Sarepta Therapeutics, Inc. — Form 10-Q Summary
Business context and reporting period
Sarepta is a commercial-stage biopharmaceutical company developing RNA-targeted therapeutics, gene therapies and other genetic medicines for rare diseases. Its principal commercial product is EXONDYS 51 (eteplirsen) for Duchenne muscular dystrophy (DMD). This report covers the three and nine months ended September 30, 2019, compared with the corresponding 2018 periods. The financial statements are unaudited.
Key financial metrics
| Metric | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 |
|---|---|---|---|---|
| Product revenue | $99.0 million | $78.5 million | $280.7 million | $216.6 million |
| Revenue growth | 26% | — | 30% | — |
| Cost of sales | $13.0 million | $8.7 million | $41.0 million | $21.1 million |
| Approximate gross margin | 86.8% | 88.9% | 85.4% | 90.3% |
| Research and development | $133.9 million | $86.6 million | $337.8 million | $255.6 million |
| Selling, general and administrative | $75.4 million | $53.0 million | $203.4 million | $143.5 million |
| Operating loss | $(123.6) million | $(70.1) million | $(475.3) million | $(204.3) million |
| Net loss | $(126.3) million | $(76.4) million | $(479.4) million | $(221.0) million |
| Net loss per share | $(1.70) | $(1.15) | $(6.54) | $(3.38) |
| Cash used in operating activities | — | — | $(292.7) million | $(266.2) million |
At September 30, 2019, Sarepta had $724.8 million of cash and cash equivalents, $324.1 million of short-term investments and $9.6 million of restricted cash and investments, totaling approximately $1.06 billion. Long-term debt was $436.4 million, principally convertible debt. Current assets were $1.36 billion versus current liabilities of $215.9 million, producing working capital of $1.15 billion.
Material changes versus the prior comparable period
- Revenue increased $20.6 million, or 26%, in Q3 and $64.1 million, or 30%, for the first nine months, primarily from higher U.S. demand for EXONDYS 51.
- Cost of sales increased faster than revenue, driven by higher product costs and royalty payments, including a new low-single-digit royalty payable to the University of Western Australia. Gross margin declined from approximately 88.9% to 86.8% in Q3 and from 90.3% to 85.4% for the nine-month period.
- Research and development expense increased 55% in Q3 and 32% year to date, mainly from higher clinical and manufacturing costs, the micro-dystrophin program, the ESSENCE trial, EXONDYS 51 post-marketing studies, expanded personnel and facility costs.
- SG&A increased 42% in both periods, reflecting higher headcount, professional services, stock-based compensation and global expansion.
- Year-to-date results include a $173.2 million non-cash acquired in-process research and development charge related to the April 2019 acquisition of Myonexus Therapeutics. This acquisition added five LGMD gene therapy programs.
- Cash used in operations increased by $26.4 million year to date. Investing cash flow was positive $269.6 million, largely because securities maturities and sales exceeded purchases, partially offset by the $172.6 million cash cost of the Myonexus acquisition.
- Financing cash flow was $385.6 million, primarily from $365.4 million of net proceeds from a March 2019 equity financing. Shares outstanding increased to approximately 74.5 million at September 30, 2019 from approximately 71.1 million at December 31, 2018.
Guidance, outlook, risks and unusual items
- Management stated that available cash, cash equivalents and investments should fund the current operating plan for at least the next twelve months, but expects future capital needs to increase and may seek additional equity or debt financing, collaborations, licensing arrangements or government funding.
- On August 19, 2019, the FDA issued a Complete Response Letter for the golodirsen NDA, citing infection risks associated with intravenous infusion ports and renal toxicity observed in preclinical models and with other antisense oligonucleotides. Sarepta planned to evaluate an NDA for casimersen after obtaining further clarity on the CRL.
- Sarepta planned to initiate a confirmatory micro-dystrophin gene therapy trial using commercial supply of SRP-9001 in the first half of 2020, pending regulatory feedback.
- The company remains dependent on continued commercial success of EXONDYS 51 and on FDA confirmation of clinical benefit in required post-marketing trials. Failure to satisfy those requirements could result in regulatory restrictions or withdrawal of accelerated approval.
- Manufacturing commitments totaled approximately $850.4 million, including obligations to Brammer and Paragon. Brammer payments totaled $68.3 million through September 30, 2019 and were recorded as other assets; the related facility lease was expected to commence in the fourth quarter of 2019, which would result in a material right-of-use asset and lease liability.
- Total contractual obligations and contingencies, including convertible debt, leases and manufacturing obligations, were approximately $1.54 billion, excluding up to $1.51 billion of contingent development, regulatory, commercial and royalty milestones under license and collaboration agreements.
- A putative securities class action was filed in August 2019 alleging disclosure violations related to golodirsen. The company stated that it could not estimate a possible loss or range of loss.
- Summit’s collaboration agreement was terminated in August 2019, with approximately $0.5 million remaining payable. The company also continued to face risks involving reimbursement, clinical-trial execution, third-party manufacturing, regulatory approval, intellectual property, competition and dilution from future financing.
Most important facts for investors to verify
- Trend and sustainability of EXONDYS 51 demand, net revenue, reimbursement and customer concentration; three customers represented 94% of Q3 2019 net product revenue.
- FDA response strategy and regulatory status of golodirsen, casimersen and EXONDYS 51 post-marketing commitments.
- Clinical and manufacturing progress for SRP-9001 and the Myonexus LGMD programs, including the timing and cost of planned trials.
- Cash burn, financing requirements, potential equity dilution and the company’s ability to meet its $436.4 million debt balance and other contractual obligations.
- Execution and capacity risks under the $850.4 million manufacturing commitments, including the expected Brammer lease commencement.
- Potential exposure from the securities litigation and up to $1.51 billion of contingent milestone and royalty obligations.