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OFFON

SAGE THERAPEUTICS, INC.

(SAGE)
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SAGE THERAPEUTICS : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/03/2021 | 07:23am EST

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 ended December 31, 2020, 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 the Securities and Exchange Commission, or SEC, 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, is approved in the U.S. for the treatment of postpartum depression, or PPD, in adults. We have a portfolio of other product candidates with a current focus on modulating two critical central nervous system, or CNS, receptor systems, GABA and NMDA. The GABA receptor family, which is recognized as the major inhibitory neurotransmitter in the CNS, mediates downstream neurologic and bodily function via activation of GABAA receptors. The NMDA-type receptors of the glutamate receptor system are a major excitatory receptor system in the CNS. Dysfunction in these systems is implicated in a broad range of CNS disorders. We are currently targeting diseases and disorders of the brain with three key focus areas: depression, neurology and neuropsychiatry.

The following table summarizes the status of our product and product candidate portfolio as of the filing date of this Quarterly Report.


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Our first product, ZULRESSO, is a proprietary intravenous formulation of brexanolone, approved in the U.S. as a treatment for PPD in adults. Brexanolone is chemically identical to allopregnanolone, a naturally occurring neuroactive steroid that acts as a positive allosteric modulator of GABAA receptors. We launched ZULRESSO commercially in the U.S. for the treatment of PPD in June 2019.

Our next most advanced product candidate is zuranolone (SAGE-217), a novel oral compound being developed for certain affective disorders, including major depressive disorder, or MDD, and PPD. Zuranolone is a neuroactive steroid that, like brexanolone, is a positive allosteric modulator of GABAA receptors, targeting both synaptic and extrasynaptic GABAA receptors. To date, we have completed four pivotal clinical trials of zuranolone, three in MDD and one in PPD. The completed pivotal trial evaluating zuranolone in the treatment of PPD and two of the three completed pivotal trials evaluating zuranolone in the treatment of MDD met their primary endpoints, including the WATERFALL Study, a pivotal, Phase 3, double-blind, randomized, placebo-controlled study evaluating the efficacy and safety of zuranolone 50 mg in adults 18 to 64 years with MDD, for which we announced results in June 2021. In the WATERFALL Study, zuranolone 50 mg showed a statistically significant and clinically meaningful reduction in depressive symptoms as measured by the 17-item Hamilton Rating Scale for Depression (HAMD-17) total score at Day 15 (p=0.0141) compared to placebo. Patients with a response at Day 15 to zuranolone retained on average 86% of their HAMD-17 improvement at Day 42 (four weeks after dosing ended). A rapid onset of treatment effect was seen in the HAMD-17 results at Days 3, 8 and 12. Zuranolone was generally well-tolerated in the WATERFALL Study and demonstrated a safety profile consistent with previous clinical studies. The rate of treatment emergent adverse events in the zuranolone group was 60.1% (161/268) compared to the placebo group at 44.6% (120/269). The majority of the treatment emergent adverse events were mild to moderate. The most common treatment emergent adverse events that were ? 5% in patients treated with zuranolone (rates compared to placebo) included somnolence 15.3% (3.0%), dizziness 13.8% (2.2%), headache 10.8% (7.8%), and sedation 7.5% (0.4%). These events predominantly occurred during the 14-day treatment period. Throughout the study, a total of four patients reported serious adverse events, two (0.7%) each in the zuranolone and placebo groups; no deaths occurred in the study. The percent of patients reporting treatment emergent adverse events leading to drug discontinuation was 3.4% (9/268) and 1.5% (4/269), in the zuranolone and placebo groups, respectively.

We are jointly developing zuranolone and another of our late-stage compounds, SAGE-324, in the U.S. with Biogen MA Inc., or BIMA, and Biogen International GmbH, or, together with BIMA, Biogen, under a collaboration and license agreement, or the Biogen Collaboration Agreement, that became effective in December 2020. Under the Biogen Collaboration Agreement, we will also jointly commercialize products containing zuranolone, which we refer to as Licensed 217 Products, and products containing SAGE-324, which we refer to as Licensed 324 Products, with Biogen in the U.S. if our development efforts are successful. We refer to the Licensed 217 Products and Licensed 324 Products collectively as the Licensed Products. In addition, we have granted Biogen sole rights to develop and commercialize the Licensed Products outside the U.S., other than in Japan, Taiwan and South Korea, or the Shionogi Territory, with respect to zuranolone, where we have granted such rights to Shionogi & Co., Ltd., or Shionogi. We refer to the territories outside the U.S. to which Biogen has rights under the Biogen Collaboration Agreement with respect to the applicable Licensed Product as the Biogen Territory.

We and Biogen plan to discuss next steps for zuranolone with the FDA. Two Phase 3 placebo-controlled clinical trials, the CORAL Study in MDD and the SKYLARK Study in PPD, are ongoing. An open-label Phase 3 clinical trial of zuranolone in MDD, known as the SHORELINE Study, is also ongoing. In March 2021, we reported topline 12-month data from the completed 30 mg cohort and interim topline data from the 50 mg cohort of the SHORELINE Study, which is designed to evaluate the safety and tolerability of zuranolone in adults for up to one year. We have re-opened enrollment in the 50 mg cohort of the SHORELINE Study, increasing target enrollment, and have offered the ability of patients who complete the CORAL Study to roll-over into the SHORELINE Study. We expect to report topline results from the CORAL Study and a data cut from the 50 mg cohort of the SHORELINE Study in late 2021. We have experienced a slower than anticipated pace of enrollment in the SKYLARK Study, due, we believe, to a lower number of women seeking care for PPD and a lower rate of childbirth during the COVID-19 pandemic. As a result, we now expect to report topline results from the SKYLARK Study in mid-2022.

