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 $1.4 billion and a stock price up 150% in the last six-months.
Let's take a look at a biotech that is either on the cusp of releasing its first ever product to market, or a disastrous fall if the FDA's final review is negative.
The option market is pricing in the entity changing event to occur between November 20th and December 18th, 2015, with ~40% odds of it happening in November before the 20th. The price range reflected by the December options for SRPT is ~[$14, $54], and that's just one standard deviation. So, yeah, this is a massive event.
An assumption held by most is that the committee will meet on Nov. 23-24 because those dates are listed on a tentative calendar of advisory panels. But that's not a sure thing.
What's Going On
SRPT has a drug candidate called eteplirsen that addresses Duchenne muscular dystrophy (DMD), a rare disease that affects the protective sheath surrounding muscle fibers. Here's the news as it came out:
1. July 10th, 2014: In a press release from the company, we learned:
Sarepta Therapeutics, Inc. (NASDAQ:SRPT), a developer of innovative RNA-based therapeutics, today announced data through Week 144 from Study 202, a Phase IIb open-label extension study of eteplirsen in patients with Duchenne muscular dystrophy (DMD). After nearly three years of follow up, results on the 6-minute walk test (6MWT) showed a decline in walking ability at a rate slower than would be expected based on available DMD natural history data. In addition, a continued stabilization of respiratory muscle function was observed, as assessed by pulmonary function tests. As previously reported, Study 202 met its primary endpoint of increased novel dystrophin as assessed by muscle biopsy at Week 48 and is now in the long-term extension phase in which patients continue to be followed for safety and clinical outcomes.
2. January 12th, 2015: SRPT released further results of that Phase IIb open-label extension study of eteplirsen and this came out:
"[after] more than three years of treatment, results of the 6-minute walk test (6MWT) at 168 weeks showed continued ambulation across all patients evaluable on the test, however all patients showed a decline in distance walked on this measure since the week 144 timepoint (Source: Benzinga). At week 120 patients had experienced a decline of just 13.9 meters from baseline. By week 144 this figure grew to 33.2 meters, and at week 168 it blew up to to 76.7 meters (Source: The Motley Fool.
The stock dropped 16% in the following two days down to $11.61.
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3. May 19th, 2015: SRPT was given the "go head" from U.S. regulators to file a new drug application for eteplirsen, getting the company on the FDA agenda, while the 144 week result was still out there without a real causation assigned to it.
4. August 20th and 21st, 2015: SRPT announced that it will move forward with its plans to seek regulatory approval for eteplirsen after conferencing with FDA officials in a pre-New Drug Approval (NDA) meeting on August 19th where the company was given the green light to file the NDA (Source: TheStreet.com). FDA has also granted Rare Pediatric Disease Designation for the drug. This designation supplements the Orphan Drug Designation and Fast Track Status previously granted by the FDA for this drug (Source: MDA.org ).
Analysts from Baird wrote: "We believe the decision to reaffirm their previous timelines without FDA minutes is an indication that this meeting went very well. We do not think it is feasible that management could have misread the agency, given the controversy surrounding their dialogue in the past, and believe the agency is indicating a favorable bias that will result in NDA acceptance and priority review."
5. August 25th, 2015:
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 Reveiew Status" is designated to drugs that offer benefit over existing therapies, or provide a treatment where no adequate therapy exists.
Now we wait. The FDA advisory committee is expected to meet in November and SRPT is likely going to release some post-marketing study requirements. The way this FDA committee works is a little weird, so here's a go at it. The committee will offer its advice on whether the drug should be approved. It's common that the FDA will act as the committee suggests but it is not a guarantee. 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.
Drisapersen's has had a previous failure in phase III and Sarepta's still has that "unusual" result in the six-minute walk test results to the FDA.
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 $1.4 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.