Sarepta Therapeutics, Inc. — Q1 2015 Form 10-Q Summary
Reporting period: Three months ended March 31, 2015; unaudited U.S. GAAP financial statements. Sarepta is a pre-commercial biopharmaceutical company developing RNA-targeted therapeutics, with primary focus on Duchenne muscular dystrophy and eteplirsen, an exon 51-skipping candidate.
Financial performance and liquidity
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Revenue | $0 | $6.1 million | Down 100% |
| Research and development expense | $39.2 million | $20.9 million | Up 87% |
| General and administrative expense | $22.7 million | $10.3 million | Up 120% |
| Operating loss | $61.9 million | $25.1 million | Loss increased $36.7 million |
| Net loss | $61.6 million | $28.3 million | Loss increased $33.3 million |
| Net loss per share | $1.49 | $0.75 | Loss per share increased $0.74 |
| Cash used in operating activities | $43.3 million | $28.3 million | Use increased $15.1 million |
There was no product revenue, and management stated that the company has not generated product-sale revenue to date. Operating and net margins are not meaningful because revenue was zero. The accumulated deficit was $740.6 million at March 31, 2015.
Cash, cash equivalents and investments totaled $167.0 million at March 31, 2015, comprising $74.4 million of cash and cash equivalents, $91.8 million of short-term investments and $0.8 million of restricted cash and investments. Total liquidity declined 21% from $211.1 million at December 31, 2014, primarily because short-term investments decreased by $45.0 million. Management believed available liquidity would fund the current operating plan for the next twelve months.
Total borrowings were $6.4 million, including $1.5 million of long-term debt and $4.8 million of notes payable. Working capital was $159.1 million, down from $210.9 million at year-end 2014.
Material changes versus Q1 2014
- Revenue fell to zero because the company had completed development activities under its U.S. government contracts; only potential contract-finalization revenue was expected thereafter.
- Research and development expense increased primarily because of manufacturing activity, raw-material purchases and increased clinical-trial enrollment. Eteplirsen expense rose 267% to $21.6 million.
- General and administrative expense increased primarily because of CEO-related severance and stock compensation, higher legal and other professional fees, and increased personnel costs.
- Total stock-based compensation increased to $14.2 million from $4.3 million, including $8.7 million related to the resignation of the former CEO.
- Cash used in operations increased, while investing cash flow was positive because the company sold $44.8 million of available-for-sale securities and made no purchases of such securities during the quarter.
- The prior-period $3.3 million non-cash loss from warrant valuation did not recur because all relevant warrants had been exercised or expired during 2014.
Guidance, outlook and management commentary
- Sarepta planned to continue evaluating and, subject to FDA discussions and additional data, target an eteplirsen NDA submission by mid-2015.
- Active development programs included eteplirsen, exon 45 and exon 53 DMD candidates, and selected infectious-disease programs. Further development of Ebola and Marburg candidates depended in part on additional funding, collaborations or emergency-use opportunities.
- The company expected research, development, manufacturing and commercialization-related expenditures to increase and anticipated needing additional financing through equity, debt, licensing or collaboration transactions.
- Edward Kaye became interim CEO on March 31, 2015 after Christopher Garabedian resigned as President, CEO and director. The board was searching for a permanent CEO.
- Management reported that disclosure controls and procedures were effective as of March 31, 2015, with no material changes to internal control over financial reporting during the quarter.
Risks, contingencies and unusual items
- Eteplirsen’s NDA timing, acceptance and approval remained uncertain. FDA requested additional information, including independent dystrophin assessment, longer-term clinical data, matched natural-history data and other analyses.
- Clinical results may not remain consistent with prior results, and confirmatory trials may fail to establish sufficient safety or efficacy.
- The company relied on third-party manufacturers and had limited internal manufacturing capacity. Scaling production, meeting cGMP requirements and securing adequate supply could delay development or commercialization.
- Non-cancelable contractual obligations totaled $160.1 million, including $124.9 million of purchase obligations, $28.1 million of operating leases and $7.1 million of debt-related obligations. Up to $36.0 million of additional development and commercial milestone payments could become due if milestones are achieved.
- Sarepta faced securities and derivative litigation related to disclosures concerning eteplirsen and executive compensation. The company stated that the outcome of the Kader matter could not yet be assessed; it did not expect the McDonald matter to have a material financial impact.
- Patent interferences and disputes involving Prosensa/BioMarin-related rights could affect exclusivity or commercialization of eteplirsen and other exon-skipping candidates.
- The company had no approved commercial products, had incurred operating losses since inception and stated that profitability was uncertain.
Important facts for investors to verify
- Progress, FDA feedback and filing status of the planned eteplirsen NDA, including the independent dystrophin analysis and natural-history data.
- Clinical-trial enrollment, safety, efficacy and confirmatory-study results for eteplirsen and exon 45/53 programs.
- Quarterly cash burn, remaining liquidity and the timing and terms of any required financing or strategic transaction.
- Manufacturing scale-up, supplier capacity, product quality and compliance with cGMP requirements.
- Resolution and potential financial impact of securities, derivative and intellectual-property litigation.
- Outcome of the permanent CEO search and any effect of management turnover on regulatory and clinical execution.