Earnings Call Transcript - SRPT Q2 2025

Operator, Operator

Good morning, and welcome to Sarepta's Conference Call to discuss the Update on Strategic Restructure and ELEVIDYS Label. As a reminder, today's program is being recorded. At this time, I'll turn the call over to Doug Ingram, CEO. Please go ahead.

Douglas S. Ingram, CEO

Thank you, Lisa. Let's move to Slide 3, please. So first, before I begin, please note that we will be making forward-looking statements today. As always, please refer to our various public filings for the risks and uncertainties that come when making predictions about the future. Next slide. Also, we will be discussing non-GAAP financial measures on this webcast. Descriptions of these non-GAAP financial measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release and the slide presentation available on the Investors section of our website. Let's move to Slide 5, please. All right. With that, let me thank you all for joining Sarepta's call today for an important update on our strategic priorities. Over the course of 2025, Sarepta has faced various challenging unexpected and impactful events. Given these events in such a short period of time, it would be easy and indeed tempting to simply stay the course without making significant change, all in the hope that things will self-correct and be fine. But that complacency would be irresponsible. We are a mission-driven organization, focused on patients and failure to adapt to current circumstances would risk our long-term viability as an organization and decrease the opportunity to bring the greatest benefit to the greatest number of patients living with rare diseases. So we have chosen not to be complacent but to act. As you will hear today, we are restructuring and making very significant changes to our strategy to ensure that we remain a vibrant enduring patient-centric organization focused on bringing a better life to those with rare genetic diseases. In its broadest strokes, our strategy is threefold. First, we will support our four approved therapies and the Duchenne patients that they serve. Our three PMOs and our one-of-a-kind gene therapy, ELEVIDYS, are bringing a better life to patients. As for ELEVIDYS, our top priority is to arm our patients and their caregivers with accurate information on the efficacy and safety of this remarkable disease-modifying therapy and to ensure and encourage fact-based discussions between caregivers and patients in desperate need of therapy, not in the future, but right now. Second, with the proceeds of our performance, we intend to advance a very focused pipeline of high-impact development programs that will serve rare disease patients who are desperately in need of therapeutic intervention. And third, we will manage our P&L and balance sheet with discipline to ensure even under very conservative estimates of performance, we remain profitable, cash flow positive, and capable of addressing our financial obligations, including the retirement of our 2027 convertible note. Next slide, please. In today's call, we will discuss the following: First, we will discuss our adapted strategy and our restructuring plan focused on reducing costs, managing our 2027 liabilities, and realigning our portfolio to sustain our business and fulfill the promise of our mission. Next, we will provide an update on ELEVIDYS, including our current regulatory interactions as well as the outcome of our previously discussed expert panel. Finally, we will discuss the near-term potential of our siRNA assets, including FSHD, DM1, SCA2, and our Huntington's disease program. Now turning to our restructuring. The goal of our restructuring is to reprioritize our pipeline to those development programs and research that will have the greatest impact and to ensure we have the resources to meet our financial obligations while fully investing in and advancing that pipeline, including our siRNA programs for rare genetic diseases in need of therapeutic intervention. As Ian will discuss in more detail shortly, our restructure will include the following: First, we have reshaped and reduced our portfolio to focus on programs such as DM1, FSHD, SCA2, IPF, and Huntington's disease; also, our limb-girdle Type 2E program, which is SRP-9003; as well as our ongoing studies for EXONDYS, AMONDYS, VYONDYS, and ELEVIDYS, and research programs for SCA1 and 3, third-generation RNA research for Duchenne, and siRNA early research targets to be determined. We have a number of very important programs that, by necessity, we can no longer fund. Our goal is to pause those programs and to look for alternative approaches to progressing them, such as through partnerships. Second, we will reduce our ongoing spending by about $900 million through 2027, ensuring that even with very modest estimates of forward sales, we remain profitable and cash flow positive and can meet our financial obligations, including maintaining our revolver and addressing our 2027 convertible debt. Third, necessarily but very regrettably, this will require a reduction in force or risk by about 36% of our workforce or approximately 500 employees. This risk is personally very painful to me and others as we have an extraordinarily talented team. And with this more focused portfolio, we will be losing some very talented and very dedicated professionals. But given our refocused pipeline and strategy, it is absolutely necessary. I do want to linger for a moment and thank our departing colleagues for their extraordinary work and for their passion for our mission. Your contributions have brought a better life to countless patients. Next slide. Finally, in support of our new strategy, I've made some adjustments to the structure of my direct team. I have elected Dr. Louise Rodino-Klapac to President of R&D and Technical Operations. Bringing together the R&D and technical operations functions into a single organization will enable the advancement of our pipeline with speed and scientific rigor by integrating perspectives and expertise that accelerate the pace of innovation. In her expanded role, Louise will oversee technical operations, clinical development, clinical operations, regulatory affairs, research, and medical affairs. We have also made Dr. Rachael Potter our Chief Scientific Officer. Over the course of Rachael's tenure at Sarepta, she has grown significantly in her role, taking on increasing responsibilities and leading our research efforts. Dr. Potter will report to Dr. Rodino-Klapac. I have also made Ian Estepan our President and Chief Operating Officer. In this expanded role, in addition to his current responsibilities, the commercial organization will now report to Ian. Ian will also oversee finance, business development, government affairs, patient affairs, and corporate affairs. The integration across our commercial organization, corporate affairs, and corporate functions will enhance our execution and create many efficiencies. I have promoted Dr. Patrick Moss to the role of Executive Vice President and Chief Commercial Officer reporting to Ian. Patrick holds a Doctor of Pharmacy degree and previously served as our Senior Vice President, Head of U.S. Market Access and Sales, and he's been integral to each of our four product launches. He was responsible for building Sarepta's industry-leading market access, reimbursement, and specialty distribution teams, and his vast industry experience includes facilitating coverage of some of the most important therapies our industry has developed and commercialized. Patrick succeeds our Chief Customer Officer, Dallan Murray, who will be departing Sarepta. On behalf of the team and our Board, I would like to sincerely thank Dallan for his very long-term commitment to Sarepta and to the Duchenne community. We all wish Dallan the very best. We have also elected Ryan Wong, currently Senior Vice President, Strategic Finance, Treasury, and Investor Relations to the role of Sarepta's CFO reporting to Ian. Ryan has served as Head of our Financial Planning and Analysis organization. He assumed responsibility for our Investor Relations team last year and has been a trusted partner to Ian. Next, after Ian discusses the restructuring in more detail and comments on current performance, Louise is going to provide an update on ELEVIDYS, followed by a discussion of our prioritized siRNA platform. For ELEVIDYS, you will hear that as to the ambulatory population, the FDA has requested a black box warning to which we agree. So our label for the ambulatory patient population appears to be resolved. As to the nonambulatory patient population, more dialogue is required, but having completed our expert panel, we have developed an informed sirolimus immunosuppression protocol about which we have much conviction. Our goal is to work with the FDA to gather the requisite information and to implement it as soon as we are permitted. It barely needs to be said that nonambulatory patients have precious little time to wait. And if we and the FDA are dedicated to these patients, we must move quickly. Now, with that, I will turn the call over to Ian, who will provide more information on our restructuring and, from there, we will turn the call to Louise, who will discuss our current strategy for ELEVIDYS and our more focused pipeline.

