Analyzing Sarepta Therapeutics’ Gross Margin Trends

Gross margins

In the third quarter, Sarepta’s (SRPT) cost of sales excluding the amortization of in-licensed rights rose YoY (year-over-year) to $8.74 million from $3.08 million.

Sarepta’s cost of sales primarily consists of royalty payments to BioMarin Pharmaceutical (BMRN), inventory costs associated with sales of Exondys 51, and overhead costs. Its amortization of in-licensed rights, on the other hand, fell YoY to $216,000 from $780,000. Its gross margin contracted YoY to 88.86% from 93.30%.

Analyzing Sarepta Therapeutics’ Gross Margin Trends

Expected trends

Sarepta’s gross margins are expected to be 89.77% and 89.0%, respectively, in 2018 and 2019 compared to 95.24% in 2017. Meanwhile, Pfizer’s, Regeneron’s, and Vertex’s 2018 gross margins are expected to be 79.19%, 95.97%, and 87.01%, respectively.

Valuation metrics

Sarepta’s EV (enterprise value) is $7.61 billion, and its EV-to-revenue ratio is 27.78x. Its price-to-sales ratio is 25.68x, and its price-to-book ratio is 10.67x. Pfizer’s, Regeneron’s, and Vertex’s price-to-book ratios are 3.46x, 4.95x, and 13.92x, respectively.

Operating expenses

In the latest quarter, Sarepta Therapeutics’ SG&A (selling, general, and administrative expenses) rose YoY to $53.04 million from $28.18 million due to increased professional services resulting from global expansion and higher personnel expenses.

In 2018 and 2019, Sarepta Therapeutics is expected to incur SG&A expenses of $187.02 million and $223.65 million, respectively. Meanwhile, peers Pfizer (PFE), Regeneron (REGN), and Vertex Pharmaceuticals (VRTX) are expected to have SG&A expenses of $14.34 billion, $1.41 billion, and $489.11 million, respectively, in 2018.

Next, we’ll look at Sarepta’s operational performance.