On Wednesday, Scotiabank (TSX:BNS) adjusted its outlook on Sage Therapeutics (NASDAQ:SAGE), reducing the price target to $17 from the previous $19 while maintaining a Sector Outperform rating on the stock.
The decision follows a recent downturn in the company's stock value due to the unsuccessful outcome of the KINETIC-2 study, which tested SAGE-324 for the treatment of essential tremor.
The analyst from Scotiabank advises investors to consider increasing their holdings in Sage Therapeutics, citing the stock's approach to what is termed "deep value territory."
Despite the setback from the KINETIC-2 study, the analyst points out that the company's shares are currently trading near their estimated cash balance for the second quarter of 2024, which is approximately $10.37 per share.
This valuation does not fully account for Sage Therapeutics' right to 50% of the profits from sales of Zurzuvae, an oral medication recently approved for the treatment of post-partum depression.
Market feedback suggests a high level of enthusiasm for Zurzuvae, although there are notable challenges with payor acceptance. Even with conservative sales projections for Zurzuvae, the analyst believes that the company's shares have the potential to be valued at nearly $29 in the event of a company sale. If the sales estimates for Zurzuvae are overly optimistic by as much as 75%, the shares could still be worth around $13, according to the analyst's assessment.
Sage Therapeutics also has other prospects in its pipeline, with ongoing potential for dalzanemdor, a drug being investigated for the treatment of Huntington's and Alzheimer's diseases. Taking into account the current situation and the remaining potential of the company's portfolio, the analyst has set the new price target for Sage Therapeutics at $17.
In other recent news, Sage Therapeutics has seen several adjustments by analysts following various trial results and sales performance reviews. Mizuho Securities has lowered its price target for Sage Therapeutics to $13 from the previous $16, following disappointing results from the KINETIC-2 Phase 2b trial of SAGE-324. The trial did not meet its primary endpoint, leading to the halt of SAGE-324's development for Essential Tremor.
JPMorgan (NYSE:JPM) has also downgraded Sage Therapeutics' stock from Overweight to Neutral, revising the price target downward to $12.00. This decision reflects a cautious outlook on the near-term potential for Sage's product, Zurzuvae, aimed at treating postpartum depression.
In contrast, Scotiabank has reaffirmed its Sector Outperform rating with a steady price target of $19.00, citing strong recognition and satisfaction with Zurzuvae. Meanwhile, H.C. Wainwright maintained its Neutral rating with a consistent price target of $25.00, despite a recent setback in a Parkinson's Disease trial.
InvestingPro Insights
As Scotiabank revises its stance on Sage Therapeutics following the KINETIC-2 study outcomes, InvestingPro data and tips offer additional perspectives on the company's financial health and stock performance. With a market capitalization of $624.69 million and a recent price close of $10.38, Sage Therapeutics is trading near its 52-week low, which aligns with the analyst's view of the stock entering "deep value territory". The significant revenue growth over the last twelve months, at an astonishing 868.96%, suggests that despite recent challenges, the company has seen considerable expansion in sales, which could be a positive signal for investors considering the potential of Zurzuvae.
An InvestingPro Tip highlights that Sage holds more cash than debt on its balance sheet, which provides a cushion against the company's rapid cash burn and aligns with the Scotiabank analyst's reference to the company's cash balance. Additionally, with the stock having taken a considerable hit over the past six months, down by 60.49%, investors might find the current valuation an opportune entry point. Sage's liquid assets also exceed short-term obligations, which is a reassuring sign of near-term financial stability.
For investors seeking a deeper dive into Sage Therapeutics' financials and stock performance, InvestingPro offers a wealth of additional tips. There are currently 11 more tips available, which can be accessed through the platform. Interested readers can use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, providing a comprehensive toolkit for informed investment decisions.
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