GLANCY BINKOW & GOLDBERG LLP Lionel Z. Glancy Michael Goldberg Robert V. Prongay Casey E. Sadler 1925 Century Park East, Suite 2100 Los Angeles, California 90067 Telephone: (310) 201-9150 Facsimile: (310) 201-9160 LAW OFFICES OF HOWARD G. SMITH Howard G. Smith 3070 Bristol Pike, Suite 112 Bensalem, PA 19020 Telephone: (215) 638-4847 Facsimile: (215) 638-4867 Attorneys for Plaintiff UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS PLAINTIFF, Individually and on Behalf of All Others Similarly Situated, Case No. DRAFT v. Plaintiff, FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS SAREPTA THERAPEUTICS, INC., CHRISTOPHER GARABEDIAN, and SANDESH MAHATME, JURY TRIAL DEMANDED Defendants.
Plaintiff ( Plaintiff ), by and through his attorneys, alleges the following upon information and belief, except as to those allegations concerning Plaintiff, which are alleged upon personal knowledge. Plaintiff s information and belief is based upon, among other things, his counsel s investigation, which includes without limitation: (a) review and analysis of regulatory filings made by SAREPTA THERAPEUTICS, INC. ( Sarepta or the Company ), with the United States Securities and Exchange Commission ( SEC ); (b) review and analysis of press releases and media reports issued by and disseminated by Sarepta; and (c) review of other publicly available information concerning Sarepta. NATURE OF THE ACTION AND OVERVIEW 1. This is a class action on behalf of purchasers of Sarepta securities between April 21, 2014 and October 27, 2014, inclusive (the Class Period ), seeking to pursue remedies under the Securities Exchange Act of 1934 (the Exchange Act ). 2. Sarepta is a biopharmaceutical company focused on the discovery and development of unique RNA-based therapeutics for the treatment of rare and infectious diseases. 3. The Company is focused on advancing the development of its Duchenne muscular dystrophy ( DMD ) drug candidates, including its lead product candidate, eteplirsen, for which the Company is in process of conducting or starting several studies. These include an ongoing open label extension study following completion of its initial Phase IIb clinical trials, several clinical trials in Exon 51 amenable genotypes, including a confirmatory study in ambulatory patients, studies on participants with early stage and advanced stage DMD and a placebocontrolled confirmatory study with one or more of the Company s follow-on DMD exonskipping drug candidates. Additionally, the Company is working on a Phase I/IIa clinical trial for an Exon 53 skipping product candidate in the European Union and has an open 1
investigational new drug ( IND ) application for its Exon 45 skipping product candidate for which it plans to begin a clinical trial early next year. The Company is also developing therapeutics for the treatment of infectious diseases. 4. On October 27, 2014, the Company revealed that it had received an update from the Food and Drug Administration ( FDA ) regarding its planned New Drug Application ( NDA ) submission for eteplirsen for the treatment of DMD. The FDA guidance indicated that additional information was required for the NDA submission, including the results from an independent assessment of dystrophin images and the 168-week clinical data from study 202, as well as more specific data, including a minimum duration of safety in new patients exposed to eteplirsen, patient-level natural history data to be obtained by Sarepta from independent academic institutions, and MRI data from a recent study conducted by an independent academic group. According to the Company, Sarepta plans to submit an NDA by mid-year 2015, pending any additional requests from further discussions with the FDA. 5. On this news, shares of Sarepta declined $7.65 per share, over 32%, to close on October 27, 2014, at $15.91 per share, on unusually heavy volume. 6. Throughout the Class Period, Defendants made false and/or misleading statements, as well as failed to disclose material adverse facts about the Company s business, operations, and prospects. Specifically, Defendants made false and/or misleading statements and/or failed to disclose: (1) that the Company failed to provide sufficient data for its NDA submission; (2) that, as a result, the Company s NDA for eteplirsen would likely be filed mid- 2015 instead of by the end of 2014; and (3) that, as a result of the foregoing, the Company s statements about its business, operations, and prospects, including statements about eteplirsen s 2
prospects for FDA approval in the treatment of DMD, were materially false and misleading and/or lacked a reasonable basis. 7. As a result of Defendants wrongful acts and omissions, and the precipitous decline in the market value of the Company s securities, Plaintiff and other Class members have suffered significant losses and damages. JURISDICTION AND VENUE 8. The claims asserted herein arise under Sections 10(b) and 20(a) of the Exchange Act (15 U.S.C. 78j(b) and 78t(a)) and Rule 10b-5 promulgated thereunder by the SEC (17 C.F.R. 240.10b-5). 9. This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C. 1331 and Section 27 of the Exchange Act (15 U.S.C. 78aa). 10. Venue is proper in this Judicial District pursuant to 28 U.S.C. 1391(b) and Section 27 of the Exchange Act (15 U.S.C. 78aa(c)). Substantial acts in furtherance of the alleged fraud or the effects of the fraud have occurred in this Judicial District. Many of the acts charged herein, including the preparation and dissemination of materially false and/or misleading information, occurred in substantial part in this Judicial District. Additionally, Sarepta s principal executive offices are located within this Judicial District. 11. In connection with the acts, transactions, and conduct alleged herein, Defendants directly and indirectly used the means and instrumentalities of interstate commerce, including the United States mail, interstate telephone communications, and the facilities of a national securities exchange. PARTIES 3
