Sarepta Therapeutics, Inc. — FY2012 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2012. The filing also provides unaudited fourth-quarter results. Sarepta, formerly AVI BioPharma, is a development-stage biopharmaceutical company focused on RNA-based therapeutics for rare and infectious diseases. The company had no material product sales and relied primarily on U.S. government research contracts and grants.
Business context and pipeline
- DMD: Lead candidate eteplirsen was in Phase IIb development for exon-51 amenable Duchenne muscular dystrophy mutations. Study 201 met its primary dystrophin endpoint; the open-label Study 202 extension reported statistically significant 6-minute walk benefits at 48 and 62 weeks, although the study involved only 12 participants and no significant clinical improvement was observed in the initial 24-week Study 201.
- Infectious diseases: AVI-7288 for Marburg virus remained in development with U.S. government support. AVI-7100 for influenza advanced through a December 2012 agreement with NIAID. The Ebola program was stopped and terminated by the Department of Defense in 2012 because of funding constraints.
- The company changed its name from AVI BioPharma, Inc. to Sarepta Therapeutics, Inc. in July 2012 and completed a one-for-six reverse stock split.
Key financial metrics
| Metric | FY2012 | FY2011 | Change |
|---|---|---|---|
| Revenue | $37.3 million | $47.0 million | Down 21% |
| Research and development expense | $52.4 million | $66.9 million | Down 22% |
| General and administrative expense | $14.6 million | $16.1 million | Down 9% |
| Operating loss | $29.7 million | $35.9 million | Improved $6.2 million |
| Warrant valuation loss | $91.9 million | $33.0 million gain | Significant non-cash unfavorable swing |
| Net loss | $121.3 million | $2.3 million | Significantly higher loss |
| Basic and diluted loss per share | $5.14 | $0.11 | Higher loss per share |
| Cash and cash equivalents | $187.7 million | $39.9 million | Up $147.8 million |
| Cash used in operating activities | $29.7 million | $23.7 million | Higher use of cash |
| Working capital | $115.0 million | $24.6 million | Improved substantially |
FY2012 revenue consisted primarily of government contract revenue, including $36.6 million from the July 2010 Ebola/Marburg agreement and $0.7 million from the August 2012 Marburg intramuscular administration agreement. The filing does not provide a meaningful product-sales margin because the company had not commercialized a product.
Liquidity, debt and financing
- Year-end cash and cash equivalents were $187.7 million, and management stated that available cash was sufficient to fund operations for more than the next twelve months.
- Financing activities provided $178.6 million, including $154.3 million of net proceeds from the sale of 6.9 million common shares and $20.6 million from warrant exercises.
- Total long-term debt was $1.8 million, consisting of two loans bearing 4.75% interest and maturing in February 2027. Scheduled principal payments were $89,000 in 2013 and $1.76 million in total.
- Outstanding liability-classified warrants totaled $65.2 million at year-end. The warrants were non-cash liabilities, but their revaluation generated the $91.9 million FY2012 loss.
- Contractual obligations totaled $17.2 million, comprising $1.8 million of current and long-term debt payments, $13.4 million of operating leases and $2.1 million of purchase obligations. In January 2013, the company entered into an additional $20.8 million manufacturing agreement.
Material changes versus FY2011
- Revenue declined by $9.7 million due primarily to the completion of H1N1 contracts and a $6.3 million reduction in Ebola/Marburg contract revenue, including $5.6 million attributable to termination of the Ebola portion.
- Research and development spending fell by $14.5 million because of lower non-DMD research activity, the Ebola program termination and completion of H1N1 contracts.
- Operating loss improved, but net loss worsened substantially because the 2012 warrant revaluation produced a $91.9 million expense compared with a $33.0 million gain in 2011.
- Cash increased primarily through equity financing and warrant exercises, materially strengthening liquidity but increasing potential dilution. Shares outstanding increased from 22.6 million at year-end 2011 to 31.7 million at year-end 2012.
- Fourth-quarter 2012 revenue was $7.3 million, operating loss was $10.4 million and net loss was $62.1 million, largely reflecting a $51.8 million warrant valuation loss.
Guidance, outlook, risks and unusual items
- Management expected to initiate a pivotal eteplirsen trial by the end of 2013 and begin dosing in early 2014, subject to FDA discussions and manufacturing considerations.
- An end-of-Phase-II FDA meeting and subsequent Chemistry, Manufacturing and Controls meeting were expected to inform the regulatory path for eteplirsen, including possible expedited or accelerated approval. No approval was assured.
- Management expected to initiate a Phase I multiple-ascending-dose study of AVI-7288 in the first half of 2013.
- Remaining funding under active Marburg government contracts was approximately $19.8 million, with an additional estimated $84.4 million available if the government exercised contractual options. These amounts were subject to appropriations and government action.
- Key risks include dependence on government funding, termination or modification of government contracts, clinical and regulatory failure, limited clinical sample sizes, uncertainty regarding the FDA Animal Rule for Marburg, manufacturing scale-up and third-party supply, patent disputes involving Prosensa, continuing operating losses and the likely need for additional financing.
- The company had an accumulated deficit of $431.3 million and expected to continue incurring operating losses. Its tax assets were fully offset by a valuation allowance.
- The filing reported no material legal proceedings and unqualified auditor opinions on the financial statements and internal control over financial reporting.
Investor verification checklist
- Verify the durability and regulatory relevance of Study 202 results, including the small sample size, excluded patients and lack of significant benefit for the 30 mg/kg cohort.
- Confirm FDA feedback, the selected approval pathway and the timing, design and enrollment of the pivotal eteplirsen trial.
- Assess cash burn, remaining government-contract funding, appropriations risk and the potential need for additional equity or other financing.
- Review the warrant liability, expiration dates and potential dilution from approximately 3.1 million outstanding warrants, stock options and other equity awards.
- Monitor manufacturing scale-up, the January 2013 $20.8 million manufacturing commitment and reliance on limited third-party suppliers.
- Evaluate patent and freedom-to-operate risks related to Prosensa and other exon-skipping competitors.