Sage stock plummeted Monday after the Food and Drug Administration approved its drug, Zurzuvae, to treat postpartum depression, but not as a medication for major depressive disorder.
Zurzuvae is the first oral treatment for postpartum depression, a condition that affects about 10%-15% of people following pregnancy. Previously, the only option for patients was Sage Therapeutics' Zulresso, a 60-hour infusion. Sage hopes to launch the drug in the fourth quarter.
But Sage was also angling to get Zurzuvae approved to treat major depressive disorder, or MDD, a much bigger market. Sage said Monday it received a rejection letter from the FDA for Zurzuvae for that use.
"Management's description of the (rejection letter) states the application did not provide substantial evidence in MDD and that an additional study or studies will be needed," Needham analyst Ami Fadia said in a note to clients. "Sage/Biogen indicated they are reviewing the feedback and evaluating next steps."
In morning trading on today's stock market, Sage stock cratered 53.6% to 16.75. Shares of Biogen, which codeveloped the drug formerly known as zuranolone, advanced almost 1% to close at 271.23.
Sage Stock Was Already Under Pressure
Sage stock has been under pressure since Biogen's earnings call on July 25. The following day, shares of Sage tumbled 13.5%. On Monday, Sage shares hit a record low.
Asked directly about zuranolone on the earnings conference call, Biogen management said it would keep commentary to a minimum, citing the rapidly approaching potential approval date on Aug. 5.
"It turns out that the bears were right and others who believed nothing was amiss were clearly wrong," Piper Sandler analyst Christopher Raymond said in a note. "Note to self, the next time Biogen's tone around an event like this changes, pay attention."
Zurzuvae didn't show a statistically significant improvement in MDD patients at day 42 of treatment in a study called Waterfall. This means the treatment's affect might not be durable long term, Needham's Fadia said.
"Our initial guess is this may be the reason behind the (rejection letter)," she said. "Although (Sage) management had consistently indicated based on its conversations with FDA that it had sufficient data to support an approval."
The Waterfall study took about 13 months to complete. If Sage has to complete another study and add on a six-month review time, that could delay Zurzuvae in major depressive disorder treatment by close to two years, she said. Additional studies could add onto that timeline.
A Smaller Market In PPD
RBC Capital Markets analyst Brian Abrahams slashed his price target on Sage stock to 25 from 71. He also cut his rating to sector perform from outperform. For Biogen, he trimmed his price target to 354 from 374, but kept his outperform rating.
Far more people suffer from major depressive disorder than postpartum depression, Abrahams said in a note. He expects a peak of $325 million in worldwide sales of Zurzuvae in postpartum depression treatment. That pales in comparison to the previous $2.5 billion annual estimate in MDD.
"We now see a low likelihood this is ever realized, given additional time/risk if other studies are required and potential for partner Biogen to walk away from the agreement," he said.
Abrahams suggested the companies would change a premium for Zurzuvae in postpartum depression treatment — higher than his estimate for $3,200 for a course — but might pare down their commercial efforts.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
