On Wednesday, Scotiabank reiterated its Sector Outperform rating on shares of Sage Therapeutics (NASDAQ:SAGE) with a steady price target of $17.00. The firm's analysis follows the recent failure of the Phase 2 LIGHTWAVE trial, which evaluated dalzanemdor for the treatment of Alzheimer’s disease-related cognitive impairment.
The analyst from Scotiabank noted that the unsuccessful outcome of the trial was largely expected by the market. However, they believe the more critical consequence is that it paves the way for Sage Therapeutics to undergo a significant restructuring. The firm emphasized that even if dalzanemdor shows success in the upcoming Huntington’s disease Phase 2 DIMENSION study, which is anticipated to have results later in the year, there would still be notable development risks due to increasing competition in the field.
Scotiabank pointed out that Sage Therapeutics' stock is currently trading at approximately 0.7 times its cash value. According to the analyst, the company needs to drastically reduce its cash burn to achieve and sustain any significant appreciation in its stock value.
The report concludes by suggesting that the future of Sage Therapeutics will depend on its ability to adapt its strategy and manage its financial resources effectively. The firm's reiterated price target reflects a belief in the potential for stock value increase, contingent on the company's execution of a successful restructuring plan.
In other recent news, Sage Therapeutics has experienced notable shifts in its drug development trajectory. The company reported an unsuccessful phase 2 LIGHTWAVE trial of dalzanemdor for Alzheimer's disease, leading to a refocusing of investor interest towards another of the company's prospects, Zurzuvae. This development resulted in Baird, Oppenheimer, and RBC Capital Markets adjusting their outlooks on Sage Therapeutics, reducing their price targets and expressing cautious optimism about ongoing studies.
Sage Therapeutics also announced the termination of its collaboration with Biogen (NASDAQ:BIIB) on the SAGE-324 drug molecule, following negative results from the Phase 2 KINETIC 2 Study. Despite this setback, the partnership remains intact for ZURZUVAE®, a treatment for postpartum depression.
In terms of financials, Sage reported $7.4 million in collaboration revenue attributed to Zurzuvae for Q2 2024, despite a net loss of $102.9 million. The company, which has $647 million in cash, projects funding to last until 2026 and plans to expand its sales force in Q4 2024 to boost Zurzuvae sales in 2025.
InvestingPro Insights
Recent InvestingPro data aligns with Scotiabank's analysis of Sage Therapeutics (NASDAQ:SAGE). The company's market cap stands at $406.6 million, with a price-to-book ratio of 0.65, indicating that the stock is trading below its book value. This corresponds with Scotiabank's observation that the stock is trading at approximately 0.7 times its cash value.
InvestingPro Tips highlight that Sage is "quickly burning through cash" and "not profitable over the last twelve months," supporting Scotiabank's emphasis on the need for the company to reduce its cash burn. The negative gross profit margin of -213.59% and operating income margin of -462.25% further underscore the financial challenges faced by the company.
Despite these concerns, an InvestingPro Tip notes that Sage "holds more cash than debt on its balance sheet," which could provide some financial flexibility as the company navigates its restructuring efforts. Additionally, the company's "liquid assets exceed short term obligations," potentially offering a buffer as it works to realign its strategy.
For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips for Sage Therapeutics, providing a deeper understanding of the company's financial position and market performance.
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