SAGE THERAPEUTICS, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q, or Quarterly Report, and the audited financial statements and related notes contained in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , or Annual Report. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. We caution you that forward-looking statements are not guarantees of future performance, and that our actual results of operations, financial condition and liquidity, and the developments in our business and the industry in which we operate, may differ materially from the results discussed or projected in the forward-looking statements contained in this Quarterly Report. We discuss risks and other factors that we believe could cause or contribute to these potential differences elsewhere in this report, including under Part II, Item 1A, "Risk Factors" and under "Cautionary Note Regarding Forward-Looking Statements" in this Quarterly Report. In addition, even if our results of operations, financial condition and liquidity, and the developments in our business and the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report, they may not be predictive of results or developments in future periods. We caution readers not to place undue reliance on any forward-looking statements made by us, as such statements speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of theSecurities and Exchange Commission , orSEC , to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements. Overview We are a biopharmaceutical company with a mission to pioneer solutions to deliver life-changing brain health medicines, so every person can thrive. Our first product, ZULRESSO® (brexanolone) CIV injection, is approved in theU.S. for the treatment of postpartum depression, or PPD, in adults. We have a portfolio of other product candidates with a current focus on modulating two critical central nervous system, or CNS, receptor systems, GABA and NMDA. The GABA receptor family, which is recognized as the major inhibitory neurotransmitter in the CNS, mediates downstream neurologic and bodily function via activation of GABAA receptors. The NMDA-type receptors of the glutamate receptor system are a major excitatory receptor system in the CNS. Dysfunction in these systems is implicated in a broad range of CNS disorders. We are currently targeting diseases and disorders of the brain with three key focus areas: depression, neurology and neuropsychiatry. 32 --------------------------------------------------------------------------------
The following table summarizes the status of our product and product candidate portfolio as of the filing date of this Quarterly Report.
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Our first product, ZULRESSO, is a proprietary intravenous formulation of
brexanolone, approved in the U.S. as a treatment for PPD in adults. Brexanolone
is chemically identical to allopregnanolone, a naturally occurring neuroactive
steroid that acts as a positive allosteric modulator of GABAA receptors. We
launched ZULRESSO commercially in the U.S. for the treatment of PPD in June
2019 . Currently, ZULRESSO may only be administered in qualified,
medically-supervised healthcare settings. We have initiated an open-label
clinical trial designed to assess the potential for safe-use administration of
ZULRESSO in a patient's home for the treatment of PPD, known as the SUNBIRD
Study, which is anticipated to be completed in late 2022.
Our next most advanced product candidate is zuranolone (SAGE-217), a novel oral
compound being developed for major depressive disorder, or MDD, and PPD, and may
in the future be developed for other affective disorders. Zuranolone is a
neuroactive steroid that, like brexanolone, is a positive allosteric modulator
of GABAA receptors, targeting both synaptic and extrasynaptic GABAA receptors.
We began our rolling submission of a new drug application, or NDA, to the U.S.
Food and Drug Administration , or FDA, in April 2022 seeking approval of
zuranolone for the treatment of MDD, and we expect to complete the submission in
the second half of 2022. An associated NDA filing seeking approval of zuranolone
for PPD is anticipated in the first half of 2023, pending the completion and
results of the ongoing SKYLARK Study in PPD. The FDA granted Fast Track
designation to zuranolone for the treatment of PPD in early 2022 and previously
granted zuranolone Breakthrough Therapy designation and Fast Track designation
to zuranolone for the treatment of MDD.
To date, we have completed five pivotal clinical trials of zuranolone, four in
MDD and one in PPD. The completed pivotal trial evaluating zuranolone for the
treatment of PPD and three of the four completed pivotal trials evaluating
zuranolone for the treatment of MDD met their primary endpoints. We announced
results from the following pivotal clinical trials of zuranolone in either 2021
or early 2022:
• CORAL Study (completed)
On
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standard antidepressant therapy, or ADT, compared with open-label standard of
care ADT co-initiated with placebo, as an acute rapid response treatment in
patients with MDD. Patients in the clinical trial received zuranolone 50 mg
co-initiated with an open-label standard of care ADT or open-label standard of
care ADT co-initiated with placebo once nightly for 14 days followed by
continuation of the ADT for an additional short-term follow-up period. In the
CORAL Study, zuranolone 50 mg co-initiated with an ADT met the primary endpoint
of statistically significant reduction in depressive symptoms at Day 3 and met
the key secondary endpoint of a statistically significant improvement in
depressive symptoms over the two-week treatment period, in each case as compared
to ADT co-initiated with placebo.
• WATERFALL Study (completed)
In
• SHORELINE Study (ongoing)
InMarch 2021 , we reported positive topline 12-month data from both the 30 mg cohort and the 50 mg cohort of the SHORELINE Study, an open-label Phase 3 clinical trial of zuranolone in MDD, which is designed to evaluate the safety, tolerability, and need for repeat dosing of zuranolone in adults for up to one year. Enrollment in the 50 mg cohort of the study is ongoing.
The SKYLARK Study, a Phase 3 placebo-controlled clinical trial evaluating a two-week course of zuranolone 50 mg in women with PPD, with additional short-term follow-up, is ongoing, and we expect to report topline results in mid-2022.
