Yet Another Value Podcast - Yet Another Value's special situation: Sage Therapeutics $SAGE

Episode Date: February 20, 2025

In today's episode of the Yet Another Value Podcast, Host, Andrew Walker, shares his thesis and presentation on Sage Therapeutics, Inc. (NASDAQ: SAGE), a biopharmaceutical company committed to pioneering solutions to deliver life-changing brain health medicines, so every person can thrive.For more information and to subscribe to the Yet Another Value Substack, please visit: https://www.yetanothervalueblog.com/Disclosure: long SAGEChapters:[0:00] Episode sponsor: Alphasense[3:21] Introduction - passive vs. active investing[7:32] Overview of $SAGE and why its interesting to Andrew: passive owners in the company, shareholder engagement[13:40] Biogen offer (rejected by Sage) - what happened[17:34] Expert call with OBGYN (thank you, Alphasense!)[21:38] Board needs to weigh opportunity cost of cash burn and options[25:49] Shareholder engagement and IRWD cautionary tale / SAGE board and management compensation[30:54] Biogen / Sage merger - why it makes sense and final thoughtsToday's sponsor: AlphasenseIf you’re unfamiliar with AlphaSense, it’s a market intelligence platform with the world’s premier library of proprietary expert insight. For years now, I’ve used Tegus for their expert call transcript library, and with AlphaSense’s acquisition, the depth and breadth of market research content available has expanded significantly.Why I chose AlphaSense? Unparalleled expert insights—access 150,000+ proprietary expert transcripts, growing by 6,000 per month, covering 24,000+ public and private companies. Comprehensive market intelligence—search 450M+ documents, including company filings, analyst research, expert interviews, and more, all connected for deeper analysis.AI-powered research at scale—complete qualitative research 5-10x faster with advanced generative AI, delivering instant, high-confidence insights. Start your free trial now at: https://www.alpha-sense.com/yavp/

This podcast is sponsored by Alpha Sense. Let me tell you a story. A few years ago, I was looking at a company that offered discounted coupons. And I couldn't figure out they had a really good product, and I couldn't figure out why it wasn't taken off. And then I was doing an expert call, and I was talking to someone, and I said, I can't figure out why this company's products isn't taken off. And he said, are you aware of the loophole issues? And theoretically, you could use this company's coupon plus, like, three other coupons. And if you really search and put them all in the right order at the right time, you can get products for, like,

nine percent off, right? But doing it would be a really time consuming and kind of limited. Like who wants to get ketchup for 10 cents? Cool. You get one, it took you two hours. What was the point? And I told him that and he said, you don't get it. This has happened before. A few years ago, it happened with the jar of mayonnaise. And you could get a jar of mayonnaise. I don't remember it was for a penny or for a dime, but it happened. And people were driving in from out of state. People were filling up their garages with mayonnaise. And the company took a huge bath because guess what? but people will buy 500 jars of mayonnaise if it's available for basically free. And is that a weird insight? Yes, but it explained why advertisers were so hesitant to use

this company's product, and it's the type of insight that you can't get without expert interviews. No management team is going to tell you about that mayonnaise problem. You're never really going to be able to find it for yourself. You need people who've been in the trenches, experts, to tell you about that. And again, yes, it's a funny story, but it's the type of insights and power that you can only get from expert networks. AlphaSense is my favorite expert network. Now that they've bought Tegis over 150,000 transcripts with 6,000 more going up every time,

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All right, hello, and welcome to yet another value podcast. I'm your host, Andrew Walker. If you like this podcast, would mean a lot if you could rate, subscribe, review, wherever you're watching or listening to it. With me today, I am happy to have on myself. Look, I had so much fun. It was a lot of work, but I had so much fun and got such a great response for my idea of the year for this year. That was Full House Resorts, ticker FLL. I am long.

You can go listen to the podcast from early January if you're interested. I decided, you know, one of the things I wanted to do with the very, very, very, small platform I have is shine a light on some situations where I think that active shareholder engagement input, that type of stuff to the company, to the management, to the board could lead to a better outcome for everyone. So keep that in mind. I thought about that. There are, well, I'll talk about that in a second. Let's turn to that. So look, for those of you who are, most people listen to this on audio, the listenership on audio is seven to ten times high. than the ones on YouTube.

