Monday, 12 November 2012

Biotech Company With Small Float Moves on Positive Data Results and Competitor Delays

Nov 12, 2012 - Sarepta Therapeutics (SRPT) moved up nearly 20% on above average volume and closed within pennies of its day high at $27.13 as news of patients with Duchenne muscular dystrophy (DMD) who are getting treatment from SRPT's eteplirsen continue to do well on therapy was announced over the weekend.

An additional driver for the stock today was the announcement that a competing drug to the company's eteplirsen made by GSK will likely not be approved until 2014 at the earliest. This leaves the door open for the possibility that eteplirsen will be the only game in town for DMD patients should the company receive accelerated approval in 2013 as expected. The degenerative nature of DMD in children makes it imperative that any solution that works gets on to the market as soon as possible. The risk-reward ratio to patients with the disease is very high. The effects of the disease - which makes being wheelchair-bound and eventual death a certainty as the disease progresses - makes any other possible long-term side effects appear benign in comparison.

Duchenne muscular dystrophy affects a few thousand children in the United States. So while the market is not large in sheer size, the medical benefits to the patients and resulting revenue to SRPT per patient is vast. SRPT's market will grow large with time as the life expectancy of current DMD patients will increase. Since there is no cure for the disease, as more children are born with the condition, those patients will add to SRPT's market size as eteplirsen continues to improve the length and quality of life of more individuals. The drug will need to be consistently taken by patients during their entire life span.

Revenue estimates and stock price targets vary widely between analysts. But most are in agreement that the stock price is undervalued by several multiples. For a detailed analysis of the Sarepta story and valuation, see the below link to a Seeking Alpha article.

Sarepta Therapeutics Still Looks Ridiculously Undervalued

From a technical standpoint, the stock has confirmed a reversal of its downtrend that has occurred since it rose 200% in one day on October 3. Referring to the picture below or here, we see that since the stock has bounced off of its 50-Day MA late last week, today has been its strongest price rise since the 200% move. Both Friday's and today's positive moves from the price at market open mark the first time that the stock has seen two white candlesticks in back-to-back trading since the three days of bullish trading from September 27 to October 1 - two days before the company's 200% move.

Based on the chart, the multitude of bullish price targets on SRPT and the continued good news for the company and the DMD patients that eteplirsen has shown, it is reasonable to expect that the $45 level seen on October 3 will be retested soon. Since the stock is highly volatile and has a very low share float of less than 23 million shares outstanding, $45 would not be an unreasonable target by the end of this week!

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