We are jointly developing zuranolone and another of our late-stage compounds, SAGE-324, in theU.S. withBiogen MA Inc. , orBIMA , andBiogen International GmbH , or, together withBIMA , Biogen, under a collaboration and license agreement, or the Biogen Collaboration Agreement, that became effective inDecember 2020 . Under the Biogen Collaboration Agreement, we will also jointly commercialize products containing zuranolone, which we refer to as Licensed 217 Products, and products containing SAGE-324, which we refer to as Licensed 324 Products, with Biogen in theU.S. if our development efforts are successful. We refer to the Licensed 217 Products and Licensed 324 Products collectively as the Licensed Products. In addition, we have granted Biogen sole rights to develop and commercialize the Licensed Products outside theU.S. , other than inJapan ,Taiwan andSouth Korea , or the Shionogi Territory, with respect to zuranolone, where we have granted such rights to Shionogi & Co., Ltd., or Shionogi. We refer to the territories outside theU.S. to which Biogen has rights under the Biogen Collaboration Agreement with respect to the applicable Licensed Product as the Biogen Territory. InSeptember 2021 , Shionogi reported completion of a Phase 2 clinical trial of zuranolone for the treatment of patients with moderate to severe MDD inJapan , which Shionogi reported achieved its primary endpoints. In addition to zuranolone, we have a portfolio of other novel compounds that target GABAA receptors, including SAGE-324. SAGE-324 is a novel GABAA receptor positive allosteric modulator intended for chronic oral dosing. InApril 2021 , we and Biogen announced that our placebo-controlled Phase 2 KINETIC Study evaluating SAGE-324 for the treatment of adults with essential tremor had achieved its primary endpoint. We initiated a Phase 2b dose-ranging clinical trial of SAGE-324 in patients with essential tremor in late 2021, known as the KINETIC 2 Study. Additional development plans for SAGE-324 will be determined as part of our strategic collaboration with Biogen. We plan to initiate in mid-2022 an open-label Phase 2 clinical trial designed to evaluate the long-term safety and tolerability of SAGE-324 in patients with essential tremor, with incidence of treatment emergent adverse events as the primary endpoint. This is intended to be a multi-year clinical trial, and will initially be open to rollover patients with essential tremor from other clinical trials in patients with SAGE-324, including the KINETIC 2 Study. We believe SAGE-324 also has potential for the treatment of a number of other neurological conditions, including epilepsy and Parkinson's disease.
Our second area of focus for development is novel compounds that target the NMDA receptor. Our lead product candidate selected in this area is SAGE-718, an oxysterol-based positive allosteric modulator of the NMDA receptor,
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--------------------------------------------------------------------------------which we are exploring in certain cognition-related disorders associated with NMDA receptor dysfunction, including cognition dysfunction associated with diseases such as Huntington's disease, Parkinson's disease and Alzheimer's disease.
SAGE-718 is currently being studied in a double-blind placebo-controlled Phase 2 clinical trial of SAGE-718 in patients with Huntington's disease cognitive impairment, known as the DIMENSION Study. The DIMENSION Study is designed to evaluate the efficacy of once-daily dosed SAGE-718 over three months. Dosing in the DIMENSION Study commenced in early 2022. InMarch 2022 , we initiated a second placebo-controlled Phase 2 clinical trial of SAGE-718, known as the SURVEYOR Study, in patients with Huntington's disease cognitive impairment, with a healthy volunteer component, with the goal of generating evidence linking efficacy signals on cognitive performance to domains of real-world functioning. We also plan to initiate a Phase 2/3 open-label study of SAGE-718 in patients with Huntington's disease cognitive impairment in late 2022. The FDA has granted SAGE-718 Fast Track designation as a potential treatment for patients with Huntington's disease. We are also evaluating SAGE-718 for the treatment of cognitive issues associated with Parkinson's disease and Alzheimer's disease. InMay 2021 , we announced results from the first part of a Phase 2a open-label study of SAGE-718 evaluating patients with mild cognitive impairment due to Parkinson's disease, known as the PARADIGM Study. Data from the PARADIGM Study showed that SAGE-718 had a positive impact on multiple domains of cognition, including executive function and learning and memory. As expected, no appreciable effect was observed on measures of simple attention or reaction time in keeping with the profile of SAGE-718 based on data to-date. We have completed enrollment for a four-week dosing cohort in the PARADIGM Study to gather additional data in the Parkinson's disease patient population. InMarch 2022 , we initiated a placebo-controlled Phase 2 clinical trial of SAGE-718 in patients with mild cognitive impairment due to Parkinson's disease, known as the PRECEDENT Study. The PRECEDENT Study is designed to evaluate the safety and efficacy of SAGE-718 in patients with mild cognitive impairment due to Parkinson's disease over 42 days, followed by a controlled follow-up period. InDecember 2021 , we reported topline data from a Phase 2a open-label clinical trial of SAGE-718 in patients with mild cognitive impairment and mild dementia due to Alzheimer's disease, known as the LUMINARY Study. Data from the LUMINARY Study showed treatment with SAGE-718 resulted in consistent improvement across multiple tests of executive performance, as well as improvement on key tests of learning and memory. In addition, SAGE-718 has been well-tolerated in studies to date. We also plan to initiate a randomized placebo-controlled Phase 2 clinical trial of SAGE-718 in patients with mild cognitive impairment and mild dementia due to Alzheimer's disease in late 2022. We have other programs at earlier stages of development with a focus on both acute and chronic brain health disorders. We expect to continue our work on allosteric modulation of the GABAA and NMDA receptor systems in the brain. The GABAA and NMDA receptor systems are broadly accepted as impacting many psychiatric and neurological disorders, spanning disorders of mood, seizure, cognition, anxiety, sleep, pain, and movement, among others. We believe that we may have the opportunity to develop molecules from our internal portfolio with the goal of addressing a number of these disorders in the future. We also believe that we may have the opportunity to use our scientific approach to explore targets beyond the GABAA and NMDA receptor systems and to develop compounds in areas of unmet need outside of brain health. We began to generate revenue from product sales in the second quarter of 2019 in conjunction with the launch of our first product, ZULRESSO, inJune 2019 . In the fourth quarter of 2020, we recorded revenue from the strategic collaboration with and stock purchase by Biogen. We have incurred net losses in each year since our inception, except for net income of$606.1 million for the year endedDecember 31, 2020 , reflecting revenue recognized under the Biogen Collaboration Agreement, and we had an accumulated deficit of$1.6 billion as ofMarch 31, 2022 . Our net loss was$122.1 million for the three months endedMarch 31, 2022 . These losses have resulted principally from costs incurred in connection with research and development activities and selling, general and administrative costs associated with our operations and our commercial build. We expect to incur significant expenses and increasing operating losses for the foreseeable future. 35 --------------------------------------------------------------------------------