And that's completely fine. But because this is just me, I do have some slides I'm going to walk through. If you would like to see those slides and you're watching on Spotify, I'd suggest switch over to YouTube, but I am going to try to talk through all these slides and everything. So you should have 98% of the experience if you're listening instead of watching. But that in mind, you might want to switch to YouTube if you want to. So I'm going to share my screen here and we're going to dive into the idea. The idea here is Sage Therapeutics.

The ticker is S-A-G-E. Full disclosure, I am very long. The stock, so you should keep that in mind. I wrote it up recently on the premium side. I'll include a link to that if you want to, like, dive into all the thoughts I had on the premium side, but I'm going to do a very fulsome overview here. Let's see. Let's start with the disclaimer.

Same way I start every podcast. Nothing on this podcast is investing advice. Please consult financial advisor. Again, I am Longget. I have huge imposter syndrome all the time. I don't really know if anyone should listen to me. We'll talk about, well, I'll get there in a second, but I don't know if anyone should listen to me. Consult a financial advisor, do your own work, consult a tax advisor,

consult any type of advice you want to you. Just don't listen to me. And remember that I'm lying. Look, every slide in this deck, for those of you who listen to the full house pod, you're going to know this rule I have. Every slide in this deck is from publicly available resources with one very obvious exception that we'll get to it. So if you see the formatting switching back and forth between slides and all that sort of stuff, it's not me.

I just screenshot public sources, mainly SEC. fileings and company presentations. So these are just screenshots, man. I'm just screenshot and thing. So that out the way, I'm going to start, before we dive into stage therapeutics, I'm going to start with a tangent. And it is not lost on anyone who follows the financial markets that passive investing is overtaken, active investing. If you're watching on the YouTube, I've got a chart from 2021, so this is kind of old. It's gone even further than there. But in 2021, assets under management and passive strategies, outnumbered assets under management and active strategies for the first time, and it's only grown since then.

And that raises lots of questions for investors. You know, there's a popular question if passive investing goes to 100% of investing, like who's setting prices at the margin, who's doing the price discovery, all that sort of stuff. And those are very interesting questions. But what I want you to keep in mind is, from a corporate governance perspective, passive managers don't have the same incentives as active managers. Passive managers, you know, they generally own the index. they own the market. And so they take a very formula, check the box approach to stock ownership

in general. Not all the time, but in general, that's how they approach corporate governance. It's check the box. Hey, are you following best practices on corporate governance? You have the right number of independent directors, lack of related party transactions, all this sort of stuff. If you check the boxes, you can get away with an awful lot. And I know of plenty of companies where from a passive standpoint, they check all of the boxes, and there is absolutely no doubt they are incinerating shareholder value, but they can get away with it because their passive shareholder base votes for it because they check all of those boxes. And often it takes an active manager coming in and pointing it out and raising a huge storm

to kind of get them to change their ways. But I would just say, if you are an active investor, look at your portfolio, look at the companies your portfolio, and really think, how many of the companies are being run in a way that, you know, every capital allocation decision, every PR decision, everything they do is completely aligned with what they would do if they were 100, 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, right? And now there are small things, right? Like, a CEO who spends any time on investor relations, if he owned 100% of the company,

he wouldn't have to spend any time. So that, by its definition, is so optimal. But there are lots of other things, you know, I think of companies that are married to a dividend strategy or married to debt strategies that, you know, maybe their index funds love, but that aren't optimal. They're married to, I mean, you know, I know there are index funds that actually reward lower insider share ownership versus higher share ownership. I can tell you I have never thought of a con with very few exceptions. I would always prefer insiders to be aligned with me. Insiders to make money when the stock goes up versus, you know, they can, if the stock goes down and they owe nothing, but they have huge pay packages, they still do all right. So I just

want to keep that in mind. And now, why do I say that? Sage, the company we're talking about, has a largely passive ownership base. What I have here is a screenshot of their top six holders. The number one holder is Biogen, who we will be very much talking about in a second. They have a 13D. They own 10%. But behind them is basically five passive. owners, I would consider. BlackRock, Vanguard, Morgan Stanley, and FMR all own between 7 to 8% of the company, and they have all filed 13Gs. Those are passive holders. The fifth largest shareholder who is about 7% is Bellev. They filed a 13F. They seem active manager-ish. I know absolutely nothing about them. But they are also huge. Their sage stake is an extremely small

