Sarepta Therapeutics, Inc. (SRPT) Earnings Call Transcript & Summary

Good morning, and welcome to the Sarepta Therapeutics conference call to discuss the company's global licensing and collaboration agreement with Arrowhead Pharmaceuticals. [Operator Instructions] Please be advised that today's conference is being recorded. At this time, I'll turn the call over to Doug Ingram, President and Chief Executive Officer. Please go ahead.

Thank you very much, Michelle, and good morning, everyone, and thank you for joining Sarepta's call to discuss our multi-program licensing agreement and collaboration with Arrowhead Pharmaceuticals. Next slide. We will be making a number of forward-looking statements today, so I would ask you to refer to our various public filings for the risks and uncertainties that come with making forecasts and predictions about the future. Next slide. As you will have seen in our press release this morning, we have entered into a license and collaboration agreement with Arrowhead that provides us with a broad platform of clinical, preclinical and research assets employing Arrowhead's advanced siRNA and tissue targeting pipeline. This collaboration will be a transformative one for Sarepta and will serve our broader ambition to become a large, globally relevant and durable biotech organization focused on improving the lives. of patients. Let me begin by explaining the importance and value of this collaboration, and then I will discuss some of the particulars of the transaction before turning the call to Dr. Louise Rodino-Klapac, our Head of R&D and Chief Scientific Officer, to discuss the programs themselves. Next slide, please. As you should know, the Elevidys launch is going exceptionally well. We are among the very few strong revenue growing, profitable biotech companies that exist today. We will be cash flow positive throughout this decade. This was so before this transaction. And to be clear, it will continue to be so with this transaction. With our success, the Arrowhead opportunity cements our place as one of the preeminent leaders in genetic medicine, provides us with a deep pipeline of potential blockbuster siRNA clinical, preclinical and research programs, answers any lingering questions about how we will strategically deploy capital with the success of Elevidys, and creates an enormous amount of diversification, including a chronic therapy pipeline, expansion of therapeutic areas, and the addition of an exciting new siRNA modality. And we can do all of this without unduly stressing our balance sheet or changing our status as a profitable cash flow positive biotech leader. Indeed, we can comfortably fund this transaction with cash on hand, and the ongoing collaboration program R&D expenses will not materially change our R&D burn rate. After Arrowhead, we will still have a significant cash flow to use for strategic allocation. Nevertheless, we see this collaboration as the one significant strategic transaction necessary to secure our future. We do not anticipate other large transactions of this nature. Instead, we believe, at least at current prices, that there will be no better investment than our own stock. And for that reason, our Board has approved a share buyback program, pursuant to which we will opportunistically purchase up to $500 million of Sarepta shares in the open market over the next 18 months. Next slide, please. So now let us turn to the particulars of this transaction. Pursuant to our agreement, Sarepta will obtain exclusive worldwide rights to 4 clinical stage and 3 preclinical stage programs using Arrowhead's siRNA approach. The clinical programs are as follows: ARO-DUX4, currently in a Phase I/II clinical study for the treatment of FSHD, a devastating rare neuromuscular disease with a U.S. prevalent population of approximately 13,000. ARO-DM1, currently in a Phase I/II clinical study for the treatment of DM1, also a devastating neuromuscular disease with a U.S. prevalent population of approximately 30,000. ARO-MMP7, currently in a Phase I/II clinical study for the treatment of idiopathic pulmonary fibrosis, or IPF, a rare pulmonary disease with a U.S. prevalent population of approximately 60,000. And finally, ARO-ATXN2, an IND-enabled program set to begin a Phase I/II clinical study for spinocerebellar ataxia 2, SCA2, by the end of 2024. SCA2 is a rare neurological disease with a U.S. prevalent population of about 2,000. The preclinical stage programs will include the following: ARO-ATXN1 designed to treat SCA1 with a U.S. prevalent population of 1,400 diagnosed patients; ARO-ATXN3, designed to treat SCA3, with a U.S. prevalent population of about 3,200 diagnosed patients; and finally, ARO-HTT, designed to treat Huntington's disease. Huntington's has a U.S. prevalent population of around 40,000. ARO-HTT is formulated as a subcutaneous treatment designed to cross the blood-brain barrier to treat Huntington's in the deep brain. Additionally, Sarepta and Arrowhead have entered into a discovery collaboration for up to 6 additional targets in muscle, both skeletal and cardiac, and CNS indications using Arrowhead's novel delivery technologies. We have also agreed to work exclusively together to develop therapeutics targeting skeletal muscle diseases. Next slide. And now the deal terms. As I said earlier, we will fully fund this agreement with cash on hand, and Sarepta will pay upfront fees of $500 million as well as making an equity investment of $325 million. In addition, Arrowhead will also be eligible for future milestone payments and royalties. For all the clinical stage assets, Arrowhead will be responsible for the Phase I/II trials currently underway. The clinical stage programs will transition to Sarepta no later than the completion of current trials. Preclinical assets will transition to Sarepta upon completion of IND-enabling activities. Next slide, please. This collaboration serves our greater vision, one we have had, as you know, for some time, to leverage our success to become the next large, globally relevant, profitable and enduring biotech organization dedicated to improving the human condition. The success of our Elevidys launch, our status as a profitable and cash flow positive organization, and the relationship we have forged with Arrowhead and its impressive science and scientists provide us with unique opportunity to achieve that vision. Subject to clearing our Hart-Scott-Rodino filing, our collaboration should close in the next 30 days. We will have multiple data readouts, both from our internal pipeline and our new siRNA platform to discuss with you over the coming year, and I look forward to updating you as we proceed. Next slide. And with that, I will turn the call to Dr. Louise Rodino-Klapac, who will provide color on the pipeline programs and our R&D strategy. Louise?

