Sarepta Therapeutics, Inc. (NASDAQ:SRPT) Q1 2023 Earnings Call Transcript

Sarepta Therapeutics, Inc. (NASDAQ:SRPT) Q1 2023 Earnings Call Transcript May 2, 2023

Operator: Good afternoon and welcome to the Sarepta Therapeutics First Quarter 2023 Earnings Call. At this time all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. As a reminder, today’s program is being recorded. At this time, I will turn the call over to Mary Jenkins, Associate Director, Investor Relations. Please go ahead.

Mary Jenkins: Thank you, Shannon, and thank you all for joining today’s call. Earlier this afternoon, we released our financial results for the first quarter 2023. The press release is available on our website at sarepta.com, and our 10-Q was filed with the Securities and Exchange Commission this afternoon. Joining us on the call today are Doug Ingram, Ian Estepan, Dallan Murray, and Dr. Louise Rodino-Klapac. After our formal remarks, we’ll open the call for Q&A. I’d like to note that during this call, we will be making a number of forward-looking statements. Please take a moment to review our slide on the webcast, which contains our forward-looking statements. These forward-looking statements involve risks and uncertainties, many of which are beyond Sarepta’s control.

Actual results could materially differ from these forward-looking statements. And any such risks can materially and adversely affect the business, the results of operations, and trading prices for Sarepta’s common stock. For a detailed description of applicable risks and uncertainties, we encourage you to review the company’s most recent quarterly report on Form 10-Q filed with the SEC as well as the company’s other SEC filings. The company does not undertake any obligation to publicly update its forward-looking statements, including any financial projections provided today, based on subsequent events or circumstances. I’ll now turn the call over to President and CEO, Doug Ingram, who will provide an overview of our recent progress. Doug?

Doug Ingram: Thank you, Mary. Good afternoon and thank you for joining Sarepta Therapeutics’ first quarter 2023 financial results conference call. Perhaps you’ll see this is a break from the past, but I intend to keep my remarks this evening brief. As you know, in a mere 10 days from now, we will be attending and presenting at the FDA advisory panel for SRP-9001 our gene therapy intended for the treatment of Duchenne muscular dystrophy. And we believe that the primary areas of discussion at the advisory committee will be these whether the totality of evidence supports the conclusion that SRP-9001 dystrophin protein at the levels expressed by this therapy is reasonably likely to predict clinical benefits. The totality of the evidence will include natural history, the preclinical data, biomarker results, and the functional results from our clinical trials.

The panel will also address the risk benefit analysis associated with the administration of SRP-9001 for the treatment of ambulatory patients with DMD in the context of Accelerated Approval. And finally, an assessment of the ability to bring to conclusion, EMBARK, or Study 301, the proposed post-marketing confirmatory trials to support the Accelerated Approval of SRP-9001 in the event that Accelerated Approval is granted. The team is well prepared and excited to share with the advisory committee the wealth of compelling evidence supporting the conclusion that SRP-9001 dystrophin protein in the amounts expressed by that therapy is reasonably likely to predict a clinical event. So to set expectations for this call, we intend to discuss first quarter performance and Dr. Louise Rodino-Klapac will provide a pipeline update, but to respect the process and in light of how soon the meeting will take place, we will not discuss or entertain questions on regulatory matters pertaining to SRP-9001 or the upcoming advisory committee meeting until it’s concluded on May 12th.

Moving now to the quarter, I am very pleased to announce another strong quarter of performance. First quarter total revenue came in at $253.5 million. Net product revenue came in at $231.5 million, that’s a 23% increase over the same quarter of the prior year and exceeding analyst consensus. It is the – this very patient oriented execution that we intend to apply to SRP-9001 if approved. We continue to progress our important post-marketing commitments for our three approved PMO therapies. We have already completed 11 of our post-marketing commitments with respect to ESSENCE, which is our two year blinded placebo-controlled study for VYONDYS and AMONDYS. We were fully enrolled last year and that trial is proceeding with respect to mission, which is our dose ranging post-marketing commitment for EXONDYS.

