New-look Sarepta eyes approval for muscular dystrophy drug
* Under new CEO, Sarepta focused on Duchenne muscular dystrophy drug
* Strong mid-stage trial more than doubles company's value
* Investors hope for fast-track approval; some analysts cautious
* Analysts expect company to relay FDA feedback in April
By Zeba Siddiqui
April 2 (Reuters) - After three decades without bringing a drug to market, Sarepta Therapeutics Inc stands on the verge of a breakthrough with its treatment for a crippling genetic disorder that affects one in every 3,500 newborn boys.
If U.S. regulators fast-track approval of its treatment for Duchenne muscular dystrophy, as some investors are betting, it would complete a remarkable turnaround for the company that began life as AVI Biopharma in Corvallis, Oregon, 33 years ago.
Sarepta's stock has more than doubled in value since October, when its drug, eteplirsen, yielded positive results in a mid-stage trial. The company has a market capitalization of $1.1 billion.
Duchenne muscular dystrophy, or DMD, is classed as an orphan disease -- a condition affecting fewer than 200,000 people. More than a quarter of the 39 new medicines approved in the United States last year were designated for such diseases.
It's an area that has grabbed the attention of drug developers in search of a unique product that can command a high price. There are no approved treatments for DMD.
"Sarepta has the product and development platform necessary to join the ranks of other successful companies that target rare diseases," William Blair & Co analysts said last month as they launched coverage with an "outperform" rating on the stock.
The company also has renewed focus, analysts say -- something that Chief Executive Chris Garabedian says was missing when he took over on Jan. 1, 2011.
"At that time, the company's potential was under-appreciated, because we didn't have robust clinical data in any disease area and our business lacked focus," he told Reuters.
Garabedian, formerly vice-president of corporate strategy at Celgene Corp, arrived at Sarepta - then AVI - following a management shake-up led by private investor George Haywood and Meldrum Asset Management. The name-change followed in July 2012.
"The change is night and day, frankly," Haywood, referring to the company before and after the management changes, said by telephone.
Haywood, who holds a bachelor's degree in biology from Harvard University, began investing in AVI in the early 2000s. He was the biggest single shareholder by 2005; his most recent filing, dated Dec. 31, 2011, discloses a 3.8 percent stake.
Meldrum Asset Management owned 4.9 pct as of Dec. 31, 2011.
"There are a lot of great technologies around, but some of them don't develop because you don't have the right management that can identify areas to focus on, like Chris identified DMD," Haywood said.
Sarepta's Nasdaq-listed shares closed at $35.79 on Monday, eight times the value of AVI's stock at the start of 2012 and up 139 percent since Oct. 2, the day before the company reported that eteplirsen had significantly improved the walking ability of patients in the trial.
Nine of the 10 brokerages tracked by Thomson Reuters StarMine recommend buying Sarepta stock. Their mean price target is $42; five of the analysts rate the company a "strong buy".
The one analyst who has a "sell" rating -- Steve Brozak of WBB Securities -- pointed out that the mid-stage trial responsible for the recent stock bump was conducted on just 12 patients.
Company officials met with the U.S. Food and Drug Administration last month, and analysts said the company probably asked that eteplirsen's approval be accelerated.
Its case is bolstered by support from such nonprofits as Parent Project Muscular Dystrophy, CureDuchenne, Action Duchenne and the Muscular Dystrophy Association.
DMD usually appears in infancy and leads to severe muscle loss and eventual death.
It is caused by the body's inability to produce a key protein called dystrophin, which helps in building muscles. To date, the disease has been treated by using corticosteroids -- a man-made replica of the cortisol hormone -- to slow progression.
This treatment, however, comes with side-effects such as weight gain, growth retardation, glucose intolerance, said Dr. Valerie Cwik, director of the Tucson, Arizona-based Muscular Dystrophy Association.
The gene responsible for producing dystrophin contains a series of 79 sections, called exons. When one or more of these exons are absent, the entire chain is disrupted and the body is unable to produce the muscle-building protein.
Eteplirsen is designed specifically for DMD patients whose 51st exon is absent. It helps the body to skip this particular exon so that dystrophin can continue to be produced.
"Eteplirsen not only treats one of the underlying causes of the disease, but also helps produce dystrophin and appears to be very safe," said Cwik, who has treated DMD patients for 15 years.
Christopher Marai, a San Francisco-based analyst at Wedbush Securities, estimated the annual price of a course of eteplirsen therapy at between $350,000 and $400,000.
"It's probably a $400 million to $600 million drug, conservatively," he said in estimating the annual contribution of eteplirsen sales to Sarepta's revenue.
Accelerated approval is not a foregone conclusion. The company, headquartered these days in Cambridge, Massachusetts, is expected to release details of the FDA's guidance this month.
Dr. Ravindra Singh, professor of RNA Biology & Molecular Genetics at Iowa State University, said the study had shown that the drug holds "great promise", but that its effectiveness in larger studies has yet to be tested.
Improvement during the 12-patient study was measured by a test called the six-minute walk that checked each patient's cardiac, respiratory, circulatory and muscular capacity.
Jeffrey Spaeder, chief medical and scientific officer at Quintiles, the largest U.S. pharmaceutical outsourcing services firm, said smaller clinical studies for rare diseases were sometimes accepted by the FDA as fewer patients are available.
Some analysts -- including Deutsche Bank, which began coverage of Sarepta with a "buy" rating last month -- have said they believe the company is unlikely to get accelerated approval. Mid-2015 is more realistic, Deutsche analysts said.
"Sarepta is highly controversial because so much investor attention is focused on accelerated approval," the analysts wrote in a note. "Fundamentally, timing of approval does not matter ... but we do expect volatility around this decision."
Liisa Bayko, director and senior analyst for biotechnology equities research at JMP Securities, said Sarepta's stock would probably fall if the FDA does not grant accelerated approval.
"But I think there are many investors who are willing to invest in the company," she said. "There is a lot of support for the technology in the investment community."
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