Sarepta Therapeutics, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2013; filed November 12, 2013. Sarepta was a development-stage biopharmaceutical company focused on RNA-based therapeutics for rare and infectious diseases, led by eteplirsen for Duchenne muscular dystrophy and AVI-7288 for Marburg virus. The company had no material product-sales revenue.
Financial position and performance
| Metric | Three months ended Sept. 30, 2013 | Nine months ended Sept. 30, 2013 | Comparable 2012 period |
|---|---|---|---|
| Revenue | $4.2 million | $11.6 million | $7.6 million and $30.0 million |
| Research and development expense | $21.1 million | $47.8 million | $10.9 million and $39.6 million |
| General and administrative expense | $8.0 million | $21.2 million | $3.6 million and $9.8 million |
| Operating loss | $24.9 million | $57.4 million | $6.9 million and $19.3 million |
| Net loss | $42.0 million | $103.2 million | $49.6 million and $59.2 million |
| Basic and diluted loss per share | $1.24 | $3.17 | $2.17 and $2.61 |
- Approximate operating margins were negative 598% for the quarter and negative 495% for the nine-month period, reflecting the development-stage cost structure.
- Revenue declined 45% year over year in the quarter and 61% for the nine months, principally because the Ebola portion of a Department of Defense contract was stopped and terminated in 2012 and Marburg activity declined.
- The nine-month net loss included a $46.0 million non-cash loss from revaluing warrant liabilities. The quarter included a $17.2 million non-cash warrant revaluation loss.
- Cash used in operating activities was $46.9 million for the nine months, compared with $22.5 million in 2012. Investing cash use was $10.9 million, while financing provided $143.7 million.
- Cash and cash equivalents were $273.6 million at September 30, 2013, compared with $187.7 million at December 31, 2012. Including restricted investments, cash, cash equivalents and invested cash totaled $281.4 million.
- Total debt was $1.7 million, including $91,000 current and $1.6 million long term. Total liabilities were $57.5 million, including a $36.0 million warrant liability.
- Stockholders’ equity was $247.0 million, and the accumulated deficit was $534.4 million. Common shares outstanding were approximately 37.5 million at September 30, 2013.
Material changes versus the prior comparable period
- Quarterly revenue fell by $3.4 million, while nine-month revenue fell by $18.4 million, primarily due to reduced Ebola and Marburg government-contract activity.
- Quarterly research and development expense increased 93%, driven by higher DMD manufacturing and clinical costs, proprietary research, personnel, and stock compensation. Nine-month R&D expense increased 21%.
- General and administrative expense increased 125% for the quarter and 117% for the nine months, reflecting increased personnel, facilities, professional services, and stock-based compensation.
- Quarterly net loss improved from $49.6 million to $42.0 million because the warrant revaluation loss was lower than in 2012. Nine-month net loss worsened from $59.2 million to $103.2 million because operating losses and warrant-related expense increased.
- Financing substantially strengthened liquidity. The company sold approximately 3.4 million shares under its 2013 at-the-market offering for approximately $123.0 million in net proceeds, in addition to other equity and warrant-exercise proceeds.
- The August 2012 DoD intramuscular Marburg contract concluded in the third quarter of 2013. The company also entered into a $1.3 million agreement with Children’s National Medical Center and recognized $0.7 million of related revenue.
Outlook, risks, contingencies and unusual items
- Management believed available cash, cash equivalents and invested cash were sufficient to fund the current operating plan for the next twelve months, but expected to seek additional financing, government contracts, collaborations, or licensing transactions.
- Revenue remained dependent on government research contracts, particularly the Marburg program. Government appropriations, sequestration, delays, or termination-for-convenience provisions could materially reduce revenue and force reductions in infectious-disease research.
- The remaining Marburg contract included potential funding of approximately $84.4 million for later segments, but the DoD retained options and the filing did not assure that those segments would be exercised.
- The company was working with the FDA on a confirmatory study and potential NDA filing for eteplirsen, but timing was unclear. FDA concerns regarding dystrophin as a biomarker and the six-minute walk test could delay the study and filing; the company could not estimate the duration of any delay.
- Key development risks included clinical failure, regulatory non-approval, manufacturing scale-up and quality risks, dependence on contract manufacturers, intellectual-property disputes, competition, and the absence of commercial product revenue.
- Non-cancelable contractual obligations totaled $200.6 million, including $169.6 million of purchase obligations, $29.3 million of operating leases, and $1.7 million of long-term debt commitments.
- The company had $7.3 million of restricted investments supporting letters of credit for manufacturing commitments and $0.6 million supporting a Cambridge lease security deposit.
- Management reported no material legal proceedings and concluded that disclosure controls were effective as of September 30, 2013.
Important facts for investors to verify
- Whether DoD funding and options for the remaining Marburg program were continued, reduced, or terminated after the reporting date.
- The FDA’s subsequent position on eteplirsen’s confirmatory trial, biomarker evidence, six-minute walk test, and NDA timing.
- Cash burn, funding runway, and the need for additional equity or other financing given continuing operating losses and significant purchase obligations.
- The magnitude and volatility of future warrant-liability revaluations, which are non-cash but can materially affect reported earnings.
- Progress, safety, efficacy, manufacturing readiness, and regulatory status of eteplirsen and other pipeline candidates.
- Potential dilution from outstanding warrants, options, equity plans, and future financing transactions.