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Beyond the sound bites: How can a positive readout be so complex?


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Three positive trial results in the biotechnology space have led to very different market reactions. Dr Jenna Denyes, Senior Healthcare Analyst, looks beyond the headlines to understand the reasons behind these diverse outcomes.

13 July 2021

In the past few weeks biotech has seen three hotly anticipated event readouts, and all three positive: the Food and Drug Administration (FDA) approved Aduhelm for use in Alzheimer's via the accelerated approval pathway and the Vertex and Sage Therapeutics clinical trials Phase II AATD and WATERFALL, respectively, met their clinical end-point. This appears to be all good news. However, investors did not always think so, and the stock price movements on each of the announcements highlighted this. With drug development, it is essential to look past the headlines and think of the process as a route from research through to clinical use. There are multiple stops along the way from research through development to a clinical launch, and how a company moves a drug along the path through these stops is important for investors. Sometimes, though, investors can get hung up on certain details which may not matter as much to regulators, or clinicians, and when investing in the space you need to be able to separate volatility and momentum from the fundamentals.

Sage – a long-awaited positive trial, followed by a sell-off 

Sage Therapeutics and partner Biogen announced the primary endpoint was met in the ongoing WATERFALL Phase III pivotal trial for Zuranolone in major depressive disorder (MDD).1 Zuranalone is unique in the field. It is not a pill you will have to take every day for the rest of your life; it is intended to be used for two weeks at a time, with many patients only needing one treatment phase. This represents a massive paradigm shift in MDD. Most drugs take weeks just to start to have an effect and this effect is not durable; it fades when you stop taking the drug. The positive news from the clinical trial should be a strong green light on the development programme and should have had a positive impact on the stock price. But this is not what happened.

If we were to look back to December 2019, Sage had hit a snag: the MOUNTAIN Phase III trial failed to meet its primary endpoint.2 Normally this means that the drug does not help patients as much as it would need to help them to be a clinical and commercial success; often if this happens a development of a drug would be halted, and sometimes companies would even move out of that disease area. In this instance, crucially, Sage also found that close to 10% of patients had zero detectable drugs in their system. Not low levels, zero levels. Based on the early clinical studies, which were all quite positive and uncomplicated, the implications of this were clear. The trial failed because close to one in 10 patients did not take their drug. At least this was the story presented by management, and WATERFALL was designed to confirm this, with both clinicians and the street eagerly, if not very patiently, awaiting the outcome.

The story, and management, were both vindicated in late June as it was announced that the WATERFALL trial was a success; the primary endpoint was met with statistical significance. Similar to previous trials, the onset of action was rapid and sustained with a highly tolerable side effect profile. The primary endpoint is the change from baseline in the 17 items Hamilton Rating for Depression Score (HAMD-17) after clinical trial subjects had taken Zuranalone for 14 days. Patients taking Zuranalone saw an improvement of 14.1 points; the placebo arm improved 12.3 for a difference of 1.7 points on the scale. The patients were assessed more frequently than just at the end of the 14 days, and they had statistically significant improvements in their depression by the third day of taking Zuranalone. Sage has announced it will meet with the FDA to discuss the next steps, and, if necessary, wait for the anticipated readouts later in the year. We do not believe it will need to wait, and, ultimately, we also believe the further readouts will be positive. The CORAL clinical trial is ongoing, testing the use of Zuranalone in combination with standard of care anti-depressants.

Some investors worry the path to regulatory approval is not yet clear 

Despite all the positive news, investors were disappointed and the stock price has felt their negative reaction. Investors like drugs that move smoothly down the development pathway, passing checkpoints and stops, clearing all hurdles, leaving no open questions unanswered. But what about Biogen and Aduhelm? Are there not any number of controversies, questions and lingering doubts regarding the clinical uptake? Have we not seen all major newspapers running catastrophe predictions and letters from the government demanding hearings, and yet the stock price is still up? Biogen has one major advantage here that Sage does not have. Biogen has regulatory approval. It has passed this major checkpoint; it has progressed significantly further down the development pathway and now the open questions only revolve around clinical uptake.

This is a simpler story than Sage, where it has not yet passed this checkpoint. According to management, it met with the FDA after the MOUNTAIN readout and agreed on a path forward. It would run three additional Phase III trials, and if any one of the three was positive, this would be sufficient for a new drug filing. WATERFALL was one of these three trials, and WATERFALL was positive, with consistent efficacy and tolerability. CORAL is ongoing and will read out before the end of the year. While it is possible Sage may wait for this readout, we do not believe it will be essential for an application submission, but rather, could be used as additional data to expand a label into front-line, combination therapy use. 

