Healthcare Business

Why One Analyst Sees Sarepta's Roche Deal Taking Off

Sarepta Therapeutics Inc. (NASDAQ: SRPT) shares jumped last week on news that the company reached a licensing deal with Roche. While investors saw about a five-point bump from this news, one analyst sees much more upside for this stock as a result of the deal.

The deal provides Roche exclusive commercial rights to SRP-9001, Sarepta’s investigational gene therapy for Duchenne muscular dystrophy (DMD), outside the United States.

Under the agreement, Sarepta will receive $1.15 billion in an upfront payment and an equity investment. The company will receive up to $1.7 billion in regulatory and sales milestones, and royalties on net sales, which are anticipated to be in the mid-teen percentages. Additionally, Roche and Sarepta will share equally global development expenses. Sarepta will retain all rights to SRP-9001 in the United States.

Also, Sarepta will continue to be responsible for the global development plan and manufacturing build-out for SRP-9001. Sarepta also has granted Roche an option to acquire ex-U.S. rights to certain future DMD-specific programs, in exchange for separate milestone and royalty considerations and cost sharing.

As a result, Janney reiterated a Buy rating for Sarepta with a $185 price target, implying an upside of 42% from the most recent closing price of $129.77.

Ultimately, the firm believes that the partnership with Roche should allow Sarepta to focus on the U.S. market with both commercialization and clinical development of a robust pipeline, while benefiting from Roche’s global footprint, which should bring SRP-9001 to a significantly larger number of DMD patients that otherwise would be difficult to reach.

On the number’s side, Sarepta ended the third quarter with cash, cash equivalents and investments of roughly $1.1 billion, and the company raised $250 million through a senior secured loan earlier this month. Management expects to have over $2.5 billion of cash after the completion of the transaction. The cost-sharing structure of the agreement should also relieve a significant burden associated with the clinical development of SRP-9001 from Sarepta.

Shares of Sarepta were last seen at $129.68, in a 52-week range of $72.05 to $158.80. The consensus price target is $196.05.

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