 2021. AMONDYS 45 is really starting to see traction seeing growth of over 200% with total net product revenue of $214.8M. As a result, the company was able to beat the upper end of their upwardly revised 2022 full-year revenue guidance of $825M to $840M.
On a GAAP basis, Sarepta reported a net loss of $109.2M or $1.24 in Q4 versus the $122M or $1.42 per basic in Q4 of 2021. In terms of cash, the company ended 2023 with about $2B in cash, cash equivalents, and long-term restricted cash.
The takeaway here is that Sarepta is reporting growth that is really starting to make some headway against the cash burn. The company's growth trends have been strong, but now they have a solid track record with the last five years, Sarepta showing a 40% compounded annual growth rate, and 141% at a 5-year average.
It is important to note that this growth is coming from treating patients and not price increases. So, the company's products are performing well and their commercial team is consistently executing. Accordingly, Sarepta's product revenue guidance for EXONDYS, VYONDYS, and AMONDYS is $925M or greater. Make note, which is excluding the impact of an SRP-9001 approval.
Recent Updates
In addition to their encouraging Q4 and full-year earnings, the company also updated us on their SRP-9001 BLA submission and priority review with a PDUFA date of May 29th of this year. Sarepta announced that they have completed a mid-cycle review with the FDA, and reported the division did not see significant safety issues. Most notably, the division formally informed the company "there is no need for an advisory committee meeting for SRP-9001 BLA."
The company reported that they are prepared "to answer any remaining questions the FDA may have on the file" and they are preparing for the FDA has already scheduled three preapproval manufacturing inspections and are "building inventory for launch."
Beyond a potential approval and launch, Sarepta is looking to expand SRP-9001's label and is commencing studies including a study to remove the limit mutation-related exclusions. Sarepta is looking to start the ENVISION study in the non-ambulant population and other studies with alternative approaches to treating rh74 NAV-positive patients. In addition, the company believes they will have a Phase III readout from the double-blind, placebo-controlled, EMBARK study in Q4 of this year, which will cover exons 18-44, and 46-79.
Why Is This So Important?
Essentially, SRP-9001 is attempting to be a flagship gene therapy that can treat a broad array of DMD patients, whereas the company's other three products are focusing on specific exons.
SRP-9001 is attempting to address the mutation on the gene that codes for dystrophin, which acts as a shock absorber in our muscles that distributes the force, thus, preventing damage.
As a one-time gene therapy, SRP-9001 could improve dystrophin-associated protein complex in skeletal, diaphragm, and cardiac muscle to restore normal function. Sarepta has the preclinical data to support this, however, they also have real-world data from patients including improvements in the North Star Ambulatory Assessment at 1-, 2- and 4-year time points.
If approved, this would be a major win for patients, providers, and even the payers.
Sarepta is also making noteworthy headway with their limb-girdle pipeline. Sarepta announced that they dosed the first patient in SRP-9003's Phase I VOYAGENE study for the treatment of limb-girdle muscular dystrophy type 2E in ambulant adult patients and non-ambulant patients. Sarepta believes data from VOYAGENE will give them discernments and data to support a global Phase III study. Furthermore, Sarepta is planning a pilot study for their SRP-6004 dual-vector rh74-mediated gene therapy to treat LGMD2E categorized by the lack of dysperlin.
Sarepta is also making significant headway with their RNA platform. Their MOMENTUM study is testing their next-generation PPMO, SRP-5051, which is on track to report data towards the end of this year.
The takeaway here is that Sarepta has the ingredients in the pipeline to really accelerate growth in the coming years, and the market is finally starting to recognize that there is a strong likelihood the ticker is going to trade ahead of the estimated growth.
Looking at the Street's estimates, we can see they expect Sarepta to report double-digit year-over-year growth for the next few years and will cross the $4B mark in 2026. Keep in mind, the Street expects Sarepta to hit $1B this year… so, we are looking at $1B in revenue growth for three consecutive years.
Indeed, the Street expects Sarepta to report a negative EPS for 2023, however, analysts are projecting that the company will blast into profitability and will report around $18.50 per share for 2026.
Admittedly, these are just estimates and we don't know if the company will hit these numbers. On the other hand, it does illustrate how the company's current execution and SRP-9001 approval could really move the needle for Sarepta.
So, the company's recent earnings report and the news that the FDA will not need an AdCom for SRP-9001 do justify the reaction in the share price. In fact, I think the reaction is possibly underwhelming considering SRP-9001's potential upside and its ability to validate the remaining Gene Therapy pipeline programs.
Moreover, the potential success of SRP-9001 would also validate the company's platform and expertise, thus, endorsing their efforts to expand their current targets both internally and collaboratively.
Risks To Consider
Despite my bullish outlook for SRPT, I must stress that the ticker is still speculative at this time. Indeed, the company appears to be on its way to profitability and their pipeline is promising. However, they will need SRP-9001 to be approved to really see that inflection point that will derisk the ticker. Obviously, any setback involving SRP-9001 will hurt those prospects and could devastate the ticker.
It is also important to note that the company's gene therapies will need to finish confirmatory studies that validate that the products are still working as intended and are a benefit to the patient. Any indication that there are concerns about long-term safety and/or efficacy could force the company to pull the product until they address the issue. Clearly, this would have a huge impact on the share price for a prolonged period of time.
Considering these risks, I have assigned SRPT with a conviction level of 3 out of 5.
New Targets and a New Plan
As I mentioned in my introduction, my SRPT position has been essentially dormant over the past couple of years due to the ticker trading above my "Buy Threshold" at a premium valuation. In fact, I have only clicked the sell button a few times as the ticker hits my Sell Targets in order to book some profits and maintain my "house money" status for a speculative ticker. Admittedly, I have been waiting for another solid pull-back to restock ahead of the forecasted growth, but I had my Buy Threshold below $50 per share due to the expanded volatility in the market. Obviously, that level has not been fruitful…
Now, I have updated both my Buy and Sell levels in order to accommodate for the forecasted growth and the possibility Sarepta will be a leading gene therapy company that has a strong presence in neuromuscular diseases. Using a combination of fundamental and technical analysis, I have moved my " Buy Threshold" up to $112 per share , and my Sell Target 1 to $180 per share .
For some context, my Buy Threshold is the highest price I am willing to pay for SRPT at this time. If SRPT drops below this level, I would look to add to the position on a solid reversal setup. My Sell Target 1 is simply my first profit target, where I am selling a small portion of the position to book some profits and move the position closer to a "house money" status where only profits remain in the position for a long-term investment. Typically, a ticker goes through this compounding cycle several times, but SRPT appears to be moving to profitability with strong growth prospects. So, it is possible that I might be moving SRPT out of My Bio Boom speculative portfolio, and will be transitioning it to the Compounding Healthcare "Bioreactor" growth portfolio in the near future.
It is amazing how some encouraging growth trends and a lack of an AdCom for a prospective therapy can instantly change your outlook for a ticker.
For further details see:
Sarepta Therapeutics: Time To Change My Game Plan After Q4 Earnings