Analyst Now Sees 75% Upside in Sarepta

The supposition is that Sarepta will gain accelerated approval for its lead asset, eteplirsen, for Duchenne muscular dystrophy within 12 to 18 months. This expectation is after a fourth biopsy from the ongoing Phase 2b trial and a confirmatory open-label study with eteplirsen. There is an expectation that the FDA Advisory Committee will support utilization of dystrophin as a surrogate endpoint with supportive efficacy data.

The firm’s positive call signals investors to accumulate Sarepta shares ahead of the expected spring FDA Advisory Committee meeting. Be advised that this implies a much longer period outlook than some of the more immediate approvals and advisory panels in other biotechs that are on deck for 2014.

The firm’s $36 target price is based on a $24 per share discounted cash flow valuation of eteplirsen, plus an additional $9 per share for its pipeline and $4 per share in cash.

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Shepard said:

We think the FDA Advisory Committee will vote in favor of using dystrophin as a surrogate endpoint for accelerated approval. We believe a successful fourth biopsy will be needed to convince the panel that dystrophin can be accurately quantified using Sarepta’s methodology. Without using dystrophin as a surrogate, Sarepta will likely have to rely on the final data from one or both confirmatory studies for approval, delaying an approval 24 months or longer.

The catalysts for the call were listed as follows:

• NDA acceptance in the first quarter of 2015
• 168-week data from ongoing Phase 2b in the first quarter of 2015
• FDA panel meeting in spring 2015
• Potential approval in 2015 or the first half of 2016

When a firm as large as Credit Suisse issues 75% upside, chances are high that gets noticed. After about 90 minutes of trading, Sarepta’s shares were up 5.5% at $21.75. Amazingly, trading volume was low at 465,000 shares. The stock’s 52-week range is $12.12 to $55.61, and the average daily volume is about 1.4 million shares.

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Sarepta’s market cap is still in the small cap arena, at almost $900 million. The Thomson Reuters consensus analyst price target is up at $38.07, but we would caution that analyst price targets are literally all over the place.