12. Plaintiff, as set forth in the accompanying certification, incorporated by reference herein, purchased Sarepta common stock during the Class Period, and suffered damages as a result of the federal securities law violations and false and/or misleading statements and/or material omissions alleged herein. 13. Defendant Sarepta is a Delaware corporation with its principal executive offices located at 215 First Street, Suite 415, Cambridge, Massachusetts 02142. 14. Defendant Christopher Garabedian ( Garabedian ) was, at all relevant times, Chief Executive Officer ( CEO ) and a director of Sarepta. 15. Defendant Sandesh Mahatme ( Mahatme ) was, at all relevant times, Chief Financial Officer ( CFO ) of Sarepta. 16. Defendants Garabedian and Mahatme are collectively referred to hereinafter as the Individual Defendants. The Individual Defendants, because of their positions with the Company, possessed the power and authority to control the contents of Sarepta s reports to the SEC, press releases and presentations to securities analysts, money and portfolio managers and institutional investors, i.e., the market. Each defendant was provided with copies of the Company s reports and press releases alleged herein to be misleading prior to, or shortly after, their issuance and had the ability and opportunity to prevent their issuance or cause them to be corrected. Because of their positions and access to material non-public information available to them, each of these defendants knew that the adverse facts specified herein had not been disclosed to, and were being concealed from, the public, and that the positive representations which were being made were then materially false and/or misleading. The Individual Defendants are liable for the false statements pleaded herein, as those statements were each group-published information, the result of the collective actions of the Individual Defendants. 4
SUBSTANTIVE ALLEGATIONS Background 17. Sarepta is a biopharmaceutical company focused on the discovery and development of unique RNA-based therapeutics for the treatment of rare and infectious diseases. Materially False and Misleading Statements Issued During the Class Period 18. The Class Period begins on April 21, 2014. On this day, the Company issued a press release entitled, Sarepta Therapeutics Announces Plans to Submit New Drug Application to FDA for Eteplirsen for the Treatment of Duchenne Muscular Dystrophy by Year End 2014. Therein, the Company, in relevant part, stated: FDA provides updated guidance on potential early approval pathway for eteplirsen; Agreement reached with the Agency on eteplirsen open-label confirmatory studies with enrollment of a broader base of DMD patients later this year; FDA provides initial guidance on development of follow-on DMD drug candidates; Company to hold teleconference at 8:00 a.m. EDT Sarepta Therapeutics, Inc. (NASDAQ: SRPT), a developer of innovative RNAbased therapeutics, today announced it plans to submit a New Drug Application (NDA) to the U.S. Food and Drug Administration (FDA) by the end of 2014 for the approval of eteplirsen for the treatment of Duchenne muscular dystrophy (DMD). Eteplirsen is Sarepta s lead exon-skipping drug candidate in development for the treatment of patients with DMD who have a genotype amenable to skipping of exon 51. The plan to submit an NDA for eteplirsen by the end of 2014 is based on a guidance letter from the Agency that proposed a strategy regarding the submission of an NDA for eteplirsen under a potential Accelerated Approval pathway and served as the final meeting minutes for four meetings that took place between November, 2013 and March, 2014. The Agency stated that with additional data to support the efficacy and safety of eteplirsen for the treatment of 5
DMD, an NDA should be fileable, and outlined examples of additional data and analysis that, if positive, will be important to enhance the acceptability of an NDA filing by addressing areas of ongoing concern in the existing dataset. Additionally, the Agency provided clear guidance on an open-label, historically controlled confirmatory study of eteplirsen, as well as initial guidance on a placebo-controlled study of one or more follow-on DMD drug candidates, which, like the open-label study, could also be considered an acceptable confirmatory study to verify the clinical benefit of eteplirsen in the event of an accelerated approval. As we announce our plan to submit an eteplirsen NDA by the end of 2014, we are very pleased with the detailed guidance that the FDA has provided us on a potential eteplirsen approval pathway and their support of a historically controlled eteplirsen confirmatory study, said Chris Garabedian, president and chief executive officer of Sarepta Therapeutics. We also appreciate that the FDA shares our urgency in dosing a broader base of eteplirsen patients and has encouraged us to begin the clinical program with our follow-on exon-skipping drugs as soon as possible. Based on the Agency s guidance, Sarepta plans to initiate several additional clinical studies with eteplirsen later this year in exon-51 amenable genotypes. These studies will include a clinical trial with predefined efficacy endpoints for ambulatory patients between the ages of 7 to 16 years who can walk a minimum distance, and two additional clinical trials that will evaluate safety and biomarkers in DMD patients younger than 7 years and DMD patients who have advanced in their disease progression to a point they cannot walk a minimum distance or have become non-ambulant. Additionally, Sarepta plans to initiate a placebo-controlled study with one or more of its follow-on DMD exon-skipping drug candidates by the end of the year. We are excited to have guidance from the FDA that allows us to move quickly into additional clinical trials with eteplirsen to confirm our current understanding of eteplirsen s safety profile, its effect on dystrophin production, and its impact on clinical outcomes in DMD patients, said Edward Kaye, M.D., senior vice president and chief medical officer of Sarepta Therapeutics. We are particularly pleased that the FDA shares our interest in accelerating the clinical development of our follow-on exon-skipping drugs and we expect to initiate enrollment in this trial later this year. Sarepta plans to immediately take steps to initiate the additional eteplirsen clinical studies with the goal of beginning dosing in the confirmatory study in the third quarter, with dosing in the additional trials (i.e., younger and more advanced DMD patients) to begin later this year. Once available, detailed study eligibility criteria and clinical site information will be posted on www.clinicaltrials.gov and Let s Skip Ahead, an online resource center from Sarepta for the DMD community available at www.skipahead.com. 6