Ian Estepan, President and COO

Thanks, Doug, and good afternoon, everyone. Building on Doug's message of decisive action, I want to reinforce Sarepta's commitment to remaining a vibrant enduring and patient-centric organization. Today, I'll walk you through the strategic and financial decisions we've made fundamentally informed by our dedication to addressing our 2027 financial obligations and maintaining access to our revolving credit facility. Our overall goal is clear: to position Sarepta for long-term sustainable growth, strengthen our financial foundation, prioritize high-impact innovation, and ultimately deliver enduring value to both patients and shareholders. Next slide, please. Let's begin with a brief outlook at our preliminary second quarter results. We reported total net product revenue of $513 million, comprising of $282 million from ELEVIDYS and $231 million from our PMO franchise. Importantly, we ended the quarter with $850 million in cash and cash equivalents, an increase of $203 million over Q1. Our total combined R&D and SG&A expenses on a GAAP basis were $338 million, and on a non-GAAP basis, were $294 million. Next slide, please. Before detailing our cost structure changes, I want to emphasize that our Duchenne portfolio continued to deliver a stable and robust revenue stream, firmly supporting our long-term growth strategy. We are not providing specific revenue guidance at this time because we're unable to fully quantify the impact of the second ALF event and lack full visibility into the non-ambulant opportunity. That said, with the ambulant population for ELEVIDYS remaining on the market, we can provide a floor for the opportunity. At a minimum, we expect annual revenues of $500 million from the ambulant ELEVIDYS population. This floor is based on conservative assumptions regarding both the incident population and the prevalent ambulant population, reinforcing our commitment and confidence in this baseline revenue stream. Our PMO franchise continues to perform well with expected annual revenues of around $900 million. Combining this with the ELEVIDYS ambulant opportunity, our overall Duchenne franchise is expected to generate greater than $1.4 billion annually. To reiterate, this is not formal guidance, but should provide investors confidence in the baseline opportunity ahead. Next slide, please. Now let's discuss the decisive necessary changes supporting our financial resilience. First, we are prioritizing our siRNA platform which we believe offers a durable growth engine. As part of this shift, we are deprioritizing several programs, including most of our limb-girdle pipeline with the exception of limb-girdle 2E, which we plan to continue supporting. For deprioritized programs, we are actively exploring strategic alternatives to advance them without incurring additional expense. Furthermore, we are undertaking a significant restructuring of our organization, including a 36% workforce reduction. This difficult but essential decision is expected to generate $120 million in annual cash savings starting in 2026. We also anticipate over $100 million in total cost savings through the end of 2025. This figure is net of estimated severance and other one-time restructuring charges totaling $32 million to $37 million. We also project a substantial $300 million in annualized cost savings from phase-out programs beginning in 2026. These comprehensive actions align our cost structure precisely with our strategic priorities. Next slide. So these changes aren't merely about cost-cutting; they are proactive and aggressive exercises in financial discipline designed to secure our future. Our revised structure is expected to deliver approximately $400 million in annual cost savings. This will significantly reduce our average annual expenses, excluding one-time collaboration milestones to a range of $800 million to $900 million on a go-forward basis starting in 2026. This approach positions us to preserve financial flexibility as we look to proactively manage our 2027 debt obligations. Next slide, please. More specifically, these cuts are deliberate and aimed at ensuring we continue to meet our minimum EBITDA levels necessary to comfortably maintain access to our $600 million revolving credit facility. To ensure continued access to the facility, we must maintain a minimum trailing 4-quarter EBITDA of $172 million. This threshold is tied to our financial covenants, specifically a maximum secured net leverage ratio of 3.5x and a minimum consolidated interest coverage ratio of 2.5x. Our financial projections based on conservative annual revenue baseline of $1.4 billion indicates that we are well positioned to meet these requirements. This financial discipline is especially critical as we approach the potential launches of FSHD and DM1 later this decade. Maintaining revolver access ensures we have the liquidity and flexibility to execute on our long-term growth initiatives and proactively manage the liabilities. So to conclude, with a leaner, more focused organization and a clear financial road map, we are confident in our ability to drive sustained operating profit, support future innovation with our potential best-in-class RNA platform, and meet all of our future debt obligations, again, reinforcing our commitment to both patients and shareholders. So with that, I'll turn the call over to Louise, who will provide an update on our promising siRNA programs, including our upcoming data readouts and preclinical data that underscore their potential to be best-in-class. Next slide. Louise?

