SRPT – Sarepta Makes Strides In DMD

Duchenne’s Muscular Dystrophy (DMD) is a genetic disorder that afflicts approximately 1 out of every 3,600 male infants. The inherited disease is caused by mutations in the gene for dystrophin- a muscle protein- resulting in muscle weakness at an early age that quickly worsens over time. Breathing difficulties and heart disease typically begin in the early twenties, eventually leading to death.

Sarepta Therapeutics, formerly Avi BioPharma, has developed an RNA based therapy designed to allow DMD patients with specific deletions in the dystrophin gene to produce active forms of the protein. Genes are comprised of exons and introns; during the translation process from DNA to protein, pre-mRNA is assembled, introns are removed and exons are spliced together to form mRNA, which is then used as a template to create proteins.

In patients with DMD, the errors can lead to what’s called an out-of-frame, or frame-shift deletion. Cells read the genetic code in sets of three nucleotides. If an exon deletion causes this set of three to become out of step, every subsequent read will be incorrect and no protein will be made. Sarepta’s exon-skipping technology can correct the reading frame, allowing functional protein to be produced. The company’s lead compound eteplirsen (AVI-4658) enables the skipping of exon 51. Additional compounds targeting other exons are also in development.

The Data:

On July 24, Sarepta reported 36-week data from the open-extension portion of its Phase IIb study showing patients treated with the highest dose of eteplirsen performed significantly better on the 6-minute walk test (6MWT) compared to a cohort of placebo/delayed treatment individuals. The study was small to be sure, only 12 patients were enrolled; four each were assigned to either placebo, 50mg/kg eteplirsen, or 30mg/kg eteplirsen. Upon completion of this blinded portion, the four placebo patients were randomized to either one of the two treatment arms- the so-called placebo/delayed treatment patients.

All measurements are referenced to each patient’s baseline 6MWT distance. At 36-weeks, 50mg/kg patients saw an 8.7 meter decline in walking distance compared to a decline of 78.0 meters for the placebo/delayed treatment cohort. This translated to a 69.4 meter benefit and was highly statistically significant.

Patients receiving 30mg/kg also saw a benefit with declines of only 33.3 meters, but the difference was not statistically significant. Moreover, two of the original four patients in this group had been excluded from the analysis after being unable to “perform measures of ambulation beyond 24 weeks.” According to management, these two boys have become wheelchair bound due to their rapid disease progression. Their exclusion, however, has provided fodder for critics of the trial.

Combined results from both doses reached statistical significance with a mean 6MWT decline of 15.6 meters. (This excludes the two boys from the 30mg/kg arm who rapidly progressed.)

Additional subgroup analysis provided by the company showed boys who were under 9.5 years of age, had higher baseline 6MWT distances, or had specific mutations achieved a greater treatment benefit; but without knowing the dose assigned to each of these patients, interpreting this data is difficult.

At the 48-week mark, patients will perform another 6MWT and biopsies will be taken from their muscle tissue for analysis of dystrophin expression. The company will look for signs of continued stabilization or improvement in the treatment arms. They will also look for potential moderation in the decline of the placebo/delayed treatment group as these patients will have been receiving drug for 24-weeks by that point. It is expected the gap between treatment groups will be less pronounced at 48-weeks.

Biopsies had been taken at 12-weeks for the 50mg/kg group and at 24 weeks for the 30mg/kg group- both compared to placebo. The high dose failed to show any significant increase in new dystrophin positive fiber generation while a longer treatment time at 30mg/kg induced a significant increase to 22.5% that of normal tissue. The company reasons that improvements are time-dependent; greater gains can be achieved with prolonged treatment.

Design of the trial provides an opportunity to compare both time and dose-dependence for dystrophin formation. There will be data from three timepoints for both the 30 and 50mg/kg arms. If the effect is time dependent, it should become evident. Of the four placebo/delayed treatment patients, two each will have received 24-weeks of each treatment dose, allowing for a matched comparison at that timepoint.

It Works:

Exon skipping technology is likely the most promising new treatment for DMD. That it can induce novel, functional dystrophin formation is not in doubt. The final remaining barriers are safety, and correlating dystrophin generation to a relevant outcome measure.

Although eteplirsen has been tested in a limited number of patients, its safety record has been quite good. In addition to this ongoing trial, the drug has been administered to 7 boys in a Phase I/II using intramuscular injection and 19 patients in a Phase II dose escalation study. No safety concerns have arisen during any of the three studies. It is thought eteplirsen’s unique Phosphorodiamidate Morpholino Oligomer (PMO) chemistry confers this safety advantage.

