Morgan Stanley Buys Into Sarepta Amid Sell-Off, Sees $600M Recurring Opportunity In DMD Candidate

A manufacturing-related hold on Sarepta Therapeutics Inc SRPT’s Duchenne muscular dystrophy candidate catalyzed a recent sell-off. Morgan Stanley sees a buying opportunity in the otherwise-lauded program’s stumble.

The Analyst

Analyst Matthew Harrison upgraded Sarepta from Equal-weight to Overweight and maintained their $163 price target.

The Thesis

Sarepta has fallen 25 percent off its mid-June, post-data high, but Morgan Stanley is dismissing the pullback.

“We believe the decline has occurred as shareholders transition from mostly short-term to more longer-term oriented investors,” Harrison said in a Wednesday note. (See the analyst's track record here.)

“Importantly, we do not believe a major bear case has emerged on the prospects for their DMD gene-therapy program.”

A hold on Sarepta’s Phase 1/2 trial is expected to be resolved without delaying a pivotal trial planned to start by the end of the year. Morgan Stanley anticipates drug approval in 2021, but notes that the Food and Drug Administration could accelerate the push to market.

Sarepta’s candidate is seen to lead rivals from Solid Biosciences Inc SLDB and Pfizer Inc. PFE in both efficacy and timing. Its $600-million recurring market opportunity, which presents a revenue stream that could double Sarepta’s market cap, is not reflected in its valuation, Harrison said.

“While competition and manufacturing could present headwinds, we believe management will solve any manufacturing hurdles quickly and believe management's lead on competition significantly reduces the competitive threat,” the analyst said.

New data for the recently acquired limb girdle muscular dystrophy program could also drive upside, according to Morgan Stanley.