Excerpts from the FDA s letter on an NDA filing included: with additional data to support the efficacy and safety of eteplirsen for the treatment of DMD, described below, an NDA should be fileable (assuming other aspects of the submitted application meet applicable standards). As we are sure you appreciate, however, our willingness to consider an application for filing cannot be taken to suggest the outcome of our review. We also note that if the application is filed, you should expect public discussion of the NDA at an Advisory Committee meeting. The FDA outlined two potential pathways to accelerated approval: 1. The clinical data from Study 201/202 [Phase IIb clinical trial program] on 6- minute walk could be considered a finding on an intermediate clinical endpoint that could have the potential to support accelerated approval. Related to this first pathway to Accelerated Approval, the Agency stated that they have significant concerns regarding our ability to draw valid conclusions based on the Study 201/202 data with respect to walking performance and other data, and identified areas relating to the interpretation of the existing data set that will be addressed as part of an NDA review once the NDA is filed. 2. We have discussed the possibility of using a number of modalities to quantify dystrophin in muscle biopsies, and discussed how these biomarkers might be used as a surrogate endpoint(s) to support accelerated approval. In evaluating this pathway, the FDA expressed concerns about methodological problems in the assessments of dystrophin and, remain skeptical about the persuasiveness of the (dystrophin) data and, as a result, the Agency is uncertain whether the existing dystrophin biomarker data will be persuasive enough to serve as a surrogate endpoint that is reasonably likely to predict clinical benefit. However, the Agency further states that if they were to find the biomarker data to be adequate upon detailed review, however, they would have the potential to support accelerated approval. To that end, the Agency proposed a collaborative effort in which we will work to better understand the methods and analyses used for the existing biomarker data, and also work together on methods for the collection of additional data that could be more reliable. Furthermore, the Agency suggested that another approach to demonstrating an effect of eteplirsen on dystrophin protein production would be to obtain a fourth muscle biopsy in patients who are continuing in Study 202, which could serve to enhance the acceptability of an NDA filing and accelerated approval. Under either potential application of the Accelerated Approval pathway, the FDA s letter included comments expressing both a desire for more eteplirsen 7
safety and efficacy data and a willingness to consider supplemental data in an NDA filing or during an NDA review (following the NDA filing) from the ongoing Study 202 and early safety and biomarker data from a confirmatory eteplirsen study. The Agency also encouraged Sarepta to collect safety and biomarker data with eteplirsen in a broader population of patients, including DMD patients who were younger, older and non-ambulant, and previously treated with drisapersen. Additional excerpts from the FDA s letter on the eteplirsen and follow-on exonskipping drug confirmatory studies: any accelerated approval [of eteplirsen] would necessitate confirmatory studies to verify the clinical benefit. Confirmatory studies should be underway at the time of approval. The FDA outlined two approaches for confirmatory trials and urged Sarepta to initiate both of these trials as soon as possible. 1. A historically-controlled trial might be acceptable to confirm clinical benefit following accelerated approval. 2. A randomized, placebo-controlled trial of another PMO [phosphorodiamidate morpholino oligomer] with a similar mechanism of action, directed at a different exon (e.g., SRP-4053 or SRP-4045), with a demonstration of a correlation between dystrophin production and definitive clinical benefit on 6-minute walk or another measure, could provide confirmatory evidence of eteplirsen s clinical benefit if approval were based on a surrogate endpoint. 19. On or about April 24, 2014, the Company filed a prospectus with the SEC on Form 424B5. The Company held an underwritten public offering of an aggregate of 2,650,000 shares of its common stock, excluding an over-allotment option, at a price to the public of $38.00 per share. 20. On May 8, 2014, the Company issued a press release entitled, Sarepta Therapeutics Announces First Quarter 2014 Financial Results and Recent Corporate Developments. Therein, the Company, in relevant part, stated: New Drug Application for eteplirsen planned for submission to FDA by year end; Multiple eteplirsen clinical studies in broader population of DMD patients to begin dosing later this year; 8
Investigational New Drug applications for two additional DMD drug candidates targeting different genetic subpopulations to be submitted to FDA in third quarter; Well capitalized with $233.1 million in cash and other investments at quarter end, with an additional $94.5 million raised post-quarter end Sarepta Therapeutics, Inc. (NASDAQ: SRPT), a developer of innovative RNAbased therapeutics, today reported financial results for the three months ended March 31, 2014, and provided an update of recent corporate developments. The path toward an NDA filing and a potential accelerated approval of eteplirsen has been laid out for us and we are busy preparing for the important clinical and regulatory milestones toward achieving this goal, said Chris Garabedian, president and chief executive officer of Sarepta. We are also preparing to advance our broader DMD program beyond eteplirsen in the U.S., and will begin the global clinical development program on our next exon-skipping drugs, as well as seek EMA guidance on requirements for a potential eteplirsen submission in the EU, later this year. Financial