Why Sarepta (SRPT) Jumped and We Sold

Monday morning's news from Sarepta Therapeutics (SRPT) pushed shares to a 16-year high above $78.

The biotech company will file a new drug application (NDA) with the Food and Drug Administration by the end of the year seeking accelerated approval for its second drug, golodirsen, to treat Duchenne muscular dystrophy (DMD).

What is Duchenne Muscular Dystrophy?

DMD is a rare, inherited, muscle-wasting disease that primarily attacks young boys whose genome doesn't properly produce the muscle protein dystrophin. Affected patients die in their mid-20s.

DMD affects 1 in every 3,500 newborn boys and very rarely it also affects girls (approximately 1 in 50 million girls). More boys have Duchenne because the gene that causes it – the dystrophin gene – is located on the X chromosome.

Sarepta already has commercial success with one DMD drug, EXONDYS 51. This produced 2017 revenues of $155 million, which are expected to nearly double this year for a drug whose average annual treatment cost starts at $300,000, but can be double that for larger boys because it is based on body weight.

Skipping the Genetic Error

To give you a better idea how rare and small this treatment population and market are, consider that EXONDYS 51 only treats 13% of the DMD population with that defect. And there are only about 5,000 DMD patients in the US.

Golodirsen is designed to treat patients whose DMD is caused by an error in the DNA sequence known as exon 53. The drug, administered via monthly infusions, works by "skipping" over that mutation and producing dystrophin. And only about 8 percent of the 5,000 DMD patients carry the exon 53 defect.

Cambridge, MA-based Sarepta said the decision to seek a rapid approval of golodirsen was made after receiving a report last week that summarized a meeting with FDA officials held in February. This could result in accelerated approval in 2019, two years ahead of expectations.

But Adam Feuerstein, writing for STAT.com, the watchdog journal of the life sciences and medicine, spoke with the CEO of Sarepta last night and sheds some interesting light on the situation. Below are some of his key notes in a column this morning...

Sarepta to seek FDA approval for its second Duchenne’s drug by year’s end

The [FDA] meeting, sought by Sarepta to seek regulatory guidance on golodirsen, could have been treacherous. In attendance on the FDA side were clinical reviewers who vehemently disagreed with the agency’s top-level decision in late 2016 to approve Exondys 51, Sarepta’s first drug to treat DMD.

Among those once-angry FDA officials: Ellis Unger, director of the Office of Drug Evaluation, who had called Exondys 51 an “elegant placebo” that should never have been approved.

But there was no residual hostility or hard feelings, including from Unger, during the February meeting, just a willingness to re-establish a collaborative relationship with the company, said Sarepta CEO Doug Ingram.

“What we encountered were FDA people who were professional, productive, and helpful. They gave us straightforward, unequivocal guidance,” said Ingram, who spoke with STAT on Sunday night. “In exchange, I gave them my personal commitment that Sarepta will let golodirsen live or die by the data. We’d be fully transparent, and we’d be thoughtful about how we communicated with the agency and the public.”

This is good news when so much of biotech investing land can be fraught with hazards where the incentives sometimes favor investor wealth over science and medical efficacy and safety.

But Feuerstein further explains the FDA gauntlet that lies ahead for golodirsen. First, the NDA won't be submitted until a long-term safety study in animals in completed in Q4.

Second, Sarepta will still need to correlate research proving golodirsen generates dystrophin with real clinical outcomes like improved walking ability for patients.

Again, you can read the excellent Adam Feuerstein article in the link above.

Why We Sold SRPT From the Healthcare Innovators Portfolio

Last week I wrote about several stocks making new highs in my Zacks Healthcare Innovators portfolio...

Healthcare Heroes That Aren't Done Yet: bluebird bio (BLUE), Editas Medicine (EDIT), Edwards Lifesciences (EW), Vertex Pharmaceuticals (VRTX), Align Technology (ALGN), Intellia Therapeutics (NTLA) and Sarepta.

So why am I selling SRPT today if I just said last week that it wasn't "done yet?"

As with all public companies involved in complicated medical science, it's a full-time job keeping up with the R&D. Biotech is arguably the hardest investing field of all, even if you are a trained life sciences professional.

Since I don't have a degree in molecular biology, I have my homework cut out for me analyzing and keeping up with all the news, data, and FDA rulings.

And so after today's good news, I decided that we could take profits of 115% out of our Sarepta position and know that we captured the biggest chunk of risk/reward available in the past year.

Here's what I told subscribers this morning...

The gains have come quickly here as the company makes advances in clinical trials and, more importantly, with the FDA. But with the recent gains, we have quickly reached the point where lots of good news (and potential good news) is priced-in to shares.

And that means the potential has risen for disappointments or delays to have an outsized affect on shares.

The bottom line for me is that the short-to-medium term risks outweigh the long-term rewards for a stock that has so quickly realized its potential. Let's bag our "stock that doubled" and get ready for the next one!

Cooker

Disclosure: I own shares of ALGN, BLUE, EDIT, NTLA, EW, and VRTX for the Healthcare Innovators portfolio.

Kevin Cook is a Senior Stock Strategist for Zacks Investment Research where he runs the Healthcare Innovators service.

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