Additionally, we recently announced that we are formally terminating our clinical trial designed to evaluate a fixed schedule intermittent dosing of zuranolone 30 mg in the treatment of MDD throughout the course of a year, which we called the REDWOOD Study, and a clinical trial designed to investigate the efficacy and safety of zuranolone 30 mg in


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patients with MDD and co-morbid insomnia, which we called the RAINFOREST Study. These studies have been suspended since the first quarter of 2020. We do not believe that these studies will be required for a potential NDA submission.

In addition to zuranolone, we have a portfolio of other novel compounds that target GABAA receptors, including SAGE-324. SAGE-324 is a novel GABAA receptor positive allosteric modulator intended for chronic oral dosing. In April 2021, we announced that our placebo-controlled Phase 2 KINETIC Study evaluating SAGE-324 in the treatment of adults with essential tremor had achieved its primary endpoint. We intend to initiate a Phase 2 dose-ranging clinical trial of SAGE-324 in patients with essential tremor in late 2021. Additional development plans for SAGE-324 will be determined as part of our strategic collaboration with Biogen. We believe SAGE-324 also has potential for the treatment of a number of other neurological conditions, including epilepsy and Parkinson's disease.

Our second area of focus for development is novel compounds that target the NMDA receptor. The lead product candidate selected in this area 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 cognition dysfunction associated with diseases such as Huntington's disease, Parkinson's disease and Alzheimer's disease. In May 2021, we announced results from the first part of a Phase 2a open-label study of SAGE-718 evaluating patients with Parkinson's disease cognitive dysfunction, known as the PARADIGM Study. We recently dosed the first patient in a 4-week dosing cohort in the PARADIGM study to gather additional data in the Parkinson's disease patient population. In this cohort, up to 20 additional patients aged 50 to 75 years old with mild cognitive impairment due to Parkinson's disease will receive 3 mg of SAGE-718 for four weeks, and will continue to be assessed for a period of time after treatment is complete. We are also conducting a Phase 2a open-label clinical trial of SAGE-718 in patients with Alzheimer's disease mild cognitive impairment and mild dementia, known as the LUMINARY Study. We expect to report topline data from the LUMINARY Study in late 2021. In addition, we plan to initiate a placebo-controlled Phase 2 clinical trial with SAGE-718 in patients with early to moderate Huntington's disease in late 2021.

We have other programs at earlier stages of development with a focus on both acute and chronic brain health disorders. Our early-stage GABAA modulators include SAGE-689, for which we have initiated Phase 1 development as a potential intramuscular therapy for disorders associated with acute GABA hypofunction, and SAGE-319, intended to be studied as an oral therapy for potential use in disorders of social interaction and for which the IND-enabling work has begun. We recently terminated a clinical trial evaluating brexanolone as a treatment for ventilated intensive care unit patients with advanced COVID-19-related acute respiratory distress syndrome, known as ARDS. The study did not meet enrollment expectations. Our early-stage NMDA modulators include SAGE-904, in Phase 1 development as a potential oral therapy for disorders associated with NMDA hypofunction, and SAGE-421, intended to be studied as a potential oral therapy for certain neurodevelopmental disorders and cognitive recovery and rehabilitation. We expect to complete the single ascending dose, or SAD, Phase 1 clinical trial of SAGE-689 and the ongoing SAD and multiple ascending dose Phase 1 clinical trials of SAGE-904 in late 2021. Results from these Phase 1 studies will inform further development of these programs. 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 believe that we may also have the opportunity to use our scientific approach to explore targets beyond the GABAA and NMDA receptor systems and to develop compounds in areas of unmet need outside of brain health.

We began to generate revenue from product sales in the second quarter of 2019 in conjunction with the launch of our first product, ZULRESSO, in June 2019.

We have incurred net losses in each year since our inception, except for net income of $606.1 million for the year ended December 31, 2020, reflecting revenue recognized under the Biogen Collaboration Agreement, and we had an accumulated deficit of $1.2 billion as of June 30, 2021. Our net loss was $203.0 million for the six months ended June 30, 2021. 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 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 and regulatory activities
        with respect to zuranolone in MDD and PPD, and potentially advance
        zuranolone for other indications, as part of our strategic collaboration
        with Biogen;


    •   continue our commercialization efforts with respect to ZULRESSO in the
        treatment of PPD in the U.S., with a primary focus on geographies that
        have existing, active ZULRESSO treating sites;


    •   initiate additional development activities with SAGE-324, including the
        planned dose-ranging Phase 2 clinical trial with SAGE-324 in essential
        tremor, with potential future development in epilepsy, Parkinson's
        disease, and other neurological conditions, as part of our strategic
        collaboration with Biogen;


    •   complete the Phase 2a open-label LUMINARY Study of patients with
        Alzheimer's disease mild cognitive impairment and mild dementia; initiate
        the planned placebo-controlled Phase 2 clinical trial of SAGE-718 in
        patients with early to moderate Huntington's disease; and complete
        the 4-week dosing cohort in the PARADIGM study to gather additional data
        in patients with Parkinson's disease cognitive dysfunction;


    •   support our collaboration with Biogen with respect to zuranolone and
        SAGE-324 in the U.S., and support Biogen's development of zuranolone and
        SAGE-324 in Biogen's licensed territories outside the U.S. and Shionogi's
        development of zuranolone in the Shionogi Territory;