Results For the first quarter of 2014, Sarepta reported a non-gaap net loss of $20.7 million, or $0.55 per share, compared to a non-gaap net loss of $13.0 million for the first quarter of 2013, or $0.41 per share. The incremental loss is primarily the result of an increase of $9.1 million in non-gaap operating expenses due to corporate growth, offset by an increase of $1.6 million in contract revenue. On a GAAP basis, the net loss for the first quarter of 2014 was $28.3 million, or $0.75 per share (including $4.4 million of stock-based compensation and restructuring expenses), compared with a net loss of $42.1 million for the first quarter of 2013, or $1.32 per share (including $2.1 million of stock-based compensation and restructuring expenses). The decrease in net loss is primarily due to a decrease of $23.7 million in loss on change in warrant valuation and an increase of $1.6 million in contract revenue offset by an increase of $11.3 million in operating expenses. The fluctuation in the fair value of the Company s outstanding warrant liability is primarily affected by the fluctuation of the Company s stock price during each financial reporting period. Revenue for the first quarter of 2014 was $6.1 million, up from $4.5 million for the first quarter of 2013. The $1.6 million increase was primarily due to the timing of activities in connection with the Marburg portion of the July 2010 U.S. government contract. Revenue from the Company s European Union SKIP-NMD agreement supporting development of an exon 53 skipping therapeutic and the Company s Children s National Medical Center agreement also increased in the 9
first quarter of 2014. These increases were partially offset by a decrease in revenue from the August 2012 intramuscular agreement with the U.S. government, which was completed in the third quarter of 2013. Non-GAAP research and development expenses were $19.0 million for the first quarter of 2014, compared to $13.0 million for the first quarter of 2013, an increase of $6.0 million. GAAP research and development expenses were $20.9 million for the first quarter of 2014 (including $1.9 million of stock-based compensation and restructuring expenses), compared to $13.8 million for the first quarter of 2013 (including $0.8 million of stock-based compensation and restructuring expenses), an increase of $7.1 million. Non-GAAP general and administrative expenses were $7.8 million for the first quarter of 2014, compared to $4.8 million for the first quarter of 2013, an increase of $3.0 million. GAAP general and administrative expenses were $10.3 million for the first quarter of 2014 (including $2.5 million of stock-based compensation expense), compared to $6.1 million for the first quarter of 2013 (including $1.3 million of stock-based compensation and restructuring expenses), an increase of $4.2 million. The increased operating expenses were primarily caused by corporate growth as the Company continues the development of its programs in Duchenne muscular dystrophy (DMD). The Company had cash, cash equivalents, short-term investments and restricted investments related to its letters of credit of $233.1 million as of March 31, 2014 compared to $264.9 million as of December 31, 2013, a decrease of $31.8 million. The decrease was primarily driven by the use of cash to fund the Company s ongoing operations in the first quarter of 2014. In addition to the GAAP financial measures set forth in this press release, the Company has included certain non-gaap measurements: non-gaap research and development expenses, non-gaap general and administrative expenses, non- GAAP operating expenses, non-gaap net loss, and non-gaap basic and diluted net loss per share, which present operating results on a basis adjusted for certain items. The Company uses these non-gaap measures as key performance measures for the purpose of evaluating performance internally. The Company also believes these non-gaap measures provide the Company s investors with useful information regarding the Company s historical operating results. These non- GAAP measures are not intended to replace the presentation of the Company s financial results in accordance with GAAP. Use of the terms non-gaap research and development expenses, non-gaap general and administrative expenses, non- GAAP operating expenses, non-gaap net loss, and non-gaap basic and diluted net loss per share may differ from similar measures reported by other companies. All relevant non-gaap measures are reconciled from their respective GAAP measures in the attached table "Reconciliation of GAAP to non-gaap Net Loss." 10
Recent Corporate Developments Duchenne Muscular Dystrophy Program -- Based on new guidance from the U.S. Food and Drug Administration (FDA), announced plans to submit a New Drug Application (NDA) to the FDA with additional safety and efficacy data and analysis by the end of 2014 for the approval of eteplirsen for the treatment of patients with DMD who have a genotype amenable to skipping of exon 51. -- Announced plans to initiate several clinical studies of eteplirsen based on the new FDA guidance. Planned studies with eteplirsen in exon-51 amenable genotypes include a historically controlled clinical trial with predefined efficacy endpoints for ambulatory patients between the ages of 7 to 16 years who can walk a minimum distance, and two additional clinical trials that will evaluate safety and biomarkers in DMD patients younger than 7 years and DMD patients who have advanced in their disease progression to a point where they cannot walk a minimum distance or have become non-ambulant. -- Additionally, announced plans to initiate a placebo-controlled study with one or more of the Company s follow-on DMD exon-skipping drug candidates by the end of the year. -- Presented clinical data through Week 120 from the Phase IIb open-label extension study of eteplirsen in patients with DMD at the Muscular Dystrophy Association Clinical Conference and the American Academy of Neurology Annual Meeting. Corporate Updates -- Announced the company priced an underwritten public offering of an aggregate of 2,650,000 shares of its common stock at a price to the public of $38.00 per share. In addition, Sarepta has granted the underwriters a 30-day option to purchase up to an additional 397,500 shares of common stock on the same terms and conditions as the initial shares sold to the underwriters. The aggregate net proceeds from the offering to the company was approximately $94.5 million, after deducting the underwriting discount and estimated offering expenses payable by Sarepta, but excluding any exercise of the underwriters option. The offering closed on April 29, 2014. 21. On May 8, 2014, Sarepta filed its Quarterly Report with the SEC on Form 10-Q for the 2014 fiscal first quarter. The Company s Form 10-Q was signed by Defendants Garabedian and Mahatme, and affirmed the results previously announced that day. 11
