Shareholders of Sarepta Therapeutics (Nsadaq: SRPT) could be excused for scratching their heads yesterday after the close when the common stock of the company traded down around 10% after what seemed to be positive news emanating from the FDA. In a highly anticipated press release, Sarepta announced the results of the company’s meeting with the FDA regarding the pathway to eventual approval for eteplirsen, a novel exon-skipping drug that shows tremendous promise in treating boys suffering from Duchenne’s Muscular Dystrophy (“DMD”).

In meeting minutes provided to Sarepta, the FDA made clear that the agency would consider accelerated approval (“AA”) of eteplirsen after it receives additional data summarizing the existing literature available indicating that dystrophin, a protein necessary for the healthy function of muscle tissue, is a suitable biomarker (a characteristic that is objectively measured and evaluated as an indicator of pharmacologic response) for the FDA to judge the worthiness of eteplirsen as an approvable treatment for DMD. Along with the literature on dystrophin, the FDA asked for an accompanying discussion of the clinical outcomes from the phase II study taking the centrality of dystrophin production into account.

Knee jerk sellers of Sarepta in the after hours were clearly disappointed that the FDA didn’t immediately signal approval to file for AA. However, on a conference call hosted yesterday by Chris Garabedian, Sarepta’s President and Chief Executive Officer, following the press release, Chris made it very clear that the FDA is feverishly working with the company – not against it – in rapidly putting together the necessary backbone for a successful NDA (new drug application) within an AA expedited pathway.

On this conference call Chris pointed out that the dystrophin data the FDA seeks is a written “white paper” (Chris’ words) summarizing the detailed presentation Sarepta made to the FDA at the March meeting. Basically, Chris explained that the FDA staff in question reviews dozens of different drug classes and diseases, and is looking towards Sarepta as the expert repository for all things DMD and dystrophin related to properly document the well-known link between DMD and dystrophin.

If the FDA had any questions at all regarding the efficacy of eteplirsen, the discussion would have revolved around a larger confirmatory trial to cement eteplirsen as a viable treatment for DMD. Instead, all the FDA is requesting is the backup on file to validate the position that eteplirsen is a therapeutically valid treatment because dystrophin production is the correct marker to measure efficacy in the first place.

The difference between the two positions may sound subtle, but in reality its’ worlds apart. If the FDA had any troubling questions regarding efficacy due to the low number of patients in eteplirsen’s Phase IIb trial you can bet that the meeting minutes would have looked much, much different.

In my first published piece on Sarepta I laid out the case for dystrophin as a suitable biomarker for DMD. I also penned a more recent piece here on Equities.com discussing why I felt the top brass at FDA have been signaling a more creative approach to expediting the product launches at companies such as Sarepta

Sarepta’s next step is to submit the ‘white paper’ and an associated discussion of the clinical outcomes in the Phase IIb, which Chris indicated will get done shortly. He also indicated that it’s possible a meeting gets calendared for this quarter, with the minutes from that meeting due in early Q3. In the meantime, work on preparing for full-scale production is continuing at a rapid pace, which should put the company in a prime position to be able to supply enough drug for the post-approval confirmatory study to be kicked off in Q4 (if AA is not granted, this large confirmatory study would be powered high enough to substitute for a full blown phase III confirmatory trial) as well as the hundreds of boys expected to clamor for the first batches of drug once approved for marketing.

Many people have asked me why the FDA would want a background piece on dystrophin drawn up if the outcome is already known given eteplirsen’s solid efficacy signal. My response is that this will be used not only as a template for future DMD treatments – reason enough for the FDA to require it – but also to enforce new policy within the FDA ensuring adequate access to the AA pathway in the future. Requiring drug makers to extensively document what constitutes an acceptable biomarker can only lead to increased certainty going forward for other future rare disease treatments. If it is truly to be a ‘New Day at FDA’, there can be no questions asked as to which biomarkers the FDA ultimately relies upon in lieu of larger (and more time consuming) confirmatory drug trials.

One might rightfully criticize Sarepta for going into the end-of-Phase II meeting thinking an oral presentation would be sufficient to nail down this question of dystrophin as an acceptable biomarker, but the point is moot. Sarepta, for better or worse, is treading on new ground, especially since it’s looking for approval not just for eteplirsen but for an entirely new pathway to accelerate additional drugs targeting other DMD mutations outside of the more common Exon 51.

It’s clear that a lot went right at FDA, and I strongly suggest Sarepta shareholders replay yesterday’s conference call to fully understand the nuances that Chris made reference to. Gone were any fears that the design of the Phase IIb trial, including the low patient size and mid-trial unblinding of the cohorts, would be at all troubling to the FDA (Remember that the Sarepta bears made much hay over the supposed coming requirement for Sarepta to validate the efficacy signal with a larger study).  Chris specifically blew apart the risk that a lack of linearity between dystrophin production and walking results would torpedo the efficacy signal by explaining in detail the interaction Sarepta had with the agency on this particular issue.

What all this means is that the FDA requesting additional information should not slow down one bit the process of getting eteplirsen to market as a treatment for boys in desperate need of hope. This is key to understanding why both Jenn McNary and Christine McSherry, two well-known DMD advocates who have met with top FDA officials numerous times, were quoted by Adam Feuerstein of TheStreet.com in a piece published last night as “[feeling] pretty good about this – This is what the FDA told us they’d do.”

In my opinion, assuming that the FDA accepts Sarepta’s background paper on dystrophin without additional follow up questions, you could see a green light being given on AA as soon as September. Chris made it quite clear that the door is open within the FDA to fast track a meeting to review Sarepta’s written response, something I honesty believe he wouldn’t have mentioned if it wasn’t true.

If you purchased stock back in early March when I first published on Sarepta you should be ahead by around 20%. I see no reason to get cold feet given the strong positive signals emanating out of the FDA. I suspect that the stock will work it’s way higher once all the short term call buyers betting on a fast granting of AA are cashiered out and the long term holders of stock buy the relative weakness. Similar to the action we saw in April, Sarepta stock should find itself higher once the market refocuses away from yesterday’s ‘disappointment’ and more towards the significant de-risking that occurred due to the FDA’s positive commentary on ultimately approving eteplirsen.

At the time of the publication of this report, the author was long Sarepta common stock, long Sarepta 29 & 35 strike calls, and short 40 & 42 strike calls.