Securities Litigation and Biotech Volatility: Sarepta Therapeutics' ELEVIDYS Crisis as a Case Study

The biotech industry thrives on innovation, but its inherent volatility is amplified when regulatory scrutiny and securities litigation collide. Sarepta Therapeutics (NASDAQ: SRPT) has become a cautionary tale for investors, as its flagship gene therapy, ELEVIDYS, faces mounting safety concerns, regulatory backlash, and a class-action lawsuit. This case study examines how securities litigation can magnify market risks in biotech stocks and why transparency and governance are critical for long-term investor confidence.

The Litigation Landscape: A Timeline of Erosion

Sarepta's legal troubles began in March 2025 when it disclosed the first patient death linked to acute liver failure following ELEVIDYS treatment. The company's stock plummeted 27% in a single day, eroding $1.6 billion in market capitalization. Over the next four months, two more patient deaths were reported, leading to a 42% drop in June and a 40% collapse in July. These events culminated in the Dolgicer v. Sarepta Therapeutics lawsuit, which accuses the company and its executives of misleading investors about the therapy's safety profile.

The lawsuit, filed in the Southern District of New York, alleges that Sarepta failed to disclose material risks related to ELEVIDYS, including the potential for fatal liver failure. The class period spans from June 2023 to June 2025, a timeframe that includes the drug's FDA approval in 2023 and subsequent revenue growth. Investors who purchased shares during this period are now seeking damages, with lead plaintiff motions due by August 25, 2025.

Market Impact: A Perfect Storm of Litigation and Regulatory Risk

The stock's performance underscores the compounding risks of securities litigation and regulatory scrutiny. By August 2025, SRPT had fallen to $15.91, a 86.92% year-to-date decline, far underperforming the S&P 500's 6.06% YTD gain. The biotech sector, already prone to volatility, saw Sarepta's shares become a proxy for broader investor anxiety.

Regulatory actions further exacerbated the crisis. The FDA's June 2025 Safety Communication and the European Medicines Agency's rejection of ELEVIDYS due to efficacy concerns created a dual threat: safety risks and commercial viability. Sarepta's reliance on ELEVIDYS—accounting for 50% of its Q2 2025 revenue—highlighted the dangers of single-product dependence.

Financial and Operational Challenges: Beyond the Stock Price

While ELEVIDYS drove revenue growth, Sarepta's profitability remains a concern. The company reported a net loss of $447.5 million in Q1 2025, despite $611.5 million in product revenue. High research and development (R&D) costs, including a $773.4 million expense in Q1 alone, reflect the financial toll of maintaining a robust pipeline. Sarepta's revised 2025 revenue guidance—from $2.9 billion to $2.3 billion—signals ongoing operational headwinds.

The company's strategic restructuring, including a 36% workforce reduction and $400 million in annual savings, aims to stabilize operations. However, the addition of a black box warning for ELEVIDYS and the FDA's ongoing investigation suggest that regulatory hurdles will persist.

Investment Implications: Navigating Biotech's High-Risk Terrain

Sarepta's case offers critical lessons for biotech investors:

1. Transparency as a Competitive Advantage: Companies that proactively disclose clinical and regulatory risks—rather than downplaying them—can mitigate litigation and reputational damage. Sarepta's delayed response and CEO's dismissal of the third patient death during an investor call eroded trust.

2. Diversification as a Buffer: Sarepta's heavy reliance on ELEVIDYS magnified its exposure to safety concerns. Firms with diversified pipelines, such as those with multiple gene therapy candidates in development, are better positioned to absorb setbacks.

3. Litigation as a Market Signal: Securities lawsuits often reflect broader governance issues. Investors should scrutinize a company's compliance practices, especially when facing regulatory scrutiny.

4. Regulatory Preparedness: As gene therapies become more prevalent, regulatory bodies are likely to enforce stricter oversight. Companies that engage with regulators early and adjust labeling or protocols proactively will face fewer surprises.

The Road Ahead: Caution and Opportunity

Sarepta's near-term outlook remains bleak. The stock's steep decline and ongoing litigation make it a high-risk bet. However, long-term investors might find value in the company's pipeline, including advanced-stage gene therapies for limb-girdle muscular dystrophy. If Sarepta can navigate regulatory and legal challenges, it may regain traction.

For now, however, the ELEVIDYS crisis serves as a stark reminder of the interconnected risks in biotech. Investors should prioritize companies with robust governance, transparent communication, and diversified revenue streams. In an industry where innovation and risk walk hand in hand, due diligence is not just advisable—it's essential.

In conclusion, the Sarepta case illustrates how securities litigation and regulatory scrutiny can rapidly redefine a company's trajectory. For biotech investors, the key takeaway is clear: innovation alone is not enough. Sustained success requires a balance of scientific promise, regulatory agility, and ethical corporate governance.