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Sarepta Therapeutics (NASDAQ: SRPT), a rare disease drugmaker, had a particularly good month in June with its shares rising by 9.8%, according to S&P Global Market Intelligence. While the company capped the month by announcing the appointment of its new CEO Douglas Ingram, the real catalysts behind this surge higher were President Trump's reported change of heart on prescription drug price reform, as well as a handful of analysts reiterating their overtly bullish stances on the stock's upside potential early in the month.
In many ways, Sarepta is in the direct crossfire of the raging drug pricing debate. The biotech's Duchenne muscular dystrophy, or DMD, therapy Exondys 51 can reportedly cost over $1 million a year for some patients, resulting in substantial push back from some payers that aren't wholly convinced the drug even works.
The key point is that Exondys 51 might have been a prime target for a drastic price reduction if Trump had stuck to his guns on this issue. With that headwind seemingly off the table for the duration of Trump's time in office, though, Sarepta can now focus its efforts to appease payers and increase coverage for Exondys 51. And that's a key reason why some analysts think this stock actually remains under-valued -- even though Sarepta's shares are presently trading at a sky-high price to sales ratio of 86.4.
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With CEO Douglas Ingram in the fold, the Street is beginning to increasingly focus on the possibility that Sarepta may put itself up for sale. The company does have a broad pipeline of DMD drugs, after all, that would certainly benefit from a deep pocketed biotech or big pharma suitor, and Ingram does have a history of creating value for shareholders via M&A.
Before investors get too carried away with valuation scenarios in a takeover setting, though, it's important to remember that there are some solid reasons why this company might not be all that attractive as a buyout target. First and foremost, Exondys 51 still has to prove to be an effective and safe treatment for DMD to remain on the market, and there's no guarantee that payers will change their outlook until the drug has been put through its paces in the clinic.
In the final analysis, Sarepta remains a highly speculative play in the rare disease space that could fly higher -- or crash in the blink of an eye if things don't go according to plan. Time will tell, but this arguably isn't a stock well-suited for conservative-minded investors.
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