2023-06-22 08:45:49 ET
Summary
- Sarepta Therapeutics should earn ~$1bn from its Duchenne Muscular Dystrophy franchise in 2023 - although the company has made eye-watering losses in recent years.
- Sarepta ought to hear any day whether the FDA has granted accelerated approval for its gene therapy DMD candidate SRP-9001. This catalyst will likely significantly move the share price needle.
- SRP-9001 could become a new standard of care in DMD. Mgmt. has suggested the peak revenue opportunity could exceed $4bn.
- SRPT share price fell by half when SRP-9001 flunked a Phase 2 study in early 2021, but management has painstakingly put together a data package it believes will secure approval.
- An FDA Advisory Committee convened by the FDA in May voted narrowly in favor of accelerated approval. The FDA has delayed its final decision but it ought to arrive any day. Data from a Phase 3 study, due in Q4 2023, could be an even more significant catalyst.
Investment Overview - Sarepta - Bringing Investors up To Date
Sarepta Therapeutics, Inc. ( SRPT ) is an $11.8bn (at the time of writing), Cambridge, Massachusetts based, commercial stage Pharmaceutical company that markets and sells 3 of the 5 FDA approved drugs for Duchenne Muscular Dystrophy. In its Q1 2023 10Q submission, Sarepta discusses each drug as follows:
EXONDYS 51 (eteplirsen) Injection (“EXONDYS 51”), approved by the FDA on September 19, 2016, is indicated for the treatment of Duchenne in patients who have a confirmed mutation of the dystrophin gene that is amenable to exon 51 skipping. EXONDYS 51 uses our phosphorodiamidate morpholino oligomer (“PMO”) chemistry and exon-skipping technology to skip exon 51 of the dystrophin gene.
VYONDYS 53 (golodirsen) Injection (“VYONDYS 53”), approved by the FDA on December 12, 2019, is indicated for the treatment of Duchenne in patients who have a confirmed mutation of the dystrophin gene that is amenable to exon 53 skipping. VYONDYS 53 uses our PMO chemistry and exon-skipping technology to skip exon 53 of the dystrophin gene.
AMONDYS 45 (casimersen) Injection (“AMONDYS 45”), approved by the FDA on February 25, 2021, is indicated for the treatment of Duchenne in patients who have a confirmed mutation of the dystrophin gene that is amenable to exon 45 skipping. AMONDYS 45 uses our PMO chemistry and exon-skipping technology to skip exon 45 of the dystrophin gene.
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.
As impressive as the revenue generation is, Sarepta remains a heavily loss-making company. Net losses between 2022 - 2019 have been $(704m), $(419m), and $(554m), and $(715m). On the plus side, Sarepta has a healthy cash balance of ~$2bn, as reported at the end of Q123 , and total liabilities of just $2.7bn, including long-term debt of $1.54bn.
Sarepta completed its initial public offering on June 4, 1997 under the name AntiVirals Inc, before changing its name in 2012 - as each of its products above were approved for commercial use, its stock price hit new highs, reaching an all-time high of $175 in December 2020.
A few weeks later, however, Sarepta's share price had fallen by nearly half, to ~$80 per share, on news that its gene therapy candidate SRP-9001 had failed to outperform placebo in a Phase 2 clinical trial named STUDY 102. The 41 patient study did meet its primary biological endpoint of micro-dystrophin protein, and outperformed placebo in its primary functional endpoint - improvement on the 17-point North Star Ambulatory Assessment ("NSAA") functional motor ability scale -showing a 1.7 point improvement 48 weeks versus a 0.9 improvement in the placebo arm - but the difference was not statistically significant.
Undeterred, management continued to study SRP-9001, initiating the second part of STUDY 102, an open label STUDY 103, initiated in 2018, and continuing its pivotal STUDY 301 which was initiated in October 2021. Sarepta's share price remained heavily discounted to former highs, however, until it began to climb in the second half of 2022 as the company released more data from STUDY 102 and 103, and finally, in September last year, the company announced it had submitted its Biologics License Application ("BLA") to the FDA, which was accepted in November.
The FDA set a Prescription Drug User Fee Act ("PDUFA") date of May 2023, and also arranged for its Cellular, Tissue and Gene Therapies Advisory Committee ("CTGTAC") to meet and discuss the potential approval. According to a Sarepta press release , the committee:
voted 8 to 6 in support of accelerated approval of SRP-9001 (delandistrogene moxeparvovec) for the treatment of ambulatory patients with Duchenne muscular dystrophy with a confirmed mutation in the DMD gene.
