Yet Another Value's special situation: Sage Therapeutics $SAGE
Andrew Walker’s special-situation thesis is that Sage Therapeutics ($SAGE) should sell itself—most logically to 10% shareholder and Zurzuvae partner Biogen—or return its cash and become a royalty pass-through. Biogen’s January offer of $7.22 per share was “laughably too low,” but Walker agrees that consolidating the drug “just makes sense” and believes Sage should not remain standalone. He discloses that he is long Sage and says this is not investment advice.
Biogen’s roughly $470 million bid valued Sage below the cash already on its balance sheet. Sage had about $570 million at September 30, burned roughly $70 million in Q4, and still held just over $500 million, or approximately $8 per share. Walker assigns little or no value to the early pipeline, but sees material additional value in Zurzuvae.
Zurzuvae’s postpartum-depression opportunity could be far larger than a conventional first-year-sales comparison implies. An OB-GYN described a market where one in five women suffers from postpartum depression but only 10% receive treatment, while calling the 14-day pill “genuinely life-changing” and “one of the few drugs that I’ve seen that has made a miraculous difference in people’s lives.” Walker would not be surprised by $700 million, $800 million, or even $1 billion in eventual sales.
Sage’s contractual opt-out creates a credible alternative against which every standalone plan must be judged. Sage could hand Biogen full control, receive a mid-teens to low-20% royalty, distribute roughly $8 per share of cash—perhaps somewhat less after severance—and eliminate almost all overhead. At $300 million of sales and a 20% royalty, Walker estimates approximately $60 million—or about $1 per Sage share—of annual royalty income, potentially for five to seven years, subject to the patent cliff.
Walker sees Ironwood Pharmaceuticals ($IRWD) as the cautionary template for spending Sage’s cash on another drug or acquisition. Ironwood used the economics from its 50/50 Linzess partnership to acquire VectivBio; shares fell 15% on announcement, another 40% after disappointing Phase 3 results for apraglutide, and roughly 85% over four to five years. Walker says Sage shareholders should not finance a similar effort without compelling risk-adjusted evidence.
The trade depends partly on shareholder pressure overcoming a passive-heavy ownership base and weak insider alignment. Walker’s “good girl Penny” analogy is that shareholders should calmly tell the board to “leave it” before the temptation to spend $500 million becomes a chicken wing that must be forcibly removed. He is not seeking to form a group, but urges holders to tell investor relations that an equity deal should be rejected and the board held accountable.
1. Passive ownership leaves Sage’s board needing an active signal
Walker begins with a governance problem: passive assets had overtaken active assets by 2021, yet passive managers commonly approach voting through formulaic checks—independent directors, acceptable related-party practices, and other formalities. A company can therefore check every box while “incinerating shareholder value,” unless active owners make the economic problem impossible to ignore.
His owner-operator test asks whether every capital-allocation and public-relations decision would remain unchanged if the CEO owned 100% of the business and cared only about long-term value. Almost no public company passes perfectly, but Sage’s largely passive register makes the gap especially relevant: Biogen owns 10%, while BlackRock, Vanguard, Morgan Stanley, and FMR each hold roughly 7-8% and filed 13G reports. A fifth roughly 7% holder filed a 13F; Walker knows little about it and only tentatively treats it as passive.
Sage’s insider alignment does little to counterbalance that passivity. The CEO owns roughly 1%, mostly through options now well underwater, while directors receive about $400,000 annually, the CEO received around $6 million in both 2022 and 2023, and the CFO approximately $2 million. Walker sees a temptation to follow the Ironwood model and buy something rather than return cash or sell the company.
His “leave it” analogy comes from walking his dog Penny past a chicken wing: a well-behaved dog needs one reminder before temptation wins, while another dog may require repeated commands and the bone physically removed. Walker hopes Sage only needs the first kind of engagement, but warns that a destructive transaction could eventually require an active 13D filing and board turnover.
