Sell-Side Remains Optimistic On Sage Therapeutics Despite Depression Drug Disappointment

Sage Therapeutics Inc SAGE shares fell more than 60% Thursday following a negative readout for its lead asset in major depressive disorder.

The Analysts

Morgan Stanley analyst Matthew Harrison maintained an Overweight rating for Sage but lowered the price target from $217 to $125. (See his track record here)

H.C. Wainwright analyst Douglas Tsao reiterated a Neutral rating and reduced the price target from $160 to $87. (See his track record here)

Raymond James analyst Dane Leone maintained a Market Perform rating. (See his track record here)

SAGE-217 Remains Active Drug With A Path To Market

Despite the MOUNTAIN study miss, SAGE-217 remains an active drug with a path to market, according to Harrison. The analyst said various factors, such as compliance, severity of patients being enrolled, etc. influenced the results.

Management continues to communicate with the FDA and plans to compile all data to determine potential changes to studies or potentially additional studies to ensure success, the analyst said.

"We are encouraged by the manageable tolerability profile and mgt.'s commentary around a higher dose option being attractive in the commercial setting," Harrison wrote in the note.

Morgan Stanley is confident of the company delivering positive results in the upcoming studies due in 2020. As such, the firm sees Sage shares significantly higher by next year's end.

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Visibility On Launch Now Less Clear

SAGE-217 can ultimately make it to the market, although visibility on the timing has become less clear, Tsao said.

The analyst sees the need for another confirmatory trial since the magnitude of the effect wasn't impressive, irrespective of the difference to placebo.

"The ongoing REDWOOD study (fixed, repeat treatment) could fill the need for a second study, but another efficacy study of similar design to MOUNTAIN may ultimately be needed," the analyst wrote in the note.

The importance of the planned REDWOOD and SHORELINE studies has now heightened to restore shaken investor confidence.

H.C. Wainwright said the MOUNTAIN study results have increased the importance of the sales of Sage's commercial drug Zulresso, as it now represented a greater proportion of the company's overall valuation.

The firm noted Sage has a deeper pipeline apart from its GABAA PAMs, especially its portfolio of NMDA modulators, which have the potential to create significant value over the long term.

Approval In Other Indications Likely

The MOUNTAIN study results have been reflected by the stock movement, Leone said. The analyst expects ongoing clinical development of SAGE-217 to generate substantial debate within the investor and clinical community. As such, the analyst awaits a clearer outline of clinical catalysts for 2020.

Leone took down his estimates for SAGE-217 in MDD to zero. The analyst now expects the management to fully pivot to Treatment-Resistant Depression program during 2020 and not pursue an MDD regulatory approval.

The analyst still models SAGE-217 approval for patients with post-partum depression and also depressed patients presenting with insomnia.

Price Action

Sage shares traded around $64.16 at time of publication.