Sarepta Therapeutics, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019; filed February 26, 2020. Sarepta is a commercial-stage rare-disease biopharmaceutical company focused on RNA-targeted therapeutics, gene therapy and other genetic medicines, primarily for Duchenne muscular dystrophy (DMD), limb-girdle muscular dystrophies and central nervous system disorders.
Financial Results and Liquidity
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Product revenue | $380.8 million | $301.0 million | Up 27% |
| Cost of sales | $56.6 million | $34.2 million | Up 65% |
| Research and development | $560.9 million | $401.8 million | Up 40% |
| Selling, general and administrative | $284.8 million | $207.8 million | Up 37% |
| Operating loss | $705.6 million | $343.6 million | Loss increased 105% |
| Net loss | $715.1 million | $361.9 million | Loss increased 98% |
| Net loss per share | $9.71 | $5.46 | Loss increased $4.25 |
| Cash used in operations | $456.5 million | $388.7 million | Use increased $67.8 million |
Revenue was substantially generated by EXONDYS 51 (eteplirsen), which produced $380.7 million of 2019 revenue. VYONDYS 53 (golodirsen) received FDA accelerated approval in December 2019, but its 2019 revenue was immaterial. Approximate gross margin was 85.1%, compared with 88.6% in 2018. Approximate operating and net margins were negative 185% and negative 188%, respectively, reflecting substantial investment in development, commercialization and manufacturing.
At December 31, 2019, Sarepta held $835.1 million of cash and cash equivalents, $289.7 million of short-term investments and $9.6 million of restricted cash and investments, totaling approximately $1.134 billion. Working capital was $1.204 billion. Management stated that available liquidity was sufficient to fund the current operating plan for at least the next twelve months.
Total debt carrying value was $681.9 million, consisting primarily of $441.9 million carrying value for the 1.50% convertible notes due 2024 and $240.0 million carrying value for the December 2019 term loan. The term loan has a $250.0 million funded tranche, an additional optional tranche of up to $250.0 million, an 8.5% interest rate and a December 2023 maturity. The credit agreement requires consolidated liquidity of at least $100.0 million at each month-end.
Material Changes Versus the Prior Comparable Period
- Revenue increased $79.8 million, driven primarily by continued demand growth for EXONDYS 51 in the U.S.
- Research and development spending increased $159.1 million, led by gene therapy manufacturing and development, increased ESSENCE trial enrollment, EXONDYS 51 post-marketing studies, headcount and facility expansion.
- Sarepta completed its acquisition of Myonexus in April 2019 for approximately $173.8 million in cash and recorded $173.2 million of acquired in-process research and development expense.
- Sarepta recorded a $10.0 million BioMarin settlement charge associated with VYONDYS 53 approval.
- Cash used in operations increased to $456.5 million, while financing activities provided $642.6 million, including approximately $245.6 million of net proceeds from the December 2019 term loan and $365.4 million from a March 2019 equity offering.
- Total manufacturing commitments were approximately $893.0 million, primarily related to commercial and clinical supply arrangements for DMD and gene therapy programs.
Pipeline, Outlook and Management Commentary
- EXONDYS 51 and VYONDYS 53 are FDA-approved under the accelerated approval pathway and require confirmatory studies to verify clinical benefit. Failure to satisfy post-marketing requirements could lead to restrictive regulatory action or withdrawal of approval.
- Casimersen (SRP-4045) was in the Phase 3 ESSENCE trial, and Sarepta began a rolling FDA NDA submission in January 2020 seeking accelerated approval.
- SRP-5051, a next-generation PPMO therapy, was in a multiple-ascending-dose study, with safety and dosing insights expected by mid-2020.
- SRP-9001, a micro-dystrophin gene therapy for DMD, had dosed all 41 participants in its randomized trial. Sarepta planned a commercial-supply trial in mid-2020, subject to regulatory feedback.
- SRP-9003, a gene therapy for limb-girdle muscular dystrophy, had generated positive early data in the first cohort; results from a higher-dose cohort and dose selection were expected in the third quarter of 2020.
- Sarepta expected completion of dosing in Lysogene’s global Phase 2/3 LYS-SAF302 trial for MPS IIIA in the first half of 2020.
- Management expected significant operating losses to continue at least through 2020 and stated that profitability and positive operating cash flow were not expected in the near term.
Strategic and Subsequent Events
On December 21, 2019, Sarepta entered into a Roche collaboration covering SRP-9001 outside the U.S.; the transaction closed in February 2020. Roche paid approximately $1.2 billion, comprising $750.0 million in cash and approximately $400.0 million for 2,522,227 Sarepta shares. Sarepta retained U.S. rights and expects to manufacture and supply SRP-9001. The arrangement also provides potential regulatory and sales milestones of up to approximately $1.7 billion and mid-teens royalties on net sales. There was no accounting impact at December 31, 2019 because closing occurred after year-end.
In February 2020, Sarepta agreed to sell the rare pediatric disease Priority Review Voucher associated with VYONDYS 53 for $111.0 million, subject to customary closing conditions. The filing states that the proceeds will be recorded as a gain when the transaction closes.
Key Risks, Contingencies and Unusual Items
- The company depends heavily on EXONDYS 51 sales and remains unprofitable despite substantial revenue growth.
- Commercial products and key pipeline programs rely on accelerated approvals, small clinical datasets, surrogate endpoints and successful confirmatory trials.
- Sarepta relies on third-party manufacturers and has limited internal large-scale GMP manufacturing capacity. Manufacturing scale-up, quality, supply and capacity risks are significant.
- Payor coverage, prior authorization, reimbursement levels and pricing pressure may materially affect product adoption and revenue.
- Competition includes other exon-skipping therapies, micro-dystrophin gene therapies, gene-editing approaches and alternative DMD treatments.
- Future development, regulatory, commercial and royalty obligations could total up to approximately $3.0 billion, excluding amounts already recognized and subject to achievement of milestones.
- A putative securities class action relating to disclosures concerning golodirsen was voluntarily dismissed by the lead plaintiff in February 2020, subject to court review. A separate stockholder derivative action filed in January 2020 remained pending; the company could not estimate any possible loss.
- Three customers represented approximately 43%, 41% and 13% of 2019 net product revenue, creating significant customer concentration.
Investor Verification Checklist
- Verify the sustainability and payer mix of EXONDYS 51 revenue and the commercial ramp of VYONDYS 53.
- Review confirmatory-trial designs, enrollment, clinical outcomes and FDA post-marketing obligations for both approved products.
- Assess the clinical, regulatory and manufacturing progress of SRP-9001, SRP-9003, casimersen and SRP-5051.
- Reconcile the company’s cash runway with operating cash burn, debt service, the $100.0 million liquidity covenant and optional term-loan funding.
- Review Roche’s February 2020 closing, rights retained by Sarepta, milestone economics, royalties and manufacturing obligations.
- Evaluate the approximately $893.0 million of manufacturing commitments and up to approximately $3.0 billion of contingent milestone and royalty obligations.
- Monitor litigation, intellectual-property challenges, customer concentration and potential reimbursement or pricing changes.