2. Biogen’s bid exposed a valuation below Sage’s cash
In mid-January, Biogen offered $7.22 per share for Sage, a premium to the prior low-to-mid-$5 price. Sage quickly rejected the proposal as undervalued and immediately began reviewing strategic alternatives. Walker considers the rejection justified and takes the review as a hopeful sign that the board may follow the rational path.
The balance-sheet arithmetic makes the first offer inadequate before valuing anything else. Biogen’s proposal implied roughly $470 million for a company that held $570 million at September 30 and, after an estimated $70 million Q4 burn, still had just over $500 million—approximately $8 per share across 60.5 million shares.
Walker divides Sage into three assets: cash, Zurzuvae, and an unapproved pipeline. He assigns little or no value to the pipeline: Sage-324 produced poor 2024 results and Biogen is leaving that collaboration, while the remaining programs comprise two preclinical drugs and one Phase 1 candidate requiring substantial time and capital. He cites a less-than-33% chance for a Phase 1 drug to make it all the way through approval.
He preserves the upside caveat: an early-stage drug could ultimately reach approval and become valuable, so zero is not certainty. His point is risk-adjusted—commercial success is unlikely, the market has never assigned much value to these programs, and shareholders should not surrender a tangible cash return to finance them without compelling evidence.
3. Zurzuvae is the asset that makes a higher bid plausible
Zurzuvae was approved in late 2023 for postpartum depression after Sage and Biogen had hoped for a broader label, then launched in 2024 under a 50/50 arrangement covering costs, development, revenue, and profits. Walker regards it as a first-line, far-superior option and argues that its roughly $100 million of first-year sales understates the opportunity because the underlying market is both severely underdiagnosed and undertreated.
Before making its bid, Biogen’s North America head called the launch a “pleasant surprise.” Biogen had committed relatively few resources because it had not planned around the postpartum-depression label, initially expected psychiatrists to drive prescriptions, and then discovered OB-GYNs mattered more. It adjusted the go-to-market model and expanded reach and frequency beginning January 1.
The OB-GYN testimony carries Walker’s demand thesis: roughly one in five women experiences postpartum depression, only about 10% are treated, and previous options were difficult to persuade patients to accept. Unlike inpatient day programs that separate mothers from their children, the 14-day treatment lets patients continue ordinary life; by treatment’s end, the doctor said, patients were “feeling incredible.”
Patients with prior pregnancies reportedly described Zurzuvae as “genuinely life-changing,” and the doctor said almost every patient prescribed it since fall 2024 had obtained full insurance coverage. Rather than cap expectations at the $300-500 million suggested by conventional launch comparisons, Walker thinks improving OB-GYN familiarity could support $700-800 million and “maybe a billion,” though he frames those figures as possibilities, not forecasts.
4. The royalty option sets the board’s hurdle rate
Sage says its roughly $500 million of cash can fund operations until mid-2027; Walker hears a plan to consume much of the company’s most certain asset. The shares had already traded far below net cash before Biogen’s approach, meaning the market was assigning “astronomical” value destruction to the planned burn rather than rewarding management’s research ambitions.
He acknowledges that stock prices are imperfect and that management could argue investors are excessively short-term. His rebuttal is burden-of-proof based: when a company proposes heavy spending while trading below cash, “it is incumbent on the company to prove that they are creating value with their cash burn.” On the information supplied, his answer is blunt: “I don’t see it.”
Sage can instead exercise its opt-out right, give Biogen full rights to Zurzuvae, and receive a mid-teens to low-20% royalty. Walker imagines eliminating nearly every employee, retaining one accountant to audit Biogen’s payments, distributing about $8 per share of cash—possibly somewhat less after severance—and forwarding the royalties to shareholders. He says a financial buyer might also purchase the royalty stream.
His illustrative alternative assumes $300 million of sales in three to four years and a 20% royalty: $60 million annually, or roughly $1 per Sage share, potentially for five to seven years. He notes the patent cliff and that royalties could conceivably last seven, 10, or even 12 years, though he does not expect that long. He actually believes retaining the 50/50 interest may carry higher NPV, but only if Sage can remove the surrounding overhead; otherwise, the royalty-and-distribution structure belongs in the decision set.
