SAGE Therapeutics Tanks as Hedge Fund Kerrisdale Capital Bets Lead Drug Will Fail Phase III Study

March 23, 2016
By Alex Keown, BioSpace.com Breaking News Staff

NEW YORK – Sage Therapeutics stock plunged more than 20 percent this morning following hedge fund Kerrisdale Capital’s announcement it was shorting the stock based on the assumption that company’s experimental drug will likely fail late-stage trials.

Cambridge, Mass.-based Sage is developing a drug to treat super refractory status epilepticus (SRSE), a life-threatening seizure condition that occurs in approximately 25,000 people each year in the U.S. The experimental drug, SAGE-547, is currently in a Phase III trial. Kerrisdale said Sage’s treatment moved into late-stage trials based on “superficially strong results” from a Phase I/II trial that lacked a control group. Kerrisdale called SAGE-547 little more than a Band-Aid for seizures, without addressing the underlying causes of SRSE.

“While Sage touts SAGE-547 as a novel breakthrough, its high-level mechanism of action—tipping the balance of brain activity from excitation toward inhibition—is exactly the same as that of standard drugs like benzodiazepines, anti-epileptics, and anesthetics that already form the standard of care for status epilepticus,” Kerrisdale said in a statement.

In August, Sage said the Phase I/II trial saw a 77 percent response rate in 22 evaluable patients with SRSE and was also highly tolerated by patients. SAGE-547, a neurosteroid, is an allosteric modulator of both synaptic and extra-synaptic GABAA receptors, according to company data. It is an intravenous treatment and has been granted both Fast Track and orphan drug designations by the U.S. Food and Drug Administration for the treatment of SRSE. Sage is preparing to present clinical data abstracts at the American Academy of Neurology 2016 Annual Meeting next month.

“At AAN, we will feature new scientific data and analyses from our lead compound SAGE-547 in two indications with significant unmet medical need. This will include an in depth review of response rates from the first clinical trial in super refractory status epilepticus (SRSE) and we will present data in our exploratory trial in essential tremor,” Steve Kanes, Sage’s chief medical officer, said in a statement earlier in March.

If SAGE-547 happens to outperform placebo in the Phase III trial, Kerrisdale said commercial prospects for the drug are “dim.” The hedge fund said it believes Sage has overinflated the number of patients the drug will impact annually by tens of thousands.

SAGE-547 is also being explored for treatment of other issues. In June 2015, Sage announced dramatic top-line data from its SAGE-547 trial in postpartum depression (PPD). It was a tiny study based on only four women with PPD. Before treatment, they were evaluated using the Hamilton Rating Scale for Depression (HAM-D). The patients’ baseline score was 26.5. A HAM-D rating of 24.0 or greater is considered severe depression. A score below 7.0 is called symptom-free. Within 60 hours of receiving SAGE-547, all four women showed a HAM-D score of 1.8.

Kerrisdale said it believes Sage Therapeutics’ stock is worth 70 percent less than its current stock price. Sage stock is currently trading at $26.68 per share, down from a morning high of $30.30 per share. Sage’s stock has had a rough year, consistently sliding since a high of $86.71 in June 2015.