Sarepta Therapeutics, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Report for the quarter and six months ended June 30, 2018, filed August 8, 2018. Sarepta is a commercial-stage biopharmaceutical company developing RNA-targeted therapeutics, gene therapies and other genetic medicines for rare neuromuscular diseases. Its primary commercial product is EXONDYS 51 (eteplirsen) for a subset of Duchenne muscular dystrophy patients.
All amounts below are in millions, except per-share data and percentages. The financial statements are unaudited.
Key Financial Metrics
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Product revenue | $73.5 | $35.0 | $138.1 | $51.4 |
| Gross profit | $66.6 | $34.5 | $125.4 | $50.6 |
| Gross margin | 90.8% | 98.6% | 91.1% | 98.6% |
| Operating loss | $(103.4) | $(63.3) | $(134.2) | $(102.6) |
| Operating margin | (140.7%) | (181.0%) | (97.1%) | (199.8%) |
| Net income (loss) | $(109.3) | $(63.0) | $(144.6) | $21.0 |
| Basic and diluted EPS | $(1.67) | $(1.15) | $(2.22) basic | $0.38 basic |
| Cash used in operating activities | Not separately provided | Not separately provided | $(152.9) | $(143.0) |
Research and development expense was $122.8 million in Q2 and $169.1 million for the first six months, up 109% and 92%, respectively. Selling, general and administrative expense was $47.2 million in Q2 and $90.5 million year to date, up 31% and 45%.
- Cash and cash equivalents at June 30, 2018: $410.4 million.
- Short-term investments: $538.8 million; restricted investment: $1.0 million.
- Total cash, cash equivalents and investments: approximately $950.2 million, down 13% from December 31, 2017.
- Total debt carrying value: $439.4 million, including $410.4 million of convertible debt and $29.0 million of other debt.
- Working capital: $1.03 billion, down 9% from year-end 2017.
- Accumulated deficit: $1.36 billion at June 30, 2018.
Material Changes Versus the Prior Comparable Period
- Revenue increased 110% in Q2 and 169% for the first six months, primarily from increasing U.S. demand for EXONDYS 51.
- Cost of sales rose substantially, primarily because of BioMarin royalty payments and higher EXONDYS 51 sales. The filing states that much of the product manufacturing cost had been expensed as research and development before regulatory approval.
- R&D increased primarily because of the $60.0 million upfront payment to Myonexus, higher clinical and manufacturing activity, increased personnel costs, PPMO development, and collaboration spending.
- The six-month 2017 results included a $125.0 million gain from the sale of a Priority Review Voucher; no comparable gain occurred in 2018. This drove the change from six-month 2017 net income to six-month 2018 net loss.
- Interest expense increased to $15.8 million for the first six months from $0.5 million in the prior-year period, largely due to debt issued in 2017.
- Cash used in operations increased to $152.9 million. Cash declined by $189.5 million during the first six months, despite $32.8 million of net financing cash inflows.
- Restructuring expense benefited from a $2.2 million reversal related to the former Corvallis facility.
Guidance, Outlook, Commentary and Risks
Management stated that cash, cash equivalents and investments were sufficient to fund the current operational plan for at least the next twelve months. The company expects expenses and cash requirements to continue increasing as it expands commercialization, clinical development, manufacturing capacity and business-development activities. It stated that it may seek additional equity or debt financing, government funding, collaborations or licensing transactions.
- Management planned to submit a golodirsen NDA to the FDA by year-end 2018 and expected SRP-5051 data in the second half of 2018.
- The EMA CHMP issued a negative opinion on eteplirsen on June 1, 2018. Sarepta requested re-examination and expected the process to conclude by year-end 2018.
- In July 2018, the Nationwide Children’s Hospital micro-dystrophin gene-therapy trial was placed on clinical hold because of a trace DNA fragment in research-grade plasmid. Sarepta planned an FDA action plan using GMP-grade plasmid, but there was no assurance that the hold would be lifted on the anticipated timetable.
- The May 2018 Myonexus agreement required a $60.0 million upfront payment and could require up to $45.0 million of additional development milestone payments, plus contingent acquisition and other payments.
- The June 2018 Brammer manufacturing agreement required a $20.0 million advance, two additional $5.0 million equipment payments, and capacity-access fees, including a stated $10.0 million quarterly fee during the term subject to specified reductions.
- Non-cancelable contractual obligations totaled approximately $1.13 billion, including $624.5 million of convertible debt obligations, $411.4 million of manufacturing obligations and $60.8 million of lease obligations. Separately, up to $254.0 million of contingent milestone, royalty and commercial payments were disclosed.
- Key risks include dependence on EXONDYS 51 sales, reimbursement and market adoption; continued accelerated-approval requirements; clinical-trial and regulatory failure; manufacturing and supply constraints; third-party dependence; competition; intellectual-property challenges; additional financing needs and potential dilution; debt-service requirements; and continued operating losses.
- The company expects to continue incurring significant operating losses at least through 2018 and does not provide a clear profitability or revenue forecast in the filing.
Most Important Facts for Investors to Verify
- Whether EXONDYS 51 revenue growth is sustained and translates into improving operating cash flow after royalties, commercial costs and working-capital needs.
- The status and results of EXONDYS 51 confirmatory studies and the implications for continued FDA accelerated approval.
- The outcome of the EMA eteplirsen re-examination and the company’s ability to generate meaningful non-U.S. revenue.
- Regulatory progress for golodirsen, casimersen, SRP-5051 and gene-therapy programs, including resolution of the micro-dystrophin clinical hold.
- The amount and timing of Myonexus, Brammer and other milestone, manufacturing and collaboration commitments.
- Cash burn, debt service and whether additional equity or debt financing will be required before the current cash runway expires.
- Exposure to customer concentration: three customers represented 44%, 35% and 19% of six-month 2018 net product revenue.
- Potential dilution from approximately 9.4 million shares subject to outstanding stock awards, convertible-note conversion and future financing or acquisition activity.