We expect that our expenses will increase significantly in the foreseeable future in connection with our ongoing activities, including if and as we:
• continue our development efforts for zuranolone, including work to
complete the SKYLARK Study, a Phase 3 clinical trial of zuranolone in PPD,
and the open-label SHORELINE Study of zuranolone in MDD; work to complete
our rolling NDA submission for zuranolone in MDD in the
be completed in the second half of 2022; prepare for the planned
associated NDA filing for zuranolone in PPD in the
occur in the first half of 2023, pending the completion of and results
from the SKYLARK Study; advance our permitted pre-launch and
launch-readiness activities with respect to zuranolone and commercialize
zuranolone in MDD and PPD, if approved; and potentially advance the
development of zuranolone in additional indications as part of our
strategic collaboration with Biogen;
• continue our commercialization efforts with respect to ZULRESSO for the
treatment of PPD in the
have existing, active ZULRESSO treating sites, and complete the SUNBIRD
Study designed to assess the potential for safe-use administration of
ZULRESSO in a patient's home for the treatment of PPD;
• complete the ongoing KINETIC 2 Study of SAGE-324 in patients with
essential tremor, and initiate additional development activities with
SAGE-324, including our planned open-label Phase 2 clinical trial
evaluating the safety of SAGE-324 in patients with essential tremor and
potential future development in epilepsy, Parkinson's disease, and other
neurological conditions, as part of our strategic collaboration with
Biogen;
• complete the ongoing Phase 2 clinical trials evaluating SAGE-718 in the
treatment of Huntington's disease, in patients with mild cognitive
impairment due to Parkinson's disease, and in patients with mild cognitive
impairment and mild dementia due to Alzheimer's disease, and the planned
open-label Phase 3 clinical trial of SAGE-718 in patients with
Huntington's disease cognitive impairment;
• support our collaboration with Biogen with respect to zuranolone and
SAGE-324 in the
SAGE-324 in Biogen's licensed territories outside the
development of zuranolone in the Shionogi Territory;
• advance our earlier-stage compounds;
• continue our research and development efforts to evaluate the potential
for our existing product candidates for the treatment of additional
indications or in new formulations;
• identify new targets, and generate and test new compounds and product
candidates, with a focus on indications where we believe we can make
well-informed, rapid go/no-go decisions, with the goal of developing a
diversified portfolio of assets with differentiated features;
• prepare and file new drug applications with the FDA and conduct permitted
pre-launch activities with respect to any of our other product candidates
that we believe have been successfully developed;
• commercialize any product candidates for which we obtain regulatory
approval, including the manufacture of commercial supplies;
• as our efforts progress, add personnel, including personnel to support
product development and ongoing and future commercialization efforts;
• evaluate the market potential and regulatory pathways for our product
candidates beyond zuranolone and SAGE-324 in the European Union and other
countries outside the U.S. , and determine how best to move forward where
and when it may make business and strategic sense;
• continue to build, maintain, defend, leverage, and expand our intellectual
property portfolio, including by utilizing the strengths of our
proprietary chemistry platform and scientific know-how to expand our
portfolio of new chemical entities to lessen our long-term reliance on the
success of any one program and to facilitate long-term growth; and
• continue to explore opportunities to establish licenses, collaborations or
other agreements or alliances with other biotechnology and pharmaceutical
companies, at the appropriate time, where we believe a collaboration will
add significant value to our efforts, including through capabilities,
infrastructure, speed or financial
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--------------------------------------------------------------------------------contributions, or to acquire new compounds, product candidates or products
if we believe such opportunities will help us achieve our goals or meet
other strategic objectives.
Until such time that we can generate significant revenue from product sales, if
ever, we expect to finance our operations primarily through a combination of
revenue, equity or debt financings and other sources, including our
collaborations with Biogen and Shionogi and potential future collaborations. We
may not be successful in our commercialization of ZULRESSO, zuranolone, if
approved, or any other product, and may not generate meaningful revenue or
revenue at the levels or on the timing necessary to support our investment and
goals. We may never successfully complete development of any of our current or
future product candidates, successfully file for or obtain necessary regulatory
approval for such product candidates, or achieve commercial viability for any
resulting approved product. We may not obtain or maintain adequate patent
protection or other exclusivity for our products or product candidates. Adequate
additional financing may not be available to us on acceptable terms, or at all.
Our inability to raise capital if and when needed would have a negative impact
on our financial condition and on our ability to pursue our business strategy.
Arrangements with our existing collaborators have required us to relinquish
rights to certain of our technologies or product candidates, and any future
collaborations may require us to relinquish additional rights. We will need to
generate significant revenue to achieve profitability, and we may never do so.
We expect that our existing cash, cash equivalents and marketable securities as
of March 31, 2022 , in addition to anticipated funding from our ongoing
collaborations, will enable us to fund our operating expenses and capital
expenditure requirements, based on our current operating plans, for at least the
next 24 months from the filing date of this Quarterly Report. See "-Liquidity
and Capital Resources".