Part II of that study is substantially enrolled and progressing. As relates to SRP-9001, in addition to preparing for the May 12th advisory committee and prosecuting the BLA with the May 29 PDUFA date in mind, we are ensuring that we will be prepared to successfully launch 9001 and serve the community if and when approved. By now, we have successfully concluded all FDA inspections that includes three GMP inspections and two GCP inspections. With our partner Catalent, we are producing material to successfully launch 9001 upon approval and we are finalizing our launch readiness work. And we are finalizing our plans to commence the studies necessary to expand the 9001 label to the broadest population supported by the science including our commencement of our non-ambulatory study ENVISION, or Study 303, and our multiple studies to explore the removal of neutralizing antibodies to rh74.

Beyond that, we’ve been advancing our broader pipeline that Dr. Rodino-Klapac will provide an update on our pipeline momentarily. Now the coming weeks and months are monumentally important to the patients that we serve. As I have said many times by now, we stand at a bellwether moment with the greatest evidence-based hope yet in history to bring a better life to families today living with and unfortunately today dying from Duchenne muscular dystrophy. And we are also well aware that this BLA stands as a bellwether test for gene therapy itself and for the ability to effectively lean in and use the tools available to us to translate groundbreaking genetic science to medicine that can extend and improve patients’ lives now not merely at some theoretical point in the future.

We feel an enormous obligation to the patients that we serve and our every decision and action is taken and done with that obligation front of mind. And with that, let me turn the call over to our Head of R&D and Chief Scientific Officer, Dr. Louise Rodino-Klapac. Louise?

Louise Rodino-Klapac: Thanks, Doug. And good afternoon. As we look forward to the weeks and months ahead, we remain resolute in our conviction and our values to follow the science and present the objective evidence to support SRP-9001’s ability to change the trajectory of Duchenne muscular dystrophy. Our goal with SRP-9001 is to alter the course of the fatal disease by treating the underlying cause of Duchenne with a onetime gene therapy that delivers functional dystrophin to the muscle. Sarepta has generated the most compelling, preclinical, biomarker and clinical functional results to date more than any other gene therapy in development for Sarepta. We’ve been able to demonstrate based on the strong scientific underpinning of our construct that early SRP-9001 data provided read through for our positive clinical experience with the therapy.

After years of research, we identified an optimal gene cassette able to retain the most critical, protective and functional elements and fit in inside AVV, thereby enabling its delivery. This gene cassette was packaged into our AAV of choice rh.74 and we chose MHCK7 as our promoter. The early data showed robust expressions across skeletal, diaphragm and cardiac muscles, and as a result of that expression as well as the dystrophin protein demonstrating functional benefits, we saw a clinical benefit at the target dose in patients with Duchenne. I will explain in a bit more detail. Individuals with Duchenne don’t have a functioning dystrophin-associated protein complex or DAPC. Understanding this, when we inserted a functional dystrophin protein, we saw up-regulation of the DAPC in animal models.

Photo by National Cancer Institute on Unsplash

More specifically, we saw an almost one-for-one up-regulation of DAPC when there was expression of the SRP-9001 dystrophin, confirming the protective properties of the protein. Further, we saw significant reduction increase in kinase or CK. CK is an enzyme associated with muscle damage. The reduction in CK provided further proof that SRP-9001 was reasonably likely to predict clinical benefit. Since 2018 and across multiple studies, we dosed the largest number of Duchenne patients, more than any other gene therapy in development for this disease. And the clinical results have surpassed our expectations. In summary, SRP-9001 demonstrated robust expression of dystrophin far above what literature would suggested is necessary to be protective of the muscle.

All of it is properly localized at the muscle membrane or sarcolemma or it acts as a shock absorber. We developed a cell-based potency assay that shows that SRP-9001 is active, functional and protective at the muscle membrane. And as in animal models with robust expression of SRP-9001, it’s a significant reduction of CK. Finally, expression of SRP-9001 in patients leads to upregulation of DAPC. In addition to all of this compelling evidence, we are able to show functional benefits versus what natural history will predict on NSAA or the North Star Ambulatory Assessment, which is our primary functional endpoint. We observed benefit across one-, two-, and four-year time points. Based on the totality of the data we believe that SRP-9001 qualifies as a disease modified agent as the levels of dystrophin expressed are reasonably likely to predict clinical benefit in patients with Duchenne.

