Let’s look beyond the biotech’s performance this year.
Most investors know the phrase “buy low, sell high.” It’s a fine piece of investing wisdom, but it isn’t as straightforward as it seems. Even a company whose shares are performing well can be attractive if there’s plenty of upside, especially for those willing to stay in the game for a long time: Buy high, sell higher.
Let’s look at one corporation that has performed extremely well this year, but still looks like an excellent pick to hold onto over the next decade: Sarepta Therapeutics (SRPT -0.17%). The biotech’s shares are up by 62% year to date, but they haven’t peaked yet.
Sarepta just earned expanded approval
Sarepta Therapeutics’ most important marketed product so far, Elevidys, which it developed in collaboration with Roche, was approved in June of last year. What makes it the most important? Like all of the company’s other drugs, it treats Duchenne muscular dystrophy (DMD), a rare, progressive neuromuscular disease. Unlike Sarepta Therapeutics’ other products, Elevidys targets the underlying causes of DMD, the first approved gene therapy to do so. Eligible patients are likely to prefer this option.
Last year, it earned the nod from regulators in the U.S. under the accelerated approval pathway, which means Sarepta Therapeutics had to conduct a post-marketing study to prove efficacy. The biotech did so, and though the trial missed its primary endpoint, it scored on all secondary endpoints. Sarepta Therapeutics pursued expanded approval anyway, which was recently granted by the FDA.
Elevidys has now earned full approval for ambulatory patients with no age restrictions (it was previously indicated for patients between the ages of 4 and 5). It has now also earned accelerated approval for non-ambulatory patients; full approval will be granted if future studies confirm clinical benefit.
In other words, Elevidys’ addressable market just got a lot bigger. The medicine was already performing pretty well. In the first quarter, Sarepta Therapeutics’ total revenue of $413.5 million increased by 63% year over year. Elevidys’ product revenue accounted for a meaningful $133.9 million of that total. Furthermore, Sarepta Therapeutics finally turned in a profit during Q1; the company’s adjusted net earnings per share of $0.73 were much better than the adjusted loss per share of $0.99 reported in the year-ago period.
What’s next for the biotech?
Sarepta Therapeutics’ top-line growth rate will be even more impressive in the coming quarters. The biotech once estimated that Elevidys could reach peak annual sales of about $4 billion. One Wall Street analyst, Needham & Company’s Gil Blum, is even more optimistic and thinks Elevidys could rack up $6 billion in sales by 2027. Given how strong it started even under the restricted accelerated approval, these estimates don’t seem too far-fetched.
The $133.9 million in sales it reported in the first quarter would amount to annual revenue of about $535 million in its first full year on the market, if it does as well in the coming quarters. That would be relatively impressive, but Elevidys will almost certainly do better than that this year alone, given the recent label expansion. So Elevidys could be a significant growth driver for Sarepta Therapeutics for a while.
However, there’s much more to Sarepta; it’s a highly innovative company. Developing medicines for DMD has proved difficult — and the company has four on the market, including one that addresses the underlying causes of the disease. Sarepta’s pipeline features many other investigational therapies for DMD. Overall, the biotech has more than 40 programs in development, and it’s also going after other rare diseases. In January, it started a phase 3 clinical trial for SRP-9003, a potential treatment for limb-girdle muscular dystrophy, another rare muscle disease.
Will this clinical trial prove successful? We can’t say for sure. Although therapies that get this far are more likely to end up on the market than earlier-stage products, no biotech has a 100% success rate even at this stage. However, Sarepta Therapeutics has a deep pipeline and a strong, innovative culture. And thanks to Elevidys, it will have more funds to pour into developing other programs. We should expect solid clinical and regulatory progress for the biotech in the coming years.
In my view, Sarepta Therapeutics is well on its way to becoming a notable player in the biotech industry. The stock looks worth holding onto for the next decade.