Financial Operations OverviewRevenue
We began to generate revenue from product sales in the second quarter of 2019 in conjunction with the launch of our first product, ZULRESSO as a treatment for PPD, inJune 2019 . Our revenue from sales of ZULRESSO has been negatively impacted by significant barriers arising from the complex requirements for administration of the treatment, and, more recently, by the spread of COVID-19 in theU.S. ZULRESSO is administered as a continuous infusion given over two and a half days. Because of the risk of serious harm resulting from excessive sedation or sudden loss of consciousness during the ZULRESSO infusion, currently ZULRESSO must be administered only in a medically-supervised healthcare setting that has been certified under a Risk Evaluation and Mitigation Strategies, or REMS, program and meets the other requirements of the REMS program, including requirements related to monitoring of the patient during the infusion. The actions required for a healthcare setting to be ready and willing to treat women with PPD are complex and time-consuming. These actions include: becoming REMS-certified; achieving formulary approvals; establishing protocols for administering ZULRESSO; and securing satisfactory reimbursement. Sites must often negotiate reimbursement on a payor-by-payor basis under commercial coverage. These requirements have created significant barriers to treatment, and are expected to continue to limit future revenue growth. These barriers have been compounded by the COVID-19 pandemic. The spread of COVID-19 in theU.S. resulted in a significant number of sites of care pausing, limiting or delaying treatment of new patients with ZULRESSO and potential new sites of care pausing site activation activities for a period of time. We believe concerns about exposure to the virus or its variants, as well as the disruption to the healthcare system in theU.S. caused by the pandemic, have also caused a significant reduction in the number of women with PPD seeking treatment with ZULRESSO and in the number of physicians willing to prescribe it. Given continuing concerns about the COVID-19 pandemic across the country, including as a result of the spread of variants and "breakthrough" cases among fully-vaccinated people, and the resulting disruption in many locations to healthcare resources, we expect the significant adverse impact of the pandemic on ZULRESSO revenues, and our results of operations from sales of ZULRESSO, to continue for the foreseeable future. The scope and timing of the expected negative impact will depend on, among other factors, the scope and duration of the pandemic and the timing of any return to normal business operations across theU.S. ; the effectiveness of vaccination campaigns, vaccine mandates, and other efforts to control the pandemic; the duration of the vaccines' efficacy against COVID-19 and its variants; the extent to which variants of the virus that causes COVID-19 negatively impact vaccination and other efforts to control the pandemic; the duration and severity of any restrictive measures taken to curb the spread of COVID-19; the extent of healthcare staffing shortages that have continued even as 37 -------------------------------------------------------------------------------- COVID-19-related restrictions have eased; and the impact of the pandemic on our customers and vendors. Given the continued fluidity of the COVID-19 pandemic, we cannot predict its course or for how long and to what extent it will have an adverse impact on ZULRESSO sales. While we remain committed to working with healthcare providers and women with PPD seeking access to ZULRESSO and plan to continue to evaluate opportunities to raise awareness and help reduce hurdles to appropriate treatment, our ongoing commercial efforts, including our account management field-based team and sales representatives, are primarily focused on geographies that have existing, active ZULRESSO treating sites. We expect that this approach to our commercial efforts may continue to substantially limit the revenue opportunity for ZULRESSO. We expect that ZULRESSO revenues are likely to fluctuate quarter to quarter. We will not generate revenue from other products unless and until we or any of our collaborators successfully develop, obtain regulatory approval of, and commercialize one of our current or future product candidates. If we enter into additional collaboration agreements with third parties for our product candidates, we may generate revenue from those collaborations. We expect that revenue, if any, that we may generate under our existing or future collaboration agreements will fluctuate from quarter to quarter as a result of the timing and amount of license fees, payments for clinical materials or manufacturing services, milestone payments, royalties paid to us and our share of collaboration profits or losses resulting from sales of any commercialized products, and other payments. InJune 2018 , we entered into a strategic collaboration with Shionogi for the clinical development and commercialization of zuranolone for the treatment of MDD and other potential indications in the Shionogi Territory. Under the terms of the agreement, Shionogi is responsible for all clinical development, regulatory filings and commercialization and manufacturing of zuranolone for MDD, and potentially other indications, in the Shionogi Territory. InOctober 2018 , we also entered into a supply agreement with Shionogi under which we supply Shionogi with zuranolone clinical material. To date, revenue from our collaboration with Shionogi has come from an initial, upfront license fee upon execution of the collaboration agreement of$90.0 million , which was recorded as collaboration revenue in the year endedDecember 31, 2018 , and for the supply of active pharmaceutical agreement, or API, for Shionogi's clinical trials. InNovember 2020 , we entered into the Biogen Collaboration Agreement with Biogen for the development, manufacture and commercialization of the Licensed Products. In connection with the execution of the Biogen Collaboration Agreement, we also entered into a stock purchase agreement for the sale and issuance toBIMA of 6,241,473 shares of our common stock. The Biogen Collaboration Agreement became effective inDecember 2020 , and the sale of the common stock under the stock purchase agreement closed onDecember 31, 2020 . As a result of the purchase of common stock byBIMA , Biogen has become a related party of ours. Under the terms of the Biogen Collaboration Agreement, we will jointly develop and, if successful, jointly commercialize the Licensed Products in theU.S. , and Biogen solely will develop and commercialize the Licensed Products in the Biogen Territory. We and Biogen have agreed to share equally all costs for activities under the Biogen Collaboration Agreement solely for theU.S. Biogen is solely responsible for all costs for activities under the Biogen Collaboration Agreement in the Biogen Territory. In the year endedDecember 31, 2020 , we recorded collaboration revenue - related party of$1.1 billion , consisting of an upfront payment of$875.0 million plus$232.5 million in excess proceeds from the equity investment under the stock purchase agreement, when measured at fair value. For further discussion regarding the accounting for the Biogen Collaboration Agreement, refer to Note 6, Collaboration Agreements, in the accompanying Notes to Condensed Consolidated Financial Statements appearing in Part I, Item 1 of this Quarterly Report.
Collaborative Arrangements
We analyze our collaboration arrangements to assess whether such arrangements
involve joint operating activities performed by parties that are both active
participants in the activities and exposed to significant risks and rewards
dependent on the commercial success of such activities and therefore within the
scope of Accounting Standards Codification, or ASC, Topic 808, Collaborative
Arrangements, or Topic 808. This assessment is performed throughout the life of
the arrangement based on changes in the responsibilities of all parties in the
arrangement. For collaboration arrangements within the scope of Topic 808 that
contain multiple elements, we first determine which elements of the
collaboration are deemed to be within the scope of Topic 808 and which elements
of the collaboration are more reflective
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of a vendor-customer relationship and therefore within the scope of ASC Topic
606, Revenue from Contracts with Customers, or Topic 606. For elements of
collaboration arrangements that are accounted for pursuant to Topic 808, an
appropriate recognition method is determined and applied consistently, either by
analogy to authoritative accounting literature or by applying a reasonable and
rational policy election. For those elements of the arrangement that are
accounted for pursuant to Topic 606, we apply the five-step revenue recognition
model and present the arrangement as collaboration revenue in the condensed
consolidated statements of operations and comprehensive loss. For further
discussion regarding the accounting for the Biogen Collaboration Agreement,
refer to Note 6, Collaboration Agreements, in the accompanying Notes to
Condensed Consolidated Financial Statements appearing in Part I, Item 1 of this
Quarterly Report.
