The word "revolutionary" sometimes gets thrown around a lot, but it certainly applies to Sarepta Therapeutics(NASDAQ: SRPT). This midcap biotech company has developed several treatments for Duchenne muscular dystrophy (DMD) -- even earning approval for the first gene therapy for the rare genetic illness.
However, none of that has done much to help Sarepta Therapeutics' stock performance this year, as it has severely lagged the broader market. Still, there are excellent reasons to remain optimistic about the company's future. Let's take a look at them.
It hasn't been smooth sailing
DMD is a progressive disease that affects patients' muscles. Sarepta currently has four approved products, all targeting this condition. However, the company has encountered several clinical and regulatory issues this year that explain its poor performance.
First, the U.S. Food and Drug Administration (FDA) delayed the approval of Sarepta's gene therapy for DMD, Elevidys, a one-time treatment that targets the underlying causes of the disease. It earned the green light eventually, but biotech investors don't like such delays.
Second, although Sarepta is seeking to earn a label expansion for Elevidys in treating patients aged four to seven (it is currently approved for those between the ages of four and five), it hit a severe obstacle along those lines. The biotech recently reported that a phase 3 study to that effect failed to hit its primary endpoint.
Sarepta still plans on requesting a label expansion for the medicine, explaining that Elevidys hit all secondary endpoints in the study and regulators in the U.S. are open to the possibility. Still, with an additional approval now a bit uncertain, it's no surprise that investors reacted by selling off Sarepta Therapeutics' stock.
Why Sarepta Therapeutics is still a buy
Despite challenging news on the clinical and regulatory fronts, Sarepta Therapeutics' financial results continue to move in the right direction. In the third quarter, the company's revenue of $331.8 million increased by about 44% year over year. Sarepta remains unprofitable, but the bottom line improved as well -- it reported a net loss per share of $0.46, substantially better than the net loss per share of $2.94 recorded in the year-ago period.
Sarepta Therapeutics also ended the period with $1.8 billion in cash, equivalents, and restricted cash, compared to $2 billion as of the end of 2022. Importantly, the small biotech has partnered with Switzerland-based pharmaceutical giant Roche to develop Elevidys. Between that and its healthy cash balance, funding shouldn't be too much of a problem.
Finally, the company has over 40 pipeline programs, including more potential DMD therapies. Although Elevidys' failure to hit its primary endpoint in its latest phase 3 study was a setback, Sarepta Therapeutics' well-established innovative ability is a major strength that should help it develop and market newer and better treatments. Further, as the biotech noted, Elevidys could still earn the label expansion it seeks.
And if it does, Sarepta has estimated that it could hit peak annual sales of about $4 billion. In my view, there is still a good chance it will cross this regulatory hurdle. There aren't dozens of therapies for DMD around, and the FDA tends to be slightly more forgiving when considering medicines that target rare diseases with few effective treatments.
However, even if the regulatory agency decides not to approve it, Sarepta's existing lineup and deep pipeline should lead to more products and stronger financial results down the road. Biotech investors focused on the long game should seriously consider adding shares of Sarepta Therapeutics to their portfolios.
Should you invest $1,000 in Sarepta Therapeutics right now?
Before you buy stock in Sarepta Therapeutics, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now... and Sarepta Therapeutics wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
*Stock Advisor returns as of December 11, 2023
Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool recommends Roche Ag. The Motley Fool has a disclosure policy.