Thanks, Doug. I'm happy to share with you today the promise we see in these programs to bring forth therapies in disease areas that have for far too long gone without viable treatment options. This alliance with Arrowhead is exciting for many reasons, including leveraging Sarepta's expertise in development and regulatory, and the benefit of advancing new neuromuscular therapies, and advancing new technologies and innovative approaches to a wide range of disease areas, bolstering Sarepta's already rich discovery and development pipeline, and finally, expanding our reach within CNS. We're excited by the vast opportunity and the strength of the preclinical data we've seen to date to offer better outcomes and best-in-class therapies for DM1, FSHD, ataxia-related diseases, idiopathic pulmonary fibrosis, Huntington's disease, and many others. Next slide, please. We are particularly impressed with the strength and differentiated qualities of Arrowhead's Targeted RNAi Molecule or TRiM platform, applicable across a wide variety of tissue types and capable of deep and durable target gene knockdown. As you're aware, RNA therapies can be difficult to deliver to the right place in the body. To overcome this challenge, the TRiM technology employs proprietary tissue-targeted ligands, which harness a natural process within cells to selectively reach the right place and knock down the overexpressed protein by targeting the RNA. It's the strength of this platform that gives us confidence in the therapies we are developing to achieve best-in-class status. TRiM was introduced in 2017. And since that time, Arrowhead has advanced over 10 assets to the clinic and has treated thousands of patients. Arrowhead has demonstrated that the combination of the siRNA chemistry and its ligand delivery platform are able to knock down overexpressed proteins and reach areas in the body that are difficult to penetrate. They've also created dosing schedules and delivery methods, including subcutaneous administration that sustainably impact the disease. With that background, I'd like to provide an overview of the program, beginning with the ARO-DUX4 program to treat FSHD. Next slide. Approximately 13,000 patients in the United States are diagnosed with FSHD, a rare, progressive and debilitating muscle disease that initially impacts the face, shoulder blades and upper arms, and then spreads to other areas of the body. Currently, no disease-modifying therapies exist to treat FSHD. Approximately 50% of FSHD patients will progress to becoming dependent on a wheelchair after approximately 20 years and approximately 50% have moderate to extreme levels of mobility restrictions. ARO-DUX4 is currently in development to treat FSHD1, an autosomal dominant disease associated with the failure to maintain complete epigenetic suppression of DUX4 expression and differentiated skeletal muscle, leading to overexpression of DUX4, which is myotoxic and can lead to muscle degeneration. The disease is caused by changes in the region of chromosome 4 called D4Z4 that result in the abnormal activation of the DUX4 gene. ARO-DUX4 is designed to reduce the production of human DUX4 protein in skeletal muscle. Based on the data we've seen to date, we believe ARO-DUX4 is differentiated versus other therapies. Preclinical studies have shown increased muscle penetration leads to significant knockdown of DUX4, leading to reduction of downstream expression of DUX4-related genes. This in turn leads to improvement in biomarkers and functional outcomes. Arrowhead has developed a sensitive assay for measuring DUX4 knockdown to measure the primary pharmacodynamic effects. A Phase I/II dose escalating study to evaluate the safety, tolerability, pharmacokinetics and pharmacodynamics of ARO-DUX4 in participants with FSHD1 is currently underway. We look forward to sharing our clinical results when available. Next slide, please. Next, I'd like to discuss the ARO-DM1 program in development to treat myotonic dystrophy type 1, or DM1, which afflicts approximately 30,000 patients in the United States. There are 2 types of myotonic dystrophy, type 1 and type 2. DM1 presents as the most severe and impacts the respiratory muscle. DM1 also causes muscle weakness and wasting, myotonia, cataracts, and often cardiac conduction abnormalities. Patients become physically disabled and have a shortened lifespan. DM1 is driven by an expanded CUG trinucleotide repeat in the 3 prime untranslated region of DMPK transcripts. These abnormal transcripts cause misregulated splicing known as spliceopathy for certain messenger RNAs, which are directly linked to the clinical manifestations of DM1. To correct this misregulation, we are employing an RNAi conjugate designed to target and suppress DMPK and skeletal muscle. We believe that silencing the aberrantly transcribed DMPK mRNA using ARO-DM1 may halt CUG expansion-related splice defects in patients with DM1 and thereby improve muscle strength and function, representing a best-in-class profile and differentiation across efficacy, safety and dosing. A Phase I/II double-blind, placebo-controlled dose escalating study to evaluate the safety, tolerability, PK and PD of single and multiple ascending doses of ARO-DM1 compared to placebo in male and female subjects with DM1 is currently underway. Finally, we will also evaluate follow-on products for DM1 using subcutaneous dosing of ARO-DM1 and the addition of Arrowhead's CNS targeting ligand to further address the multisystem complications of DM1 that includes the central nervous system. Next slide, please. Spinocerebellar ataxia or SCA is progressive neurodegenerative disease. Over 40 types of SCA have been identified. SCA2 is caused by mutations in the ataxin-2 gene. ARO-ATXN2 is designed to target the ataxin-2 protein in the CNS. The typical age of SCA2 onset is 20 to 30 years. As SCA2 progresses, loss of balance, difficulty walking, difficulty swallowing and slurred speech is common. And patients will need a wheelchair 10 to 20 years after onset. ARO-ATXN2 is being developed to treat SCA2. There are approximately 2,000 diagnosed SCA2 patients in the United States. We are excited by the strong preclinical results we've observed, which we believe will support the first disease-modifying therapy for this disease. We are also pursuing therapies to treat SCA1, which has approximately 1,400 diagnosed patients in the United States and SCA3 with approximately 3,200 diagnosed patients in the United States. We will leverage our learnings from SCA2 to inform and accelerate development for SCA1 and SCA3. Next slide, please. Idiopathic pulmonary fibrosis, or IPF, is a chronic, progressive and irreversible lung condition. There are approximately 60,000 U.S. diagnosed patients who die just 5 years after diagnosis. We believe this program is well suited to Sarepta's strength as a leader in rare disease and our experience with pulmonary impairment associated with disease progression in patients with Duchenne. ARO-MMP7 is designed to reduce the expression of matrix metalloproteinase 7 or MMP7 in pulmonary epithelial cells. A Phase I/II study is underway to evaluate the safety, tolerability, PK and PD of ARO-MMP7 in healthy volunteers and patients with IPF. Next slide, please. In addition to our clinical programs, we have 3 exciting preclinical programs in development for Huntington's disease, SCA1 and SCA3, leveraging Arrowhead's proprietary CNS targeting platform via subcutaneous administration and successful crossing of the blood-brain barrier, a key advantage and differentiator in CNS therapeutics. Our agreement with Arrowhead also includes up to 6 discovery targets in muscle, both skeletal and cardiac or CNS. And we've also agreed to work exclusively together to develop therapeutics targeting skeletal muscle diseases. Next slide, please. In summary, I'd like to reiterate our excitement for these programs and the promise we see to transform the landscape of disease across neuromuscular, CNS, pulmonary and cardiac, as well as Arrowhead's foundational science, which complements our current scientific modalities in RNA, gene therapy and gene editing. Of note, the use of ligands has the potential to be integrated into our discovery work as a delivery mechanism for RNA or gene therapy or gene editing. While the use of viral vectors to deliver the corrected or functional genes has led to transformative treatment for Duchenne and other diseases, the body's immune system currently limits treatment to onetime therapy. Unlike viral vectors, ligands do not trigger an immune response, which offers the ability to redose patients for durable treatment. We believe we have the science, the data and the expertise to advance what will be best-in-class therapies for some of the most devastating diseases, for which current treatments are either nonexistent or inadequate. We look forward to working with the talented Arrowhead team and sharing our progress with you in the coming months. I'll now turn the call back over to Doug. Doug?

