By Chris Temple of The National Investor
Wall Street’s Best Investments Editor’s Note: An FDA panel has not yet given its seal of approval to Sarepta Therapeutics new muscular dystrophy drug—the final FDA hearing is scheduled for the end of May. Meanwhile, Chris Temple gives us a fascinating—and somewhat frightening—look into the political machinations of gaining FDA approval. Certainly, investment risk abounds, but this company’s shares are holding up pretty well, and even if the FDA doesn’t immediately approve this drug, the long-term outlook for its applications looks promising. Institutions holding its stock seem to agree, as they have recently added another 530,000 shares to their coffers. As well, three analysts raised next quarter’s earnings forecasts for the company in the last 30 days.
A fairly new National Investor subscriber asked me in an e-mail what the big deal is with my (and several other newsletter writers’) “devotion” to Sarepta Therapeutics (SRPT). This especially, he wondered, as Eteplirsen would have a very limited population of patients to treat.
I first became intrigued with a company called AVI Biopharma (renamed Sarepta Therapeutics several years ago) back in the late 1990s for several reasons.
Not the least among them is my belief—and hope to a great extent—that science is not only on the verge of more effective treatments for some diseases, but also cures.
This has long been a very personal interest of mine. My oldest son turned 35 years old last month; yet way back in 1997, he was facing such a dire prognosis from a rare metabolic disorder that he—and our entire family (10 of us!)—ended up accompanying him for a trip arranged by the Make a Wish Foundation. That he continues to live (though he is unable to live/function on his own) is a continued blessing to our family and all that know him.
Three other of my eight children have Type One diabetes, even though neither their mother nor I do, and there is no existence of that in either of our families. Over the years this has increased our interest in finding causes of the disease, as well as finding alternative treatments, diets, etc.
Suffice it to say that I “root” for anything I think is legitimate that may one day lead to less of the kind of challenges that have been faced by my family and millions of others. But where this newsletter is concerned, I am also looking for “stories” that have justification, investment-wise.
The “old” AVI (and present-day Sarepta) was among the first biotech companies I learned of that was developing therapies/drugs based on RNA-targeting. I saw this technology as the next major step forward in treating and perhaps one day reversing the causes of some diseases. On that basis, I first recommended AVI Biopharma as a speculative “story” stock nearly 20 years ago. And since then, I have been in and out of the stock on several occasions.
My most spectacular foray into AVI, though—which changed its name to Sarepta during this time—culminated in the moonshot that these shares experienced in the latter part of 2012, when one of the company’s RNA-targeting drugs, Eteplirsen, showed its first major early clinical progress in being a treatment for DMD, Duchenne Muscular Dystrophy.
Keep in mind that, when I added the company to my recommendations when its shares were in the $1 to $2 range, I did not have my eye on this specifically. Instead, I saw that this company had once again fluttered back down to an attractive entry point (as volatile biotech issues often do), and I thought it wise to invest in the wide array of potential breakthrough drugs the company is working on (see http://www.sarepta.com/our-pipeline).
Abetted by the monstrous financial returns that then-owners of SRPT shares enjoyed, the added human interest dimension catapulted Sarepta—and Eteplirsen—into the consciousness of an entire investment community that had previously never heard of the company.
You are all familiar with the decades-long Jerry Lewis Muscular Dystrophy Association telethons and the long, emotional quest to one day find a cure for “Jerry’s kids.” This drug was (and still is) the closest thing to that yet.
A Lot is Riding on the FDA Decision
As I watched the 11-hour Food and Drug Administration Advisory Committee hearing on April 25, I was incredulous that what seemed to matter to the 13-member panel relatively little was the evidence—in the flesh—of human beings who were living testimony to Eteplirsen’s efficacy. Somewhat fittingly, one of the panelists who ended up voting “no” on the final question on the drug’s effectiveness actually gave as his reason for voting against the drug the rationale that, “the drug definitely works, but the question was phrased differently.”
Such was the often-tortured and inhuman process as carried out by some of the AdComm members. Though it may well be the longest of long shots, the F.D.A. can still reject the AdComm’s recommendation and grant the NDA for Eteplirsen. This would not be the end of the challenges. The company would be continuing broader trials (one of which, a Phase 3 trial, is currently underway but won’t be completed until at least next year, if not 2018.) But it would make Eteplirsen available to many more DMD patients NOW who will most likely die without it.
Some are putting their hopes in the seemingly encouraging stance of the F.D.A.'s Dr. Janet Woodcock, who more than once during the hearing seemed to reveal a softer stance personally on Eteplirsen. Other than the commissioner, she will reportedly be the most senior person voting on the drug by or before May 26 when the agency’s decision on Eteplirsen’s application is rendered. Among other things, she spoke of the error of not approving a drug that has shown at least some effectiveness (and is SAFE, a matter not in any dispute with Eteplirsen—unlike its two competitor drugs, both of which have already been rejected by F.D.A.—when such disapproval will mean DEATH for possible patients.
After all, Congress’ will is for accelerated approval of any drug where there is little to no downside risk—and potential life-saving upside—when that drug will meet now-unmet needs. That, we believe, is deserved by Sarepta’s Eteplirsen.
Well over 100 Members of Congress and Senators have made these wishes known specifically regarding Eteplirsen to the F.D.A. The first of 52 speakers in the public testimony part of Monday’s hearing, in fact, was Congressman Mike Fitzpatrick (R-PA.) Losing another battle, DMD patients, families, doctors and advocates all will naturally continue the fight. There’s no other option.
And I have no doubt that the F.D.A. will be relentlessly pressed to discard the AdComm’s recommendation; perhaps with some threats from favorable Members of Congress who will see a rejection of Eteplirsen as a conscious rejection of a congressional mandate by the F.D.A.
A Look at the Stock
From an investment standpoint, the wild ride will continue. This company’s public shares have already been among the top 10 most profitable I have recommended over 20 years. My belief is that more profits will come down the road, even if a rejection of Eteplirsen’s NDA on or before May 26 means we have to wait longer.
SRPT will assuredly remain volatile. As one CNBC personality, professional trader Jon Najarian, quipped last Tuesday, the company—from an investment perspective—is “the gift that keeps on giving.” After predictably gapping down at the open (SRPT was halted all day Monday for the hearing) to the $7/share area it fought back all day from that initial low to close well above $11/share.
Will it see $7 again, if the May 26 decision confirms the AdComm recommendation and the NDA for Eteplirsen is turned down? Or $70 if that finding is rejected and the F.D.A. grants the application? I don’t know.
I continue to recommend Sarepta, not just for the more mercenary reasons exhibited (perhaps unintentionally) by Najarian. Those reasons—if we are looking simply at my job of finding interesting, potentially profitable opportunities for my members—would be sufficient.
My “devotion” to this company and the broader story goes beyond that, though. Maybe it’s because having two sons with different diseases helps me to identify with those DMD patients and families. Maybe it’s because I, as so many others, would enjoy seeing the valiant Jerry Lewis witness the first big breakthrough drug to successfully treat any form of muscular dystrophy get approval—and benefit more patients than those few in trials—before he dies.
To me, when we can combine investment returns (or at least potential, carefully-vetted ones) with a good cause that benefits people and saves/increases their life, I can’t think of better types of opportunities to know about, root for, and participate in, if appropriate.
If you’ve not done so before, I encourage you to visit the company’s website to learn more of this (at http://www.sarepta.com/technology/rnamedicine)
The above is excerpted from the April 28, 2016 issue of The National Investor Chris Temple, The National Investor, www.nationalinvestor.com, 224-308- 2587
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