SAGE THERAPEUTICS, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K, 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 Annual 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 I, Item 1A. "Risk Factors" and under "Cautionary Note Regarding Forward-Looking Statements" in this Annual 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 Annual 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, which 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. Information pertaining to fiscal year 2017 was included in the Company's Annual Report on Form 10-K for the year-endedDecember 31, 2018 , on pages 79 through 97, under Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," which was filed with theSEC onFebruary 19, 2019 . We are a biopharmaceutical company committed to developing and commercializing novel medicines with the potential to transform the lives of people with debilitating disorders of the brain. Our lead product, ZULRESSO™ (brexanolone) injection, was approved by theU.S. Food and Drug Administration , or FDA, inMarch 2019 for the treatment of postpartum depression, or PPD, in adults, and was made commercially available in theU.S. beginning onJune 24, 2019 , after completion of controlled substance scheduling of brexanolone by theU.S. Drug Enforcement Administration , or DEA and incorporation of the scheduling into the FDA-approved label and other product information. We have a portfolio of other product candidates with a current focus on modulating two critical 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 targeting CNS indications where patient populations are easily identified, clinical endpoints are well-defined, and development pathways are feasible. 82
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The following table summarizes the status of our product and product candidate portfolio as of the filing date of this Annual Report.
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Our lead product, ZULRESSO (brexanolone) injection, is a proprietary
intravenous, or IV, formulation of brexanolone. Brexanolone is chemically
identical to allopregnanolone, a naturally occurring neuroactive steroid that
acts as a positive allosteric modulator of GABA A receptors. In March 2019 , the
FDA approved ZULRESSO for the treatment of PPD in adults. We launched ZULRESSO
commercially in the U.S. beginning on June 24, 2019 , after completion of
controlled substance scheduling of brexanolone by the DEA and incorporation of
the scheduling into the FDA-approved label and other product information. The
DEA placed ZULRESSO into Schedule IV of the Controlled Substances Act. PPD is
one of the most common medical complications during and after pregnancy. Because
of the risk of serious harm resulting from excessive sedation or sudden loss of
consciousness during the ZULRESSO infusion, ZULRESSO must be administered in a
medically-supervised healthcare setting that has been certified under a Risk
Evaluation and Mitigation Strategy, or REMS, program and meets the other
requirements of the REMS program, including requirements related to monitoring
of the patient during the infusion. Patients who are prescribed ZULRESSO are
required to enroll in a registry which may allow us to compile additional
information to further our understanding of the risk of excessive sedation or
sudden loss of consciousness during administration of ZULRESSO and management of
the risk. Given the mode and setting of administration of ZULRESSO and the
requirements of the REMS program, we expect use of ZULRESSO will, at least
initially, be focused primarily on women with severe PPD. We estimate that about
20% to 30% of women diagnosed with PPD fall into this category.
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Our next most advanced product candidate is zuranolone (SAGE-217), an oral
compound that is currently in Phase 3 clinical development for PPD and major
depressive disorder, or MDD. Zuranolone is a novel neuroactive steroid that,
like brexanolone, is a positive allosteric modulator of GABAA receptors,
targeting both synaptic and extrasynaptic GABAA receptors. The FDA has granted
Breakthrough Therapy designation and Fast Track designation to zuranolone in the
treatment of MDD. To date, we have completed three pivotal clinical trials of
zuranolone, two in MDD and one in PPD. The first completed pivotal trial
evaluating zuranolone in the treatment of MDD and the pivotal trial evaluating
zuranolone in the treatment of PPD both met their primary endpoints. On December
5, 2019 , we reported top-line results from the pivotal Phase 3 clinical trial
evaluating the effect of zuranolone on depressive symptoms in adults with MDD,
known as the Mountain Study, in which patients received a two-week course of
zuranolone or placebo followed by four weeks of blinded follow-up, with an
open-label extension to continue to follow patients for up to six months. The
Mountain Study did not meet its primary endpoint of a statistically significant
reduction from baseline compared to placebo in the HAMD-17 total score at Day
15. Zuranolone 30 mg, given once-daily as an oral treatment, was associated with
a mean reduction of 12.6 in the HAMD-17 total score compared to 11.2 for placebo
(p=0.115). Patients in the zuranolone 30 mg group achieved statistically
significant reductions in the HAMD-17 total score at Days 3, 8 and 12 (p<0.018
for each timepoint). The most common adverse events (?5%) in either zuranolone
group were headache, dizziness, somnolence, fatigue, diarrhea, sedation and
nausea.
We are in the process of applying learnings from the pivotal program to date and
ongoing feedback from the FDA to evaluate the development and regulatory path
forward for zuranolone and to inform next steps in advancing the program,
including next steps with respect to existing trials. Phase 3 trials that have
been commenced include the following:
-The Shoreline Study is an open-label, long-term Phase 3 clinical trial in MDD
evaluating the safety of as-needed repeat treatment with zuranolone in which
patients receive an initial two-week course of zuranolone and as needed
retreatment for up to one year. Enrollment of patients receiving the 30mg dose
in the Shoreline Study was completed in the third quarter of 2019, and we expect
to report top-line results as to those patients in 2020. We are assessing the
potential to add an additional cohort of patients to this trial to evaluate a
higher dose.
-The Redwood Study is a placebo-controlled Phase 3 clinical trial in MDD
evaluating the efficacy (time to first relapse) and long-term safety of fixed
interval zuranolone monotherapy maintenance treatment (treatment without
traditional antidepressants) in which randomized patients receive a two-week
course of zuranolone or placebo every two months until the first relapse for up
to one year. Dosing commenced in this trial in the third quarter of 2019,
however we paused further enrollment and dosing in this trial in December 2019
as we evaluate the overall development and regulatory path forward for
zuranolone and consider potential amendments to the trial or other next steps
for the pivotal program.
-The Rainforest Study is a placebo-controlled polysomnography Phase 3 clinical
trial of zuranolone in patients with MDD who have co-morbid insomnia. We have
paused this trial as we evaluate the overall development and regulatory path
forward for zuranolone and consider potential amendments to the trial or other
next steps for the pivotal program.
