Sage Crumbled After Single Trial Failure, But Few Catalysts In The Near Term May Turn Things Around

Summary

• Sage Therapeutics noted that it will meet with the FDA in the coming months and may still be able to flesh out a path forward for SAGE-217 to treat MDD.
• Another product in the pipeline known as SAGE-324 will be evaluated in a phase 2 placebo-controlled study treating patients with Essential Tumors; expected start of 1st half of 2020.
• Results from a phase 1 study, using SAGE-324 to treat patients with Essential Tremors, are expected to be readout in 2020.
• Sage has roughly $1 billion in cash as of December 31, 2019, and expects this cash to fund the pipeline for at least the next 12 months.
• I do much more than just articles at Biotech Analysis Central: Members get access to model portfolios, regular updates, a chat room, and more. Get started today »

Sage Therapeutics (NASDAQ:SAGE) recently gave an update on several of its clinical programs. The main item investors were probably keeping an eye on was SAGE-217. That's because this product had failed a late-stage study treating patients with major depressive disorder. This program has been put on hold for the time being, while the company discusses a potential path forward. In my opinion, it's possible that Sage can recover with this program. Even if it ultimately doesn't, there are several other products in the pipeline that are being advanced toward other indications. For instance, there is SAGE-324 to be advanced in the 1st half of 2020 in a placebo-controlled study treating patients with essential tremors. It has many other products in the pipeline that it can advance. Therefore, while SAGE-217 is important, it doesn't define the biotech. That's why I believe it is a good buy after the stock had taken a huge hit back in December of 2019. Especially, the way it has traded the last few months.

SAGE-217 Still Has A Possible Path Forward

Several months ago, Sage Therapeutics announced results from its phase 3 MOUNTAIN study. This study was using SAGE-217 to treat patients with major depressive disorder. Major Depressive Disorder or MDD is characterized as where a person has an intense and persistent form of sadness for an extended period of time. For instance, you might experience sadness when a loved one dies or a very bad event happens for a day or a few weeks. However, people with MDD experience sadness for an even longer period of time. This is a good market for the biotech go after because believe it or not it is quite prevalent amongst people. In the United States, MDD is the most common mental disease. It was observed in 2016 that approximately 10.3 million adults in the United States aged 18 and older had at least one incident of this disorder with severe impairment. Now, this is just with MDD alone. The depression market is slated to generate $5 billion between 2018 and 2026.

The phase 3 MOUNTAIN study looked to see if SAGE-217 could help adults with MDD. There were a total of 581 patients that were randomized to receive either 20 mg of SAGE-217, 30 mg of SAGE-217 or placebo. The primary endpoint of the study was a score that is typically used for this patient population, known as Hamilton Rating Scale for Depression (HAM-D). Specifically, this is a 17-item HAM-D score that evaluates these patients at Day 15. The primary endpoint had failed with both the 20 mg dose and 30 mg dose of SAGE-217. However, the 30 mg dose of SAGE-217 was the only dosage able to separate itself from placebo. Unfortunately, the 30 mg dose of SAGE-217 had caused patients to come out with a HAM-D score of 12.6 points, while those who took placebo ended up with 11.2 points. This was a p-value of p=0.115 which fell short of being statistically significant. The first item I would like to point out is that depression studies are hit or miss. That's because in these types of studies, placebo responses tend to be higher than expected. The second thing is that the biotech believes there were several other factors that may have skewed the data. These items were:

• Post hoc analysis revealing that 9% of patients had no measurable drug concentration - meaning that there was noncompliance in taking SAGE-217
• Patients with milder severity of symptoms compared to prior studies - meaning it's possible that a more streamlined population could have offered superior data

In both of these cases, it appears as though things could have been better for SAGE-217. Regardless, the goal now is to meet with the FDA and determine any potential next steps. With these depression studies having the chance of a high placebo response, that's why it is imperative that these biotechs run more than one study. There is always the possibility that one study will generate a higher than expected placebo response in these types of patients.

Expansion Opportunity Expected In Coming Months

Another product in the pipeline known as SAGE-324, which is a GABA receptor and lead neurology asset. Why is that the case? That's because it is going to be explored as an oral drug in several types of neurological disorders. Several disorders where SAGE-324 is going to be explored for are:

• Parkinson's Disease
• Essential Tremors
• Epilepsy

The first target indication that Sage is going after with SAGE-324 is Essential Tremors, which consists of a nervous system disorder that causes uncontrollable shaking. There are two catalysts as it relates to this program, both of which are expected in 2020. The first catalyst is the initiation of a phase 2 placebo-controlled study using SAGE-324 to treat this patient population. Such a study is expected to begin in the 1st half of 2020. However, there is another catalyst with respect to this clinical product. It is expected that the company will release results from a phase 1 open-label study, which evaluated the safety and efficacy of SAGE-324 in patients with Essential Tremors. The current timeframe for this catalyst is that it will be released sometime during 2020.

Financials

According to the 10-K SEC Filing, Sage Therapeutics had cash, cash equivalents, restricted cash, and marketable securities of $1 billion as of December 31, 2019. It recorded a small amount of revenue from sales of its FDA approved drug ZULRESSO during Q4 of 2019. It obtained $2 million in revenues during Q4 of 2019 for sales of its postpartum depression drug. The thing is that it still has plenty of cash to fund its pipeline. The biotech states that it has 12 months of cash from the date of the 10-K SEC filing. This SEC document was filed on February 27, 2020, which means it estimates it would have enough cash by this time next year. However, many companies do not wait until they near the end of the runway for cash. Therefore, it is highly likely that it could possibly raise cash by early Q4 of 2020. Of course, this is if the pipeline stays the same. If it pursues strategic developments or adds additional products into the clinic, then a cash raise may be necessary earlier than anticipated.

Risks To Business

Sage plans to meet with the FDA in 2020 soon and will discuss what type of path forward is possible for SAGE-217 after the study had failed. The risk here is that there may not be a path forward. If there is a conclusion after the FDA meeting that there is no path forward, that will mean that this drug's prospects for treating MDD will go out the window. In turn, that will likely cause a negative reaction for the stock. Another risk is results from the phase 1 study, which is using SAGE-324 to treat patients with essential tumors. This is an open-label phase 1 study, therefore, investors may take light to clinical data. However, it's important to understand that disappointing preliminary data from this study, may also be a cause for concern for this specific program going forward.

Conclusion

Sage Therapeutics had a big setback for its SAGE-217 program in treating patients with MDD. It may be able to find some paths forward. For instance, maybe targeting a specific subpopulation as I highlighted above. That, or possibly tweaking the study designs around. In any case, there is a chance that the FDA may allow a path forward for this clinical product. Even if it doesn't, the biotech has many other clinical products in its pipeline. The most notable one, which I highlighted above, is SAGE-324. The reason why is because this clinical drug has a few catalysts in 2020. One catalyst is expected in the near-term and that is the initiation of the phase 2 study using SAGE-324 to treat patients with Essential Tremors. With the other being data from the phase 1 study using the very same product in this patient population, expected in 2020. I believe that despite the setback with SAGE-217 in MDD, Sage Therapeutics can recover based on upcoming potential catalysts.

Analyst’s 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.

Comments

[mo2dafo]

Another AKAO in the making

[rod handler]

It’s over

[Goomba69]

Saying SAGE-217 has a potential path forward is wishful thinking. Desperate companies (or more accurately the desperate executives in the companies) often use post hoc analysis to identify responder groups, and then squander years of time and significant resources to fail once again.

[loftguy]

I would wait for a secondary offering in Q4 2020 before entering SAGE.