stake for them. So I would probably consider them passive-ish, but look, I don't know them. I'm not saying that you can, it is absolutely no shade. Maybe they are very active. But I'm saying this because Sage is a company that has a largely passive ownership base, and that's going to come into play as we continue to go through this. And I have this theory of shareholder engagement, and I call it my penny theory. And for those of you who are watching on the YouTube, this is the one picture that is not publicly available. This is a picture of my dog Penny. She is the world's goodest girl.

If you are wondering if I went on this rant just so I could get a picture of my dog Penny into this show, maybe. Maybe, maybe not. Who knows? But, you know, I have a theory of shareholder engagement, and I call it the leave it theory. And if you have a dog, you know, there are two types of leave it. You're walking on the street and you're walking with a very good girl, Penny. And Penny, let's say there's a chicken wing at the corner. Chicken wings are a disaster for dogs. If they eat chicken wings, the bones in them are hollow, they will tear their insides on. A good girl like Penny, if she sees a chicken wing, now she's, of course, interested, and she's kind of going to be s iodine it. If you tell her leave it, Penny will never go to that chicken. Penny will never consider picking up that chicken bone, right? However, if you are not paying any attention, and let's say the chicken bone's at the corner, the light's red, you walk right up to the chicken bone, you stop, you wait for the light for 20 seconds. After 10 seconds, Penny's going to be staring at that chicken bone, and she's probably going to pick it up, right? The temptation is just too great. Second type of leave it, you're walking a girl who's not quite as good as Penny.

They see a chicken wing, and they're going to start lunging at it. Maybe they lunge at it and they get it in their mouth. Now you're leave it is leave it, leave it, leave it, and you know, you might have to go and you're on the street, you're grabbing the dog by the mouth, you're opening it up, and you're grabbing in there and going to get a chicken wing. Those are the two types of leave it. And I think those are actually two really good types of two really good analogs for shareholder engagement. There's the first type of engagement that can happen when shareholders, and this is what I hope and expect will happen at Sage as we walk through this story. I think shareholders can, you know, comment and talk to the board and tell them, hey, guys, You need to maximize shareholder value, and there is a clear path to maximizing shareholder value, and you need to go that route.

We think you're going to go that route. We hope you're going to go that route. That is their route to go, and we can encourage them to go that route instead of grabbing the proverbial chicken wings. That's one route. And then there's, you know, I think I might do, there are three companies in my portfolio that I think have some type of shareholder engagement. I think hope and expect sage is more along the penny line of let's just remind them that they need to leave that chicken wing. And then there are some where, you know, it might be the firm, leave it, leave it, leave it. And those are the companies where, you know, maybe somebody needs to file an active 13D and, you know, come in and fire everyone and change everything around because the company has put the chicken wings in their mouth and they are about to ingest them and they're going to tear their insides up.

And they're not going to be happy. We're not going to be happy. No one's going to be happy. They might be happy because they don't need stock and they're going to get paid. But I just wanted to throw that model up because, A, I wanted to get a photo in my good girl, Penny in. And B, because I do think it's a good analogy for the. the route I hope and expect we can take with Sage versus the other route, which it could come to if shareholders aren't actively aligned, if shareholders aren't letting the board go.

So I'm going to pause there and just sum it all by saying this. I have a position in Sage. I've disclosed that. I am long. I am letting the company know the route I'm going to take them. I hope expect if you have, I'm not looking to form a group with you. I'm just laying out the facts. But I do believe in good shareholder engagement and shareholder alignment.

