UPDATED: Sarepta tanks after FDA squelches hopes for early eteplirsen approval

Shares of Sarepta ($SRPT) instantly tanked this morning after the biotech put out the word that the FDA will not consider an early approval for its experimental drug for Duchenne muscular dystrophy. Regulators also raised questions about the biotech's promising Phase IIb study of eteplirsen, casting doubts on the biomarker used in the study and the efficacy results tracked in the study.

In what has been one of the most hotly contested issues among biotech investors this year, many had bet big that the FDA would push through an accelerated approval for eteplirsen based on some very promising results from a mid-stage study. The biotech had built up investors' hopes, saying that regulators had signalled they were willing to carefully consider a shortcut to approval. The study, though, only included a dozen boys, making the prospect of an early approval problematic at best.

The market reaction to the sudden reversal of fortune was instantaneous--and brutal. Sarepta shares plunged almost 60% this morning, wiping out about $700 million of its market cap.

According to the biotech, the regulatory backlash came after GlaxoSmithKline ($GSK) reported that its DMD drug drisapersen--which works in a similar fashion--failed a late-stage study. That failure, reports Sarepta, raised "considerable doubt" about both the dystrophin biomarker and the supportive clinical efficacy assessed on the 6-minute walk test in the Phase IIb clinical study of eteplirsen. As a result of the recent GSK data, the FDA stated that they "currently consider an NDA filing for eteplirsen as premature."

Duchenne muscular dystrophy is a terrible affliction that destroys the muscles and the lives of the boys it affects. Sarepta's exon-skipping technology promises to correct the genetic mutations that interfere with dystrophin expression, restoring an essential function that can delay and significantly correct the pathology of the disease.

In Sarepta's mid-stage study, most of the small number of patients experienced significant improvement in their 6-minute walk tests. And those benefits extended over a considerable length of time. GSK, which in-licensed the rival drug drisapersen from Prosensa ($RNA), was designed to do the same thing. But after demonstrating improvements in a mid-stage study, the Phase III study by GSK provided evidence of only marginal gains as walking abilities declined dramatically. And that setback raised some serious questions for Sarepta.

A few weeks ago Sarepta shares were scraping a $54 high on the market's great expectations. That figure had shrunk down to $36.56 at yesterday's close. This morning the stock dropped to a little more than $21 a share. Prosensa, which had gone public earlier in the year, experienced an even worse crash after its drug failed in Phase III.

The agency's kickback will shift Sarepta's attention to a late-stage study set to begin next year.

Sarepta CEO Chris Garabedian

"We are very disappointed with the FDA's decision to reconsider their openness to a potential NDA filing based on our current data and the resultant impact this change may have on our efforts to achieve an earlier approval of eteplirsen," said Sarepta CEO Chris Garabedian. "We strongly believe in the potential of eteplirsen to address a serious unmet medical need in DMD and we are committed to its development. Our team at Sarepta recognizes the urgency of families who are seeking new treatments, and we will continue to work with the FDA on an acceptable confirmatory study design and, in parallel, seek to address their concerns regarding a potential NDA filing based on our current dataset."

- here's the release

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