Why I'm More Confident in Sarepta Than Ever Before

In a three-week period between mid-September and early October, Sarepta Therapeutics  (SRPT) received a batch of good news for its Duchenne muscular dystrophy (DMD) drug eteplirsen which propelled the stock from the low $30s into the mid $50s. 

Since then, a lack of news, a general malaise over the biotech market and a rehash of bearish arguments from short sellers has squashed the Sarepta rally. The stock has retrenched back to where it was trading mid September before all the good news kicked in. 

I view the pullback as an opportunity for investors to get into Sarepta at an extremely cheap price given the outsized upside from here relative to downside risk.

The company's chief competition, the partnership between GlaxoSmithKline  (GSK) and Prosensa (RNA), saw their DMD drug drisepersen fail in a phase III study. The blow up means two very big things for Sarepta. First, eteplirsen has the DMD treatment market to itself, regardless if the drug is approved in 2014 or even if delayed by a year or so while a pre-approval phase III study is completed. Second, the demise of drisapersen opens the European DMD treatment market to Sarepta, which was previously blocked due to patents. Eteplirsen's commercial market opportunity goes from $500 million to $800 million with European DMD patients added in. 

I have more confidence in eteplirsen's efficacy following the presentation of stellar 96-week data from the phase II study last month. Over 96 weeks, nearly two years, the DMD boys treated with eteplirsen have shown a reduction in six-minute walk test performance of only 6.3 meters from baseline. As anyone who knows the natural history of DMD will tell you, these results are simply remarkable. Furthermore, eteplirsen hasn't had a single safety issue.

The Eteplirsen data to date have been so good that Sarepta short sellers are now claiming the company and its CEO Chris Garabedian are pulling off some sort of scam. These allegations are possibly the dumbest thing I've ever heard. The value of Sarepta's stock has risen dramatically in the past two years yet management has not sold a single share since late August. Instead, five Sarepta insiders have bought company stock.

There are many reasons for insiders to sell stock but only a single reason to buy, Peter Lynch has said. I truly believe management is confident they have, in eteplirsen, the first effective therapy against DMD, which is why they're not selling stock but buying it. 

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