Thank you, Louise. Michelle, let's open up the line for questions and answers.

[Operator Instructions] And the first question will come from Andrew Tsai with Jefferies.

Congrats on the deal. Maybe the question we have as we think about time to approval and launch is that which of these programs have the potential for you to pursue an expedited accelerated approval pathway? Said another way, which of these biomarkers have been [ validated ]?

We haven't closed the deal yet. We have some views on clinical development. We'll update you on our views over time once we've closed the transaction. One of the things that excites us about this collaboration is that there are 4 clinical development programs that are either in the clinic or will start in the clinic by the end of this year. And we're very excited about all of those things. I think everyone will know that Sarepta is no stranger to thinking creatively about ways to accelerate development. And once these programs are closed and with us, we'll be doing exactly that work. So that's where we are right now. When we close the transaction and we do more work, we would love to update everyone on the development plans going forward. As you can imagine, for these rare diseases, we recognize, as we've always recognized with Duchenne muscular dystrophy, the time is typically not on the sides of patients, particularly with neurodegenerative disease and neuromuscular diseases. And so we'll do everything we can to accelerate the development of these programs once they are in our hands.

And our next question will come from Gil Blum with Needham & Company.

Also allow me to add my congratulations on an interesting deal. So maybe a more strategic question here. So does the investment in RNA technologies here suggest that you guys have a lower interest in gene therapy overall? Or maybe this is a repeat of your prior strategy that you did with DMD, where you started out with chronic and then moved to gene therapy?

