Is Sarepta Therapeutics Still a Buy After Surging Higher in July?

By George

Image source: Getty Images.

Continue Reading Below

What:Sarepta Therapeutics(NASDAQ: SRPT), an RNA-based therapeutics company, saw its shares rise by almost 25% last month,according to data fromS&P Global Market Intelligence. The apparent catalyst behind this northward move was the company's second-quarter earnings release.

On the one hand, management noted in the release that the biotech is in decent financial shape, exiting the second quarter with$134.7 million remaining in cash, cash equivalents, and short-term investments following a secondary offering that helped to raise$37.5 million during the three-month period.

Perhaps most important, though, investors seemed particularly pleased that the FDA has yet to issue a final decision in regards to the biotech's experimental Duchenne muscular dystrophy, or DMD, drug candidate eteplirsen that's been under review with the agency for almost a year now. In short, the lack of "bad" regulatory news was apparently enough for enthusiastic investors to bid the stock up last month.

More From

SRPT data by YCharts.

So what:Sarepta desperately needed to firm up its financial position after losing more than $62 million in just the second quarter of 2016. So, even though it required a secondary offering to do so, this influx of additional cash during the quarter was definitely a positive for the biotech.

Now what: Sarepta and its shareholders are anxiously waiting the final word from the FDAabout eteplirsen. If the drug is approved, Sarepta should be able to flesh out its remaining DMD pipeline without having to crush shareholders with massive secondary offerings every few months.After all, the target population is already well aware of eteplirsen's existence, setting it up for a fairly straightforward and relatively inexpensive commercial launch.

The problem is that there is absolutely no way to tell which way the FDA is leaning on this issue, and it's probably dangerous to even handicap the likely outcome. With this in mind, I think it's advisable to simply avoid this all-or-nothing biotech stock until the FDA hands down its pivotal regulatory decision on eteplirsen.

A secret billion-dollar stock opportunity The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.

George Budwell has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.