Now moving to limb-girdle muscular dystrophy or LGMD, we remain committed to advancing our LGMD portfolio in the process of variety of subtypes. I look forward to providing updates on these important programs in the month ahead. Currently, we are making excellent progress on journey, our LGMD Natural History Study and in Voyagene, our Phase 1 study evaluating SRP-9003 for the treatment of limb-girdle muscular dystrophy Type 2E, in ambulant adult patient and non-ambulant patients. It’s in clinical process SRP-9003 material. Combined with positive expression functional data shared from our initial study, SRP-9003-101, we believe the data from Voyagene which will give us insights into a broader patient population. Our next milestones for Voyagene includes completing enrollment in the second half of the year and beginning our Phase 3 study using commercially representative process material later in the year.

Finally, we are on track to commence a systemic pilot study for SRP-6004 dual-vector rh74-mediated gene therapy to treat LGMD2E characterized by the absence of the protein dysperlin. Turning now to the progress we’ve made with our RNA platform, we are pleased to complete enrollment in the first quarter of 2023 for our MOMENTUM study for SRP-5051 and we remain on track, we will announce data from the study in the back half of 2023. In regards to our post-marketing studies or the PMOs, as mentioned last quarter, we completed enrollment in the ESSENCE trial for post-marketing requirement for golodirsen and casimersen and continue to make good progress with our MIS51ON study, which is on track to be fully enrolled this year. In closing, we are looking forward to the advisory committee meeting on Friday, May 12, and it will provide us the opportunity to share the science and the data in support of SRP-9001.

I would like to take this opportunity to thank our Sarepta team who have been diligently working these past months. I will now to turn the call over to Dallan for an update on our commercial activities. Dallan?

Dallan Murray: Thank you, Louise. And good afternoon. In the first quarter of 2023, the team executed on our core RNA business and delivered another strong performance across all three of our RNA-based PMO therapies. As Doug mentioned, we delivered $231.5 million in net product revenue in the first quarter, representing well over 20% growth over the first quarter of 2022. Notably, Q1 of 2023 exceeded our expectations and represented the most successful first quarter in the history of our marketed therapies. In Q1 we have historically seen an impact in the U.S. due to the expected insurance changes at the beginning of each year. Due to the extraordinary efforts of the team in navigating those access headwinds, we saw higher-than-expected revenue in the U.S. in the first quarter.

Each of our – each year, our team is prepared for these challenges, and I’m very proud of their steadfast commitment and sense of urgency with which they serve the Duchenne community. They know that every minute matters for each one of patients we serve. Total ex-U.S. net product revenue in the first quarter was roughly $31 million. This represented a decrease over the prior quarter, which was expected and fully reflected in our annual guidance forecast. As discussed on last quarter’s call, we expect to see continued fluctuations in ex-U.S. ordering patterns quarter-to-quarter. Overall, the fundamentals of the business coming out of Q1 are completely in line with what we expected at this point in the year. And we reiterate our full year guidance of greater than $925 million in net product revenue for our PMO therapies.

This guidance reflects all of the factors that we navigate and monitor in supporting patients forward with. With its increasing global revenue base, we will continue to see fluctuations in the net product revenue from quarter-to-quarter. Importantly as well in the U.S. market, we have now hit a mature phase with all three products and as such, we expect more modest growth in new patient starts in the coming quarters for the PMO business. Turning now to individual net product revenues for the first quarter of 2023 for our three approved RNA-based PMO therapies. EXONDYS 51 totaled $132.6 million, representing more than 13% growth over Q1 of 2022. For VYONDYS 53, sales were $33 million, growing roughly 18% over the first quarter of 2022. And for AMONDYS 45, sales totaled $65.9 million, representing more than 50% growth versus Q1 of 2022.

In addition to the strong performance in our core business, the team has been simultaneously preparing and laying the groundwork of SRP-9001 launch. The full team is in place being rigorously trained as we speak. And I can say with confidence that they are ready to execute if SRP-9001 is approved. This launch will represent a historic moment not only for Sarepta but for the Duchenne community and for genetic medicine. The level of enthusiasm and confidence of the team is at an all-time high, and they are eager for this opportunity to demonstrate what we are capable of and what would be our fourth launch in the Duchenne market. Over the past several months, our field teams and Sarepta leadership have meaningfully engaged with roughly 75 sites of care on strategic and operational site readiness matters.

