One of the most challenging investments, if not the most challenging, is the biotechnology and pharmaceutical space. While the underlying solutions may be backed by the most advanced scientific innovations, disappointing clinical results could spell big trouble. Sarepta Therapeutics (NASDAQ:SRPT) is learning this lesson the hard way, with SRPT stock down 57% on a year-to-date basis.

Specializing in gene therapy solutions for muscular dystrophy, Sarepta enjoyed significant positive momentum from the March doldrums of last year. Heading into the early days of 2021, analysts eagerly anticipated the company’s Phase 2 results for a therapy called SRP-9001.

Unfortunately, the clinical test produced mixed findings, which later saw SRPT stock tumbling badly.

SRP-9001 is an experimental therapy for Duchenne muscular dystrophy where patients suffer various symptoms due to a lack of the dystrophin protein. In the clinical trial, Sarepta’s therapy demonstrated that SRP-9001 produced large amounts of dystrophin. Further, patients who received the treatment showed functional improvements compared to a placebo group. However, the results were not statistically significant, drawing concerns about mass-scale viability.

Nevertheless, many analysts view SRPT stock as a buying opportunity and recently, they received support for their optimism. Last month, Sarepta disclosed results from its testing of a low dose of its SRP-9003 gene therapy, which is designed to address limb-girdle muscular dystrophy. This form of muscular dystrophy “is caused by deficient levels of beta-sarcoglycan, a protein tied to muscle function.”

Significantly, SRP-9003 patients demonstrated an increase in beta-sarcoglycan levels after a two-year period. Moreover, these patients benefitted from improved muscle function at 18 months and retained that improvement at two years.

Despite the positive news, SRPT stock continues to shed market value. In fact, after a small dead-cat bounce, shares have decidedly trended downward, leading to serious questions about whether investors should get involved.

Skepticism for SRPT Stock

There’s no denying the remarkable potential of gene therapy. Recently, the concept has moved beyond science fiction toward scientific reality. As MIT Technology Review pointed out, 2017 was a breakthrough year for gene therapies, which fundamentally bodes well for SRPT stock.

Perhaps most notably, the Food and Drug Administration “approved two pioneering treatments, Kymriah and Yescarta, that use a patient’s own immune cells to fight rare types of cancer. Called CAR-T therapies, these “living drugs” are made by extracting T cells from patients and genetically engineering them to go after and destroy cancer cells.”

Deployed as a last resort when traditional treatments such as chemotherapy failed, some patients “have had remarkable recoveries and remain in remission months or years later.”

In another compelling example, FDA approved Luxturna, which “aims to correct a mutation responsible for a range of retinal diseases that make people gradually go blind.” Luxturna’s developer, Spark Therapeutics, was eventually bought out by Roche (OTCMKTS:RHHBY). Conceptually, this too augurs well for SRPT stock.

But the problem is that investors aren’t buying just based on the science – the science has to make financial sense. For instance, Luxturna costs almost $1 million for a one-time treatment. Gene therapies are not cheap, so their potential impact has to be somewhat commensurate with the price tag.

I believe this is where SRPT stock runs into some problems. First, while Sarepta’s investigational gene therapy SRP-9003 produced encouraging results, the sample size – three participants – is too small to make any broader conclusions.

Confirming evidence comes from the company itself. Its SRP-9001 therapy, which shares some similarities with SRP-9003, produced mixed results across a participant base of 41 people.

Further, we must also consider the cost equation. Many therapies already exist for muscular dystrophy. Therefore, Sarepta’s solutions must justify themselves on their scientific and financial merit for investors to be interested.

A Better Discount May Be Waiting

While I’m encouraged with the results of SRP-9003 and the burgeoning success stories of gene therapy overall, I’m not getting a great feeling about SRPT stock. In this case, I think the Phase 2 trial of SRP-9001 is representative of its underlying technology – it has potential, but its broader efficacy remains unproven.

Furthermore, looking at the history of SRPT stock, it’s characterized by extreme peaks and valleys. Thus, I’m suspicious that Sarepta is on the tail end of one its peak cycles and that a better discounting may be coming in the months ahead.

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