In addition to zuranolone, we have a portfolio of other novel compounds that
target GABAA receptors. SAGE-324 is a novel GABAA receptor positive allosteric
modulator with preclinical pharmacokinetic and pharmacodynamic properties that
suggest suitability for chronic oral dosing. We plan to develop SAGE-324 for a
number of neurological conditions, including essential tremor, epileptiform
disorders and Parkinson's disease. Results from our Phase 1 clinical program
demonstrated that the profile of SAGE-324 includes good oral bioavailability and
a pharmacokinetic profile consistent with once-daily dosing. We have also
studied SAGE-324 in a Phase 1 single dose, open-label clinical trial involving a
small number of patients with essential tremor. Based on the results of the
Phase 1 clinical program, including the positive signal observed in the small
cohort of patients with essential tremor, and our other work in this area to
date, we initiated study-related activities for a Phase 2 clinical trial
evaluating SAGE-324 in the treatment of essential tremor in the fourth quarter
of 2019, and plan to commence dosing in the first half of 2020. Our portfolio of
novel GABAA receptor positive allosteric modulators also includes SAGE-689,
intended for intramuscular administration, for which we have completed the
non-clinical studies required to move into a Phase 1 clinical development
program, and other compounds at earlier stages of development with a focus on
both acute and chronic CNS disorders.
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Our second area of focus is the development of novel compounds that target the
NMDA receptor. The first product candidate selected for development from this
program is SAGE-718, an oxysterol-based positive allosteric modulator of the
NMDA receptor, which we are exploring in certain cognition-related disorders
associated with NMDA receptor dysfunction, including Huntington's
disease. Examples of indications involving NMDA receptor dysfunction also
include certain types, aspects or subpopulations of a number of diseases such as
depression, Alzheimer's disease, attention deficit hyperactivity disorder,
schizophrenia, and neuropathic pain. In December 2019 , we reported top-line
results from a Phase 1 clinical trial to evaluate the safety, tolerability and
pharmacokinetics of SAGE-718 in a small cohort of patients with early
Huntington's disease. In the 14-day open-label study, the safety, tolerability,
and pharmacokinetic profile of daily SAGE-718 oral solution were evaluated in
six patients with early Huntington's disease. In the study, SAGE-718 was well
tolerated, with no serious adverse events or adverse events leading to treatment
discontinuation. In addition, patients demonstrated improved performance,
compared to baseline, on assessments of executive functioning, with measures
relevant to the core cognitive decline observed in people with Huntington's
disease. These results are comparable to improvements in measures of executive
function observed in an earlier Phase 1 cohort of individuals without
Huntington's disease. We plan to evaluate SAGE-718 in Phase 2a open-label
studies evaluating patients with certain other cognition-related disorders,
which will inform potential advancement of SAGE-718 into further Phase 2
clinical development, including in Huntington's Disease. Our second product
candidate targeting the NMDA receptor, SAGE-904, is in development as a
potential oral therapy for disorders associated with NMDA hypofunction. We
initiated a Phase 1 clinical trial of SAGE-904 in healthy volunteers in the
third quarter of 2019.
We expect to continue our work on allosteric modulation of the GABAA and NMDA
receptor systems in the brain. The GABA A 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 continue to evaluate business development opportunities
in potential new areas of interest.
We began to generate revenue from product sales in the second quarter of 2019 in
conjunction with the launch of our first product, ZULRESSO, which commenced on
June 24, 2019 . Prior to the second quarter of 2019, all of our revenue had been
derived from a strategic collaboration we entered into in the second quarter of
2018 with Shionogi & Co., Ltd., or Shionogi, for the clinical development and
commercialization of zuranolone in Japan , Taiwan and South Korea . Based on
experience during the initial six months of the ZULRESSO launch, we now
anticipate that it will take nine months or longer, varying by site, for the
majority of interested healthcare settings to complete the key actions required
to become ready to infuse patients. We expect that many larger hospitals and
healthcare systems will take 12 months or longer to become treatment-ready,
often as a result of institutional barriers. The actions required for a
healthcare setting to be ready to treat patients include: becoming
REMS-certified, achieving formulary approvals, establishing protocols for
administering ZULRESSO and securing satisfactory reimbursement. We expect that
some treatment-ready sites will wait to gain familiarity with the clinical
profile of ZULRESSO and to secure direct experience with reimbursement prior to
increasing patient intake. Sites must often negotiate reimbursement on a
payor-by-payor basis under commercial coverage. We also expect that the
availability, terms and timing of coverage for ZULRESSO by state Medicaid
systems will vary significantly by state. As a result, we expect that revenue
growth from sales of ZULRESSO may lag the expected increase in the number of
infusion-ready sites, if such increase occurs. Given these dynamics, we expect
ZULRESSO revenue growth will be modest over the next couple of quarters with an
increase in the rate of growth of ZULRESSO revenue anticipated in the second
half of 2020, assuming an increase in the number of sites, including larger
hospitals, administering ZULRESSO to treat women with PPD and an increase in the
volume of patients treated at existing sites. To accomplish this objective, we
are guiding large sites through the steps necessary to become treatment-ready
and supporting hospital administrations' efforts to reduce the complexity of
those steps. We are early in the launch of ZULRESSO and will continue to
evaluate trends related to revenue momentum for ZULRESSO.
We have incurred net losses in each year since our inception, and we have an
accumulated deficit of $1.6 billion as of December 31, 2019 . Our net losses were
$680.2 million , $372.9 million and $270.1 million for the years ended December
31, 2019 , 2018 and 2017, respectively. 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.
