On June 20, the Food and Drug Administration (FDA) gave Sarepta Therapeutics (SRPT -1.52%) exactly what it wanted. The agency upgraded the status of its gene therapy for Duchenne muscular dystrophy (DMD), Elevidys, from an accelerated approval to a full approval. It also provisionally included a wider set of patients than it did originally.

The biotech will now have a larger market, and the risk of a regulatory blockade damaging its stock has been downgraded. Nonetheless, trouble could be brewing, and you need to consider the situation carefully before making an investment, or perhaps avoid buying the stock at all.

Here's why this recent win may not be as promising as it it might appear.

This victory is controversial for good reason

Make no mistake. For the near term, it's bullish that Sarepta received full approval for Elevidys as well as the expanded label that it had sought.

Sales of the therapy were worth $134 million in the first quarter of 2024, marking a total of $334 million in revenue since its approval in June 2023. Those sales now have a clear path to continue growing for even longer. The share price could see further gains as financial performance improves.

But the circumstances of the Elevidys approval are not exactly as clearcut as one might hope, and there could be some challenges on the horizon. During the initial approval process, Elevidys was approved for sale by the FDA on an accelerated basis on the expectation that Sarepta would follow up the initial data with a confirmatory trial.

However, within the FDA, there seemed to be some difference of opinion regarding the merits of the phase 2 data. At least three review teams did not believe that there was enough evidence to support an accelerated approval, per the FDA's regulatory action summary documents. But that view was superceded by the review committee, which ultimately went in Sarepta's favor.

The confirmatory phase 3 trial, which then took place, was intended to demonstrate that the favorable early results were valid and reproducible, two standards that are key to biomedical science. But that trial ultimately whiffed its primary endpoint by failing to show a statistically significant improvement in the motor functionality of the patients who were treated, and the desired proof was not produced.

Therefore, the FDA called a nonbinding advisory committee to examine the existing data and make a nonbinding ruling on the therapy anyway. They voted not to proceed with the approval, and at least two senior regulators agreed with their rationale, per the FDA's documentation from one of its review teams. A subsequent vote from the committee with binding power for the approval then went Sarepta's way, and Elevidys got its initial approval upgraded this June. Once again, certain internal review teams were overruled by their leadership.

Risk is still looming

Now, some of the most highly respected commentators in biopharma, like the journal Science's Derek Lowe, are openly wondering whether Elevidys works as advertised.

While it's rare, the FDA does sometimes opt to rule in favor of approving a medicine when its advisory committee suggests not to do so. The problem is that for clinicians to actually prescribe a medicine to patients and thus generate a sale, they need to be convinced that it'll work, and that the risks do not outweigh the benefits.

Those factors may, at least to some degree, be in question. Similar issues have in the recent past caused other drugs to flop commercially and ultimately be pulled from the market. The upshot is that the addressable market for Elevidys might be a lot smaller than anticipated, because some doctors might not believe in it.

Producing some unambiguously strong late-stage trial data would prevent that outcome. One such trial should be wrapping up by the start of 2027, with some results available a year or so before that time. Elevidys may struggle to gain traction before then. However, given the severe and incurable nature of Duchenne muscular dystrophy, and the very young age at which it affects patients, it's probable that some clinicians will be willing to prescribe it anyway.

But it's important to recognize that there is only so much uncertainty regarding efficacy that regulators will tolerate. And it's conceivable that one day the approval could be revised or retracted if Sarepta continues to fall short of the data that some of the FDA's review teams are seeking. Such an outcome would be a huge setback for Sarepta Therapeutics.

Tread carefully if you decide to buy this stock, and think twice about whether it's a good pick for your risk tolerance.