Why did Sarepta Therapeutics Stock Plummet?

Key Points

• Sarepta Therapeutics stock (SRPT) plunged more than 20% after FDA reversed its approval of their new DMD drug (SRP-9001).
• The FDA wants to launch an advisory committee to investigate the overall safety and efficacy of SRP-9001.
• Despite this minor setback, analyst outlook remains positive, as they have given SRPT a Moderate Buy rating.

The middle of March may be when many people celebrate St. Patrick’s Day, but it was an unlucky time for Sarepta Therapeutics NASDAQ: SRPT. Unfortunately, the United States Food and Drug Administration recently announced they need time to investigate data on the company’s new Duchenne Muscular Dystrophy (DMD) treatment. The sudden move sank the stock by 21% (in after-hours trading), bringing the share price down to $118.

Why Sarepta Therapeutics Stock Sank 

Specifically, the FDA has backtracked on its initial ruling to move forward on SRP-9001 without an advisory committee meeting. Initially, the agency’s mid-cycle review lacked significant clinical or safety issues, leading to unobstructed progress on bringing the drug to market. Now the FDA is requesting an advisory committee to investigate potential issues further. 

This resulted in Sarepta having also to walk back its previous statement indicating the treatment candidate would progress in development. While not much information is available on the FDA’s decision, Sarepta Therapeutics CEO Doug Ingram has confided that the government did not provide further information, implying the change is not driven by evidence. 

Sarepta CEO Assures This is More Caution than Causation

Ingram intimates that the turnaround could result from restructuring efforts at the FDA. Specifically, he notes, the FDA has created an “Office of Therapeutic Products” (OTP), aiming to scrutinize the trial and approval process more deeply. Along with the installment of this “super office,” the FDA also has the desire to explore further surrogate endpoints in approval processes that have already been accelerated. Sarepta’s SRP-9001 is one such product.

Furthermore, Ingram attempted to frame the news as a surprise and not a step backward. He reiterated that the FDA “saw no circumstances” that would cause them to reverse its original decision. This followed with an assertion that Sarepta checked with the federal agency multiple times before publicizing their results regarding the lack of need for an advisory committee. 

Of course, his triage had little effect as the stock plummeted. Trading volume shot up more than 500% following the news as the stock fell more than 20% in value. Since the announcement, trading volume has calmed to 200% of the average. 

Don’t Count Them Out Yet

While news of the FDA’s turnaround certainly caused some trouble for SRPT shareholders, there appears to be a silver lining to this clinical cloud. Indeed, it seems Sarepta still has more hope than despair. For one, the stock has already started a rebound and is back up near $125 only days following the news. Secondly, while a drop greater than 20% is certainly significant, the post-dip value was still in the top third of the 52-week range ($61.28 to $159.84). 

The lack of positive P/E values suggests SRPT has one less leg to stand on than other–more established–firms in the field, but the company remains competitive. For example, its $165.88 price target represents an impressive upside of 35.20%. Furthermore, even though the stock is down more than 5% in the quarter, it is still up more than 62% since March last year.

Secondly, while the last earnings report (Feb 28) came in at -$1.24, it still beat the consensus estimate by $0.04. On top of that, EPS was -$1.42 one year ago, so the stock is improving. And while earnings have slipped from its -$1.20 high in [fiscal] Q1, analysts anticipate EPS for FY2024 could approach $14. When combined, these stats further support the moderate Buy rating. 

DMD Treatment is a Significant–and Growing–Market 

As the condition is somewhat rare in occurrence–though uniquely prevalent–the treatment market for the condition is fragmented. While Sarepta may have hit a snag with its most recent cohort, they are still among the industry leaders regarding this treatment. Other big players include well-known names like Pfizer, Inc NYSE: PFE. Lesser-known competitors include BioMarin Pharmaceutical inc. NASDAQ: BMRN,  Fibrogen, Inc. NASDAQ: FGEN, and PTC Therapeutics Inc. NASDAQ: PTCT. 

Although it is a rare genetic disease, Duchenne Muscular Dystrophy (DMD) is one of the most common congenital myopathies. It is also one of the most severe. Current estimates suggest it could affect 1 in 3,600 male babies, as it is more common among male infants than females. In 2020, the DMD drug market reached $619.0 million, and analysts expect that to grow by at least 11% (CAGR) by 2030.

In February 2021, the FDA approved Sarepta’s AMONDY 45 (casimersen) for certain DMD mutations. It is only one of three Sarepta drugs for DMD (all of which had been granted surrogate endpoint-based accelerated approval). This certainly maintains Sarepta’s place as a leader in this field, and its moderate Buy rating seems to support that. So even as SRPT took a hit after the FDA’s announcement, analysts remain optimistic about the stock’s future.