Sarepta Doubles Market Cap After Long-Awaited Muscular Dystrophy Success

Sarepta Therapeutics (SRPT) is soaring Monday after receiving FDA approval for its Duchenne muscular dystrophy drug candidate eteplirsen, whose gauntlet through divisive committee meetings saw healthcare experts and distraught families clash with regulators leery of giving approval to the still-unproven drug.

FDA GIVES LONG-AWAITED APPROVAL: This morning, the FDA said it has granted accelerated approval for Sarepta's lead drug eteplirsen to treat a subset of Duchenne muscular dystrophy and has given the company a rare pediatric disease priority review voucher. The decision was based on a surrogate endpoint of dystrophin increase, which the FDA said was "reasonably likely to predict clinical benefit in some patients." The agency emphasized that a true clinical benefit hasn't been established, and is requiring a confirmatory trial. The news follows reports last week that Ron Farkas, the head of a clinical review team that had argued against eteplirsen during a well-publicized Advisory Committee meeting, has left the FDA.

JANNEY SEES SALES ABOVE $1B: Janney analyst Debjit Chattopadhyay estimates eteplirsen's global market opportunity at roughly 4,000 patients, yielding peak sales above $1B. The post-marketing studies will take several years to complete, which the analyst says should leave the drug on the market until at least November 2020 even if the trials fall short. Chattopadhyay expects conditional EU approval in 2017, and also highlights Sarepta's resaleable pediatric review voucher, which he says "limits potential dilution over the near-term." The analyst upgraded the stock to Buy and raised his fair value estimate to $65 from $30 on the shares in the wake of the FDA approval.

HYPER GROWTH PHASE: William Blair analyst Tim Lugo calls today's news an "end to the regulatory saga" surrounding eteplirsen, which has seen Sarepta shares jolting massively higher and lower throughout the year. With the approval, Lugo expects the company to move into a "hyper-growth phase of profit generation in a DMD market with no competitive pressure." The analyst highlights that "comparable" companies such as Alnylam (ALNY) have a market value nearing $7B while Synageva was sold for over $8B, and he argues that Sarepta's total DMD platform has a market opportunity "at least as attractive" as the aforementioned companies. Lugo, who models peak eteplirsen sales at just under $2B annually based on a yearly price of $275,000, upgraded the stock to Outperform with an $88 price target.

LAUNCH BY LATE 2016: Piper Jaffray analyst Edward Tenthoff expects a U.S. launch by year end, and sees sales of $507M in 2017 and $710M in 2018. He expects Sarepta to raise capital immediately to bring eteplirsen to market, and upgraded the stock to Overweight while boosting his target to $64 from $17.

PRICE ACTION: Sarepta has surged 88% to $52.91 following this morning's FDA announcement. PTC Therapeutics (PTCT), whose Translarna drug seeks to treat another subset of Duchenne muscular dystrophy, is up 19% to $10.87.