Louise Rodino-Klapac, President of R&D and Technical Operations

Thanks, Ian, and good afternoon, everyone. Next slide, please. I'd like to start with an update on ELEVIDYS labeling settlement. We will agree to include a black box warning for ALI/ALF, alongside additional changes to ensure the communication of important safety information to prescribers and patients. With these changes, we will be resolving any material issues with the ambulant portion of the ELEVIDYS label. Discussion with FDA on the supplement is ongoing, but there appear to be no substantial issues for the ambulant patients to remain on the market. We have also convened an expert committee to discuss ALF and the potential of adding an additional immunosuppression regimen for the non-ambulant population. The committee consisted of hepatologists, pathologists, neuromuscular experts, hematologists, and immunologists. We greatly appreciate the collaboration and their expert input. The committee aligned on the regimen with sirolimus. We are proposing to test this in a clinical trial setting in non-ambulatory patients as cohort 8 in our 103 study. We are also considering a number of submissions we've received to support investigator-initiated trials to study ambulant patients in the real-world setting. Next slide, please. The proposed study design for Study 103 cohort 8 is a 6-month study to evaluate the addition of sirolimus in non-ambulatory Duchenne patients. Sirolimus will be given pre-treatment 14 days prior to infusion and continue for approximately 12 weeks. This is in addition to our standard protocol for steroids. The primary outcomes include the incidence of acute liver injury and 9001-dystrophin expression. Following 6 months of follow-up, patients will be enrolled in our long-term extension study, Study 305. If we are clear to proceed by the FDA, this study will be the fastest path to generating data with sirolimus and will be in addition to the amendment of Study 303 or our ENVISION study. We are deeply committed to the safety of Duchenne patients and look forward to continuing to serve this community. Next slide, please. Now as Ian just outlined, we've reduced our R&D expenses and sharpened our focus on our pipeline. Our work as a genetic medicines company includes significant opportunities in siRNA. The targeted RNAi molecule or TRiM platform is applicable across a wide variety of tissue types and capable of deep and durable target gene knockdown. The strength of this technology has been demonstrated in preclinical studies across multiple tissue types. This foundational validation is why we have confidence that our TRiM-based therapies have the potential to be truly differentiated and best-in-class approaches. To overcome delivery challenges we often see with RNA therapies, the TRiM technology employs proprietary tissue targeting ligands. This combination of siRNA chemistry and its ligand delivery platform enables us to achieve robust knockdown of over-expressed proteins and reach areas of the body that are traditionally difficult to penetrate. Next slide, please. To remind you, the potential of our siRNA portfolio is important to Sarepta and to patients affected by diseases that currently have no treatment. This importance stems from several key factors. First, we are addressing large unmet needs with chronically administered therapies to treat patients who suffer from neurodegenerative diseases. Second, we're developing technologies where the foundational science is well understood. The proof of concept is established, and the mechanism of action is validated. Third, these programs are generating numerous near-term catalysts that will accelerate our pipeline. And finally, we are employing Sarepta's competitive advantage and expertise in neuromuscular diseases. Today, I'll focus on our key siRNA programs: FSHD, DM1, SCA2, and Huntington's disease. Next slide, please. FSHD is a rare, progressive, and debilitating muscle disease causing weakness in skeletal muscles with no disease-modifying therapies available. It's being studied in patients with the abnormal activation of the DUX4 gene, leading to the production of DUX4 protein, which is myotoxic and causes muscle degeneration. SRP-1001 is designed to reduce the production of DUX4 protein in skeletal muscle. This approach should also be therapeutic in type 2 FSHD, which we intend to explore in subsequent studies. Next slide, please. Based on the data we've generated to date, we believe SRP-1001 has the potential to be differentiated and best-in-class. Our preclinical studies have shown that robust muscle penetration achieved with SRP-1001 leads to significant dose-dependent knockdown of DUX4 mRNA in FSHD patients as shown on the left. This deep knockdown then effectively reduces the downstream expression of DUX4-related genes, which you see on the right. This comprehensive reduction of the underlying pathological driver along with the observed robust tissue penetration directly supports our expectation for improvements in both biomarkers and functional outcomes in patients. Next slide, please. Further illustrating its potential in an engineered FSHD mouse model, DUX4 was induced leading to an increase in DUX4 protein expression. As demonstrated in the blue bars on the left and the right, SRP-1001 treatment was shown to prevent the increase in DUX4 expression indicating its prophylactic potential and effectively reverse existing DUX4 expression, demonstrating its ability to mitigate established pathology. This dual action of prevention and reversal highlights the broad therapeutic potential of SRP-1001. Next slide, please. A Phase I/II study of SRP-1001 in participants with FSHD 1 is currently underway. We have fully enrolled cohorts 1, 2, and 3 in Part 1, which is our Single Ascending Dose study or SAD study. For these initial cohorts, we are evaluating escalating doses to establish the safety profile and biological activity. We look forward to sharing preliminary data in the second half of 2025. This data will focus on safety, DUX4 mRNA knockdown, DUX4-regulated gene expression, and functional assessments. Our objective with these preliminary results is to provide initial proof-of-concept for DUX4 knockdown and to further characterize the safety profile of SRP-1001 in humans. Next slide, please. Next, I'd like to discuss our SRP-1003 program for myotonic dystrophy type 1, or DM1, which is the most common and severe form of myotonic dystrophy. This disease affects muscles and multiple organs leading to progressive weakness, myotonia, and often cardiac and respiratory complications, significantly impacting quality of life and lifespan. There are currently no disease-modifying treatments. Next slide, please. DM1 is driven by an expanded CUG trinucleotide repeat and DMPK transcripts causing mutant DMPK mRNA to accumulate in the nucleus and disrupt normal splicing. We are employing an RNAi conjugate, SRP-1003 designed to specifically target and suppress DMPK in skeletal muscle. We believe SRP-1003 has best-in-class potential given its strong preclinical profile. As shown on this slide, SRP-1003 achieved 80% knockdown of DMPK mRNA in the skeletal muscle of nonhuman primates. We anticipate this robust level of knockdown would be translatable into humans, positioning SRP-1003 as a highly effective