Sage Stock Declines After RBC Downgrades Rating to Sell Over Trial Results Concerns

RBC Capital Markets has downgraded its rating on SAGE Therapeutics Inc from Sector Perform to Underperform (Sell), due to concerns regarding the potential outcomes of the company’s drug trials. The investment bank has also reduced its price target for the stock from $10 to $4.

In premarket trading on Friday, shares of the biopharmaceutical company decreased by nearly 8%.

This downgrade is primarily based on the assessment of SAGE’s experimental drug, dalzanemdor, and its impending phase II trial results for Huntington’s and Alzheimer’s diseases, which are expected in the fourth quarter of 2024. RBC analysts have expressed skepticism about the drug demonstrating clear and meaningful clinical effects in these conditions.

RBC noted that without success in that program, achieving profitability will likely be challenging in the long term, necessitating significant changes to the company’s cost structure, even if Zurzuvae, another drug indicated for Postpartum Depression, continues on its current launch path.

The analysts indicated that they believe SAGE’s shares are more likely to lag behind the broader market as the trial results approach.

RBC’s skepticism stems from mixed early data, uncertainty regarding trial endpoint modifications, high variability in measurement outcomes from previous trials, and concerns about the potential for narrow therapeutic windows and serious side effects. Furthermore, analysts highlighted that SAGE’s existing cost structure is unsustainable for future profitability unless there are sales of over $900 million for Zurzuvae.

Assuming substantial cost-cutting measures begin in 2025 if dalzanemdor fails, and taking into account a reasonable ramp-up for Zurzuvae, the analysts estimated a blended discounted cash flow-based fair value of the shares at $4.

Thus far in 2024, SAGE’s stock has plummeted over 67%.