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We expect that our expenses will increase substantially in connection with our ongoing activities, as we:
• continue to advance Phase 3 clinical development of zuranolone;
• continue our commercialization efforts with respect to ZULRESSO in the
treatment of PPD in the
• fulfill our post-approval clinical trial commitments related to ZULRESSO;
• prepare for a potential NDA filing and pre-launch activities with respect
to zuranolone, if our pivotal program is successful and supports a filing;
• continue to advance clinical development of SAGE-324 with an initial focus
on development in essential tremor, certain epileptiform disorders, and
potentially other neurological conditions;
• continue to advance clinical development of SAGE-718 with an initial focus
on development in indications involving NMDA receptor hypofunction,
including potentially Huntington's disease;
• advance one or more non-clinical stage compounds into Phase 1 clinical
development, and conduct ongoing and planned Phase 1 clinical trials;
• continue our research and development efforts to evaluate the potential
for our existing product candidates in the treatment of additional
indications or in new formulations, and to identify new drug candidates in
the treatment of CNS disorders;
• determine the potential development and regulatory pathway for zuranolone
in the EU and our EU strategy;
• seek regulatory approvals for any product candidates that successfully
complete clinical development;
• continue to manufacture supplies of zuranolone for ongoing late stage
clinical trials; refine the formulation and improve the manufacturing
process for our other product candidates; and manufacture clinical
supplies as development progresses;
• as our development efforts succeed, add personnel, including personnel to
support our product development and ongoing and future commercialization
efforts, and incur increases in stock-based compensation expense related
to existing and new personnel with respect to both service-based and
performance-based awards;
• evaluate market opportunities for our products and product candidates in
markets outside the U.S. ;
• evaluate business development opportunities;
• add operational, financial and management information systems; and
• maintain, leverage and expand our intellectual property portfolio.
Until such time that we can generate significant revenue from product sales, if
ever, we expect to also finance our operations through a combination of revenue,
equity or debt financings or other sources, which may include collaborations
with third parties. We may not be successful in our commercialization of
ZULRESSO, and may not generate revenues at the levels or on the timing we
expect. We may never successfully complete development of any of our current or
future product candidates, 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 as and when needed would have a negative impact on
our financial condition and on our ability to pursue our business strategy.
Arrangements with collaborators or others may require us to relinquish rights to
certain of our technologies or product candidates. 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 December 31, 2019 , will enable us to fund our operating expenses and capital
expenditure requirements, based on our current operating plan, for at least the
next 12 months from the filing date of this Annual Report. See "-Liquidity and
Capital Resources".
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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, which commenced onJune 24, 2019 . Prior to the second quarter of 2019, all of our revenue had been derived from a strategic collaboration we entered into in the second quarter of 2018 with Shionogi. Based on experience during the initial six months of the ZULRESSO launch, we now anticipate that it will take nine months or longer, varying by site, for the majority of interested healthcare settings to complete the key actions required to become ready to infuse patients. We expect that many larger hospitals and healthcare systems will take 12 months or longer to become treatment-ready, often as a result of institutional barriers. The actions required for a healthcare setting to be ready to treat patients include becoming REMS-certified, achieving formulary approvals, establishing protocols for administering ZULRESSO and securing satisfactory reimbursement. We expect that some treatment-ready sites will wait to gain familiarity with the clinical profile of ZULRESSO and to secure direct experience with reimbursement prior to increasing patient intake. Sites must often negotiate reimbursement on a payor-by-payor basis under commercial coverage. We also expect that the availability, terms and timing of coverage for ZULRESSO by state Medicaid systems will vary significantly by state. As a result, we expect that revenue growth from sales of ZULRESSO may lag the expected increase in the number of infusion-ready sites, if such increase occurs. Given these dynamics, we expect ZULRESSO revenue growth will be modest over the next couple of quarters with an increase in the rate of growth of ZULRESSO revenue anticipated in the second half of 2020, assuming an increase in the number of sites, including larger hospitals, administering ZULRESSO to treat women with PPD and an increase in the volume of patients treated at existing sites. To accomplish this objective, we are guiding large sites through the steps necessary to become treatment-ready and supporting hospital administrations' efforts to reduce the complexity of those steps. We are early in the launch of ZULRESSO and will continue to evaluate trends related to revenue momentum for ZULRESSO. We expect that, even if we start to see revenue growth in the second half of 2020, revenues are likely to fluctuate quarter to quarter. We will not generate revenue from other products unless and until we 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 product candidates. We expect that revenue, if any, we generate under collaboration agreements will fluctuate from quarter to quarter as a result of the timing and amount of license fees, research and development services and related reimbursements, payments for clinical materials or manufacturing services, and milestone and other payments. 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.
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 clinical
trials and developing external manufacturing capabilities;
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• 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; and
• payments made under our third-party license agreements.
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, or CMOs, 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 clinical trial and non-clinical study results;
• 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.
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 I, Item 1A of Annual 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
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functions; and stock-based compensation expense. Selling, general and
administrative expenses also include facilities and other related expenses,
including rent, depreciation, maintenance of facilities, insurance and supplies;
professional fees for expenses incurred under agreements with third parties
relating to the commercialization of ZULRESSO; and for public relations, audit,
tax and legal services, including legal expenses to pursue patent protection of
our intellectual property.
We anticipate that we will continue to incur significant selling, general and
administrative expenses, including payroll and related expenses, as we continue
to support our commercial activities associated with ZULRESSO and the other
aspects of our business and operations. We also expect that selling, general and
administrative expenses will increase in the future if we are successful in our
development efforts and are preparing for potential commercialization of our
current or future product candidates, if approved. We also anticipate
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.
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with generally
accepted accounting principles in the U.S. The preparation of our consolidated
financial statements and related disclosures requires us to make estimates and
assumptions that affect the reported amount of assets, liabilities, revenue,
costs and expenses, and related disclosures. We believe that the estimates and
assumptions involved in the accounting policies described below may have the
greatest potential impact on our consolidated financial statements and
therefore, consider these to be our critical accounting policies. We evaluate
our estimates and assumptions on an ongoing basis. Our actual results may differ
from these estimates under different assumptions and conditions. While our
significant accounting policies are described in more detail in the notes to our
consolidated financial statements appearing elsewhere in this Annual Report, we
believe that the following accounting policies are those most critical to the
judgments and estimates used in the preparation of our consolidated financial
statements.
Revenue Recognition
Effective January 1, 2017 , we adopted Accounting Standards Codification, or ASC,
Topic 606, Revenue from Contracts with Customers, or Topic 606. This standard
applies to all contracts with customers, except for contracts that are within
the scope of other standards, such as collaboration arrangements and leases. The
adoption of Topic 606 had no impact on our consolidated financial statements as
we did not have any revenue prior to adoption.
