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, 2019 , 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 committed to developing and commercializing novel medicines with the potential to transform the lives of people with debilitating disorders of the brain. Our first product, ZULRESSO® (brexanolone) CIV 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 . 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 targeting CNS indications where patient populations are easily identified, clinical endpoints are well-defined, and development pathways are feasible. The COVID-19 pandemic has caused and may continue to cause major disruptions to businesses and financial markets worldwide. The pandemic continues to significantly impact theU.S. Given the rapid development and continued fluidity of the COVID-19 pandemic, we cannot predict its course or for how long and to what extent it will continue to have a negative impact in theU.S. and worldwide. We are closely monitoring the impact of the pandemic on our employees, and our business operations. We have adopted a series of precautionary measures in an effort to protect our employees and mitigate the potential spread of COVID-19 in our community. For example, we have instituted a remote work policy for our employees, including our field-based employees, and have temporarily replaced all in-person meetings and interactions with virtual interactions. The rapid spread of COVID-19 in theU.S. has resulted in a significant reduction in patient demand for ZULRESSO and in the number of sites available to administer ZULRESSO. This has had a negative impact on our revenue from sales of ZULRESSO. The COVID-19 pandemic may also negatively impact our ongoing and planned development activities. While to date we have not experienced significant impacts to our development activities, concerns, precautions and restrictions arising from the COVID-19 pandemic may substantially slow clinical site recruitment and initiation; impede enrollment; impair the conduct, auditing, monitoring, or completion of our trials; impair or impede the timeliness and completion of our data collection and analysis efforts or the integrity of our data; or cause us to pause trials. Any of these effects may significantly impact our ability to meet our expected timelines or increase our costs, impact other aspects of our business, or cause us to have to change our plans. To date, we and our third-party suppliers and contract 28 -------------------------------------------------------------------------------- manufacturing partners have been able to continue to supply ZULRESSO and our product candidates without significant disruption, and we currently do not anticipate any interruptions in supply. Any prolonged material disruptions to the work of our employees, suppliers, contract manufacturers, or vendors as a result of the COVID-19 pandemic could negatively impact our business, results of operations, and activities. In addition, the COVID-19 pandemic has caused major volatility in capital markets and a significant global economic downturn, and the Company's ability to access the capital markets in the future could be negatively impacted if volatility in the capital markets and the economic downturn continue.
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, or IV, formulation of
brexanolone. Brexanolone is chemically identical to allopregnanolone, a
naturally occurring neuroactive steroid that acts as a positive allosteric
modulator of GABAA 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 U.S. Drug Enforcement Administration , or 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.
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, ZULRESSO is approved
for administration only 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 to improve management of the risk. Given the mode and setting of
administration of ZULRESSO and the requirements of the REMS program, ZULRESSO
has been administered to date primarily to treat women with severe PPD, and we
expect that to continue to be the case. We estimate that about 20% to 30% of
women diagnosed with PPD fall into this category.
In the second quarter of 2020, we received clearance from the FDA, under the
Coronavirus Treatment Acceleration Program, or CTAP, to initiate a Phase 3
clinical trial with brexanolone in patients with advanced COVID-19 related acute
respiratory distress syndrome, or ARDS. We expect to initiate patient dosing in
this study in the fourth quarter of 2020. Topline data from this study are
anticipated in 2021.
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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 that
targets both synaptic and extrasynaptic GABAA receptors. The FDA has granted
Breakthrough Therapy designation and Fast Track designation to zuranolone for
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, a
Phase 2 clinical trial evaluating zuranolone in the treatment of MDD, and a
completed Phase 3 pivotal trial evaluating zuranolone in the treatment of PPD
both met their primary endpoints. In each case, these trials evaluated the
effect of zuranolone at a 30 mg dose. Our third pivotal trial of zuranolone, a
Phase 3 clinical trial evaluating the effect of 30 mg of zuranolone on
depressive symptoms in adults with MDD, known as the MOUNTAIN Study, did not
meet its primary endpoint. Following discussions with the FDA, we determined to
conduct three new Phase 3 clinical trials as part of our pivotal program for
zuranolone in MDD and PPD:
• a placebo-controlled trial evaluating a two-week course of zuranolone 50
mg in women with PPD, with additional short-term follow-up, known as the
SKYLARK Study;
• a placebo-controlled trial evaluating a two-week course of zuranolone 50
mg, when co-initiated with a newly administered standard antidepressant
therapy, as an acute rapid response treatment in patients with MDD, with
additional short-term follow-up, known as the CORAL Study; and
• a placebo-controlled trial evaluating a two-week course of zuranolone 50
mg in patients with MDD, with additional short-term follow-up, known as
the WATERFALL Study.