  • advance SAGE-689 and SAGE-904 in Phase 1 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;


    •   identify new targets, and generate and test new compounds and product
        candidates, with a focus on indications where we believe we can make
        well-informed, rapid go/no-go decisions, with the goal of developing a
        diversified portfolio of assets with differentiated features;


    •   prepare and file new drug applications with the U.S. Food and Drug
        Administration, or FDA, and conduct pre-launch activities with respect to
        any of our product candidates that we believe have been successfully
        developed;


    •   prepare to commercialize, and ultimately commercialize, any product
        candidates for which we obtain regulatory approval, including the
        manufacture of commercial supplies;


    •   as our development efforts progress, add personnel, including personnel to
        support product development and ongoing and future commercialization
        efforts;


    •   evaluate the market potential and regulatory pathways for our product
        candidates beyond zuranolone and SAGE-324 in the European Union and other
        countries outside the U.S., and determine how best to move forward where
        and when it may make business and strategic sense;


    •   continue to build, maintain, defend, leverage, and expand our intellectual
        property portfolio, including by utilizing the strengths of our
        proprietary chemistry platform and scientific know-how to expand our
        portfolio of new chemical entities to lessen our long-term reliance on the
        success of any one program and to facilitate long-term growth; and


    •   continue to explore opportunities to establish agreements or alliances
        with other pharmaceutical companies, at the appropriate time, where we
        believe a collaboration will add significant value to our efforts,
        including through capabilities, infrastructure, speed or financial
        contributions, or to acquire new compounds, product candidates or products
        if we believe such opportunities will help us achieve our goals or meet
        other strategic objectives.

Until such time that we can generate significant revenue from product sales, if ever, we expect to finance our operations primarily through a combination of revenue, equity or debt financings and other sources, including our collaborations with Biogen and Shionogi and potential future collaborations. We may not be successful in our commercialization of ZULRESSO 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


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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 if and when needed would have a negative impact on our financial condition and on our ability to pursue our business strategy. Arrangements with our existing collaborators have required us to relinquish rights to certain of our technologies or product candidates, and any future collaborations may require us to relinquish additional rights. We will need to generate significant revenue to achieve profitability, and we may never do so.

We expect that our existing cash, cash equivalents and marketable securities as of June 30, 2021, 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 Quarterly Report. See "-Liquidity and Capital Resources".


                         Financial Operations Overview

Revenue

We began to generate revenue from product sales in the second quarter of 2019 in conjunction with the launch of our first product, ZULRESSO, in June 2019.

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 the U.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 Risk Evaluation and Mitigation Strategies, or REMS, program and meets the other requirements of the REMS program, including requirements related to monitoring of the patient during the infusion. The actions required for a healthcare setting to be ready and willing to treat women with PPD are complex and time-consuming. These actions include: becoming REMS-certified; achieving formulary approvals; establishing protocols for administering ZULRESSO; and securing satisfactory reimbursement. Sites must often negotiate reimbursement on a payor-by-payor basis under commercial coverage. These requirements have created significant barriers to treatment, and are expected to continue to limit future revenue growth. These barriers have been compounded by the COVID-19 pandemic. The spread of COVID-19 in the U.S. resulted in a significant number of sites of care pausing treatment of new patients with ZULRESSO and potential new sites of care pausing site activation activities for a period of time. We believe concerns about exposure to the virus or its variants 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 continuing concerns about the COVID-19 pandemic across the country, including as a result of the spread of variants and "breakthrough" cases among fully vaccinated people, we expect the significant adverse impact of the pandemic on ZULRESSO revenues to continue for the foreseeable future. The scope and timing of the expected negative impact will depend on, among other factors, the success of the roll-out of vaccines for COVID-19 and the duration of the vaccines' efficacy against COVID-19 and its variants; the length, location and frequency of surges or waves of COVID-19 cases, including "breakthrough" cases in fully vaccinated people; the duration of the pandemic; the extent to which variants of the virus that causes COVID-19 negatively impact vaccination and other efforts to control the pandemic; the duration and severity of any precautionary measures taken to curb the spread of COVID-19; and the success of the return to normal business operations across the U.S.

In April 2020, we implemented a workforce reduction that primarily affected the ZULRESSO commercial operation and related support functions, including eliminating the entirety of our salesforce at that time. While we remain committed to working with healthcare providers and women with PPD seeking access to ZULRESSO and plan to continue to evaluate opportunities to raise awareness and help reduce hurdles to appropriate treatment, our ongoing commercial efforts, including our small account management field-based team and a small number of sales representatives now in place, are primarily focused on geographies that have existing, active ZULRESSO treating sites. We expect that this approach to our commercial efforts may continue to substantially limit the revenue opportunity for ZULRESSO.

We expect that ZULRESSO revenues are likely to fluctuate quarter to quarter. We will not generate revenue from other products unless and until we or any of our collaborators successfully develop, obtain regulatory approval of, and commercialize one of our current or future product candidates. If we enter into additional collaboration agreements with third parties for our product candidates, we may generate revenue from those collaborations. We expect that revenue, if


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any, that we may generate under our collaboration agreements will fluctuate from quarter to quarter as a result of the timing and amount of license fees, payments for clinical materials or manufacturing services, milestone payments, royalties paid to us and our share of collaboration profits or losses resulting from sales of any commercialized products, and other payments.

