Sarepta Therapeutics, Inc. — Q1 2018 Form 10-Q Summary
Business context and reporting period
Quarterly period ended March 31, 2018; filed May 3, 2018. Sarepta is a commercial-stage biopharmaceutical company focused on RNA-targeted therapeutics, gene therapy and other genetic medicines for rare neuromuscular diseases. Its principal commercial product is EXONDYS 51 (eteplirsen), approved by the FDA in 2016 under accelerated approval for certain Duchenne muscular dystrophy patients. Continued approval depends on confirmatory evidence of clinical benefit.
Key financial metrics
| Metric | Q1 2018 | Q1 2017 | Change |
|---|---|---|---|
| Product revenue | $64.6 million | $16.3 million | +295% |
| Cost of sales | $5.6 million | $0.2 million | Increase primarily from BioMarin royalties and commercial inventory costs |
| Research and development | $46.2 million | $29.1 million | +59% |
| Selling, general and administrative | $43.3 million | $26.2 million | +65% |
| Operating loss | $(30.7) million | $(39.2) million | Loss narrowed 22% |
| Net income (loss) | $(35.4) million | $84.1 million | Prior period included a $125.0 million PRV gain |
| Basic and diluted EPS | $(0.55) | $1.53/$1.50 | Declined due primarily to the prior-period PRV gain |
| Operating cash flow | $(35.7) million | $(57.9) million | Use decreased by $22.2 million |
| Cash, cash equivalents and investments | $1.05 billion | $1.09 billion at Dec. 31, 2017 | Down $40.0 million |
| Total debt carrying value | $430.8 million | $431.1 million | Essentially unchanged |
Approximate derived margins for Q1 2018 were 91.4% gross margin, negative 47.6% operating margin and negative 54.7% net margin. These margins are calculated from reported figures and should be viewed as approximate.
At March 31, 2018, total assets were $1.30 billion, current assets were $1.22 billion and working capital was $1.13 billion. Cash and cash equivalents were $557.2 million and short-term investments were $491.8 million. The company reported an accumulated deficit of $1.25 billion.
Material changes versus the prior comparable period
- EXONDYS 51 revenue increased $48.3 million, primarily reflecting increased U.S. demand.
- R&D spending increased $17.1 million, driven by higher clinical and manufacturing activity for golodirsen, casimersen and the PPMO platform, increased Summit collaboration costs and higher personnel and professional-service costs.
- SG&A increased $17.1 million due to global expansion, preparation for a potential European launch, increased headcount, professional services and stock-based compensation.
- Cost of sales increased by $5.4 million, including $3.1 million of BioMarin royalties.
- Interest expense rose to $7.6 million from $0.3 million, principally due to debt issued in 2017, including the 2024 convertible notes.
- Q1 2017 results benefited from a $125.0 million gain on the sale of a Priority Review Voucher; no comparable gain occurred in Q1 2018.
- Cash used in investing activities was $14.3 million versus $210.0 million of cash provided in Q1 2017, which included PRV proceeds. Q1 2018 included $91.5 million of purchases of available-for-sale securities and $12.2 million of capital expenditures.
- ASC 606 revenue recognition was adopted effective January 1, 2018 using the full retrospective method; management stated that the impact was not material.
Guidance, outlook, commentary and risks
- Management believes available cash, cash equivalents and investments are sufficient to fund the current operational plan for at least the next twelve months, but expects cash requirements to increase and may seek additional debt, equity, collaboration or licensing proceeds.
- The company expects to continue incurring significant operating losses at least through 2018 and cannot predict when, or whether, it will achieve profitability or positive operating cash flow.
- Sarepta planned to submit an NDA for golodirsen by year-end 2018 and expected safety and dosing data for SRP-5051 in the second half of 2018. It also planned IND-enabling work on five additional PPMO programs.
- Subsequent to quarter-end, the EMA’s CHMP rendered a negative trend vote on the eteplirsen MAA. Sarepta planned to seek re-examination and request a Scientific Advisory Group, but approval remained uncertain.
- On May 3, 2018, Sarepta entered into a Myonexus arrangement providing an exclusive option to acquire Myonexus. The arrangement required a $60 million non-refundable upfront payment and could require up to $45 million in development milestones, plus an additional payment if the option is exercised.
- On April 27, 2018, Sarepta expanded and extended its Cambridge headquarters lease through September 2025, adding approximately 63,698 square feet and an expected incremental rent obligation of $54.4 million.
- Key risks include dependence on EXONDYS 51 sales, reimbursement and market adoption; the accelerated-approval requirement to verify clinical benefit; uncertain foreign regulatory approvals; clinical-trial and manufacturing risks; reliance on third-party manufacturers and distributors; competition; intellectual-property challenges; and the need for future financing.
- Three customers represented 44%, 34% and 18% of Q1 net product revenue, respectively, indicating significant customer concentration.
- The company reported no material off-balance-sheet arrangements and stated that disclosure controls were effective at March 31, 2018. A new ERP system and controls related to ASC 606 were implemented during the quarter.
Important facts investors should verify
- Trend and sustainability of EXONDYS 51 demand, reimbursement, gross margin and customer concentration.
- Status and outcome of the EMA re-examination process and any Scientific Advisory Group review for eteplirsen.
- Confirmatory-trial results and FDA post-marketing requirements supporting continued EXONDYS 51 approval.
- Clinical, regulatory and manufacturing progress for golodirsen, casimersen, SRP-5051 and gene-therapy programs.
- Cash burn, additional financing needs, the $570 million convertible notes and compliance with debt covenants.
- Financial and strategic consequences of the Myonexus option, including the $60 million upfront payment, milestone exposure and potential acquisition payment.
- Potential liabilities from the expanded Cambridge lease, third-party manufacturing dependence, royalty obligations and intellectual-property proceedings.