And if you have a position, I think you should reach out to the board. and let them know what you think makes the most sense. And look, you can disagree with me. You can think the routes that I think are crazy, the routes that I think are chicken wings. Reasonable people can disagree. I think it'd be crazy to disagree with me on this. But if you believe that the chicken wing route is the route that the company should go,

fine, go with God, let the company know that. But if you believe, as I think I will make a compelling case through this video, that they should leave the chicken wing on the table and ultimately sell themselves, you should let the company know. You are a shareholder. It is your money. It is your hard-owned money. you will make a return if they go the correct route,

and I think there's pretty compelling evidence you will not make a return if they don't go to the patent. So all I'm saying is reach out to the company, let the RIR team know, send the IR 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, and the board needs to prove otherwise if they want to go the other route. Send them that note because I think shareholder engagement makes a big difference

because the board here, they have hired a investment bank, and we'll talk about all this in a second, they have hired an investment bank. They're going to ask, what should we do? And if the investment bank sees a thousand emails from shareholders saying, go the rational route, here's the rational about the boards and say, guys, you don't have a choice. Anything else you do, your shareholders are going to erupt and you can go one of two ways. You can try to eat the chicken wings and then your shareholders are going to fire all of you and you're going to be unemployable, US management team as a board. You're going to have this scarlet letter on your resume that says, hey, they got voted

out by their shareholders because they tried to destroy the server about her. Or you can leave the chicken wing, you can go the route that makes sense, and you're going to have this good mark. And in the future, boards are going to look at you and say, oh, yeah, these guys left some shareholders very happy. If I see any of these shareholders, if I see any of these board members and say, hey, hey, those guys did right by me, they can be on future boards. They have better career prospects. So I just want to leave that in mind, the good girl route. That's what I want them to do. I want shareholders to engage and tell them. Let's talk about what the good girl route is and what's happening in its age and why I'm so interested now that I've got my photo of penny and my crazy

analogy out the way. 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 day before price. They were trading in the low to mid-5 dollars per share, so it's a nice premium. Now, Sage quickly rejected that offer as undervalued and immediately engaged in strategic alternatives. If you're looking on the YouTube, I've got a copy of the press release said unanimously reject the unsolicited non-biting bid. undervalues the company, we're engaging in strategic alternatives. And that's important. I think the fact that they are engaged in strategic alternatives lets us, I am hoping that it lets us know that they are going, the penny go to go to go to. Now, why does Sage reject the bid as

undervalue? And I think they rightfully reject the bid as undervalued. Well, Sage, let's talk about valuation. Sage owns three main assets. The first asset they own, which I think we can quickly set aside, is most of their unapproved pipeline. There's four drugs in there. One is Sage 3-2-4. This is a drug that they were partnered with on biogen. Bad results come out in 2024. Biogen is walking away from that partnership. Very unlikely there is value there.

They have three other drugs. Two are pre-clinical. One is phase one. I don't ascribe much or any value there. I don't think there's anyone who really ascribes much value there. Now, of course, if a phase one drug goes all the way through and there's a big market, yes, I could be wrong, but I will tell you, phase one drugs, I think from phase one all the way through approval. I think it's under 33% they get approved. Who knows what the

market? Who knows what anything looks like? It would take a lot of money to get these to approval. I don't see a lot of value there. The markets never signed value there as I'll show. I think the company would be better off ignoring those. So that's one set of assets. Other sets of assets. Sage's cash on their balance sheet. When Biogen makes the bid, what I've got here is a quote from a lawsuit that Sage files against Biogen, but you can also go do the math yourself on Sage's balance sheet. Biogen's offer values Sage is at about 470 million. At the time, Sage has about $570 million in cash. That's their September 30th balance sheet. They burn about 70 million in Q4, so they're down to just over $500 million. But, you know, I've got the math at, and we'll talk about

$8 per share in cash on Sage's balance sheet, and Biogen's offer is at 722. So, let's Look, Biogen's offering to buy Sage for below the cash value. That right there. Hey, Red Flag, too cheap, right? And then Sage has one other asset. That is Zerzouvet. This is a approved drug. It was approved in late 2023.

It launches in 2024. They were hoping to get a much wider label, but it is approved for postpartum depression, PPD. And I think this is going to be a blockbuster drug. And you don't have to take my word for it. What I have here on the screen for those if you are watching is Again, Sage and Biogen are 50-50 partners on this drug. They share 50% of the cost, 50% of 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. So this is before they make the bid when they're talking more about it. And I'm just going to pull some stuff out of here for people who are talking about you who are listening on Spotify or a podcast. Zoube has been a pleasant surprise. The drug has taken off quite well. Very little resourcing to the drug. We didn't plan on getting PPD, so we didn't have a lot of resourcing through it. But we've been very thoughtful.

