Sarepta Therapeutics, Inc. (SRPT-NASDAQ)

Transcription

1 January 27, 2015 Sarepta Therapeutics, Inc. (SRPT-NASDAQ) Current Recommendation SUMMARY DATA NEUTRAL Prior Recommendation Outperform Date of Last Change 08/12/2013 Current Price (01/26/15) $12.44 Target Price $ Week High $ Week Low $11.61 One-Year Return (%) Beta 0.59 Average Daily Volume (sh) 930,924 Shares Outstanding (mil) 41 Market Capitalization ($mil) $510 Short Interest Ratio (days) Institutional Ownership (%) 63 Insider Ownership (%) 3 Annual Cash Dividend $0.00 Dividend Yield (%) Yr. Historical Growth Rates Sales (%) -7.8 Earnings Per Share (%) Dividend (%) using TTM EPS using 2015 Estimate using 2016 Estimate Zacks Rank *: Short Term 1 3 months outlook 3 - Hold * Definition / Disclosure on last page SUMMARY Sarepta reported a loss of $0.81 per share in the third quarter of 2014, wider than the year-ago loss of $0.73 per share but narrower than the Zacks Consensus Estimate of a loss of $0.95 per share. Revenues fell 73.8% from the year-ago quarter to $1.1 million, missing the Zacks Consensus Estimate of $3 million. In late October, Sarepta had received updated guidance from the FDA regarding eteplirsen. Given the FDA s additional requirements, Sarepta now expects to submit a NDA for eteplirsen by mid While the approval of eteplirsen would be a huge boost for the company we note that there are other companies working on DMD treatments and Sarepta is already facing a delay in its filing plans. Moreover, we are concerned about Sarepta s dependence on its DMD program. We remain Neutral on the stock. Risk Level * High Type of Stock Small-Blend Industry Med-Biomed/Gene Zacks Industry Rank * 60 out of 267 ZACKS CONSENSUS ESTIMATES Revenue Estimates (In millions of $) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) A 2.9 A 4.2 A 2.6 A 14.2 A A 2.6 A 1.1 E 1.2 E 11 E E 2 E 2 E 3 E 9 E E Note: Quarterly numbers may not add to annual figures due to rounding off. Earnings per Share Estimates (EPS is operating earnings before non-recurring items, but including employee stock options expenses) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) $0.46 A -$0.53 A -$0.74 A -$0.87 A -$2.63 A $0.66 A -$0.75 A -$0.81 A -$0.95 E -$3.17 E $0.87 E -$0.89 E -$0.94 E -$0.77 E -$3.47 E $3.21 E Note: Quarterly numbers may not add to annual figures due to rounding off. Projected EPS Growth - Next 5 Years % 2015 Zacks Investment Research, All Rights reserved S. Riverside Plaza, Chicago IL 60606

2 OVERVIEW Cambridge, MA-based Sarepta Therapeutics is a biopharmaceutical company that focuses on the discovery and development of RNA-based therapeutics targeting rare and infectious diseases. Sarepta s candidates are based on its phosphorodiamidate-linked morpholino oligomer (PMO) chemistries. Sarepta s lead pipeline candidate is eteplirsen, which is being developed for the treatment of Duchenne muscular dystrophy (DMD), one of the most common fatal genetic disorders affecting children, especially boys, around the world. Sarepta is also developing treatments for infectious diseases the lead candidate in the infectious disease program is for the Marburg hemorrhagic fever virus. The infectious disease program is primarily funded and supported by the U.S. Department of Defense (DoD). Candidate Indication Stage of Development Eteplirsen DMD (exon 51) Phase IIb done AVI-7288 Marburg virus Phase I AVI-7100 H1N1 flu virus Phase I Source: 10K The company s revenues declined 62% to $23.1 million in With no marketed product in its portfolio, revenues consist entirely of revenues generated from U.S. government research contracts and grants and licensing agreements. REASONS TO BUY Eteplirsen in Different DMD Studies: Eteplirsen, the company s lead pipeline candidate, is being developed for the treatment of DMD. Sarepta is currently looking to file a new drug application (NDA) for the candidate in mid-15. The company is moving ahead with its confirmatory study and two studies in a broader patient population including younger and older patients whose disease has progressed significantly (non-ambulatory patients). Building DMD Pipeline: Sarepta is looking to build its DMD pipeline beyond eteplirsen by developing other exon-skipping treatments. Sarepta has about eight potential exon-skipping candidates in its pipeline that could treat almost 50% of the DMD population in the U.S. alone, there could be about 7,000 eligible ambulant and non-ambulant patients. The company expects to evaluate candidates targeting exon 53, SRP-4053 (phase I/II study ongoing), and exon 45, SRP These two exon skipping targets target 14% of the DMD population. Significant Unmet Need for DMD: One of the most common fatal genetic disorders affecting children around the world, DMD is a devastating and incurable muscle-wasting disease. There is significant unmet need for DMD treatments. Eteplirsen, if developed successfully, would be able to capture a major share of this orphan disease market. According to the Centers for Disease Control and Prevention, DMD affects about 1 in every 3,500 male births this means approximately 25,000 30,000 patients in the U.S. and EU. Eteplirsen has orphan drug status in the U.S. and EU which means it would be entitled to several years (seven in the U.S. and ten in the EU) of marketing exclusivity once launched. Eteplirsen also has fast track status in the U.S. Equity Research SRPT Page 2

