Sarepta Therapeutics, Inc. — Q1 2021 Form 10-Q Summary
Business context and reporting period
Sarepta is a commercial-stage biopharmaceutical company focused on RNA-targeted therapeutics, gene therapy and other genetic medicines for rare diseases, primarily Duchenne muscular dystrophy (DMD) and limb-girdle muscular dystrophies. The filing covers the three months ended March 31, 2021, and was filed May 5, 2021. Sarepta marketed EXONDYS 51, VYONDYS 53 and, following FDA accelerated approval on February 25, 2021, AMONDYS 45.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Product revenue | $124.9 million | $100.4 million | +24% |
| Collaboration revenue | $22.0 million | $13.2 million | +66% |
| Total revenue | $146.9 million | $113.7 million | +29% |
| Cost of sales | $22.3 million | $12.6 million | +77% |
| Operating loss | $151.9 million | $118.0 million | Loss increased $33.8 million |
| Net loss | $167.3 million | $17.5 million | Loss increased $149.8 million |
| Net loss per share | $2.10 | $0.23 | Loss increased $1.87 |
| Cash used in operating activities | $180.4 million | Cash provided of $627.8 million | Unfavorable change of $808.2 million |
Calculated gross profit was approximately $124.6 million, representing an approximately 84.8% gross margin. Operating margin was approximately negative 103.4% and net margin was approximately negative 113.8%.
- Product revenue included EXONDYS 51 of $107.2 million, VYONDYS 53 of $17.5 million and AMONDYS 45 of $0.2 million.
- Research and development expense increased 43% to $195.1 million, driven primarily by gene therapy manufacturing, clinical trial activity, facility expansion and preclinical work.
- Selling, general and administrative expense decreased 14% to $71.1 million, primarily because of lower professional services costs, including the absence of a comparable Roche transaction fee.
- A $10.0 million BioMarin settlement charge was recognized following AMONDYS 45 approval.
- Q1 2020 included a $108.1 million gain from the sale of a Priority Review Voucher; no comparable gain was recognized in Q1 2021.
Balance sheet, debt and cash flow
| Balance-sheet item | March 31, 2021 | December 31, 2020 |
|---|---|---|
| Cash and cash equivalents | $1.482 billion | $1.503 billion |
| Short-term investments | $256.0 million | $435.9 million |
| Total cash, cash equivalents and investments, including restricted amounts | $1.747 billion | $1.948 billion |
| Total debt carrying value | $1.091 billion | $992.5 million |
| Working capital | $1.907 billion | $2.069 billion |
| Accumulated deficit | $2.955 billion | $2.848 billion |
Management stated that available cash, cash equivalents and investments were sufficient to fund the current operating plan for at least the next twelve months. The company nevertheless expects cash requirements to increase and may seek additional equity or debt financing, government funding, collaborations or licensing transactions.
Operating cash use was partly offset by $156.7 million of investing cash inflow, primarily from maturities and sales of marketable securities, and $2.9 million of financing cash inflow. The significant year-over-year operating cash flow comparison was affected by the $820.4 million increase in deferred revenue in Q1 2020 related to the Roche collaboration, with no similar transaction in Q1 2021.
Debt consisted principally of $550.0 million of 2019 term-loan principal and $570.0 million of 2024 convertible-note principal. Contractual debt payments totaled $1.120 billion of principal, with $250.0 million due in 2023 and approximately $870.0 million due in 2024, excluding interest.
Material changes versus the prior comparable period
- Total revenue increased 29%, reflecting higher demand for commercial products and higher Roche collaboration revenue.
- Research and development spending increased $59.0 million, particularly for micro-dystrophin, other gene therapies, casimersen, PPMO and manufacturing activities.
- Cost of sales increased $9.7 million, including $8.1 million of higher inventory costs and write-offs of certain batches that did not meet quality specifications.
- Net loss widened substantially because Q1 2020 benefited from the $108.1 million Priority Review Voucher gain and the 2021 period included higher research and development costs and a $10.0 million settlement charge.
- Sarepta early adopted ASU 2020-06 for convertible debt. The adoption increased the carrying value of the 2024 Notes by $96.8 million, reduced additional paid-in capital by $157.0 million and reduced accumulated deficit by $60.2 million. It reduced Q1 2021 interest expense and net loss by $5.4 million.
- A Catalent manufacturing agreement modification resulted in a $2.8 million loss included in research and development expense and reduced related right-of-use assets and lease liabilities.
Guidance, outlook, commentary and risks
- Management expected to remain loss-making and stated that significant operating losses were expected at least through 2021.
- Near-term development objectives included discussions with the FDA regarding Part B of Study 5051-201, additional SRP-9001 Study 102 results in the first quarter of 2022, Study 103 expression and safety results in the second quarter of 2021, completion of SRP-9003 GMP runs in 2021 and seeking FDA confirmation to initiate an SRP-9003 pivotal trial in 2021.
- All three commercial products have accelerated approval; continued approval depends on post-marketing requirements and confirmatory evidence of clinical benefit. Failure to satisfy these requirements could result in labeling changes, restrictions or withdrawal of approval.
- COVID-19 could reduce product revenue and cash flow by disrupting patient infusions, insurance reauthorizations, clinical-trial enrollment and data collection, manufacturing, distribution and employee operations.
- The company relies on a limited number of third-party manufacturers and disclosed $1.453 billion of manufacturing commitments as of March 31, 2021. Supply interruptions, quality failures, cGMP noncompliance or production delays could affect commercial and clinical programs.
- Future development, regulatory, commercial and royalty milestones under license and collaboration agreements could reach $3.9 billion, although these amounts were contingent and not recorded as liabilities. Additional unexercised options could require up to $14.0 million of research milestones and $237.0 million of option payments.
- Manufacturing, lease and debt obligations totaled approximately $2.815 billion, including interest and contractual manufacturing commitments.
- RegenXBIO and the Trustees of the University of Pennsylvania sued Sarepta for alleged patent infringement involving AAV manufacturing technology, including SRP-9001. The company moved to dismiss and stated that it could not estimate a possible loss or range of loss.
- The company sold the AMONDYS 45-related Priority Review Voucher on April 13, 2021 for $102.0 million before commissions and expected to record the gain in Q2 2021; the transaction was not reflected in Q1 results.
Important facts for investors to verify
- Whether product revenue growth, particularly VYONDYS 53 and AMONDYS 45 adoption, continues after the initial launch period and despite COVID-19 and reimbursement pressures.
- Progress and results of confirmatory and post-marketing studies required to maintain accelerated approvals for EXONDYS 51, VYONDYS 53 and AMONDYS 45.
- Clinical, regulatory and manufacturing progress for SRP-9001, SRP-9003 and SRP-5051, including FDA feedback and stated 2021 milestones.
- Cash burn, remaining liquidity and the timing and terms of any future financing, considering $1.091 billion of debt and substantial manufacturing commitments.
- Potential effects of the RegenXBIO patent litigation, other intellectual-property disputes and contingent milestone obligations.
- Whether third-party manufacturing capacity, quality performance and supply commitments can support the commercial products and expanding gene-therapy pipeline.