[cnxvideo id=”655243″ placement=”ros”]Sarepta Therapeutics Inc. (NASDAQ: SRPT) has seen more than its fair share of volatility in the market of late. Now shares are surging after it has reached a compromise with the U.S. Food and Drug Administration (FDA). The FDA has requested additional information on its dystrophin data from biopsies already obtained from the ongoing confirmatory study of eteplirsen, and it is the notion that Sarepta won’t have to get new biopsies that is likely driving the share so much.
Tuesday’s reaction had shares of Sarepta up 30% at $21.00 shortly after the opening bell. Whenever you see a reaction of this sort, you might assume that every analyst is positive and upgrading their ratings or targets. That just is not the case here.
One thing that may be contributing to the questionable disparity is that Sarepta has burned many researchers following the stock. Its price swings have hurt investors and short sellers alike. A 52-week range of $8.00 to $41.97 sort of outlines how much of a boom-bust-boom story this is.
24/7 Wall St. has found positive, neutral and negative analyst calls. We decided to highlight these because of the extreme volatility. Quite literally, these calls are all over the place.
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One final issue here is the short interest. Sarepta has seen its share of short selling. Though the data now have a longer lag than we would consider pertinent for today, Sarepta’s short interest as of the May 13 settlement data was 22.6 million shares. That short interest was only about 10 million shares at the start of 2016.
The following are the top analyst calls seen so far in Sarepta. Again, this company’s share movements have created many gains and losses for investors and short sellers alike.
Janney maintained a Neutral rating, but raised its fair value estimate to $25 from $18 in its call. The firm noted:
The FDA gives SRPT another shot at an accelerated approval (AA). It needs incremental western blot data from the ongoing PROMOVI study. A minimum threshold for dystrophin has not been set and AA is reasonably likely if the dystrophin data from 13 patients(to be submitted over the coming weeks) demonstrates statistically-significant increases over baseline validating mechanism of action and meeting grounds for AA. Stock could be +$50 on AA, but the downside risk also increases if dystrophin data disappoints. Risks include: 48 versus 180 weeks dosing, biopsy from same muscle (albeit different arms).
Increasing our probability of AA to 55%. Our FV is based on a nine-year DCF analysis, discounted at 20%, perpetuity growth rate of 2.0%, and tax rate of 14%, but does not yet reflect any potential eteplirsen in sales ex-U.S. We assume eteplirsen approval during 2017 and approvals for exon-45 / exon-53, exon-44, and exon-46 during 2020, 2021, and 2022, respectively.
Jefferies has an Underperform rating and a price target all the way down at $7. That call noted:
We see the FDA’s request for additional dystrophin biomarker data as the best-case scenario, suggesting that FDA is willing to give Sarepta another chance instead of issuing a CRL outright. While dystrophin data from week 48 versus baseline could provide high-quality data, we see slim chance for meaningful improvement given the drug mechanism. We continue to see low probability of approval.
JMP Securities has an Underperform rating and $10 price target. That firm said:
The FDA requests additional dystrophin data, pushing an eteplirsen decision out even further; we reiterate our Market Underperform rating and $10 risk-adjusted, DCF-derived price target on Sarepta Therapeutics. After market close yesterday, Sarepta announced that the FDA has requested dystrophin data as measured by western blot from 13 patient biopsies at baseline and week 48 from the ongoing confirmatory PROMOVI trial, sending the stock up 26% in aftermarket trading.
Recall, the FDA’s original assessment of the submitted clinical dossier showed minimal production of this proposed surrogate endpoint – dystrophin of 1% +/- 1% and no correlation with clinical outcomes as measured by 6MWD.
Leerink has an Underperform rating. The analyst outlined several variations for its outlook:
We estimate a risk-adjusted per share fair value for SRPT of approximately $5 in 12 months reflecting a high probability of success for US eteplirsen approval. We use a sum-of-parts discounted cash flow (DCF) valuation methodology, attributing ~$1 to eteplirsen, ~$1 to SRP-4053, ~$1 to SRP-4045, and the rest to net cash. We use a 13% WACC as our discount rate since the risks involved with drug development and regulatory approval have already been handicapped by probability weighting our revenues.
We assume a 15% (US) and 20% (EU) probability of eteplirsen approval and commercial success. Over the longer term, we assume a 2% terminal growth rate, but this may warrant adjustments pending eteplirsen’s FDA decision in May ’16 since eteplirsen stands to validate the mechanism of action for subsequent exonskippers. For now we assign 30% (for both in US) and 35% (for both in EU) probability of success for SRP-4053 and SRP-4045 with potential launches in 2018 and 2020. Even if approved, our PT reflects our cautious view on eteplirsen’s commercial success.
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The Leerink targets also had four cautionary statements, as follows:
- The muscles biopsied and whether the sites are controlled remain unknown.
- Patients being biopsied remain unknown.
- The threshold for positivity remains unknown, particularly for a semi-quantitative assessment of a Western blot.
- The true intentions of the FDA behind this request remain unknown.
Oppenheimer has an Outperform rating and a whopping $60 price target. The firm said:
Sarepta announced the FDA has requested dystrophin data from ongoing PROMOVI confirmatory trial of eteplirsen, prior to making an approval decision. SRPT indicated to us biopsies have been completed but need to be analyzed, expected to take ~3 weeks (consistent with 180-week biopsy analysis).
We view this request as positive, and consistent with our prior views (here), suggesting that FDA is convinced: (1) accelerated approval can be supported by dystrophin production, (2) that some dystrophin is better than no dystrophin, and even small amounts (as in the case of exon-44 vs other-exons) can be “reasonably expected” to result in clinical benefit, (3) trends in clinical benefit over four years support dystrophin data. We anticipate success, believing dystrophin production data is reproducible and anticipate accelerated approval in next 3 months. We recommend buying Sarepta on this news.
Wedbush Securities raised Sarepta’s rating to Outperform from Neutral, and it raised its target price to $36 from $14. Wedbush said:
The Wedbush View: In our view, FDA has found middle ground and given Sarepta a rapid path towards accelerated approval by requesting dystrophin data that the company has in hand. At the panel in April, Janet Woodcock, Director of CDER, specifically noted the lack of a benchmark for determining how much dystrophin is “meaningful”; in our view, a statistically significant increase of dystrophin over baseline should be enough to secure an accelerated approval.
We believe there is a good chance these data will demonstrate required dystrophin production and recommend shares ahead of a regulatory decision, which could come in 2016. We have moved up timelines for an eteplirsen launch and lowered dilution from a potential capital raise, driving our price target to $36.
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