Yes. Thank you. I'm going to answer this, so that I don't hear Louise bristle at the very idea that we might have some diminished interest in gene therapy. We have an extraordinary gene therapy engine. Let us be clear. We have an exciting portfolio of gene therapy programs. One of the things that we are looking forward to, and I know Louise is particularly acutely interested in engaging on is an R&D Day in the future, where we can start showing everyone some of the deep gene therapy pipeline that we have, not only in limb-girdles, but far beyond limb-girdles. So let us be very clear, we are very committed to our leadership in gene therapy. And there are very few people, I think, that would disagree that we are currently the world's leaders in gene therapy. The exciting thing about this collaboration is that it broadens us and diversifies us. So we love gene therapy. We are the experts in it. We understand how to launch therapies. I mean, you can see that we've launched the Elevidys gene therapy, which is the most successful gene therapy thus far, and we're doing a brilliant job of that, and kudos to the team for the Elevidys launch. And this gives us a lot of additional diversification. Now we have a very strong engine of gene therapy and, down the road, gene editing. And we have, on the other side of it, really exciting chronic therapies that could be blockbusters, many of them, and that serve very significant unmet needs. It diversifies us in therapeutic area, so that we have what we have always thought were the next really exciting neuromuscular targets for genetic medicine, which is DM1 and FSHD, and then we go beyond that to CNS programs and pulmonary programs in the rare space. So it really diversifies us and broadens us in therapeutic area, and then it broadens us in modalities. So we've always been an organization very uninterested in sort of me-too and last decade technology. And here we have the most cutting-edge gene editing and gene therapy platform, and we get to add to that a platform that we're extraordinarily excited about, which is siRNA. We have looked at a lot of science, and I would say the team is probably as excited about this science and this platform as we've been about just about any other scientific area outside of gene therapy and gene editing. So it's very broadening, diversifying, but make no mistake, we are extraordinarily excited about gene therapy, we are excited about our research program in gene editing, and we are certainly, so that no one whatever question is, we are certainly fiercely dedicated to the Duchenne muscular dystrophy community that we serve and the limb-girdle muscular dystrophy community that we serve as well. Louise, Is there anything that I've forgotten there?

No, you captured it well. Thank you.

And our next question will come from Ritu Baral with TD Cowen.

Louise, could you review for us what data that you have in hand on the muscle penetrant and muscle-directed qualities of the TRiM platform? And if you could cover CNS as well, just because you made a very interesting comment about the CNS manifestations of DM1, which at least in my reading, are less prevalent in the literature. So if you could review those 2 things.

Louise, do you want to take this? There's this limited amount that we're going to provide to folks pre-closing, but go ahead.

Sure. Yes, we're particularly excited about their TRiM platform generally and their use of ligands depending on whether you're in muscle, which uses the alpha v beta 6 peptide, or into the CNS. So particular, the preclinical data that we reviewed was consistent or better than anything out there. And I think that looking at FSHD, for example, the knockdown that was achieved providing and leading to the knockdown of the DUX4-related genes and then leading to functional improvement was particularly exciting, and that's just one example across all of the programs. For DM1, the follow-on that I spoke to, we're excited about the potential to also impact the CNS, which is a devastating component of that indication. And so we're excited to partner with Arrowhead and work on that as well, which has the advantage of subcutaneous dosing as well. So there's a lot to do, obviously, when the deal closes, and we'll come back together next year and talk more about these programs and our own internal pipeline, but we're really excited about this deal.

And our next question will come from Tazeen Ahmad with Bank of America.

I wanted to maybe ask about FSHD and the comment that Doug made about being excited about next-gen technology. So FSH (sic) [ FSHD ] is one of those diseases where a few companies have been spending time trying to develop therapies. Can you just give us an idea of what about the technology for Arrowhead impresses you and makes, in your mind, it differentiated from others? And in particular, a biomarker called DUX4 is something that companies pay close attention to. It's been kind of a noisy biomarker to date, but I was wondering if, Louise, you could give us your view on the reliability of using DUX4 given that it's still early in development.

Louise?

Sure. On the DUX4, as I mentioned in my script, Arrowhead has an advantage, because they have developed a sensitive assay for measuring DUX4. As you mentioned, DUX4 is notoriously difficult to quantify, because it's expressed in a small number of about 1 in 1,000 cells, but they have developed an assay, and that's an advantage because, obviously, that's the primary biomarker for the indication. So seeing that knockdown in both the biomarker itself, the primary cause of the disease and the downstream related genes, was particularly impressive in this program. And then that also led to improvements in other biomarkers and functional improvement. So that's what got us excited.

And our next question will come from Ellie Merle with UBS.

Congratulations on the deal. Just a follow-up on DUX4. You mentioned you're seeing some exciting data. Maybe just both with DUX4 and DM1, can you elaborate specifically on what you've seen so far? Are you referring to the preclinical work or also the clinical data. And then just a second question on the Huntington's program. Is this program targeting exon 1? And I guess, how do you see this asset as differentiated versus other assets in the Huntington's space such as Alnylam's Huntington's program?

I'll turn the call over to Louise on the Huntington's program. On the DM1 and FSHD, we can't say a ton more than we've said that the deal hasn't closed yet other than to say that we're very excited about the TRiM platform. We're very excited about all of the preclinical work that we've seen on the TRiM platform and on Arrowhead's ability to penetrate various tissues. And that we do believe, early days though it is, we haven't even closed the transaction. We have more work to do that we have the potential for having very competitive and, we believe, potentially best-in-class DM1 and FSHD programs. But we've got more work to do there, and we'll have more updates as we develop the therapies and have additional readouts on those therapies over the course of the coming year or 2. And with that, Louise, perhaps you would like to comment on Huntington's.