We got some stuff wrong. But now we're starting to basically say we're starting to get momentum. They thought psychiatrists were going to be the big riders. It turns out OBGYNs are going to be the big writers. But it's starting to grow. It's starting to get momentum. They've made some tweaks to their go-to-market mode. They're expanding the sales force for January 1.

You're going to see increased reach, increased frequency. So look, they are saying the drug is going well. And as I'll talk about, I think this drug in particular, you know, we'll get there. But let's talk about expert calls. This, no surprise anyone who listens to this podcast, Alpha Sense is a sponsor, this is a partnership. Here's a free plug, but I think it's an important one because I think it shows kind of how expert calls can help. And I think it's really going to give you guys an indication of what I'm seen in this drug. So Alpha Sense has a interview with an OBGYN from January.

And I've got some clips on here. And the reason I've got it is because I think it shows Zer Zuvay why this is going to be such a popular drug. Remember, Zerzouvae is for postpartum depression, and this is an OPAGYN. And here's some quotes I'm saying, having people come in with postpartum depression in its own struggle. All the treatment offals are awful. It's difficult to convince my patient to take any of the free Zerzubei treatment options. Postpartum depression is highly, highly underdiagnosed and substantially undertreated.

One in five women suffer from postpartum, only 10% of patients treated. So what are you hearing? You're hearing, before Zerzubei, there's huge postpartum depression market. it's completely underdiagnosed, and the treatment options are awful. When I hear that, A, that is extremely sad for me, I've got a 15-month-old daughter, that it's extremely sad to hear the state of postpartum depression, but B, I'm saying, oh my gosh, you have Zerouvet, just approved, first line, way superior product, underdiagnosed. The growth potential here is huge, and as we'll talk about in seconds,

Razube does about $100 million in sales in its first year. And if you kind of map that up against other drugs, you would say, hey, probably just peak sales in the $300 to $500 million range. I would contend that mapping against other drugs is not right because you have a underdiagnosed, underdeveloped market. I think that means the growth ramp is higher and longer than other drugs. I would not be surprised as you're a Zubei, I said $3 to $500 million earlier, $700, $800 million. I would not be surprised because I think as OBGYNs get more experience with it. OBGYNs are not used to writing scripts for psychological issues. I think because they get more experience with it, get more comfortable with it,

all this sort of stuff, get more experience, I just think the penetration is going to be huge. I think this is maybe I'm talking my book here, but I think this is going to be a really big product that has substantial unmet need. And that brings me to the next point. Here's some more quotes from that expert calls. By the end of their 14-day treatment, they're feeling incredible.

When I talk to people who've had multiple pregnancies, they've had previous pregnancies versus using Zerubia now. They're just like, this is genuinely life-changing. They don't have to leave their kids for treatment.

Previous treatment, you have to go to an inpatient day program. They can continue their lives as normal. Almost every patient that I've prescribed for it since the fall of 2021 has got it fully covered under insurance. They later talk about why insurance is covering it.

It's because they see a huge, she thinks, just the OBGYNs, but she thinks they're seeing, hey, get this cover now versus having to treat for PPD later, just huge risk reward on that. Here's my favorite quote. This is one of the few drugs that I've seen that has made miraculous difference in people's lives, and I wish more people knew about it and more people had access to it. When I'm labeling, when I'm giving you all these quotes, look, biogen before they make the Sage bid, and Sage always are saying, hey, this drug has blockbuster potential. That's one thing. But here's an OBGYN in the field saying,

hey, the state of treatment was absolutely terrible. This drug is incredible. It is a game changer. It is a game changer for treating. Everyone's taking. When I hear all those, I say, oh, my God, this market is incredible. And again, all my friends are starting to have kids if they haven't had them already. We just had a kid.

I can see how it's underdiagnosed. I can see how now that you have a product that once a day pill you take, you don't have to have the, I can see how you start, how these things get treated, diagnosed way more. And I can just see the ramp up here. So I really think this has blockbuster potential. I think this is great for humanity. I think this is great for society, all this sort of stuff. Just using that to a show kind of the power of expert calls.

