Some investors might love biotech stocks for their lottery ticket-like returns when a company strikes medical gold. A lottery ticket, however, costs only a buck or two, while getting a biotech company wrong can hurt a lot more than that.

Case in point: Sage Therapeutics (SAGE) shares dropped 24% since Monday, after the company released disappointing late-stage results for zuranolone, the major depressive disorder (MDD) drug candidate the company is collaborating on with Biogen.

While zuranolone achieved its main target of improving depression symptoms, the results weren’t strong enough to indicate the drug could be effective as a long-term treatment.

Specifically, the Phase 3 WATERFALL data showed that patients’ ratings on the HAMD-17 test – a widely used technique to measure the severity of depression – was just 1.7 points below that of the placebo cohort. The test has more than 50 possible points.

While management claim the results are "fileable," Raymond James’ Danielle Brill senses the company “did not seem completely confident that these data would be sufficient for FDA approval.”

As such, they implied they will hold out for the readout from the CORAL trial – another late-stage study being conducted with a 50 mg dose of zuranolone – before submitting an NDA. Data from this study is expected to be available by the end of the year.

However, Brill thinks a positive outcome from the CORAL study is “far from guaranteed,” and it all points to an uncertain future for the prospective treatment.

“In our view, the regulatory path requirements for zuranolone remain ambiguous, and it's not out of the realm of possibilities that broad MDD approval will require placebo controlled re-treatment data,” Brill opined. “Even if WATERFALL data are supportive of approval, zuranolone looks at best to be an undifferentiated, modestly effective, short-acting antidepressant.”

As such, Brill reiterated a Market Perform (i.e. Hold) rating on SAGE stock although the analyst refrained from providing a fixed price target. (To watch Brill’s track record, click here)

Story continues

A look at the consensus breakdown reveals there is a fairly even amount of Sage bulls and skeptics on Wall Street. The stock’s Moderate Buy consensus rating is based on 9 Buys and 11 Holds. That said, the outcome is a lot more conclusive on where the share price is heading. Here the bulls are charging ahead; going by the $92.25 average price target, shares are expected to appreciate by 65% over the next 12 months. (See Sage stock analysis on TipRanks)

To find good ideas for biotech stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

(305) 707 0888