We received approval of ZULRESSO from the FDA in March 2019 and subsequently
began to record revenues from product sales in June 2019 . Prior to the second
quarter of 2019, all of our revenues were derived from our collaboration
agreement with Shionogi. The terms of our collaboration agreement include
consideration such as non-refundable license fees, reimbursement of any
development costs we incur on behalf of Shionogi, payments due upon the
achievement of clinical and pre-clinical performance-based development
milestones, regulatory milestones, manufacturing services to supply drug product
for clinical trials, and sales-based milestones and royalties on product sales.
Under Topic 606, an entity recognizes revenue when its customer obtains control
of promised goods or services, in an amount that reflects the consideration that
the entity expects to receive in exchange for those goods or services. To
determine revenue recognition for arrangements that an entity determines are
within the scope of Topic 606, the entity performs the following five steps: (i)
identify the contract(s) with a customer; (ii) identify the performance
obligations in the contract; (iii) determine the transaction price, including
variable consideration, if any; (iv) allocate the transaction price to the
performance obligations in the contract; and (v) recognize revenue when (or as)
the entity satisfies a performance obligation. For contracts determined to be
within the scope of Topic 606, we assess whether the goods or services promised
within each contract are distinct to identify those that are performance
obligations. Arrangements that include rights to additional goods or services
that are exercisable at a customer's discretion are generally considered
options. We assess if these options provide a material right to the customer and
if so, they are considered performance obligations. The exercise of a material
right may be accounted for as a contract modification or as a continuation of
the contract for accounting purposes. This assessment involves subjective
determinations and requires management to make judgments about the individual
promised goods or services and whether such are separable from the other aspects
of the contractual relationship. Promised goods and services are considered
distinct provided that: (i) the customer can benefit from the good or service
either on its own or together with other resources that are readily available to
the customer and
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-------------------------------------------------------------------------------- (ii) the entity's promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. We allocate the transaction price (the amount of consideration we expect to be entitled to from a customer in exchange for the promised goods or services) to each performance obligation and recognize the associated revenue when (or as) each performance obligation is satisfied. Our estimate of the transaction price for each contract includes all variable consideration to which we expect to be entitled.
Collaboration and license revenue
In assessing whether a promised good or service is distinct in the evaluation of
a collaboration or license arrangement subject to Topic 606, we consider factors
such as the research, manufacturing and commercialization capabilities of the
collaboration partner and the availability of the associated expertise in the
general marketplace. We also consider the intended benefit of the contract in
assessing whether a promised good or service is separately identifiable from
other promises in the contract. If a promised good or service is not distinct,
we are required to combine that good or service with other promised goods or
services until it identifies a bundle of goods or services that is distinct.
The transaction price is then determined and allocated to the identified
performance obligations in proportion to their standalone selling prices, or
SSP, on a relative SSP basis. SSP is determined at contract inception and is not
updated to reflect changes between contract inception and when the performance
obligations are satisfied. Determining the SSP for performance obligations
requires significant judgment. In developing the SSP for a performance
obligation, we consider applicable market conditions and relevant
entity-specific factors, including factors that were contemplated in negotiating
the agreement with the customer and estimated costs. In certain circumstances,
we may apply the residual method to determine the SSP of a good or service if
the standalone selling price is considered highly variable or uncertain. We
validate the SSP for performance obligations by evaluating whether changes in
the key assumptions used to determine the SSP will have a significant effect on
the allocation of arrangement consideration between multiple performance
obligations.
If the consideration promised in a contract includes a variable amount, we
estimate the amount of consideration to which we will be entitled in exchange
for transferring the promised goods or services to a customer. We determine the
amount of variable consideration by using the expected value method or the most
likely amount method. We include the unconstrained amount of estimated variable
consideration in the transaction price. The amount included in the transaction
price is constrained to the amount for which it is probable that a significant
reversal of cumulative revenue recognized will not occur. At the end of each
subsequent reporting period, we re-evaluate the estimated variable consideration
included in the transaction price and any related constraint, and if necessary,
adjust our estimate of the overall transaction price. Any such adjustments are
recorded on a cumulative catch-up basis in the period of adjustment.
If an arrangement includes development and regulatory milestone payments, we
evaluate whether the milestones are considered probable of being reached and
estimates the amount to be included in the transaction price using the most
likely amount method. If it is probable that a significant revenue reversal
would not occur, the associated milestone value is included in the transaction
price. Milestone payments that are not within our control or the licensee's
control, such as regulatory approvals, are generally not considered probable of
being achieved until those approvals are received.
In determining the transaction price, we adjust consideration for the effects of
the time value of money if the timing of payments provides us with a significant
benefit of financing. We do not assess whether a contract has a significant
financing component if the expectation at contract inception is such that the
period between payment by the licensees and the transfer of the promised goods
or services to the licensees will be one year or less. We assessed our
arrangement with Shionogi and concluded that a significant financing component
does not exist. For arrangements with licenses of intellectual property that
include sales-based royalties, including milestone payments based on the level
of sales, and the license is deemed to be the predominant item to which the
royalties relate, we recognize royalty revenue and sales-based milestones at the
later of (i) when the related sales occur, or (ii) when the performance
obligation to which the royalty has been allocated has been satisfied.
We then recognize as revenue the amount of the transaction price that is
allocated to the respective performance obligation when (or as) each performance
obligation is satisfied at a point in time or over time, and if over time this
is based on the use of an output or input method. To date, revenue from our
collaboration agreement with Shionogi has come from an initial, upfront fee upon
execution of the agreement and for the supply of drug product for Shionogi
clinical trials.