3 REASONS TO SELL Banking on Eteplirsen: Sarepta is entirely dependent on eteplirsen for growth. Although the company does have an infectious disease program, this is being conducted in collaboration with the DoD. Funding restrictions could lead to the termination of this program. In fact, this has happened in the case of AVI (Ebola) whose development was terminated following the receipt of a notice from the DoD. NDA Filing Delayed on FDA Oct 2014 Guidelines: Sarepta, which had been looking to file a NDA for eteplirsen by the end of 2014 is now targeting the same in mid-15. If all goes well and assuming priority review, approval is not likely to come before the first half of An updated guidance provided by the FDA regarding additional data requirements led to the delay, which is disappointing. Preliminary guidance from the EMA following a meeting in Dec 2014 also requires the submission of additional clinical data for conditional approval. As mentioned above, Sarepta is totally dependent on eteplirsen for growth. With so much depending on the successful development and approval of eteplirsen, any kind of development or regulatory setback would weigh on the stock. Competition in the RNA-Based Treatment Market: Sarepta is not the only company working on the development of RNA-based therapeutics. Companies like Alnylam, Isis and Santaris are all involved in the development of RNA-based drugs. As far as DMD is concerned, Prosensa has a late-stage candidate, drisapersen, in development. The company is ahead of Sarepta and has started a rolling NDA submission. Other companies working on DMD treatments include PTC Therapeutics and Summit. RECENT NEWS Sarepta Starts Dosing in DMD Study Jan 14 Sarepta announced that it has initiated dosing its first patient in a phase I/II study on SRP The candidate is being evaluated for DMD. This multiple-dose study will be conducted at four sites in Europe under a consortium agreement between the company and numerous European hospitals, institutions and scientists to assess the safety, tolerability, efficacy and pharmacokinetics of SRP-4053 in DMD patients with genotypes amenable to exon-53 skipping. The study will be partly funded by the EU s Seventh Programme for research, technological development and demonstration under grant agreement no A devastating and incurable muscle-wasting disease, DMD is one of the most common fatal genetic disorders affecting children around the world. There is significant unmet need for DMD treatments. Earlier in the week, Sarepta announced data through week 168 from a phase IIb open-label extension study (study 202) on its lead candidate eteplirsen, in DMD patients. Although the results of a 6-minute walk test at 168 weeks showed continued ambulation across all patients after more than three years of treatment, they showed a decline in distance walked on this measure since week 144. Consequently, shares of Sarepta fell 14.6%. We note that Sarepta currently does not have any approved product in its portfolio. Successful development and commercialization of eteplirsen is crucial for the company. We expect investor focus to remain on updates pertaining to eteplirsen. Equity Research SRPT Page 3

4 Sarepta Initiates Dosing for Study Evaluating Eteplirsen Nov 18 Sarepta announced that it has dosed the first patient in an open label study, , on its lead exonskipping therapeutic candidate, eteplirsen. Sarepta is evaluating the candidate for the treatment of Duchenne muscular dystrophy (DMD) in non-ambulatory patients or those who have advanced DMD and do not meet a minimum 6-minute walk test score at baseline. The study will evaluate the safety of eteplirsen in approximately 20 patients suffering from DMD over a span of 96 weeks of dosing. The patients enrolled in the study will be administered once weekly intravenous infusions of 30mg/kg of eteplirsen. We remind investors that late last month, Sarepta had received updated guidance from the FDA regarding eteplirsen. The FDA stated that results from an independent assessment of dystrophin images as well as 168-week data from Study 202 have to be included in the submission for marketing approval. Moreover, the FDA pointed out that it requires specific data like a minimum duration of safety in new patients treated with eteplirsen and patient-level natural history data to be obtained by Sarepta from independent academic institutions. Also, MRI data from a recent study conducted by an independent academic group needs to be included apart from other specific data. Given the FDA s additional requirements, Sarepta now expects to submit a new drug application (NDA) for eteplirsen by mid Currently, Prosensa Holding (RNA - Snapshot Report) is also developing drisapersen for the treatment of DMD. Last month, the company initiated the process of a rolling NDA submission for drisapersen. We note that Sarepta currently does not have any approved product. The successful development and commercialization of eteplirsen is crucial for the company. We expect investor focus to remain on updates pertaining to eteplirsen. Sarepta Loss Narrower-Than-Expected, Eteplirsen in Focus Nov 6 Sarepta Therapeutics, Inc. (SRPT) reported a loss of $0.81 per share in the third quarter of 2014, wider than the year-ago loss of $0.73 per share but narrower than the Zacks Consensus Estimate of a loss of $0.95 per share. Third quarter revenues decreased 73.8% from the year-ago quarter to $1.1 million, missing the Zacks Consensus Estimate of $3 million. The decline was primarily due to decreases in revenue from the company s government contracts. Other Details Research and development expenses increased 3.9% year over year to $21.9 million. General and administrative expenses increased 60.7% year over year to $12.9 million Guidance Sarepta now expects loss from operations in the range of $110 - $120 million, well below the earlier guidance range of $135 - $145 million. The company expects expenditure for the remainder of the year to be lower than previously expected due to the FDA s recent guidance regarding its Duchenne muscular dystrophy (DMD) candidate, eteplirsen. Equity Research SRPT Page 4

