Sage considers cuts after FDA’s split decision on depression drug
07 Aug 2023
Drug Approval
Shares of Sage Therapeutics are worth less than half of what they were late last week, after an approval decision for the company’s most closely watched medicine sharply limited its potential market.
On Friday, the Food and Drug Administration cleared the medicine, known scientifically as zuranolone, as the first oral therapy for postpartum depression. However, the agency rejected Sage and partner Biogen’s request to also approve zuranolone for a far more common condition: major depressive disorder, or MDD.
Wall Street analysts had identified zuranolone as a potential blockbuster product, with an approval in MDD central to their estimates. While the need for new postpartum depression treatments is great, the market opportunity is “much smaller and may not be hugely profitable,” according to Jefferies analyst Michael Yee.
Sage shares were trading below $18 apiece Monday morning, down more than 50% from market’s close last week. The Cambridge, Massachusetts-based biotechnology company also reported second quarter earnings on Monday, and warned that it could pursue a “pipeline prioritization and a workforce reorganization” to make its cash on hand last longer.
How the FDA’s decision will affect the partnership between Sage and Biogen is now up for debate. In 2020, Biogen agreed to pay $1.5 billion in cash and equity investments in exchange for rights to zuranolone and a separate Sage drug for tremors.
But Biogen is a different company than it was when the deal was signed. Much of its leadership team has changed over the past few years. And after several major setbacks, Biogen is currently focused on cutting costs and restructuring its business. Just last month, the company disclosed plans to eliminate 1,000 jobs as part of a larger initiative meant to reduce annual operating expenses by $1 billion by 2025.
Biogen, therefore, might not be as interested in helping to launch zuranolone without the MDD indication. Analysts were already questioning Biogen's enthusiasm for the program after a July 25 earnings call during which executives, who were previously bullish on the drug’s prospects, barely mentioned it and the then-pending approval decision.
One of the biggest questions now surrounding the partnership is whether Biogen will eventually return the rights to zuranolone, which will be sold as Zurzuvae. ”It’s entirely possible that Biogen gives the product back to Sage; it wasn’t this Biogen management team that cut the deal and paid Sage such a significant up-front payment,” wrote Marc Goodman of Leerink Partners in a note to clients.
Salim Syed, of the investment firm Mizuho Securities, noted how Biogen's contractual obligations require it to give Sage 150 days notice before it can terminate all or part of the companies' agreement. Per Syed, this means early next year would be the earliest Biogen could extract itself from the launch, if it so chose.
Baird analyst Brian Skorney claims his team has been surprised at the amount of confidence Biogen had previously shown in zuranolone, especially given the drug’s mixed performance in clinical testing and its similarities to “benzodiazepines” — a class of medications that includes Xanax, Valium and Klonopin.
Indeed, early this year, recently minted CEO Christopher Viehbacher had described zuranolone as having the most ”undervalued potential” of Biogen’s research programs.
“[T]he choice to lean against the skepticism looks like a bad call following this FDA decision,” Skorney wrote in a note to clients. Running additional trials to get an approval in MDD probably wouldn’t be worthwhile for Sage, according to Skorney, because “despite the structural differences, zuranolone's clinical effect looks like that of a benzodiazepine and that profile is unlikely to secure a large market opportunity as a result.”
As for postpartum depression, the Baird team believes it will be a “tough indication to build a big market out of, even at a high premium price.”
Sales estimates for Zurzuvae in postpartum depression vary. Paul Matteis of the investment firm Stifel predicts that, at a net price of $25,000, the drug could still generate $1 billion in annual sales at its peak. Others are more conservative, with Skorney and his team modeling global sales of approximately $250 million in 2030.
Sage and Biogen have said they expect to launch the drug in the fourth quarter of this year, as the Drug Enforcement Administration has to first classify it as a controlled substance.
The companies haven’t yet disclosed the drug’s price.
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