It's not often you see a biotech soar more than 60% after announcing plans to submit a marketing application to the Food and Drug Administration.

That's announcing plans. The application hasn't even been submitted and accepted yet, let alone approved.

But then, there aren't many companies with so much regulatory uncertainty as Sarepta Therapeutics (NASDAQ: SRPT). The FDA has sent the biotech -- and its stock price -- on a roller coaster tied to whether Sarepta has enough data to gain FDA approval for its Duchenne muscular dystrophy drug, eteplirsen.

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Source: YCharts.

After recently meeting with the FDA, Sarepta said in a brief statement that "Sarepta has agreed with the agency to initiate a rolling NDA submission." The first two sections of the application will be turned in this week, and the application will be complete by "mid-year." Assuming a priority review -- and given the unmet need, it would be surprising if the FDA didn't award the quicker review -- investors can expect an FDA decision around the end of February 2016.

More of a roller-coaster ride to come?
Investors can expect a couple more milestones between now and then.

First, the FDA has to actually accept the application. That usually occurs two months after the submission, but given the rolling submission the agency could tell the company that its application is complete before then.

With any application, there's a chance the FDA will issue a Refuse to File Letter, highlighting why the application is incomplete. It doesn't happen all that often and is usually for minor issues like reformatting data or requests for additional data the drugmaker already has. But given the regulatory uncertainty with eteplirsen, it's always possible the FDA could refuse to accept the application, requesting data from Sarepta's phase 3 trial that it doesn't have yet.

I think the likelihood that the FDA doesn't accept the application is pretty low. Management has to be pretty confident that it has everything the FDA wants since it would absolutely ruin their credibility with investors if the agency didn't accept the application after management said that it "agreed with the agency."

But no matter how small, the risk of a Refuse to File Letter is still there, and I wouldn't be surprised to see shares jump a little when the FDA accepts the application.

When the FDA accepts the application, we'll know the date the agency has set as its goal for making a decision -- called the PDUFA date. An approval could come earlier than that given the unmet need.

The next milestone will come in the fall when the FDA will presumably schedule an FDA Advisory Committee of outside experts to give their opinion on eteplirsen. The meeting may be combined with one for BioMarin Pharmaceuticals' (NASDAQ: BMRN) competing Duchenne muscular dystrophy drug, drisapersen.

BioMarin submitted its application in April, so the biotech has a couple-of-months head start. If both drugs are approved, the first-mover advantage isn't likely to give BioMarin Pharmaceuticals much of an advantage; efficacy -- or, I should say, perceived efficacy, because both companies have issues in that department -- will ultimately determine which drug sells better.

Investor takeaway
Sarepta certainly deserves a higher valuation based on this news. If the FDA told Sarepta to not apply now with its limited phase 2 data, Sarepta would have had to raise additional capital at a fairly low valuation, diluting shareholders substantially.

But Sarepta is far from riskless at this point.

As mentioned earlier, there's a small chance management is overzealous in its interpretation about whether the FDA wants it to submit an application and the agency issues a Refuse to File Letter.

The bigger risk is that the FDA reviews the application, but then rejects eteplirsen, asking for data from a larger phase 3 trial that Sarepta is running.

Until we see the documents for the FDA advisory committee, which are generally posted two business days before the meeting, we won't know what the FDA is thinking.

At a market cap of $1 billion, I think investors are properly assessing the risk; Sarepta had a market cap of $1.5 billion or higher in 2013 and again in 2014 when the regulatory pathway seemed more straightforward. If you're willing to accept the risk -- much of which is unknown since we don't know what the FDA is thinking -- there's plenty of upside if the FDA approves eteplirsen.

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Brian Orelli has no position in any stocks mentioned.

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