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Sarepta Shares Still Have Upside

NEW YORK ( TheStreet) -- Early this morning, Sarepta Therapeutics (SRPT - Get Report) reported stunning 48-week results from a Phase IIb study of eteplirsen for the treatment of Duchenne muscular dystrophy (DMD) -- a progressive disease that leaves patients wheelchair bound by their teens and dead shortly thereafter. The data are about as good as bulls could have hoped, and strongly suggest that the company can successfully vie for accelerated FDA approval.

For investors and potential suitors -- today's news clearly advances Sarepta to the forefront of biotech acquisition targets -- the next critical question is how much eteplirsen might be worth. Let's take a closer look.

First, we need some details on the patient population. According to several sources, the prevalence of DMD in the U.S. -- that is, how many individuals are currently living with the disease -- is roughly 8,000 patients. For simplicity, let's assume a similar number of patients in the "Big Five" European countries. However, eteplirsen works only in those deletions amenable to exon 51 skipping, which seems to be 13% of DMD patients. That leaves an eligible prevalence of 2,080 patients in the U.S. and key European markets.

The incidence of DMD in the U.S. -- that is, how many new patients enter the market each year -- is one per 6,000 births, which implies 667 patients per year. Of this group, 87 patients will be eligible for eteplirsen. Again, let's assume a similar incidence population in Europe.

Price is a key unknown variable. As a seemingly effective treatment for an ultra-rare Orphan disease -- a condition that affects only a tiny number of individuals -- it's safe to assume that eteplirsen will be very expensive. Based on pricing for other drugs in this category, I'm guessing eteplirsen will cost roughly $400,000 per year. Investors won't know the drug's price until after approval, but this seems like a reasonable starting point.

Now we need to estimate market share. Given the well-informed patient population and rapidly progressive disease course, Sarepta should be able to capture 35% of the prevalence in the drug's second year on the market. I'm going to assume the company captures roughly half of the incidence population, since the data appear to show improved outcomes for patients with less disability at baseline.
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