WBB Securities, LLC. The Evolution of Sarepta To Big Biotech

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1 WBB Securities, LLC Steve Brozak, DMH (908) Sarepta Therapeutics, Inc. (NasdaqGS: SRPT) Updating Coverage Updating Coverage by Maintaining Strong Buy Rating and June 29, 2018 Increasing the 12-Month Price Target to $ The Evolution of Sarepta To Big Biotech Sarepta Therapeutics, Inc. (SRPT) is a commercial-stage biopharmaceutical company focused on RNA targeted therapeutics, gene therapy and other genetic medicine approaches for treating rare neuromuscular diseases. Currently the company is primarily focused on drug candidates for Duchenne Muscular Dystrophy (DMD), a rare, inherited disorder, primarily in young males and defined by progressive muscular weakness. It is caused by an absence of the protein dystrophin, which connects, strengthens and protects muscle fibers as muscles contract and relax. We believe SRPT has taken strategically important actions by enlisting leaders in the DMD space for Current Price $ Month Target Price $ Month Trading Range $32.80-$ Market Capitalization (Mil) $8,765 Shares Outstanding (Mil) Avg. Daily Volume 1,753,129 L. T. Debt (Mil) Dividend/Yield advice and clinical trial participation. Further, with the recent collaboration agreements with Myonexus Therapeutics and confirmed interest in expanding into additional indications, we remain assured of growth for the company. With these actions, combined with a proven ability to navigate through regulatory hurdles in the development process of rare disease therapies, as shown so far with EXONDYS 51, we see SRPT either driving through pursuit of their nextgeneration platform, or the possibility of a takeout. We therefore are updating our coverage of SRPT by maintaining our Strong Buy rating and increasing our 12-month price target of $ On June 19, 2018, SRPT management hosted the company s first R&D Day where positive preliminary results were reported from the first three DMD children receiving AAVrh74.MHCK7 micro-dystrophin gene therapy in a Phase 1/2a trial. Micro-dystrophin is a shortened but functional gene for dystrophin that can be beneficial in any version of DMD (exon-skipping mutation or not). The micro-dystrophin gene, which is a shortened, single strand of RNA, is delivered to the cell inside the AAVrh74 virus in which the native DNA has been replaced with the micro-dystrophin gene. The trial is being conducted at Nationwide Children s Hospital (Nationwide) in a strategic collaboration with SRPT. Preliminary data includes: Mean gene expression of micro-dystrophin fibers was 76.2% and mean intensity of the fibers was 74.5% compared to normal control. Samples were taken from the gastrocnemius, a portion of the calf muscle. Post-treatment biopsies evaluating micro-dystrophin levels, measured by Western blot analysis, (see image below) displayed a mean of 38.2% compared to normal, based on SRPT s method, 53.7% when compared to normal according to Nationwide s quantification of SRPT s method that adjusts for fat and fibrotic tissue. N/A Book Value P/S NASDAQ Composite 7, S&P 500 2, Historical Performance Page 7 Price and Volume Chart Page 8 Disclosure - Page 9

