Sarepta Therapeutics, Inc. — FY2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. The filing also provides unaudited fourth-quarter results for the quarter ended December 31, 2014.
Business context
Sarepta is a pre-commercial biopharmaceutical company developing RNA-targeted therapeutics for rare, infectious and other diseases. Its primary focus is Duchenne muscular dystrophy, particularly eteplirsen, an exon-51-skipping candidate. The company had no product sales or approved products and generated revenue primarily from government and research contracts.
- Eteplirsen was in confirmatory clinical development, with an NDA submission planned for mid-2015, subject to additional FDA discussions, data collection and regulatory requirements.
- Studies 301 and 204 began dosing in 2014; the exon-53 SKIP-NMD study also began in Europe.
- The remaining Marburg-related Department of Defense contract expired in July 2014, and all DoD development activities were completed by year-end.
Financial metrics
| Metric | FY2014 | FY2013 | Change |
|---|---|---|---|
| Revenue | $9.8 million | $14.2 million | Down 31% |
| Research and development expense | $94.2 million | $72.9 million | Up 29% |
| General and administrative expense | $49.3 million | $31.6 million | Up 56% |
| Operating loss | $133.8 million | $90.3 million | Loss increased 48% |
| Net loss | $135.8 million | $112.0 million | Loss increased 21% |
| Net loss per share | $3.39 | $3.31 | Loss per share increased 2% |
| Operating margin | Approximately negative 1,371% | Approximately negative 635% | Declined |
The 2014 operating and net margins were deeply negative because revenue was limited to grants and research contracts while clinical, manufacturing, personnel and corporate infrastructure costs increased.
Fourth-quarter results
| Metric | Q4 2014 | Q4 2013 |
|---|---|---|
| Revenue | $27,000 | $2.6 million |
| Operating loss | $44.7 million | $32.8 million |
| Net loss | $44.4 million | $8.8 million |
| Net loss per share | $1.08 | $0.23 |
Cash flow, liquidity and debt
- Cash, cash equivalents and investments totaled $211.1 million at December 31, 2014, consisting of $73.6 million of cash and equivalents, $136.8 million of short-term investments and $0.8 million of restricted cash and investments.
- Management stated that available liquidity was sufficient to fund the current operating plan for the next twelve months.
- Cash used in operating activities was $128.5 million, compared with $64.7 million in 2013.
- Cash used in investing activities was $159.0 million, principally reflecting purchases of available-for-sale securities and capital expenditures, including the Andover facility.
- Cash provided by financing activities was $104.2 million, including approximately $94.5 million of net proceeds from an April 2014 equity offering.
- Total borrowings were $6.3 million, including $4.8 million of notes payable related to the Andover facility and $1.6 million of long-term debt.
- Working capital was $210.9 million, compared with $234.8 million at December 31, 2013.
Material changes versus the prior comparable period
- Revenue decreased $4.5 million as the Marburg contract wound down, the intramuscular administration contract ended in 2013 and other government-funded work declined.
- Research and development spending increased $21.3 million, driven by personnel, clinical and preclinical activities, professional services, facilities and discovery programs; manufacturing expense decreased $2.3 million.
- General and administrative expense increased $17.7 million, primarily from professional services, personnel, stock-based compensation and facilities.
- Operating cash burn nearly doubled, increasing by $63.8 million, partly because of higher losses and advance payments for future inventory commitments.
- Stock-based compensation increased to $20.3 million from $11.1 million.
- The company acquired the Andover, Massachusetts facility for approximately $15.1 million and recorded $30.7 million of manufacturing-related deposits in other current assets.
- Liability-classified warrants were fully exercised or expired by year-end; no warrant liability remained at December 31, 2014.
Guidance, outlook, risks and unusual items
- Management planned to submit an NDA for eteplirsen by mid-2015, but emphasized that timing depended on FDA feedback, independent dystrophin assessment, additional safety and natural-history data, and the sufficiency of the total data package.
- Study 202 produced encouraging earlier results, but the 168-week update showed continued ambulation among evaluable patients alongside a decline in six-minute walk distance from the week-144 measurement. FDA acceptance and approval remained uncertain.
- The company expected continued operating losses and anticipated additional financing through equity, debt, collaborations or licensing arrangements.
- Approximately $140.3 million of purchase obligations were outstanding, primarily related to the DMD development program; total contractual obligations were approximately $176.6 million.
- Potential future milestone payments under collaboration and license arrangements totaled up to approximately $35.8 million, while royalty obligations generally applied only upon commercialization.
- Key risks included FDA rejection or delay of eteplirsen, inconsistent clinical data, clinical-trial failure, dependence on third-party manufacturers, limited manufacturing capacity, patent interferences and infringement claims involving Prosensa, litigation, government-funding reductions and potential equity dilution.
- Two securities-related putative class actions and a derivative action were pending. The filing stated that the outcomes of the securities cases could not yet be assessed.
- Management and KPMG concluded that internal control over financial reporting was effective as of December 31, 2014, and KPMG issued an unqualified audit opinion.
Important facts for investors to verify
- Whether the planned eteplirsen NDA was submitted, accepted for filing and ultimately approved, and under what regulatory pathway.
- Results from confirmatory DMD studies, including clinical efficacy, safety, dystrophin measurements and natural-history comparisons.
- The pace of cash burn, remaining liquidity and timing or terms of any future financing.
- Progress in scaling third-party manufacturing capacity and satisfying FDA chemistry, manufacturing and controls requirements.
- Resolution of U.S. and European patent interferences and any related infringement risks affecting eteplirsen or SRP-4053.
- Status and potential financial impact of the securities litigation and derivative action.
- Whether government-contract revenue has effectively ended and whether replacement collaboration or licensing revenue is secured.