Sure. For Huntington's, we'll certainly provide more details after the deal closes and as we come together. But as I mentioned, the advantage of the Huntington's programs with Arrowhead is the subcutaneous dosing and the ability to reach the deep brain, which for Huntington's has really been the challenge with this indication is reaching the right place in the brain. And so that's what we're particularly excited about with the Huntington's program.

And the next question will come from Kostas Biliouris with BMO Capital.

Congrats on the partnership here. A two-part question from us. It seems that the MMP7 is the first program of your pipeline outside of the neuromuscular space. So can you talk a little bit about your decision to choose this as the first program? And how do you prioritize the Arrowhead partner programs over your limb-girdle programs in the pipeline?

Let me answer the last question first. We have the ability and bandwidth and plans to be able to drive all of these programs forward that we have in front of us. And of course, we'll make decisions along the way with data readouts and the like. But we are very committed to programs in front of us, and we're as well very, very committed to driving our limb-girdle programs. We've got an extraordinary commitment to that and to the limb-girdle community that we serve. So I don't want anyone to get the false impression that this is a deprioritization of programs like our limb-girdle gene therapy programs, which it isn't. In fact, just a shout out to that, so everyone will remember, we will have, if all goes well, a BLA submission for one of our limb-girdle programs next year. We will be in our next clinical trial in limb-girdle by the end of this year. And we'll be in a third clinical trial, all of which are intended to be registrational in another limb-girdle in the first half of next year. So we are moving very fast there. We're very excited about the rare pulmonary disease asset that we saw. There's a lot of different ways to come to views on programs. One is you can sit in a room and reflect and ponder where you might want to go next, but we really like to take that and also look at things empirically. And when we began to have our conversations with Arrowhead and their scientists and their data and did a bunch of diligence, we got a lot of conviction and excitement around the IPF program and decided that it was really a very interesting area for us to move into with a real opportunity, if things go the right way, and being a real potential blockbuster and doing a lot of good for patients. But Louise, perhaps you want to comment more on the IPF program itself?

Yes. In particular, the IPF program is exciting. If you know about IPF, it's a devastating disease. There is no meaningful treatment, and the ability and the devastation of this disease is significant. And so MMP7 is a known target for fibrosis in IPF as well as other indications. And so we feel well positioned, especially based on our expertise in neuromuscular, that we can move this asset forward in a meaningful way. And so we're looking forward to working on this.

And our next question comes from Mike Ulz with Morgan Stanley.

Just for the 4 clinical programs that are under the collaboration, just curious, should we be expecting updates for all those programs next year? Or it will only be certain ones?

Once we close the transaction, we'll begin to map out what our readout cadence will be both with respect to these therapies and, of course, we're going to have readouts for our own gene therapies -- preexisting gene therapies as well. But I can feel very confident to tell you, without being able to go into specifics about specific programs, that we are going to have a significant number of readouts and milestones to discuss with all of you across next year. And some of them will relate, of course, to our pre-existing gene therapy programs. And then I think a significant number will relate to the programs that we've just collaborated with our new siRNA platform. So we look forward to having those discussions with you once the transaction is closed, which should occur in about 30 days, or sooner.

And the next question will come from Danielle Brill with Raymond James.

Congrats on the interesting deal here. So I feel like the pushback is going to be why not get a couple of strong quarters of the Elevidys launch under your belt before doing this deal? So Doug, maybe you can help us understand why now was the right time? Was this to get out in front of the IPF data? Or yes, however you can elaborate would be really helpful.

Sure. Thank you for your question. First of all, we've had already a number of strong quarters. So we're excited about that. We've got a lot of strong quarters coming up as well. So from our perspective, 2 things to consider. One, this is a great time. We've wanted to do a transaction like this, and we planned to do a transaction like this for a very long time, knowing that with the success of Elevidys and the continued performance of our PMO franchise, we would have an opportunity to leverage that in a way that could secure our future, answer any questions about how we were going to analyze -- allocate capital and cement our long-term vision of becoming the next big globally relevant, profitable biotech organization focused on devastating diseases. And from our perspective, this is a brilliant collaboration that does all of those things. The next thing that we like about this collaboration is that we can do it very comfortably at this point. I think if we had done this before the launch of Elevidys, it would have been very uncomfortable. But now that we are a profitable company, and we're going to be an extraordinarily cash flow positive organization for a long time, this is a comfortable place to do it. We can do it with cash on hand. We don't have to do any equity raises or anything along those lines. We, in fact, have plenty degrees of freedom post this therapy. But as you will have seen in my script, one of the things I noted is that this is the large platform program that we wanted to do, the collaboration that we wanted to do. And on a go-forward basis, we don't intend to do ones like this. And number two, we cannot think of a better use of our capital than acquiring Sarepta stock, assuming that the Sarepta stock prices remain attractive. And then finally, why now? This is when the deal was available to us. So for those who have done transactions and have done many over a very long career, it's not just the desire to do things, it has to be when transactions are available. And this opportunity was available now. We were in a very comfortable place to do this deal. We, after doing a bunch of diligence and a lot of discussions, came to the view that this was an extremely compelling collaboration, and we became quite confident that we would have a very difficult time, if not impossible time, finding a transaction that would be as attractive as this one. So from our perspective, it seemed like the perfect opportunity to enter into this collaboration. And so we're very, very excited about it. We think it was done at exactly the right time. We can do it very comfortably, and this is going to really, I think, fulfill the bigger vision for Sarepta. So we are all very, very excited about this.