5. Ironwood shows why “strategic” reinvestment could destroy the alternative
Walker’s closest warning is Ironwood. Its 50/50 Linzess partnership was producing, he believed, about $900 million per year in sales; Ironwood received 50% and had margins in the 60% range. Walker says it should not have remained a standalone public company, but it bought VectivBio in 2023; the stock dropped about 15% immediately, then roughly 40% after apraglutide’s disappointing Phase 3 results, leaving it down around 85% over four to five years.
The analogy “matches up with Sage to a T”: one valuable partnered drug, limited insider ownership, and well-paid executives who may be tempted to buy another asset rather than wind down the company. Walker’s message to the scientific team is deliberately severe: pursue speculative science “on your own time with your own money,” not by wagering shareholders’ existing value.
Biogen’s CEO supplied the industrial logic: Biogen already owns half of Zurzuvae, so acquiring the other half through Sage “just makes sense,” while research setbacks and financial difficulties make a broader relationship no longer possible. Walker agrees that Sage’s principal operating asset belongs inside another company and its cash belongs to shareholders.
His decision tree is therefore narrow: solicit the highest strategic or financial bid; if no offer exceeds the value of cutting costs, exercising the opt-out to receive royalties, and returning cash, choose the latter. He discloses that he is long Sage, says this is not financial advice, concedes reasonable holders can disagree, and urges them to communicate either view—but specifically urges shareholders to vote down any equity deal.
Full transcript
I had so much fun with my idea of the year this year, Full House Resorts, ticker FLL. I am long the stock, and you can listen to the podcast from early January if you are interested. One of the things I wanted to do with the very small platform I have is shine a light on situations where I think active shareholder engagement and input to the company, management, and board could lead to a better outcome for everyone.
Let’s start with the disclaimer, the same way I start every podcast: Nothing on this podcast is investing advice. Please consult a financial adviser. I am long the stock, and I have huge impostor syndrome all the time. I don’t really know if anyone should listen to me, so do your own work, consult a financial adviser, consult a tax adviser, or consult any type of adviser you want. Just don’t listen to me.
Every slide in this deck comes from publicly available resources, with 1 very obvious exception that we’ll get to. If you see the formatting switching back and forth between slides, it’s not me. I just took screenshots of public sources, mainly SEC filings and company presentations.
It is not lost on anyone who follows the financial markets that passive investing has overtaken active investing. I have a chart from 2021, so it’s somewhat old, and it has gone even further since then. In 2021, assets under management in passive strategies outnumbered assets under management in active strategies for the first time, and that has only grown since then.
That raises lots of questions for investors. There’s a popular question: If passive investing goes to 100% of investing, who is setting prices at the margin? Who is doing the price discovery? Those are very interesting questions, but what I want you to keep in mind is that, from a corporate-governance perspective, passive managers don’t have the same incentives as active managers.
Passive managers generally own the index. They own the market, and they take a very formulaic, check-the-box approach to stock ownership in general. Not all the time, but in general, that is how they approach corporate governance. They ask, “Are you following best practices on corporate governance? Do you have the right number of independent directors? Are there a lack of related-party transactions?” If you check the boxes, you can get away with an awful lot.
I know plenty of companies where, from a passive standpoint, they check all the boxes, yet there is absolutely no doubt they are incinerating shareholder value. They can get away with it because they are passive shareholders. The passive shareholders vote for it because the companies check all of those boxes, and often it takes an active manager coming in, pointing it out, and raising a huge storm to get them to change their ways.
If you are an active investor, look at your portfolio and the companies in it, and really think about how many of those companies are being run in a way where every capital-allocation decision, every public-relations decision, and everything they do is completely aligned with what they would do if the CEO owned 100% of the company and was purely interested in maximizing long-term value. I guarantee there’s almost not a single company in your portfolio that would follow that rule.
There are small things, like a CEO who spends time on investor relations. If he owned 100% of the company, he wouldn’t have to spend any time on that, so by definition it is suboptimal. But there are lots of other things. I think of companies that are married to a dividend strategy or married to debt strategies that their index funds may love but that aren’t optimal.