We initiated patient dosing in the SKYLARK Study and the WATERFALL Study in the second quarter of 2020 and expect to initiate dosing in the CORAL Study in the fourth quarter of 2020. Topline results from these three studies are anticipated in 2021, with topline data from the WATERFALL Study expected in the first half of 2021. We are also continuing our SHORELINE study, an open-label Phase 3 clinical trial evaluating the safety of as-needed repeat treatment with zuranolone in which patients with MDD receive an initial two-week course of zuranolone and responders from the first cycle are followed for up to one year and eligible to receive as-needed retreatment during the follow-up period. The need for repeated dosing is assessed every 14 days based on the results of a patient-reported PHQ-9 score (?10) and 17-item Hamilton Rating Scale for Depression (HAMD-17) assessment (?20). The protocol of the clinical trial requires a minimum of 56 days between zuranolone 14-day courses, to allow for a maximum of five treatments during the follow-up period. Enrollment of patients receiving the 30 mg dose in the SHORELINE study was completed in the third quarter of 2019. InMay 2020 , we amended the SHORELINE protocol to allow currently enrolled patients to receive retreatment with zuranolone 50 mg. Additionally, in the second quarter of 2020, we began enrolling a new cohort of patients with MDD in the SHORELINE Study who are to receive zuranolone 50 mg from the outset of their enrollment in the trial. InOctober 2020 , we reported interim, topline results from aJuly 2020 data cut of the ongoing SHORELINE Study. For the primary endpoint of safety and tolerability, the analyzed data showed that zuranolone was generally well-tolerated in the 30 mg dose and among the initial patients treated with the 50 mg dose. Adverse events reported in the trial during the period analyzed were generally consistent with results seen in previous clinical trials of zuranolone, with the most common adverse events in the 30 mg group (observed in > 5% of subjects) including somnolence, headache and dizziness. The overall incidence of adverse events declined in subsequent treatment courses of zuranolone 30 mg. Events >5% of somnolence, dizziness, sedation, headache and tremor were observed to be more frequent in the 50 mg cohort, but were similar in severity to the events seen with patients receiving 30 mg doses. Most adverse events were mild or moderate. An increase in level of intensity of somnolence or sedation was also noted at the 50 mg dose in patients who had previously received a 30 mg dose. At the time of the data cut analysis, patients with a clinical response (decrease in HAMD-17 baseline score of ?50%) at the end of the initial 14-day course of zuranolone 30 mg used a mean number of 1.9 treatments per year. We plan to report comprehensive data from the 30 mg dose in the first half of 2021 and will include additional subsets of data within the primary and secondary endpoints. Secondary endpoints included response and remission as evaluated by HAMD-17 and the number of times a patient received retreatment. We plan to report topline data from the 50mg dose in the second half of 2021.
In the fourth quarter of 2019, we paused enrollment in our REDWOOD study, 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
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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. We also paused enrollment in
our RAINFOREST study, a placebo-controlled polysomnography Phase 3 clinical
trial of zuranolone in patients with MDD who have co-morbid insomnia. We paused
both of these studies, and have closed all clinical trial sites for these
studies, to focus our resources and activities on enrollment in the three new
Phase 3 clinical studies. We plan to evaluate whether to reinitiate the REDWOOD
and RAINFOREST studies at a later date. We also continue to evaluate the ongoing
zuranolone clinical pharmacology and safety program and plan to finalize
requirements to support a potential future new drug application, or NDA, with
the FDA.
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, a disorder
causing involuntary and rhythmic shaking, and, potentially, epileptiform
disorders and Parkinson's disease. Based on the results of the Phase 1 clinical
program, including a positive signal observed in a small cohort of patients with
essential tremor and a safety profile consistent with GABAA positive allosteric
modulation, and our other work in this area to date, in the second quarter of
2020, we began enrolling patients in a Phase 2 clinical trial evaluating
SAGE-324 in the treatment of essential tremor, known as the KINETIC Study.
Topline data from this study are expected in the first quarter of 2021. Our
portfolio of novel GABAA receptor positive allosteric modulators also includes
SAGE-689, a product candidate intended for intramuscular administration, and 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.
