For the Long-Term Investor, Sarepta’s Immediate Events Matter Little

PropThink’s readers will be aware of our bullish outlook on Sarepta Therapeutics (SRPT), and Thursday’s commentary that a NDA filing may still be months away does nothing to change our investment thesis. Previously, we had written that being involved in SRPT ahead of an accelerated approval decision made sense given the attractive risk/reward, however we’re also keeping powder dry to continue building a position following this critical decision — adding under either scenario.

On Thursday, Sarepta CEO and President Chris Garabedian at the Deutsche Bank dbAccess Health Care Conference said that the company had submitted the two papers that the FDA requested at their last meeting: one on dystrophin as a surrogate marker in Duchenne Muscular Dystrophy (DMD), and the other on eteplirsen’s Phase IIb clinical outcomes. Sarepta is still hopeful that they’ll have communication about accelerated approval yet this summer, possibly in August; however, CMC data, for which the company won’t have clarity with the FDA until late this year, will be indicative of the timing of the NDA filing, in addition to plans for a Phase III confirmatory study. Ultimately, it sounds like a NDA filing won’t materialize until at least 1Q14, although in the interim the company may reveal whether it plans to file. With that in mind, we’re expecting investor interest to wane in the back half of this year, an ideal opportunity to add to or initiate a SRPT position.

Other items of interest from the event:

  • The company still hopes to have its Chemical Manufacturing and Controls meeting by the end of the third quarter. The pent up demand for a DMD treatment will create an orphan-specific commercial scenario. Karnauskus asked:

In any of these conversations does it come up in the – as far as in the non-CMC conversation with the regulatory portion of the FDA. Has it come up regarding the limited capacity and how you might handle that or do they want you to come up with a way to prioritize, does that come up at all?

Garabedian replied:

Not to that level of detail. I think there is understanding that the FDA has been supportive of what I refer to as restricted launch. Right, well you don’t have drug supply to satisfy the potential full demand of the market. If we were dealing with another disease area where you see adoption curves or you might get 10% of the market first year or 20%, we wouldn’t be even having this discussion. But we think this may be a scenario like [Kalydeco], where you know the genetic subtypes that would be amenable to the therapy. And there is going to be that pent-up demand, and if you look at Kalydeco’s experience, where the large majority of patients were adopting within the first year, that’s the type of scenario we want to prepare for and if the demand is that quick and that grade, then that’s where we have this issue that we probably – we wouldn’t have the full commercial supply at the time we would get an accelerated approval. And so I think the FDA is aware of that and they are aware that we are not stopping or missing a beat on trying to produce as much drug as quickly as possible.

We have not gotten to the level of detail of what that criteria would be of a restricted launch. They’ve used lotteries in the past. And so those would probably come after there was an understanding that we would be preparing for an accelerated approval launch.

  • Garabedian said that at this time Breakthrough Designation does not seem particularly advantageous. That, however, could change with further interactions with the FDA. Remember, Breakthrough Designation is based on a clinical signal of efficacy. Garabedian said, “We believe we have [a clinical benefit] but we would like to gain clarity that the FDA sees it the way we do, that this six minute walk benefit and the clinical outcomes we’re seeing are supportive of a breakthrough designation.”
  • Partnering eteplirsen is a low priority, as a partnership would do little to accelerate or aid in current undertakings. A wise decision in our view given Sarepta’s strong balance sheet and capabilities to tackle a minuscule patient population.
  • Garabedian believes there may be a threshold in dystrophin production before a clinical benefit materializes: “We believe there is a threshold that needs to be met on dystrophin, and that maybe somewhat different patient to patient. But if you can go beyond that threshold to a substantial degree, which we believe we are, where we are seeing approximately 50% of muscle fibers are showing positive for dystrophin, which confers the certain level of intensity that must be met to call it positive. And we have seen correlation of the dystrophin intensity that we’ve measured with dystrophin positive fibers. So everything is moving in the right direction in these patients, and we believe we are beyond that level of threshold where it would confer clinical benefit.” The production/benefit correlation has been widely disputed by SRPT bulls and bears.
  • As pulmonary outcomes continue to mature, the company will consider releasing this data. Currently, the company has focused analysis of the broader clinical outcomes on the FDA papers. But pulmonary outcomes are, said Garabedian, “probably the most looked upon and validated endpoint of the other exploratory measures that we had in the study. And we know in other neuromuscular conditions right it often is the basis of approval as a primary or co-primary endpoint.”
  • When asked about potential competition (Prosensa’s drisapersen went unnamed), Garabedian said he believes the company will be well-positioned as the best-in-class drug, even if second to market, and in fact went on to name a few of drisapersen’s known side effects. Garabedian speculated that even if a competitor makes it to market six months earlier, the improved tolerability and safety may prompt some patients to continue warehousing in expectation of eteplirsen. In addition, he believes there’s a safe way to switch patients over.
  • Regarding development of Sarepta’s other exon-skipping therapies, specifically in relation to other rare forms of DMD, Garbedian believes there exists an accelerated pathway with the FDA. The company is applying for pre-IND meetings for at least two of the planned therapies before the year is out. Garabedian presented a more detailed look at this accelerated pathway at the World Orphan Drug Congress USA 2013 in April. The long-term thesis for SRPT depends on its platform capabilities.
  • When questioned about Sarepta’s public comments regarding accelerated approval, Garabedian responded:

It’s very hard to be committed to [developing a needed drug that we believe is safe and efficacious] and to express how we are trying to do that and avoid the perception of doing something that some believe is unprecedented or aggressive. And we don’t believe that; we believe in our drug, we understand the regulations and what the authority of the FDA is.

We believe we are meeting those demands and we hope that FDA does the right thing as it relates to accelerated approval. And that’s my job as CEO; I don’t want to be the one telling the parents: ‘you know trust me, I know the biotech industry and I know the FDA, so I’m going to decide, we’re not even going to try to pursue it and just trust me on this.’ Guess where their fire is going to be focused? It’s going to be on me for being an idiot for not trying to get a drug to them as quickly as possible. So that’s why I’m vocal about it, and that’s why I feel strongly because we believe in the product.

While it’s tempting to jump on Friday’s price action as a buying opportunity, we expect SRPT to continue to dip towards $30 as the news flow slows into August; we suspect investor interest will again dwindle into the new year. Buying in the low $30-range is very attractive, although we again reiterate that reserving funds for post-FDA-decision makes sense.

In connection with SRPT, PropThink has taken a long position.