treatment for DM1. Next slide, please. Further demonstrating its disease-modifying potential in a DM1 mouse model, SRP-1003 was shown to both reduce pathological DMPK mRNA and importantly, correct the missplicing. As seen on the left, we observed nuclear knockdown with greater than 50% reduction in DMPK mRNA at the highest dose. This directly addresses the disease mechanism of the mutant DMPK mRNA that accumulates in the nucleus. As depicted on the right, we observed a dose-dependent correction of the mis-splicing, reaching up to 60% repair. This level of mis-splicing correction is critical as it is directly linked to the clinical manifestations of DM1, thus providing strong evidence for SRP-1003's ability to have a direct and meaningful impact on the disease in humans. Next slide, please. A Phase I/II study of SRP-1003 in patients with DM1 is currently underway. We have fully enrolled cohorts 1 and 2 in the single ascending dose arm of the study. The planned dosing interval for subsequent studies is 12 weeks. We look forward to sharing preliminary Phase I data in the second half of this year. The primary endpoint for this study is safety with key secondary endpoints, including DMPK knockdown, DMPK mediated splice and disease, and functional assessments such as vHOT or Video Hand Opening Time, a method for assessing hand myotonia and finger extension. Next slide, please. Spinocerebellar Ataxia Type 2 or SCA2, is a progressive neurodegenerative disorder for mutations in the ATXN2 gene. As SCA2 progresses, patients experience severe loss of balance, difficulty walking, swallowing, and slurred speech, often requiring a wheelchair within 10 to 20 years of onset. There are approximately 2,000 diagnosed SCA2 patients in the United States, and there are currently no disease-modifying treatments available. Our SRP-1004 program is designed to target the ATXN2 protein in the CNS. Next slide, please. We're excited by the strong preclinical results we've observed for SRP-1004, which we believe position it as a potential first disease-modifying therapy for SCA2. The data presented here clearly show that SRP-1004 reduces both Ataxin mRNA and protein levels. As indicated by each of the blue bars, this reduction is observed across various dose levels compared to control, demonstrating a dose-responsive effect. This signifies the robust and specific target knockdown achieved by SRP-1004 in this preclinical model. The ability to reduce ATXN2, the causative protein in SCA2, is a critical step in addressing the underlying pathology of the disease. Next slide, please. These data further underscore SRP-1004's potential and are important to understand. You can clearly see that SRP-1004 significantly reduces ATXN2 in regions of the non-human primate brain that are most impacted by the disease, such as the cerebellum, frontal cortex, and the cervical spinal cord. This robust reduction of the disease-causing protein in key brain regions provides critically important signals about SRP-1004's potential for meaningful impact in humans. Next slide, please. The Phase I study of SRP-1004 in patients with SCA2 is currently underway as a randomized placebo-controlled single ascending dose study. Cohort 1 of this in this arm of the study has been fully enrolled. We are on track for the first participant in for Cohort 2 in Q3 2025, and we look forward to sharing data when it becomes available. Next slide, please. Huntington's Disease, or HD, affects over 40,000 U.S. patients. It's a progressive neurodegenerative disorder caused by a mutation in the Huntington gene. Patients typically develop motor symptoms in their 40s and 50s, but subtle changes can emerge much earlier. As the disease progresses, individuals face severe problems with swallowing, balance, and voluntary motor tests, often becoming nonverbal and bedridden in late stages. There is currently no cure or disease-modifying treatment available. We look forward to filing our clinical trial application by the end of 2025 and initiating this trial in the first half of 2026. Next slide, please. To effectively treat Huntington's disease, it's important to show that you can target deep into the brain. Our proprietary technology enables a subcutaneous route of administration to deliver siRNA across the blood-brain barrier to the source of the disease deep in the brain, offering the potential for a truly differentiated approach. As shown here, SRP-1005 linked to an antibody fragment targeting TfR1 or the Transferrin Receptor 1 successfully delivers siRNA via subcutaneous injection into the mouse brain. This results in a significant reduction of Huntington protein levels 1 month after delivery in deep brain regions, including the cortex and striatum, highlighting its potential for best-in-class CNS penetration. Next slide, please. On this slide, we present data from a more clinically relevant nonhuman primate model. SRP-1005 successfully reduces Huntington protein levels in these models by binding to nonhuman primate TfR1, enabling effective access to the brain. Critically, this reduction of the pathologic protein is observed in key regions of the brain, highly relevant to the manifestation and progression of Huntington's Disease, such as the temporal cortex and the frontal cortex. In some of these regions, we observed up to 80% Huntington protein knockdown. These data provide strong evidence for the potential of SRP-1005 to impact the disease by reducing the causative protein in areas crucial for disease pathology. Next slide, please. Now in addition to our key programs, as mentioned today, we are also excited about our clinical stage program, SRP-1002 to treat idiopathic pulmonary fibrosis or IPF. IPF is a chronic progressive and irreversible lung condition affecting approximately 60,000 diagnosed patients in the United States. Patients with IPF passed away approximately 5 years from diagnosis. SRP-1002 is designed to inhibit fibrotic development by silencing MMP 7, a key driver of fibrosis, offering a novel therapeutic approach. Our preclinical programs in development, which are depicted on this slide, include therapies to treat spinocerebellar ataxia type 1 and spinocerebellar ataxia type 3. These are also rare genetic neurodegenerative disorders, and we plan to leverage our existing learnings from our SCA2 program to inform and accelerate development for SCA1 and SCA3, aiming to bring urgently needed therapies to these patient populations. Lastly, we plan to pursue up to six discovery targets in muscle, encompassing both skeletal and cardiac or in the essential nervous system. To advance these efforts, we've agreed to work exclusively with Arrowhead to develop therapeutics targeting skeletal muscle diseases. In summary, I'd like to reiterate our excitement for these programs and the tremendous progress we've made. We believe we have the science, the data, and expertise to advance what could be best-in-class therapies to address vast unmet needs in patients with FSHD, DM1, SCA, and Huntington's, along with our earlier stage siRNA pipeline. Next slide, please. As you can see from this slide, we have numerous value-building program milestones and clinical data readouts expected in the near term and into 2026. Next slide, please. I'll now turn the call over to Doug to open up for the Q&A session. Doug?

