Sarepta Therapeutics, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2016; filed November 7, 2016. Sarepta is a commercial-stage biopharmaceutical company developing RNA-targeted therapies for rare neuromuscular diseases, principally Duchenne muscular dystrophy (DMD). The FDA granted accelerated approval for EXONDYS 51 (eteplirsen) on September 19, 2016, but the company had not yet recognized product revenue through the reporting date.
Financial condition and results
| Metric | Q3 2016 | Q3 2015 | 9M 2016 | 9M 2015 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $34.3 million | $36.7 million | $117.5 million | $105.0 million |
| General and administrative expense | $22.2 million | $15.1 million | $60.8 million | $50.7 million |
| Total operating expenses | $56.5 million | $51.8 million | $178.3 million | $155.7 million |
| Net loss | $56.7 million | $51.9 million | $178.8 million | $155.3 million |
| Basic and diluted loss per share | $1.18 | $1.25 | $3.83 | $3.75 |
| Cash used in operating activities | Not separately provided for the quarter | $164.6 million | $118.2 million |
There was no operating margin or profit margin because revenue was zero and the company remained loss-making. Nine-month operating cash burn increased 39% year over year. Stock-based compensation was $9.6 million in the quarter and $23.1 million year to date.
- Liquidity: Cash and cash equivalents were $395.1 million at September 30, 2016, compared with $80.3 million at December 31, 2015. Including restricted cash and investments, total cash, cash equivalents and investments were approximately $406.6 million.
- Debt: Total borrowings were $18.6 million, consisting of $10.1 million current debt and $8.5 million long-term debt; notes payable declined to zero from $2.5 million at year-end 2015.
- Equity financing: Nine-month financing cash inflows were $370.8 million, including approximately $364.951 million from common-stock sales. The company raised approximately $327.4 million net in a September offering and $37.3 million net in a June offering.
- Balance sheet: Total assets were $487.3 million and stockholders’ equity was $408.6 million. Inventory was $2.9 million, including $0.2 million of finished goods.
Material changes versus the prior comparable periods
- Quarterly R&D expense decreased 6%, primarily due to lower personnel and facility costs. Year-to-date R&D expense increased 12%, driven by higher clinical and manufacturing spending, increased trial enrollment, and a $7.0 million up-front UWA license payment.
- Quarterly G&A expense increased 47%, and year-to-date G&A increased 20%, reflecting higher commercial headcount, increased stock-based compensation, and commercialization infrastructure costs.
- Year-to-date net loss increased 15%, while loss per share increased from $3.75 to $3.83 despite a larger share count.
- Cash increased substantially because of the 2016 equity offerings, more than offsetting the increased operating cash burn.
- The company recognized a $1.0 million UWA sales milestone as an in-licensed intangible asset following EXONDYS 51 approval and subsequent commercial sale activity contemplated by the agreement.
- Restructuring expenses were $1.3 million in the third quarter and $2.4 million year to date. The company planned to close its Corvallis, Oregon facility and consolidate operations in Massachusetts; approximately 19% of the workforce was expected to be reduced under the Corvallis plan, with a further 6% reduction under the Cambridge plan.
Guidance, outlook, risks and unusual items
- Management stated that available cash, cash equivalents and investments were sufficient to fund the current operational plan for at least the next twelve months, while noting that additional financing may be required.
- Near-term priorities included commercializing EXONDYS 51 in the United States, expanding manufacturing capacity, conducting confirmatory and post-marketing studies, and advancing exon 45- and exon 53-skipping programs.
- EXONDYS 51 received accelerated approval based on dystrophin data. Continued approval depends on post-approval requirements, including a two-year randomized controlled study intended to verify clinical benefit. Failure to verify benefit could result in withdrawal of approval.
- Commercial success depends on patient identification, payer reimbursement, market adoption, manufacturing scale-up, specialty-pharmacy distribution, pricing, safety, and the ability to satisfy FDA requirements. The company had no product sales revenue through September 30, 2016.
- The company relied on third-party manufacturers and distributors and had limited internal manufacturing capacity. Manufacturing quality, supply, validation and capacity constraints could delay commercialization or clinical development.
- Pending patent interferences and appeals involving BioMarin could affect patent protection for EXONDYS 51 and other exon-skipping candidates. The company also disclosed securities and derivative litigation for which possible losses could not be estimated.
- On October 3, 2016, after the reporting date, Sarepta entered into a Summit collaboration for European and related territory rights to utrophin modulators. The agreement required a $40.0 million up-front payment and includes substantial potential development, regulatory and sales milestones, royalties and future cost-sharing obligations.
- The company planned to submit an EXONDYS 51 marketing authorization application in Europe by year-end 2016, but the filing and approval were not assured.
Facts investors should verify
- Timing and amount of initial EXONDYS 51 product revenue, gross-to-net deductions, payer coverage and patient uptake.
- Progress, enrollment, results and FDA interpretation of the required confirmatory and post-marketing studies.
- Manufacturing capacity, supply reliability, product validation and third-party distribution execution.
- Quarterly operating cash burn and whether additional equity, debt, licensing or other financing will be needed.
- Potential milestone, royalty and cost-sharing obligations under the UWA and Summit agreements.
- Outcomes of BioMarin patent appeals and related intellectual-property proceedings, as well as pending securities and derivative litigation.
- Whether the Corvallis consolidation and other restructuring actions produce the expected cost savings without disrupting development or commercialization.