I know there are index funds that actually reward lower insider share ownership over higher share ownership. I can tell you that, with very few exceptions, I would always prefer insiders to be aligned with me and to make money when the stock goes up. If the stock goes down and they own nothing but still have huge pay packages, they still do all right.
Why do I say that? Sage Therapeutics, the company we’re talking about, has a largely passive ownership base. What I have here is a screenshot of their top 6 holders. The number 1 holder is Biogen, which we will be talking about in a moment. They have filed a Schedule 13D and own 10% of the company.
Behind Biogen are basically 5 passive owners. BlackRock, Vanguard, Morgan Stanley, and FMR each own between 7% and 8% of the company, and they have all filed Schedule 13G filings. The 5th-largest shareholder owns about 7% and filed a 13F. They seem to be an active manager—I know absolutely nothing about them—but their Sage stake is an extremely small stake for them, so I would probably consider them passive. I don’t know them, and I’m not saying that definitively; maybe they are very active. I’m just saying this because Sage is a company with a largely passive ownership base, and that is going to come into play as we continue through the story.
I have a theory of shareholder engagement, and I call it my Penny theory. If you have a dog, you know there are 2 types of “leave it.” You’re walking on the street with a very good girl, Penny, and let’s say there’s a chicken wing at the corner. Chicken wings are a disaster for dogs. The bones are hollow, and they will tear their insides up.
A good girl like Penny, if she sees a chicken wing, is of course interested. She’s going to smell it, and if you tell her, “Leave it,” Penny will never go to that chicken wing. Penny will never consider picking up that chicken bone. However, if you are not paying attention and the chicken bone is at the corner, the light is red, and you walk right up to the chicken bone and stop, waiting for the light for 20 seconds, after 10 seconds Penny is going to be staring at that chicken bone, and she’s probably going to pick it up. The temptation is just too great.
The second type of “leave it” is when you’re walking a girl who’s not quite as good as Penny. She sees a chicken wing and starts lunging at it. Maybe she lunges at it and gets it in her mouth. Now your “leave it” is, “Leave it, leave it, leave it,” and you may have to grab the dog by the mouth, open it up, and reach in there to get the chicken wing out.
I think those are 2 really good analogies for shareholder engagement. There is the first type of engagement that can happen when shareholders comment and talk to the board and tell them, “You need to maximize shareholder value. There’s a clear path to maximizing shareholder value. You need to go that route. We think you’re going to go that route, and we hope you’re going to go that route.” That is the route I hope and expect will happen at Sage as we walk through the story. We can encourage the company to leave the proverbial chicken wing.
I think there are 3 companies in my portfolio that have some type of shareholder engagement. I hope and expect Sage to be more along the Penny line: Let’s just remind them that they need to leave that chicken wing. Then there are some where it might be the firm “leave it, leave it, leave it.” Those are the companies where somebody may need to file an active 13D, come in, fire everyone, and change everything around because the company has put the chicken wing in its mouth and is about to ingest it. That will tear its insides up, and no one will be happy, although they might be happy because they don’t own any stock and are going to get paid.
I have a position in Sage, and I have disclosed that I am long. I’m letting the company know the route I hope and expect it to take. I’m not looking to form a group with anyone; I’m just laying out the facts. I do believe in good shareholder engagement and shareholder alignment.
You can disagree with me. You can think the routes I think are crazy are reasonable. Reasonable people can disagree. If you believe the chicken-wing route is the route the company should take, go with God and let the company know that. But if you believe, as I will make a compelling case for in this episode, that the company should leave the chicken wing on the table and ultimately sell itself, you should let the company know that you are a shareholder.
It is your money—your hard-earned money. You will make a return if the company goes the correct route, and I think there is compelling evidence you will not make a return if it doesn’t. All I’m saying is, reach out to the company. Send the investor-relations team a note that says, “I own the stock. I expect the board to do what’s rational. Here’s what I think is rational.”