Douglas S. Ingram, CEO

Thank you very much, Louise. Lisa, let's open the call for Q&A.

Lin Tsai, Analyst

My question is about ELEVIDYS. Is it accurate to say that since you reached an agreement with the FDA to include a black box warning for the ambulatory use and that the FDA remains open to discussing the pathway for nonambulatory use, combined with your previous interactions with the FDA, that they do not intend to withdraw ELEVIDYS from the market for nonambulatory use? I would like to understand your level of confidence about this situation.

Douglas S. Ingram, CEO

Yes. I mean, first of all, as you note, the FDA recently requested of us that we include a black box safety warning, and we frankly think that was imminently reasonable and we have agreed to that. So that is resolved. So on the general question about whether ELEVIDYS as a therapy will remain on the market? The answer is, I think, pretty clear, yes, there's no good reason to believe it wouldn't and frankly, it would be unreasonable to consider it otherwise. As it relates to the non-ambulant patient population, we have more work to do and more discussion to be had. Remember, we have proposed an immunosuppression regimen, and that's based on the expert panel that we held with experts who have deep knowledge and understanding of these areas. That just concluded. I don't believe we've even submitted that information yet, but we will before the end of this week, submit that information to the agency. Our plan and protocol is to use this sirolimus protocol as a prophylactic measure, our preclinical data justifies our conviction that this may very well significantly reduce signals of elevated liver enzymes and other liver biomarkers, which could greatly enhance this therapy and reduce risk. As you also know, we voluntarily not required by the one, but voluntarily chose in the ultimate interest of patients to pause shipments for dosing of nonambulatory patients. That was a very painful decision on our part because I think, as we all know, time is never on the side of patients with Duchenne muscular dystrophy and that is particularly true of nonambulatory patients. So we have a lot more work to do. We obviously don't even have a response yet from the FDA on this issue because we are just submitting it after having just concluded our expert panel, but we certainly have a lot of conviction to gather the necessary data on this immunosuppression protocol to provide it to the FDA as fast as possible and work with the FDA to get back to shipping ELEVIDYS for nonambulatory patients. So more to come there. We have more work to do and more dialogue to be had with the FDA there.

Eliana Rachel Merle, Analyst

Thanks for the update. Just to clarify, when you say that you expect a floor of $500 million for ELEVIDYS, do you mean for this year or the remainder of the year, just how should we think about the second half of the year in terms of sales? Specifically, I guess, can you elaborate on what you've seen in terms of dosing since the update in June in the ambulatory patients? How we should think about revenues for the second half? Any color on sort of how new start trends have been looking?

Douglas S. Ingram, CEO

I have a few thoughts on that. First, I want to remind everyone that we are not providing updated guidance at this time. We will keep monitoring the situation, and once we have more information, we might consider guidance, which would likely pertain to the full year of 2026. We'll revisit this in Q3 and decide on our position then. There is considerable uncertainty regarding the impact of hesitancy related to recent events and the dissemination of accurate information. Additionally, we need to gain a clearer understanding of when we can begin shipping for nonambulatory patients who have been waiting. Regarding the $500 million figure, please do not interpret it as guidance; it is not guidance. It serves as a stress test. When we were updating our strategic plan, cutting costs, and focusing on our pipeline, we needed to ensure that we emerge as a financially robust and viable organization. A key part of this is using conservative assumptions as a stress test to see if we would remain profitable, cash flow positive, maintain our revolver, continue our programs, and manage our 2027 debt under conservative conditions. The outcome at $500 million shows that we can achieve those goals. I want to clarify that I am not providing any guidance for the remainder of the year, nor should you view that $500 million as a reasonable estimate for the rest of the year. It is purely a downside stress test to confirm our good standing. In general, as a result of these two events, we have observed some hesitancy. While patients are still receiving doses and we had a reasonable Q2, we noticed a significant drop in dosing afterward, indicating that we have work to do. Dr. Moss and his team, along with our medical affairs organization, are well-equipped to undertake this work. They will focus on getting the right information to patients and ensuring that physicians are adequately informed for discussions with their patients. That's our plan for the year. Unfortunately, we cannot provide forward guidance at this point. We would like to be able to do so, but we need more information and further efforts to be made before we can.