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Product revenue
We recognize product revenues, net of variable consideration related to certain allowances and accruals that are determined using the expected value method, in our consolidated financial statements at the point in time when control transfers to the customer, which is typically when the product has been delivered to the customer's location. The amount included in the transaction price is constrained to the amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur. Our only performance obligation identified for ZULRESSO is to deliver the product to the location specified by the customer's order. We record shipping and handling costs associated with delivery of product to our customers within selling, general and administrative expenses on our consolidated statements of operations and comprehensive loss. We expense incremental costs of obtaining a contract as incurred if the expected amortization period of the asset would be less than one year. If we were to incur incremental costs with an amortization period greater than a year, such costs would be capitalized as contract assets, as they are expected to be recovered, and would be expensed by amortizing on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates. We did not have any contract assets (unbilled receivables) atDecember 31, 2019 , as customer invoicing generally occurs before or at the time of revenue recognition. We did not have any contract liabilities atDecember 31, 2019 , as we did not receive any payments in advance of satisfying our performance obligations to our customers. Amounts billed or invoiced are included in prepaid expenses and other current assets on the consolidated balance sheets. We record reserves, based on contractual terms, for the following components of variable consideration related to product sold during the reporting period, as well as our estimate of product that remains in the distribution channel inventory of our customers at the end of the reporting period. On a quarterly basis, we will update our estimates and record any necessary material adjustments in the period they are identified. Chargebacks: We estimate chargebacks from our customers who directly purchase the product from us for discounts resulting from contractual commitments to sell products to eligible healthcare settings at prices lower than the list prices charged to our customers. Customers charge us for the difference between what they pay to us for the product and the selling price to the eligible healthcare settings. Reserves for chargebacks consist of credits that we expect to issue for units that remain in the distribution channel inventories at the end of each reporting period that we expect will be sold to eligible healthcare settings, and chargebacks that customers have claimed, but for which we have not yet issued a credit. Government Rebates: We are subject to discount obligations under government programs, including Medicaid. We record reserves for rebates in the same period the related product revenue is recognized, resulting in a reduction of ZULRESSO product revenues and a current liability that is included in accrued expenses on our consolidated balance sheets. Our liability for these rebates consists of invoices received for claims from prior quarters that have not been paid or for which an invoice has not yet been received, estimates of claims for the current quarter, and estimates of future claims that will be made for product that has been recognized as revenue, but which remains in the distribution channel at the end of each reporting period. Trade Discounts and Allowances: We generally provide customary invoice discounts on ZULRESSO sales to our customers for prompt payment and we pay fees for sales order management, data, and distribution services. We estimate our customers will earn these discounts and fees and deduct these discounts and fees in full from gross ZULRESSO revenues and accounts receivable at the time we recognize the related revenues. Financial Assistance: We provide voluntary financial assistance programs to patients with commercial insurance that have coverage and reside in states that allow financial assistance. We estimate the financial assistance amounts for ZULRESSO and record any such amounts within accrued expenses on the consolidated balance sheets. The calculation of the accrual for financial assistance is based on an estimate of claims and the cost per claim that the Company expects to receive using demographics for patients who have registered and been approved for assistance. Any adjustments are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability, which is included as a component of accrued expenses on the consolidated balance sheets. Product Returns: Consistent with industry practice, we offer our customers that purchase ZULRESSO directly from us limited product return rights for damaged, defective or expiring product, provided it is within a specified period around the product expiration date as set forth in the applicable individual distribution agreement. We estimate the amount of our product sales that may be returned by our customers and record this estimate as a 91 -------------------------------------------------------------------------------- reduction of revenue in the period the related product revenue is recognized, as well as a reserve within accrued expenses on our consolidated balance sheets. Based on the distribution model for ZULRESSO, contractual inventory limits with our customers, the product price and limited contractual return rights, we believe there will be minimal ZULRESSO returns. We have experienced no product returns to date. We will update our estimated refund liability, on at least a quarterly basis, based on actual shipments of ZULRESSO subject to contractual return rights, changes in expectations about the amount of estimated refunds or actual returns.
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel and vendors to identify services that have been performed on our behalf and estimating the level of service performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance payments. We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. Examples of estimated accrued research and development expenses include fees paid to:
• CROs in connection with performing research and development services on
our behalf;
• other providers in connection with clinical trials;
• vendors in connection with non-clinical development activities; and
• vendors related to product manufacturing, development and distribution of
clinical supplies.
We base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple CROs that conduct and manage clinical trials on our behalf. The financial terms of these agreements vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the clinical expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. When determining accruals, we estimate the time period over which services will be performed, enrollment of patients, number of sites activated and level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting expenses that are too high or too low in any particular period. To date, we have not made any material adjustments to our prior estimates of accrued research and development expenses.
Stock-Based Compensation
We recognize compensation expense for stock-based awards, including grants of stock options and restricted stock units, made to employees and non-employee directors based on the estimated fair value on date of grant, over the requisite service period. For awards that vest upon achievement of a performance condition, using management's best estimates, which consider the inherent risk and uncertainty regarding the future outcomes of the milestones, we recognize compensation expense when achievement of the performance condition is met or during the period from which meeting the condition is deemed probable until the expected date of meeting the performance condition. We have historically granted stock options with exercise prices equivalent to the fair value of our common stock as of the date of grant. For grants of restricted stock units, we base the fair value on the stock price as of the date of grant. Prior toJanuary 1, 2019 , the majority of our grants were stock options. EffectiveJanuary 1, 2019 , for grants to employees, we began to grant a mix of stock options and restricted stock units. EffectiveJanuary 1, 2019 , we recognize compensation expense for stock-based awards, including grants of stock options and restricted stock units, made to non-employee consultants based on the estimated fair value on the date of grant, over the requisite service period. ThroughDecember 31, 2018 , we recognized compensation expense for stock-based awards granted to non-employee consultants based on the fair value of the awards on each date on which the awards 92 -------------------------------------------------------------------------------- vest. Compensation expense was recognized over the vesting period, provided that services were rendered by such non-employee consultants during that time. At the end of each financial reporting period, the fair value of unvested options was re-measured using the then-current fair value of our common stock and updated assumptions using the Black-Scholes option-pricing model. The fair value of each stock option grant is estimated using the Black-Scholes option-pricing model. ThroughDecember 31, 2015 , we lacked sufficient company-specific historical and implied volatility information, and as a result, we used the volatility of a group of publicly-traded peer companies in the Black-Scholes calculations. Beginning in 2016, we estimated our expected volatility using a weighted average of the historical volatility of publicly-traded peer companies and the volatility of our common stock and expect to continue to do so until such time as we have adequate historical data regarding the volatility of our common stock price for the duration of the expected term. The expected term of the options granted to employees and non-employees has been determined utilizing the "simplified" method for awards that qualify as "plain-vanilla" options. ThroughDecember 31, 2018 , the expected term of our options granted to non-employee consultants has been determined based on the contractual term of the options, and effectiveJanuary 1, 2019 , the "simplified" method is used. The risk-free interest rate is determined by reference to theU.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. The expected dividend yield is based on the fact that we have never paid cash dividends and do not expect to pay any cash dividends in the foreseeable future.