In June 2018, we entered into a strategic collaboration with Shionogi for the clinical development and commercialization of zuranolone for the treatment of MDD and other potential indications in the Shionogi Territory. Under the terms of the agreement, Shionogi is responsible for all clinical development, regulatory filings and commercialization and manufacturing of zuranolone for MDD, and potentially other indications, in the Shionogi Territory. In October 2018, we also entered into a supply agreement with Shionogi for zuranolone clinical material. To date, revenue from our collaboration with Shionogi has come from an initial, upfront license fee upon execution of the collaboration agreement of $90.0 million, which was recorded as collaboration revenue in the year ended December 31, 2018, and for the supply of active pharmaceutical agreement, or API, for Shionogi's clinical trials.

In November 2020, we entered into the Biogen Collaboration Agreement with Biogen for the development, manufacture and commercialization of the Licensed Products. In connection with the execution of the Biogen Collaboration Agreement, we also entered into a stock purchase agreement for the sale and issuance to BIMA of 6,241,473 shares of our common stock. The Biogen Collaboration Agreement became effective on December 28, 2020, and the sale of the common stock under the stock purchase agreement closed on December 31, 2020. As a result of this purchase of common stock by BIMA, Biogen has become a related party of ours. Under the terms of the Biogen Collaboration Agreement, we will jointly develop and, if successful, commercialize the Licensed Products in the U.S., and Biogen solely will develop and commercialize the Licensed Products in the Biogen Territory, except, with respect to the Licensed 217 Products, in the Shionogi Territory. We and Biogen have agreed to share equally all costs for activities under the Biogen Collaboration Agreement solely for the U.S. Biogen is solely responsible for all costs for activities under the Biogen Collaboration Agreement in the Biogen Territory. In the year ended December 31, 2020, we recorded collaboration revenue of $1.1 billion, consisting of an upfront payment of $875.0 million plus $232.5 million in excess proceeds from the equity investment under the stock purchase agreement, when measured at fair value. For further discussion regarding the accounting for the Biogen Collaboration Agreement, please refer to Note 6, Collaboration Agreements, in the accompanying Notes to Condensed Consolidated Financial Statements appearing in Part I, Item 1 of this Quarterly Report.




Collaborative Arrangements



We analyze our collaboration arrangements to assess whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities and therefore within the scope of Accounting Standards Codification, or ASC, Topic 808, Collaborative Arrangements, or Topic 808. This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements within the scope of Topic 808 that contain multiple elements, we first determine which elements of the collaboration are deemed to be within the scope of Topic 808 and which elements of the collaboration are more reflective of a vendor-customer relationship and therefore within the scope of ASC Topic 606, Revenue from Contracts with Customers, or Topic 606. For elements of collaboration arrangements that are accounted for pursuant to Topic 808, an appropriate recognition method is determined and applied consistently, either by analogy to authoritative accounting literature or by applying a reasonable and rational policy election. For those elements of the arrangement that are accounted for pursuant to Topic 606, we apply the five-step model and present the arrangement as collaboration revenue in the condensed consolidated statements of operations and comprehensive loss. For further discussion regarding the accounting for the Biogen Collaboration Agreement, please refer to Note 6, Collaboration Agreements, in the accompanying Notes to Condensed Consolidated Financial Statements appearing in Part I, Item 1 of this Quarterly Report.




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For collaboration arrangements that are within the scope of Topic 808, we evaluate the income statement classification for presentation of amounts due from or owed to other participants associated with multiple activities in a collaboration arrangement based on the nature of each separate activity. Payments or reimbursements that are the result of a collaborative relationship, instead of a customer relationship, such as co-development and co-commercialization activities, are recorded as research and development expense or selling, general and administrative expense in the event of a payment to the collaborative partner in a period, or a reduction to these expense line items in the event of a reimbursement from the collaboration partner in a period, as appropriate.




Cost of goods sold

Cost of goods sold includes direct and indirect costs related to the manufacturing and distribution of ZULRESSO, including third-party manufacturing costs, packaging services, freight, third-party royalties payable on our net product revenues and amortization of intangible assets associated with ZULRESSO. We estimate that our cost of goods sold as a percentage of net product revenue will remain in the mid-single digit percentage range for the foreseeable future. We expect to utilize zero-cost inventory with respect to ZULRESSO for an extended period of time.




Operating Expenses

Our operating expenses since inception have consisted primarily of costs associated with research and development activities and selling, general and administrative activities.

Research and Development Expenses

Research and development expenses, which consist primarily of costs associated with our product research and development efforts, are expensed as incurred. Research and development expenses consist primarily of:

    •   personnel costs, including salaries, benefits, stock-based compensation
        and travel expenses, for employees engaged in research and development
        functions;


    •   expenses incurred under agreements with contract research organizations,
        or CROs, and sites that conduct our non-clinical studies and clinical
        trials;


    •   expenses associated with manufacturing materials for use in non-clinical
        studies and clinical trials and developing external manufacturing
        capabilities;


    •   costs of outside consultants engaged in research and development
        activities, including their fees and travel expenses;


    •   other expenses related to our non-clinical studies and clinical trials and
        expenses related to our regulatory activities;


  • payments made under our third-party license agreements; and


    •   a portion of our information technology, facilities and other related
        expenses, including rent, depreciation, maintenance of facilities,
        insurance and supplies.