Shareholder engagement makes a big difference. The board has hired an investment bank, and we’ll talk about all of this in a moment. They are going to ask what they should do. If the investment bank sees 1,000 emails from shareholders saying, “Go the rational route; here’s the rational route,” the board is going to say, “You don’t have a choice. Anything else you do will cause your shareholders to erupt.”
As a management team and board, you can go 1 of 2 ways. You can try to eat the chicken wing, and your shareholders will fire all of you. You’ll be unemployable, with a scarlet letter on your résumé saying that you were voted out by your shareholders because you tried to destroy shareholder value. Or you can leave the chicken wing, take the route that makes sense, and have a good mark on your résumé. In the future, boards will look at you and say, “Those people did right by their shareholders.” If I see any of these shareholders or board members in the future, I can say, “Those people did right by me.” They can be on future boards, and they will have better career prospects.
I want to leave that in mind. The good-girl route is what I want Sage to take. I want shareholders to engage and tell the company what they think makes sense. Let’s talk about what that good-girl route is, what is happening at Sage, and why I’m so interested.
In mid-January, Sage’s largest shareholder, Biogen, offered to buy Sage for $7.22 per share. This was a nice premium to Sage’s price the day before; the stock had been trading in the low-to-mid-$5 range. Sage quickly rejected that offer as undervalued and immediately engaged in strategic alternatives. The fact that they are engaged in strategic alternatives gives me hope that they are going to take the good-girl route I’m hoping they take.
Why did Sage reject the bid as undervalued? I think they rightfully rejected it as undervalued. Sage owns 3 main assets.
The first asset, which I think we can quickly set aside, is most of its unapproved pipeline. There are 4 drugs in that pipeline. One is SAGE-324, a drug that Sage partnered on with Biogen. Bad results came out in 2024, and Biogen is walking away from that partnership, so it is very unlikely there is value there.
The other 3 drugs are 2 preclinical and 1 in Phase 1. I don’t ascribe much, or any, value to them. Of course, if a Phase 1 drug goes all the way through approval and there is a big market, I could be wrong. But Phase 1 drugs have less than a 33% chance of making it all the way through approval, and who knows what the market or anything else will look like by then. It would take a lot of money to get these drugs to approval. I don’t see much value there, and the market has never assigned much value to them.
The second set of assets is Sage’s cash on the balance sheet. When Biogen made the bid, Sage’s market value was about $470 million. Sage had about $570 million in cash as of its September 30 balance sheet. The company burned about $70 million in the 4th quarter, so it was down to just over $500 million. That works out to about $8 per share in cash on Sage’s balance sheet, while Biogen’s offer was $7.22 per share. Biogen was offering to buy Sage for less than its cash value. That is a red flag that the offer was too cheap.
Sage’s other asset is Zurzuvae. This is an approved drug that was approved in late 2023 and launched in 2024. Sage had hoped to get a much wider label, but Zurzuvae is approved for postpartum depression, or PPD.
I think this is going to be a blockbuster drug. You don’t have to take my word for it. Sage and Biogen are 50/50 partners on the drug; they share 50% of the costs, 50% of the development, and 50% of the profits. It launched in 2024, and what I have here is a quote from Biogen’s head of North America in December, before Biogen made its bid.
“Zurzuvae has been a pleasant surprise. The drug has taken off quite well. There has been very little resourcing to the drug. We didn’t plan on getting PPD, so we didn’t have a lot of resourcing for it, but we’ve been very thoughtful. We got some stuff wrong, but now we’re starting to get momentum.”
They thought psychiatrists were going to be the big prescribers, but it turns out OB-GYNs are going to be the big prescribers. The drug is starting to grow and gain momentum. They made some tweaks to their go-to-market model, and they expanded the sales force on January 1. Biogen said, “You’re going to see increased reach and increased frequency.”
They were saying that the drug was going well. As I’ll discuss, I think this drug in particular is going to be very important.