The 6MWT is a well validated measure of cardiac, respiratory, circulatory, and muscular capacity. Multiple published papers by McDonald C, et al, in the journal, Muscle & Nerve, have shown the test is highly consistent in repeat measures of boys with DMD. Interestingly, the studies found that over a course of 52-weeks, boys with DMD suffered a 6MWT distance decline of 57 meters. While this is somewhat lower than the 78 meter decrease reported by Sarepta at 36-weeks, the subjects were also younger, aged 5 to 12 vs. 7 to 13. Importantly, this data gives support to the Sarepta trial; indicating the declining performance of placebo patients is unlikely to be an artifact and the treatment benefit is indeed real.

Dystrophin formation has been seen in mice, dogs, and now, humans. Now tie that together with the 6MWT outcomes measure. It’s that simple- at least on paper it is.

What’s Next:

There is some competition in the exon skipping space. A private company, Prosensa, is also pursuing a DMD treatment based on the same premise. It has a global partnership with GSK signed in October 2009 which provided the company $25 million upfront and up to $680 million in milestones if the collaboration succeeds on four different exons.

While Prosensa’s PRO051 has shown novel dystrophin formation as well, there is yet no controlled 6MWT data. A major shortcoming will likely be toxicity issues. All patients on the drug had at least one adverse event- the major ones being proteinuria, elevated α 1-microglobulin, and injection site reactions.

Prosensa, however, may stand in the way of Sarepta’s business pursuits in Europe due to a patent covering the skipping of exons 51 and 46 in the treatment of DMD (Pat No. EP 1619249). Sarepta is appealing this patent.

In the most recent quarterly conference call, management was upbeat about its drug’s prospects. Results from the 48-week study will be revealed at the World Muscle Society Congress in mid-October as a late-breaker.

Should the data be positive, the company will begin discussions with the FDA on a path forward. Due to the severity of the disease and the safety shown so far by eteplirsen, management believes it may be possible to pursue an accelerated approval even as it commits to a full confirmatory study.

Sarepta seeks to push the FDA even further as it eventually hopes to gain “class” approval for its exon skipping drugs in DMD. Exon skipping is potentially applicable in 208 different dystrophin gene mutations, accounting for 69% of DMD patients. Skipping exon 51, the aim of eteplirsen and PRO051 has the potential to help 13% of DMD patients. Obviously, many different drugs will be needed just for this subset of the DMD population. But as the patient numbers get smaller and smaller, running trials becomes nearly impossible.

The company, therefore, hopes regulators will make possible the approval of its drugs for a wide range of exons without the need for human testing, presumably after full efficacy and safety has been confirmed in a larger Phase III trial for its lead candidate.

Business Front:

Sarepta has about 12 months of cash on hand, so plenty of time to get to the October show. But with the financing window open, anything can happen; biotech companies know it is better to be safe than sorry. Management claims companies have expressed interest since the 36-week data had been released. The company would prefer to partner the drug with the goal of accelerating development of compounds for follow-on exons. The Prosensa deal provides a template of what terms of a global partnership may look like.


Sarepta is a promising company working in the rare disease area. It is certainly risky with only a small trial and Phase IIb results (open-label, no less). Still, the drug appears to work. Whether the company gains accelerated approval is more uncertain. At a valuation of under $200 million, the market is pricing in plenty of doubt. With that in mind, there appears to be significant upside here.

Disclosure: Author is Long SRPT

17 replies added

  1. Avatar photo

    Nice work Jason. Partnership certainly could be very lucrative even at early stage. Wonder if Biogen would like a complement to their antisense deal with Isis for a different form of muscular dystrophy?

    • Avatar photo

      It’s an interesting idea. Such a deal would gain Biogen two different and novel RNA technologies for treating genetic disorders. The ISIS drug targets RNA sequences that would otherwise lead to the formation of RNase while of couse, Sarepta has exon skipping.

  2. Great summary of the opportunity.

    Been thinking on how to trade.

    As you mentioned, Company raising money between now and Oct is a risk for long positions.

    Nov ATM Calls already trading at ~160%IV, but this will likely continue to climb prior to data release. Long calls up to just before event could work, looking to benefit from increase in IV and price runup.

