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In a major setback, shares of Sarepta Therapeutics, Inc. (SRPT - Analyst Report) plunged 64.01% after the U.S. Food and Drug Administration stated that a New Drug Application (NDA) filing for candidate eteplirsen will be premature.

We note that Sarepta Therapeutics is evaluating eteplirsen for the treatment of Duchenne muscular dystrophy (DMD).

Sarepta Therapeutics met with the FDA to finalize its confirmatory study design on eteplirsen. However, the FDA is doubtful on both the dystrophin biomarker and the supportive clinical efficacy assessed on the 6-minute walk test in the phase IIb clinical trial on eteplirsen, owing to recent developments (post Jul 2013).

These recent developments include a failed phase III trial of GlaxoSmithKline’s (GSK - Analyst Report) and Prosensa’s candidate drisapersen for DMD and negative reports on PTC Therapeutics' (PTCT - Snapshot Report) candidiate ataluren.

Moreover, recently published natural history data on DMD has made the FDA more skeptical on dystrophin as a biomarker and the supporting studies on eteplirsen.

Hence, the FDA is expected to discuss different clinical endpoints, combined endpoints, and different DMD subpopulations for a confirmatory clinical study, along with questions on dystrophin as a biomarker and the need for a placebo-controlled study in a follow up meeting with Sarepta Therapeutics. The meeting is scheduled later in the month.

The FDA’s negative response to the potential submission of NDA on eteplirsen will delay the initiation of dosing in the eteplirsen confirmatory study until the second quarter of 2014. Further, there will be an increase in study costs also as the FDA has asked Sarepta Therapeutics for a placebo-controlled study as the agency believes that efficacy endpoints in DMD are effort dependent and susceptible to buyers while the natural history is highly variable.

The response of the FDA overshadowed the company’s third quarter results. Sarepta Therapeutics reported a net loss of 73 cents in the third quarter of 2013, wider than the Zacks Consensus Estimate of a loss of 66 cents. Revenues of $4.2 million in the third quarter of 2013 were down 44.9% from the year-ago quarter but surpassed the Zacks Consensus Estimate of $4 million.

Our take

We remind investors that Sarepta Therapeutics currently does not have any approved product in its kitty. The delay in eteplirsen’s NDA filing was disappointing, thereby pushing back a potential approval by more than two years. 

The stock plunged to a 52-week low on the news but recovered a bit therafter.  We expect investor focus on further updates on Sarepta Therapeutics’ follow up meeting with the FDA later this month.

Sarepta Therapeutics currently carries a Zacks Rank #3 (Hold).

Right now, Actelion Ltd. (ALIOF) looks attractive with a Zacks Rank #1 (Strong Buy).

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