An expert interview with an OB-GYN from January offers some useful context. The OB-GYN said, “Having people come in with postpartum depression is its own struggle. All the treatment options are awful. It’s difficult to convince my patients to take any of the 3 treatment options. Postpartum depression is highly, highly underdiagnosed and substantially undertreated. One in 5 women suffer from postpartum depression, and only 10% of patients are treated.”
What are you hearing? Before Zurzuvae, there was a huge postpartum-depression market that was completely underdiagnosed, and the treatment options were awful. When I hear that, it is extremely sad. I have a 15-month-old daughter, so it’s extremely sad to hear about the state of postpartum depression.
But I also think, “You have Zurzuvae, which is approved as a first-line, way-superior product. The growth potential here is huge.” Zurzuvae did about $100 million in sales in its first year, and if you map that against other drugs, you might say it reaches peak sales in the $300 million to $500 million range.
I would contend that mapping it against other drugs is not right because this is an underdiagnosed and underdeveloped market. That means the growth ramp is higher and longer than it is for other drugs. I would not be surprised if Zurzuvae reaches $700 million, $800 million, or even $1 billion in sales.
As OB-GYNs get more experience with the drug, that will be important. OB-GYNs are not used to writing prescriptions for psychological issues, but as they gain more experience and become more comfortable with it, I think penetration will be huge. I think this is a really big product that addresses a substantial unmet need.
The same expert said, “By the end of their 14-day treatment, they’re feeling incredible. When I talk to people who’ve had multiple pregnancies and compare their previous pregnancies with using Zurzuvae now, they’re just like, ‘This is genuinely life-changing.’ They don’t have to leave their kids for treatment. With the previous treatment, you had to go to an inpatient day program. They can continue their lives as normal.”
She also said, “Almost every patient that I’ve prescribed it to since the fall of 2024 has had it fully covered under insurance.” She later discussed why insurance is covering it. She thinks insurers see the benefit of covering it now rather than having to treat postpartum depression later.
Here’s my favorite quote: “This is 1 of the few drugs that I’ve seen that has made a miraculous difference in people’s lives, and I wish more people knew about it and more people had access to it.”
When I’m giving you all these quotes, Biogen and Sage have always said that this drug has blockbuster potential. That’s 1 thing. But here is an OB-GYN in the field saying that the state of treatment was absolutely terrible and that this drug is incredible. It is a game changer for everyone taking it.
All of my friends are starting to have kids, if they haven’t had them already. We just had a child, and I can see how postpartum depression is underdiagnosed. Now that there is a once-a-day pill that you take without having to go through inpatient treatment, I can see how these issues will be diagnosed and treated much more often. I really think Zurzuvae has blockbuster potential. I think this is great for humanity and great for society.
We’ve now gone through the 3 assets. There is Zurzuvae, which has blockbuster potential. There is the cash on the balance sheet. Then there is the pipeline, to which I assign zero value.
The board needs to weigh its options very carefully. In its 4th-quarter 2024 earnings release, the company said it had $500 million in cash on its balance sheet, and that cash was expected to support operations until mid-2027. With about 60.5 million shares outstanding, that is about $8 per share in cash.
The company is planning to burn a lot of cash through mid-2027, and I think the board really needs to weigh the opportunity cost of that cash burn. When it does, I think it will be extremely clear that the answer is that this company cannot be a standalone company.
You don’t have to take that from me. I understand there are issues with using a stock price as a measure of value, but the company really needs to take a long, hard look in the mirror at its stock price over the past 6 months. Sage has traded well below its net-cash position.
Every time the company comes out and says, “We have this great plan, and we’re going to burn all this cash on these Phase 1 drugs,” everyone should say, “You have 2 major assets: the cash on your balance sheet and Zurzuvae. The market has been trading you below the cash on your balance sheet. The amount of value destruction the market is pricing into your stock is astronomical.”
You are not creating value with this cash. I understand the company may say the market is focused on the short term, but when you have that much cash burn and the market is discounting it so heavily, it is incumbent on the company to prove that it is creating value with the cash burn. I am not seeing that.
