2 New Growth Catalysts Could Send This Stock Higher

Jordo is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Sarepta Therapeutics (NASDAQ: SRPT) is focused on developing first-in-class RNA-based therapies to improve and save the lives of people affected by rare and infectious diseases. Its diverse pipeline of RNA-based therapies has given way to its lead program, eteplirsen, for Duchenne muscular dystrophy, a debilitating and life-threatening genetic disorder, as well as potential treatments for some of the world’s most lethal infectious diseases. After twenty two years in relative obscurity and almost $370 million in cumulative losses, the company finally seems to have a promising drug candidate in eteplirsen, an "exon skipping" compound for the treatment of Duchenne muscular dystrophy (DMD), a progressive disease that typically leaves patients wheelchair bound by their teens and dead shortly thereafter. Yet, despite a positive update from the company's critical phase 2b trial, the share price slid recently, but is still up almost 500% year-to-date.

Pipeline drug developments

The Duchenne Muscular Dystrophy (DMD) Program presented preclinical safety data showing eteplirsen was well tolerated up to the maximum dose of 320 mg/kg in a nine month repeat dose toxicity evaluation in cynomolgus monkeys, at the 8th Annual Oligonucleotide Therapeutic Society meeting. The company announced that treatment with its lead exon-skipping compound, eteplirsen, met the primary efficacy endpoint, increase in novel dystrophin, at 48 weeks, and achieved a significant clinical benefit on the primary clinical outcome, the 6-minute walk test (6MWT) over the placebo/delayed treatment cohort through 48 weeks in a phase 2b extension trial in DMD patients.

The Infectious Disease Programs recently announced that the U.S. Food and Drug Administration (FDA) has granted orphan drug designation for its lead infectious disease drug candidates, AVI-7288 and AVI-7537, for the treatment of Marburg virus and Ebola virus, respectively. The FDA has also granted Fast Track status for the development of its lead infectious disease drug candidates, AVI-7288 and AVI-7537, for the treatment of Marburg virus and Ebola virus, respectively. Sarepta has been developing these platform-based therapeutics under a U.S. Department of Defense (DoD) contract managed by the Joint Project Manager Transformational Medical Technologies (JPM-TMT) Project Management Office. Sarepta received notice from the DoD that the Ebola portion of the Company's contract for the advanced development of hemorrhagic fever virus therapeutics was terminated for the convenience of the government due to funding constraints. The company has been awarded a new contract for approximately $3.9 million to evaluate the feasibility of an intramuscular route of administration using AVI-7288, the company's candidate for treatment of Marburg virus.

Financials

For the third quarter of 2012, Sarepta reported an operating loss of $6.9 million, compared to an operating loss of $11.3 million in the third quarter of 2011. The decrease in the operating loss was primarily due to reductions in research and development related to non-DMD programs. Revenue for the third quarter of 2012 was $7.6 million, a $100,000 increase from the third quarter of 2011. The increase was primarily due to a $1.1 million increase in revenues from the Marburg portion of the July 2010 Ebola Marburg Department of Defense Contract, which was partially offset by $900,000 in reduced revenues from the Ebola portion of the contract due to receiving a stop-work-order on August 2. Additionally, on October 2, the Department of Defense terminated the Ebola portion of the contract due to funding constraints. Net losses for the third quarter of 2012 amounted to $49.6 million ($2.17 per basic share), compared to net losses for the third quarter of 2011 of $4 million ($0.18 per basic share). The increase in net loss was primarily due to a $49.8 million increase in non-cash expenses due to a change in the valuation of Sarepta's outstanding warrants.

Sarepta had cash and cash equivalents of $38 million as of September 30, a $13.5 million increase from June 30. Sarepta subsequently announced that it has priced an underwritten public offering of an aggregate of 4,950,495 shares of its common stock at a price to the public of $25.25 per share and anticipates the aggregate net proceeds from the offering will be approximately $118.2 million. Sarepta intends to use the net proceeds from the offering for general corporate purposes, including the continued development of eteplirsen and other product candidates.

Competition

There is currently no treatment for Duchenne Muscular Dystrophy (DMD) though GlaxoSmithKline (NYSE: GSK) could be a future competitor. GlaxoSmithKline, which has partnered with Prosensa, is also working on a drug to combat Duchenne muscular dystrophy. The companies recently noted that it doesn't expect FDA approval for its drug, Dispersen, until at least 2014, which gives Sarepta plenty of time to try and get eteplirsen onto the market.

Another biotech stock that has been a big mover recently is Acadia Pharmaceuticals (NASDAQ: ACAD), which tested its flagship product pimavanserin in the treatment of Parkinson's Disease Psychosis (PDP) and gained more than 100% in one day because of promising phase 3 data. Pimavanserin failed a similarly-structured clinical trial back in 2009, so investors were relieved that the drug proved its efficacy this time.

Amarin (NASDAQ: AMRN) recently earned FDA approval for its flagship drug Vascepa (Omega 3 fatty acid), which is used to combat very high triglyceride levels. The market potential for Vascepa is large with estimates of over 1.8 billion in sales by 2018.  Once the NCE status is determined, Amarin will likely decide whether to sell the company or launch Vascepa on its own. Once the NCE status is determined by the FDA, it should give potential investors a better idea on how to value the stock.

Conclusion

There are two important catalysts coming up for Sarepta. The first catalyst is the 60 week data for eteplirsen confirming the excellent 48 week clinical data which is expected by the end of the first quarter of 2013. The second is the possibility of accelerated approval, because the FDA allows companies asking for an accelerated approval for currently unmet medical needs to use surrogate endpoints. There is no certainty that this approval would be forthcoming. However, positive news from either could result in a spike in the share price. Investors should do further research and decide if Sarepta fits in their portfolio.


jordobivona has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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