Why Key Analyst Sees Huge Upside in Sarepta Therapeutics

Sarepta Therapeutics Inc. (NASDAQ: SRPT) saw its shares get crushed on Thursday and then explode on Friday following the U.S. Food and Drug Administration (FDA) view on its Duchenne muscular dystrophy (DMD) treatment. The FDA took a negative view on the drug by adding a voting question, but one key analyst says that there is a light at the end of the tunnel, not to mention shares did rally on Friday.

Janney Montgomery Scott noted in a recent report that there were no clear voting questions during the drisapersen review BioMarin, but there were for eteplirsen. This doesn’t change the odds of a positive vote that much, but some of the questions are setting up Sarepta for a failure. The firm is staying on the sidelines till the panel actually votes because upside remains significant.

According to this analyst, questions 1 and 2 on Dystrophin are positive for Sarepta, while questions 3 through 6 are considered Neutral for the company.

As for question 7, Janney detailed:

Do the clinical results of the single historically-controlled study (Study 201/202) provide substantial evidence (i.e., evidence from adequate and well-controlled studies or evidence from a single highly persuasive adequate and well-controlled study that is accompanied by independent findings that substantiate efficacy) that eteplirsen is effective for the treatment of DMD? This is the decider on which the potential approval hinges on — and is definitely a NEGATIVE for Sarepta.

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The firm is staying on the sidelines for now, but the upside for a positive vote is significant.

Janney thinks that the key factors that could prevent shares of Sarepta from achieving its fair value estimate include: inability to demonstrate a clinically meaningful benefit with eteplirsen or other follow on compounds, inability to gain regulatory approval and appropriate reimbursement, and inability to scale up drug production due to its complex manufacturing.

Shares of Sarepta closed Friday up about 36% to $14.95, with a consensus analyst price target of $24.15 and a 52-week trading range of $10.20 to $41.97.