For collaboration arrangements that are within the scope of Topic 808, we
evaluate the income statement classification for presentation of amounts due
from or owed to other participants associated with multiple activities in a
collaboration arrangement based on the nature of each separate activity.
Payments or reimbursements that are the result of a collaborative relationship,
instead of a customer relationship, such as co-development and
co-commercialization activities, are recorded as research and development
expense or selling, general and administrative expense in the event of a payment
to the collaborative partner in a period, or a reduction to these expense line
items in the event of a reimbursement from the collaboration partner in a
period, as appropriate.
Cost of Goods Sold
Cost of goods sold includes direct and indirect costs related to the
manufacturing and distribution of ZULRESSO, including third-party manufacturing
costs, packaging services, freight, third-party royalties payable on our net
product revenues and amortization of intangible assets associated with ZULRESSO.
We estimate that our cost of goods sold as a percentage of net product revenue
will remain in the mid-single digit percentage range for the foreseeable future.
We expect to utilize zero-cost inventory with respect to ZULRESSO for an
extended period of time.
Operating Expenses
Our operating expenses since inception have consisted primarily of costs associated with research and development activities and selling, general and administrative activities.
Research and Development Expenses
Research and development expenses, which consist primarily of costs associated with our product research and development efforts, are expensed as incurred. Research and development expenses consist primarily of:
• personnel costs, including salaries, benefits, stock-based compensation
and travel expenses, for employees engaged in research and development
functions;
• expenses incurred under agreements with contract research organizations,
or CROs, and sites that conduct our non-clinical studies and clinical
trials;
• expenses associated with manufacturing materials for use in non-clinical
studies and clinical trials and developing external manufacturing
capabilities;
• costs of outside consultants engaged in research and development
activities, including their fees and travel expenses;
• other expenses related to our non-clinical studies and clinical trials and
expenses related to our regulatory activities, including the rolling NDA
submission for zuranolone in MDD which we expect to complete in the second
half of 2022 and the planned submission of an associated NDA filing in PPD
anticipated to occur in early 2023, pending the completion of and results
from the SKYLARK Study as well as preparation for a potential FDA Advisory
Committee meeting in connection with such planned filings;
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--------------------------------------------------------------------------------• payments made under our third-party license agreements; and
• a portion of our information technology, facilities and other related
expenses, including rent, depreciation, maintenance of facilities,
insurance and supplies.
We consider the collaborative activities associated with the co-development,
co-commercialization, and co-manufacturing of SAGE-217 products and SAGE-324
products in the U.S. to be separate units of account within the scope of Topic
808 as we and Biogen are both active participants in the development and
commercialization activities and are exposed to significant risks and rewards
that are dependent on the development and commercial success of the activities
in the arrangement. Payments to or reimbursements from Biogen related to the
co-development and co-manufacturing activities are accounted for as an increase
to or reduction of research and development expense. During the three months
ended March 31, 2022 and 2021, we recorded net reimbursement of $18.5 million
and $22.1 million , respectively, from Biogen that was deducted from our research
and development expenses because we incurred a greater amount of these expenses
than Biogen.
Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites.
We have been developing our product candidates and focusing on other research and development programs, including exploratory efforts to identify new compounds, target validation for identified compounds and lead optimization for our earlier-validated programs. Our direct research and development expenses are tracked on a program-by-program basis, and consist primarily of external costs, such as fees paid to investigators, central laboratories, CROs and contract manufacturing organizations, in connection with our non-clinical studies and clinical trials; third-party license fees related to our product candidates; and fees paid to outside consultants who perform work on our programs. We do not allocate employee-related costs and other indirect costs to specific research and development programs because these costs are deployed across multiple product programs under research and development and, as such, are separately classified as unallocated or stock-based compensation in research and development expenses. Research and development activities are central to our business. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will continue to increase in the foreseeable future as we continue or initiate clinical trials and non-clinical studies for certain product candidates and pursue later stages of clinical development of our product candidates.
We cannot determine with certainty the duration and costs of the current or future clinical trials of our product candidates. The duration, costs, and timing of clinical trials and development of our product candidates will depend on a variety of factors, including:
• the scope, size, rate of progress, and expense of our ongoing as well as
any additional clinical trials, non-clinical studies, and other research
and development activities;
• future results of ongoing, planned or future clinical trials and
non-clinical studies;
• decisions by regulatory authorities related to our product candidates;
• uncertainties in clinical trial enrollment rate or design;
• significant and changing government regulation; and
• the receipt and timing of regulatory approvals, if any.
40-------------------------------------------------------------------------------- In addition, the ongoing COVID-19 pandemic may also negatively impact our ongoing and planned development activities and increase our research and development costs. Concerns, precautions and restrictions arising from the COVID-19 pandemic may substantially slow clinical site recruitment and initiation and enrollment in our clinical trials, may impair the conduct, auditing, monitoring, or completion of our trials, may impair or impede the timeliness and completion of our data collection and analysis efforts or the integrity of our data, or may cause us to pause trials, in each case which may significantly impact our ability to meet our expected timelines or cause us to change our plans and may significantly increase our research and development costs. For example, we have seen some slower recruitment in certain of our clinical trials, especially with respect to older patients and in our SKYLARK Study in patients with PPD, which caused us to revise our expected timeline for reporting topline data from the SKYLARK Study. A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate or for regulatory approval, or if we experience significant delays in enrollment in any of our clinical trials or need to enroll additional patients, we could be required to expend significant additional financial resources and time on the completion of clinical development. Any failure to complete any stage of the development of any potential product candidates in a timely manner could have a material adverse effect on our operations, financial position and liquidity. A discussion of some of the risks and uncertainties associated with not completing our programs on schedule, or at all, and the potential consequences of failing to do so, are set forth in Part II, Item 1A of this Quarterly Report under the heading "Risk Factors".