More importantly, there is a standalone path for Sage that would not involve much cash burn. Sage has an opt-out right. Right now, Sage and Biogen own 50% each of Zurzuvae, so they share the expenses, revenue, and everything else. Sage has an opt-out clause under which it can say, “Biogen, you have 100% of the rights, and we just get a royalty in the mid-teens to low-20% range of sales.”
If Sage exercised that opt-out right, it could instantly become a 1-asset company. You could imagine a world where Sage takes that opt-out right, everyone is fired, and there is 1 accountant who audits the royalties Biogen earns and sends the royalty checks to shareholders.
That company would need zero overhead and zero cash on the balance sheet. It could distribute the $8 per share in cash to all of its shareholders, and then simply send the royalty checks to them. Someone would probably buy the royalty stream. There are plenty of finance companies that buy royalty streams.
If Sage did that, it could pay an $8-per-share cash dividend to shareholders almost immediately, perhaps a little less because it would need to pay some severance payments. Biogen would take the drug, and it is already running at a $100 million sales rate in the 4th quarter of 2024. I mentioned $300 million in sales, which I think would be a very low estimate for what this product could do a few years from now.
Let’s say the drug reaches $300 million in sales in 3 or 4 years. At a 20% royalty, Sage would get $60 million. With about 61 million shares outstanding, that would be about $1 per share in royalties for 5 to 7 years. There is a patent cliff at some point, but you might get royalties for 7, 10, or even 12 years. I don’t think it will go that long, but it is incumbent on the board to prove that it can create more value through a different route than that.
I don’t see it. The company hasn’t provided the information, and the market was certainly skeptical, given that it was trading at $5 per share when it had $8 per share in cash. The market was suggesting that everything else the company was doing was destroying value rather than creating it.
I would note that shareholders should write to the board and encourage it to do what they think is correct. If you think Sage should invest in the Phase 1 drugs, pursue mergers and acquisitions, or follow some other standalone plan, you should let the company know.
I should also note that I think having the 50/50 partnership with Biogen is better net present value than taking a royalty stream because Zurzuvae is going to be very big. But there is a lot of other overhead at Sage, and that is what I’m really pointing to when I talk about reducing the cash burn. If the company can’t reduce that cash burn without going to the royalty model, then I think the royalty model should be in play.
There is a very cautionary tale that is relevant here. The company is Ironwood Pharmaceuticals, ticker IRWD. Ironwood had circumstances very similar to what Sage has. It had a 50/50 partnership with AbbVie for a drug called Linzess, and that drug was producing enormous profitability.
Linzess was doing, I believe, about $900 million per year in sales. Ironwood was getting 50% of that, and its margins were in the 60% range. It was a 1-drug joint-venture partnership company. It should not have been public, and it should not have been standalone.
However, Ironwood decided, “We have this partnership. Let’s go out and buy something so we can use that partnership to sell more drugs.” It bought VectivBio in 2023. On the day it announced the acquisition, the stock was down 15%. About a year later, VectivBio’s key asset, apraglutide, announced disappointing Phase 3 results, and the stock was down 40%.
If you look at the chart, the stock is now down more than 85% over the past 4 or 5 years. It is in true distress. Ironwood matches Sage to a T, and I think it presents a very interesting cautionary tale that the board and any shareholders who want the board to explore a standalone path need to be able to rebut.
I think it is very difficult to rebut that on a risk-adjusted basis. Your stock was at $5 per share when you had $8 per share in cash. You have clear value in Zurzuvae, and Ironwood looks exactly like what you did, with the stock now down 85%.
When I say the stock is below cash and that there is clear value in Zurzuvae, it is very difficult to say there is a risk-adjusted argument for doing anything other than either firing everyone, going to the royalty-and-dividend model, or more likely selling to Biogen.
Speaking of Ironwood, another interesting thing is that its insider ownership looks a lot like Sage’s. Ironwood had 1 large shareholder who owned about 10% of the stock and was on the board, but every other insider, director, and executive owned extremely little stock. All of that ownership was through options that became increasingly underwater as the stock underperformed.