22. On July 10, 2014, the Company issued a press release entitled, Sarepta Therapeutics Reports Long-Term Outcomes Through 144 Weeks from Phase IIb Study of Eteplirsen in Duchenne Muscular Dystrophy. Therein, the Company, in relevant part, stated: Sarepta Therapeutics, Inc. (NASDAQ:SRPT), a developer of innovative RNAbased therapeutics, today announced data through Week 144 from Study 202, a Phase IIb open-label extension study of eteplirsen in patients with Duchenne muscular dystrophy (DMD). After nearly three years of follow up, results on the 6-minute walk test (6MWT) showed a decline in walking ability at a rate slower than would be expected based on available DMD natural history data. In addition, a continued stabilization of respiratory muscle function was observed, as assessed by pulmonary function tests. As previously reported, Study 202 met its primary endpoint of increased novel dystrophin as assessed by muscle biopsy at Week 48 and is now in the long-term extension phase in which patients continue to be followed for safety and clinical outcomes. At Week 144, patients in the 30 mg/kg and 50 mg/kg eteplirsen cohorts who were able to perform the 6MWT (modified Intent-to-Treat or mitt population; n=6) experienced a decline of 33.2 meters, or about 8.5 percent, from baseline in walking ability. A statistically significant treatment benefit of 75.1 meters (p 0.004) was observed for the mitt population compared with the placebo/delayed-treatment cohort (n=4), which initiated treatment at Week 25 following 24 weeks of placebo. After experiencing a substantial decline of 68.4 meters from baseline to Week 36, the placebo/delayed-treatment cohort demonstrated a decline of 39.0 meters in walking ability from Week 36 through Week 144, the period from which meaningful levels of dystrophin were likely produced. These analyses were based on the maximum 6MWT score when the test was performed on two consecutive days. The long-term clinical data for eteplirsen showing a slowing in the decline of walking ability in a population now on average 12 years old are very encouraging, particularly when compared with the growing body of DMD natural history data which clearly show that similarly aged patients typically experience an increasingly rapid decline in walking ability and lose ambulation in their early teen years, said Jerry Mendell, M.D., director of the Centers for Gene Therapy and Muscular Dystrophy at Nationwide Children's Hospital and principal investigator of the Phase IIb study. We now have nearly three years of treatment experience with eteplirsen from our Phase IIb clinical study program and, based on guidance from the U.S. Food and Drug Administration earlier this year, we plan to submit these results along with additional data and analysis as part of a New Drug Application for eteplirsen by year-end, said Chris Garabedian, president and chief executive officer of Sarepta Therapeutics. 12
Respiratory muscle function from baseline through Week 144 in the Intent-to- Treat population (n=12), as measured by maximum inspiratory and expiratory pressure (MIP and MEP), showed a 14.7 percent mean increase in MIP and a 12.8 percent mean increase in MEP. Analyses of MIP percent predicted (MIP adjusted for weight) and MEP percent predicted (MEP adjusted for age) demonstrated a mean change from 91.7 percent at baseline to 93.9 percent at Week 144 in MIP percent predicted, and a mean change from 79.3 percent at baseline to 75.7 percent at Week 144 in MEP percent predicted. In addition, there was a mean increase in forced vital capacity (FVC), a measure of lung volume, of 11.0 percent. FVC percent predicted (FVC adjusted for age and height) was maintained above a mean of 90 percent at Week 144, with 101.3 percent at baseline and 90.9 percent at Week 144. We are encouraged to see continued stability on measures of respiratory muscle function in patients treated with eteplirsen for nearly three years, particularly as declines in MIP and MEP are often the first signs of pulmonary dysfunction in DMD, said Edward Kaye, M.D., senior vice president and chief medical officer of Sarepta Therapeutics. As we prepare to submit a New Drug Application for eteplirsen including these data, we are also on track to initiate in the coming months several new clinical studies of eteplirsen in a broader patient population to further characterize the drug s safety and efficacy profile. Through 144 weeks, eteplirsen was well tolerated and there were no reported clinically significant treatment-related adverse events and no treatment-related serious adverse events. In addition, there were no treatment-related hospitalizations or discontinuations. 23. On August 7, 2014, the Company issued a press release entitled, Sarepta Therapeutics Announces Second Quarter 2014 Financial Results and Recent Corporate Developments. Therein, the Company, in relevant part, stated: Progress achieved across eteplirsen clinical studies with patient screening expected to begin this month On track to submit New Drug Application for eteplirsen by year-end Follow-on exon-skipping drugs targeting exons 45 and 53 advancing toward clinical testing Well capitalized with $284.2 million in cash and other investments at quarter end 13