We consider the collaborative activities associated with the co-development, co-commercialization, and co-manufacturing of Licensed Products in the U.S. to be separate units of account within the scope of Topic 808 as we and Biogen are both active participants in the development and commercialization activities and are exposed to significant risks and rewards that are dependent on the development and commercial success of the activities in the arrangement. Payments to or reimbursements from Biogen related to the co-development and co-manufacturing activities are accounted for as an increase to or reduction of research and development expense. During the three and six months ended June 30, 2021, research and development expense was reduced by $20.1 million and $42.2 million, respectively, related to this net reimbursement.

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.


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We have been developing our product candidates and focusing on other research and development programs, including exploratory efforts to identify new compounds, target validation for identified compounds and lead optimization for our earlier-validated programs. Our direct research and development expenses are tracked on a program-by-program basis, and consist primarily of external costs, such as fees paid to investigators, central laboratories, CROs and contract manufacturing organizations, in connection with our non-clinical studies and clinical trials; third-party license fees related to our product candidates; and fees paid to outside consultants who perform work on our programs. We do not allocate employee-related costs and other indirect costs to specific research and development programs because these costs are deployed across multiple product programs under research and development and, as such, are separately classified as unallocated or stock-based compensation in research and development expenses.

Research and development activities are central to our business. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will continue to increase in the foreseeable future as we continue or initiate clinical trials and non-clinical studies for certain product candidates and pursue later stages of clinical development of our product candidates.

We cannot determine with certainty the duration and costs of the current or future clinical trials of our product candidates. The duration, costs, and timing of clinical trials and development of our product candidates will depend on a variety of factors, including:

    •   the scope, size, rate of progress, and expense of our ongoing as well as
        any additional clinical trials, non-clinical studies, and other research
        and development activities;


    •   future results of ongoing, planned or future clinical trials and
        non-clinical studies;


  • decisions by regulatory authorities related to our product candidates;


  • uncertainties in clinical trial enrollment rate or design;


  • significant and changing government regulation; and


  • the receipt and timing of regulatory approvals, if any.

In addition, the ongoing COVID-19 pandemic may also negatively impact our ongoing and planned development activities and increase our research and development costs. Concerns, precautions and restrictions arising from the COVID-19 pandemic may substantially slow clinical site recruitment and initiation and enrollment in our clinical trials, may impair the conduct, auditing, monitoring, or completion of our trials, may impair or impede the timeliness and completion of our data collection and analysis efforts or the integrity of our data, or may cause us to pause trials, in each case which may significantly impact our ability to meet our expected timelines or cause us to change our plans and may significantly increase our research and development costs. For example, we have seen some slower recruitment in certain of our clinical trials, especially with respect to older patients, and, in our SKYLARK Study, in patients with PPD, which has caused us to extend our expected timeline for reporting topline data from that study.

A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate or for regulatory approval, or if we experience significant delays in enrollment in any of our clinical trials or need to enroll additional patients, we could be required to expend significant additional financial resources and time on the completion of clinical development.

Any failure to complete any stage of the development of any potential product candidates in a timely manner could have a material adverse effect on our operations, financial position and liquidity. A discussion of some of the risks and uncertainties associated with not completing our programs on schedule, or at all, and the potential consequences of failing to do so, are set forth in Part II, Item 1A of this Quarterly Report under the heading "Risk Factors".


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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 information technology, facilities and other related expenses, including rent, depreciation, maintenance of facilities, insurance and supplies.

In April 2020, we implemented a workforce reduction that primarily affected the ZULRESSO commercial operation and related support functions, including eliminating the entirety of our salesforce at that time. While we remain committed to working with healthcare providers and women with PPD seeking access to ZULRESSO and plan to continue to evaluate opportunities to raise awareness and help reduce hurdles to appropriate treatment, our ongoing commercial efforts, including our small account management field-based team and a small number of sales representatives now in place, 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 as we progress development efforts and prepare for potential commercialization of our current or future product candidates, if successfully developed and approved. We expect to continue to incur significant expenses associated with general operations, including costs related to accounting and legal services, director and officer insurance premiums, facilities and other corporate infrastructure and office-related costs, such as information technology costs.

We consider the collaborative activities associated with the co-development, co-commercialization, and co-manufacturing of SAGE-217 products and SAGE-324 products in the U.S. to be separate units of account within the scope of Topic 808 as we and Biogen are both active participants in the development and commercialization activities and are exposed to significant risks and rewards that are dependent on the development and commercial success of the activities in the arrangement. Payments to or reimbursements from Biogen related to the co-commercialization activities are accounted for as an increase to or reduction of selling, general and administrative expense. During the three and six months ended June 30, 2021, selling, general and administrative expense was reduced by $3.5 million and $6.2 million, respectively, related to this net reimbursement.

Results of Operations

Comparison of the Three Months Ended June 30, 2021 and 2020

The following table summarizes our results of operations for the three months ended June 30, 2021 and 2020:



                                        Three Months Ended June 30,          Increase
                                           2021               2020          (Decrease)
                                                       (in thousands)
Product revenue, net                  $        1,643       $     1,089     $        554
Operating costs and expenses:
Cost of goods sold                               148               110               38
Research and development                      66,170            73,320           (7,150 )
Selling, general and administrative           43,346            38,224            5,122
Restructuring                                      -            28,402          (28,402 )
Total operating costs and expenses           109,664           140,056          (30,392 )
Loss from operations                        (108,021 )        (138,967 )         30,946
Interest income, net                             732             2,686           (1,954 )
Other income (expense), net                       44               (66 )            110
Net loss                              $     (107,245 )     $  (136,347 )   $     29,102




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Product revenue, net


During the three months ended June 30, 2021 and 2020, we recognized $1.6 million and $1.1 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


During the three months ended June 30, 2021 and 2020, we recognized no collaboration revenue from our agreements with Shionogi and Biogen. We expect that revenue, if any, that we may generate under our collaboration agreements will fluctuate from quarter to quarter as a result of the timing and amount of license fees, payments for clinical materials or manufacturing services, milestone payments, royalties paid to us and our share of collaboration profits or losses resulting from sales of any commercialized products, and other payments. For further discussion regarding our collaboration agreements with Shionogi and Biogen and the accounting for revenue from collaboration agreements, please refer to Note 6, Collaboration Agreements, in the accompanying Notes to Condensed Consolidated Financial Statements appearing in Part I, Item 1 of this Quarterly Report.



