Sage Therapeutics: Tremors Of Trouble, But PPD Progress (Rating Downgrade)

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Sage Therapeutics, Inc.'s SAGE-324 failed its Phase 2b trial for essential tremor and development is discontinued.Dalzanemdor's past data in Parkinson's casts doubt on its prospects in other cognitive...

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While Sage may exceed this, it isn't likely to move the stock much.Given clinical setbacks and limited revenue growth, I recommend downgrading Sage Therapeutics to “sell.”.   designer491 Sage Therapeutics: Clinical Challenges and Strategic Shifts Sage Therapeutics, Inc. (NASDAQ:SAGE) suffered another clinical setback on Wednesday after they announced their investigational drug, SAGE-324, failed in its Phase 2b trial for essential tremor. As I noted in my previous analysis, essential tremor is a historically difficult indication to achieve. Within the same press release, Sage announced, alongside its partner, Biogen (BIIB), that SAGE-324's development is discontinued. Recall that in April, Sage reported that their NMDA receptor positive allosteric modulator, dalzanemdor, failed to improve mild cognitive improvement in Parkinson's patients. Dalzanemdor is an important part of Sage's plans, and is also being developed for other cognitive disorders, like Alzheimer's and Huntington. But, again, caution is merited due to very low rates of success for these indications. Its progress in Huntington's was highlighted in June by Sage. In a small Phase 2 trial, the company noted a “small numerical difference observed between dalzanemdor and placebo on the HD-CAB composite at Day 28.” Although the trial was not designed to test for significance between treatment arms, “small numerical differences” do not inspire confidence in the drug's prospects in Huntington's. Sage's marketed drugs include Zurzuvae and Zulresso. Although Zurzuvae (oral) has a broad label for PPD, it is typically reserved for severe cases only as first-line treatment in women who have not been treated with SSRIs in the past. Zulresso (intravenous) is typically reserved for severe PPD cases that require hospitalization. Recall that Zurzuvae was made commercially available in December 2023. In Q1, Sage recorded $6.2 million in collaboration revenue from Zurzuvae. Sage splits US revenues and costs evenly with their partner, Biogen. Zulresso revenues were just $1.7 million in Q1, and the company anticipates that this figure will continue to drop due to the availability of Zurzuvae. I think this is more likely due to the difficulty in marketing a drug for severe PPD with psychotic features. This is, inherently, a very small and unpredictable market. Moreover, it requires substantial investments in establishing “REMS-certified treatment centers.” This is likely a wise decision by the company. Zurzuvae, on the other hand, is an oral drug and does not require a REMS program. Moreover, its target population (severe postpartum depression) is easier to find and, unlike Zulresso, Zurzuvae could, reasonably, be marketed towards less severe cases of PPD, substantially increasing its market. Biogen was “encouraged” by Zurzuvae's launch and $12 million in revenue in its first full quarter on the market, which exceeded expectations by a few million dollars. I have to admit that this figure impressed me. This is a novel drug modality and a new market. Remember that Sage was the first to develop FDA-approved drugs for PPD. Achieving $12 million in the first quarter provides a solid foundation for future growth. The majority of analysts are skeptical, but some believe Zurzuvae could generate over $500 million in peak annual revenue. Looking forward to Q2 (announcement date: July 31), analysts are expecting $8.90 million in revenue. Based on Zurzuvae's launch so far, I believe Sage will either meet or exceed this estimate, although I don't believe this will have much impact on its stock. In terms of discounted cash flow analysis, my population estimate is 36,667 (based on 3,667,758 US births in 2022 * 10% of women developing PPD * 10% of women suffering from PPD having severe symptoms), a drug price of $15,900 for a full course, a market share of 50% (split with Biogen), and a penetration rate of 60%. Because expenses are shared with Biogen, COGS and operating costs are lower than usual. We will use 2024 as the market entry year, with the drug peaking seven years later.   Author The final calculation assumes linear growth in market share until the peak sales year, consistent drug pricing, specified probabilities of success, fixed COGS and operating expense percentages, and a defined discount rate to calculate the present value of future cash flows. The final risk-adjusted net present value ($678.499 million) is the sum of all discounted profits from the market entry year until 2037.   Author Financial Health As of March 31, Sage reported $175.653 million in cash and cash equivalents and $544.36 million in marketable securities. Total current assets were $755.442 million, while total current liabilities were just $61.799 million. Sage is not yet profitable, so I will estimate the cash runway based on historical data. For Q1, I believe that their net loss best represents their cash burn. This figure was $108.483 million. This was an improvement over Q1 2023 ($146.828 million). If we divide their total current assets by their quarterly cash burn, this implies Sage has nearly two years of cash runway. My estimate is consistent with the company's own forward-looking estimate of 2026. Risk/Reward Analysis & Investment Recommendation In conclusion, Sage is in trouble. Although Zurzuvae's Q1 revenues exceeded expectations, its market potential is limited, especially since Sage splits US revenues with Biogen. Importantly, Sage's clinical failure in essential tremor has serious consequences. Sage's pipeline has now been reduced to dalzanemdor. If Parkinson's and Huntington's data to date are any indications of what to expect for Alzheimer's, Sage may be soon left with only preclinical programs (in GABA and NMDA) and a drug for PPD that is not expected to exceed $500 million in peak sales (or $250 million in revenue). Sage's balance sheet does offer some strategic flexibility, and their efforts to cut costs are commendable. However, they may benefit from a strategic pivot in the near future. Meanwhile, the company expects to reveal top-line Huntington's and Alzheimer's Phase 2 data later this year. The chances of success in these programs are extremely low. To be fair, if any of the trials go well, Sage's stock could rise significantly.   Author Given these recent events, I believe SAGE warrants a downgrade to “sell.” My previous recommendation (“hold”) was really only for investors who were in the red but could stomach readouts like essential tremor, which had an unlikely but reasonable chance at success. Although I did not see a “compelling reason to buy” at low prices before the essential tremor data, I now see a compelling reason to sell. Although Zurzuvae's risk-adjusted NPV appears to indicate that SAGE is fairly valued, investors should keep in mind that the DCF analysis excludes the tens of millions of dollars Sage spends annually on clinical efforts in Huntington's, Alzheimer's, and other diseases. In this light, SAGE's current valuation makes sense only if the company pares down to focusing solely on Zurzuvae.  There are risks to my sell recommendation in addition to the possibility of positive clinical data for dalzanemdor. I may be underestimating the PPD market, and Zurzuvae could outperform my expectations. Moreover, Sage may reveal updates for their preclinical assets that are appealing to the market. Finally, as I noted in the risk/reward chart, SAGE could outperform the risk-free rate. Investors could miss out on stock gains if they sell now.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2454633066"}