Sarepta: Roche Partnership After The FDA’s Turnaround Forms The Basis For A $158.59 Near-Term Price Target – Sarepta Therapeutics, Inc. (NASDAQ:SRPT)


Sarepta Therapeutics, Inc. (SRPT) is having another strong day of buying as the company’s latest licensing agreement builds an already impressive cash hoard for the company along with other, less-obvious benefits. This follows quickly on the heels of another monumental day for the company as the FDA addressed Sarepta’s response to the Complete Response Letter it had sent the company in regard to its clinical candidate, golodirsen (to be known commercially now as Vyondys 53). Sarepta can start commercialization of Vyondys 53 immediately, as it has a commercial setup all in place as a follow-on to its spectacularly successful Exondys 51 drug for Duchenne Muscular Dystrophy. Its third follow-on candidate, casimersen, could be primed for commercialization by mid- to late 2020 as the company builds a solid cash flow base of earnings to support its upcoming gene therapy candidates. Shorts should be feeling the pain, as high short interest could help propel the stock to new highs over the course of 2020.

Sarepta’s blockbuster $1.15 billion partnership with Roche Holding AG (OTCQX:RHHBY) includes $750 million in cash for the company, along with a $400 million equity investment for Roche in Sarepta stock at a price of $158.59 a share. This licensing agreement gives Roche the right to launch and commercialize SRP-9001 outside the United States. SRP-9001 is one of Sarepta’s greatest potential value drivers, as data is due at the end of 2020, with commercialization potentially soon to follow, which could easily surpass the company’s lucrative commercialization results for DMD drugs like Exondys 51, the newly approved Vyondys 53, and future follow-on candidates.

There are a couple of other benefits for Sarepta from the Roche deal that might be a little less obvious. First, this reaffirms Sarepta’s desirability as a potential M&A candidate in the future, as it continues to have tremendous commercial and approval success with Exondys 51 and follow-on candidates which are only the tip of the iceberg compared to the company’s micro-D program SRP-9001. Initial data results from its micro-D program in the summer of 2018 created a massive 37.5% surge in the stock as analysts were falling all over themselves praising the future prospects of the candidate. Remember that other companies in the DMD gene therapy arena have had remarkable trouble with their candidates, as Wave Life Sciences Ltd. (WVE) stock recently cratered after exiting DMD, Solid Biosciences Inc. (SLDB) cratered due to another clinical hold on its DMD gene therapy candidate, and even the mighty Pfizer Inc. (PFE) has safety concerns with its candidate which uses the same vector as Solid Biosciences’ candidate. Roche is more than willing to make a large investment in Sarepta’s potential by signing off on buying $400 million in stock at a price ~18.7% higher than what Sarepta stock is trading at even after the jump from the company’s latest licensing deal.

ChartData by YCharts

The second, less-obvious reason this is so good for Sarepta is the fact that Roche is a European company with strong ties to key pharmaceutical businesses in Switzerland, Germany, and other international locations. Investors might not remember that Sarepta has had a very hard time trying to get Exondys 51 commercially approved in Europe, as the European Medical Association (EMA) has confirmed its prior negative opinion for a Conditional Marketing Application for Exondys 51 back in late 2018. Since then, Sarepta has found little traction in getting approval, as the EMA is looking for more and better data before an approval is warranted in their opinion. The continued success of Exondys 51, Vyondys 53’s recent approval, and now a partnership with European pharmaceutical powerhouse Roche might be finally enough to help tilt the EMA towards an official approval for Exondys 51 and additional follow-on candidates. Just as American companies find it very hard to set up shop in China unless they engage in a Chinese partnership, perhaps an official European partnership for Sarepta might be the key that unlocks European approval for its present and future candidates.

Sarepta’s first commercial drug, Exondys 51, was suited for approximately 13% of the DMD community, with follow-on candidates Vyondys 53 and potentially casimersen suitable for approximately 8% of the community each. Here are Exondys 51’s historical cash flows and projected 2019 cash flows side by side with what could be expected from its follow-on candidates in 2020 based on Exondys’s historical numbers. Figures are based on the new drugs having a similar ramp-up as Exondys 51, although only serving 8% of the population each instead of 13%, along with casimersen being potentially approved in late Q2 2020 instead of its formerly expected approval possibly in Q1 2020 before the latest FDA CRL. These figures are, of course, merely my projections, so feel free to adjust up or down according to your own commercialization assumptions.

Sarepta Revenues Exondys 51 Vyondys 53 casimersen
2016 Q4 Approval ~$5.4M
Q1/2017 ~$16.34M
Q2/2017 ~35M
Q3/2017 ~$46M
Q4/2017 ~$57.3M
2017 Full Year ~$155M
2018 ~$301M
2019 Projected ~$370M-$380M
Q4/2019 ~$3.3M
Q1/2020 ~$10M
Q2/2020 ~$21.5M ~$3.3M
Q3/2020 ~$28M ~$10M
Q4/2020 ~$35M ~$21.5M
FY 2020 ~$400M ~$94.5M ~$35M

(Table by Trent Welsh)

What is amazing about this table is the fact that Sarepta could be heading for close to half a billion dollars in annual commercial revenues by the end of 2020, right in time for the full ramp-up of commercial activities for its gene therapy programs. Strong cash flows, a non-dilutive $500 million loan facility ($250 million available in December 2019 and $250 million available in December of 2020), and the recent $700 million cash windfall from the company’s Roche partnership mean that future cash raises that dilute current shareholders are officially off of the table, barring a massive future M&A deal that Sarepta couldn’t pass up.

Finally, here’s a quick look at Sarepta’s short interest in the stock, which could help to propel the stock to my year-end 2020 goal of $200 a share as shorts have to cover and are converted to longs as the company continues to successfully advance its clinical candidates.

Sarepta Stock Short Interest
11/29/2019 14,676,025
10/31/2019 15,516,544
9/30/2019 14,487,799
8/30/2019 13,524,652
7/31/2019 12,540,910
6/28/2019 11,767,039

(Data from Nasdaq)

With a float of about ~70.63 million shares, this means that about ~20% of the float recently has been shorted, growing markedly over the back half of 2019. This could help fuel significant price appreciation over 2020 as Sarepta’s cash flows and prospects continue to grow and new investors buy into the company’s prospects.

Sarepta has had a terrific end to 2019, as the FDA surprisingly approved the company’s newest cash flow in Vyondys 53, followed shortly by a lucrative partnership with European powerhouse Roche. Sarepta should continue to see a rapid rise in its cash flows over 2020 in time for possible gene therapy commercialization, as short interest, which had been building over 2019, could take a U-turn and head the opposite direction over 2020. I continue to be long the stock, as it is now the largest single stock holding in my portfolio of approximately 50 individual stocks, mutual, and index funds. Best of luck.

Disclosure: I am/we are long SRPT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.


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