These important interactions will ensure that the sites are ready to efficiently, safely provide SRP-9001 gene therapy to patients as soon as possible. We’ve also been working closely with sites to provide education and training as well as ensuring that they have the necessary equipment and resources to deliver the therapy to patients. In addition to site readiness, we know from our experience with PMO therapies that access and reimbursement are crucial to successfully delivering SRP-9001 patients. We are committed to ensuring that our gene therapy for Duchenne is accessible to all patients who need it, and we recognize that meaningfully engaging with payers is a critical part of achieving that goal. We found that the payers are asking important questions pertaining to the SRP-9001 clinical data, potential patient population size, launch timing and infusion sites.

We are encouraged by the positive response we have received thus far and are pleased with the progress we have made in engage with both commercial and Medicaid payers. If approved, 9001 brings forth a potentially transformative therapy to patients who have been waiting for far too long. The team has done a tremendous job preparing for what will be the largest gene therapy launch to-date if SRP-9001 is approved. I’d like to take this opportunity to personally thank the whole organization who are not only executing to support 30% of patients on our key member today but who have also risen to the occasion so that we can be ready as a team with this paradigm-shifting moment. And now I’ll turn the call over to Ian Estepan for an update on our financials.

Ian?

Ian Estepan: Thanks, Dallan, and hello all. This afternoon’s financial results press release provided details for the first quarter of 2023 on a non-GAAP basis as well as a GAAP basis. Please refer to the press release available on Sarepta’s website for a full reconciliation of GAAP to non-GAAP financial results. For the three months ended March 31, 2023, the company recorded total revenues of $253.5 million, which consists of net product revenues and collaboration revenue, compared to revenues of $210.8 million for the same period of 2022, an increase of $42.7 million. Net product revenue for the first quarter of 2023 from our PMO exon skipping franchise was $231.5 million compared to $188.8 million for the same period of 2022.

The increase in net product revenue primarily reflects increasing demands of our products. In each of the quarters ended March 31, 2023 and 2022, we recognized $22 million of collaboration revenue, which relates to our collaboration arrangement with Roche. The reimbursable co-development costs under the Roche agreement totaled $20.3 million for the first quarter of 2023 compared to $17.7 million for the same period of 2022. On a GAAP basis, we reported a net loss of $516.8 million or $5.86 and $105 million or $1.20 per basic and diluted share for the first quarter of 2023 and 2022 respectively. This change is primarily due to the loss on debt extinguishment of $387.3 million, a non-cash expense incurred in the three months ended March 31, 2023 with no similar activity for the same period of 2022.

We reported a non-GAAP net loss of $85.5 million or $0.97 per basic and diluted share in the first quarter of 2023 compared to a non-GAAP net loss of $48.6 million or $0.56 per basic and diluted share in the first quarter of 2022. In the first quarter of 2023, we are recorded approximately $35 million in cost of sales compared to $31.4 million in the same period of 2022. The increase in cost of sales is primarily due to an increasing demand for our products as well as write-off of certain batches of our products not meeting the quality specifications for the three months ended March 31, 2023, with no similar activity in the same period of 2022, partially offset by decrease in the royalty payments during the three months ended March 31, 2023 due to changes in the BioMarin royalty term.

On a GAAP basis, we recorded $245.7 million and $194.3 million in R&D expenses for the first quarter of 2023 and 2022 respectively a year-over-year increase of $51.4 million. The increase is primarily due to an increase in our manufacturing expenses. On a non-GAAP basis, R&D expenses were $220.7 million for the first quarter of 2023 compared to $173.2 million for the same period of 2022, an increase of $47.5 million. Now turning to SG&A, on a GAAP basis, we recorded approximately $110.7 million and $71.8 million for expenses for the first quarters of 2023 and 2022 respectively, an increase of $38.9 million. The increase was driven primarily by an increase in professional service expenses to prepare for a potential launch of SRP-9001. On a non-GAAP basis, the SG&A expenses were $83.3 million for the first quarter of 2023 compared to $53.2 million for the same period of 2022, an increase of $30.1 million.

