Sarepta Risk and the FDA

The capricious FDA, stock picking and should the FDA Commissioner be fired

I want to preface this blog post by saying that I have no position whatsoever in Sarepta ($SRPT) Stock. I think the company is garbage, its medicines elegant placebos. But I think they might sell.

The problem: the FDA is rotting and - like a fish it rots from it head. The FDA approves drugs that don’t work.

The real purpose of this post is to lay out the conditions for firing the FDA Commissioner Robert Califf.

The reason I have no short in Sarepta is that I think the inept or corrupt FDA may continue to approve its worthless drugs anyway. The FDA ignores its legislative requirement of approving drugs when there is substantial evidence of effectiveness.

For background though I will start with what I referred to as “Sarepta Risk” in my last quarterly letter to clients. To quote:

The FDA is widely considered to be the world’s foremost regulator of drug products, with a stringent and rigorous process for evaluating new marketing applications. Disagreements between the FDA and regulators in other developed markets (such as the European Medicines Agency or the Australian Therapeutic Goods Administration (TGA)) are rare, and when they do occur, it is usually because the FDA has taken a more critical view of the applicant’s evidence.

For a drug to be approved in the US, it must meet the statutory requirement of “substantial evidence of effectiveness” under the Federal Food, Drug, and Cosmetic Act. There are essentially three ways to meet this requirement. Normally, the FDA expects the sponsor to succeed in two “adequate and well-controlled studies”. Alternatively, the sponsor can rely on success from a single study if the results from that study are “very persuasive”, or if they are combined with some sort of independent confirmatory evidence. For the most part lobbying from the cohort of patients, the “patient voice”, has played a relatively minor role in the FDA’s decision-making process and the agency has been prepared to make tough but rational decisions when the “substantial evidence” standard is clearly not met.

However, this was not the case in 2016 when the FDA famously overruled its own review team and external advisory committee to approve Sarepta Therapeutics’ controversial drug for Duchenne muscular dystrophy (Exondys 51). At the time, Sarepta had completed a single phase 2 trial in just 12 patients which, per the FDA Commissioner (Robert Califf) himself, had “major flaws” in both its design and conduct. Ellis Unger, director of the Office of Drug Evaluation at the FDA, declared that the drug was a "scientifically elegant placebo", and that patients and their families were taking on unknown risks for likely non-existent benefits.

The European Medicines Agency (EMA) had a similar view. In May 2018, they recommended that Sarepta’s marketing authorisation be refused because “the balance of benefits and risks of Exondys in the treatment of DMD could not be established”. Here is a more detailed description of the issues:

“The CHMP (European regulator) was concerned that the main study, which involved just 12 patients, did not compare Exondys with placebo beyond 24 weeks, during which there was no meaningful difference between Exondys and placebo in the 6-minute walking distance. The methods for comparing results of the main studies with historical data were not satisfactory for showing that the medicine was effective. The Committee considered further data were needed to show that the very low amounts of shortened dystrophin produced as a result of Exondys treatment bring lasting benefits relevant to the patient.”

The EMA officially refused Sarepta’s marketing authorisation in September 2018. Despite its University of Western Australia origins, Exondys has still not been approved by the TGA. The approval of Exondys by the FDA can be attributed, not to a demonstration of “substantial evidence of effectiveness”, but to the vociferous (and sometimes weaponised) support from patient advocacy organizations and a call from Janet Woodcock (then the director of the FDA’s Center for Drug Evaluation and Research) for “the greatest flexibility possible”. When the drug launched in the US, these same patient advocates lamented its $300,000 per year price tag. This is $300,000 worth of placebo per patient the American taxpayer is on the hook for.