Our second area of focus for future clinical development 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 and Parkinson's disease. Examples of indications
involving NMDA receptor dysfunction also include certain types, aspects or
subpopulations of a number of diseases and disorders such as depression,
Alzheimer's disease, attention deficit hyperactivity disorder, schizophrenia,
and neuropathic pain. As part of our Phase 1 clinical program, we evaluated the
safety, tolerability and pharmacokinetics of SAGE-718 in a small cohort of
patients with early Huntington's disease. As part of this study, we also
conducted assessments of executive functioning with measures relevant to the
core cognitive decline observed in people with Huntington's disease. Based on
the signals observed in this study and in similar measures during an earlier
Phase 1 cohort of healthy volunteers without Huntington's disease, we initiated
patient dosing in September 2020 in a Phase 2a open-label study of SAGE-718
evaluating patients with Parkinson's disease cognitive dysfunction, known as the
PARADIGM Study, and plan to initiate dosing in a Phase 2a open-label clinical
study of SAGE-718 in patients with Alzheimer's disease cognitive dysfunction and
mild dementia, known as the LUMINARY Study, in the fourth quarter of 2020. We
expect that data from the PARADIGM Study and the LUMINARY Study will inform
potential advancement of SAGE-718 into further Phase 2 clinical development,
including potentially in Huntington's disease. We expect to report topline data
from the PARADIGM Study in the first quarter of 2021. 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 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 continue to evaluate development opportunities in
potential new areas of interest as well as to explore partnering opportunities
where we believe a strategic partner may add significant value to our efforts,
including through capabilities, infrastructure, speed or financial 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, 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 mid-2018 with Shionogi
& Co., Ltd., or Shionogi, for the clinical development and commercialization of
zuranolone in Japan , Taiwan and South Korea .
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We have incurred net losses in each year since our inception, and we had an
accumulated deficit of $2.0 billion as of September 30, 2020 . Our net losses
were $368.8 million for the nine months ended September 30, 2020 and $680.2
million for the year ended December 31, 2019 . 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.
We expect that we will incur significant expenses in the foreseeable future in connection with our ongoing activities, if and as we:
• continue to advance Phase 3 clinical development of zuranolone in PPD and
MDD, and potentially advance zuranolone for other indications;
• continue our commercialization efforts with respect to ZULRESSO for the
treatment of PPD in the
existing, active ZULRESSO treating sites;
• advance SAGE-324 through completion of the ongoing KINETIC Study inessential tremor, with potential future development not only in essential
tremor but also in certain epileptiform disorders, Parkinson's disease and
other neurological conditions;
• advance SAGE-718 through completion of the Phase 2a open-label PARADIGM
Study of patients with Parkinson's disease cognitive dysfunction, and
through the planned initiation and completion of the Phase 2a open-label
LUMINARY Study of patients with Alzheimer's disease cognitive dysfunction
and mild dementia, and potentially evaluate SAGE-718 in additional Phase 2
open-label clinical studies in patients with certain other
cognition-related disorders, prior to determining 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 clinical development;
• 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 product
candidates, with the goal of developing a diversified portfolio of assets
with differentiated features;
• continue to explore opportunities to establish agreements or alliances
with pharmaceutical company collaborators or distributors for our product
candidates where we believe the partnering opportunity will add
significant value to our efforts, including through capabilities,
infrastructure, speed or financial contributions;
• prepare for potential NDAs and pre-launch activities with respect to our
product candidates at the appropriate time to support next steps if our
pivotal programs are successful and support a filing;
• seek regulatory approvals for any product candidates that successfully
complete clinical development;
• refine the formulation and improve the manufacturing process for our
product candidates, and manufacture clinical supplies as development
progresses;
• commercialize any product candidates for which we obtain regulatory
approval, including the manufacture of commercial supplies;
• at the appropriate time if our development efforts progress successfully,
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
• 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
• add or optimize operational, financial and management information systems.
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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, which may include
collaborations with third parties. We may not be successful in our
commercialization of ZULRESSO 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, 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.
