Sarepta Therapeutics: Rich Valuation

The FDA’s request for additional information from the existing eteplirsen database before it can consider an accelerated approval of the DMD drug puts the agency squarely in the middle of the bull and bear scenarios for Sarepta (SRPT), which was reflected in the modest share price decline post announcement. Sarepta plans to provide the FDA with a “coherent and comprehensive summary to support dystrophin as a surrogate" for clinical efficacy and a “detailed discussion of all clinical outcomes in the eteplirsen study”, upon which the FDA will base its decision on the acceptability of the dataset for an NDA filing, likely before the end of the year.

A clear path forward…
Sarepta stated that it will submit these two summaries to the FDA in Q213, paving the way for the agency to make a decision on acceptability by the end of this year. Assuming the decision is positive, the FDA has also requested that additional safety data from the first few months of a pivotal confirmatory study be submitted before approval. In addition, Sarepta will learn from FDA post acceptability decision on chemistry, manufacturing and controls (CMC) requirements and submit the CMC section later this year. Therefore, Edison estimates completion of submission in H114, leading to an approval in H214 and launch in early 2015.

… But the outcome is not locked in yet
The decision by the FDA shows the dilemma the agency faces in this particular case, which is the need to approve an innovative drug for a small population of severely afflicted patients vs clinical efficacy from an extremely small sample of patients (n=12) in a Phase IIb trial. It does not help that a competing drug (drisapersen, GSK/Prosensa), which has the same mechanism of action, has been tested in a 180-patient, pivotal trial. While the more detailed analysis of eteplirsen’s clinical data will help the FDA to make up its mind, the decision could still go both ways in our opinion.

Valuation: Rich at the moment
Sarepta has an impressive EV of $795m (market cap, minus year end 2012 net cash), which reflects investors’ current enthusiasm for orphan drug company stocks. We believe this valuation discounts for a high probability of accelerated approval of eteplirsen, based on Phase II data.

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