Sarepta Therapeutics, Inc. — FY2013 Form 10-K Summary
Business context and reporting period
Sarepta is a development-stage biopharmaceutical company focused on RNA-based therapeutics for rare and infectious diseases. Its lead program is eteplirsen for Duchenne muscular dystrophy (DMD); infectious-disease programs include AVI-7288 for Marburg virus and AVI-7100 for influenza. The filing covers the fiscal year ended December 31, 2013, with quarterly data for the fourth quarter ended December 31, 2013.
The company had no material product-sale revenue. Substantially all revenue came from U.S. government research contracts and grants, plus European Union and other research arrangements.
Financial performance and key metrics
| Metric | FY2013 | FY2012 |
|---|---|---|
| Revenue | $14.2 million | $37.3 million |
| Research and development expense | $72.9 million | $52.4 million |
| General and administrative expense | $31.6 million | $14.6 million |
| Operating loss | $90.3 million | $29.7 million |
| Net loss | $112.0 million | $121.3 million |
| Net loss per share | $3.31 | $5.14 |
| Net cash used in operating activities | $64.7 million | $29.7 million |
| Cash and cash equivalents at year-end | $257.0 million | $187.7 million |
Fourth-quarter 2013 revenue was $2.6 million, operating loss was $32.8 million, and net loss was $8.8 million, or $0.23 per share. Fourth-quarter results included a $24.0 million gain from the change in fair value of warrant liabilities.
At December 31, 2013, total cash, cash equivalents and restricted investments were $264.9 million, including $7.9 million of restricted investments. Working capital was $234.8 million, total assets were $291.6 million, and stockholders’ equity was $247.2 million. Total debt was approximately $1.7 million at year-end, with scheduled payments through February 2027.
Material changes versus the prior comparable period
- Revenue declined 62% year over year, primarily because the Ebola portion of the July 2010 Department of Defense contract was terminated in 2012 and related revenue fell by $27.5 million.
- Research and development expense increased 39%, driven mainly by a $31.3 million increase in DMD spending and higher personnel costs, partly offset by lower Ebola and Marburg contract activity.
- General and administrative expense increased 116% due to increased headcount, stock-based compensation, professional services and facilities costs.
- Operating loss increased substantially, but net loss improved by $9.3 million because the 2013 warrant-valuation loss of $22.0 million was significantly lower than the $91.9 million loss in 2012.
- Operating cash use more than doubled to $64.7 million. Financing provided $145.7 million, primarily from $125.1 million of ATM equity sales and $18.2 million from warrant exercises.
- Approximately 3.4 million shares were sold under the 2013 ATM program, and approximately 2.6 million shares were issued through warrant and option exercises, increasing potential dilution.
Guidance, outlook, commentary and unusual items
- Management stated that available cash and cash equivalents, considering outstanding warrants, were expected to fund the current operating plan for the next twelve months. Additional financing, government funding, collaborations or licensing may still be required as development advances.
- The company expected to continue discussions with the FDA regarding eteplirsen’s pivotal-study design and expedited regulatory options, with anticipated pivotal-study dosing in the second or third quarter of 2014. The FDA had raised concerns regarding the use of dystrophin as a biomarker and the evidentiary support from the six-minute walk test, creating possible delays.
- Study 202 extension data reported through 96 weeks showed a statistically significant 70.8-meter six-minute walk-test benefit for the modified intent-to-treat eteplirsen cohort, but the analysis involved only six treated patients versus four placebo/delayed-treatment patients and included limitations noted by the company.
- AVI-7288 remained dependent on DoD support and was being pursued under the FDA Animal Rule. The Ebola program had been terminated because of government funding constraints, and influenza development depended on government or other external support.
- The company had approximately $199.9 million of contractual obligations, including $169.7 million of purchase commitments, $27.9 million of operating leases and $2.3 million of debt payments.
- A $1.1 million upfront payment was made under the amended University of Western Australia license agreement; additional milestone payments of up to $6 million were possible based on regulatory and commercialization achievements.
- Management identified a material weakness in internal control over financial reporting related to controls for recognizing and measuring new significant research and development contracts. KPMG issued an adverse opinion on the effectiveness of internal control, while issuing an unqualified opinion on the financial statements.
- Outstanding liability-classified warrants covered approximately 792,000 shares, had an average exercise price of $10.05 and expired during 2014. Their fair-value changes can materially affect reported earnings without corresponding cash impact.
Most important facts for investors to verify
- Whether eteplirsen’s pivotal-study design, regulatory pathway and timing were accepted by the FDA, and whether later-stage clinical evidence supports approval.
- The statistical and clinical robustness of the small Study 201 and Study 202 populations, including treatment-arm composition, missing data and placebo/delayed-treatment comparisons.
- Continuation, option exercise and funding status of the remaining Marburg DoD contract and the effect of government-budget decisions on revenue.
- Cash-burn rates, restricted cash, purchase commitments and the timing of any additional equity or other financing.
- Potential dilution from outstanding warrants, options, equity plans and future financing activity.
- Remediation and auditor reassessment of the material weakness in internal control over financial reporting.
- Intellectual-property challenges involving Prosensa patents and any resulting impact on eteplirsen commercialization rights.
- The status and potential financial impact of the former-consultant claim and purported shareholder class actions filed in January 2014.