More Reasons to Invest in Sarepta With Caution

NEW YORK (TheStreet) -- My column last week about the risks associated with Sarepta Therapeutics (SRPT) generated an unexpectedly high volume of comments from professional investors. A few smart buysiders questioned two of my concerns: 1) Sarepta's control group might not accurately reflect natural progression in Duchenne muscular dystrophy (DMD), and 2) competitor GlaxoSmithKline's (GSK) pivotal trial implied a higher-than-expected bar for accelerated approval.

Before we dig in, let me reiterate my investment conclusion: Sarepta seems like a solid, modestly sized long position for a risk-tolerant investor.

Sarepta bulls allege that I unfairly questioned the 78-meter absolute decline in the six-minute walk test (6MWT) reported after 36 weeks for control patients in the phase IIb study of eteplirsen. My view was based on a December 2012 Muscle and Nerve study (McDonald C, et al. Muscle Nerve 2010 42:966-974), which showed a 57-meter decline in 6MWT for a small cohort of DMD patients. Citing the same paper, the bulls suggested that I should have focused on the 115-meter decline observed for boys more than seven years old, since that more closely matched the demographics in the company's trial. Had I used this subgroup as a benchmark, Sarepta's control arm data at 36 weeks would seem reasonable.

My first thought was: "$%@#! How did I miss that?"

Step 1: Double check the median age of patients in the Sarepta Phase IIb trial. As far as I can tell, management hasn't publicly disclosed those data. However, a review of the study protocol shows that enrollment was limited to boys between 7 and 13 years old.

Tip of the hat to those investors who highlighted my oversight, and apologies to my readers.

Step 2: Review the literature in more detail. Feeling like a bit of a dope, I dug deeper through the medical literature for longitudinal data on the natural progression of 6MWT scores in DMD. After an exhaustive search, I unearthed another relevant citation that Wall Street appears to have missed.

In July 2011, investigators from 11 neuromuscular centers in Italy independently published a longitudinal study of 6MWT scores in DMD in Neurology (Mazzone E, et al. Neurology 2011; 77:250-256.) The investigators followed 106 patients -- a far larger group than the 18 patients in the McDonald study -- for a year. Like McDonald, the Italians noted a significant age-based difference in the 6MWT decline, with "the point of slope change...around 7 years."

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