    Closer to the conference, something short vega, +delta (i.e. hedged leveraged call) and well defined risk could work. If there is a problem with data, shares could go back to $4-5 range, but w/good data upside seems like it could be huge.


    • Avatar photo

      I agree with your final acessment regarding downside on bad data and potential for some pretty good upside on good.
      Unfortunately, I’m an options novice, so I’ll let Tony, Patrick, or someone else with more experience comment on your strategies there.

    • Timothy Aug 15, 2012

      I understand why you want to be long volatility now and then short volatility (or VEGA) as the catalyst date gets very near, but, whats a hedged leverage call? Give me an example of a position that reflects that nomenclature.

      • sorry for the delay.

        A leveraged call would be selling puts to finance a call purchase. This can work great with a huge bull move, but creates major issues if shares sell off below your short call. It limits losses as long as price stays between short and long strike.

        Hedged leveraged call is a put spread (with SRPT maybe 5/4 strike) and bull call spread.

        You could also sell 5 or 6 strike puts with a bull call spread (10/12.5 strikes). This would limit loss if shares fell back to within 5 – 10. If price went below 5, things could get painful.

        Right now, my thoughts are long calls or call spreads (like what was described in recent TP trade report), then possibly changing strategies based on price action into October conference.

  3. Timothy Aug 15, 2012

    There are currently 22MM share outstanding. Stock trades at 9 (approx.) Basically no long term debt and 24mm in cash. Enterprise Value is approx. 179MM. If they get fast track what is the value of the drug and/or what do you think a partner would pay them, given the Prosensa deal. If they get class approval from the FDA, how much of an increase in value may that represent versus approval for only skipping exon 51? Glaxo paid 25MM upfront with 680MM milestones (funny money). SRPT should have more value to due to more data w/r/t 6MWT and better safety profile. How much more is that worth? How large is the over all global market for these diseases? North America and ROW?

    • Avatar photo

      According to the company, there are ~31,000 people in US, EU, Japan with DMD, 85% of whom can be treated with exon skipping drugs -> 27,000 pts.
      15% for Exon 51, targeted by eteplirsen -> 4000 pts.
      Est 300k/yr, that’s a potential billion dollar product in the top three markets- I assume penetration will be high.
      SRPT wants to keep US and other exons so I don’t think they’ll get too much more than Prosensa from a partner, but what do I know. Guess it all depends on what they want upfront vs royalties, etc.
      I’m betting they will opt for higher upfront so can quickly develop next two exons which together would double the market.
      Plus, testing the tech on more patients is crucial to building a safety database to convince FDA of class approval.
      With class approval, potential sales to SRPT could reach ALXN levels.

  4. Mani Aug 30, 2012

    Any theories as to why GSK partnered with Prosensa rather than SRPT? Was the formers drug way ahead in development?

    • Avatar photo

      I do believe Prosensa may have had a head start at the time, and a potential blocking IP position in some key exons. In the US, SRPT has overturned Prosensa’s patents, litigation continues in EU.

  5. Zach Aug 30, 2012

    If the data in Oct hold up and the dystrophin levels support the clinical benefit, 400mm in sales by ’19 is conservative in my opinion. This assumes roughly 40% penetration of the 3,600 pts, with a price of 200k at launch in ’14, growing 5%/yr to 243k in ’19. Assigning a 5x/peak sales multiple nets stock at $35. This includes all outstanding warrants in the share count and also assumes a 5mm share secondary. Downside is to $4 or so. Long the Oct straddle or strangles still gets to great breakevens based on conservative moves of over $20 or under $5.

  6. Avatar photo

    I agree with the ~stock price moves, but believe penetration could break 50% due to superior qualities over potential competition, and a higher product price of ~300k more in line with other ultra orphan drugs

    • Zach Aug 30, 2012

      Certainly, for those reasons specifically I suggested the ’19 sales as conservative. I definitely would rather play it thru options before the event itself, as stock moves higher, risk/reward becomes less compelling as a long (albeit still compelling) and we are still dealing with a very limited dataset/interim snapshot, along with anecdotal information…has burned many a company in the past on final data analysis.

      • Avatar photo

        Very true. I also view positive data as a de-risking event. For those with a longer investment horizon, exon 51 may just be a prelude to addition products based off its platform. But we’ll see.

        • Zach Aug 30, 2012

          Yes, and very likely still solid upside post the final data in Oct, with much less downside potential

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