Shortly after the AdComm, Sarepta updated investors that:
- The FDA has also informed Sarepta that it requires modest additional time to complete the review, including final label negotiations and postmarketing commitment discussions, and that it anticipates that the review will be complete by June 22, 2023.
Decision Date On Potential Blockbuster SRP-9001 Will Arrive Any Day Now - Will It Be Positive?
Sarepta has not said when it expects the FDA to announce its final decision - theoretically, it could be as early as this evening. If the announcement of a failed study of the gene therapy can drop the stock price by more than half, then logically, an approval ought to send it soaring.
The pre-market price for Sarepta is $127 per share, and Sarepta stock is +89% over the past 12 months, so it appears the market tentatively believes that SRP-9001 will be approved.
As we can see above, Sarepta is confident that SRP-9001 has "best-in-class" potential, and analysts have formerly speculated the drug could drive peak sales of ~$3.6bn - the company itself think the figure could reach $4bn.
In terms of SRP-9001's mechanism of action ("MoA"), according to musculardystrophynews.com:
DMD is caused by a mutation in the DMD gene that carries the instruction to make dystrophin, a protein that provides structural support and protection to muscles. Several DMD mutations have been reported, and the majority result in no production of functional dystrophin. This affects muscle integrity and leads to their progressive breakdown.
The DMD gene is the largest in the human genome. SRP-9001 is designed to deliver a gene coding for a so-called micro-dystrophin protein, which works similarly to normal dystrophin, albeit at a smaller size. The therapy uses a harmless, modified virus (AAVrh74) that has a high affinity for muscle tissue, allowing for targeted delivery. Moreover, it has a muscle-specific promoter — a DNA element that controls the activity of a gene — called MHCK7, intended to enhance the gene’s activity in cardiac and skeletal muscles.
Sarepta has gathered together data from its various trials and put together a persuasive argument for approval, the trials are shown below:
The improvements in NSAA scores have been collated as shown below:
Finally, the safety data has been collated as below:
The FDA has told Sarepta it is working on an accelerated approval of SRP-9001 - an accelerated approval is defined by the agency as follows:
The FDA instituted its Accelerated Approval Program to allow for earlier approval of drugs that treat serious conditions, and fill an unmet medical need based on a surrogate endpoint. A surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign or other measure that is thought to predict clinical benefit but is not itself a measure of clinical benefit. The use of a surrogate endpoint can considerably shorten the time required prior to receiving FDA approval.
In the case of SRP-9001, the surrogate endpoint would be the drug's impact on microdystrophin, and the approval would be qualified - allowing only for use in patients aged 4-45 years old. Sarepta told analysts on its Q1 2023 earnings call that it was very confident the FDA's AdComm would accept their evidence. CEO Doug Ingram commented:
The team is well prepared and excited to share with the advisory committee the wealth of compelling evidence supporting the conclusion that SRP-9001 dystrophin protein in the amounts expressed by that therapy is reasonably likely to predict a clinical event.
Chief Scientific Officer Louise Rodino-Klapac added:
In summary, SRP-9001 demonstrated robust expression of dystrophin far above what literature would suggested is necessary to be protective of the muscle. All of it is properly localized at the muscle membrane or sarcolemma or it acts as a shock absorber. We developed a cell-based potency assay that shows that SRP-9001 is active, functional and protective at the muscle membrane. And as in animal models with robust expression of SRP-9001, it's a significant reduction of CK. Finally, expression of SRP-9001 in patients leads to upregulation of DAPC.
It seems as though the panel were persuaded, although the 8-6 voting split was quite close, and it should be noted that the FDA is not obliged to follow the recommendation of its AdComm - so no approval is as yet guaranteed. Sarepta management refused to take any questions on the AdComm or the approval decision on its earnings call.
Furthermore, an accelerated approval is effectively a conditional approval, the condition being that Sarepta completes and reports data from its pivotal STUDY 301, also known as the EMBARK study. Data from this study - which has enrolled 120 patients who received a single infusion of SRP-9001 and were monitored for 52 weeks, before receiving a second infusion, again monitored for 1 year, with a follow-on 5-year extension study - is expected in Q4 '23. here are the details of the confirmatory study:
With the EMBARK data arriving this year, it has been speculated that even if an accelerated approval is granted, healthcare payers may hold off on making reimbursement decisions, and physicians hold off on prescribing the drug, until the pivotal data arrives. If that is the case, the share price may not necessarily spike if the accelerated approval is granted - the market may also prefer to wait for the EMBARK data.
