Analysts: Roche Partnership Derisks Sarepta Investor Concerns

Sarepta Therapeutics Inc SRPT has entered a partnership with Roche RHHBY to commercialize SRP-9001, its gene therapy for Duchenne Muscular Dystrophy, outside of the U.S.

The deal secures Sarepta a $1.15 billion upfront payment — $750 million in cash and $400 million in an equity investment — as well as mid-teens net-sales royalties, rights to up to $1.7 billion in milestones, and outside contributions to clinical development costs.

“We find the agreement to be positive for SRPT,” Credit Suisse analysts led by Martin Auster wrote in a report. “The large cash infusion and the expense cost sharing strengthen SRPT’s balance sheet and puts the company in a position to produce sufficient product ahead of commercial launch.”

Street Inferences

Analysts were most enthused about the implications of Roche’s agreement. “We believe the safety data collected to date indicated no red flags to Roche’s biz dev team,” Bank of America analyst Tazeen Ahmad wrote.

Morgan Stanley agreed.

“Overall, we believe that the agreement with Roche provides external validation to the DMD program and helps provide third-party derisking of key investor concerns such as the functional impact of microdystrophin and Sarepta management's manufacturing work,” analyst Matthew Harrison wrote.

Face Value

Implications aside, Roche opens Sarepta to the international DMD market, particularly given its expertise in commercializing other rare-disease therapies. “Roche in our view is also an attractive partner given its increasing focus on gene therapy with approved Luxturna (acquired from Spark),” Ahmad wrote.

Harrison sees particular potential for a China launch and, as a result, added ex-EU sales to his Sarepta earnings estimates. Credit Suisse suspects that more than 50% of the DMD market opportunity lie outside the U.S., and Roche will unlock significant value for Sarepta.

“Partially offsetting these positives, the deal does limit potential upside in a blue sky scenario and reduces the likelihood of near-term M&A (we see M&A interest in SRPT increasing post Ph3 data),” Fauth wrote.

The Ratings

Bank of America maintained a Buy rating and $187 price target;

Credit Suisse maintained an Outperform rating but cut its target from $190 to $185; and

Morgan Stanley maintained an Overweight rating but raised its price target from $160 to $173.

At time of publication, Sarepta traded around $135.60.

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