Sarepta Therapeutics and the Legal Risks Surrounding ELEVIDYS: Assessing the Long-Term Financial Impact on Biotech Valuations and Investor Returns

In the volatile world of biotech investing, few stories have captured the intersection of innovation, regulatory scrutiny, and litigation as dramatically as Sarepta Therapeutics (NASDAQ: SRPT). The company's flagship gene therapy, ELEVIDYS (delandistrogene moxeparvovec), once hailed as a breakthrough for Duchenne muscular dystrophy (DMD), now sits at the center of a perfect storm of safety concerns, FDA interventions, and a high-stakes securities lawsuit. For investors, the case underscores the fragility of biotech valuations in the face of regulatory and legal headwinds—and the broader implications for the sector.

The FDA's Harsh Reckoning with ELEVIDYS

The U.S. Food and Drug Administration (FDA) has long been a double-edged sword for biotech firms, balancing the need to accelerate access to life-saving therapies with the imperative to ensure safety. Sarepta's ELEVIDYS, approved in 2024 for ambulatory DMD patients and in 2023 for non-ambulatory patients under accelerated approval, has become a cautionary tale of regulatory overreach and underpreparedness.

By mid-2025, the FDA had placed Sarepta's clinical trials for limb girdle muscular dystrophy on hold after three deaths were linked to acute liver failure in patients treated with ELEVIDYS or investigational gene therapies using the same AAVrh74 serotype. The agency revoked Sarepta's platform technology designation—a critical asset for streamlining future drug development—and mandated a safety labeling update. While shipments for ambulatory patients resumed in July 2025 after the FDA deemed a Brazilian death unrelated, the non-ambulatory indication remains in limbo, contingent on confirmatory trials.

The financial toll has been severe. Sarepta's stock price plummeted over 90% from the start of 2025, eroding market capitalization and investor confidence. The company now reports a debt-to-equity ratio of 1.18, negative operating cash flow, and a return on equity of -56.38%. These metrics reflect not just a liquidity crisis but a fundamental erosion of trust in Sarepta's ability to navigate regulatory expectations.

The Dolgicer Lawsuit: A Legal Time Bomb

The securities class action Dolgicer v. Sarepta Therapeutics, Inc. (No. 25-cv-05317, S.D.N.Y.) has added another layer of uncertainty. Filed in June 2025, the lawsuit accuses Sarepta and its executives of securities fraud for allegedly concealing material safety risks associated with ELEVIDYS. The plaintiffs argue that the company downplayed the risk of acute liver failure and delayed disclosures until after three patient deaths, triggering stock price drops of 27%, 7%, 42%, and 8% in March, April, June, and June 2025, respectively.

As of August 2025, the case is in its procedural infancy, with lead plaintiff motions due by August 25. While no court rulings have been issued, the lawsuit's potential to force a settlement or trial could further strain Sarepta's finances. Legal costs for biotech securities cases often run into the millions, and reputational damage can linger for years. For context, Teva Pharmaceuticals paid $420 million in 2022 to resolve a similar case, while Northfield Labs' 2010 bankruptcy followed a securities fraud conviction.

Sector-Wide Implications: Biotech's Litigation Vulnerability

Sarepta's plight is emblematic of a broader trend. In 2024, 47% of federal securities lawsuits targeted biotech firms, reflecting the sector's reliance on high-risk, high-reward clinical trials and regulatory approvals. The FDA's black box warning system, while designed to protect patients, can also act as a catalyst for litigation. A 2020 benzodiazepine black box warning, for instance, failed to curb dispensing rates in Israel, highlighting the gap between regulatory intent and real-world outcomes.

For investors, the lesson is clear: biotech valuations are increasingly tied to litigation risk. A 2025 study of benzodiazepine use post-black box warning found no significant decline in prescriptions, underscoring the difficulty of translating regulatory actions into market behavior. Similarly, Sarepta's stock volatility suggests that even robust safety data may not restore investor confidence without a clear path to resolving litigation and regulatory hurdles.

Investment Advice: Navigating the Risks

For investors considering Sarepta, the calculus is complex. On one hand, the company's pipeline includes promising siRNA therapies and a potential rebound in ELEVIDYS adoption if safety concerns are mitigated. On the other, the ongoing FDA scrutiny, litigation, and reputational damage pose existential risks. Analysts project a 16.1% annual revenue decline through 2028, though these forecasts hinge on Sarepta's ability to meet regulatory demands and avoid a protracted legal battle.

Given the uncertainty, a cautious approach is warranted. Investors with a high-risk tolerance might consider a small position in Sarepta as a speculative bet on a potential rebound, but only after thoroughly evaluating the litigation and regulatory timelines. For the broader biotech sector, the case serves as a reminder to prioritize companies with transparent governance, diversified pipelines, and a track record of regulatory compliance.

Conclusion

Sarepta Therapeutics' ELEVIDYS saga is a microcosm of the challenges facing modern biotech. The interplay of regulatory scrutiny, litigation, and market volatility highlights the sector's inherent risks—and the need for investors to approach it with both optimism and caution. As the FDA and courts continue to shape the landscape, the lessons from Sarepta will resonate far beyond its own stock price, influencing how investors value innovation in an era of heightened accountability.