Brian Corey Abrahams, Analyst

I appreciate the updates and congrats to the team members who have increased responsibilities. I'm curious what you guys are looking for in the ENDEAVOR Cohort 8 to reestablish ELEVIDYS used to nonambulatory patients. Any sense of the timelines it will take to generate sufficient safety data to ensure that this immunosuppressive protocol is mitigating the risk? And I know you haven't specifically discussed this with the FDA yet, but just wondering, have you had any initial signals from them as to whether something like this could be sufficient or whether they would need functional data out of ENVISION?

Douglas S. Ingram, CEO

We are not ready to engage in discussions with the agency yet, as we have not submitted the protocol. This will happen this week, but I cannot provide clear timelines due to several factors. First, we need to get approval from the agency on our protocol, which will involve some discussions. Second, we need to consider the pace of enrollment. Our primary focus is to observe signals of reduced elevated liver enzymes and other important biomarkers. We cannot assess acute liver failure because it is a very rare occurrence that would require years to evaluate. However, if we can significantly reduce liver stress and injury as indicated by liver enzymes and bilirubin levels, it would imply that we have substantially lowered the associated risks. We will provide insights about the timing later, but it’s important to note that elevated liver enzymes typically show up quickly, usually within the first 4 to 8 weeks. Therefore, this should be an efficient process. Additionally, while discussions with the agency are pending, there is no logical requirement for functional data in our case, as we are addressing a very specific issue related to older patients, especially those who are nonambulatory. We have observed a very unfortunate situation involving two serious acute liver failures among over 150 patients, and our aim is to minimize that risk. Preclinical data indicates that the use of sirolimus alongside AAV-mediated gene therapy, specifically rh74, could significantly lower that risk. As painful as it may be for patients, we will take the time to ensure that we’re confident this approach effectively reduces the risk. If it does, we will seek FDA approval to start shipping ELEVIDYS for nonambulatory patients.

Unidentified Analyst, Analyst

This is Daniel on for Tazeen. We had a question on the siRNA platform. So you had mentioned you were planning to host an R&D Day later this year. Is that still the plan? And is that where we should expect to see the updates for FSHD and DM1? And maybe more broadly, given the reduction in OpEx you're expecting, how many programs do you think could move forward at the same time if you see positive data earlier this year?

Douglas S. Ingram, CEO

Let me address the latter question first. We are preparing for success. Our plans for these development programs assume we can proceed quickly with them. Additionally, we have several research programs in the pipeline. If we achieve success with these research programs, we'll need to identify the necessary budgets for them. I would love to believe that we will encounter significant challenges with our research programs. However, we are fully funded for both our research and development efforts. We will not be slowing down our pipeline. Our aim is to move forward as quickly and vigorously as possible to gather data. We view our pipeline as an opportunity to focus rather than slow progress. This has required us to make some very tough decisions, such as the difficult choice not to continue with certain limb-girdle programs, and instead, we hope to find partners who can advance those initiatives if everything goes well. Our focus is to streamline our efforts towards high-impact, disease-modifying therapies that can improve the lives of patients who currently have no such options available. We intend to approach these programs with full intensity. Regarding updates on data and the R&D Day, I will now hand the call over to Louise for further information.

Louise Rodino-Klapac, President of R&D and Technical Operations

We do not plan to hold the R&D Day, but we will plan to update you as soon as the data is available, which will be the second half of this year.

Huidong Wang, Analyst

Thank you for the update. I understand that there are still challenges ahead, but it's good to see that ELEVIDYS remains available. Regarding Cohort-8, since it's a study with only 25 patients, Doug, you mentioned that 2 out of 150 led to a death rate of 1.33%. With just 25 patients, how can we draw meaningful conclusions from this outcome? What kind of data or what percentage of patients might provide insights, considering that 25 deaths would not be enough to demonstrate any clear benefits in terms of mortality or safety? What kind of data would you be looking for to convince the FDA to allow non-ambulatory patients back on the market?

Douglas S. Ingram, CEO

Yes, that's an excellent question. Let me clarify. Your concern is valid. The signal for acute liver failure (ALF) is exceptionally small. If we consider the total population, it represents a very small fraction. Specifically, among nonambulatory patients, it exceeds a little over 1%, which is lower than most other full-body infusion gene therapies, where you might observe a higher incidence of fatal events. While I understand your concerns, our focus is not on that aspect. Instead, we will be monitoring elevated liver biomarkers, liver enzymes, and bilirubin levels. It's crucial to avoid stress on the liver or causing any liver injury, as this would likely not only minimize the risk of ALF but potentially eliminate it altogether if liver injury is absent. This is our main focus. In the context of AAV-mediated gene therapies, ELEVIDYS behaves similarly to others; when administering full-body infusions, we usually observe a significant increase in liver enzymes, typically between 30% and 40%. Historically, these increases have shown no long-term effects and have responded well to minor steroid increases. Although we have encountered some instances exceeding this pattern, reducing those spikes would significantly enhance the therapy's safety profile, which is what we aim to achieve. Given that we typically observe a greater than 30% increase in liver enzymes among 25 patients, our preclinical data suggests that we can expect a notable reduction in these elevated levels, giving us confidence as we start dosing nonambulatory patients.