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 mid-2018 with Shionogi. Our revenue from sales of ZULRESSO has been negatively impacted by significant barriers arising from the complex requirements for 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, ZULRESSO must be administered only in a medically-supervised healthcare setting that has been certified under a 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. has resulted in a significant number of sites of care pausing treatment of new patients with ZULRESSO. We believe concerns about exposure to the virus have also caused a significant reduction in the number of women with PPD seeking treatment with ZULRESSO and in physicians willing to prescribe it. Given the ongoing surges in the number of cases of COVID-19 in theU.S. and continuing concerns about the pandemic across the country, we expect the significant adverse impact of the pandemic on ZULRESSO revenues to continue. We anticipate that the COVID-19 pandemic will also continue to have an adverse impact on our results of operations from sales of ZULRESSO as pandemic-related restrictions are expected to continue to be in effect for the foreseeable future. The scope and timing of the expected negative impact will depend on, among other factors, the duration and severity of precautionary measures taken to curb the spread of COVID-19, the length and frequency of surges or waves of COVID-19 cases and the timing and success of any return to normal business operations across theU.S. InApril 2020 , we implemented a workforce reduction that primarily affected the ZULRESSO commercial operation and related support functions, including eliminating the entire salesforce. While we remain committed to working with healthcare providers and women with PPD seeking access to ZULRESSO, our ongoing commercial efforts, including our small account management field-based team, 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 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 33 -------------------------------------------------------------------------------- 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. 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 is responsible for all clinical development, regulatory filings and commercialization and manufacturing of zuranolone for MDD, and potentially other indications, inJapan ,Taiwan andSouth Korea . OnOctober 26, 2018 , we also entered into a supply agreement with Shionogi for zuranolone clinical material. To date, revenue from the Company's 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 API for Shionogi's clinical trials.
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 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;
• payments made under our third-party license agreements; and
• a portion of our facilities and other related expenses, including rent,
depreciation, maintenance of facilities, insurance and supplies.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
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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. In addition, the COVID-19 pandemic and the rapid spread of the virus in theU.S. and outside theU.S. 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. 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". 35 --------------------------------------------------------------------------------
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; public relations, audit, tax and legal services, including legal expenses to pursue patent protection of our intellectual property; and a portion of our facilities and other related expenses, including rent, depreciation, maintenance of facilities, insurance and supplies. InApril 2020 , we implemented a workforce reduction that primarily affected the ZULRESSO commercial operation and related support functions, including eliminating the entire salesforce. We expect the workforce reduction to reduce annualized operating expenses by approximately$170 million , of which$150 million is related to selling, general and administrative expenses. While we remain committed to working with healthcare providers and women with PPD seeking access to ZULRESSO, our ongoing commercial efforts, including our small account management field-based team, are primarily focused on geographies that have existing, active ZULRESSO treating sites. Even with the expected reduction in selling, general and administrative expenses as a result of the restructuring, 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 if we are successful in our development efforts and are preparing for potential commercialization of our current or future product candidates, if 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.
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 September 30, Increase
2020 2019 (Decrease)
(in thousands)
Product revenue, net $ 1,639 $ 1,478 $ 161
Collaboration revenue - 2,092 (2,092 )
Total revenue 1,639 3,570 (1,931 )
Operating costs and expenses:
Cost of goods sold 149 137 12
Research and development 74,078 102,108 (28,030 )
Selling, general and administrative 35,099 88,502 (53,403 )
Restructuring (529 ) - (529 )
Total operating costs and expenses 108,797 190,747 (81,950 )
Loss from operations (107,158 ) (187,177 ) 80,019
Interest income, net 1,347 7,227 (5,880 )
Other income (expense), net 76 (8 ) 84
Net loss $ (105,735 ) $ (179,958 ) $ 74,223
Product revenue, net
During the three months ended September 30, 2020 and 2019, we recognized $1.6
million and $1.5 million , respectively, of net product revenues related to sales
of ZULRESSO. Sales allowances and accruals consisted of patient financial
assistance, distribution fees, discounts and chargebacks.
36
--------------------------------------------------------------------------------Collaboration revenue For the three months endedSeptember 30, 2020 , we recognized no collaboration revenue from our agreement with Shionogi. For the three months endedSeptember 30, 2019 , we recognized$2.1 million in collaboration revenue from our agreement with Shionogi related to the supply of zuranolone active pharmaceutical ingredient, or API, 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 in the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report. Cost of goods sold Cost of goods sold was$0.1 million for each of the three months endedSeptember 30, 2020 and 2019, and is made up of a low-single digit royalty cost on net product revenue to CyDex and The Regents of theUniversity of California , 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 onMarch 19, 2019 , we manufactured ZULRESSO inventory to be sold upon commercialization and recorded approximately$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 endedSeptember 30, 2020 and 2019. We estimate 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.
