When one player stumbles in a high-stakes competition, it's often to the glee of the other contenders. In mid-June, Pfizer's (PFE 0.65%) gene-therapy candidate to treat Duchenne muscular dystrophy (DMD) didn't hit the mark in a late-stage clinical trial; it'd be logical to assume that shares of Sarepta Therapeutics, (SRPT 0.03%) a biotech focused on developing DMD drugs, would then rise.
But that didn't happen -- at least not until Sarepta got a green light for one of its programs from the Food and Drug Administration (FDA) on June 20, causing its stock to soar by 31%. Let's evaluate the situation and determine whether there's an investable opportunity -- or perhaps a threat to your portfolio, if you're already a shareholder of either business.
Failing here isn't good news for anyone
DMD is a rare, fatal, degenerative, and predominantly hereditary illness that causes progressively worsening muscle weakness. It's typically diagnosed before patients are 5 years old, and there aren't yet any curative treatments, though there are a few interventions to address some of the symptoms. Beyond that, Sarepta produces several therapies that may be capable of slowing the rate of the disease's progression, and it's currently developing a few more.
One of the treatments already on the market is a gene-editing therapy called Elevidys, which was approved on an accelerated basis by the FDA roughly a year ago, provisional on further clinical testing for the sake of confirmation. On June 20, the FDA granted Elevidys full approval for ambulatory patients aged 4 and older, and also granted an accelerated approval for non-ambulatory patients older than 4 who are further along in the course of the disease.
That's obviously good news for shareholders, but there's more to the story. Elevidys brought in $133.9 million of Sarepta's haul of $359.5 million in the first quarter of this year, and it's the only treatment of its kind on the market. Before the most recent expansion of the drug's approval, regulators were rather skeptical of the therapy's efficacy, as well as the safety risks associated with its mechanism of action. In short, the mechanism is to use an engineered virus to correct the genes responsible for causing DMD, by replacing each defective gene with an artificially designed replacement copy.
On June 12, Pfizer reported that its gene-editing therapy program for DMD, which uses a very similar approach, failed to meet the endpoints of its phase 3 trial. Essentially, the problem was that patients who were treated with the candidate didn't actually experience statistically significant improvements to their mobility or motor functioning when assessed against several objective rubrics. There's probably not much hope for Pfizer's candidate to proceed toward approval now, and it's likely that the program will be terminated.
One of Sarepta's confirmatory clinical trials for Elevidys, published in October 2023, reported similar data: It also missed its primary endpoint, though there were a few slightly more positive indications relating to motor function. That caused an advisory committee at the FDA to vote against approving it for sale, though a different committee ultimately overruled it.
See the problem? Neither company seems able to consistently and convincingly prove that its therapy does what it's supposed to do. And regulators, while erring on the side of optimism with Elevidys, are far from being fully on board.
Though Pfizer's setback probably marks the end of the road for its attempt to compete in the DMD space, that doesn't mean Sarepta will continue to have free rein. Even though regulators just gave it the go-ahead, there's still a small-to-moderate chance that Elevidys might ultimately get yanked from the market for one of its indications if ongoing confirmatory trials don't pan out. Either way, the biotech will need to spend more on research and development (R&D) to generate data to allay these concerns.
What should investors do?
Investors shouldn't dump Pfizer stock because its most mature DMD program fell apart. It still has a phase 2 gene-editing therapy trial in progress, though the odds for its success are quite poor. The company has many other programs that'll eventually become commercialized and help it to grow, and at least a few of its major investments in its oncology pipeline will eventually pay off. As unfortunate as the news of this trial's failure is, Pfizer is still worth buying because it has so many different irons in the fire that no single program is essential to its success.
For Sarepta, the picture is a bit better. While it has therapies on the market other than Elevidys, and a handful of others in development, it isn't out of the woods yet to prove that the therapy works. If the biotech can't produce the confirmatory data that regulators want to see, that's likely to discourage clinicians from prescribing the drug.
It isn't the wisest move to make a big investment in Sarepta Therapeutics right now, though you might consider making a small one. If a strong set of new data seems to support Elevidys' continued use, that'll be a green flag for an investment -- but remember that hoping for the best isn't a good investment thesis.