You know, there's the famous thing on podcast, no free ad. It's Alpha Sense. They'll sponsor the podcast, but this is basically a free ad. But I thought this would really help people see kind of, it's not just the company. It's not just me saying it. It's people in the field who are saying it. So I think Zerzubei has blockbuster potential. So we've now gone through the three assets.

There's Zerzube, which has blockbuster potential. There's the cash on the balance sheet. and then there's a pipeline which I give zero. Now, I think the board needs to weigh their options very carefully here. What I have here is a quote from their Q424 earnings release. The company has $500 million in cash on their balance sheet, and that cash is expected to support the company's operations until mid-20207. Again, that cash, $61.5 million shares outstanding,

about $8 per share in cash. Bygones offered $7.22. The company is planning on burning a lot of cash. through mid-20027. And I think the board really needs to weigh the opportunity cash of that much cash burn. And when they do it, I think it's going to be extremely clear that the answer is this company cannot be a standalone company. First of all, you don't have to take for me. I understand there are issues with using a stock price, but the company really needs to take a long, hard look in the mirror at the stock price. For the past six months, and I've got a chart

of Biogen, of Sage's stock over the past six months, Sage has traded well. well below their net cash position, right? So every time the company comes out and says, hey, we've got this great plan, we're going to burn all this cash on these phase one drugs, every person should be saying, hey, you have two major assets. You have the cash in your balance sheet, and then you have Zerzubei. And the market's been trading you for below the cash on the balance sheet. The amount of value destruction that the market is pricing into your stock is absolutely

astronomical. You are not creating value with this cash. Now, I understand the company who say, oh, market short-term purpose. It is incumbent on the company when you have that much cash burn and the market is discounting that heavily. It is incumbent on the company to prove that they are creating value with their cash burn. And I am not seeing it, to be honest with you. And more importantly, there is a standalone path for Sage that would not involve much cash burn.

I've got a clip from Sage's 10K. Sage has an opt-out right. So right now, Sage and Biogen own 50-50 of Zerzuvay. That means they share the expenses, they share the revenue, all that type of stuff, right? Sage has an opt-out clause where they can say, hey, Biogen, you have 100% of the rights, and we just get a royalty, mid-teens to low 20% of sales. If Biogen took that opt-out rate, if Sage took that opt-out rate, Sage could instantly become a one-asset company, right?

You could imagine a world where they take that opt-dow rate, everyone is fired, and they have an accountant who audits the royalties that Biogen makes and then shoots the royalty checks to their shareholders. That company would need zero overhead, zero overhead, zero cash on the balance sheet. They could distribute the $8 per share in cash to all their shareholders, and then they could just send the royalty checks onto their shareholders, and eventually someone would probably buy just the royalty check for, you know, there are plenty of finance companies out there that buy royalty checks. It is incumbent on, say, if you did that, you could pay the $8 your sharing cash dividend out to shareholders basically instantly,

Maybe a little bit less because you probably do need to pay some severance payments to everything. That's fine. Biogen would take the drug. And then, you know, 70 million, it's run rating at 100 million in sales already in Q4 of 24. It's growing very quickly. You know, I mentioned 300 million in sales, I think would be a very low end for what this product could do a few years for now. Yes, it's going to patent clip at some point. But let's say they hit 300 million in three to four years.

They get about 20% of the sales. 60 million. Again, 61 million shares that's in. You're talking about a dollar per share in royalties for five to six. seven years. You don't need any overhead or anything. You just dividend it out. So we get the $8 for sharing cash and we get ongoing roll your fees for seven, 10, maybe 12 years. I don't think it's going that long. But it is incumbent on the board. There's an option right there that doesn't involve this cash burn that results in a stock price that is much higher than the pre-biogen bid.

Incumbent on this board, if they want to go a different route to prove that they can create more value in that, I don't see it. I don't see it. They haven't given the information in the market was certainly skeptical given the market was trading them at $5 per share, which is below their cash balance and suggesting everything else they're doing is creating tons of value. I will note shareholders and the board, you know, I said at the beginning, if you're a shareholder, I think you should write to the board here and encourage them to do what you think is correct. If you think that investing, look, oh, I should note, I think having the 50-50 with biogen because there's a Zubei, I think is going to be very big.

