Sarepta Therapeutics, Inc. — Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2021; unaudited results. Sarepta is a commercial-stage biopharmaceutical company developing RNA-targeted therapeutics, gene therapies and other genetic medicines for rare diseases, primarily Duchenne muscular dystrophy (DMD).
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $164.1 million | $137.4 million | $311.0 million | $251.0 million |
| Product revenue | $141.8 million | $111.3 million | $266.8 million | $211.8 million |
| Collaboration revenue | $22.3 million | $26.0 million | $44.3 million | $39.2 million |
| Operating loss | $(167.6) million | $(138.4) million | $(319.4) million | $(256.4) million |
| Net loss | $(81.4) million | $(150.8) million | $(248.7) million | $(168.3) million |
| Net loss per share | $(1.02) | $(1.93) | $(3.12) | $(2.18) |
- Q2 total revenue increased 19%; six-month revenue increased 24%. Product revenue growth reflected higher demand and the launch of AMONDYS 45.
- Q2 product mix included EXONDYS 51 revenue of $112.5 million, VYONDYS 53 revenue of $22.4 million and AMONDYS 45 revenue of $6.9 million. Six-month AMONDYS 45 revenue was $7.1 million.
- Q2 cost of sales was $19.5 million, implying an approximate product gross margin of 86%; six-month cost of sales was $41.9 million, implying an approximate product gross margin of 84%. These calculations exclude amortization of in-licensed rights.
- Research and development expense increased 27% in Q2 to $239.6 million and 34% for the six months to $434.8 million, primarily due to gene therapy manufacturing, clinical trials, facility expansion and milestone-related expenses.
- Q2 operating margin was approximately negative 102%; six-month operating margin was approximately negative 103%. The company remained materially unprofitable despite revenue growth.
- Net loss benefited from a $102.0 million gain on the sale of a Priority Review Voucher in Q2 2021. The comparable six-month 2020 period included a $108.1 million PRV gain.
- Cash used in operating activities was $289.5 million for the six months ended June 30, 2021, compared with $520.2 million of operating cash flow in the prior-year period, which benefited from a large Roche-related deferred revenue inflow.
- Investing activities provided $477.7 million, primarily from maturities and sales of investments. Financing activities provided $6.4 million.
- Cash, cash equivalents and investments totaled approximately $1.74 billion at June 30, 2021, including $1.70 billion of cash and cash equivalents, $30.0 million of short-term investments and $9.3 million of restricted cash and investments.
- Total debt carrying value was $1.09 billion, consisting principally of $550.0 million of term-loan principal and $570.0 million of 1.50% convertible notes due November 2024. Gross scheduled debt payments totaled $1.12 billion, including $250.0 million due in 2023 and $870.0 million due in 2024.
- Working capital was $1.84 billion at June 30, 2021, down 11% from December 31, 2020. Accumulated deficit was approximately $3.04 billion.
Material changes versus the prior comparable period
- Revenue growth was led by product sales, while collaboration revenue declined 14% in Q2 but increased 13% for the six-month period.
- Operating loss widened 21% in Q2 and 25% for the six months as research and development spending increased faster than revenue.
- Net loss improved in Q2 primarily because of the $102.0 million PRV gain; for the six months, net loss worsened 48% because higher operating expenses and lower one-time gains outweighed revenue growth.
- The company recognized a $10.0 million BioMarin settlement and license charge during the six months following AMONDYS 45 approval.
- Sarepta accrued an additional $28.7 million sublicense payment to Nationwide Children’s Hospital during Q2; the total $38.0 million payment was made in July 2021.
- Early adoption of ASU 2020-06 increased the carrying value of convertible debt by $96.8 million, reduced additional paid-in capital by $157.0 million and reduced accumulated deficit by $60.2 million. The adoption reduced interest expense by $5.5 million in Q2 and $11.0 million for the six months.
- Inventory increased to $268.8 million from $232.0 million, and accrued expenses increased to $240.1 million from $193.6 million, partly reflecting manufacturing and milestone obligations.
Guidance, outlook, commentary and risks
- Management stated that available cash, cash equivalents and investments were sufficient to fund the current operational plan for at least the next twelve months, but expects future capital needs to increase and may pursue debt, equity, government funding, licensing or collaboration transactions.
- Sarepta expects to continue incurring significant operating losses at least through 2021 and does not provide a clear profitability or revenue forecast in the filing.
- Key 2021 development objectives included discussions with the FDA regarding Part B of Study 5051-201, initiating the pivotal SRP-9001 Study 301, completing GMP runs for SRP-9003 and meeting with the FDA regarding an SRP-9003 pivotal trial. Additional SRP-9001 Study 102 Part 2 results were expected in the first quarter of 2022.
- EXONDYS 51, VYONDYS 53 and AMONDYS 45 received FDA accelerated approval. Continued approval depends on post-marketing requirements and confirmatory evidence of clinical benefit, creating regulatory and commercial uncertainty.
- Major risks include failure to confirm clinical benefit, adverse clinical or safety results, competition, reimbursement and pricing pressure, limited patient populations, manufacturing capacity and quality risks, reliance on third-party manufacturers and distributors, COVID-19 disruptions, intellectual-property disputes and the need for additional financing.
- The company has approximately $1.43 billion of manufacturing commitments and approximately $2.78 billion of total contractual obligations and contingencies, excluding up to $3.9 billion of contingent future milestone and royalty obligations that were not recorded because achievement was not probable.
- Material litigation includes a RegenX/U.S. University of Pennsylvania patent-infringement action involving AAV manufacturing technology and a July 2021 Nippon Shinyaku lawsuit involving exon 53 patents and VYONDYS 53. Sarepta cannot estimate potential losses for either matter.
- Three customers represented 46%, 40% and 11% of Q2 product revenue, demonstrating significant customer concentration.
- Management reported effective disclosure controls as of June 30, 2021, with no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether product demand and AMONDYS 45 adoption can offset continuing increases in research, development and manufacturing expenses.
- The status, timing and results of confirmatory and pivotal trials, particularly for the three accelerated-approved products and SRP-9001.
- Cash burn, debt maturities, covenant compliance and the timing or terms of any future financing.
- Execution of the $1.43 billion manufacturing commitments and the company’s ability to secure sufficient compliant gene-therapy capacity.
- Potential outcomes and financial exposure from the RegenX and Nippon Shinyaku patent litigation.
- The impact of reimbursement decisions, customer concentration, COVID-19 disruptions and competing DMD therapies on product revenue.
- The status of Roche’s options and collaboration obligations, including the $708.5 million of deferred Roche-related revenue and potential future ex-U.S. commercialization rights.