Sage Therapeutics' stock drops 49% after FDA approves zuranolone for postpartum depression but not for major depressive disorder

By Ciara Linnane

Oppenheimer and Wedbush downgraded Sage's stock and said they were disappointed by the news

Sage Therapeutics Inc.'s stock cratered on Monday after the U.S. Food and Drug Administration approved the company's zuranolone treatment for postpartum depression but not for major depressive disorder, or MDD, which is a far more common condition.

The stock was down 49% to mark its second-biggest drop since it went public in July 2014. The record drop was 59.7% on Dec. 5, 2019.

Oppenheimer and Wedbush downgraded the stock on the news, while Truist said its hold rating and stock price target are under review.

The FDA approved Zurzuvae, which was co-developed with Biogen Inc. (BIIB), in an announcement late Friday, making it the first and only oral treatment for postpartum depression, which affects one in eight new mothers in the U.S., according to CDC data.

Until now, the only available option for this condition has been an intravenous injection that the FDA approved in 2019 and that requires patients to stay in a hospital for two and a half days.

But the FDA issued a complete response letter for the new drug application for MDD, which would be a far greater opportunity for Sage and Biogen. The CRL said the application "did not provide substantial evidence of effectiveness to support the approval of zuranolone for the treatment of MDD" and that "an additional study or studies will be needed."

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On Monday, Sage (SAGE) said it is reviewing the feedback from the FDA and evaluating its next steps.

"While we believe we are well capitalized, given the impact of the CRL ... for zuranolone in MDD on our plans, we are currently evaluating resource allocation, including pipeline prioritization and a workforce reorganization with a goal of extending our cash runway," CEO Barry Greene said in a statement.

"With a right-sized organization and portfolio, we believe we have an opportunity to emerge as an even stronger company. We plan to provide greater detail and next steps before the end of the third quarter."

Oppenheimer downgraded the stock to market perform on the news and said the decision is a huge disappointment for patients and caregivers in profound need of new treatment options.

"Previously, we were incorrectly confident (80% POS estimate) that lack of an FDA Advisory Committee to discuss zuranolone for MDD was a positive signal that efficacy and safety were not debatable," analysts led by Jay Olson wrote in a note to clients. "Now, it turns out the opposite was true: the lack of efficacy in MDD is apparently incontrovertible according to the FDA."

Oppenheimer now believes zuranolone will never be approved for MDD and has cut its POS to zero. The loss of an MDD approval is game-changing for Sage, the analysts said.

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Truist analysts echoed that theme and said it throws new light on Sage and its valuation.

"Such a prominent pipeline failure raises questions around whether [Sage] merits Technology Value which makes up $16/[share] in our SOTP (sum of the parts) valuation," analysts led by Joon Lee wrote in a note.

Truist is "very cautious" on SAGE-718, which is being evaluated for cognitive decline related to Huntington's, Parkinson's and Alzheimer's diseases in three Phase 2 programs.

In August 2022, Truist wrote a bearish note outlining worrisome patterns for SAGE-718, saying it "may not be pharmacologically potent enough" to be clinically successful in treating the three disorders.

Wedbush downgraded the stock to neutral and said it was surprised by the news.

"The key unanswered questions at this point are what will Zurzuvae pricing look like, and will the [Biogen/Sage] collaboration persist?" analyst Laura Chico wrote in a note to clients. "From our view, it's difficult to envision Biogen investing in additional clinical trials as their turnaround efforts unfold."

At JPMorgan, analysts said they were surprised and disappointed by the news.

"Looking forward, we do see a significant unmet in [postpartum depression] and, pending pricing dynamics, a potentially meaningful opportunity; however, we acknowledge that the Street may take time to appreciate this opportunity," they wrote in a note to clients.

JPMorgan, which has an overweight rating on Sage's stock, said it expects the stock to remain under pressure until the full value of the postpartum-depression opportunity is better understood or the company's broader pipeline is better appreciated.

Biogen's stock was down 0.4%.

-Ciara Linnane

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08-08-23 0837ET

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