Cost of goods sold


During the three months ended June 30, 2021 and 2020, cost of goods sold was $0.1 million and $0.1 million, respectively, and is made up of a low-single digit royalty paid to CyDex Pharmaceuticals, Inc. ("CyDex") and The Regents of the University of California ("The Regents") on net product revenue from sales of ZULRESSO, the amortization of intangible assets associated with ZULRESSO and third-party manufacturing and distribution costs associated with labeling, packaging, and shipping of ZULRESSO. Prior to receiving initial FDA approval for ZULRESSO on March 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 ended June 30, 2021 and 2020. We estimate that our cost of goods sold as a percentage of net product revenue will remain in the mid-single digit percentage range for the foreseeable future. We expect to utilize zero-cost inventory with respect to ZULRESSO for an extended period of time.

Research and development expenses



                                               Three Months Ended June 30,           Increase
                                                2021                 2020           (Decrease)
                                                              (in thousands)
zuranolone (SAGE-217)                      $       15,053       $       31,917     $     (16,864 )
SAGE-324                                            2,803                3,738              (935 )
SAGE-718                                            6,428                1,498             4,930
Other research and development programs            10,335                8,322             2,013
Unallocated expenses                               18,098               17,725               373
Stock-based compensation                           13,453               10,120             3,333

Total research and development expenses $ 66,170 $ 73,320 $ (7,150 )

Research and development expenses for the three months ended June 30, 2021 were $66.2 million, compared to $73.3 million for the three months ended June 30, 2020. The decrease of $7.1 million was primarily due to the following:



    •   a decrease of $16.9 million in expenses for development of zuranolone. The
        amount for the three months ended June 30, 2021 reflects a decrease in
        expenses of $1.8 million and a reduction in expenses of $15.1 million due
        to reimbursement from Biogen pursuant to the Biogen Collaboration
        Agreement;


    •   a decrease of $0.9 million in expenses for development of SAGE-324. The
        amount for the three months ended June 30, 2021 reflects an increase in
        expenses of $1.9 million offset by a reduction in expenses of $2.8 million


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        due to reimbursement from Biogen pursuant to the Biogen Collaboration
        Agreement. The primary reason for the increase in expenses was a clinical
        pharmacology study that was initiated during 2021;


    •   an increase of $4.9 million in expenses for development of SAGE-718,
        primarily attributable to the initiation of the open-label Phase 2a
        clinical trials in mid- to late 2020 and clinical pharmacology studies
        that were initiated during 2021;


    •   an increase of $0.4 million in unallocated expenses. The amount for the
        three months ended June 30, 2021 reflects an increase in expenses of $2.7
        million offset by a reduction in expenses of $2.3 million due to
        reimbursement from Biogen pursuant to the Biogen Collaboration Agreement;
        and


    •   an increase of $3.3 million in non-cash stock-based compensation expense.
        The increase in non-cash stock-based compensation expense is primarily due
        to the achievement of a milestone for certain outstanding performance
        restricted stock units, resulting in $1.9 million of expense during the
        three months ended June 30, 2021. There was no non-cash stock-based
        compensation expense recognized related to the achievement of
        performance-based vesting criteria during the three months ended June 30,
        2020.



Selling, general and administrative expenses



                                               Three Months Ended June 30,            Increase
                                                2021                 2020            (Decrease)
                                                               (in thousands)
Personnel-related                          $       11,441       $       12,252     $         (811 )
Stock-based compensation                           14,210               12,124              2,086
Professional fees                                  10,162                6,708              3,454
Other                                               7,533                7,140                393
Total selling, general and
administrative expenses                    $       43,346       $       38,224     $        5,122



Selling, general and administrative expenses for the three months ended June 30, 2021 were $43.3 million, compared to $38.2 million for the three months ended June 30, 2020. The increase of $5.1 million was primarily due to the following:



    •   a decrease of $0.8 million in personnel-related costs. The amount for the
        three months ended June 30, 2021 reflects a decrease in expenses of $0.1
        million and a reduction in expenses of $0.8 million due to reimbursement
        from Biogen pursuant to the Biogen Collaboration Agreement;


    •   an increase of $2.1 million in non-cash stock-based compensation expense.
        The increase in non-cash stock-based compensation expense is primarily due
        to the achievement of a milestone for certain outstanding performance
        restricted stock units, resulting in $1.9 million of expense during the
        three months ended June 30, 2021. There was no non-cash stock-based
        compensation expense recognized related to the achievement of
        performance-based vesting criteria during the three months ended June 30,
        2020;




    •   an increase of $3.5 million in professional fees. The amount for the three
        months ended June 30, 2021 reflects an increase in expenses of $4.8
        million and a reduction in expenses of $1.4 million due to reimbursement
        from Biogen pursuant to the Biogen Collaboration Agreement. The primary
        reasons for the increase in expenses were an increase in activities
        focused on disease awareness and increased launch readiness activities for
        a potential product launch, if our zuranolone development efforts are
        successful; and




    •   an increase of $0.4 million in other costs. The amount for the three
        months ended June 30, 2021 reflects an increase in expenses of $1.8
        million and a reduction in expenses of $1.4 million due to reimbursement
        from Biogen pursuant to the Biogen Collaboration Agreement.




