Sarepta Therapeutics, Inc. — FY2017 Form 10-K Summary
Business context and reporting period
Sarepta is a commercial-stage biopharmaceutical company focused on RNA-targeted therapeutics, gene therapy and other genetic medicines for rare neuromuscular diseases. The filing covers the fiscal year ended December 31, 2017; fourth-quarter information is presented where disclosed.
EXONDYS 51 (eteplirsen) is the company’s only commercial product and was granted accelerated FDA approval in September 2016 for a subset of Duchenne muscular dystrophy (DMD) patients amenable to exon 51 skipping. The company also advanced golodirsen, casimersen, SRP-5051, micro-dystrophin and GALGT2 programs.
Financial performance and liquidity
| Metric | FY2017 | FY2016 | Change |
|---|---|---|---|
| Revenue | $154.6 million | $5.4 million | +$149.2 million |
| Cost of sales and in-licensed-right amortization | $8.4 million | $0.1 million | Higher primarily from BioMarin royalties |
| Research and development | $166.7 million | $188.3 million | -11% |
| Selling, general and administrative | $122.7 million | $83.7 million | +46% |
| Operating loss | $(171.6) million | $(266.7) million | Improved by $95.1 million |
| Net loss | $(50.7) million | $(267.3) million | Improved by $216.6 million |
| Net loss per share | $(0.86) | $(5.49) | Improved by $4.63 |
Product revenue was $154.6 million, principally from EXONDYS 51 in the U.S. Based on reported cost of sales and amortization, implied gross margin was approximately 94.6%; operating margin remained negative at approximately 111% of revenue. The filing does not provide a non-GAAP margin measure.
Fourth-quarter 2017 revenue was $57.3 million, operating loss was $23.1 million and net loss was $24.0 million, compared with fourth-quarter 2016 revenue of $5.4 million and net loss of $88.5 million.
- Cash used in operating activities was $232.0 million, versus $245.8 million in 2016.
- Cash used in investing activities was $178.8 million, primarily reflecting purchases of marketable securities, property and equipment and intangible assets.
- Cash provided by financing activities was $888.1 million, including equity and debt financings.
- Cash, cash equivalents and investments totaled $1.09 billion at year-end, including $599.7 million of cash and cash equivalents, $489.3 million of marketable securities and $0.8 million of restricted cash and investments.
- Working capital was $1.14 billion, compared with $298.1 million at December 31, 2016.
- Total debt carrying value was approximately $431.1 million, including $400.7 million of convertible debt and $30.4 million of other long-term debt. The company issued $570.0 million of 1.50% convertible senior notes due 2024.
Material changes versus the prior comparable period
- EXONDYS 51 commercialization drove the substantial increase in revenue from $5.4 million to $154.6 million.
- Net loss narrowed materially, aided by product revenue and a $125.0 million gain from the sale of a Rare Pediatric Disease Priority Review Voucher to Gilead Sciences.
- Research and development expense declined despite continued clinical development, primarily because 2016 included larger up-front license payments. 2017 spending increased on casimersen, golodirsen, SRP-5051 and preclinical programs.
- SG&A increased $38.9 million due largely to commercialization, legal and professional costs, expanded personnel and $3.5 million of estimated severance related to the former CEO.
- The company completed a $354.0 million net equity offering in July 2017 and entered into the $570.0 million convertible debt financing in November 2017.
- In July 2017, Sarepta entered into BioMarin license and settlement agreements, paid $35.0 million up front, recorded $28.4 million of settlement and license charges, and became subject to royalties and potential milestones.
- Inventory increased to $83.6 million from $12.8 million, while accounts receivable increased to $29.5 million from $5.2 million, reflecting the commercial launch and distribution cycle.
Guidance, outlook, risks and unusual items
Management stated that cash, cash equivalents and investments were sufficient to fund the current operational plan for at least the next twelve months, but expected continued operating losses at least through 2018 and indicated that additional financing may be required over time.
- Planned 2018 milestones included an FDA meeting regarding golodirsen, an expected mid-2018 CHMP decision on eteplirsen in Europe, and an IND submission for SRP-5053 in the second half of 2018.
- SRP-5051 entered a first-in-human study in the fourth quarter of 2017; safety and future-dosing data were expected in the second half of 2018.
- Phase 3 ESSENCE enrollment continued for casimersen and golodirsen. A U.K. regulator required dosing to stop at U.K. sites because of one serious adverse event that could possibly be related to the product candidate.
- EXONDYS 51’s accelerated approval remains subject to post-marketing requirements and confirmatory evidence of clinical benefit. Failure to verify benefit could result in regulatory restrictions or withdrawal of approval.
- Payor coverage remained variable, ranging from broad coverage to restricted coverage or denial, creating reimbursement and revenue-variability risk.
- The company relies on a limited number of third-party manufacturers and distributors and had approximately $95.6 million of non-cancelable purchase commitments and $52.9 million of cancellable CRO commitments at year-end.
- Potential future development, regulatory, royalty and sales milestone obligations under collaboration and license agreements totaled up to $808.5 million, generally contingent on achievement of specified milestones.
- Key risks include clinical and regulatory failure, manufacturing capacity and compliance, competition, patent challenges, pricing and reimbursement pressure, continued operating losses, dilution, debt service and the possibility that additional capital may not be available on acceptable terms.
Most important facts for investors to verify
- EXONDYS 51 prescription growth, gross-to-net deductions, customer concentration and the sustainability of reported revenue.
- Progress and results of confirmatory EXONDYS 51 studies and the status of accelerated approval requirements.
- FDA, EMA and other regulatory decisions for eteplirsen, golodirsen, casimersen, SRP-5051 and gene therapy programs.
- Clinical safety developments, including the ESSENCE dosing interruption in the United Kingdom.
- Cash burn, inventory utilization, manufacturing scale-up and the company’s projected funding runway.
- BioMarin royalties, license-related milestones, patent oppositions and other intellectual-property obligations.
- Terms, conversion exposure and potential dilution associated with the 2024 convertible notes and outstanding equity awards.