Sarepta Therapeutics, Inc. (NASDAQ: SRPT), a developer of innovative RNAbased therapeutics, today reported financial results for the three and six months ended June 30, 2014, and provided an update of recent corporate developments. We ve made tremendous progress in advancing our eteplirsen clinical trials and are ready to begin our confirmatory ambulatory study this month, the first of three new studies with eteplirsen, said President and Chief Executive Office Chris Garabedian. We continue to work on preparing our NDA submissions, while making progress on both our additional studies with eteplirsen and studies with follow-on exon-skipping drug candidates for Duchenne muscular dystrophy patients with other genotypes. Financial Results For the second quarter of 2014, Sarepta reported a non-gaap net loss of $24.5 million, or $0.61 per share, compared to a non-gaap net loss of $14.6 million for the second quarter of 2013, or $0.46 per share. The incremental loss of $9.9 million was primarily the result of increased research and development and general and administrative expenses as a result of corporate growth. On a GAAP basis, the net loss for the second quarter of 2014 was $33.9 million, or $0.85 per share (including $5.6 million of stock-based compensation and restructuring expenses), compared to a net loss of $19.1 million, or $0.60 per share (including $2.5 million of stock-based compensation and restructuring expenses) for the second quarter of 2013. The increase in net loss is primarily due to an increase of $12.8 million in operating expenses, an increase of $1.8 million in loss on change in warrant valuation and a decrease of $0.4 million in contract revenue. Revenue for the second quarter of 2014 was $2.6 million, down from $3.0 million for the second quarter of 2013. The $0.4 million decrease was primarily due to decreases in revenue from the Company s government contracts. Non-GAAP research and development expenses were $18.3 million for the second quarter of 2014, compared to $12.2 million for the second quarter of 2013, an increase of $6.1 million. GAAP research and development expenses were $20.6 million for the second quarter of 2014 (including $2.3 million of stockbased compensation and restructuring expenses), compared to $13.0 million for the second quarter of 2013 (including $0.8 million of stock-based compensation and restructuring expenses), an increase of $7.6 million. Non-GAAP general and administrative expenses were $9.0 million for the second quarter of 2014, compared to $5.3 million for the second quarter of 2013, an increase of $3.7 million. GAAP general and administrative expenses were $12.2 million for the second quarter of 2014 (including $3.2 million of stock-based compensation expense), compared to $7.1 million for the second quarter of 2013 14
(including $1.7 million of stock-based compensation and restructuring expenses), an increase of $5.1 million. The increase in operating expenses was primarily caused by corporate growth, including an expansion of manufacturing, pre-commercial and medical affairs activities as the Company prepares for the possibility of a product approval next year. The company also continues to expand clinical and regulatory activities in support of the development of its programs in Duchenne muscular dystrophy (DMD). The Company had cash, cash equivalents, short-term investments and restricted investments related to a letter of credit of $284.2 million as of June 30, 2014 compared to $264.9 million as of December 31, 2013, an increase of $19.3 million. The increase was primarily driven by the net proceeds received from the Company s public offering in April 2014, offset by the use of cash to fund the Company s ongoing operations in the first half of 2014. In addition to the GAAP financial measures set forth in this press release, the Company has included certain non-gaap measurements: non-gaap research and development expenses, non-gaap general and administrative expenses, non- GAAP operating expenses, non-gaap net loss, and non-gaap basic and diluted net loss per share, which present operating results on a basis adjusted for certain items. The Company uses these non-gaap measures as key performance measures for the purpose of evaluating performance internally. The Company also believes these non-gaap measures provide the Company s investors with useful information regarding the Company s historical operating results. These non- GAAP measures are not intended to replace the presentation of the Company s financial results in accordance with GAAP. Use of the terms non-gaap research and development expenses, non-gaap general and administrative expenses, non- GAAP operating expenses, non-gaap net loss, and non-gaap basic and diluted net loss per share may differ from similar measures reported by other companies. All relevant non-gaap measures are reconciled from their respective GAAP measures in the attached table "Reconciliation of GAAP to Non-GAAP Net Loss." 2014 Guidance The Company now expects that Non-GAAP loss from operations will range from $135 to $145 million, as compared with its previous guidance of $110 to $120 million. In addition, The Company is anticipating capital investments of approximately $25 million for the remainder of 2014 in connection with its manufacturing facility in Andover and 2015 inventory commitments. The Company is not able to provide a reconciliation of this Non-GAAP guidance to its relevant GAAP measure because full year loss from operations could include incremental stock compensation expense related to the achievement of certain criteria for performance awards. 15
Recent Corporate Developments Duchenne Muscular Dystrophy Program -- Announced updated data from Study 202, a Phase IIb open-label extension study of eteplirsen in patients with DMD. Results on the 6-minute walk test (6MWT) at 144 weeks showed a decline in walking ability at a rate slower than would be expected based on available DMD natural history data. In addition, a continued stabilization of respiratory muscle function was observed. As previously reported, Study 202 met its primary endpoint of increased novel dystrophin as assessed by muscle biopsy at week 48 and is now in the long-term extension phase in which patients continue to be followed for safety and clinical outcomes. Corporate Updates -- Acquisition of the multifunctional manufacturing facility on 26 acres of land in Andover, Massachusetts supports large-scale manufacturing needs. -- John Hodgman was named interim chairman of the board of directors. 24. On August 7, 2014, Sarepta filed its Quarterly Report with the SEC on Form 10-Q for the 2014 fiscal second quarter. The Company s Form 10-Q was signed by Defendants Garabedian and Mahatme, and affirmed the results previously announced that day. 25. The statements contained in - were materially false and/or misleading when made because defendants failed to disclose or indicate the following: (1) that the Company failed to provide sufficient data for its NDA submission; (2) that, as a result, the Company s NDA for eteplirsen would likely be filed mid-2015 instead of by the end of 2014; and (3) that, as a result of the foregoing, the Company s statements about its business, operations, and prospects, including statements about eteplirsen s prospects for FDA approval in the treatment of DMD, were materially false and misleading and/or lacked a reasonable basis. Disclosures at the End of the Class Period 16