2 All patients showed significant decreases of serum creatine kinase (CK) levels, with a mean reduction of CK of over 87% at Day 60. CK is an enzyme related to muscle damage and patients with DMD consistently show high levels of CK. No serious adverse events (SAEs) were observed in the study. Two patients had elevated gamma-glutamyl transferase (GGT) that resolved with increased steroids within a week and returned to baseline levels. Patients had transient nausea, generally during the first week of therapy coincident with increased steroid dosing. Source: Sarepta Therapeutics, Inc. Additionally, SRPT provided more updates to their pipeline on R&D Day, including an overview of Nationwide s Phase 1/2 GALG2 trial, in Limb-Girdle Muscular Dystrophy, and the PPMO platform, the second generation PMO platform from which EXONDYS 51 was derived. In 2016, the FDA approved the company s first commercial product, EXONDYS 51 (eteplirsen injection), a gene therapy for treating DMD patients with defective exon 51. EXONDYS 51 binds to exon 51 of dystrophin pre-messenger RNA, resulting in skipping of this exon, thereby producing a functional dystrophin protein. The company estimates that EXONDYS 51 can treat approximately 13% of all DMD patients. SRPT recently received a negative opinion on approval of EXONDYS 51 from the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA). The company will request a re-examination of the opinion, which is expected to conclude by end of SRPT continues to develop other exon skipping products to treat DMD. The company plans to submit Golodirsen (SRP-4053) an exon 53 skipping therapy, to the FDA for approval by end of SRPT is seeking guidance for a confirmatory study of Casimersen (SRP-4045) an exon 45 skipping drug. In April 2018, SRPT received the equivalent of Fast Track Status in Japan while undergoing a Phase 1/2 trial of DS-5141b in boys with DMD. Up to six boys, ages 5 through 10 years old with a confirmed diagnosis of DMD, will receive the treatment for 12 weeks. WBB SECURITIES, LLC 2

3 Valuation Rating Legend: Strong Buy Should be aggressively purchased. Sell Stock should be sold on market strength. Buy Should be purchased on market weakness. Sell Short Should be aggressively sold. Hold Fairly valued. Speculative Buy For aggressive accounts only. Core Holding Essential holding of a long-term account. SRPT is entering a new phase in the life of the enterprise. Last week during SRPT s inaugural R&D day, they displayed their continued reach into the muscular dystrophy space with the strength of its clinical candidates and collaborative partnerships, as well as continuing to burnish the company s reputation with investors. The early-stage data the company presented did not go unnoticed in the capital markets. We are therefore now valuing SRPT using a sum-of-the-parts analysis, applying discounted cash values per share to EXONDYS 51 amounting to $46, Golodirsen & Casimirsen together to $34, gene therapy candidates, partnerships (keeping in mind the possibility of full acquisition of Myonexus) to $78 and cash-equivalent assets to $8.00. We assume the DMD populations are located in the United States only. In completing this analysis, we do not rule out the possibility of SRPT being a takeover target for larger pharma or biotech, recognizing that this is a favorable environment for such an action. Ultimately, with a million share count, we arrive at a value per share of $ In addition to the risks normally anticipated in a commercial stage biotechnology company and previously outlined by SRPT in regulatory filings, we note the following specific risks in attaining our price target: Commercial Risk: SRPT is solely dependent on EXONDYS 51 for the majority of the company s current revenue stream. As is common with many biotech companies, SRPT also experiences increasing competition even in the DMD space from companies such as Pfizer (PFE) or PTC Therapeutics (PTCT). Manufacturing Risk: Reliance on third-party manufacturers to comply with cgmp. Clinical Risk: Lack of current clinical candidates in addition to EXONDYS 51, given its reliance on sufficient positive data in its post-market clinical trial. Intellectual Property Risk: May utilize fiscal resources and effort to continue sufficient property protection and prevent infringement of other company s rights. Regulatory Risk: FDA policy changes or regulatory delays, healthcare reform, reimbursement parameters, etc. Financial Risk: Sufficient cash runway until EOY 2018 (per 10-K). About DMD DMD is one of the most common fatal genetic disorders. It affects approximately one in every 3,500-5,000 male births worldwide. The condition is universally fatal, and death usually occurs before the age of 30 generally due to respiratory or cardiac failure. WBB SECURITIES, LLC 3

