What happened

Shares of Sage Therapeutics (NASDAQ:SAGE) fell by more than half last month, according to data provided by S&P Global Market Intelligence. The nosedive occurred after the company announced that SAGE-217 failed a phase 3 study investigating the drug candidate's potential to treat major depressive disorder (MDD).

Investors had been keenly interested in the asset, which is taken orally and utilizes a novel mechanism of action compared to more commonly prescribed selective serotonin reuptake inhibitors (SSRIs). Analysts had expected the drug candidate to reach peak annual sales of $2 billion or more within a decade, but those hopes are now dashed.

The end-of-year dive meant that the pharma stock lost nearly 25% of its value in 2019.

A woman with a shocked expression looking at her phone.

Image source: Getty Images.

So what

Sage Therapeutics had an $8 billion valuation heading into the December data readout. Considering much of that was wrapped up in the success of SAGE-217, it's not too surprising that investors reacted so harshly to the failed clinical trial. In fact, the drug candidate barely outperformed placebo on the primary endpoint of achieving reductions on the Hamilton Rating Scale for Depression (HAM-D) total score at day 15.

The failure opened the door for Axsome Therapeutics (NASDAQ:AXSM) to take control of the next-generation depressive disorder market -- and the competitor took full advantage. Less than two weeks after SAGE-217 limped out of its phase 3 study, Axsome Therapeutics announced that a phase 3 clinical trial evaluating AXS-05 in MDD was successful.

Now what

Sage Therapeutics ended 2019 with a market cap of just $3.74 billion, compared to a market cap of $3.8 billion for Axsome Therapeutics. In other words, investors are clearly more optimistic about the future for the competitor than for Sage Therapeutics, which had garnered nearly all of the attention in the space for several years. Investors will have to await the next update from management to learn of the next steps for the pipeline.

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