Description
Overview
We believe SAGE is a short as the current Phase 3 study of SAGE-547 for super refractory status epilepticus (SRSE) is likely to fail. SAGE entered into a Phase 3 study based on data from a single arm Phase 1/2 study. The response rate in this small study does not provide clear evidence of drug effect and appears in the range of existing agents. Furthermore, this drug will have limited impact on actual disease improvement as it is treating the symptoms not the underlying etiology. With a $3.2B marketcap and $343M, the failure of their lead drug will lead to significant downside. The August $70 puts offer an attractive risk/reward to play this event.
SAGE-547
SAGE’s lead candidate, SAGE-547, is in a Phase 3 trial for SRSE called STATUS. The trial is expected to enroll 126 evaluable patients and randomized 1:1 to either treatment or placebo. The trial is 90% powered assuming a 35% placebo response, and an unspecified treatment response rate. By our calculations, assuming a 35% response rate in placebo (22 of the 63 patients), the treatment arm would need a 52% response rate (33 out of 63 patients) to hit statistical significance. On their 1Q17 earnings call SAGE updated the timing of the Phase 3 STATUS from 1H 2017 to 3Q 2017.
Source: SAGE R&D Day 2016
The Phase 1/2 study was an open-label, single arm study of SAGE-547 in 25 patients. However, only 22 were deemed evaluable and 17 met the secondary endpoint were able to be weaned off the 3rd line agent. SAGE highlights this 77% response rate as significantly higher than would be expected by standard of care and thus advanced the agent into Phase 3.
Source: SAGE R&D Day 2016
Status epilepticus (SE) is when a seizure lasts too long. There are multiple stages of increasing severity. Once you have hit refractory status epilepticus (RSE), the goal is actually to put you into a medically induced coma with anesthesia so that the seizures can be stopped. Super-refractory status epilepticus is when the RSE continues for 24 hours or more despite the anesthesia.
Source: Shorvon & Ferlisi 2011
There is only one randomized trial for refractory status epilepticus. This trial showed that while RSE was only controlled in 6/14 (43%) in the propofol arm and 2/9 (22%) in the barbiturates arm. However, for the “RSE treated subsequently” - effectively SRSE patients the results were 4/8 (50%) and 5/7 (71%). As the previous figure above demonstrates, those who fail RSE become SRSE. This means in this small trial, the estimated success rate for SRSE was 9/15 (60%).
Source: A Randomized Trial for the Treatment of Refractory Status Epilepticus (Rossetti, 2011)
A large meta-analysis also found similarly high rates of response in SRSE, highlighting the risk in the Phase 3 study. In a paper entitled “The outcome of therapies in refractory and super-refractory convulsive status epilepticus and recommendations for therapy” the authors (Shorvon & Ferlisi, 2012) find significantly higher rates of response in SRSE than estimated by SAGE in their trial.
The data shown below is for a combination of RSE and SRSE patients, therefore it will be an overestimate for SRSE. But you can see the results are in the 64% to 78% range.
Source: Shorvon & Ferlisi, 2012
What is helpful is the raw data in the supplement provides details into those who had a seizure on tapering/withdrawal and then were subsequently controlled.
Though the numbers cover a wide range, they highlight the fact that the 77% response rate of SAGE-547 in the Phase 1/2 are not particularly impressive and that the control arm assumptions of 35% in the Phase 3 are likely too low.
It is important to note that super-refractory status epilepticus is an effect of an underlying cause, typically severe brain insult (e.g. trauma, infection and stroke). Thus it is noted:
The greatest influence on the outcome of status epilepticus is the underlying cause (Tan et al., 2010; Nelligan and Shorvon, 2011). Where possible, the cause of the status epilepticus must therefore be identified and treated appropriately. Failure to do so may result in the persistence of the status, worsening complications and a worse overall outcome.
Shorvon & Ferlisi, 2011
Therefore, SAGE-547 is focused on treating the symptoms of the underlying disease, not the actual cause. Since the underlying cause of SRSE is an important factor in resolving the status epilepticus, a drug like SAGE-547 will have limited control over outcomes such as the one in Phase 3 of being able to weaned off all 3rd line agents.
Another important factor is that the treatment duration of 6 days in the Phase 3 trial allows for multiple attempts to wean patients off the drugs. This is because normal practice is to reverse anaesthesia every 24-48 hours, and wean over at least 24 hours. Therefore doctors may get a couple attempts to try weaning patients off SAGE-547 1-2 times in the 6 days allotted in the Phase 3 study. This will improve response rates in both the active and the control arms.
Risks
With the delay of the SAGE-547 data from 1H 2017 to 3Q 2017 there is timing risk with the expiration of the options. The data release for the STATUS trial also now could potentially overlap with readouts of other trials. There are also two Phase 3 studies of SAGE-547 in postpartum depression that are due to read out in the 2H of 2017. According to clinicaltrials.gov the results are not due until December 2017, however SAGE has commented that these trials are enrolling well. Though we believe the stock could decline 30-40% on STATUS failure, it is also possible that the stock sell-off could be less as investors may be more optimistic on the rest of the pipeline. However, with the $70 Aug puts trading at the midpoint of $4.35, we believe the risk/reward is attractive.
I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.
Catalyst
Phase 3 readout of the STATUS trial.