Sarepta Holds Its Breath as Feds Order Halt to Ebola Work

8/7/12Follow @xconomy

Just when Sarepta Therapeutics had some news to get excited about, the company now has to brace itself for what could be a pretty big setback.

The Bothell, WA-based biotech company (NASDAQ: SRPT) said last month that its experimental RNA-based drug for Duchenne Muscular Dystrophy showed some encouraging signs of improving walking ability for boys in a small clinical trial, which caused its shares to more than double. But the company’s R&D efforts were dealt a blow late last week when the U.S. Department of Defense ordered it to stop working on a lucrative defense contract as the government assesses budgets, and whether to terminate the program.

The contract, divvied up into four different phases, was awarded to Sarepta in July 2010 to advance its work in developing RNA-silencing drugs against the deadly and untreatable Ebola and Marburg viruses. The contract provided Sarepta with about $80 million in the initial phase of R&D funding that was expected to stretch into mid-2013, CEO Chris Garabedian says.

The contract was designed to be extended three more times, and worth potentially $291 million in total, if Sarepta could meet all its technical milestones. The ‘stop-work’ order means that Sarepta, formerly known as AVI Biopharma, could lose half of that contract, or about $145 million over time, that was intended to support the Ebola program.

Sarepta and other companies, like Vancouver, BC-based Tekmira Pharmaceuticals, have been seeking to come up with new ways to fight these hemorrhagic viruses, which can cause fast and horrific deaths. The dangerous viruses—described in the best-selling book ‘The Hot Zone’ by Richard Preston—have been located in certain parts of Africa. They have never been used to inflict mass casualties in a bioterror campaign, but both viruses have long worried biodefense experts. An Ebola outbreak in western Uganda this summer had reportedly killed 14 people as of Aug. 3.

If the federal government cancels part or all of the hemorrhagic virus program at Sarepta, it could have a big impact on the company’s operations. Sarepta has about 110 employees at R&D sites in Bothell, WA, Corvallis, OR, and Cambridge, MA—and about two-thirds of the workforce are involved in the Ebola and Marburg programs on a part-time or full-time basis, Garabedian says.

Chris Garabedian

Sarepta expects to find out by Sept. 1 whether the Department of Defense will terminate its Ebola contract with Sarepta, rescind the ‘stop-work’ order, or essentially delay a little while longer while it makes a decision. Garabedian says it’s too early to say whether any employees will be laid off.

“We are determining the staffing needs in the event of an Ebola contract termination and the existing work required on the Marburg program. It is premature to speculate if staffing cuts will be required or if the lost staff hours on Ebola can be applied toward the Marburg program activities,” Garabedian says in an e-mail.

Shares of Sarepta fell 5 percent to $8.28 at yesterday’s close, after the news was disclosed in a filing with the Securities and Exchange Commission.

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