Sarepta Therapeutics Inc (NASDAQ:SRPT) stock got some very good news from the Food and Drug Administration yesterday, which told the biotech company it could file a new drug application for its Duchenne muscular dystrophy (DMD) drug eteplirsen.
The SRPT stock price immediately soared more than 30% higher in after-hours trading on Tuesday after the news, and shares were up as much as 65% in intraday trading on Wednesday.
If that seems like a super-sized gain for a bureaucratic thumbs-up, I see where you’re coming from.
But considering the fact that Sarepta wasn’t even sure it was on friendly terms with the FDA just last month, it makes a lot of sense that SRPT stock was stagnating in the trenches. Even after today’s remarkable gains, the stock is off 14% in the past year.
Sarepta is lucky regulators are warming up to it, because the development of eteplirsen is the most promising near-term catalyst for SRPT stock.
A Sign of Easing FDA Tensions
On March 31, Sarepta’s CEO, Chris Garabedian, announced his surprise resignation. The move last month was a blatant attempt by SRPT to smooth over relations with the FDA. Garabedian was described as “combative” in a Wall Street Journal piece announcing the resignation. From the article:
“Garabedian’s departure comes shortly after Sarepta appeared to have angered the FDA with a press release about the approval process for its drug. When asked why Garabedian departed so abruptly, interim chairman John Hodgson said that ‘it’s really about going in a different direction… to ensure we have the best opportunity with the FDA’ to receive approval.”
Managing the temperaments of regulators and governmental oversight is an increasingly important dynamic in the healthcare sector. In March 2014, a Congressional inquiry into pricing practices was largely responsible for sparking a steep and sudden selloff in biotech stocks. Gilead Sciences, Inc. (NASDAQ:GILD) was asked in a formal letter by three congressmen to justify the price of its hepatitis C drug Sovaldi, which cost around $84,000 for a 12-week treatment.
Other biotech stocks with exorbitantly priced treatments like Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) fell in sympathy as investors worried pricing pressure would hit the industry en masse.
Historically, SRPT has also needed to court the government. From its most recent 10-K:
“…substantially all of our revenue was generated from U.S. government research contracts and grants, which are generally cost plus contracts providing for reimbursed costs which include overhead and general and administrative costs and a target fee.”
While back in October Sarepta stock was getting some ink for its Ebola drug research, eteplirsen is Sarepta’s most advanced candidate in the pipeline as the only drug that’s even advanced to Phase II trials. SRPT stock is now potentially in the position to see eteplirsen reviewed in an FDA advisory panel in the fall alongside BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) and its competing DMD drug.
It’s no wonder that SRPT, which is valued at close to $1 billion despite revenue of less than $10 million last year, is one of the highest flyers in the stock market today. But unless you have some advanced knowledge of the science behind eteplirsen, I’d stay away from SRPT stock, which remains a highly speculative play with large potential downside.
As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