The fair value of each option granted under our equity plans has been calculated on the date of grant using the following weighted average assumptions:
Year Ended December 31,
2019 2018 2017
Expected dividend yield 0 % 0 % 0 %
Expected volatility 71.34 % 74.45 % 79.89 %
Risk-free interest rate 2.21 % 2.68 % 2.03 %
Expected life of option 6.05 years 6.04 years 6.03 years
These assumptions represented our best estimates, but the estimates involve
inherent uncertainties and the application of our judgment. As a result, if
factors change and we use significantly different assumptions or estimates when
valuing our stock options, our stock-based compensation expense could be
materially different. We recognize compensation expense for only the portion of
awards that are expected to vest. In developing a forfeiture rate estimate for
pre-vesting forfeitures, we have considered our historical experience of actual
forfeitures. If our future actual forfeiture rate is materially different from
our estimate, our stock-based compensation expense could be significantly
different from what we have recognized in the current period.
At December 31, 2019 , we had unrecognized stock-based compensation expense
related to our unvested service-based stock option awards of $283.4 million ,
which is expected to be recognized over the remaining weighted average vesting
period of 2.44 years.
At
At
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially
impact our financial position and results of operations is set forth in Note 2
to the consolidated financial statements included in this Annual Report.
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Results of Operations
Comparison of the Years Ended
The following table summarizes our results of operations for the years endedDecember 31, 2019 and 2018: Year Ended December 31, Increase 2019 2018 (Decrease) (in thousands) Product revenue, net$ 3,957 $ -$ 3,957 Collaboration revenue 2,911 90,273 (87,362 ) Total revenue 6,868 90,273 (83,405 ) Operating costs and expenses: Cost of goods sold 400 -
400
Research and development 368,815 282,107
86,708
Selling, general and administrative 345,777 201,404 144,373 Total operating costs and expenses 714,992 483,511 231,481 Loss from operations (708,124 ) (393,238 ) (314,886 ) Interest income, net 27,804 20,334 7,470 Other income (expense), net 82 22 60 Net loss$ (680,238 ) $ (372,882 ) $ (307,356 ) Product revenue, net We began to record net product revenues in the second quarter of 2019 following the approval of ZULRESSO by the FDA onMarch 19, 2019 and its subsequent commercial launch in theU.S. inJune 2019 . During the year endedDecember 31, 2019 , we recognized$4.0 million of net product revenues related to sales of ZULRESSO. Sales allowances and accruals consisted of patient financial assistance, distribution fees, discounts, and chargebacks. Collaboration revenue During the year endedDecember 31, 2019 , we recognized$2.9 million in collaboration revenue from our agreement with Shionogi related to the supply of zuranolone drug product for clinical development. For further discussion regarding our collaboration agreement with Shionogi and the accounting for revenue from collaboration agreements, refer to Note 6, Collaboration Agreement and Note 2, Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report. EffectiveJune 12, 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 inJapan ,Taiwan andSouth Korea . Under the terms of the agreement, Shionogi will be responsible for all clinical development, regulatory filings and commercialization of zuranolone for MDD, and potentially other indications, inJapan ,Taiwan andSouth Korea . Shionogi was required to make an upfront payment to us upon execution of the agreement of$90.0 million , and it was recorded as collaboration revenue in the three months endedJune 30, 2018 . Cost of goods sold Cost of goods sold of$0.4 million for the year endedDecember 31, 2019 is related to royalties on net sales payable to CyDex and The Regents of theUniversity of California under license agreements (see Note 5, Leases, Commitments and Contingencies in the Notes to Consolidated Financial Statements included in Part IV of this Annual Report), labeling and packaging costs incurred after FDA approval for ZULRESSO, and certain distribution costs. Prior to receiving initial FDA approval for ZULRESSO onMarch 19, 2019 , we manufactured ZULRESSO inventory to be sold upon commercialization and recorded all costs incurred 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 year endedDecember 31, 2019 . We expect our cost of goods sold for ZULRESSO to increase as a percentage of net sales in future periods as we produce and then sell inventory that reflects the full cost of manufacturing. 94
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Research and development expenses
Year Ended
December 31, Increase
2019 2018 (Decrease)
(in thousands)
zuranolone (SAGE-217) $ 146,819 $ 56,925 $ 89,894
SAGE-324 21,449 9,461 11,988
SAGE-718 11,887 13,576 (1,689 )
brexanolone (SAGE-547) 12,764 32,184 (19,420 )
Other research and development programs 40,503 36,584 3,919
Unallocated expenses 72,462 82,506 (10,044 )
Stock-based compensation 62,931 50,871 12,060
Total research and development expenses
Research and development expenses for the year ended
• an increase of
clinical trials of zuranolone in MDD and supporting supply chain
activities;
• an increase of
clinical trials of SAGE-324 and the initiation of study-related activities
for a Phase 2 clinical trial in the treatment of essential tremor;
• a decrease of
program, due to the completion of the Phase 3 clinical trials in PPD; and
• an increase of $12.1 million in non-cash stock-based compensation expense,
due to the achievement of performance-based vesting criteria of
million during the year ended
stock-based compensation expense related to the achievement of
performance-based vesting criteria was $2.5 million for the year ended
December 31, 2018 .
