It has been a long wait for the Food and Drug Administration (FDA) to rule on whether to approve Sarepta Therapeutics Inc’s (SRPT)  Duchenne muscular dystrophy (DMD) treatment—and looks like recent news had increased the odds of an approval.

A reported departure of an FDA critic had SRPT surging as it could be a positive sign that Sarepta Therapeutics’ drug called the eteplirsen will receive a better reception from the US agency in the near future.


Farkas Leaves the FDA

Michelle Gilson from Oppenheimer clarified that Ronald Farkas, MD, PhD the critic and team leader who spearheaded the review, has left the FDA.  “Additionally, he is no longer listed in the HHS (Health and Human Services) employee directory. We view this as a positive signal for eteplirsen approval.”

The US Department of Health and Human Services is the overseeing body for the FDA.

Gilson recalled that Farkas was regarded as an antagonistic character at eteplirsen’s advisory committee last May. “The DMD community and experts were particularly inflamed by comments regarding patient effort in the trial and the review’s treatment of the data set as if it were not from a rare disease setting. Contrarily, we would have viewed a promotion for Farkas or departure of a more supportive figure (i.e., Woodcock) as a negative signal for eteplirsen approval.”

The Wall Street Journal had previously reported Farkas to be the most vocal critic of the drug, although he is not the only member of the 13-person committee who is extremely concerned about eteplirsen.

“We continue to believe that eteplirsen will be approved, and a label will be based on dystrophin production at 48-weeks across the two trials, supported by 6MWT trends.”

Although this event may not define what will happen with the appeal, it does yield some optimism for the patients and parents of the patients in extending the trial.


SRPT Performance

Sarepta was one of the best performers on September 14’s rather quiet trading session, along with Advanced Micro Devices and Vonage Holdings. SRPT had soared almost 27% or 32.450 points to 32.450 on Wednesday’s close.

While it is evident that the bulls are indeed taking over and are pushing the stock higher, there are more bearish investors arguing that despite Farkas leaving his post, there will be barely any change from the FDA.

If the drug fails to gain approval, then naturally not much has changed, the stock had already slumped from this news at its price level before Wednesday’s move. Should the contrary happen—eteplirsen getting approved and coming back online—the Sarepta is bound to get a major upsurge again.

Not counting Wednesday’s event, Sarepta has underperformed the broad markets with the stock down at an estimated 34% year to date. Over the past 52 weeks, the stock is falling 30%. Since February 10, 2016, SRPT has risen 187.42% and is still uptrending.

Earnings report of the medical research and drug development company is set on November 3. Analysts are expecting a $-1.31 EPS, lower from 2015’s $-1.25. After $-1.34 actual EPS posted by Sarepta for the previous quarter, Wall Street now estimates -2.24% EPS growth.

Analysis: Should You Buy SRPT?

There lies a great possibility that today’s share price spike Is due to short covering, so it would not be surprising if some of the 15 million shares contributing to the surge today were bears in a frenzy to unwind positions.

In a weekly timeframe of the SRPT, the stock tacked on its highest level since its great dive in January of this year, when the stock crashed 5.9%. Today’s uptick was that period’s reason for free-fall—on January 11, 2016,  the FDA presented documents that suggested it may not approve the company’s eteplirsen.

FSMNews(Chart taken from tradingview.com)

The documents said the agency has not reached a final verdict on the application but implied at uncertainties about the findings of two clinical trials, diminishing investor expectations.

The FDA said at the time that it “is prepared to be flexible with respect to a devastating illness with no treatment options, we cannot approve drugs for which substantial evidence of effectiveness has not been established.”

Still, Sarepta had a steady, slow uptrend throughout the year, and finally tacked on $32.45.

Eteplirsen could reel in nine figures in revenue yearly if it gets approval, but the range of sales could be in the low nine figures, not the high nine figures. However, Farkas exit doesn’t exactly guarantee a clear shot at approval, especially that he wasn’t the only member to critic the drug in the committee.

While the current uptrend is a huge event, investors should remain cautious and not haste to make conclusions that the stock will continue to move higher. An approval could direct to revenue soon, but sales aren't expected to slump to the bottom for a while.

Given that Sarepta is spending $60 million per quarter on operating expenses and the skepticism surrounding the eteplirsen, buying SRPT would be a risk.

For a more detailed story on the committee’s history with Sarepta’s drug and technical indicators on the stock, here’s FSM News Harvey Paulsen’s new story on Sarepta shares surging over hope for DMD.

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