Sarepta Therapeutics Inc. (NASDAQ: SRPT) received a favorable rating from Merrill Lynch, and as a result the stock was climbing in Tuesday’s trading session. The firm raised its rating to Buy from Neutral and increased its price target to $21 from $19.

According to the firm, the main reason for this upgrade was its increased conviction that eteplirsen can be approved for treating boys with DMD (from the exon-51 skipping mutation). Merrill Lynch conducted some statistical analysis on eteplirsen and estimates that its probability for approval is up to 50% from 40% previously. There is an expected value of less than $300 million, and high unmet need in this ultra-orphan population, but the firm sees the risk/reward as favorable.

The NDA filing is expected to be submitted to the FDA in mid-2015. In addition to its dosing studies, Sarepta will need to include additional safety data in newly exposed eteplirsen patients. BioMarin Pharmaceutical Inc. (NASDAQ: BMRN)/Prosensa has started a rolling NDA submission for drisapersen, eteplirsen’s key competitor in the exon-51 skipping DMD space, and expects to complete the submission in the first quarter of this year. A drisapersen confirmatory program is expected to start in 2Q15.

Merrill Lynch describes the risks in its investment thesis:

Our previous caution on Sarepta was based on limited patient data (PTC Therapeutics, Inc. (NASDAQ: PTCT) and Prosensa/BioMarin have more patients on their DMD drugs), no variability data, and uncertainty about the treatment effect, which have been somewhat reduced. While there have been no safety red flags noted yet, the data are limited (Sarepta has safety data on 48 patients, with 12 on drug for three years) and thus more patients on drug are needed to reaffirm the safety profile. We also cannot rule out that the FDA would not have additional follow-ups further delaying the US approval.

Despite raising its price target, Merrill Lynch’s remains below the consensus analyst price target of $23.88. Its $21 price target implies an upside of 64.6% from Friday’s close of $12.76, and the consensus price target implies upside of 87.1%. The highest price target call was made by Needham at $52, last April, implying an upside of over 300%.

Sarepta shares were up roughly 15% at $14.63 in the last hours of Tuesday’s trading. The stock has a 52-week trading range of $11.33 to $40.00.

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