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of personnel costs, including salaries, benefits and travel expenses for our executive, finance, business, commercial, corporate development and other administrative functions, and stock-based compensation expense. Selling, general and administrative expenses also include professional fees for expenses incurred under agreements with third parties relating to the commercialization of ZULRESSO; permitted pre-launch and launch-readiness activities related to zuranolone; public relations, audit, tax and legal services, including legal expenses to pursue patent protection of our intellectual property; and a portion of our information technology, facilities and other related expenses, including rent, depreciation, maintenance of facilities, insurance and supplies. While we remain committed to working with healthcare providers and women with PPD seeking access to ZULRESSO and plan to continue to evaluate opportunities to raise awareness and help reduce hurdles to appropriate treatment, our ongoing commercial efforts, including our account management field-based team and sales representatives, are primarily focused on geographies that have existing, active ZULRESSO treating sites. We expect to continue to incur significant commercialization expenses, including payroll and related expenses, to support our ongoing commercial activities associated with ZULRESSO. We expect that selling, general and administrative expenses will increase in the future as we progress development efforts and prepare for potential commercialization of zuranolone and commercialize zuranolone, if approved, and our other current or future product candidates, if successfully developed and approved. We expect to continue to incur significant expenses associated with general operations, including costs related to accounting and legal services, director and officer insurance premiums, facilities and other corporate infrastructure and office-related costs, such as information technology costs. We consider the collaborative activities associated with the co-development, co-commercialization, and co-manufacturing of SAGE-217 products and SAGE-324 products in theU.S. to be separate units of account within the scope of Topic 808 as we and Biogen are both active participants in the development and commercialization activities and are exposed to significant risks and rewards that are dependent on the development and commercial success of the activities in the arrangement. Payments to or reimbursements from Biogen related to the co-commercialization activities are accounted for as an increase to or reduction of selling, general and administrative expense. During the three months endedMarch 31, 2022 and 2021, we recorded net reimbursement of$1.5 million and$2.7 million , respectively, from Biogen that was deducted from our selling, general and administrative expenses because we incurred a greater amount of these expenses than Biogen. 41 --------------------------------------------------------------------------------
Results of Operations
Comparison of the Three Months Ended
The following table summarizes our results of operations for the three months
ended
Three Months Ended March 31, Increase
2022 2021 (Decrease)
(in thousands)
Product revenue, net $ 1,582 $ 1,583 $ (1 )
Operating costs and expenses:
Cost of goods sold 286 187 99
Research and development 78,018 58,056 19,962
Selling, general and administrative 46,477 39,847 6,630
Total operating costs and expenses 124,781 98,090 26,691
Loss from operations (123,199 ) (96,507 ) (26,692 )
Interest income, net 1,168 708 460
Other income (expense), net (24 ) 35 (59 )
Net loss $ (122,055 ) $ (95,764 ) $ (26,291 )
Product Revenue, Net
During the three months ended March 31, 2022 and 2021, we recognized $1.6
million and $1.6 million , respectively, of net product revenues related to sales
of ZULRESSO. Sales allowances and accruals consisted of chargebacks, discounts,
distribution fees and patient financial assistance, and were not significant
during either year.
Collaboration Revenue
During the three months ended March 31, 2022 and 2021, we recognized no
collaboration revenue from our agreement with Shionogi or collaboration revenue
- related party from our agreement with Biogen. We expect that revenue, if any,
that we may generate under our collaboration agreements will fluctuate from
quarter to quarter as a result of the timing and amount of license fees,
payments for clinical materials or manufacturing services, milestone payments,
royalties paid to us and our share of collaboration profits or losses
resulting from sales of any commercialized products, and other payments. For
further discussion regarding our collaboration agreements with Shionogi and
Biogen and the accounting for revenue from collaboration agreements, refer to
Note 2, Summary of Significant Accounting Policies and Note 6, Collaboration
Agreements, in the accompanying Notes to Condensed Consolidated Financial
Statements appearing in Part I, Item 1 of this Quarterly Report.
Cost of Goods Sold
During the three months endedMarch 31, 2022 and 2021, cost of goods sold was$0.3 million and$0.2 million , respectively, and is made up of a low-single digit royalty paid toCyDex Pharmaceuticals, Inc. , a wholly owned subsidiary of Ligand Pharmaceuticals Incorporated, and The Regents of theUniversity of California on net product revenue from sales of ZULRESSO, the amortization of intangible assets associated with ZULRESSO and third-party manufacturing and distribution costs associated with labeling, packaging, and shipping of ZULRESSO. Prior to receiving initial FDA approval for ZULRESSO inMarch 2019 , we manufactured ZULRESSO inventory to be sold upon commercialization and recorded$8.9 million related to this inventory build-up as research and development expense. As a result, the manufacturing costs related to the ZULRESSO inventory build-up incurred before FDA approval were already expensed in a prior period and are therefore excluded from the cost of goods sold for the three months endedMarch 31, 2022 and 2021. We estimate that our cost of goods sold as a percentage of net product revenue will remain in the mid-single digit percentage range for the foreseeable future. We expect to utilize zero-cost inventory with respect to ZULRESSO for an extended period of time. 42 --------------------------------------------------------------------------------
Research and Development Expenses
Three Months Ended March 31, Increase
2022 2021 (Decrease)
(in thousands)
zuranolone (SAGE-217) $ 22,282 $ 33,660 $ (11,378 )
SAGE-324 10,035 5,000 5,035
SAGE-718 9,421 2,581 6,840
Other research and development programs 18,655 8,884 9,771
Unallocated expenses 27,524 20,718 6,806
Stock-based compensation 8,615 9,281 (666 )
Net reimbursement from Biogen (18,514 ) (22,068 ) 3,554
Total research and development expenses
Research and development expenses for the three months endedMarch 31, 2022 were$78.0 million , compared to$58.1 million for the three months endedMarch 31, 2021 . The increase of$20.0 million was primarily due to the following:
• a decrease of
primarily due to completion of the WATERFALL Study and the CORAL Study;
• an increase of
primarily due to activities directed towards the initiation of two Phase 2
clinical trials which were initiated after the three months ended March
31, 2021;
• an increase of
primarily due to activities directed towards the initiation of two Phase 2
clinical trials which were initiated after the three months ended March
31, 2021;
• an increase of
programs, primarily due to Phase 1 clinical trials of SAGE-689 and
increased work on early-stage research programs;
• an increase of
increase in the hiring of employees and corporate infrastructure costs,
such as information technology costs;
• a decrease of
The decrease in non-cash stock-based compensation expense was
primarily due to grants with high exercise prices that became fully vested
during the three months ended March 31, 2022 . There was no non-cashstock-based compensation expense recognized related to the achievement of
performance-based vesting criteria during the three months ended
2022 and 2021; and
• the net reimbursement from Biogen pursuant to the Biogen Collaboration
Agreement decreased by
2022, the amount of net reimbursement was
and included in unallocated expenses. For the three months ended
2021, the amount of net reimbursement was
and included in unallocated expenses. The primary reason for the decrease
in net reimbursement was an increase in the work performed by Biogen.