Research and development expenses
Three Months Ended September 30, Increase
2020 2019 (Decrease)
(in thousands)
zuranolone (SAGE-217) $ 31,343 $ 43,133 $ (11,790 )
SAGE-324 5,509 8,212 (2,703 )
SAGE-718 2,126 2,495 (369 )
Other research and development programs 8,888 13,778 (4,890 )
Unallocated expenses 16,285 17,379 (1,094 )
Stock-based compensation 9,927 17,111 (7,184 )
Total research and development expenses
Research and development expenses for the three months ended
• a decrease of
result of completion of the MOUNTAIN Study and decreased spending for
clinical pharmacology studies, partially offset by an increase in spending
for the WATERFALL Study;
• a decrease of
completion of Phase 1 studies;
• a decrease of
programs, related to a decrease in spending on non-clinical studies and
for brexanolone (SAGE-547); and
• a decrease of
There was no non-cash stock-based compensation expense recognized related
to the achievement of performance-based vesting criteria during the three
months ended
compensation expense related to the achievement of performance-based
vesting criteria was
2019. The remainder of the decrease is primarily from the impact of the
cancellation of option grants that had been made to terminated employees,
including those terminated in the restructuring.
37
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Selling, general and administrative expenses
Three Months Ended September 30, Increase
2020 2019 (Decrease)
(in thousands)
Personnel-related $ 8,487 $ 31,780 $ (23,293 )
Stock-based compensation 10,181 26,558 (16,377 )
Professional fees 8,612 16,880 (8,268 )
Other 7,819 13,284 (5,465 )
Total selling, general and
administrative expenses $ 35,099 $ 88,502 $ (53,403 )
Selling, general and administrative expenses for the three months ended
September 30, 2020 were $35.1 million , compared to $88.5 million for the three
months ended September 30, 2019 . The decrease of $53.4 million was primarily due
to the following:
• a decrease of
of the termination of employees in the restructuring;
• a decrease of
There was no non-cash stock-based compensation expense recognized related
to the achievement of performance-based vesting criteria during the three
months ended
compensation expense related to the achievement of performance-based
vesting criteria was $6.4 million during the three months ended
September 30, 2019 . The remainder of the decrease is primarily from the
impact of the cancellation of option grants that had been made toterminated employees, including those terminated in the restructuring;
• a decrease of $8.3 million in professional fees, primarily due to theimpact of the restructuring on our spending for commercial activities; and
• a decrease of
the restructuring and the impact of the COVID-19 pandemic resulting in our
employees working remotely and a reduction in business travel.
Interest income, net and Other income (expense), net
Interest income, net, and other expense, net, for the three months ended
38
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Comparison of the Nine Months Ended
The following table summarizes our results of operations for the nine months
ended
Nine Months Ended
September 30, Increase
2020 2019 (Decrease)
(in thousands)
Product revenue, net $ 5,014 $ 1,997 $ 3,017
Collaboration revenue - 2,911 (2,911 )
Total revenue 5,014 4,908 106
Operating costs and expenses:
Cost of goods sold 429 181 248
Research and development 211,008 277,565 (66,557 )
Selling, general and administrative 143,454 260,648 (117,194 )
Restructuring 27,873 - 27,873
Total operating costs and expenses 382,764 538,394 (155,630 ) Loss from operations (377,750 ) (533,486 ) 155,736 Interest income, net 8,763 21,889 (13,126 ) Other income, net 165 12 153 Net loss$ (368,822 ) $ (511,585 ) $ 142,763 Product revenue, net During the nine months endedSeptember 30, 2020 and 2019, we recognized$5.0 million and$2.0 million , respectively, 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 For the nine months endedSeptember 30, 2020 , we recognized no collaboration revenue from our agreement with Shionogi. For the nine months endedSeptember 30, 2019 , we recognized$2.9 million in collaboration revenue from our agreement with Shionogi related to the supply of zuranolone API 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 in the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report.