Selling, general and administrative expenses
Year Ended
December 31, Increase
2019 2018 (Decrease)
(in thousands)
Personnel-related $ 122,857 $ 62,610 $ 60,247
Stock-based compensation 90,300 51,092 39,208
Professional fees 76,594 69,300 7,294
Other 56,026 18,402 37,624
Total selling, general and administrative expenses
Selling, general and administrative expenses for the years endedDecember 31, 2019 and 2018 were$345.8 million and$201.4 million , respectively. The increase of$144.4 million was primarily due to the following:
• an increase of
the hiring of additional full-time employees to support the growth of our
operations and commercial related activities;
• an increase of $39.2 million in non-cash stock-based compensation expense,
due to the hiring of additional full-time employees to support the growth
of our operations, the increase in the fair market value of our common
stock and the achievement of performance-based vesting criteria. The
amount of non-cash stock-based compensation expense related to the
achievement of performance-based vesting criteria was $13.2 million during
the year ended
compensation expense related to the achievement of performance-based
vesting criteria was
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• an increase of
operations, primarily for costs related to preparations for the commercial
launch of ZULRESSO in the U.S. , which commenced on June 24, 2019 ; and
• an increase of $37.6 million in other expenses due to increased costsassociated with facilities, along with other corporate infrastructure and
office-related costs, such as information technology costs.
Interest income, net and other expense, net
Interest income, net, and other expense, net, for the years endedDecember 31, 2019 and 2018 were$27.9 million and$20.4 million , respectively. The primary reason for the increase was an increase in the balance of marketable securities.
Liquidity and Capital Resources
Prior to the second quarter of 2019, we had not generated revenue from product sales. We began to generate revenue from product sales in the second quarter of 2019 in conjunction with the launch of our first product, ZULRESSO, which commenced onJune 24, 2019 . Prior to the second quarter of 2019, all of our revenue had been derived from our collaboration with Shionogi. To date, we have incurred recurring net losses. As ofDecember 31, 2019 , we had an accumulated deficit of$1.6 billion . From our inception throughDecember 31, 2019 , we received net proceeds of$2.2 billion from the sales of redeemable convertible preferred stock, the issuance of convertible notes and the sales of common stock in our initial public offering inJuly 2014 and follow-on offerings inApril 2015 ,January 2016 ,September 2016 ,November 2017 ,February 2018 andFebruary 2019 . OnFebruary 13, 2018 , we completed the sale of 4,032,012 shares of our common stock in a follow-on underwritten public offering at a price to the public of$164.00 per share, resulting in net proceeds of$631.2 million after deducting commissions and underwriting discounts and offering costs paid by us. OnFebruary 27, 2019 , we completed the sale of 3,833,334 shares of our common stock in a follow-on underwritten public offering at a price to the public of$150.00 per share, resulting in net proceeds of$560.9 million after deducting commissions and underwriting discounts and offering costs paid by us. As ofDecember 31, 2019 , our primary sources of liquidity were our cash, cash equivalents and marketable securities, which totaled$1.0 billion . We invest our cash in money market funds,U.S. government securities, corporate bonds and commercial paper, with the primary objectives to preserve principal, provide liquidity and maximize income without significantly increasing risk.
The following table summarizes the primary sources and uses of cash for the
years ended
Year Ended December 31,
2019 2018
Net cash provided by (used in):
Operating activities $ (528,706 ) $ (260,671 )
Investing activities (143,156 ) (512,461 )
Financing activities 607,624 659,358
Total $ (64,238 ) $ (113,774 )
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Operating Activities
Cash used in operating activities for the year ended
• An increase of
primarily due to an increase in selling, general and administrative
expenses due to increased headcount and other costs to support our
expanding operations and increased research and development activities
related to our development programs along with increased headcount in
related functions;
• Offset by an increase of
to an increase in stock-based compensation expense due to the hiring of
additional full-time employees to support growth of our operations, the
increase in the fair market value of our common stock and the achievement
of performance-based vesting criteria; and
• Offset by a decrease of
operating assets and liabilities, primarily due to the growth of the
business and the timing of vendor invoicing and payments.
Investing Activities
During the years ended December 31, 2019 and 2018, net cash used in investing
activities was $143.2 million and net cash provided by investing activities was
$512.5 million , respectively. During the years ended December 31, 2019 and 2018,
we purchased marketable securities and had sales and maturities of our
marketable securities as part of managing our cash and investments portfolio,
including purchases using proceeds received in our underwritten follow-on public
offering during February 2018 and February 2019 .
Financing Activities
During the years endedDecember 31, 2019 and 2018, net cash provided by financing activities was$607.6 million and$659.4 million , respectively, which primarily consisted of net proceeds from follow-on underwritten public offerings of our common stock, after deducting commissions and underwriting discounts and offering costs.
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, which commenced onJune 24, 2019 . Based on experience during the initial six months of the ZULRESSO launch, we now anticipate that it will take nine months or longer, varying by site, for the majority of interested healthcare settings to complete the key actions required to become ready to infuse patients. We expect that many larger hospitals and healthcare systems will take 12 months or longer to become treatment-ready, often as a result of institutional barriers. The actions required for a healthcare setting to be ready to treat patients include becoming REMS-certified, achieving formulary approvals, establishing protocols for administering ZULRESSO and securing satisfactory reimbursement. We expect that some treatment-ready sites will wait to gain familiarity with the clinical profile of ZULRESSO and to secure direct experience with reimbursement prior to increasing patient intake. Sites must often negotiate reimbursement on a payor-by-payor basis under commercial coverage. We also expect that the availability, terms and timing of coverage for ZULRESSO by state Medicaid systems will vary significantly by state. As a result, we expect that revenue growth from sales of ZULRESSO may lag the expected increase in the number of infusion-ready sites, if such increase occurs. Given these dynamics, we expect ZULRESSO revenue growth will be modest over the next couple of quarters with an increase in the rate of growth of ZULRESSO revenue anticipated in the second half of 2020, assuming an increase in the number of sites, including larger hospitals, administering ZULRESSO to treat women with PPD and an increase in the volume of patients treated at existing sites. To accomplish this objective, we are guiding large sites through the steps necessary to become treatment-ready and supporting hospital administrations' efforts to reduce the complexity of those steps. We are early in the launch of ZULRESSO and will continue to evaluate trends related to revenue momentum for ZULRESSO. We expect that, even if we start to see revenue growth in the second half of 2020, revenues are likely to fluctuate quarter to quarter. 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 those product candidates that are successfully developed; prepare for potential future commercialization of product candidates beyond ZULRESSO that are successfully developed and approved; begin to commercialize any such products, if successfully developed and 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 and any future products that are successfully 97