26. On October 27, 2014, the Company issued a press release entitled, Sarepta Therapeutics Announces Regulatory Update on Eteplirsen. Therein, the Company, in relevant part, stated: Updated and additional guidance received from FDA on specific data requirements for NDA; FDA states further discussion needed to determine what constitutes a complete NDA submission; NDA submission planned for mid-year 2015; Company to hold teleconference today at 8:00 a.m. EDT Sarepta Therapeutics, Inc. (NASDAQ:SRPT), a developer of innovative RNAbased therapeutics, today provided an update on its discussions with the U.S. Food and Drug Administration (FDA) regarding its planned New Drug Application (NDA) submission for the approval of eteplirsen for the treatment of Duchenne muscular dystrophy (DMD). In meeting minutes received last week from a Type B Pre-NDA meeting that took place in September 2014, the FDA provided updated guidance regarding the specific data to be included as part of, or at the time of, Sarepta s NDA submission. The guidance states that additional data are now required as part of the NDA submission, including the results from an independent assessment of dystrophin images and the 168-week clinical data from study 202. Additionally, the guidance requests more specific data including a minimum duration of safety in new patients exposed to eteplirsen, patient-level natural history data to be obtained by Sarepta from independent academic institutions, and MRI data from a recent study conducted by an independent academic group. The FDA indicated that further discussion with Sarepta will be necessary to determine what would constitute a complete NDA. Based on these requests, Sarepta plans to submit an NDA by mid-year 2015, pending any additional requests from further discussions with the FDA. "We are committed to satisfying the FDA s updated requests for these specific data to be included as part of an NDA submission and will continue to work with the Agency toward the goal of a complete and acceptable NDA filing," said Chris Garabedian, president and chief executive officer of Sarepta Therapeutics. "We believe all of the data requests and additional FDA discussions that have currently been outlined can be completed in time for an NDA submission by mid-year 2015. Obtaining an FDA approval of eteplirsen for the DMD patients who may benefit from the drug continues to be our highest priority. 17
Excerpts from the Pre-NDA Meeting Minutes related to information that the FDA is requesting as part of an NDA submission included: "The sponsor should include 3-month data from at least 12 to 24 newly exposed patients at the time the NDA is submitted." "Available data from the other patients enrolled in the new eteplirsen studies (studies 301, 203, 204) should also be included at the time the NDA is submitted, even if exposure is less than 3 months in duration." "Additional data from later time points and from newly enrolled patients should be submitted in the 120-Day Safety Update." "FDA strongly advises the sponsor to obtain and submit patient-level natural history data. FDA is prepared to appeal to the academic groups holding the data to allow the sponsor a means to acquire the data." "The study 201/202 clinical site inspection conducted in May, 2014, after the issuance of the April 15, 2014, guidance letter, uncovered marked disparities in the immunohistochemistry methodology and concerns about the reproducibility of the data. The lack of confirmation of robust dystrophin measurement during the site visit necessitates including the independent assessment of dystrophin-positive fibers and 168-week efficacy data from study 201/202 in the NDA." FDA strongly urged the sponsor to submit the MRI data with appropriate natural history controls. The FDA also stated that [a]dditional discussion between the sponsor and the FDA will be necessary to determine what would constitute a complete NDA. 27. On this news, shares of Sarepta declined $7.65 per share, over 32%, to close on October 27, 2014, at $15.91 per share, on unusually heavy volume. CLASS ACTION ALLEGATIONS 28. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil Procedure 23(a) and (b)(3) on behalf of a class, consisting of all those who purchased Sarepta s securities between April 21, 2014 and October 27, 2014, inclusive (the Class Period ) and who were damaged thereby (the Class ). Excluded from the Class are Defendants, the officers and directors of the Company, at all relevant times, members of their immediate families and their 18
legal representatives, heirs, successors or assigns and any entity in which Defendants have or had a controlling interest. 29. The members of the Class are so numerous that joinder of all members is impracticable. Throughout the Class Period, Sarepta s securities were actively traded on the Nasdaq Stock Market (the NASDAQ ). While the exact number of Class members is unknown to Plaintiff at this time and can only be ascertained through appropriate discovery, Plaintiff believes that there are hundreds or thousands of members in the proposed Class. Millions of Sarepta shares were traded publicly during the Class Period on the NASDAQ. As of July 31, 2014, Sarepta had 40,923,746 shares of common stock outstanding. Record owners and other members of the Class may be identified from records maintained by Sarepta or its transfer agent and may be notified of the pendency of this action by mail, using the form of notice similar to that customarily used in securities class actions. 30. Plaintiff s claims are typical of the claims of the members of the Class as all members of the Class are similarly affected by Defendants wrongful conduct in violation of federal law that is complained of herein. 31. Plaintiff will fairly and adequately protect the interests of the members of the Class and has retained counsel competent and experienced in class and securities litigation. 32. Common questions of law and fact exist as to all members of the Class and predominate over any questions solely affecting individual members of the Class. Among the questions of law and fact common to the Class are: (a) whether the federal securities laws were violated by Defendants acts as alleged herein; 19