And the next question will come from Uy Ear with Mizuho.

Congratulations on the deal. So maybe just a question on the potential changing dynamics at the FDA in general. Like I guess what gives you comfort in doing the deal now versus either waiting to see what the new administration would do?

Two things. First, let's be very clear. There is no waiting, okay? That's not the way transactions work. I just want to be very clear about this. You do transactions when things come together and then you have to decide if it's the right time and if this is the right deal. And as I've mentioned before, I won't belabor the point. We are really excited about this collaboration. This was the right time to do it. This is the right collaboration to do. I think we would be hard-pressed if not completely at a loss to find a deal as good as this one at the timing of this one. The second one as it relates to changes in administration and changes at the FDA, I want to be very clear, we are exceptionally sanguine about the future. We're quite confident. We are an apolitical organization, the goal of which is to serve patients with rare disease. We're quite confident that we can work well with the incoming administration as well as we have been able to work with the prior administration. And so we feel very good about the future, and we will adapt ourselves to the environment as things move forward. But with that said, this is a great time to do this transaction and to enter into this collaboration. And I think it's going to be great. It's going to be great for our vision. It's going to be great for the patients that are in desperate need of these therapies, DM1, FSHD, IPF, Huntington's, and the list goes on, and SCA2 as well and the other SCAs as well. And I think it's going to be very good for our shareholders as well.

And the next question will come from Mitchell Kapoor with H.C. Wainwright.

I wanted to ask about what possibilities for additional business development diversification you might have. I think you indicated this might not be the last deal, although this is the big one you were hoping for. And then second, if you could just comment on your expectations for R&D to change in the coming quarters and years.

So a couple of things. One, we have a lot of strategic flexibility given that we're very cash flow positive and profitable on a go-forward basis, as I've said. But see this as the one significant transaction that answers the overarching vision question that we've had for a number of years, which is, can we take advantage of the success of Elevidys and the like, take advantage of all of the creative ability at Sarepta and the talent at Sarepta, which I am extraordinarily proud and really leverage this company to be a globally significant organization. That was the goal, and we've served that goal. Don't imagine another one like this anytime in the near or midterm. We certainly have the ability to do other licenses and tuck-ins as things may be of interest to us. But our primary thought right now is that post this transaction, the single most valuable transaction that we can do is, at least at these prices of Sarepta shares today, to buy back our shares. We think we are, I say, attractive. Another way to say it is extraordinarily undervalued. And we will be looking opportunistically, pursuant to our buyback program, to take advantage of that in the next 18 months, and that's going to be our primary goal. So from a business development perspective, we have lots of degrees of freedom, see this as the big transaction and really look for opportunistic buybacks over the next 18 months, generally speaking.

Yes. And then it's Ian, just maybe quickly to address the R&D and how we're handling that. First, I just want to reiterate what Doug is saying in terms of our excitement. The excitement for the deal, obviously, is science first. But quickly thereafter, the way that we've been able to structure this deal in a way from a finance perspective, where we don't expect a significant impact on our R&D going forward. In fact, we can manage this all with probably an increase in R&D to the mid- to high-single digits. So the way that we've been able to structure the deal and the way that we're currently constructing the business really has broad implications for us to be able to handle this in a capital-efficient way.

And our next question comes from Salveen Richter with Goldman Sachs.

This is [ Olivia ] on for Salveen. Congrats on the deal. Could you just discuss any potential synergies that you anticipate, particularly with respect to the DM1 and FSHD programs? And then what would you be looking to see from these data sets to support ongoing development for each of these programs?

Well on the synergy aspect, I'd say one of the nice things about this transaction is it's such a broad collaboration that we start with things that are really in our wheelhouse from a development perspective. DM1 and FSHD are right in our wheelhouse. And then the neuro assets are a really nice adjacency. And then pulmonary moves us to the next step, but we have the ability to stretch ourselves. For those who may say, well, you haven't done a pulmonary development program before, will you be successful in executing it? I would remind folks that as we sat in 2018 and looked forward and we're getting conviction around the idea of becoming a leader in gene therapy, there wasn't, before Louise joined us, a single person in Sarepta really that knew anything about gene therapy. And we sit here a few years later being, in my view, the world's leader in gene therapy globally right now, both from a development perspective, a regulatory perspective, construct development perspective and commercially. So I think we have a lot of opportunity to be successful there. But starting with the kind of the core, nothing could be more synergistic hardly than FSHD and DM1 for this organization. Louise, do you want to talk anything else about sort of what we're going to do from a development perspective?