5 We remind investors that late last month, Sarepta had received updated guidance from the FDA regarding eteplirsen. Given the FDA s additional requirements, Sarepta now expects to submit a new drug application (NDA) for eteplirsen by mid-2015 instead of year end Meanwhile, Sarepta continues to advance with its other studies on eteplirsen and other exon skipping pipeline candidates for DMD. Two new studies on eteplirsen are currently enrolling patients one a confirmatory study in ambulatory patients and the other in advanced-stage patients including patients who are non-ambulant. The exon-53 study (on SRP-4053) has commenced in Europe. As far as the U.S. is concerned, the company will be meeting with the FDA to discuss its randomized placebo-controlled master protocol for exons 45 and 53 a feedback on the final protocol could be available by year end. VALUATION Sarepta reported a loss of $0.81 per share in the third quarter of 2014, wider than the year-ago loss of $0.73 per share but narrower than the Zacks Consensus Estimate of a loss of $0.95 per share. Third quarter revenues decreased 73.8% from the year-ago quarter to $1.1 million, missing the Zacks Consensus Estimate of $3 million. In late October, Sarepta had received updated guidance from the FDA regarding eteplirsen. Given the FDA s additional requirements, Sarepta now expects to submit a NDA for eteplirsen by mid-2015 instead of year end While the approval of eteplirsen would be a huge boost for the company, we note that there are other companies working on DMD treatments and Sarepta is already facing a delay in its filing plans. Moreover, we are concerned about Sarepta s dependence on its DMD program. We remain Neutral on the stock. We expect investor focus to remain on the company s progress with eteplirsen and the Ebola virus candidate. Our price target of $13 corresponds to a P/B multiple of 1.9. Equity Research SRPT Page 5

6 Key Indicators F1 F2 Est. 5-Yr EPS Gr% Sarepta Therapeutics, Inc. (SRPT) 4.1 P/CF 5-Yr High 5-Yr Low Industry Average S&P Nanosphere, Inc. (NSPH) ChromaDex Corporation (CDXC) Dynavax Technologies Corporation (DVAX) EPIRUS Biopharmaceuticals, Inc. (EPRS) TTM is trailing 12 months; F1 is 2014 and F2 is 2015, CF is operating cash flow P/B Last Qtr. P/B 5-Yr High P/B 5-Yr Low ROE D/E Last Qtr. Div Yield Last Qtr. EV/EBITDA Sarepta Therapeutics, Inc. (SRPT) Industry Average S&P Equity Research SRPT Page 6

7 Earnings Surprise and Estimate Revision History Equity Research SRPT Page 7

8 DISCLOSURES & DEFINITIONS The analysts contributing to this report do not hold any shares of SRPT. The EPS and revenue forecasts are the Zacks Consensus estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts personal views as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in this report is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meet the particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as an offer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have a position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for the securities it covers. Outperform- Zacks expects that the subject company will outperform the broader U.S. equity market over the next six to twelve months. Neutral- Zacks expects that the company will perform in line with the broader U.S. equity market over the next six to twelve months. Underperform- Zacks expects the company will under perform the broader U.S. Equity market over the next six to twelve months. The current distribution of Zacks Ratings is as follows on the 1114 companies covered: Outperform %, Neutral %, Underperform 6.3%. Data is as of midnight on the business day immediately prior to this publication. Our recommendation for each stock is closely linked to the Zacks Rank, which results from a proprietary quantitative model using trends in earnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The model assigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. Zacks Rank 5 = Strong Sell. We also provide a Zacks Industry Rank for each company which provides an idea of the near-term attractiveness of a company s industry group. We have 264 industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264. In terms of investment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market. In determining Risk Level, we rely on a proprietary quantitative model that divides the entire universe of stocks into five groups, based on each stock s historical price volatility. The first group has stocks with the lowest values and are deemed Low Risk, while the 5 th group has the highest values and are designated High Risk. Designations of Below-Average Risk, Average Risk, and Above-Average Risk correspond to the second, third, and fourth groups of stocks, respectively. Analyst QCA & Lead Analyst Reason for Update Arpita Dutt Arpita Dutt 3Q14 Equity Research SRPT Page 8