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Interest income, net and Other income, net

Interest income, net, and other expense, net, for the three months ended June 30, 2021 and 2020 were $0.8 million and $2.6 million, respectively. The primary reason for the decrease was the reduction in interest rates that started in early 2020.

Comparison of the Six Months Ended June 30, 2021 and 2020

The following table summarizes our results of operations for the six months ended June 30, 2021 and 2020:



                                          Six Months Ended
                                              June 30,                Increase
                                         2021           2020         (Decrease)
                                                    (in thousands)
Product revenue, net                  $    3,226     $    3,375     $       (149 )
Operating costs and expenses:
Cost of goods sold                           335            280               55
Research and development                 124,226        136,930          (12,704 )

Selling, general and administrative 83,193 108,355 (25,162 ) Restructuring

                                  -         28,402          (28,402 )
Total operating costs and expenses       207,754        273,967          (66,213 )
Loss from operations                    (204,528 )     (270,592 )         66,064
Interest income, net                       1,440          7,416           (5,976 )
Other income, net                             79             89              (10 )
Net loss                              $ (203,009 )   $ (263,087 )   $     60,078




Product revenue, net


During the six months ended June 30, 2021 and 2020, we recognized $3.2 million and $3.4 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


During the six months ended June 30, 2021 and 2020, we recognized no collaboration revenue from our agreements with Shionogi and Biogen. We expect that revenue, if any, that we may generate under our collaboration agreements will fluctuate from quarter to quarter as a result of the timing and amount of license fees, payments for clinical materials or manufacturing services, milestone payments, royalties paid to us and our share of collaboration profits or losses resulting from sales of any commercialized products, and other payments. For further discussion regarding our collaboration agreements with Shionogi and Biogen and the accounting for revenue from collaboration agreements, please refer to Note 6, Collaboration Agreements, in the accompanying Notes to Condensed Consolidated Financial Statements appearing in Part I, Item 1 of this Quarterly Report.



Cost of goods sold


During the six months ended June 30, 2021 and 2020, cost of goods sold was $0.3 million and $0.3 million, respectively, and is made up of a low-single digit royalty paid to CyDex and The Regents on net product revenue from sales of ZULRESSO, the amortization of intangible assets associated with ZULRESSO and third-party manufacturing and distribution costs associated with labeling, packaging, and shipping of ZULRESSO. Prior to receiving initial FDA approval for ZULRESSO on March 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 six months ended June 30, 2021 and 2020. We estimate that our cost of goods sold as a percentage of net product revenue will remain in the mid-single digit percentage range for the foreseeable future. We expect to utilize zero-cost inventory with respect to ZULRESSO for an extended period of time.


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Research and development expenses



                                             Six Months Ended
                                                 June 30,               Increase
                                            2021          2020         (Decrease)
                                                       (in thousands)
zuranolone (SAGE-217)                     $  31,885     $  52,059     $    (20,174 )
SAGE-324                                      5,303         7,155           (1,852 )
SAGE-718                                      9,009         2,170            6,839
Other research and development programs      19,219        16,545            2,674
Unallocated expenses                         36,076        36,657             (581 )
Stock-based compensation                     22,734        22,344              390

Total research and development expenses $ 124,226 $ 136,930 $ (12,704 )

Research and development expenses for the six months ended June 30, 2021 were $124.2 million, compared to $136.9 million for the six months ended June 30, 2020. The decrease of $12.7 million was primarily due to the following:



    •   a decrease of $20.2 million in expenses for development of zuranolone. The
        amount for the six months ended June 30, 2021 reflects an increase in
        expenses of $11.7 million offset by a reduction in expenses of $31.9
        million due to reimbursement from Biogen pursuant to the Biogen
        Collaboration Agreement. The primary reason for the increase in expenses
        was spending on the WATERFALL Study;


    •   a decrease of $1.9 million in expenses for development of SAGE-324. The
        amount for the six months ended June 30, 2021 reflects an increase in
        expenses of $3.5 million offset by a reduction in expenses of $5.3 million
        due to reimbursement from Biogen pursuant to the Biogen Collaboration
        Agreement. The primary reason for the increase in expenses was a clinical
        pharmacology study that was initiated during 2021;


    •   an increase of $6.8 million in expenses for development of SAGE-718,
        primarily attributable to clinical pharmacology studies that were
        initiated during 2021;


    •   a decrease of $0.6 million in unallocated expenses. The amount for the six
        months ended June 30, 2021 reflects an increase in expenses of $4.4
        million offset by a reduction in expenses of $5.0 million due to
        reimbursement from Biogen pursuant to the Biogen Collaboration Agreement;
        and


    •   an increase of $0.4 million in non-cash stock-based compensation expense.
        The increase in non-cash stock-based compensation expense is primarily due
        to the achievement of a milestone for certain outstanding performance
        restricted stock units, resulting in $1.9 million of expense during the
        six months ended June 30, 2021. There was no non-cash stock-based
        compensation expense recognized related to the achievement of
        performance-based vesting criteria during the six months ended June 30,
        2020.