43
--------------------------------------------------------------------------------Selling, General and Administrative Expenses
Three Months Ended March 31, Increase
2022 2021 (Decrease)
(in thousands)
Personnel-related $ 18,267 $ 11,704 $ 6,563
Stock-based compensation 9,938 12,695 (2,757 )
Professional fees 10,509 9,651 858
Other 9,237 8,495 742
Net reimbursement from Biogen (1,474 ) (2,698 ) 1,224
Total selling, general and
administrative expenses $ 46,477 $ 39,847 $ 6,630 Selling, general and administrative expenses for the three months ended
• an increase of
hiring employees to support ongoing activities in anticipation of
potential future launches of our product candidates;
• a decrease of
The decrease in non-cash stock-based compensation expense was
primarily due to grants with high exercise prices that became fully vested
during the three months ended March 31, 2022 . There was no non-cashstock-based compensation expense recognized related to the achievement of
performance-based vesting criteria during the three months ended
2022 and 2021; and
• the net reimbursement from Biogen pursuant to the Biogen Collaboration
Agreement decreased by
2022, the amount of net reimbursement was
For the three months ended
was
costs. The primary reason for the decrease in net reimbursement was an
increase in the work performed by Biogen.
Interest Income, Net and Other Income, Net
Interest income, net, and other income (expense), net, for the three months endedMarch 31, 2022 and 2021 were$1.1 million and$0.7 million , respectively. The primary reasons for the increase were the increase in interest rates and the increase in the balance of marketable securities sinceMarch 31, 2021 .
Liquidity and Capital Resources
We began to generate revenue from product sales in the second quarter of 2019 in conjunction with the launch of our first product, ZULRESSO, inJune 2019 . To date, we have incurred recurring net losses, except for net income of$606.1 million for the year endedDecember 31, 2020 , reflecting revenue recognized under the Biogen Collaboration Agreement. As ofMarch 31, 2022 , we had an accumulated deficit of$1.6 billion . OnDecember 31, 2020 , we completed the sale of 6,241,473 shares of our common stock in a private placement toBIMA at a price of approximately$104.14 per share, resulting in aggregate gross proceeds of$650.0 million . From our inception throughMarch 31, 2022 , we have received aggregate net proceeds of$2.8 billion from the sales of redeemable convertible preferred stock prior to our initial public offering, the issuance of convertible notes, and the sales of common stock in our initial public offering inJuly 2014 , follow-on offerings and in the sale of shares of our common stock to Biogen in connection with the Biogen Collaboration Agreement, which we refer to as the Biogen Equity Purchase. We also received$1.0 billion in upfront payments under our collaborations with Biogen and Shionogi. As ofMarch 31, 2022 , our primary sources of liquidity were our cash, cash equivalents and marketable securities, which totaled$1.6 billion . We invest our cash in money market funds,U.S. government securities, corporate bonds, and commercial paper, and our primary objectives are to preserve principal, provide liquidity and maximize income without significantly increasing risk. 44 --------------------------------------------------------------------------------
The following table summarizes the primary sources and uses of cash for the
three months ended
Three Months Ended March 31,
2022 2021
(in thousands)
Net cash provided by (used in):
Operating activities $ (107,800 ) $ (109,086 )
Investing activities (9,558 ) (658,816 )
Financing activities 1,799 5,623
Total $ (115,559 ) $ (762,279 )
Operating Activities
During the three months ended
During the three months ended
Investing Activities During the three months endedMarch 31, 2022 and 2021, net cash used in investing activities was$9.6 million and$658.8 million , respectively. During the three months endedMarch 31, 2022 and 2021, we purchased marketable securities and had sales and maturities of our marketable securities as part of managing our cash and investments portfolio. Additionally, during the three months endedMarch 31, 2021 , we invested the majority of the cash that we received from Biogen under the Biogen Collaboration Agreement and the Biogen Equity Purchase in marketable securities.
Financing Activities
During the three months ended
Operating Capital Requirements
We began to generate revenue from product sales in the second quarter of 2019 in conjunction with the launch of our first product, ZULRESSO. We anticipate that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we continue the development of our current and future product candidates, and seek regulatory approvals for zuranolone and those other product candidates that are successfully developed; prepare for potential future commercialization of zuranolone and other product candidates beyond ZULRESSO that are successfully developed and approved, including pre-launch and launch-readiness activities; begin to commercialize any such products, if approved; and continue our efforts to identify and develop new product candidates beyond our current portfolio. We also expect to incur significant costs associated with general operations. In addition, we expect to incur significant commercialization expenses for product sales, marketing and outsourced manufacturing with respect to ZULRESSO, zuranolone, if approved and any other future products that are successfully developed and approved. Accordingly, we anticipate that we will need substantial additional funding in connection with our continuing operations.
Based on our current operating plans, we expect that our existing cash, cash
equivalents and marketable securities as of
45
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operating expenses and capital expenditure requirements for at least the next 24
months from the filing date of this Quarterly Report. During that time, we
expect to incur significant expenses as we continue to commercialize ZULRESSO;
complete ongoing clinical trials of zuranolone and advance regulatory, permitted
pre-launch and launch-planning activities; advance development of our other
product candidates; expand our research activities; and pursue our strategic
plan.
Our current operating plan does not contemplate other activities that we may
pursue or that all of our currently planned activities will proceed at the same
pace, or that all of these activities will be fully initiated or completed
during that time. We have based our estimates on assumptions that could change,
and we may use our available capital resources sooner than we currently expect.
