Sage Therapeutics Faces Fiduciary Breach Claims Amid Failed Drug Trials: What Investors Need to Know

In late March 2025, Sage Therapeutics (NASDAQ: SAGE) became the latest target of a high-stakes securities investigation led by Kahn Swick & Foti, LLC (KSF), a prominent plaintiffs’ firm with a track record of securing significant recoveries. The probe, announced on March 28, centers on whether Sage’s executives and directors breached fiduciary duties or violated securities laws by allegedly withholding material risks related to two failed drug trials. This development adds to an already turbulent year for the biopharma company, which has grappled with high-profile clinical setbacks and investor skepticism.

The Failed Trials That Sparked the Investigation

The investigation stems from two critical failures in Sage’s pipeline:
1. SAGE-718 (dalzanemdor): In April 2024, Sage disclosed that its Phase 2 trial for SAGE-718 in Parkinson’s disease (PD)-related cognitive impairment missed its primary endpoint. The drug failed to show statistically significant improvements in cognitive function compared to a placebo. Sage immediately halted further PD development for the compound.
2. SAGE-324: By July 2024, Sage reported that its Phase 2 trial for SAGE-324 in essential tremor (ET) also flopped. Patients treated with the drug saw no meaningful reduction in tremors or improvements in daily living activities, prompting Sage and partner Biogen to abandon the program entirely.

These setbacks sent Sage’s stock into a free fall, with shares plummeting nearly 40% in the days following the July 2024 announcement alone. The shows a sharp decline aligning with the trial disclosures, underscoring the market’s reaction to the risks Sage allegedly failed to disclose earlier.

Allegations of Misleading Disclosures

KSF’s investigation, now part of an ongoing securities class action lawsuit, claims Sage executives misled investors by omitting material risks related to SAGE-718 and SAGE-324 during the Class Period (likely between 2023 and early 2024). The lawsuit argues that Sage’s optimistic statements about the drugs’ prospects—such as emphasizing their “potential” and “promising” data—were contradicted by internal concerns about their efficacy.

The firm’s press release highlights that Sage’s leadership may have violated federal securities laws by not disclosing:
- Early signs of underperformance in the trials,
- Competitor advancements that could undermine SAGE-718’s viability, and
- Internal doubts about the drugs’ commercial prospects.

A Legal Landscape with High Stakes

This case follows a broader trend of scrutiny against biopharma firms for their transparency in clinical trial disclosures. KSF, led by former Louisiana Attorney General Charles C. Foti, Jr., has positioned itself as a key player in such cases, having secured a $189 million settlement in the 2024 TuSimple litigation. The firm’s March 2025 announcement explicitly invites long-term Sage investors—who may have held shares during the alleged misstatements—to discuss potential claims.

Notably, Sage is already defending against a separate class action filed in October 2024 by Bronstein, Gewirtz & Grossman, LLC, which accused the company of overstating zuranolone’s efficacy for depression and other drugs’ prospects. The KSF investigation adds another layer of legal pressure, suggesting Sage’s leadership may face accountability for multiple missteps.

Strategic Moves Amid the Fallout

While Sage’s legal woes dominate headlines, the company has attempted to pivot. In January 2025, Sage rejected an unsolicited acquisition offer from Biogen, its former SAGE-324 partner, and announced a strategic review of its options. However, these moves have done little to quell investor concerns. The company’s pipeline now hinges on zuranolone, its FDA-approved depression drug, and SAGE-718’s remaining trials in Huntington’s disease—a program that also faces significant regulatory hurdles.

What’s at Stake for Investors?

The outcome of these lawsuits could have profound implications for Sage’s future. If the courts rule in favor of investors, Sage could face substantial financial penalties, further straining its resources. Meanwhile, the company’s reliance on zuranolone—a drug with modest sales growth—leaves it vulnerable to competition and pricing pressures.

The reveal a pattern of escalating losses, with 2024 marking a net loss of over $500 million. Such financial struggles, combined with pipeline failures, suggest Sage may need to pursue partnerships or asset sales to survive.

Conclusion: A Fragile Outlook

Sage Therapeutics’ future hinges on navigating its legal battles while rebuilding investor trust. The KSF investigation underscores the risks of overpromising on unproven drugs—a practice that has drawn increasing regulatory and legal scrutiny in the biotech sector. With shares trading at a fraction of their 2023 highs and a pipeline lacking clear catalysts, Sage faces an uphill climb.

Investors should remain cautious. While the company’s zuranolone offers a revenue base, its long-term value depends on resolving legal risks and demonstrating clinical success in remaining programs. Until then, Sage’s story remains one of caution rather than opportunity.