Healthcare Business

Why Analysts Are Still All Over the Place on Sarepta After FDA News

Jon C. Ogg

Sarepta Therapeutics Inc. (NASDAQ: SRPT) has seen more than its fair share of volatility in the market of late. Now shares are surging after it has reached a compromise with the U.S. Food and Drug Administration (FDA). The FDA has requested additional information on its dystrophin data from biopsies already obtained from the ongoing confirmatory study of eteplirsen, and it is the notion that Sarepta won’t have to get new biopsies that is likely driving the share so much.

Tuesday’s reaction had shares of Sarepta up 30% at $21.00 shortly after the opening bell. Whenever you see a reaction of this sort, you might assume that every analyst is positive and upgrading their ratings or targets. That just is not the case here.

One thing that may be contributing to the questionable disparity is that Sarepta has burned many researchers following the stock. Its price swings have hurt investors and short sellers alike. A 52-week range of $8.00 to $41.97 sort of outlines how much of a boom-bust-boom story this is.

24/7 Wall St. has found positive, neutral and negative analyst calls. We decided to highlight these because of the extreme volatility. Quite literally, these calls are all over the place.

One final issue here is the short interest. Sarepta has seen its share of short selling. Though the data now have a longer lag than we would consider pertinent for today, Sarepta’s short interest as of the May 13 settlement data was 22.6 million shares. That short interest was only about 10 million shares at the start of 2016.

The following are the top analyst calls seen so far in Sarepta. Again, this company’s share movements have created many gains and losses for investors and short sellers alike.

Janney maintained a Neutral rating, but raised its fair value estimate to $25 from $18 in its call. The firm noted:

The FDA gives SRPT another shot at an accelerated approval (AA). It needs incremental western blot data from the ongoing PROMOVI study. A minimum threshold for dystrophin has not been set and AA is reasonably likely if the dystrophin data from 13 patients(to be submitted over the coming weeks) demonstrates statistically-significant increases over baseline validating mechanism of action and meeting grounds for AA. Stock could be +$50 on AA, but the downside risk also increases if dystrophin data disappoints. Risks include: 48 versus 180 weeks dosing, biopsy from same muscle (albeit different arms).

Increasing our probability of AA to 55%. Our FV is based on a nine-year DCF analysis, discounted at 20%, perpetuity growth rate of 2.0%, and tax rate of 14%, but does not yet reflect any potential eteplirsen in sales ex-U.S. We assume eteplirsen approval during 2017 and approvals for exon-45 / exon-53, exon-44, and exon-46 during 2020, 2021, and 2022, respectively.

Jefferies has an Underperform rating and a price target all the way down at $7. That call noted:

We see the FDA’s request for additional dystrophin biomarker data as the best-case scenario, suggesting that FDA is willing to give Sarepta another chance instead of issuing a CRL outright. While dystrophin data from week 48 versus baseline could provide high-quality data, we see slim chance for meaningful improvement given the drug mechanism. We continue to see low probability of approval.