4 DMD is a rare degenerative neuromuscular disorder causing severe progressive muscle loss due to lack of dystrophin, leading to premature death. Dystrophin is a protein found in muscle cells that is crucial for strengthening and protecting muscle fibers, even in extremely small amounts (about percent of total muscle protein). DMD is associated with specific errors in the gene that codes for dystrophin. The disease manifests itself in progressive muscle weakness in the lower limbs, spreading to the arms, neck, heart and other areas of the body. SRPT Pipeline Source: Sarepta Therapeutics, Inc. There are four categories generally defining the SRPT pipeline: RNA Therapies derived from the company s PMO platform, RNA therapies derived from the company s PPMO platform, Gene Therapy and Gene Editing. Aspects of the company s pipeline are being pursued both collaboratively and independently. All programs primarily focus on the DMD indication, with the exception of the recent expansion into Limb-Girdle Muscular Dystrophy introduced to SRPT through the collaboration agreement executed with Myonexus (June 13, 2018). Unlike the RNA-targeted technologies such as sirnas and DNA gapmers, SRPT s PMO-based compounds operate by steric blockade rather than by cellular enzymatic degradation to achieve their biological effects. Thus, PMOs use a fundamentally different mechanism from other RNAtargeted technologies. The two key structural differences between PMO-based compounds and naturally occurring RNA are that the PMO nucleobases are bound to synthetic morpholino rings instead of ribose rings, and the morpholino rings are linked by phosphorodiamidate groups instead of phosphodiester groups. Replacement of the negatively charged phosphodiester in RNA with the uncharged phosphorodiamidate group in PMO eliminates linkage ionization at physiological ph. Due to these modifications, PMO-based compounds are resistant to degradation by plasma and intracellular enzymes. WBB SECURITIES, LLC 4

5 EXONDYS 51 (eteplirsen) is SRPT s first commercial product. It was approved September 2016 for treatment of DMD in patients who have a confirmed mutation of the gene that is amenable to exon 51 skipping. This product targets the most frequent mutation that causes DMD by producing a shortened but functional substitute form of the dystrophin protein. To fulfill FDA post-marketing requirements, the company is conducting post-market (Phase 4 PROMOVI clinical trial), which is fully enrolled. On June 1, 2018, the company announced the Committee for Medicinal Products for Human Use of the EMA adopted a negative opinion for EXONDYS 51 as expected, and SRPT has stated the re-examination process has begun and is expected to be completed by the end of this year. Golodirsen is a product candidate derived from the PMO platform, which is the same platform technology as EXONDYS 51. It addresses DMD patients with exon 53 mutations (~8% DMD population). It is currently being evaluated in a confirmatory, open-label Phase 3 trial (ESSENCE). SRPT had a Type C meeting with the FDA s Division of Neurology Products in Q that provided further guidance on the development pathway as SRPT seeks accelerated approval. Approval will be based on an increase in dystrophin protein as measured in a surrogate endpoint, consisting of biopsies at 48 weeks to determine dystrophin levels after treatment. The company remains on track to complete a rolling NDA submission by end of year. Casimersen is also included in the ESSENCE study. 25 patients will be treated with Casimersen, which targets patients susceptible to exon 45 skipping (~8% DMD population). Guidance is being sought from the FDA to determine if this candidate can be approved using a similar standard to that used for Golodirsen and EXONDYS 51. SRP-5051 is the first candidate derived from the PPMO platform. Focused on the exon 51 amenable DMD population (~13% DMD population), SRP-5051 is currently undergoing a 30- patient, Phase 1 safety and tolerability trial, evaluating five escalating single-doses. It is estimated to be completed January Ezutromid is a small molecule utrophin modulator derived from a proprietary platform from Summit (Oxford) Ltd. Utrophin is similar to dystrophin and may be a viable therapy for DMD patients regardless of specific exon mutation. SRPT entered into an exclusive Collaboration and License Agreement in October 2016 with Summit to develop and commercialize products within the utrophin modulator pipeline in specific territories. SRPT is responsible for 45% of research and development costs directly related to the licensed products and territories. GALGT2 is an enzyme that modifies the dystrophin-associated protein complex and upregulates utrophin, which is similar to dystrophin and may be a viable therapy for DMD patients regardless of specific exon mutation. SRPT is currently in a strategic collaboration with Nationwide by way of an exclusive license agreement. Strategic Collaborations Micro-Dystrophin Programs with Nationwide Children s Hospital and Genethon explore gene therapy approaches to treat DMD. Micro-dystrophin is a smaller yet still functional version of dystrophin and is used due to its ability to be transfected (delivered) into a viral vector such as WBB SECURITIES, LLC 5

