News

When a company obtains positive news from the Food and Drug Administration (FDA), such as the approval of a treatment or a label expansion, it can mark a milestone for the business and lead to significant revenue growth. The risk with many biotech stocks is not knowing if they will obtain approval for a key treatment, or if that approval might come with an asterisk and only cover certain aspects of an illness or condition.

Sarepta Therapeutics (NASDAQ: SRPT) stock has been flying of late, as the company got some great news from the FDA that has the potential to be a game changer for its business. Investors are bullish on the developments. Here's a look at the details and what they mean for the company.

Sarepta obtains label expansion for its therapy

Last year, the FDA granted accelerated approval for Sarepta's gene therapy treatment, Elevidys, as a treatment for Duchenne muscular dystrophy (DMD) in children between the ages of 4 and 5. That was bittersweet for investors because while it was an approval, its scope was narrow, and the company was hoping for a broader indication.

But last month, the FDA expanded the use of the therapy. It now includes DMD patients who are 4 or older, effectively making it a treatment for nearly all patients who might benefit from the therapy. Regulators granted traditional approval for Elevidys in treating ambulatory DMD patients, whose condition is still in its early stages.

They also granted accelerated approval for non-ambulatory patients. The label expansion is a huge win for Sarepta because its treatment can reach a wider group of patients.

The expanded approval is particularly impressive because pharma giant Pfizer has also been working on a therapy for DMD without the same success. Last month, it announced that in a phase 3 trial, its therapy failed to meet its primary endpoint in improving motor function in boys between the ages of 4 and 7.

The company's financials should be in a much better position

Financially, this news means that the therapy should be able to bring in much more in revenue for Sarepta. By 2025, it could generate $3 billion in sales before reaching a peak of $5 billion in 2027.

Last year, Sarepta's top line came in at over $1.2 billion, with the company incurring a $536 million loss on that. Elevidys contributed $200 million in revenue. The label expansion will put Sarepta in a much better position of potentially turning a profit down the road.

Shares of Sarepta have been soaring since the news, reaching a new 52-week high the day after investors learned of the developments. Year to date, the stock is now up more than 60%, and its market cap is around $15 billion.

With more than 40 programs still in development in its pipeline, there's certainly room for the business to become even larger and on track for more growth.

Is Sarepta Therapeutics stock a buy?

Sarepta's future looks a lot more promising now that it's obtained label expansion for Elevidys. And with more therapies and treatments still in its pipeline, there's plenty of reason for investors to remain bullish on the stock for the long haul.

I wouldn't call it a no-brainer buy, simply because at a $15 billion market cap, investors are paying a fairly high valuation for what's still an unprofitable company. And it could stay that way in the near future, as it invests money in the further commercialization of Elevidys.

But for long-term investors who are willing to be patient with the company as it develops more treatments, the biotech stock can be a good investment to buy and hold.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pfizer. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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