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What's Sarepta Therapeutics Inc.'s Next Move?

After failing to win support for early approval from a key advisory committee last month, shares in Sarepta Therapeutics (NASDAQ: SRPT) have been trading wildly. The negative vote for Sarepta Therapeutics' Duchenne muscular dystrophy drug, eteplirsen, casts doubt on its approval when the FDA issues its official decision later this month, but some investors remain hopeful. What's could be in store for this company exiting the FDA decision? Find out in this clip from The Motley Fool's Industry Focus: Healthcare podcast.

A transcript follows the video.

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This podcast was recorded on May 4, 2016. 

Kristine Harjes: On April 25, the FDA's advisory committee voted against approving, it was a 7-to-6 vote, a drug made by a company called Sarepta Therapeutics. Even though this was just a recommendation from an advisory committee, which means it's not an actually denial just yet, this was a real heartbreak of a decision.

Todd Campbell: Big time. Listen, this drug is designed to treat patients with Duchenne muscular dystrophy, or DMD. This is a very, very tough-to-treat disease. There's no approved medicines that can curb it, and sadly most patients with it succumb to their disease in their 30s. There's a tremendous amount of emotion associated with this meeting. To back up for a second for listeners, I think everyone that's listening to the program probably knows that the FDA is responsible for approving drugs. Those approvals are based on a company's ability to show that the drug is both safe, and that it also works, or improves the condition for patients. Prior to that approval, though, the FDA will convene a committee of experts to discuss the merits of the drug, and that's what we're talking about, we're talking about the advisory committee meeting at the end of April that discussed the pros and cons associated with this drug, and that sadly for patients wasn't able to put its full support behind giving this drug an early approval.

Harjes: Of course, the FDA doesn't have to follow what the advisory committee says, but they usually do.

Campbell: Typically they do. This could be ... right, we're getting all sorts of exceptions, and who knows, right? But this could be a scenario where they do look at the whole body of evidence and weight patient testimonials more heavily than maybe they would in other disease indications. That's based on the fact that if you listen to the FDA's comments from their head of drug development, or drug evaluation, I should say, she seemed to indicate some support for erring on the side of caution as far as approving a drug that may help this tough-to-treat indication. Whether or not that pans out with and FDA green light at the end of May, when the official decision is supposed to come, is anyone's guess, but that's what a lot of industry watchers are thinking and a lot of patients are hoping for.

Harjes: Yeah, I would agree that Janet Woodcock's commentary did seem to be the one bright spot out of this thumbs-down from the advisory committee, because she carries a lot of weight in these decisions. She made comments that were seemingly pretty positive, but the thing is this wasn't really your traditional trial. It was a trial of 12 patients; they used a “historical control group,” meaning that it wasn't your standard trial where you have a treated group and a control group and you can compare them. The efficacy of this drug is a little bit questionable at this point. The other side of that coin is it's also going to be very, very expensive, so there's that side of things to consider as well.

Campbell: Right, we're not talking about, OK, let's approve a drug that you can go down to Rite Aid (NYSE: RAD) and buy, like, vitamin C for $6 a bottle. This is a rare disease, it only affects 50,000 people in the world, or in the developed world, and of those 50,000 people it only targets about 13% of them. Only about 5,000 or 6,000 of these patients are amenable to the way this drug works. You're talking about a very small patient population. In preparation for today's conversation, I did take a look through the briefing documents that the FDA had sent to the adcom committee prior to their review. I wanted to go over one quote because it really talks to the point you just made about the trial size and the trial design. In the briefing documents, the FDA wrote, "The FDA has concerns regarding the comparability of the treatment groups and the overall persuasiveness of the historical control comparison, as described in the briefing materials. In fact the clinical course of the 12 patients participating in the study appears to be within the expected natural history of DMD."

You could see going into the adcom meeting, the FDA is saying, “OK, we've got a very small patient population. What is being reported, it's within what would be expected normally in the course of this disease, probably some periods where things are good and other periods where things are bad, so who knows whether or not this was a placebo effect where people knew they were getting the drug and they felt better because of that?”

Kristine, this is a science organization, right? They've got to look at the science. They're looking to see if there's an actual scientifically provable fact that this drug improves outcomes for these patients. I think when push came to shove the adcom committee, as much as they wanted to be able to say, "Yes approve this drug," they couldn't reconcile that.

Harjes: Yeah. Emotions aside, because obviously there are a lot of emotions tied up with this disease, as an investor, what would be next for Sarepta if the FDA says no come May 26?

Campbell: Right, there are a couple options here. May 26, the FDA is going to give their official go/no-go. If they say go, they'll probably require a confirmatory trial. Likely every patient that's available for this drug in the U.S. if it's approved is going to take it. There's no approved treatments; this is a devastating disease, so you're talking about a patient population of a couple thousand probably in the U.S. Who knows what the pricing of this drug could be -- rare-disease drugs, oftentimes they'll carry six-figure price tags, they'll price at $100,000, couple thousand people take it, that's $200 million in sales. The market cap in this company though is already $834 million. Investors need to think about that, is this already pricing in the potential for approval?

If the FDA gives a no-go decision, then Sarepta's in a tough spot, because it has to say, "OK, do we now invest in a placebo-controlled study that is going to cost us a lot of money and could take one, two years before we can get back in front of the FDA." Maybe, maybe not. We don't know how that's going to play out. They have $192 million in cash on the books and their operating expenses were $220 million last year. I'm not sure; this is a risky stock in my view.

Harjes: Extremely risky. This is definitely a make-or-break kind of story.