6 an adeno-associated virus that does not cause illness in humans. (Dystrophin itself is too large). Preliminary data regarding clinical candidate AAVrh74.MHCK7 in the Phase 1/2a trial conducted by Nationwide was presented on SRPT s first R&D day, as described previously. The collaboration with Genethon was initiated in June 2017 and focuses on the advancement of the proprietary micro-dystrophin gene therapy program under a sponsored research and exclusive license agreement. Myonexus/SRPT Limb-Girdle Muscular Dystrophy - In May 2018, SRPT entered into a warrant to purchase common stock of Myonexus, with an exclusive option to acquire Myonexus Therapeutics. The terms of the agreement allow for SRPT to exercise the warrant after specific development milestones related to the Phase 1/2a clinical trial of MYO-101, as well as the option to acquire Myonexus Limb-Girdle Muscular Dystrophy (LGMD) Program. MYO-101 aims to treat LGMD Type 2E, also known as beta-sarcoglycanopathy, a severe and debilitating form of LGMD characterized by progressive muscle fiber loss, inflammation and muscle fiber replacement with fat and fibrotic tissue. It designed to transfect a gene that codes for and restores beta-sarcoglycan protein with the goal of restoring the dystroglycan complex. MYO- 101 has generated strong pre-clinical safety and efficacy data utilizing the AAVrh.74 vector system, the same vector used in the micro-dystrophin gene therapy program Sarepta is developing with Nationwide. A Phase 1/2a study of MYO-101 is scheduled to begin in Q The companies plan to report on 60-day biopsy data in Q In addition, Myonexus is advancing MYO-102 for LGMD Type 2D, MYO-103 for LGMD Type 2C, MYO-201 for LGMD Type 2B, and MYO-301 for LGMD Type 2L. Like MYO-101, all LGMD programs in the Myonexus pipeline rely upon transfecting a restorative gene utilizing the AAVrh.74 vector, and target approximately 70% of the LGMD population. Management Douglas Ingram, President and Chief Executive Officer Prior experience includes Chase Pharmaceuticals, Allergan, and Pacific Mutual Holding Company. Mr. Ingram received his JD from the University of Arizona and his BS from Arizona State University. Sandy Mahatme, Executive Vice President, Chief Financial Officer and Chief Business Officer Prior experience includes Celgene Corporation, Pfizer, and Ernst & Young LLP. Mr. Mahatma holds Master of Law (LL.M.) degrees from Cornell Law School and NYU School of Law. He is also a Board Member of Flexion Therapeutics and Aeglea Biotherapeutics. Gilmore O Neill, MB, MMSc, Chief Medical Officer Prior experience includes various roles of increasing responsibility at Biogen, Massachusetts General Hospital, as well as academia at Harvard Medical School. He is licensed to practice medicine in Massachusetts, is a member of the American Academy of Neurology and a board-certified neurologist. Dr. O Neill received a Bachelor of Medicine from University College Dublin and a Master of Medical Sciences degree from Harvard University. Guriqbal Basi, PhD, Senior Vice President and Chief Scientific Officer Prior experience includes Elan, Circuit Therapeutics, Symic Biomedical, the Parkinson s Marker Initiative, and the Alzheimer s Drug Discover Foundation. Dr. Basi earned his PhD from the University of Illinois, Chicago, and a BS in Biochemistry from the Ohio State University. WBB SECURITIES, LLC 6