Investors wanted a two-point improvement – clinicians have different concerns

Some investors also feel the results, though statistically significant, did not show a clinically significant enough benefit to ensure clinical use post-approval. They had their hearts set on a two-point improvement over placebo, and for them, a 1.7 point improvement is a failure. We are not particularly concerned about this magic number two. It is worth noting that the current standard of care anti-depressants was approved with 1.3 to 1.5 point improvements. The clinical programme to date for Zuranalone has been strong, but the difference from placebo has generally been within the 1.5 to 1.8 range. Also, patients on Zuranalone felt significantly better after only three days of treatment and reported minimal side effects. We do not have to emphasise how this differs from the six to eight week wait for anti-depressants which come with weight gain, sexual dysfunction and sedation along with a chance for some improvement.

It is true that placebo patients in the clinical programme also saw marked improvements; this is what happens in clinical trials for depression. There is a known placebo effect in many diseases, especially those involving mood disorders, and it makes interpreting clinical benefits more challenging. Clinical trials are designed with this limitation in mind. Statistical significance against placebo is an essential criterion for approval, and once that box is ticked, the magnitude of difference becomes less vital for clinical decisions in the real world. You meet significance, you know the drug works, but then it moves into somewhat of a grey zone of just how much it can help each patient.

This grey zone is specific for depression, whereas in other diseases, like an enzyme deficiency, determining clinical utility can be more straightforward. This is highlighted by the recent readout from Vertex in its alpha-1 antitrypsin deficiency (AATD) programme. This is a case where a clinical trial can have a positive readout and still be deemed a failure, like in the recent case of VX-864 from Vertex in AATD.3 The Phase II trial met the primary endpoint; there was a statistically significant increase in levels of functional AAT protein from 2.2 to 2.3 micromolar from baseline with a safe and tolerable side effect profile. Unfortunately, in this disease, there is an established baseline for functional AAT protein that you need to meet to really address the disease, and while the drug arm showed a statistically significant improvement, it did not show a clinically significant improvement. Despite the positive clinical trial, Vertex has decided to shelve the drug in favour of more promising molecules in its pipeline. The pathway for this drug was clear, while it could have met with regulatory approval, it would not have been a commercial or clinical success and in our view, the company made the right decision to stop the programme.  

Ultimately, a drug needs to move through the development pathway and into the clinic. For it to be used by clinicians, it needs to bring value to patients. We see a clear path to regulatory approval for Zuranalone, and we are confident that it will be quickly taken up in the clinic. If you were a doctor and had a patient sitting in front of you, which would you choose? Something which could work in three days, that you could stop taking in 14, or something to take for up to eight weeks before you see an improvement? Maybe there is a grey zone regarding just how much better patients could feel, but let us be frank, the standard of care options are firmly in that grey zone too. This is a drug which should stand head and shoulders above its competitors, which offers a paradigm-altering treatment schedule, and for which we maintain our enthusiasm. 

Headlines, and sound bites, or fundamentals – where do you want your money placed? 

Biogen has seen a skyrocketing stock price amid historic levels of controversy and concerns regarding the possible impact of a drug approval. Vertex has a positive readout and decides to shelve a drug and continue with other candidates, with a modest price correction. Sage has a positive readout which should lead to a regulatory filing and the stock tanks. Three positive headlines with three very different outcomes, both from the stock price and, also, the developmental pathway perspective. Drug development and investing in biotech and healthcare is complex and the road to an approved drug is never 100% clear. It is essential to understand this if you are investing based on the company fundamentals and perceived value of a commercial launch, or you will find yourself caught up in the rush of the tide as sentiment swings stock prices over the short term. We maintain our strategy, and our conviction positions in the face of short-term volatility because we have a deep fundamental understanding of what goes into our models, and what goes into our conviction positions. Headlines in the news may sound flashy, but they certainly are not something on which we base our investment decisions. 


Important legal information
The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is no indicator of current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice. Reference to a security is not a recommendation to buy or sell that security. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented. The securities included are not necessarily held by any portfolio or represent any recommendations by the portfolio managers.

Dr Jenna Denyes

Healthcare Analyst

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