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 commercial products are EXONDYS 51 and VYONDYS 53 for genetically defined Duchenne muscular dystrophy. This filing covers the three and nine months ended September 30, 2020; the financial statements are unaudited and prepared under U.S. GAAP.
Key financial metrics
| Metric | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 |
|---|---|---|---|---|
| Product revenue | $121.4 million | $99.0 million | $333.2 million | $280.7 million |
| Collaboration revenue | $22.5 million | — | $61.7 million | — |
| Total revenue | $143.9 million | $99.0 million | $395.0 million | $280.7 million |
| Operating loss | $(137.1) million | $(123.6) million | $(393.4) million | $(475.3) million |
| Net loss | $(196.5) million | $(126.3) million | $(364.8) million | $(479.4) million |
| Net loss per share | $(2.50) | $(1.70) | $(4.70) | $(6.54) |
| Cash provided by operating activities | Not separately provided | Not separately provided | $282.0 million | $(292.7) million |
Q3 total revenue increased 45%, driven by 23% growth in product revenue and new Roche collaboration revenue. Nine-month total revenue increased 41%. Approximate gross margin was 89.6% in Q3 2020 and 89.1% in Q3 2019, based on product revenue less cost of sales; collaboration revenue is excluded from this calculation. Approximate operating margin was negative 95% in Q3 2020 versus negative 125% in Q3 2019. The company remained materially unprofitable.
- Research and development expense increased 42% year over year in Q3 to $190.4 million and 53% for the nine months to $515.1 million, primarily due to gene-therapy manufacturing, clinical activities and personnel costs.
- Selling, general and administrative expense was essentially flat in Q3 at $75.4 million, but increased 14% for the nine months to $231.8 million.
- Q3 included a $45.0 million loss from revaluation of contingent consideration. Nine-month results included a $108.1 million gain from the sale of a Priority Review Voucher.
- Cash, cash equivalents and short-term investments totaled $1.816 billion at September 30, 2020; including restricted cash and investments, total cash, cash equivalents and investments were approximately $1.826 billion.
- Total debt was $700.5 million, consisting of $241.6 million of term-loan debt and $458.9 million of convertible debt. The company reported $1.944 billion of working capital.
- Deferred revenue was $775.2 million under the Roche arrangement, including $485.0 million allocated to unexercised options and $348.7 million allocated to the combined performance obligation. Revenue from the latter is expected to be recognized through the fourth quarter of 2023.
Material changes versus the prior comparable period
- Product revenue rose $22.4 million in Q3 and $52.5 million for the nine months, primarily reflecting increased U.S. demand for EXONDYS 51 and VYONDYS 53.
- Roche collaboration revenue began in 2020 following approximately $1.2 billion of cash consideration received in February 2020, including an equity investment and upfront payment.
- Operating loss increased in Q3 despite higher revenue because of substantially higher R&D spending and the contingent-consideration charge. For the nine months, operating loss improved versus 2019, largely because 2019 included $173.2 million of acquired in-process R&D expense related to the Myonexus acquisition.
- Operating cash flow improved from a $292.7 million use in the first nine months of 2019 to $282.0 million provided in 2020, principally because of the $771.9 million increase in deferred revenue associated with Roche. This improvement was not representative of recurring operating profitability.
- Financing cash flow included $312.1 million of net proceeds from issuing 2.52 million shares to Roche. Shares outstanding increased to approximately 78.8 million at September 30, 2020 from 75.2 million at December 31, 2019.
- Manufacturing-related commitments increased as Sarepta expanded capacity with third-party manufacturers. Aggregate manufacturing commitments were $1.080 billion as of September 30, 2020.
Guidance, outlook, commentary, risks and unusual items
- 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 debt or equity financing, government funding, collaborations or licensing transactions may be pursued.
- Key stated development milestones included an FDA regulatory action date of February 25, 2021 for casimersen, expected safety and dosing insights for SRP-5051 in Q4 2020, planned commencement of SRP-9001 Study 103 in Q4 2020, Study 102 results expected in Q1 2021 and GMP material for SRP-9003 expected by year-end 2020.
- EXONDYS 51 and VYONDYS 53 have accelerated approvals. Continued approval depends on post-marketing requirements and confirmatory evidence of clinical benefit; unfavorable data or delays could result in restrictions or withdrawal of approval.
- COVID-19 had caused difficulty for some patients receiving or initiating infusions and could reduce product revenue through treatment disruption, insurance reauthorization delays and changes in coverage. It could also delay clinical trials, enrollment, manufacturing and regulatory activities.
- The company relies on a limited number of third-party manufacturers and reported $1.080 billion of non-cancelable manufacturing commitments. Capacity, quality, cGMP compliance and supply interruptions remain material risks.
- Sarepta disclosed a patent-infringement lawsuit filed by REGENXBIO and the Trustees of the University of Pennsylvania concerning AAV host-cell technology allegedly used for products including SRP-9001. The company stated that it could not estimate a possible loss or range of loss and subsequently moved to dismiss the case.
- On November 2, 2020, after the quarter end, Sarepta drew the $300.0 million Tranche B loan. The amended facility extended Tranche B maturity to December 31, 2024 and requires consolidated liquidity of at least $100.0 million at each month-end.
- The company disclosed the July 2020 resignation of its CFO and chief business officer and the October 2020 departure of its chief commercial officer; searches for replacements were ongoing.
- Management reported effective disclosure controls and no material changes to internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether product demand and reimbursement trends for EXONDYS 51 and VYONDYS 53 offset COVID-19-related treatment and authorization disruptions.
- Progress and outcomes of confirmatory studies supporting the accelerated approvals of EXONDYS 51 and VYONDYS 53.
- FDA action on casimersen by February 25, 2021 and the timing and results of SRP-9001 and SRP-9003 studies.
- The sustainability of operating cash flow after excluding the large Roche deferred-revenue inflow.
- Execution against substantial manufacturing commitments and the ability of third-party manufacturers to deliver compliant gene-therapy supply.
- The status and potential financial exposure of the REGENXBIO patent litigation and other contingent milestone obligations, which may total up to $3.7 billion if specified milestones are achieved.
- Debt service, liquidity-covenant compliance and the impact of the post-quarter-end $300.0 million Tranche B borrowing.
- Roche option exercise or expiration activity and the timing of recognition of the remaining deferred revenue.