I think that is better MPV than having that royalty stream. However, there's a lot of other overhead at SAGE and stuff. That's what I'm really pointing to when I'm talking about reducing the cash burn. And if you can't reduce that cash burn without going to the royalty model, well, then I think the royalty model should be in play. But, you know, I think there's a lot of other things between here and there. I mentioned that if you're a shareholder and you want this board to, you know, go with a standalone plan, invest in the phase one drugs, do M&A, whatever.

You should let them know. But there's a very cautionary tale, and it's very relevant here. The company is Ironwood. The ticker is IRWD. And Ironwood had very similar to what Sage has. They had a 50-50 partnership with, I believe it was AbbVee for a drug called Linzis. And this was producing enormous profitability for them. You know, Linzis was doing, I think last I checked, 900 million per year in sales.

Ironwood was getting 50% of it. They were getting their EBITO margins are in the 60% range. It's a one-company JV partnership. It's a one JV partnership drug company. It should not have been public. It should not have been standalone. However, Ironwood decided, hey, we've got this, we've got this partnership. Let's go out and buy and we'll buy so we can use that partnership to sell more drugs.

And they went out and they bought Vective Bio. The day they buy Vective Bio in 2003, the day they announced it, the stock is down 15%. about a year later, the Vectivio's key asset apraglutide announces disappointing phase three results. The stock's down 40%. And, you know, you can look at the chart I'm showing you the stock's now down over the past four or five years. It's down 85%. It's in true distress. So Ironwood, I mean, it matches up with Sage to a T. And I think it presents a very, very interesting cautionary tale that the board and any shareholders who want this board to explore a standalone path needs to be able to rebut. And I think it's very difficult to rebut it.

On a risk-adjusted basis, when I say, hey, your stock was at $5 per share in cash, you've got $8 per share in cash and balance sheet, clear value in Zerzubei. On a risk-adjusted basis, when I say, hey, Ironwood looks exactly like what you guys did and the stock was down 85%. I think it's very hard to say there's a risk-adjusted argument for doing anything but either going the fire everyone, go the royalty and dividend model, or more likely sell to biogen. You know, speaking of Ironwood, speaking about Ironwood, another interesting thing here is their insider ownership looks a lot like Sages. I've got a clip from one of the proxies. You know, they've got one big shareholder who owns about 10% of the stock who is on the board,

but every other insider, director, executive owns extremely little stock. It's all owned through options, and those options become increasingly underwater as the stock underperforms. That really mirrors age. Biogen obviously owns 10%. There's some passive funds that own 5 to 8% of it. Executives and insiders own almost nothing here. The CEO owns about 1% of the stock if you look at the proxy, but almost all of that's through options that are well, well underwater now.

And I would note Sage's board and management team are very well paid. The directors are paid $400,000 per year. They might argue, hey, $350,000, that is stock, and that stocks all underwater, and $60,000 is comp. And then the CEO, you know, $6 million per year in 2020, $6 million in 2022, CFO, $2,000, $2,23, $22, $21. These are very well-paid company. This is a company trading below cash. When you have very well-paid people and a company with a lot of cash trading below cash and they don't own a lot of stock, I think there is going to be a temptation to go and follow

the ironwood model and go and buy something. And I would argue that is going the bad go route from the penny discussion earlier. It's incumbent on shareholders now say do not go that route. That is not a risk-adjusted route that creates shareholder value. I understand you're very smart people and I understand you guys have an interesting take on science. you need to go do it on your own time with your own money. You can't do it with shareholders' money because you're basically only in it away. The path to risk-adjusting results here is one of two.

Negotiate with Biogen or a strategic or financial buyer for the highest bid. And if none of them will meet the NPV of going the royalty route, dividending the cash out of shareholders and shutting everything down, you go that route, but I think the right answer is to do it. Anything else? Is there a chance 10 years from now if they buy a drug? The drug's a blockbuster. You're in the stocks up 50x?