That mirrors Sage. Biogen obviously owns 10%, and some passive funds own 5% to 8% of the company. Executives and insiders own almost nothing. The CEO owns about 1% of the stock, but almost all of that is through options that are now well underwater.
Sage’s board and management team are very well paid. The directors are paid about $400,000 per year. They might argue that $350,000 of that is stock, but that stock is all underwater, and about $60,000 is cash compensation.
The CEO received about $6 million in 2023 and $6 million in 2022. The CFO received about $2 million in 2023, 2022, and 2021. These are very well-paid people at a company trading below cash. When you have very well-paid people at a company with a lot of cash trading below cash, and they don’t own much stock, I think there is a temptation to follow the Ironwood model and buy something.
I would argue that is the bad-girl route from the Penny discussion earlier. It is incumbent on shareholders to say, “Do not go that route. That is not a risk-adjusted route, and it does not create shareholder value.”
I understand that you are very smart people, and that you have an interesting take on science. You need to do that on your own time and with your own money. You can’t do it with shareholders’ money because you’re basically lighting it on fire.
The risk-adjusted path here is 1 of 2 things: Negotiate with Biogen, or with a strategic or financial buyer, for the highest bid. If none of them will meet the net present value of going the royalty route, distributing the cash to shareholders, and shutting everything down, then you go the royalty route.
Here’s a quote from the Sage lawsuit against Biogen. Sage sued Biogen for breach of contract when Biogen made its offer publicly. This is from an interview that Biogen’s CEO gave right after the offer. He said that Biogen already owned half of Zurzuvae, so buying the other half through an acquisition of Sage simply made sense.
He also said that a broader relationship between the 2 companies was no longer possible because of Sage’s research setbacks and financial difficulties. I understand that it can be difficult to hear that, but he is correct.
Sage has 2 assets: the cash on the balance sheet, which should belong to shareholders and should be given back to them, and the joint-venture partnership with Biogen. It does not make sense for a company with 1 main operating asset—a joint-venture partnership with a much larger company—to be a standalone company.
It does not make sense for Sage to incur all the overhead of being a standalone public company: the public-company costs, the $400,000 per year for 1, 2, 3, 4, 5, 6, 7, 8, or 9 directors, the $6 million per year for the CEO, or the $2 million for the CFO. None of that makes sense. All of it needs to be rationalized.
Sage’s 1 asset belongs inside another company, and the cash belongs to shareholders. Either Biogen buys Sage and cashes out the shareholders, or Biogen buys the joint venture and the cash is distributed. One of those 2 things should happen. It simply makes sense for Biogen to buy Sage.
My hope and expectation is that Sage, now that it is in play with a Schedule 13D from Biogen, will go the good-girl, Penny route. It should ignore the temptation to spend that $500 million investing in low-probability Phase 1 drugs or buying other companies.
Shareholders need to tell the board, “If you try to do an equity deal, we will vote it down. If you do not do what is right—which is either to go the royalty route and distribute the cash to shareholders, or more likely to sell to the highest bidder—this board is going to get turned over. We will hold your feet to the fire.”
I think that is best for everyone. I think it makes everyone happiest, healthiest, and richest.
Biogen has offered to buy Sage. The first offer was obviously laughably low, but that does not mean an acquisition does not make sense. As Biogen said, it simply makes sense.
Sage needs to explore strategic alternatives to the maximum of its abilities, sell to the highest bidder, and, if the highest bidder is offering below the value of going to the royalty route, then it needs to go that route, distribute everything to shareholders, and start sending out royalty checks.
I highly suspect that, given Zurzuvae’s blockbuster potential, the best route is simply to sell to the highest bidder. Sage needs to know that this is what its shareholders demand and expect, and that it is what will make them better off.
The more clearly shareholders communicate with the company, the more likely everyone is to have a happy outcome that works for everyone. If you own Sage stock, I encourage you to reach out to investor relations. Whether you agree with me or not, make your views heard, because shareholders making their views heard gives us the best chance of going the good-girl, Penny route.
Nothing here was financial advice. I am long Sage.