Sage Stock Sinks After FDA Decision on Depression Drug

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A split Food and Drug Administration decision on a new depression medicine from

Sage Therapeutics

and

Biogen

blew holes in the strategies of both companies and raised questions about the future of their collaboration.

Late on Friday, the FDA approved a two-week course of the pill Zurzuvae as a treatment for postpartum depression, but not for major depressive disorder. Zurzuvae is the first oral treatment, and the second medicine, ever approved specifically for postpartum depression. The major depressive disorder indication, however, is far larger, and investors had expected roughly two-thirds of the drug’s sales to come from those prescriptions.

The rejection of the major depressive disorder indication appears to be a major setback for

Sage

(ticker: SAGE), and shares of the biotech were down 50% on Monday morning. The news is bad for

Biogen

(BIIB) as well, though it seems to have been largely anticipated by investors.

Investors had gotten a sense that something might be amiss with the application in late July, when Biogen’s CEO barely mentioned Zurzuvae on a quarterly call to discuss earnings. Expectations regarding the drug worsened swiftly, and by Friday a negative outcome of the FDA review had largely been priced into the stock. Biogen shares were down just 0.4% as the market opened on Monday.

For Sage (SAGE), the implications of the approval are far more dramatic. Zurzuvae is only Sage’s second approved medicine. Without the major depressive disorder indication, Sage’s financial picture is sharply different.

On a Sage investor call Monday morning, in which Biogen didn’t participate, executives said they were making plans for cost cuts, though they offered no details. The company’s CFO, Kimi Iguchi, said that Sage had $1 billion in cash as of June 3, and said that it company believes it has enough cash and potential revenues to fund its operations into 2025.

“With that said… we are refining our strategy,” Iguchi said. “We plan to take action with the goal extending our cash runway, and are currently evaluating resource allocation, including pipeline prioritization, and a workforce reorganization. As a result, we also anticipate operating expenses to decrease in 2024.”

Sage executives criticized the FDA’s rejection in the major depressive disorder indication. “We do not agree with the FDA’s view on Zurzuvae for MDD,” said CEO Barry Greene on the investor call. “We learned late in the review cycle about FDA’s view on approvability for MDD.”

Greene said the company is “evaluating next steps.” Sage executives wouldn’t disclose Zurzuvae’s price. The medicine can’t go on sale until after a review by the Drug Enforcement Administration, which could take three months.

Zurzuvae works differently than other approved anti-depressants, and is only taken over a two-week period. The FDA label warns patients not to drive for 12 hours after taking Zurzuvae, a warning that analysts hadn’t anticipated.

Analysts significantly pulled back on expectations around Zurzuvae’s peak sales in response to the news. In a note on Sunday, Leerink Partners analyst Marc Goodman wrote that while he had previously expected Zurzuvae sales in the posptartum depression indication of between $250 million and $400 million per year at peak, he now expects sales “in the lower part of that range,” due to the warning on driving after taking the medicine.

Sales in the major depressive disorder indication had been projected to be far higher. In a note in May, Citi Research analyst Neena Bitritto-Garg had modeled $1.7 billion in peak year sales in that indication. Those hopes are now effectively dashed.

In notes on Sunday and Monday, analysts wondered if the medicine still made sense for Biogen. “We question Biogen’s interest level in Zurzuvae with only a PPD indication,” Mizuho analyst Uy Ear wrote in a Sunday note.

Earlier this year, Biogen CEO Chris Viehbacher had highlighted Zurzuvae, along with his company’s Alzheimer’s drug Leqembi, as the keys to Biogen’s plan to return to growth. He seemed to be moving away from that line on his investor call in late July, and days later announced a $7.3 billion acquisition that appeared to reflect a shift in strategy.

Biogen didn’t immediately respond to a request for comment on its commitment to the Sage partnership.

“We believe the near-term launch is likely to be challenging and given the profit split arrangement with…Biogen, we are unsure when or if the partnership is ever to turn a profit given the label and likely heavy marketing needs,” William Blair analyst Tim Lugo wrote in a Monday note.

Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com and Emily Dattilo at emily.dattilo@dowjones.com