Sarepta Divests Arrowhead Stake Amid Financial Pressures and Elevidys Setbacks

Sarepta Therapeutics has announced the divestment of its entire equity stake in partner Arrowhead Pharmaceuticals, a move aimed at securing funds to cover looming milestone payments and address mounting financial pressures. This strategic decision comes as Sarepta navigates challenges surrounding its controversial Duchenne muscular dystrophy (DMD) treatment, Elevidys.

Arrowhead Stake Liquidation and Milestone Payments

Sarepta's divestment involves two key transactions. First, Arrowhead agreed to repurchase 2,660,989 shares to satisfy half of a $100 million milestone payment due in September. Additionally, Sarepta sold its remaining 9,265,312 Arrowhead shares in a private placement, expecting to generate at least $174 million in gross proceeds.

These moves are primarily driven by Sarepta's need to fulfill substantial milestone payments to Arrowhead. The company faces an imminent $100 million payment in September, triggered by meeting a study enrollment target announced on July 28. Furthermore, Arrowhead anticipates reaching a second study recruitment goal by the end of 2025, which would necessitate an additional $200 million payment from Sarepta.

Elevidys Controversy and Financial Challenges

Sarepta's financial maneuvers come against the backdrop of ongoing controversies surrounding Elevidys, its gene therapy for DMD. The company has faced several setbacks, including:

1. Safety concerns following the deaths of two patients who received Elevidys and another in a separate gene therapy trial.
2. A public dispute with the FDA over shipping restrictions, which temporarily halted Elevidys distribution.
3. Significant staff layoffs, with over a third of employees let go in July to ensure the company's "long-term viability."

These issues have severely impacted Sarepta's stock price, which plummeted from over $160 in June 2024 to around $20 currently. The company also faces the challenge of a $1 billion debt maturity in 2027, making the recovery of Elevidys sales crucial for its financial stability.

Future Outlook and Partnership Dynamics

Despite the divestment, Sarepta has reaffirmed its commitment to the collaboration with Arrowhead, signed in 2024. The partnership holds significant potential, with Arrowhead stating that it could yield up to $10 billion in payments over time.

However, the relationship is not without tension. Arrowhead has publicly stated that if Sarepta fails to meet milestone payments, it would reclaim its intellectual property. This underscores the precarious financial position Sarepta finds itself in and the importance of maintaining its partnerships while addressing immediate financial needs.

As Sarepta navigates these challenges, industry analysts, including Leerink Partners' Joseph Schwartz, suggest that while the stock sale provides some financial breathing room, additional measures may be necessary to ensure sufficient liquidity ahead of the 2027 debt maturity.