Strength In Sarepta: Why Today's Moves Were Predictable

Sarepta Therapeutics Inc (NASDAQ: SRPT) shares are trading lower by $4.09 at $10.86 in Tuesday's session. The catalyst for the decline is likely a vote by the FDA against Duchenne Muscular Dystrophy drug, Eteplirsen. But in the face of this bearish news, PreMarket Prep hosts Joel Elconin and Dennis Dick outlined why they think the stock will rebound.

Elconin and Dick noted key technical levels indicated a possible bump, and also that the panel vote for so-called accelerated approval, a preliminary step, was very close at 7–6. Dick added there was still a chance for the drug to be approved at the final vote on May 26, and the FDA does not necessarily have to follow the advice of its advisory panels.

"The question is, can they get this drug back, do some trials on it, get some more data, to win over the other FDA panelists there," he said. "If they can, this drug gets approved, obviously this stock's going to go a hell of a lot higher. I think if they get some more data it could be approved eventually, the question is can it get approved in time before they burn through all their cash."

Related Link: Eteplirsen Not Effective, Sarepta Therapeutics Plunges 50%

A major reason for the denial was that the study involved a small number of patients (12) without an adequate placebo control.

Elconin discussed some key technical points from the premarket trading activity. Mainly, the issue immediately fell from its premarket opening price of $8 to $6.70 within first 13 minutes and began to rally – an indication that the current shorts were looking to capitalize on the bad news to cover their profitable positions.

Said Elconin, "I'm a naturally buyer if I'm short this thing. What worse news can you get than what came out today? I think the premarket low of $6.70 is safe."

By the opening of the regular session it had battled back to the $8 area by the open and immediately began to bounce off $8 seconds after the opening bell.

"There's still some people who believe in this company, and there's still some people who believe in this drug," said Dick. "And that's what gives you hope on this thing."

Listen to the full Sarepta discussion at 7:21 in the clip below. PreMarket Prep is an interactive trading talk show featuring interviews with industry executives, analysts, fellow traders, and money managers. Listen to the show and be a part of the chat every morning from 8–9:30 a.m. EST here, or catch the podcast here.