Market Opportunity & Preparation For Launch
One thing Sarepta management was keen to discuss on the Q1 2023 earnings call was its preparations for launch. Chief Customer Officer Dallan Murray told analysts:
Over the past several months, our field teams and Sarepta leadership have meaningfully engaged with roughly 75 sites of care on strategic and operational site readiness matters. These important interactions will ensure that the sites are ready to efficiently, safely provide SRP-9001 gene therapy to patients as soon as possible. We've also been working closely with sites to provide education and training as well as ensuring that they have the necessary equipment and resources to deliver the therapy to patients.
CEO Ingram suggested the addressable patient population is somewhere between 10k - 15k patients, with the therapy focused on the non-ambulatory population, and ~13.5% of these patients excluded due to having pre-existing antibodies, although the company believes this population will be expanded as further clinical studies are completed.
Sarepta successfully raised $1.2bn to fund a launch program, via the issuance of convertible senior notes due in 2027, so the company is betting big on the success of SRP-9001. If divided a patient population of 10k by $4bn projected peak sales, we get a price of ~$400k per patient, but not every patient will be treated in a single year, and some won't be treated at all, so I would not be surprised if the list price exceeded $1m, matching the current average price for a gene therapy.
Of course, the company most affected by the launch of SRP-9001, if approved, is...Sarepta Therapeutics itself! There will likely be some significant cannibalization of sales of the company's other 3 approved assets as the gene therapy is prescribed ahead of them. A major concern here - expressed by the FDA - is safety - gene therapies permanently alter gene expression, and have not been used to treat neurological conditions previously, meaning the agency would be taking a leap into the unknown if it does approve the therapy. According to neurology live, Sarepta has:
proposed several risk mitigations, including pre- and post-infusion monitoring of liver enzymes, weekly troponin monitoring during the first month of treatment, weekly platelet monitoring during the first 2 weeks, and long-term follow-up to better characterize safety concerns.
Concluding Thoughts - A Historic Approval - Or Another Setback - I'd Back SRP-9001 For Accelerated Approval, But Many Questions Remain Unanswered
Based on the body of evidence put together by Sarepta from its various clinical studies, the outcome of the AdComm, and the way the accelerated approval program works, my feeling is that SRP-9001 is more likely to be approved imminently, than not, but the FDA frequently springs surprises, for example when, e.g., approving Biogen's Alzheimer's therapy after its AdComm voted overwhelmingly against approval, and approving Amylyx' Amyotrophic Lateral Sclerosis ("ALS"), despite a negative vote by its AdComm.
In fairness, no examples of the FDA not following its AdComm's advice after a positive vote spring to mind, although doubtless it has happened. An accelerated approval would represent a historic moment for Sarepta and the company deserves enormous credit for progressing SRP-9001 to the point of a first approval for a gene therapy in a neurological condition, and for offering DMD patients new hope.
From an investment perspective, how will the market react to the FDA's decision, when it does arrive? In my view, a rejection could trigger a bigger selloff than an approval will trigger a buying frenzy, as a rejection may mean a delay of years before Sarepta can try again - as doubtless would happen. An approval will surely result in a share price spike, but with EMBARK data due in Q423, that approval could be revoked after a few short months - a risk that will be factored into the company's valuation.
Getting drugs that treat neurological conditions over the approval line is exceptionally difficult because trial results are often inconclusive and the benefit to patients often unclear. Sarepta's funding activities certainly suggest the company believes it has done enough, and the rising share price over the last few months confirms the market seems to be in agreement.
A final point I would make is - would the approval of SRP-9001 be the beginning of a move towards narrowing losses and targeting profitability? Surely Sarepta cannot keep burning through cash at its current rate, and presumably an approval of SRP-9001 reduces the number of studies the company is running - although there are several other assets in its pipeline, and more studies to complete if Sarepta wants to target, e.g., the non-ambulatory population.
I am skeptical that SREP-9001 is a $4bn per annum peak selling asset - no approved gene therapy has ever earned >$1.5bn in a single year - and sales of the company's 3 other assets will fall as sales of SRP-9001 rise. Sarepta's market cap is >12x forward sales, which is high for a commercial stage pharma, and its losses are hair-raising.
I think we may see the drug approved soon, but I am not sure I see a strong long-term value proposition when Sarepta Therapeutics is already valued at $12bn. Markets are rarely rational, however, shares traded >4150 as recently as earlier this month. I'll be sitting on the sidelines, but an investor who is betting money they can afford to lose ought to be able to realize at least a >20% ROI short term on an accelerated approval, I'd speculate.
For further details see:
Sarepta Therapeutics: Value Proposition Ahead Of DMD Gene Therapy Decision