Sarepta Therapeutics (NASDAQ: SRPT) shows the danger of investing in medical research companies reliant on breakthrough drugs.
Sarepta lost 50% of its market capitalization after the company’s CEO Doug Ingram admitted its gene therapy for Duchenne muscular dystrophy does not work, Barron’s reports. In essence, the failure of one drug can doom a company such as Sarepta (SRPT).
In detail, Mr. Market paid $168.95 for Sarepta on 7 January 2021 and $90.18 for Sarepta on 14 January 2021. I think Sarepta’s share price collapse shows that biotech stocks are in a bubble driven by popular faith in biotechnology. If the biotechnology fails, investors dump the stock.
I have to wonder if we will see many more Sareptas as investors lose faith in companies such as Moderna (NASDAQ: MRNA). Remember, Moderna’s success comes from one coronavirus vaccine. If the vaccine fails, Moderna dies.
Sarepta Loses Money
I think Sarepta (NASDAQ: SRPT) is a terrible stock because it loses money. For example, Sarepta reported a quarterly operating loss of -$137.07 million on 30 September 2020.
Sarepta has reported six straight quarters of operating losses. In fact, Sarepta reported a quarterly operating loss in each quarter of 2020.
Similarly, Sarepta reports tiny gross profits and revenues. For instance, Sarepta reported quarterly revenues of $143.92 million and a quarterly gross profit $128.91 million on 30 September 2020. Thus, Sarepta’s quarterly operating loss of -$137.07 million was larger than the quarterly gross profit.
How Much Cash Does Sarepta Generate?
Plus, Sarepta (SRPT) reported a negative operating cash flow of -$238.19 million on 30 September 2020. The negative operating flow grew from -$107.60 million on 30 June 2020.
Notably, Sarepta reported five negative operating cash flow in the last 18 months. The last positive cash flow Sarepta reported was $627.19 million on 31 March 2020.
In addition, Sarepta reported a negative ending cash flow of -$18.79 million on 30 September 2020. That number grew from -$124.25 million on 30 June 2020.
How Much Debt Does Sarepta Have?
Conversely, Sarepta Therapeutics (SRPT) can generate enormous amounts of cash. Sarepta reported a quarterly ending cash flow of $1.773 billion on 31 March 2020.
The financing cash flow shows Sarepta is not paying its debts. Notably, Sarepta reported a positive financing cash flow for seven straight quarters between September 2019 and September 2020.
Sarepta reported $700.47 million in long-term debt on 30 September 2020. In 2020, the long-term debt grew from $681.90 million on 31 December 2019.
What Value Does Sarepta Have?
Currently, Sarepta (SRPT) has a small value. For example, Sarepta had $2.781 billion in total assets on 30 September 2020.
The Total Assets fell from $2.882 billion on 30 June 2020 and $2.947 billion on 31 March 2020. Thus, Sarepta’s assets are less valuable now than they were at the pandemic.
Consequently, I consider Sarepta overvalued at the $89.90 Mr. Market paid for it on 14 January 2021. I think Sarepta collapsed because its value is purely theoretical.
Sarepta’s Questionable Business Model
To explain Sarepta is trying to create a Gene Therapy Engine, an RNA Platform, and Gene Editing treatments. Those tools purpose is to treat four rare diseases; Charcot-Marie-Tooth (CMT) Disease, MPS IIIA: A Rare Inherited Neurodegenerative Disorder, LGMD: A Group of Neuromuscular Diseases with Many Subtypes, and Duchenne Muscular Dystrophy: A Rare Genetic Neuromuscular Disease.
The treatment of these diseases is a noble endeavor. However, there is no evidence, Sarepta can make money treating these diseases.
I think the rareness of these diseases limits Sarepta’s moneymaking capacity. For instance, Sarepta itself admits Duchenne Muscular Dystrophy only affects one in 3,500 to 5,000 boys.
Consequently, I consider Sarepta a charity rather than a company. Yes, treating these diseases is a wonderful activity. However, it could be better for taxpayers or charitable donations to finance such research.
Smart investors need to stay away from Sarepta and understand that this company is a charitable enterprise that could never make money. I think investing in theoretical treatments for rare diseases is a great way to waste money. Hence, I advise only people can afford to lose money and want to help the rare diseases’ victims to buy Sarepta (SRPT) stock.