Cost of goods sold
Cost of goods sold was$0.4 million and$0.2 million for the nine months endedSeptember 30, 2020 and 2019, respectively, and is made up of a low-single digit royalty cost on net product revenue to CyDex and The Regents of theUniversity of California , 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 onMarch 19, 2019 , we manufactured ZULRESSO inventory to be sold upon commercialization and recorded approximately$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 nine months endedSeptember 30, 2020 and 2019. We estimate 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. 39 --------------------------------------------------------------------------------
Research and development expenses
Nine Months Ended
September 30, Increase
2020 2019 (Decrease)
(in thousands)
zuranolone (SAGE-217) $ 83,402 $ 110,813 $ (27,411 )
SAGE-324 12,664 15,490 (2,826 )
SAGE-718 4,296 9,444 (5,148 )
Other research and development programs 25,432 35,515 (10,083 )
Unallocated expenses 52,944 54,775 (1,831 )
Stock-based compensation 32,270 51,528
(19,258 )
Total research and development expenses
Research and development expenses for the nine months ended
• a decrease of
result of completion of the MOUNTAIN Study and decreased spending for
clinical pharmacology studies, partially offset by an increase in spending
for the WATERFALL Study;
• a decrease of
completion of Phase 1 studies;
• a decrease of
completion of Phase 1 studies during 2019;
• a decrease of
programs, related to a decrease in spending on non-clinical studies and
for brexanolone (SAGE-547); and
• a decrease of
There was no non-cash stock-based compensation expense recognized related
to the achievement of performance-based vesting criteria during the nine
months ended
compensation expense related to the achievement of performance-based
vesting criteria was
2019. The remainder of the decrease is primarily from the impact of the
cancellation of option grants that had been made to terminated employees,
including those terminated in the restructuring.
Selling, general and administrative expenses
Nine Months Ended
September 30, Increase
2020 2019 (Decrease)
(in thousands)
Personnel-related $ 49,492 $ 93,945 $ (44,453 )
Stock-based compensation 41,192 71,024 (29,832 )
Professional fees 26,371 55,926 (29,555 )
Other 26,399 39,753 (13,354 )
Total selling, general and administrative
expenses $ 143,454 $ 260,648 $ (117,194 )
Selling, general and administrative expenses for the nine months ended
September 30, 2020 were $143.5 million , compared to $260.6 million for the nine
months ended September 30, 2019 . The decrease of $117.2 million was primarily
due to the following:
40
--------------------------------------------------------------------------------
• a decrease of
of the termination of employees in the restructuring;
• a decrease of $29.8 million in non-cash stock-based compensation expense.There was no non-cash stock-based compensation expense recognized related
to the achievement of performance-based vesting criteria during the nine
months ended
compensation expense related to the achievement of performance-based
vesting criteria was $13.2 million during the nine months ended
September 30, 2019 . The remainder of the decrease is primarily from the
impact of the cancellation of option grants that had been made toterminated employees, including those terminated in the restructuring;
• a decrease of $29.6 million in professional fees, primarily due to costs
incurred in the nine months ended September 30, 2019 , related to
preparations for the commercial launch of ZULRESSO in the U.S. , which
commenced on June 24, 2019 and the impact of the restructuring on our
spending for commercial activities; and
• a decrease of
the restructuring and the impact of the COVID-19 pandemic resulting in our
employees working remotely and a reduction in business travel.
Restructuring
In April 2020 , we announced a restructuring plan to enable us to advance our
corporate strategy and pipeline that included the elimination of approximately
53% of our workforce. The workforce reduction primarily affected the ZULRESSO
commercial operation and related selling, general and administrative support
functions. In the nine months ended September 30, 2020 , we recorded $27.9
million of expense, primarily for one-time termination benefits to the affected
employees, primarily for cash payments of severance, healthcare benefits and
outplacement assistance.
Interest income, net and Other income (expense), net
Interest income, net, and other expense, net, for the nine months ended
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 ofSeptember 30, 2020 , we had an accumulated deficit of$2.0 billion . From our inception throughSeptember 30, 2020 , we received net proceeds of$2.2 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 and follow-on offerings. 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 ofSeptember 30, 2020 , our primary sources of liquidity were our cash, cash equivalents and marketable securities, which totaled$668.5 million . 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. 41 --------------------------------------------------------------------------------
The following table summarizes the primary sources and uses of cash for the nine
months ended
Nine Months Ended September 30,
2020 2019
(in thousands)
Net cash provided by (used in):
Operating activities $ (346,691 ) $ (411,980 )
Investing activities 397,165 (125,240 )
Financing activities 7,091 605,458
Total $ 57,565 $ 68,238
Operating Activities
During the nine months ended September 30, 2020 , net cash used in operating
activities primarily resulted from our net loss of $368.8 million , which was
primarily attributable to our research and development activities and our
selling, general and administrative expenses, and changes in our operating
assets and liabilities of $54.7 million , partially offset by $76.8 million of
non-cash items. During the nine months ended September 30, 2019 , net cash used
in operating activities primarily resulted from our net loss of $511.6 million ,
which was primarily attributable to our research and development activities and
our selling, general and administrative expenses, and changes in our operating
assets and liabilities of $15.5 million , partially offset by $115.1 million of
non-cash items.