You hit on a lot. But I think in terms of synergies, certainly, DM1 and FSHD are exciting because of both the research synergies. Our team is well positioned to collaborate on the research aspects of these in terms of the technology and the genetic medicine platforms. And then from a development perspective as well, these are direct adjacencies to the indications that we're working on. We work with a lot of the same physicians externally that also see these patients. And so there's a lot of synergies. And then we've already been working on CNS. And so this is an easy next step to collaborate here. So we're very well positioned in R&D to support these programs.

And the next question comes from Anupam Rama with JPMorgan.

This is Priyanka on for Anupam. Congrats on the deal. Since the deal closes in the next 30 days, can we expect additional color on strategy and clinical time lines at the JPMorgan Healthcare Conference?

We're not going to commit to that yet. We'll close the transaction. We'll look for opportunities for additional color and readouts over the course of 2025. I think we will have a rich number of communications and discussions and readouts and milestones over '25 and beyond, both from our newest siRNA platform, as we're going to be moving those forward, as well as our gene therapy platform. As I've said, one of the things that's exciting about this deal, it is both the focus of it, the opportunity for blockbusters, but also the fact that we have 4 clinical stage programs to advance at the same time. So we have a lot of opportunities for conversation that we'll discuss at JPMorgan, we haven't determined yet. But thank you very much for your question.

And the next question will come from Gavin Clark-Gartner with Evercore.

Congrats on the deal. So big picture, I was just wondering what makes you comfortable on the long-term safety, specifically for the alpha v beta 6 muscle focused platform? And more specifically also, what duration of in vivo chronic tox coverage do you have at this point?

Louise, do you want to comment on this to the extent possible?

We certainly review the preclinical data. I think once the deal closes and we present the program more fully, we'll be able to provide additional details. But based on the preclinical data that we've seen to date in both the FSHD program and DM1, we have confidence in these programs moving forward.

And our next question will come from Biren Amin with Piper Sandler.

Congrats on the deal. For the MMP7 program, what led you to focus on this target given Arrowhead has 2 other pulmonary programs also in Phase I? And I guess a second part of the question for MMP7 is what read-throughs gave you confidence on the safety profile from animal studies given there was an earlier pulmonary program from the TRiM platform targeting ENaC that had paused due to animal tox back in 2021.

I'll let Louise answer the second part of the question. On the first part of the question, in the diligence process, we got a lot of conviction around MMP7 in this IPF program. And although it is an adjacency, maybe even a little bit further from an adjacency perspective in therapeutic area, it does fit our vision right now, which is we are a rare genetic medicine company. This is a genetic approach, which, of course, is great. But also it's a rare therapy. So there are a lot of other interesting things that Arrowhead looks at. Some of them seemed too far afield from our perspective, and this seemed like it would be right in the wheelhouse. And if successful, would be a really substantial blockbuster if it ultimately works. But Louise, with that, would you like to comment on the latter part of the question?

Yes. Just a comment on the TRiM platform, we certainly look across the different ligands and you can reference data from one to another to some extent, but each program, we looked at individually, because each construct is tailored for the specific indication, so from the ligand that's used, any linkers that are used. And so we evaluated this program individually based on the preclinical data and liked what we saw.

And the next question will come from Kristen Kluska with Cantor Fitzgerald.

Congrats on the deal. I know you're a very patient-centric company. So I was hoping you can comment on, for DM1 and FSHD in particular, what aspects of the disease that you think ultimately are going to matter most for these patients, especially considering there are no treatment options available for them today.

Louise, do you want to touch on this?

I mean both indications are devastating. And so what's important about the Arrowhead platform is the ability to transduce muscle in an efficient way. And so we're making sure that with both of these that we are specifically targeting a high percentage of muscle in a meaningful way. For DM1, as I mentioned, we are interested in going beyond that and potentially impacting the CNS components of the disease, which are devastating in the DM1 in particular. And so moving that potential next generation forward with the subcutaneous dosing and the ability to reach the CNS will be quite meaningful. And so that's something that we're looking forward to working on.

And the next question will come from Joe Schwartz with Leerink Partners.

Congrats on the deal. I was wondering if you could talk about the extent of preclinical or clinical data that you were able to evaluate in order to get comfortable that the Arrowhead programs, which are behind others in development for conditions like DM1, FSHD, et cetera, can have competitive efficacy and safety profiles. For instance, were there particular splicing or knockdown models that showed that at certain concentrations that you think could be achieved safely that drove things that were encouraging preclinically that you might be able to achieve in the clinic. Can you just give us a sense of the diligence and what you're able to see that built your confidence?

Yes, I'll touch briefly, and then I'll let Louise provide any additional color. Just so we're clear, we haven't closed the transaction yet. So we have to be circumspect other than to mention the fact that we've done an enormous amount of diligence. And while there's much more work to do, our review of the diligence and our review of the TRiM platform and our review of the preclinical modeling gives us conviction on the programs and gives us the conviction on the potential of these programs to be best-in-class. But Louise, is there anything else that you would like to say on that topic?