We expect that our R&D and SG&A expense will increase next quarter as we continue to prepare for a potential launch of SRP-9001. On a GAAP basis, we recorded $12.7 million in other income net for the first quarter of 2023 compared to $17.3 million in other expense net for the same period of 2022. The change is primarily due to an increase in interest income and accretion of investment discount due the investment mix of our investment portfolio as well as a reduction of interest expense incurred as a result of the repayment of our December 2019 term loan during 2022. In the first quarter, we exchange a portion of our 2024 notes with an aggregate principle value of $313.5 million and issued approximately 4.5 million shares of our common stock.

We accounted for the exchange as a debt extinguishment, recognizing the difference of the fair value of the shares of common stock transferred on the exchange date and the net carrying amount of the extinguished debt as a loss of $387.3 million inclusive of the 69 – $6.9 million of third-party debt conversion cost just to again to reiterate this is a non-cash expense. We had approximately $1.9 billion in cash, cash equivalents and investments and long-term restricted cash as of March 31, 2023. We remain well capitalized to execute on our goals for the year and support our transition to profitability assuming and approval of SRP-9001. And with that, I’ll turn the call back over for Doug to start the Q&A. Doug?

Doug Ingram: Thank you, Ian. Now before we begin the Q&A, let me reiterate. And in light of and in respect of the impending FDA advisory committee, we will not be entertaining questions on the regulatory process or the upcoming advisory committee meeting for SRP-9001 tonight. I do look forward to discussing those matters with you once the May 12 advisory committee meeting has concluded. And with that, Shannon, let’s open the line through questions.

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Q&A Session

Operator: Thank you. Our first question comes from the line of Colin Bristow with UBS. Your line is now open.

Colin Bristow: Hey, good afternoon. And huge congrats with you on the cusp of this approval. So on your supply at launch, can you talk about the capacity and ability to meet demand? I’m just asking in light of the fact of or in light of some of the comments from your partner around a and expected production ramp at the Maryland site. And then just sort of within this, in terms of patient logistics, can you talk about your expectations for the initial timelines from a physician prescribing SRP-9001 to a patient receiving a therapy given the need for antibody testing another potential laboring requirements? Thank you.

Doug Ingram: Yes. Thank you very much for that, Colin. So on the first part of the question, as we’ve said, our goal and we will meet that goal is to be able to fully launch and supply the community, assuming that we are able to get an approval. Of course, our goal right now is to get an approval at the PDUFA day, which is May 29. We have seen the comments made by Catalent, so we’re very clear that those comments and the issues that they were discussing do not play any role in or have any effect on our plans or our production plans in the flatness. So we should be in good shape there. With respect to the launch, our goal is to launch this therapy as rapidly as possible and I think we have proven ourselves over the last few years, very capable of doing exactly that.

With that said, the SRP-9001, this gene therapy has its own particular complications you’ve got, for instance, in addition to not simply having a start form for that, you’ve got to do a number of other things, including getting a pre-infusion antibody test that’s sufficiently close to the infusion that it’s valid. And then, of course, not – typically you have – we have to work through access reimbursement and codes and the like. So from a planning perspective, while we’ll be launching this rapidly, one should anticipate really seeing a quarter or two before we really start seeing a significant ramp.

Operator: Thank you. Our next question comes from the line of Gena Wang with Barclays. Your line is now open.

Gena Wang: Thank you. I also wanted to ask one commercial questions. What is your estimate patient numbers for initial indication in the U.S. and also regarding the manufacturing capacity, any major expansion you need to do in order to supply the patient for the initial indication in the U.S.?

Doug Ingram: All right. Let me answer the second part first. The answer is no. There are no major capital expenditures or additional expansion that is required to launch this therapy and serve the community at launch. On the addressable patient population, I can give you the broadest of strokes. They’re somewhere in the 12,000 – 10,000 to 15,000 patients in the United States. Our goal, again, assuming that we are approved at our PDUFA date the goal is to serve all ambulatory patients. The ambulant patients are about 50%, so it’s roughly 50% ambulant, 50% non-ambulant. We’d be covering the ambulant population. And then there will be of course patients that would be excluded because they have preexisting neutralizing antibodies.