Investing Activities
During the nine months ended September 30, 2020 and 2019, net cash provided by
investing activities was $397.2 million and net cash used in investing
activities was $125.2 million , respectively. During the nine months ended
September 30, 2020 and 2019, 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
follow-on underwritten public offering in February 2019 .
Financing Activities
During the nine months endedSeptember 30, 2020 and 2019, net cash provided by financing activities was$7.1 million and$605.5 million , respectively. During the nine months endedSeptember 30, 2019 , we received$560.9 million of net proceeds from our follow-on underwritten public offering, after deducting commissions and underwriting discounts and offering costs paid by us.
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 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 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 ofSeptember 30, 2020 , will enable us to fund our operating expenses and capital expenditure requirements into 2022. During that time, we expect to incur significant expenses as we: 42 --------------------------------------------------------------------------------
• continue to advance Phase 3 clinical development of zuranolone in PPD and
MDD, and potentially advance zuranolone for other indications;
• continue our commercialization efforts with respect to ZULRESSO for the
treatment of PPD in the
existing, active ZULRESSO treating sites;
• advance SAGE-324 through completion of the ongoing KINETIC Study inessential tremor, with potential future development not only in essential
tremor but also in certain epileptiform disorders, Parkinson's disease and
other neurological conditions;
• advance SAGE-718 through completion of the Phase 2a open-label PARADIGM
Study of patients with Parkinson's disease cognitive dysfunction, and
through the planned initiation and completion of the Phase 2a open-label
LUMINARY Study of patients with Alzheimer's disease cognitive dysfunction
and mild dementia, and potentially evaluate SAGE-718 in additional Phase 2
open-label clinical studies in patients with certain other
cognition-related disorders, prior to determining 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 clinical development;
• 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 product
candidates, with the goal of developing a diversified portfolio of assets
with differentiated features;
• continue to explore opportunities to establish agreements or alliances
with pharmaceutical company collaborators or distributors for our product
candidates where we believe the partnering opportunity will add
significant value to our efforts, including through capabilities,
infrastructure, speed or financial contributions;
• prepare for potential NDAs and pre-launch activities with respect to our
product candidates at the appropriate time to support next steps if our
pivotal programs are successful and support a filing;
• seek regulatory approvals for any product candidates that successfully
complete clinical development;
• refine the formulation and improve the manufacturing process for our
product candidates, and manufacture clinical supplies as development
progresses;
• commercialize any product candidates for which we obtain regulatory
approval, including the manufacture of commercial supplies;
• at the appropriate time if our development efforts progress successfully,
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
• 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
• add or optimize operational, financial and management information systems.
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 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.
43
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Our future capital requirements will depend on many factors, including:
• the amount and timing of revenues from sales of ZULRESSO, which will 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
impact of our April 2020 restructuring and the decision to focus our
efforts primarily on geographies in the U.S. that have existing, activeZULRESSO treating sites; the continued availability of healthcare settings
in those geographies to administer 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 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;
• 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 length, severity and costs of disruptions, if any, associated with the
COVID-19 pandemic on initiation and conduct of our clinical trials;
• 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 with
permitted prelaunch activities and preparing for a potential futurecommercial launch of any such product candidate that is successfully
developed and approved;
• 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 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. Raising funds in
44
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the current economic environment may present challenges. The COVID-19 pandemic
has caused major volatility in the stock market and a significant global
economic downturn. If the economic downturn caused by the pandemic continues for
an extended period or surges in the number of cases of COVID-19 continue or
worsen in the future, or if our business prospects are impaired or the capital
markets disrupted for other reasons, additional capital may not be available to
us on acceptable terms, or at all. 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.
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
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. 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.
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, "Summary of Significant Accounting Policies", in the accompanying Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report.
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