Michael Eric Ulz, Analyst

Maybe just a follow-up on ELEVIDYS. You mentioned some hesitancy there to prescribe post the second event. Just curious if maybe you can provide a little bit more color on the types of feedback you've gotten from physicians more recently?

Douglas S. Ingram, CEO

We have received some direct feedback indicating hesitancy in starting forms. We've noticed some canceled appointments after the second event, which understandably leads to this hesitancy. This situation reflects our earlier discussions about the diverse patient population across the United States, which has varying levels of information and sophistication, including physicians. There are very informed and knowledgeable physicians, alongside many secondary referrers who lack information and require more details. This hesitancy was evident after the first event and became more pronounced after the second. Despite this, our performance indicates that patients are still receiving doses, and we are generally doing well, but we need to put in more effort. It's essential for us to assess and understand the needs of the physician community, provide them with the necessary information, and support the patient communities effectively this year. We hope these efforts will position us well to provide guidance for 2026 and beyond. For the purposes of this call and our strategy, we set a clear target to guide our focus, prioritization, and cost-cutting efforts. We adopted a conservative view and considered this as a theoretical stress test rather than guidance. We evaluated what it would take to be comfortable with meeting our obligations and driving our programs, which brings us to the $500 million figure. We back-calculated this based on a conservative approach, acknowledging that the incident population alone is about 420 patients a year, which would cover our needs, even if we don't reach all incident patients. We will still capture a significant number and also include the prevalent population. The $500 million acts as a stress test, and that's how we shaped our strategy. Even though it is difficult to lose programs we were committed to and to say goodbye to talented colleagues, we are confident in our strategy and optimistic about our organization's future.

Tommie M. Reerink, Analyst

This is Tommie on for Salveen. At this point, what are your updated thoughts behind the driver of this being only in nonambulatory patients so far? And why it could remain and not affect ambulatory? And wondering if the expert committee spoke about potential effects in the ambulatory patients or if you've had any FDA feedback to this end?

Douglas S. Ingram, CEO

We haven't received feedback from the FDA regarding this matter. I'll now let Louise provide additional insights. In general, we've observed this phenomenon in non-ambulant patients, and it's more of a continuum issue. The ambulatory status alone isn't likely the problem; rather, the primary concern is the extent of debilitation. There may be other factors that account for why, out of over 950 patients, only these two have experienced this issue and not others. Louise, feel free to elaborate further if you'd like.

Louise Rodino-Klapac, President of R&D and Technical Operations

Yes, you captured most of it. The ambulatory status is essentially an indicator of disease progression, and non-ambulatory patients tend to have more severe comorbidities. I agree with the expert committee that the severity of the disease is likely the main factor affecting these patients as well.

Uy Sieng Ear, Analyst

Maybe just help us understand, in 2027, you have about more than $1 billion of debt that's due and based on your not guidance, but your lower threshold, it seems that you'll probably generate something about $300 million a year, like help us understand how you would sort of may repay that or find a way to be not in default of the debt? And just a housekeeping question, what proportion of the 2Q ELEVIDYS sales was in nonambulatory versus ambulatory?

Douglas S. Ingram, CEO

On the last one, it looks like it's a small fraction of Q2. And then Ian, I'll turn it to you.

Ian Estepan, President and COO

I'm sorry, can you repeat that?

Douglas S. Ingram, CEO

Basically, what's the way to satisfy the 2027 obligations?

Ian Estepan, President and COO

Yes. Obviously, we're not going to necessarily outline our exact pathway. I mean I think we spent a significant amount of time on the call showing our stress test that Doug has reiterated several times. And so we're going to look to be proactive as we manage it prior to the maturity.

Yanan Zhu, Analyst

Just wondering, sorry, just to further clarify. For the $282 million in the second quarter, how much is nonambulatory? And also, I was wondering when you provide this stress test floor level of $500 million, I think you depicted it as through 2027. And I was wondering, so for this hesitancy and potential impact, when do you think is the labor level? Is it fairly near term? And you would have to go back to growth for an ambulatory population? Or is it really it could go as far as 2027?

Douglas S. Ingram, CEO

Well, again, we're not providing guidance. So obviously, we're much more aspirational than our stress tests are. And Patrick and his team have great plans and a lot of work to do to get the right information in front of the right folks. And at the same time, Louise and her team have some important work to do with the use of immunosuppression so we can support getting the nonambulatory patient population dosed. So certainly, we have many goals there. And then on the first question, I don't have the exact number, but a minority of patients, it was under 50% of the patients would have been nonambulatory in this sector.

Ian Estepan, President and COO

Yes. The reason why it's not 100% clear, historically, we did not track by ambulatory status. We track by age. So to Doug's point, the best we can back into is around 30% to 40%.

Biren N. Amin, Analyst

On the last call, I think the company mentioned that the FDA was proactive in its communications to the company regarding potentially adding sirolimus as part of the enhanced immunosuppression regimen. So given these communications, do you believe your proposal for nonambulatory are aligned with those communications with the FDA? And if I could ask, were those communications with FDA team members that continue in their position at the agency currently?

