RBC Capital Markets Downgrades SAGE Therapeutics

RBC Capital Markets has downgraded SAGE Therapeutics Inc (NASDAQ:SAGE) from Sector Perform to Underperform (Sell) due to concerns surrounding the outcomes of the company’s drug trials. The investment bank also reduced its price target from $10 to $4.

Market Reaction

Shares of the biopharmaceutical company dropped nearly 8% in premarket trading on Friday.

Analysis of Drug Trials

The downgrade is mainly based on the evaluation of Sage’s experimental drug dalzanemdor and its upcoming Phase II trial results for Huntington’s and Alzheimer’s diseases, which are anticipated in the fourth quarter of 2024. RBC expressed skepticism about the drug’s ability to demonstrate clear, clinically meaningful effects.

“Without success for that program, we believe profitability will be difficult to achieve until the very long term,” stated RBC analysts, mentioning the need for significant changes to the company’s cost structure even if Zurzuvae, marketed for Postpartum Depression (PPD), continues its reasonable initial launch trajectory.

Cost-Structure Concerns

RBC’s skepticism stemmed from mixed early data, a lack of trial endpoint confidence, variability in previous trial measurements, potential narrow therapeutic windows, and serious adverse effects.

Analysts warned that Sage’s current cost structure is unsustainable for future profitability without over $900 million in end-user sales of Zurzuvae.

“Even assuming very significant cost-cutting measures starting in 2025 if dalza fails, probability-blending the revenue/opex scenarios yields a blended DCF-based fair value for shares of $4,” analysts concluded.

SAGE stock has plummeted more than 67% this year.