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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 ofDecember 31, 2019 , will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months from the filing date of this Annual Report. During that time, we expect that our expenses will increase substantially as we:
• Continue our commercialization efforts with respect to ZULRESSO in the
treatment of PPD in the
with PPD, activating treatment-ready sites of care, increasing confidence
in and the strength of payor coverage and fulfilling our post-approval
clinical trial requirements and commitments related to ZULRESSO;
• Continue to advance Phase 3 clinical development of zuranolone; determine
a clear development and regulatory path forward; continue to evaluate the
potential of zuranolone in other indications; and if our pivotal program
for zuranolone is ultimately successful and supports a filing of an NDA
with the FDA, prepare and file an NDA and execute pre-launch activities;
• Support our collaboration with Shionogi & Co., Ltd., or Shionogi, for
zuranolone in
• Advance SAGE-324 through completion of the ongoing Phase 2 clinical trial
in essential tremor, with potential future development in certain
epileptiform disorders and other neurological conditions;
• Evaluate SAGE-718 in Phase 2a open-label clinical studies in patients with
certain cognition-related disorders, and then determine potential next
steps for advancing SAGE-718 further into Phase 2 clinical development,
including potentially in Huntington's Disease;
• Advance one or more non-clinical stage compounds into Phase 1 clinical
development, and conduct ongoing and planned Phase 1 clinical trials;
• Continue our research and development efforts to evaluate the potential
for our existing product candidates in the treatment of additional CNS
indications or in new formulations, and to identify new drug candidates in
the treatment of CNS disorders;
• Evaluate the market potential and regulatory pathways for our product
candidates in the EU and other countries outside the
how best to move forward where and when it may make business and strategic
sense;
• Continue to explore other opportunities to establish agreements or
alliances with pharmaceutical company collaborators or distributors for
our product candidates where we believe the partnering opportunity willadd significant value to our efforts, including through capabilities,
infrastructure, speed or financial contributions, particularly in markets
outside the U.S. ;
• Bring to market any of our other CNS product candidates that are
successfully developed and approved;
• Enhance the probability of our success by developing unique assets with
differentiated features, and focus our internal development activities on
indications where we can make well-informed and rapid go/no-go decisions;
• Maintain, 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;
• Continue to improve the manufacturing process for our product candidates,
and manufacture clinical supplies as development progresses; and
• Incur non-cash stock compensation expense related to existing and new
personnel with respect to both service-based and performance-based awards.
Our current operating plan does not contemplate other development 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
98
-------------------------------------------------------------------------------- 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 amount and timing of revenues from sales of ZULRESSO, the success of
which will depend on a number of factors, including the rate, degree and
level of market acceptance for ZULRESSO in the treatment of PPD in the
U.S. , including the impact of factors such as: the availability of
healthcare settings that have achieved the key steps necessary toadminister ZULRESSO; the willingness of healthcare settings to undertake
those steps and to make sufficient capacity available; the number,
geographic scope and amount of capacity of infusion-ready sites; 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 reimbursement; the number of healthcare professionals
willing to prescribe ZULRESSO, healthcare settings willing to administer
ZULRESSO and women with PPD who agree to be treated with ZULRESSO;
• the timing and amount of costs associated with our commercialization of
ZULRESSO;
• the initiation, progress, timing, costs, and results of ongoing, planned
and future non-clinical studies and clinical trials for zuranolone and 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 regulatory filings;
• the ability of zuranolone and our other clinical-stage product candidates
to progress through clinical development successfully; the timing, scope
and outcome of regulatory filings, 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 withpreparing for a potential future commercial launch of any such product
candidate that is successfully developed and approved;
• the outcome of regulatory and other discussions and activities focused on
potential pathways for advancing our product candidates in the EU and
other markets outside the U.S. , if we choose to proceed there, and the
scope and timing of resulting decisions and plans, if any, we make to
build or expand in those markets;
• 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
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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 or licensing arrangements 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.
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
The following table summarizes our contractual obligations atDecember 31, 2019 and the effect such obligations are expected to have on our liquidity and cash flow in future periods: Payments Due by Period Less Than More Than Total 1 Year 1-3 Years 3-5 Years 5 Years (in thousands) Operating lease commitments(1)$ 43,779 $ 10,244 $ 18,870 $ 14,665 $ - Total(1)(2)(3)$ 43,779 $ 10,244 $ 18,870 $ 14,665 $ - Amounts related to contingent milestone payments are not considered contractual obligations as they are contingent on the successful achievement of certain milestones. These contingent milestones may not be achieved. We have not included any of these amounts in the table as we cannot estimate or predict when, or if, these amounts will become due. We do not include amounts related to milestones for indications that we are no longer pursuing.
(1) We lease office space in three multi-tenant buildings in
the first building under an operating lease that will expire on
2024, 40,419 square feet in the second building under an operating lease that
will expire on
under an operating lease that will expire on
office space in a multi-tenant building in
consisting of 15,525 square feet under an operating lease that will expire on
lease for office space in the first building and thereby increased the amount
of square feet of office space from 58,442 square feet to 63,017 square feet.
The increase of 4,575 square feet began on
additional space will expire on
additional space prior to the expiration of our leases to meet the needs of
the business. The minimum lease payments in the table do not include related
common area maintenance costs or real estate taxes, because those costs are
variable. From
field-based employees that are for a term of three years and will expire on
various dates through
(2) We have acquired exclusive and non-exclusive rights to use, research, develop
and offer for sale certain products and patents under license agreements with
with The Regents of the
obligate us to make payments to the licensors for license fees, milestones,
license maintenance fees and royalties. We are obligated to make future
remaining milestone payments under these agreements of up to an aggregate of
development, regulatory approvals and sales. For the year ended
2019, we recorded an intangible asset and made cash payments of
under these license agreements.
(3) We enter into contracts in the normal course of business with CROs for
clinical trials, non-clinical research studies and testing, manufacturing and
other services and products as part of general operations. These contracts
generally provide for termination upon notice, and we believe that our
non-cancelable obligations under these agreements are not material.
Off-Balance Sheet Arrangements
We do not currently have, nor did we have during the periods presented, any
off-balance sheet arrangements as defined by
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