Douglas S. Ingram, CEO

The first set of questions arose when Dr. Berdan was leading the division, so I can't say for sure who specifically changed. The simple answer is that I can't predict, nor can Louise, what the FDA will say about our submission since we haven't actually submitted it yet. We plan to submit that protocol this Friday. I believe it's a very reasonable and thoughtful approach that is guided by some of the leading experts, including hepatologists, neuromuscular specialists, and immunologists. It is backed not only by anecdotal dosage data from real-world applications elsewhere but also by our own preclinical research in nonhuman primates. The use of sirolimus prophylactically has shown great results in reducing liver stress signals and elevated liver enzymes. Interestingly, it also significantly enhances expression, which could be another potential benefit. However, I cannot speculate on the FDA's reaction since we haven't yet provided them with our submission. We have just finished the expert panel and put together the protocol, which we will submit this week. I am optimistic that given the urgency for patients, the FDA will respond quickly, allowing us to move forward, and we will provide an update then.

Gil Joseph Blum, Analyst

I hope not to spend too much time on this. You mentioned increasing the safety margin on the additional study, and I know you received feedback from the committee. What reduction in enzyme elevations would be sufficient to make you feel comfortable, or what did the experts suggest?

Douglas S. Ingram, CEO

Louise, do you have any comment on that? Or is that too difficult to answer at this point?

Louise Rodino-Klapac, President of R&D and Technical Operations

I mean, we're looking for a significant reduction in liver enzymes in comparison to historical. I think we have, as Doug mentioned, 30% to 40% of patients have elevated liver enzymes. And so with 25 patients, we should be able to see a significant reduction there, and that's what we're looking for. As we've mentioned, AOI and the incidence of ALI leads to ALF. And so if we show a meaningful reduction there, that's what we're looking for in terms of improving the safety margin in nonambulatory patients.

Douglas S. Ingram, CEO

One of the challenges we face is trying to do what's best for patients by further enhancing the risk-benefit of this therapy. It's important to note that we are starting from a point where the actual signal is very low. If you compare this with CAR-T therapies, the risk profile there is significantly higher. Similarly, other full-body infusion gene therapies carry a greater risk. While we have a very rare risk, our goal is to reduce it even further to benefit patients as much as possible. We are particularly encouraged by the excellent preclinical data available, which supports our belief that we can improve the safety margin of a therapy that has historically demonstrated good safety.

Anupam Rama, Analyst

I was curious if you could elaborate on the $500 million annual floor for ELEVIDYS regarding the ambulant population. What key assumptions are underlying that based on your current understanding, such as age or functional status? Are you assuming that patients in the decline phase are more likely to begin therapy? Any additional insights on this would be appreciated.

Douglas S. Ingram, CEO

Honestly, there's no more detail to provide because, to be fair, Anupam, I understand why you're focusing on the $500 million and considering that our guidance. However, that's not our guidance. It’s a figure meant to illustrate what would frustrate Patrick if it turned out to be true. The reality is that this number serves as a baseline for a stress test as we work through our strategic planning process. We need to evaluate which programs we can afford, what we should prioritize, and what expenses we need to cut. We’re using the $500 million as a reference point. You can deduce how this could serve as a minimum number by examining the initial patient population, which is 420. While we won’t reach all 420, we expect to capture a significant portion. This may bring us close to the $500 million, and then there's the prevalent population to consider. Even with a considerable degree of hesitancy, we won't see 100% refusal, so you could reasonably expect that $500 million would represent a comfortable figure. We’re using this as the foundation for our strategic plan. Again, we are not issuing guidance at this moment, and you should not interpret the $500 million as even a conservative estimate of our guidance. It's not guidance; it's a stress test to ensure we are positioned well to advance our strategic plan. We aim to concentrate on the highest net present value programs that can significantly impact patients, maintain our viability, ensure our revolver stays in place, and comfortably manage our 2027 convertible, allowing us to remain an independent and sustainable organization. That's all.

Unidentified Analyst, Analyst

Sorry if I was not clear. It was a different program, but it was using the same vector as ELEVIDYS.

Douglas S. Ingram, CEO

We're not aware. We can look into it, but we're not aware of this issue.

Ian Estepan, President and COO

That being said, there has been long-term exposure of patients being dosed with sirolimus, and there are risks associated with an immunosuppressive regimen. However, with the proper protocols, we have seen very good outcomes related to it.

Unidentified Analyst, Analyst

This is Caleb on for Sami. We just had one quick one. We were sort of wondering how you were thinking about ELEVIDYS peak sales going forward now? I know it's kind of early, but any color on that, that would be helpful.

Douglas S. Ingram, CEO

Thank you for your question. It's too early for us to provide that information. We need to conduct more work before we can offer guidance on peak year sales. Thank you. All right. Thank you very much, Lisa, and thank you all this evening for spending time with us and for your very thoughtful questions. As I will just say again, what we've had to do with our strategic plan in many ways, is very painful, both because we've trimmed very promising programs that we need to find homes for. And by necessity, we've lost really valuable colleagues that I think are going to go off to do great things elsewhere. But we are left with a very focused strategy, focused on what I believe to be fantastic approved therapies. They're going to do a lot of good for Duchenne patients. And then using that performance, we're going to drive very high NPV, very impactful therapies, disease-modifying therapies for rare diseases that desperately need these treatments. And so I feel very good about where we're heading. We're going to be a lean, fast-moving and very viable organization going forward. I look forward to updating you as we move forward. But I would also note the following that we will have a Q2 announcement, of course, in our Q2 earnings release in August, in early August, but you will note today that we've gone into a lot of detail. We provided all of the financials here. We've provided all material information in this call. And so in our continuing efforts at efficiency, we will issue an earnings release in early August, but we won't burden you all with another earnings call in early August. And I look forward to updating you if something comes up earlier. But otherwise, I'll look forward to updating you on our performance towards our strategic goals at our Q3 earnings call. Thank you very much and have a good evening.

Operator, Operator

Thank you all for joining. This concludes today's conference call. You may now disconnect.