Sarepta's Selloff Spells Opportunity for Investors
http://online.barrons.com/article/SB50001424052748704329604578638260949705662.html?mod=BOL_twm_dept#articleTabs_article%3D2
A recent drop in Sarepta Therapeutics' share price makes the stock (ticker: SRPT) an even more attractive bet on a small biotechnology company with blockbuster potential.
In a Phase II clinical trial, Sarepta's leading drug, eteplirsen, already has helped improve the condition of a small number of boys with Duchenne muscular dystrophy, the most severe form of a muscle-wasting disease that afflicts about 15,000 boys and young men in the U.S. If the drug wins Food and Drug Administration approval, it could become one of the best-selling new drugs in the industry, with potential sales of $500 million in the U.S. and $1 billion globally by the end of the decade.
Eteplirsen addresses a genetic mutation that results in absence of the protein dystrophin, which is critical to muscle health. The mutation affects 13% of patients with DMD. Sarepta also is working to develop similar drugs for different mutations of the same gene, which could produce another $1 billion in annual sales. DMD typically results in death by the age of 25, and no effective treatment exists.
Barron's has written several positive stories on Sarepta, including one earlier this year ("A Critical Moment for Sarepta," March 25), when the shares were trading at $32.77. They subsequently rose more than 40%, to a July 23 high of $46.43, but then sold off on recent news from the FDA. The stock now trades at about $37.
Sarepta announced on July 24 that it would file for FDA approval of eteplirsen in the first half of 2014, news that initially cheered the market. But it was overshadowed by the agency's request for additional data on the drug's ability to produce dystrophin. Additionally, the FDA wouldn't commit to accepting dystrophin levels as a surrogate marker that could be used to accelerate approval of the drug.
DRUGS NORMALLY MUST undergo three phases of clinical trials before the FDA considers approval. Eteplirsen has had only two trial phases so far, and Wall Street now fears its path to approval could be slowed.
That could aid Sarepta's rival, Prosensa Holding (RNA), a Dutch company that also is developing a drug for DMD. Shares of Prosensa, which has partnered with British drug giant GlaxoSmithKline (GSK), have more than doubled, to about $33, since coming public at $13 in June. The Sarepta drug is viewed as superior by many analysts.
CEO Chris Garabedian remains upbeat on eteplirsen's prospects: "We're very pleased with our interactions with the FDA. Our data set is robust and strong."
Some analysts, including Christopher Marai at Wedbush, also think the stock's selloff is overdone. Marai rates Sarepta Outperform, with a $60 price target.
Sarepta is risky because it has no drugs on the market right now. With a market value of $1.2 billion, it still looks inexpensive based on eteplirsen's sales potential. Successful biotech companies typically trade at a multiple of annual sales, given the profitability of their products. In the rare-disease market, where Sarepta operates, treatments can cost $300,000 or more a year per patient.
Eteplirsen has strong support from many parents of boys with DMD. Its efficacy to date, plus pressure on the FDA from the Duchenne community, suggest there is a good chance of approval. That would be an important development for those afflicted with DMD—and Sarepta shareholders.