7 Diane Berry, PhD, Vice President of Global Health Policy and Government Affairs Prior experience includes government entities, including CBRN, the House Committee on Homeland Security, Department of Homeland Security Office of Health Affairs, and companies including McKenna, Long, and Aldridge. Dr. Berry received her PhD in chemical engineering from Northwestern University and received her BS and MS in chemical/biochemical engineering from Tufts University. Bo Cumbo, Senior Vice President and Chief Commercial Officer Prior experience includes Vertex Pharmaceuticals, Gilead Sciences, and GSK. Mr. Cumbo received his Bachelor of Science in Medical Technology from Auburn University. Ty Howton, Senior Vice President, General Counsel and Corporate Secretary Prior experience includes Vertex Pharmaceuticals, Genentech, and Sidley Austin LLP. Mr. Howton holds a BA from Yale University and a JD from Northwestern University School of Law. Joan Nickerson, MBA, Vice President of Human Relations Prior experience includes Dyax and Harvard University. Ms. Nickerson holds a Bachelor s degree in Business Administration from the University of Massachusetts, Lowell, and an MBA from Simmons College in Boston. Louise Rodino-Kaplac, PhD., Vice President of Gene Therapy Prior experience includes various research and clinical departments at Nationwide Children s Hospital, the NIH, and The Ohio State University College of Medicine. Dr. Rodino-Kaplac co-founded Myonexus Therapeutics Inc. and currently serves as its Chief Scientific Officer. Dr. Rodino-Kaplac received her bachelor s degree in biology from Kings College and a PhD in molecular genetics from The Ohio State University. Other Companies Mentioned in this Report Genethon (private) Nationwide Children s Hospital Oxford (Summit) Ltd. Myonexus Therapeutics (private) Pfizer, Inc. (PFE) PTC Therapeutics (PTCT) Historical & Future EPS Performance EPS Q1 1.50A (0.55)A Q2 (1.15)A Q3 (0.78)A Q4 (0.37)A Year (0.86)A (2.00)E (1.00)E P/E NM NM NM EPS Growth NM NM NM FY Rev. (Mil) A 290E 450E FY:DEC WBB SECURITIES, LLC 7

8 Price and Volume Initiated Coverage of Sarepta as AVI Biopharma, Inc. (AVII) on December 29, Updated coverage of SRPT on 05/21/15 at $24.26 with a Strong Buy Rating and a 12-month price target of $35.00 Updated coverage of SRPT on 08/13/15 at $34.69 with a Strong Buy Rating and a 12-month price target of $40.00 Updated coverage of SRPT on 03/30/16 at $19.09 with a Strong Buy Rating and a 12-month price target of $60.00 WBB SECURITIES, LLC 8

9 Distribution of Ratings and Disclosure of Banking Relationships: The following table shows WBB s ratings distribution expressed as a percentage of all securities rated as of the end of the most recent calendar quarter, as well as the percentage of subject companies within each rating category for whom WBB has provided investment banking services within the previous 12 months. Percentage of Covered Securities Percentage of Banking Clients Buy 73% 21% Hold 12% Sell 15% The research analyst who is primarily responsible for the research contained in this research report and whose name is listed on this report: (1) attests that all of the views expressed in this research report accurately reflect that of the research analyst's personal views about any and all of the securities and issuers that are the subject of this research report; and (2) attests that no part of that research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the research analyst in this research report. All WBB Securities, LLC ("WBB") employees, including research associates, receive compensation that is based in part upon the overall performance of the firm, including revenues generated by WBB's investment banking department, but not directly related to those revenues. Although information herein has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness or fairness. Opinions and estimates may be changed or withdrawn without notice. This report is not intended as an offer or solicitation, or as the basis for any contract, for the purchase or sale of any security, loan or other instrument. We or our affiliates or persons associated with us or such affiliates ( Associated Persons ) do not maintain a long position in securities, loans or other instruments referred to herein or in other securities, loans or instruments of issuers named herein, or in related derivatives; we may purchase or sell, make a market in, or buy or sell on a principle basis, or engage in other transactions involving such securities, loans or instruments of such issuers; and/or provide investment banking, credit, or other services to any issuers named herein. The author of this report and the officers of WBB do not own options, rights or warrants to purchase any of the securities of the issuer whose securities are recommended, unless the extent of ownership is nominal. The past performance of securities, loans or other instruments does not guarantee or predict future performance. This report may not be reproduced or circulated without our written authority. WBB SECURITIES, LLC 9