Less than five years after its stock market debut, Sage Therapeutics (NASDAQ:SAGE) has earned its first new drug approval, and the company's market value is at an all-time high.

The stock has climbed an impressive 79% in 2019, and investors want to know if there will there be enough demand for Zulresso, formerly brexanolone, to drive it even higher. Here's what you need to know about the arguments for and against this soaring biotech stock.

Bald guy scratching his head while looking at a chalkboard with lots of big question marks.

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Reasons to buy

Rapidly dropping hormones after childbirth combined with sleep deprivation will take a toll on anyone. Most women get past the "baby blues" on their own, but an estimated 15% experience postpartum depression fierce enough to seek treatment. Unfortunately, available antidepressants can't get the job done for an estimated 120,000 women each year in the United States. 

Zulresso mimics a naturally occurring metabolite of progesterone known as allopregnanolone. Lower than average levels of this metabolite have been associated with major depression and a handful of related disorders, but developing a replacement therapy has been especially challenging. That's because circulating allopregnanolone falls to unhelpful levels almost as soon as it's administered.

Zulresso is a combination of allopregnanolone and a common delivery technology known as Captisol, which helps allopregnanolone remain at a therapeutic concentration. Sage licensed rights to use Captisol from Ligand Pharmaceuticals (NASDAQ:LGND) in return for a low-single-digit percentage of future sales that are right around the corner.

Sage Therapeutics priced a round of Zulresso treatment at $34,000, which means the drug only needs to reach around one-third of its available U.S. population to reach annual sales above $1 billion.

Prescription pills and money.

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Improving on nature

Sage Therapeutics also has a new drug candidate, called SAGE-217, near the finish line. This is an easy-to-swallow capsule that could become a new standard for severe postpartum depression, plus an estimated 16 million U.S. adults who experience at least one major depressive episode per year.

Zulresso will probably have to compete with SAGE-217 in early 2020. The novel synthetic neurosteroid breezed through a pivotal postpartum study recently, and another pivotal trial with major depressive disorder (MDD) patients will probably wrap up in the fourth quarter. 

The odds of success for SAGE-217's pivotal MDD study look pretty good. During a 102-patient phase 2 study, MDD patients treated with SAGE-217 reported significant improvement compared to the placebo group. A repeat performance in the ongoing phase 3 trial would probably lead to an approval. If approved, millions of patients suffering from drug-resistant depression could drive annual sales past $1 billion in a few short years.

Check out the latest earnings call transcript for Sage Therapeutics.

Reasons to remain wary

Zulresso will probably remain a niche product with an extremely limited audience. On top of its whopping $34,000 list price, the postpartum depression treatment requires new mothers to remain monitored in a medical facility while receiving an intravenous infusion of Zulresso for 60 straight hours.

Once you factor in hospital bills, which aren't included in Zulresso's list price, it becomes clear that marketing this drug will be an uphill battle.

As a capsule, marketing SAGE-217 will probably be much easier, if Sage gets the chance. Before you get your hopes up too high for blockbuster sales from the candidate, it's important to realize this probably won't be used as a long-term antidepressant like Zoloft or Celexa.

In phase 2, SAGE-217 provided a measurable benefit overnight and through day 15. Unfortunately, the difference between patients receiving the drug and the placebo group wasn't strong enough to be considered statistically significant at the six-week checkup.

Marinus Pharmaceuticals (NASDAQ:MRNS) is developing a drug for postpartum depression that targets the same receptors as SAGE-217 called ganaxolone as an infusion and a capsule. In a single-arm phase 2 trial with moderately affected postpartum depression patients, ganaxolone capsules led to impressive improvements, but without a placebo group, it's hard to gauge its chances of competing with SAGE-217 down the line.

Surgeon pulling a dollar bill out of a patient with forceps.

Image source: Getty Images.

Not at this price

Enthusiasm for the new antidepressants has driven Sage Therapeutics' market cap up to $7.8 billion, even though the company lost a staggering $393 million in 2018. There is a huge unmet need for fast-acting antidepressant drugs, but Zulresso's risk mitigation strategy is a gigantic obstacle for a brand new sales team to overcome once the drug launches, probably in June. 

Annual sales of Zulresso will probably top out below $200 million, but SAGE-217 has blockbuster potential as a treatment for the larger MDD population. Unfortunately, the clinical-stage candidate won't get a chance to help this biotech start making ends before the end of 2020 at the earliest.

Clinical-stage biotech stocks have a tendency to slide in the months following their first FDA approvals, especially when early sales figures remind investors how difficult a new drug launch can be. Right now, this stock would make an excellent addition to your watch list, but not your portfolio.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.