Sarepta Therapeutics, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2021; filed November 3, 2021. Sarepta is a commercial-stage biopharmaceutical company developing RNA-targeted, gene therapy and other genetic medicines for rare diseases. Its commercial products were EXONDYS 51, VYONDYS 53 and AMONDYS 45, all approved under the FDA accelerated approval pathway.
Financial highlights
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Total revenue | $189.4 million | $143.9 million | $500.4 million | $395.0 million |
| Product revenue | $166.9 million | $121.4 million | $433.7 million | $333.2 million |
| Collaboration revenue | $22.5 million | $22.5 million | $66.8 million | $61.7 million |
| Operating loss | $(34.5) million | $(137.1) million | $(353.9) million | $(393.4) million |
| Net loss | $(48.1) million | $(196.5) million | $(296.8) million | $(364.8) million |
| Net loss per share | $(0.60) | $(2.50) | $(3.72) | $(4.70) |
| Cash from operating activities | $(413.8) million for 9M 2021; $282.0 million for 9M 2020 | See cash flow comparison |
Margins: Product gross margin, calculated using product revenue less cost of sales, was approximately 85.9% in Q3 2021 and 84.9% for the first nine months. Overall operating margin was approximately (18.2)% in Q3 and (70.7)% for the first nine months; net margin was approximately (25.4)% and (59.3)%, respectively.
- Q3 product revenue increased 37%; nine-month product revenue increased 30%. Growth reflected increased U.S. demand and the commercial launch of AMONDYS 45.
- Q3 product revenue included EXONDYS 51 of $115.6 million, AMONDYS 45 of $26.7 million and VYONDYS 53 of $24.7 million.
- Research and development expense was $139.1 million in Q3, down 27%, but $573.9 million for the nine-month period, up 11%.
- Selling, general and administrative expense decreased 19% in Q3 and 12% for the nine-month period.
- Cost of sales increased 56% in Q3 and 59% for the nine-month period, including product inventory write-offs related to batches that did not meet quality specifications during the nine months.
Liquidity, debt and balance sheet
- At September 30, 2021, cash and cash equivalents were $1.599 billion; total cash, cash equivalents and investments, including restricted cash and investments, were approximately $1.608 billion.
- Total debt carrying value was $1.095 billion, consisting primarily of the $550.0 million term loan and the $570.0 million principal amount of 2024 convertible notes. Gross debt payments totaled $1.120 billion, with $250.0 million due in 2023 and approximately $870.0 million due in 2024.
- Total liabilities were $2.193 billion and stockholders’ equity was $469.5 million at September 30, 2021. The accumulated deficit was $3.085 billion.
- Operating activities used $413.8 million in the first nine months, while investing activities provided $498.0 million and financing activities provided $12.3 million. Ending cash, cash equivalents and restricted cash was $1.608 billion.
- Management stated that available cash, cash equivalents and investments were sufficient to fund the current operating plan for at least the next twelve months, while noting that additional financing may be pursued.
Material changes and unusual items
- Revenue growth and improved operating loss were driven by higher commercial product sales, while collaboration revenue remained stable in Q3.
- The company recorded a $102.0 million gain from selling its AMONDYS 45 Priority Review Voucher in April 2021; the prior-year period included a $108.1 million gain from selling the VYONDYS 53 voucher.
- A $10.0 million BioMarin settlement and license charge was recorded in the first nine months following AMONDYS 45 approval.
- Sarepta paid Nationwide Children’s Hospital $38.0 million in July 2021 to settle a sublicense payment dispute; $28.7 million of the related expense was accrued during the second quarter and the full amount was recorded in research and development expense.
- The company early adopted ASU 2020-06, increasing the carrying value of its convertible notes by $96.8 million, reducing additional paid-in capital by $157.0 million and reducing accumulated deficit by $60.2 million. The adoption reduced interest expense by $5.6 million in Q3 and $16.6 million for the nine-month period.
- In October 2021, after quarter-end, Sarepta sold approximately 7.1 million shares at $81.00 per share and expected net proceeds of approximately $548.5 million.
Outlook, commentary and risks
- Management expected continued operating losses at least through 2021 and stated that cash requirements would increase as commercialization, clinical development and manufacturing programs advance.
- Key stated milestones included additional SRP-9001 Study 102 Part 2 results in the first quarter of 2022, completion of SRP-9003 GMP runs in 2022 and an FDA meeting in 2022 regarding a potential SRP-9003 pivotal trial. The company also initiated the SRP-9001 pivotal Study 301 in October 2021.
- All three marketed products have accelerated approvals. Continued approval depends on post-marketing requirements and confirmatory evidence of clinical benefit; failure to satisfy these requirements could lead to regulatory restrictions or withdrawal.
- COVID-19 continued to create risks to infusions, patient access, payer reauthorizations, clinical trial enrollment and data collection, manufacturing and supply chains.
- The company relies on third-party manufacturers and reported $1.520 billion of manufacturing commitments. Capacity, quality, cGMP compliance, lot failures and supply interruptions remain material risks.
- Potential future development, regulatory, commercial and royalty milestone payments under license and collaboration agreements totaled up to $4.1 billion, excluding additional potential option payments. These amounts were contingent and were not recorded as liabilities.
- Material litigation included patent litigation with REGENXBIO and the University of Pennsylvania concerning AAV manufacturing technology, and litigation with Nippon Shinyaku involving exon 53 patents, VYONDYS 53 and inter partes review petitions.
- Customer concentration was significant: three customers represented approximately 95% of product revenue in Q3 and approximately 97% of product accounts receivable at September 30, 2021.
Investor verification items
- Verify the sustainability of product growth, particularly the launch trajectory and payer coverage of AMONDYS 45, as well as demand for EXONDYS 51 and VYONDYS 53.
- Assess the pace of operating cash use relative to the company’s liquidity, debt maturities and manufacturing commitments.
- Monitor confirmatory trials and FDA post-marketing requirements for the three accelerated approvals.
- Review SRP-9001, SRP-9003 and SRP-5051 clinical, regulatory and manufacturing updates against the stated 2022 milestones.
- Evaluate exposure from manufacturing quality issues, third-party capacity, COVID-19 disruptions and the October 2021 Thermo supply agreement amendment.
- Track the REGENXBIO and Nippon Shinyaku litigation, related patent challenges and potential effects on commercialization.
- Confirm the impact of the October 2021 equity offering on cash resources and share dilution.