Similarly, in June 2021, the FDA approved a basically useless drug (Aduhelm) for the treatment of Alzheimer’s Disease, thanks in large part to patient advocacy groups (led by the Alzheimer’s Association) who lobbied strenuously for the drug, and who were in many cases funded by the drug’s sponsor (Biogen). The FDA again overruled the overwhelmingly negative recommendation of its external advisory committee and many of its own officials, who were concerned about “inconsistencies in the data” and unconvinced that “substantial evidence of effectiveness” had been achieved. These concerns were even shared by scientists at Biogen. When the FDA gave them the green light, Dr. Vissia Viglietta, a senior medical director who assisted the design of Aduhelm’s pivotal studies, commented: “it defeats everything I believe in scientifically and it lowers the rigor of regulatory bodies.” In that case (and without prior precedent) Medicare minimized the damage to American taxpayers by sharply restricting coverage of Aduhelm despite approval from the FDA. Sales were de minimis.

In December 2021, the EMA issued a negative recommendation to Biogen on the basis that the Aduhelm studies were “conflicting”, “did not convincingly show that Aduhelm was effective at treating adults with early-stage Alzheimer’s disease”, and “did not show that the medicine was sufficiently safe as images from brain scans of some patients showed abnormalities (amyloid-related imaging abnormalities) suggestive of swelling or bleeding in the brain”. Biogen officially withdrew its EU application in April 2022.

In June 2023, the Australian TGA recommended rejecting Aduhelm based on “weak and uncertain efficacy data, substantial risk, and a substantial burden of treatment including infusions and monitoring requirements”.

Initially, we thought that Sarepta and Aduhelm were rare lapses in the FDA’s judgment. However, the agency’s recent public communication (such as this talk with Robert Califf at the 2023 STAT-JPM event) and a spate of approval decisions have made it clear to us that there has been a major shift in their regulatory framework. For life-threatening diseases lacking effective treatments, the patient’s voice is now more important than the quality of the applicant’s evidence. In the last two years alone, there have been more than a few cases where the FDA has, under the pressure of patient advocacy groups, lowered its standards for life-threatening diseases to accept ambiguous, even flawed, evidence.

We are not going to name examples, but we have noticed a trend. People we regard as fraudsters – and whose usual business is stock fraud – are promoting drugs that do not work for life-threatening and debilitating illnesses with major unmet needs. That doesn’t matter as long as they do no harm but once stock-promoters organize (maybe even astroturf) a lobby group to argue for approval there is a decent chance it gets approved. If it gets approved the costs of US medicines go up with no identifiable health benefit. Taxpayers or insurance providers – and hence future policyholders - are on the hook. The money gets transferred to former stock-fraudsters who seem to make money legitimately by selling expensive placebos.

Even if it doesn’t get approved the stock goes up in anticipation. The chance of complete nonsense getting approved is high these days.

It is not our place to make recommendations on how to improve the cost-effectiveness of US Health Care, though we will anyway. Many politicians have that as an agenda item – and they could start by firing Robert Califf and replacing him with an FDA Commissioner who acts according to the mandate and only approves drugs where the sponsor really does provide substantial evidence of effectiveness.

That said, it is our job not to be too adversely impacted when the FDA is captured by stock/drug promoters and w approves their placebos. We short biotech frauds (there are many). We now have to make sure we are not short stocks with what we have taken to calling “Sarepta Risk”. This requires us to develop new skills and maybe to watch for signs of well-organized fake grassroots campaigns for drug approvals.

So now it is crunch time for the FDA. When Sarepta’s elegant placebos were originally approved on very thin data Sarepta were required to produce a confirmatory studies. Sarepta delayed and delayed. You can understand why. They were selling the drug for a lot of money and it did not work. A confirmatory study would expose the scam at the base of this whole store.

Well today a confirmatory study (for a Sarepta drug) came out. And guess what: the drug doesn’t work. Sarepta’s CEO rabbited on about how good the data was but the drug clear failed its primary endpoint. It failed a few important secondary endpoints too. It is a placebo. A waste of payers money.

So now the question is whether the FDA will pull approval. The stock is down hard - but many FDA watchers think the FDA will retain approval for the drug even though it doesn’t work.

It is not my decision. And it doesn’t really affect me either because the Australian Government to which I pay taxes won’t subsidise this garbage. And as stated I have no position in the stock.

But if the FDA does retain the approval then - for the reasons I make clear above Robert Califf should be fired. But this is so blatant the more reasonable response is a corruption investigation.

John