Down 16% Over May, Has Sarepta Become A Cheap Takeout Target?

Sarepta Therapeutics Inc SRPT, a smid-cap biopharmaceutical company that focuses on the treatment of rare neuromuscular diseases including Duchenne muscular dystrophy, saw its stock peak north of $60 per share in late 2016 after the U.S. Food and Drug Administration green-lighted its DMD therapy product Exondys 51 for immediate marketing.

But since then Sarepta’s stock steadily declined, culminating in a 16 percent decline between May 1 and May 31 alone to trade near the $30 per share. Analysts at Oppenheimer felt the decline was notable enough to explore the possibility of Sarepta being acquired.

‘Value Biotech Play’

Exondys’ approval has been controversial, which turned off some investors and created a high level of short interest, Oppenheimer’s Hartaj Singh commented in a research report. Nevertheless, the company has managed to release encouraging data on the therapy’s effectiveness which may not necessarily be reflected in the stock’s current valuation.

In fact, should Sarepta be acquired at current levels it would be at “bargain” prices, the analyst continued. Specifically, the stock is trading at a 50 to 75 percent discount to recent M&A deals in the space.

A larger company would be able to achieve a return on investment at current valuation levels (plus premium) based on the worldwide Exondys franchise and get the rest of the company for free, Singh emphasized.

“This is an expectation asymmetry we believe should be arbitraged away by investors,” the analyst concluded.