Yes. I mean just on the preclinical data, I think you touched on it in your question for these programs, yes, we were pleased with the amount of knockdown that we saw in both programs. We are impressed with the downstream splice correction that we saw in FSHD, and then the improvement in those biomarkers and functional outcomes. So it was all of that. I think we're particularly impressed with the way Arrowhead has conducted the preclinical data, the assays that they've developed to measure these, in particular for FSHD, as I mentioned, which is notoriously hard. So it was the totality of the preclinical data that really impressed us and made us want to execute on this collaboration.

And the next question will come from Brian Abrahams with RBC.

This is Kevin on for Brian. Congrats on the deal. So maybe just quickly to the extent you can share, are there any differences you would highlight in the licensing agreement across U.S. and other major markets, example, royalties that we should be aware of?

Broadly speaking, no. We've got global exclusive worldwide rights to these programs, which is very exciting for us, because we are committed to being a significant globally relevant large biotech, profitable and cash flow positive. And I think this program and this collaboration gives us a significant opportunity to be just that.

And the next question will come from Gena Wang with Barclays.

I know you've done a lot of work on TRiM platform. Just wondering how much have you done with other platform? There are quite a few RNA therapies or technology out there. How thorough have you done the due diligence process before selecting Arrowhead as a partner? And then second question, have you seen any initial clinical data from these programs?

Let me answer the latter part and I'll go like, we can't provide specific information pre-closing other than I will tell you that we've done a thorough amount of diligence. We have a lot of excitement about these programs. We have a lot of excitement about the TRiM platform itself, the preclinical data. The wealth of preclinical data gives us a lot of confidence around that. And then just broadly speaking, on how much diligence we've done, I'll leave that to Louise to comment as well other than to say we have been looking at just about everything for a very long time. And it was when we got to Arrowhead, we began commencing these discussions and had the opportunity to do the diligence that we've done that we got the conviction that this was the collaboration that was the right answer for Sarepta. Louise?

Yes. We've looked extensively across the arena in this area to look at different platforms. And this just gives me a minute to praise our BD group and collaboration. Really, this was a cross-functional collaboration and our business development team did an exceptional job. We look at these programs across the board in a very deep and constructive way, making sure that we're aligning with all the key functions and the team did an excellent job in the diligence for this program and across the board. So we feel very good that we're at this point where we've looked in an extensive way and have aligned on this collaboration with Arrowhead.

And our next question will come from Brian Skorney with Baird.

This is Charlie on for Brian. Congrats on the deal. And just wondering kind of how creative you might want to be with potential combinations, say, thinking about potentially synergy with gene replacement for like a silence and replace approach for a disease like oculopharyngeal muscular dystrophy or just any kind of potential synergies there? And also what kind of discussions have you had about how the R&D teams will collaborate? Will it just be kind of a complete handover once they finish the Phase I/II? That would just be great to get some more detail.

Louise, would you like to comment on that?

Yes. So taking the last part first. So once the deal closes, we'll work out to see how the collaboration will work together. Specifically, it will be a governance structure, but we're excited, both teams have met, and we're really thrilled with the scientific prowess of this team. So looking forward to working together. On the first part of the question about the opportunity, I think the opportunity is tremendous for this platform. I think one thing to think about with genetic medicine is that you'll see over the next few years, there's not going to be discrete gene therapy, RNA, gene editing. You're going to see a lot of crosstalk with targeting peptides that can be used for delivery for gene therapy, RNA. I alluded to this in my script. And so the opportunity to treat neuromuscular diseases, as one example, in a meaningful way and to look at others with a knockdown approach and then delivery of another is a possibility. So the sky is the limit. This is one area where I could talk a long time, but I won't. But thanks for giving me that question. Doug?

Yes. Let me just comment on the concept of post-closing collaboration. We don't see this as simply in-licensing in a program. We really see this as an exciting collaboration, and we're very excited to do that. We have a lot of regard for the scientists and the science over at Arrowhead. One of the proofs of that is the fact that I am honored to be moving on to the Board of Arrowhead at the closing of this transaction. I've had the opportunity to get to know and work closely with Chris, the CEO of Arrowhead. And I have a lot of conviction that there's going to be a real nice cultural fit, very science-oriented, patient-focused approach across these organizations. And I think the opportunity to collaborate and to do that deeply is very significant after we close this transaction. So we see this as a long-term partnership with an impressive group that have done some really great things.

Okay. I am showing no further questions at this time. I would now like to turn the call back over to Doug for closing remarks.

Thank you very much. So I will conclude by saying what I've said before. We are very excited about this collaboration, and we're very excited to have the addition to Sarepta of a very large and potentially blockbuster filled pipeline of siRNA programs, from our perspective, given it's clinical, preclinical and significant research targets. I would remind everyone, we have 6 research targets across CNS muscle and cardiac muscle. This is very exciting for us. This has been empowered by the success of Elevidys and our PMO franchise. This, in my view, represents a very thoughtful allocation of capital that will not stress our balance sheet, but at the same time, will help us to fuel our growth and serve our vision to be the next large profitable global biotech organization. And with that, I look forward to updating everyone over the course of 2025 on the multiple gene therapy and siRNA readouts that we will have going forward. And with that, I would ask everyone to have a wonderful day and to have an enjoyable and restful Thanksgiving as well. Be well.

This concludes today's conference call. Thank you for participating. You may now disconnect.