Tuesday, September 4, 2012

Sarepta Therapeutics (SRPT) - Life Saving Drug News is Coming; Stock up 300% in Six Weeks -- But There's More... Right?

SRPT is trading $14.87, down 6.0% with IV30™ up 10.4%. The LIVEVOL® Pro Summary is below.


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Sarepta Therapeutics Inc., formerly AVI BioPharma, Inc., is a biopharmaceutical company focused on the discovery and development of ribonucleic acid (RNA)-based therapeutics for the treatment of both rare and infectious diseases.

This is a vol and stock note on a bio-tech with some very interesting news. I'll summarize what's the happs below, then we'll move onto the options and vol. I'll be taking a chunk of this content from a Seeking Alpha article, cited below:

Sarepta Therapeutics (SRPT), formerly known as AVI BioPharma, is closing in on a significant medical breakthrough for the largest segment of Duchenne Muscular Dystrophy sufferers. Duchenne Muscular Dystrophy is an affliction that results in muscle degeneration and certain early death. It affects mostly boys with most sufferers wheelchair dependent by age 12 and a life expectancy of 25 years. There is no known cure for Duchenne Muscular Dystrophy.


Sarepta's stock has been on a tear the last five weeks going from around $4 per share on July 23rd and closing at $15.82 August 31. The catalyst for this move was Sarepta's release of 36-week data of their current phase IIb extension study that, according to Sarepta's CEO Chris Garabedian, showed "statistically significant clinical benefit" in the 6 minute walk test - which is a "clinical meaningful outcome measure" for Duchenne Muscular Dystrophy.

[...] that the lead investigator for the trial is Dr. Jerry Mendell, who is the director of the Centers for Gene Therapy and Muscular Dystrophy at Nationwide Children's Hospital in Columbus, OH. Dr. Mendell stated Sarepta's drug had "an unprecedented treatment effect" on participants in its latest trial.

Sarepta plans to release the full 48-week trial results for the above referenced study in October. If the results are positive as expected, Sarepta will go for accelerated FDA approval.

Source: Seeking Alpha via Yahoo! Finance; Sarepta Therapeutics - Pressure Mounting For Accelerated FDA Approval For Eteplirsen, written by R.S. Analytics.

So that was a pretty awesome article, though I haven't verified essentially any of it. Buyer beware.

Let's start with the Charts Tab (six months), below. The top portion is the stock price, the bottom is the vol (IV30™ - red vs HV20™ - blue vs HV180™ - pink).

We can see the incredible run of late -- SRPT was trading at $3.46 on 7-23-2012 and is now nearly $15 in less than two months. The first gap up came on 7-24-2012, when the stock moved from $3.46 to $8.52 (close-to-close). Here's the news from that day:

CAMBRIDGE, Mass. (AP) -- Sarepta Therapeutics Inc. said Tuesday that its experimental muscular dystrophy drug eteplirsen met its goal in an extension study, and shares of the company more than doubled in value.

Source: AP via Yahoo! Finance; Sarepta surges on new muscular dystrophy drug data.

The stock found a bit of a quiet period following the gap up, but has recently risen again. The stock closed at $10.78 on 8-24-2012 and is now nearly 40% higher in about two weeks.

On the vol side we have a bit murkier of a picture since the stock changed symbols recently. Having said that, we can see that the implied is now at an annual high pushing over 140%. But the news is due out in Oct (probably), and the Skew Tab shows us that.

Let's turn to the Skew Tab to examine the line-by-line and month-to-month vols.

We can see high the vol in the Oct options is well above the vol in Sep and Nov. This reflects the likelihood of an event (announcement) in Oct. I do note that the skew is flat to the upside, which is not necessarily what I would have expected given the interim good news. Having said that, with the stock up 400% (or whatever) in the last 6 weeks, the option market may be reflecting lower risk (potential) from the current levels than when this was a single digit stock price.

Finally, let's turn to the Options Tab, for completeness.

Across the top we can see the monthly vols are priced to 113.66%, 176.40% and 154.32%, respectively for Sep, Oct and Nov. I do note a few things:

1. Sep is still elevated which reflects the risk that "something" comes out before the expected Oct date. That something may just be more anecdotal results from extremely happy parents (that's been happening apparently).

2. Oct vol will likely rise if no new news slips out. As the event date approaches, the weighted average of vols in Oct will lead to a rise in the overall level. 200%+ vol is not impossible here and may be too low. But, of course, surprise news can change all of that.

3. Nov is quite elevated. While that expiry does include all of the days in Oct, it feels like there is risk of the news coming out after Oct expo (maybe?).

In any case, all options and stock prices aside, I hope this drug is an absolute revelation as it seems to be in early stages. I can honestly say, I am rooting for this company.

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