Sarepta Therapeutics, Inc. — Form 10-Q Summary
Reporting period: Three months ended March 31, 2016; filed May 5, 2016. Sarepta is a pre-commercial biopharmaceutical company developing RNA-targeted therapeutics, with primary emphasis on Duchenne muscular dystrophy (DMD) candidates, including eteplirsen.
Financial Performance and Position
| Metric | Q1 2016 | Q1 2015 | Change |
|---|---|---|---|
| Revenue | $0 | $0 | No change |
| Research and development expense | $38.8 million | $39.2 million | Down 1% |
| General and administrative expense | $20.9 million | $22.7 million | Down 8% |
| Total operating expenses | $59.7 million | $61.9 million | Down 3% |
| Operating loss | $59.7 million | $61.9 million | Improved by $2.2 million |
| Net loss | $59.8 million | $61.6 million | Improved by $1.8 million |
| Basic and diluted loss per share | $1.31 | $1.49 | Improved by $0.18 |
| Cash used in operating activities | $60.7 million | $43.3 million | Use increased by $17.3 million |
There was no meaningful operating margin because the company had no revenue; operating expenses represented the full operating loss. R&D included $20.0 million for eteplirsen, $1.4 million for the exon 45 program and $1.9 million for the exon 53 program.
- Liquidity: Cash, cash equivalents and investments totaled $140.6 million at March 31, 2016, comprising $38.0 million of cash and cash equivalents, $91.2 million of short-term investments and $11.5 million of restricted cash and investments. This was down from $204.0 million at December 31, 2015.
- Working capital: $105.6 million at March 31, 2016, down 35% from $162.2 million at year-end 2015.
- Debt: Total borrowings were $21.0 million, including $20.0 million of senior secured term debt and other long-term debt; this compares with $23.4 million at December 31, 2015. The company repaid $2.5 million of debt and notes payable during the quarter.
- Cash flows: Investing activities provided $19.4 million, primarily from maturities of available-for-sale securities. Financing activities used $1.0 million.
- Accumulated deficit: $958.8 million at March 31, 2016.
Material Changes Versus the Prior Comparable Period
- Net loss improved modestly, primarily because 2015 included $9.3 million of estimated severance expense related to the former CEO’s resignation.
- G&A compensation, professional services and stock-based compensation increased in 2016, principally reflecting increased headcount and preparation for a potential eteplirsen launch.
- R&D expense was broadly stable. Lower clinical and manufacturing costs were largely offset by higher professional services and increased clinical-trial activity.
- Stock-based compensation declined to $6.7 million from $14.2 million, as Q1 2015 included $8.7 million related to the former CEO’s resignation.
- Cash used in operations increased substantially, and total cash, cash equivalents and investments declined by $63.3 million during the quarter.
Guidance, Outlook, Risks and Unusual Items
- Eteplirsen regulatory review: On April 25, 2016, the FDA advisory committee voted against finding substantial evidence supporting dystrophin production and efficacy based on the available data. The FDA was not bound by the recommendation. The PDUFA action date remained May 26, 2016.
- Commercial preparation: Sarepta had incurred pre-launch spending, manufacturing scale-up costs, supply commitments and commercial hiring in anticipation of possible eteplirsen approval. A delay or rejection could require these activities and other clinical or preclinical programs to be delayed, reduced or terminated.
- Liquidity outlook: Management believed available cash, cash equivalents and investments were sufficient to fund the current operational plan for at least the next twelve months, but expected to seek additional financing, government funding, collaborations or licensing transactions.
- Restructuring: The company announced plans to consolidate operations in Massachusetts, close its Corvallis, Oregon facility and reduce its workforce by approximately 19%. It recorded $0.5 million of workforce-reduction costs in the quarter, estimated total workforce-reduction costs of $1.7 million and identified $4.3 million of remaining cash lease payments after expected consolidation.
- Milestone obligations: Up to $99.9 million of future development, royalty and commercial milestone payments could become payable upon achievement of specified milestones; none had been recorded because the milestones had not occurred.
- Debt risk: The MidCap credit agreement includes pledged-cash requirements and default provisions. Sarepta noted that MidCap could potentially argue that failure to obtain eteplirsen approval by the PDUFA date constituted a material adverse change, which could increase interest and accelerate repayment.
- Patent developments: The PTAB canceled all claims of Sarepta’s U.S. Patent No. 8,455,636 related to exon 53 skipping, subject to appeal, while refusing most corresponding BioMarin claims. Separate patent interferences and appeals relating to eteplirsen and other candidates remained material risks.
- Litigation: Several securities and derivative actions remained pending or subject to further proceedings. The company could not estimate possible losses, although it did not expect the McDonald derivative suit settlement to have a material financial impact.
- Manufacturing and development: The company relied on third-party manufacturers and service providers and had no internal mid- to large-scale manufacturing capability. Clinical, regulatory, manufacturing, intellectual-property and financing risks could delay or prevent commercialization.
Facts Investors Should Verify
- Outcome and conditions of the FDA’s May 26, 2016 action on the eteplirsen NDA, including any additional trial, labeling or manufacturing requirements.
- Subsequent cash burn, financing activity and whether the stated twelve-month liquidity assessment remained valid.
- Impact of the PTAB decision and related appeals on patent protection for SRP-4053 and the broader DMD pipeline, including eteplirsen-related proceedings.
- Actual costs and timing of the Massachusetts consolidation, workforce reduction and Corvallis lease obligations.
- Status and potential exposure from the remaining securities, derivative and other legal proceedings.
- Progress, enrollment, safety and efficacy results for eteplirsen and the exon 45- and exon 53-skipping programs.