We may also choose to change or increase our development, commercialization or
other efforts. Because of the numerous risks and uncertainties associated with
the development and commercialization of any product or product candidates, we
are unable to estimate the amounts of increased capital outlays and operating
expenditures necessary to complete development of our current or future product
candidates or to commercialize any approved product.
Our future capital requirements will depend on many factors, including:
• the timing and amount of revenues from sales of ZULRESSO, which we expect
will continue to be impacted by a number of factors, including: the rate,
degree and level of market acceptance for ZULRESSO for the treatment of
PPD in the U.S. ; our decision to focus our efforts primarily on
geographies that have existing, active ZULRESSO treating sites; the
continued availability of healthcare settings in those geographies toadminister ZULRESSO and the ability and willingness of such healthcare
settings to make sufficient capacity available; the level of reimbursement
for both ZULRESSO and the infusion in the healthcare setting both by
commercial and government payors, and the nature of limitations on
coverage and reimbursement; the number of healthcare professionals willing
to prescribe ZULRESSO and women with PPD who agree to be treated with
ZULRESSO; and the scope, duration and timing of the impact of the COVID-19
pandemic;
• the timing and amount of costs associated with our commercialization of
ZULRESSO;
• our ability to successfully complete our rolling NDA submission for
zuranolone in MDD, complete the SKYLARK Study and be able to submit an
associated NDA filing for zuranolone in PPD, achieve FDA acceptance of
such filings, and receive FDA approval to market zuranolone for the
treatment of MDD and PPD, in each case on the timelines we expect;
• the costs of regulatory, permitted pre-launch and launch-readiness
activities associated with zuranolone;
• if zuranolone is approved for one or more indications, the costs
associated with its commercial launch and the timing and amount of any
revenues;
• the initiation, progress, completion, timing, costs, and results of
ongoing, planned and future non-clinical studies and clinical trials for
our other existing and future product candidates; the number and length of
clinical trials required by regulatory authorities to support regulatory
approval; and the costs of preparing, submitting and supporting regulatory
filings for our product candidates;
• the length, severity and costs of disruptions, if any, associated with the
COVID-19 pandemic on initiation and conduct of our clinical trials or on
our supply chain;
• the ability of SAGE-324, SAGE-718 and our other clinical-stage product
candidates to progress through clinical development successfully; the
outcome of discussions with regulatory authorities on regulatory pathways
with respect to our product candidates; the timing, scope and outcome of
regulatory filings and reviews and approvals of such product candidates,
if we are successful in our development efforts; the scope and cost of any
clinical trials or other commitments required post-approval for any
approved products resulting from such development efforts, if successful;
and the level, timing and amount of costs associated with permitted
prelaunch activities and preparing for a potential future commercial
launch of any such product candidate that is successfully developed and
approved;
• the amounts we are entitled to receive, if any, from Biogen and Shionogi
under our collaborations for cost-sharing, development, regulatory, and
sales milestones, and royalty payments;
46--------------------------------------------------------------------------------
• the size of the PPD market and the portion of the population for which
ZULRESSO may be prescribed; the size of the markets for which zuranolone
and our other product candidates may be approved in the future, if
successfully developed; the portion of the population in the approved
indications for which our future products are actually prescribed; the
rate and degree of market acceptance for our products, and the pricing,
availability and level of reimbursement for our products;
• the number and characteristics of the product candidates we pursue in
development and the nature and scope of our discovery and development
programs;
• the costs of preparing, filing and prosecuting patent applications,
maintaining and enforcing our intellectual property rights and defending
intellectual property-related claims;
• the extent to which we acquire or in-license other products and
technologies; and
• our ability to establish any future collaboration arrangements on
favorable terms, if at all.
Until such time, if ever, as we can generate substantial product revenue and
achieve profitability, we expect to also finance our cash needs through a
combination of equity offerings, debt financings, collaborations, strategic
alliances, licensing arrangements and other sources of funding. Even if we
believe we have sufficient funds for our current or future operating plans, we
may seek additional capital if market conditions are favorable or in light of
other strategic considerations. To the extent that we raise additional capital
through the sale of equity or convertible debt securities, the ownership
interest of our stockholders will be diluted, and the terms of these securities
may include liquidation or other preferences that adversely affect the rights of
our common stockholders. Debt financing, if available, may involve agreements
that include covenants limiting or restricting our ability to take specific
actions, such as incurring additional debt, making capital expenditures or
declaring dividends and may require the issuance of warrants, which could
potentially dilute the ownership interest of our stockholders. If we raise
additional funds through collaborations, strategic alliances, licensing
arrangements or other agreements with third parties, we may have to relinquish
valuable rights to our technologies, future revenue streams or research programs
or to grant licenses on terms that may not be favorable to us. Raising funds may
present challenges. Markets may experience volatility or become disrupted in the
future for any number of reasons, including if current efforts to control the
COVID-19 pandemic are not successful or if there are long-term negative effects
of the COVID-19 pandemic, even after the pandemic has subsided, such as a
post-pandemic economic recession, decrease in corporate and consumer
expenditures, prolonged unemployment, or other circumstances that could
negatively impact general economic conditions. If we are unable to raise
additional funds through equity or debt financings or other means when needed,
we may be required to delay, limit, reduce or terminate our product development
or future commercialization efforts or grant rights to develop and market
products or product candidates that we would otherwise prefer to develop and
market ourselves.
Contractual Obligations and Commitments
There have been no material changes to our contractual obligations and commitments as included in our Annual Report.
Application of Critical Accounting Policies
We have prepared our condensed consolidated financial statements in accordance with accounting principles generally accepted in theU.S. Our preparation of these condensed consolidated financial statements requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets, liabilities, expenses, and related disclosures at the date of the condensed consolidated financial statements, as well as revenue and expenses recorded during the reporting periods. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could therefore differ materially from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in the notes to our consolidated financial statements to our Annual Report, we believe that our most critical accounting policies are those relating to revenue recognition, collaborative arrangements, accrued research and development expenses, and stock-based compensation. 47 -------------------------------------------------------------------------------- There have been no material changes to our critical accounting policies from those described in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Significant Judgments and Estimates" included in our Annual Report. 48
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