Sarepta Therapeutics, Inc. — Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2022; filed August 2, 2022. Sarepta is a commercial-stage rare-disease biopharmaceutical company focused on RNA-targeted therapeutics, gene therapy and related genetic medicines. Its commercial products are EXONDYS 51, VYONDYS 53 and AMONDYS 45 for genetically defined Duchenne muscular dystrophy.
Financial performance and position
| Metric | Three months ended June 30, 2022 | Six months ended June 30, 2022 |
|---|---|---|
| Total revenue | $233.5 million | $444.3 million |
| Product revenue | $211.2 million | $400.1 million |
| Collaboration revenue | $22.3 million | $44.3 million |
| Operating loss | $211.1 million | $298.0 million |
| Net loss | $231.5 million | $336.5 million |
| Net loss per share | $2.65 | $3.85 |
| Cash used in operating activities | Not separately provided | $168.0 million |
Approximate operating margins were negative 90% for the quarter and negative 67% for the six-month period. Cost of sales plus amortization represented approximately 16% of revenue in both periods, implying an approximate reported gross margin of 84%, although the filing does not present gross margin as a separate subtotal.
- Product revenue increased 49% in the quarter and 50% year to date, driven by higher U.S. demand and the full-period contribution from AMONDYS 45.
- Second-quarter product revenue was $126.4 million from EXONDYS 51, $54.7 million from AMONDYS 45 and $30.2 million from VYONDYS 53. Year-to-date product revenue was $243.5 million, $98.3 million and $58.3 million, respectively.
- Research and development expense was $252.3 million in the quarter and $446.6 million year to date. Selling, general and administrative expense was $154.3 million and $226.2 million, respectively.
- Cash, cash equivalents, restricted cash and investments totaled approximately $1.95 billion at June 30, 2022, including $868.6 million of cash and cash equivalents, $1.06 billion of short-term investments and $18.5 million of restricted cash.
- Total debt was $1.10 billion, consisting of approximately $536.1 million of term-loan carrying value and $564.7 million of convertible debt. Working capital was $1.92 billion.
- Cash, cash equivalents and restricted cash declined by $1.24 billion during the first six months, primarily because the company purchased $1.14 billion of available-for-sale securities and used $168.0 million in operating activities.
Material changes versus the prior comparable period
- Total revenue increased 42% in the quarter and 43% year to date, while net losses widened 184% and 35%, respectively.
- Second-quarter operating loss increased by $43.6 million despite revenue growth, reflecting higher cost of sales, R&D and SG&A.
- SG&A increased 113% in the quarter and 58% year to date, primarily due to substantially higher stock-based compensation following modification of the chief executive officer’s awards. The company recorded $102.9 million of stock-based compensation in the quarter and $132.1 million year to date.
- R&D increased 5% in the quarter and 3% year to date. The increase included a $53.0 million accrual for an expected shortfall under the Thermo Fisher manufacturing and supply agreement.
- The company recorded a $17.1 million R&D charge to terminate the Henogen development, manufacturing and supply agreement and recognized a $53.0 million Thermo purchase commitment shortfall accrual.
- Other income declined materially because the prior-year periods included a $102.0 million gain from the sale of a Priority Review Voucher; no comparable gain was recorded in 2022.
- Deferred revenue associated with the Roche agreement totaled $619.2 million at June 30, 2022, including $89.2 million classified as current.
Guidance, outlook, commentary and risks
- Management stated that available cash, cash equivalents, restricted cash and investments were sufficient to fund the current operating plan for at least the next twelve months. The company nevertheless expects to seek additional financing or other funding sources as needed.
- Management expected to submit an accelerated-approval biologics license application for SRP-9001 in fall 2022, release GMP product for SRP-9003 in 2022 and engage with the FDA regarding next steps for the program.
- After quarter-end, in July 2022, the FDA placed the SRP-5051 clinical study on hold following a serious adverse event involving hypomagnesemia.
- All three approved products received accelerated approval and remain subject to confirmatory studies and other post-marketing requirements. Failure to verify clinical benefit could result in labeling changes, additional studies, restrictions or withdrawal of approval.
- The company depends on third-party manufacturers and had approximately $1.25 billion of non-cancelable manufacturing commitments as of June 30, 2022. It also had substantial lease, debt and other contractual obligations.
- Potential future development, regulatory, commercial and royalty milestone payments under license and collaboration agreements could total up to $3.7 billion, excluding unexercised option-related obligations. These amounts were not recorded because the triggering events were not probable as of quarter-end.
- Material contingencies include patent and contract litigation involving REGENXBIO and the University of Pennsylvania, and Nippon Shinyaku. The filing states that no material loss was accrued and that no material range of loss was estimable as of June 30, 2022.
- Key operating risks include reliance on a concentrated customer base, reimbursement and pricing pressure, competition, manufacturing capacity and quality, COVID-19-related disruption, clinical and regulatory uncertainty, intellectual-property disputes, continued operating losses and the need for future capital.
Investor verification points
- Verify the sustainability of product demand and net revenue growth, particularly for AMONDYS 45 and VYONDYS 53, after accounting for rebates, chargebacks and other sales reserves.
- Review the clinical and regulatory status of SRP-9001, SRP-9003 and SRP-5051, including the SRP-5051 clinical hold and the planned SRP-9001 filing.
- Assess the cash runway after expected R&D spending, manufacturing commitments, new facilities and debt maturities, including the 2024 convertible notes and term-loan obligations.
- Monitor the $53.0 million Thermo shortfall accrual, the $17.1 million Henogen termination charge and other potential manufacturing or inventory charges.
- Evaluate the effect of the CEO award modification and related stock-based compensation on reported losses and future expense.
- Track confirmatory trial outcomes and post-marketing obligations for the three accelerated-approval products.
- Monitor patent litigation, customer concentration, Roche collaboration options, potential milestone obligations and the company’s stated need for future financing.