On May 15, Sarepta Therapeutics Inc. (NASDAQ: SRPT) learned that its treatment for Duchenne muscular dystrophy (DMD) was recommended for approval by the Food and Drug Administration (FDA) advisors. Naturally, the stock jumped more than 30% to a two-year high.

Five weeks later, when Elevidys was formally announced as the first gene therapy for the inherited muscular disease, shares of the Cambridge-based company fell as much as 15%. 

Huh? 

The strange turn of events highlights the unpredictable nature of the biotechnology industry and its appropriateness solely for high-risk investors. It also presents a crossroads for a stock that has long been admired by Wall Street research groups.

In the aftermath of Elevidys getting a closely contested thumbs up from U.S. regulatory advisors, several analysts were quick to crown Sarepta the next big thing in biotech. Price targets were raised significantly.

But with the stock suddenly back at its lowest level since November 2022, shareholders and prospective investors are left asking, "Will the real Sarepta Therapeutics stock please stand up?"

Why is Sarepta Therapeutics Stock Down?

While the Elevidys approval is undoubtedly good news for families impacted by the severe childhood disease, the implications for Sarepta’s financial health is unclear. 

For starters, the FDA’s accelerated approval was limited to DMD patients who are between the ages of four and five years and who have the ability to walk. Sarepta’s FDA application, on the other hand, specified patients of all ages with the ability to walk. 

This puts the spotlight on results from a late-stage study of Elevidys, which aren’t expected until later this year. If that data is strong, it could push the FDA to expand the treatment’s use to other age groups. If it disappoints, then the current limited approval could stand. 

For now, the market is taking the glass-half-empty approach. While accelerated approval is a big positive, some say it is outweighed by its age limits and uncertainty around future label expansion.

Last week, Evercore ISI became the first firm to downgrade Sarepta shares to "hold," saying the path to expand the label is tough. The analyst also noted that obtaining Elevidys approval as a therapy for patients who are unable to walk may face significant roadblocks. Credit Suisse maintained its cautious stance, calling the stock a "hold" (and despite it, issuing a $141 price target). 

As part of the FDA’s accelerated approval pathway, Sarepta Therapeutics must complete a post-marketing confirmatory trial. Top-line results for the fully enrolled EMBARK Phase 3 trial are expected in the fourth quarter of 2023. 

Where Does Sarepta Therapeutics Go from Here?

Barring other major developments around the Elevidys approval or Sarepta’s other products and pipeline candidates, the stock could be range bound for the next several months. If sentiment shifts in one direction or the other, it's likely SRPT gaps lower — or refills Friday’s gap (if not the May 15 gap).

While pockets of negativity have weighed on Sarepta shares in recent days, the overarching Street opinion is bullish. Roughly four out of five analysts covering the stock call it a "buy." As is common with biotech names, price targets are in a wide range. The average target of $178 implies 56% upside over the next 12 months. 

Closely followed analysts at J.P. Morgan, Goldman Sachs and RBC Capital see Saretpta climbing well above $200, which would mark a post-split high. Back in July 2012, the company enacted a one-for-six reverse split to maintain Nasdaq listing requirements. A little over a decade and three commercialized products later, it has gained more than 1,100%. Sarepta owns a trio of injectable medicines for various forms of DMD.

One thing that should make Sarepta bulls feel comfortable is that even the most conservative price targets on the Street imply good upside. The biggest "bear," Evercore ISI, thinks the large cap biotech name is worth $139 at this juncture, which equates to 22% upside. This situation often indicates that a stock’s growth potential is inconsistent with its current price. Several technical indicators (including Bollinger Bands) suggest this volatile stock is oversold.