Sage Therapeutics: Timeline Of The Debate

| About: Sage Therapeutics (SAGE)


For Sage Therapeutics, 2017 is a make or break year.

The stock is buoyed by positive results in a small phase 2 trial in PPD.

SRSE outcome this year or early 2017 will be interesting to watch.

In the last several months, Sage Therapeutics (NASDAQ:SAGE) has done an excellent job executing its publicity campaign in the face of a bearish argument that saw its value plummet in March. A reported positive phase 2 trial in another indication has helped assuage investor doubts, and coupled with a few regulatory good news in Europe and the US, and some good PR, the stock is now moving in a bullish manner. In all this time, not a lot of counters have been offered against the specific objection that the original bearish debate raised on SAGE - namely, that it doesn't work so well in SRSE (super-refractory status epilepticus).

In this entire time, there's been a slow but certain shift in management, analyst (and investor) focus from SRSE to PPD (Post Partum Depression). This is strange given that SRSE is the indication where its lead product candidate SAGE-547 is in the most advanced trial, a phase 3 trial that would yield results by early 2017 or even this year. One would expect more press releases and more discussion centering SRSE. However, since the Kerrisdale article attacking 547 in SRSE, people have moved on to PPD, which is the more robust market.

To be fair, there have been some counter-arguments addressing Kerrisdale's market size estimates of SRSE, and even some arguments against the efficacy questions it raised against 547. The efficacy counter argument made sense to me, although it was not strongly presented, in my opinion. Kerrisdale quoted a paper which said they found 74% recovery using first line treatment options. However, the paper clearly said two things - one, that this was first line treatment, and two, that data collection was arbitrary at best, skewed towards a specific population type who followed arbitrary medication standards. But SAGE-547's trial clearly said it was used as an adjunctive therapy. So, a 77% result there was much better than a 74% in firstline, and would have been attack-proof if a placebo had been used. The lack of a placebo created a problem because we don't know if the good results were due to the drug or due to the other treatments done previously, or just random automatic recovery. However, that problem should be sorted out soon, in the placebo-controlled phase 3 trial.

Leerink also made a strong case for the larger market size. It said the addressable market is ~25k, not 4k as claimed by Kerrisdale.

However, as you follow the news, there's a significant shift away from SRSE and towards PPD, as if management, sell-side analysts and bullish investors are wary of revisiting a somewhat shaky ground, and want to find stronger shelter in PPD. This is not fact, this is simply my perception, and I have no axe to grind in the debate.

But I have observed with some curiosity that right after the Kerrisdale attack, a number of high profile analysts have pitched in to support this company. Jim Cramer, for one, has come out in support of 547 - in PPD. This was in July. Another very well known name, Adam Feuerstein, who is famous for often correctly making bearish arguments against popular companies, has also come out in support of Sage's lead product candidate SAGE-547 - but in PPD, not in SRSE, its lead indication. Analysts at Leerink, the underwriters for Sage Therapeutics, have made the one notable effort to counter Kerrisdale's SRSE argument, but then on, it has been all about PPD.

The focus on PPD is interesting because PPD is a much larger market, and a success in PPD will be much more important for the company. But that success, if it were to occur, will come only after a phase 3 trial, which will not yield topline data before 2018. It will also come after SRSE. SRSE is happening right now, this year, or early next year, and despite the focus on PPD today, SRSE outcome will be very important in determining the investment thesis surrounding Sage therapeutics. The next few months, therefore, are make-or-break for the company.

It is therefore interesting to note that right after the string of positive news for PPD, Sage Therapeutics made a $150 million public offering and quickly raised some cash. Sage's market cap is over $2bn, which is huge for a company operating in the CNS space with no approved drugs. The company has $430 million in cash as well, according to Yahoo, at the end of September, the same month it came out with the secondary. So, right before the data readout this month or the next, the company will be sitting in on a lot of cash, ready to rock and roll if the results are good and an NDA can be filed.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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