On Wednesday, Citi initiated coverage on shares of Sage Therapeutics (NASDAQ: SAGE) with a Sell rating and a price target of $8.00. The coverage comes as the biopharmaceutical company's stock has experienced significant declines, dropping approximately 45% year-to-date and around 75% since August 2023, when its drug zuranolone received a Complete Response Letter (CRL) from the FDA for the treatment of Major Depressive Disorder (MDD).
The analyst from Citi expressed caution, suggesting that despite the stock trading near its cash value, which might appear to be an attractive entry point for investors, there is potential for further decline. This perspective is based on upcoming events and a possible commercial launch that may not meet expectations, alongside the company's high rate of cash consumption that could result in the stock's valuation falling up to 50% below its cash level.
The firm's valuation of Sage Therapeutics employs a risk-adjusted discounted cash flow (DCF) analysis. It attributes a low probability of success (POS) to all assets in the company's pipeline but acknowledges that there is a risk of the bearish thesis being challenged by any unexpected positive data.
Citi has also announced the commencement of a 90-day Catalyst Watch, which will closely monitor Sage Therapeutics ahead of the Phase 2 data release for its drug SAGE-324 in the treatment of Essential Tremor (ET), expected in mid-2024. This period of heightened scrutiny reflects the critical nature of upcoming developments for the company's stock performance.
InvestingPro Insights
InvestingPro data reveals that Sage Therapeutics (NASDAQ: SAGE) has a market capitalization of approximately $717.97 million, with recent revenue growth figures showing a substantial increase of 868.96% over the last twelve months as of Q1 2024. Despite this impressive top-line growth, the company's gross profit margin remains negative at -271.55% for the same period, indicating significant costs relative to its revenue. The price of the stock has also been under pressure, currently trading at 19.89% of its 52-week high, reflecting the market's reaction to the company's financial and operational challenges.
Two InvestingPro Tips that are particularly relevant to the current state of Sage Therapeutics include the company's position of holding more cash than debt on its balance sheet, which may provide some financial flexibility, and the fact that analysts have revised their earnings downwards for the upcoming period, signaling potential concerns about the company's future performance. These insights could be critical for investors considering Citi's sell rating and price target.
For those looking to delve deeper into Sage Therapeutics' financial health and future prospects, there are additional InvestingPro Tips available at https://www.investing.com/pro/SAGE. These include detailed analyses of the company's cash burn rate, sales forecasts, and profitability outlook. Interested readers can take advantage of a special offer by using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, gaining access to a wealth of expert financial insights.
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