Sarepta Therapeutics, Inc. — Q3 2022 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, VYONDYS 53 and AMONDYS 45 for Duchenne muscular dystrophy. This unaudited Form 10-Q covers the three and nine months ended September 30, 2022, compared with the comparable 2021 periods. The filing was signed November 2, 2022.
Financial performance and key metrics
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Total revenue | $230.3 million | $189.4 million | $674.6 million | $500.4 million |
| Product revenue | $207.8 million | $166.9 million | $607.8 million | $433.7 million |
| Collaboration revenue | $22.5 million | $22.5 million | $66.8 million | $66.8 million |
| Gross profit | $190.1 million | $165.8 million | $564.9 million | $434.6 million |
| Gross margin | 82.6% | 87.6% | 83.7% | 86.9% |
| Operating loss | $(131.4) million | $(34.5) million | $(429.4) million | $(353.9) million |
| Net loss | $(257.7) million | $(48.1) million | $(594.2) million | $(296.8) million |
| Net loss per share | $(2.94) | $(0.60) | $(6.79) | $(3.72) |
- Product revenue increased 24% in Q3 and 40% for the first nine months, primarily due to increasing U.S. demand and the full-period contribution from AMONDYS 45.
- Q3 product revenue was $122.3 million for EXONDYS 51, $54.9 million for AMONDYS 45 and $30.6 million for VYONDYS 53. Nine-month product revenue was $365.8 million, $153.2 million and $88.9 million, respectively.
- Cost of sales increased 70% in Q3 and 67% year to date. The filing attributes the increase to higher product demand and increased write-offs of batches that did not meet quality specifications, partly offset by lower royalty payments in Q3.
- Research and development expense increased 56% in Q3 to $216.7 million and 16% year to date to $663.3 million. SRP-9001 was the largest program, with expense of $114.5 million in Q3 and $336.6 million year to date.
- Selling, general and administrative expense increased 71% in Q3 to $104.8 million and 62% year to date to $330.9 million, driven substantially by higher stock-based compensation, including the CEO award modification.
- Total stock-based compensation was $50.4 million in Q3 and $182.5 million year to date, compared with $26.7 million and $84.2 million in the prior-year periods.
Liquidity, cash flow and debt
- Cash, cash equivalents, restricted cash and investments totaled approximately $2.092 billion at September 30, 2022, including $1.039 billion of cash and cash equivalents, $1.034 billion of short-term investments and $19.0 million of restricted cash.
- Cash used in operating activities was $233.0 million for the nine months ended September 30, 2022, compared with $413.8 million in the prior-year period.
- Cash used in investing activities was $1.057 billion, mainly reflecting $1.509 billion of purchases of available-for-sale securities, partly offset by $476.7 million of maturities and sales.
- Cash provided by financing activities was $221.8 million. Sarepta issued $1.150 billion of 1.25% convertible senior notes due 2027 and received net proceeds of approximately $1.127 billion.
- The company used the 2027 Notes proceeds to repay approximately $585.5 million related to its 2019 term loan, repurchase approximately $248.6 million of 2024 Notes, pay $127.3 million for capped calls and fund general corporate purposes.
- Net debt carrying value was $1.543 billion at September 30, 2022, compared with $1.097 billion at December 31, 2021. Remaining principal maturities were $419.4 million in 2024 and $1.150 billion in 2027.
- Management stated that available cash, cash equivalents, restricted cash and investments were sufficient to fund the current operating plan for at least the next twelve months, but indicated that additional financing may be required beyond that period.
Material changes versus the prior comparable period
- Revenue growth did not offset substantially higher development, commercial infrastructure and stock-based compensation expenses, resulting in a Q3 net loss of $257.7 million versus $48.1 million in Q3 2021.
- The nine-month net loss approximately doubled to $594.2 million, reflecting higher operating expenses, a $125.4 million loss on debt extinguishment and the absence of the $102.0 million Priority Review Voucher gain recorded in 2021.
- R&D expense included a $53.0 million accrual for an anticipated shortfall under a Thermo Fisher gene therapy manufacturing and supply commitment. The company also recorded a $17.1 million charge related to termination of its Henogen manufacturing agreement.
- The company terminated its Lysogene license and collaboration agreement effective July 11, 2022; it does not expect material additional termination payments.
- Sarepta submitted a biologics license application for SRP-9001 in September 2022. The FDA lifted a clinical hold on SRP-5051 in August 2022 after the hold was imposed in July following a serious hypomagnesemia adverse event.
Guidance, outlook, risks and unusual items
- The filing does not provide formal full-year revenue, earnings or cash-burn guidance. Management identified plans to complete enrollment for Part B of Study 5051-201 by year-end 2022, release GMP product for SRP-9003 in 2022 and engage with the FDA regarding that program.
- All three marketed products received accelerated approval and remain subject to post-marketing requirements and confirmatory trials. Failure to verify clinical benefit or satisfy regulatory commitments could result in labeling changes, restrictions or withdrawal of approval.
- Key risks include clinical and regulatory uncertainty for SRP-9001, SRP-9003 and SRP-5051; adverse events or clinical holds; dependence on third-party manufacturers; product quality and supply risks; reimbursement and pricing pressure; competition; intellectual-property litigation; and continued operating losses.
- Outstanding manufacturing commitments totaled approximately $1.295 billion, including $399.6 million due during October–December 2022 and $418.4 million in 2023.
- The company may be obligated to make up to $4.1 billion in future development, regulatory, commercial and royalty milestone payments under license and collaboration agreements, although these amounts are contingent and were not recorded as liabilities.
- Material legal proceedings include patent litigation with REGENXBIO and the University of Pennsylvania, with trial scheduled for January 2024, and litigation with Nippon Shinyaku concerning exon 53 technology, with trial scheduled for May 2024. Management reported no material accrued litigation losses and no estimable material loss range.
Most important facts for investors to verify
- Whether SRP-9001 receives FDA approval and whether regulatory review or clinical data affect the timing or scope of commercialization.
- Results and safety developments in confirmatory and pivotal trials, including SRP-9001, SRP-5051 and post-marketing studies for the approved products.
- Product revenue growth, gross-margin trends, product quality write-offs and the sustainability of demand for EXONDYS 51, VYONDYS 53 and AMONDYS 45.
- Cash burn, manufacturing commitments, the 2024 convertible-note maturity and the company’s need for additional financing.
- Potential dilution from the convertible notes, stock awards and future equity financing, including the 8.1 million shares underlying the 2027 Notes.
- Outcomes and potential financial or commercial effects of the REGENXBIO and Nippon Shinyaku intellectual-property litigation.
- Progress in expanding gene-therapy manufacturing capacity and the company’s ability to meet Thermo Fisher and other take-or-pay obligations.