Yes. But I'm going to tell you that chance is very small. on a risk-adjusted basis, everything I said, shareholders would be much better going to the other route. I'll leave you with a quote here. This is from the Biogen Sage lawsuit. Sage sues Biogen for breach of a contract when Biogen makes the offer in public. And this is a quote from an article that Biogen's, an interview that Biogen's CEO gives right

on the heels of the offer. And he says, look, Biogen already owns half as a Zerubei, so buying the other half via Sage acquisition just makes sense. He also adds that a broader relationship between the two companies is no longer possible due to Sage's research setbacks and companies' financial difficulties. I understand it can be difficult to hear that, but he is correct. This is a company who has two assets, the cash on the balance sheet, which should belong to shareholders, it should be given back, and the JV partnership with Biogen. It does not make sense for a company that has one main operating asset, a JV partnership with a much larger company. It does not make sense for them to be a standalone company, for them to incur all of the overhead of being a standalone company.

the public company costs, the $400,000 per year for one, two, three, four, five, six, seven, eight, nine directors, the six million dollars per year for a CEO, the two million dollars. None of that makes sense. All of that needs to be rationalized. All that needs to be. Sage belongs in, Sage is one asset belongs inside of another company. The cash belongs to the shareholders, whether it's Biogen pays it for it by buying Sage and cashing them out or Biogen buys the JV and then everything's dividend out.

One of the two ways, but it doesn't make sense. It just makes sense for Biogen to buy Sage. And I'll leave you again with a picture of the world's best girl penny. My hope and expectation is that Sage, now that it's in play with 13D from Biogen, Sage will run, Sage is going the good world of Penny route. They're ignoring the temptation to spend that $500 million, investing into low probability phase one drugs, buying other companies. I think they need to know.

And I think shareholders need to encourage them, hey, if you try to do an equity deal, we will vote it down. If you do not do what is right, which is either go the royalty route, dividend, dot, shareholders, or more likely sell the highest bidder, this board is going to get turned over. We're going to hold your feet to the fire and going the good royal penny route. I think that's best for everyone. I think that makes everyone happiest, healthiest, richest, and that's my thought. So anyway, this has been a ramble.

I've been all over the place, as I do when I get passionate about ideas. But if I had to wrap this up, I would just say this. Biogen is offered to buy Sage. The first offer was obviously laughably too low. But that does not mean that there is not, it does not make sense. As byage just said, it just makes sense. Sage needs to explore the strategic alternatives to maximum of their abilities, sell to the highest bidder. And if the highest bidder is bidding below the cut costs to the bone, go the royalty route,

dividend everything out and just start sending out royalty checks, then they need to go that route. but I highly suspect that Givens Reservase Blockbuster potential, I highly suspect the best route is to just sell to the highest bidder. Sage needs to know that that's what their shareholders demand, expect. That's what will make them better. And I think the more clearly people communicate to them, the more likely everyone is to have a happy outcome that works for everyone. So reminding everyone that nothing here was financial advice,

I'm not looking for and agree with you. But I think shareholders should be engaged and reach up to the companies and let them know what they think makes the most sense. So I will wrap this up by saying, look, if you own Sage stock, if you're interested, I would just encourage you, reach out to IR and whether you agree with me or not, make your views heard because I think shareholders making their views heard gives us the best chance of going the good girl penny route versus any other. Look, I have done a lot more work on Sage. You know, you can probably see I start clipping into the expert calls I've seen. I've done all this sort of stuff. I'm happy to engage about Sage elsewhere to hit me up on Twitter.

hit me up in the DMs. I'll include a link to my full write-up in the show notes. But you know, this is an event stock at this point. And I thought it was important to get it out, let people know so that people can look at this with clear eyes. And hopefully with, hopefully I've opened some people's eyes and they can see it. And hopefully we get a good outcome here. Okay, that's it. I'm going to wrap up here. I've enjoyed this to the extent you've enjoyed it, let me know. Again, I've got two other companies in my portfolio, which I hope Sage goes the good girl penny route, but I've got two other companies that I think you're going the bad girl route and I'll have to think about it but there is a chance in the next couple months you're hearing me with a much more aggressive route or much more aggressive pitch on this but I appreciate you listening as always not financial advice I am long sage I'll say that one more time and looking forward to talking to you soon

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