(b) whether statements made by Defendants to the investing public during the Class Period omitted and/or misrepresented material facts about the business, operations, and prospects of Sarepta; and (c) to what extent the members of the Class have sustained damages and the proper measure of damages. 33. A class action is superior to all other available methods for the fair and efficient adjudication of this controversy since joinder of all members is impracticable. Furthermore, as the damages suffered by individual Class members may be relatively small, the expense and burden of individual litigation makes it impossible for members of the Class to individually redress the wrongs done to them. There will be no difficulty in the management of this action as a class action. UNDISCLOSED ADVERSE FACTS 34. The market for Sarepta s securities was open, well-developed and efficient at all relevant times. As a result of these materially false and/or misleading statements, and/or failures to disclose, Sarepta s securities traded at artificially inflated prices during the Class Period. Plaintiff and other members of the Class purchased or otherwise acquired Sarepta s securities relying upon the integrity of the market price of the Company s securities and market information relating to Sarepta, and have been damaged thereby. 35. During the Class Period, Defendants materially misled the investing public, thereby inflating the price of Sarepta s securities, by publicly issuing false and/or misleading statements and/or omitting to disclose material facts necessary to make Defendants statements, as set forth herein, not false and/or misleading. Said statements and omissions were materially 20
false and/or misleading in that they failed to disclose material adverse information and/or misrepresented the truth about Sarepta s business, operations, and prospects as alleged herein. 36. At all relevant times, the material misrepresentations and omissions particularized in this Complaint directly or proximately caused or were a substantial contributing cause of the damages sustained by Plaintiff and other members of the Class. As described herein, during the Class Period, Defendants made or caused to be made a series of materially false and/or misleading statements about Sarepta s financial well-being and prospects. These material misstatements and/or omissions had the cause and effect of creating in the market an unrealistically positive assessment of the Company and its financial well-being and prospects, thus causing the Company s securities to be overvalued and artificially inflated at all relevant times. Defendants materially false and/or misleading statements during the Class Period resulted in Plaintiff and other members of the Class purchasing the Company s securities at artificially inflated prices, thus causing the damages complained of herein. LOSS CAUSATION 37. Defendants wrongful conduct, as alleged herein, directly and proximately caused the economic loss suffered by Plaintiff and the Class. 38. During the Class Period, Plaintiff and the Class purchased Sarepta s securities at artificially inflated prices and were damaged thereby. The price of the Company s securities significantly declined when the misrepresentations made to the market, and/or the information alleged herein to have been concealed from the market, and/or the effects thereof, were revealed, causing investors losses. SCIENTER ALLEGATIONS 21
39. As alleged herein, Defendants acted with scienter in that Defendants knew that the public documents and statements issued or disseminated in the name of the Company were materially false and/or misleading; knew that such statements or documents would be issued or disseminated to the investing public; and knowingly and substantially participated or acquiesced in the issuance or dissemination of such statements or documents as primary violations of the federal securities laws. As set forth elsewhere herein in detail, Defendants, by virtue of their receipt of information reflecting the true facts regarding Sarepta, his/her control over, and/or receipt and/or modification of Sarepta s allegedly materially misleading misstatements and/or their associations with the Company which made them privy to confidential proprietary information concerning Sarepta, participated in the fraudulent scheme alleged herein. APPLICABILITY OF PRESUMPTION OF RELIANCE (FRAUD-ON-THE-MARKET DOCTRINE) 40. The market for Sarepta s securities was open, well-developed and efficient at all relevant times. As a result of the materially false and/or misleading statements and/or failures to disclose, Sarepta s securities traded at artificially inflated prices during the Class Period. On April 23, 2014, the Company s stock closed at a Class Period high of $38.91 per share. Plaintiff and other members of the Class purchased or otherwise acquired the Company s securities relying upon the integrity of the market price of Sarepta s securities and market information relating to Sarepta, and have been damaged thereby. 41. During the Class Period, the artificial inflation of Sarepta s stock was caused by the material misrepresentations and/or omissions particularized in this Complaint causing the damages sustained by Plaintiff and other members of the Class. As described herein, during the Class Period, Defendants made or caused to be made a series of materially false and/or misleading statements about Sarepta s business, prospects, and operations. These material 22