Selling, general and administrative expenses



                                               Six Months Ended
                                                   June 30,              Increase
                                              2021         2020         (Decrease)
                                                        (in thousands)
Personnel-related                           $ 22,355     $  41,005     $    (18,650 )
Stock-based compensation                      26,905        31,010           (4,105 )
Professional fees                             18,884        17,759            1,125
Other                                         15,049        18,581           (3,532 )

Total selling, general and administrative

  expenses                                  $ 83,193     $ 108,355     $    (25,162 )




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Selling, general and administrative expenses for the six months ended June 30, 2021 were $83.2 million, compared to $108.4 million for the six months ended June 30, 2020. The decrease of $25.2 million was primarily due to the following:



    •   a decrease of $18.7 million in personnel-related costs. The amount for the
        six months ended June 30, 2021 reflects a decrease in expenses of $17.1
        million and a reduction in expenses of $1.5 million due to reimbursement
        from Biogen pursuant to the Biogen Collaboration Agreement. The primary
        reason for the decrease in expenses was the termination of employees in
        the April 2020 restructuring;


    •   a decrease of $4.1 million in non-cash stock-based compensation expense.
        The decrease in expenses is primarily from the impact of the cancellation
        of stock option grants that had been made to terminated employees, offset
        by an increase due to the achievement of a milestone for certain
        outstanding performance restricted stock units, resulting in $1.9 million
        of expense for the six months ended June 30, 2021. There was no non-cash
        stock-based compensation expense recognized related to the achievement of
        performance-based vesting criteria during the six months ended June 30,
        2020;




    •   an increase of $1.1 million in professional fees. The amount for the six
        months ended June 30, 2021 reflects an increase in expenses of $3.4
        million and a reduction in expenses of $2.3 million due to reimbursement
        from Biogen pursuant to the Biogen Collaboration Agreement. The primary
        reasons for the increase in expenses were an increase in activities
        focused on disease awareness and increased launch readiness activities for
        a potential product launch, if our zuranolone development efforts are
        successful; and




    •   a decrease of $3.5 million in other costs. The amount for the six months
        ended June 30, 2021 reflects a decrease in expenses of $1.2 million and a
        reduction in expenses of $2.4 million due to reimbursement from Biogen
        pursuant to the Biogen Collaboration Agreement.




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 six months ended June 30, 2020, we recorded $28.4 million of expense for restructuring, 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, net

Interest income, net, and other expense, net, for the six months ended June 30, 2021 and 2020 were $1.5 million and $7.5 million, respectively. The primary reason for the decrease was the reduction in interest rates that started in early 2020.

Liquidity and Capital Resources

We began to generate revenue from product sales in the second quarter of 2019 in conjunction with the launch of our first product, ZULRESSO, in June 2019. To date, we have incurred recurring net losses, except for net income of $606.1 million for the year ended December 31, 2020, reflecting revenue recognized under the Biogen Collaboration Agreement. As of June 30, 2021, we had an accumulated deficit of $1.2 billion. On December 31, 2020, we completed the sale of 6,241,473 shares of our common stock in a private placement to BIMA at a price of approximately $104.14 per share, resulting in aggregate gross proceeds of $650.0 million. From our inception through June 30, 2021, we have received aggregate net proceeds of $2.8 billion from the sales of redeemable convertible preferred stock prior to our initial public offering, the issuance of convertible notes, and the sales of common stock in our initial public offering in July 2014, follow-on offerings and to BIMA. We also received $1.0 billion in upfront payments under our collaborations with Biogen and Shionogi.


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As of June 30, 2021, our primary sources of liquidity were our cash, cash equivalents and marketable securities, which totaled $1.9 billion. We invest our cash in money market funds, U.S. government securities, corporate bonds and commercial paper, and our primary objectives are to preserve principal, provide liquidity and maximize income without significantly increasing risk.

The following table summarizes the primary sources and uses of cash for the six months ended June 30, 2021 and 2020:



                                    Six Months Ended June 30,
                                       2021              2020
                                          (in thousands)
Net cash provided by (used in):
Operating activities              $      (211,855 )   $ (255,675 )
Investing activities                     (947,204 )      383,652
Financing activities                       11,688          3,546
Total                             $    (1,147,371 )   $  131,523




Operating Activities


During the six months ended June 30, 2021, net cash used in operating activities primarily resulted from our net loss of $203.0 million, which was primarily attributable to our research and development activities and our selling, general and administrative expenses, along with changes in our operating assets and liabilities of $49.8 million, partially offset by $40.9 million of non-cash items.

During the six months ended June 30, 2020, net cash used in operating activities primarily resulted from our net loss of $263.1 million, which was primarily attributable to our research and development activities and our selling, general and administrative expenses, along with changes in our operating assets and liabilities of $48.9 million, partially offset by $56.3 million of non-cash items.


Investing Activities



During the six months ended June 30, 2021 and 2020, net cash used in investing activities was $947.2 million and net cash provided by investing activities was $383.7 million, respectively. During the six months ended June 30, 2021 and 2020, we purchased marketable securities and had sales and maturities of our marketable securities as part of managing our cash and investments portfolio. Additionally, during the six months ended June 30, 2021, we invested in marketable securities the majority of the cash that we received from Biogen under the Biogen Collaboration Agreement and related stock purchase agreement.

Financing Activities

During the six months ended June 30, 2021 and 2020, net cash provided by financing activities was $11.7 million and $3.5 million, respectively. The increase is due to proceeds from the exercises of stock options.

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


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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 of June 30, 2021, 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 Quarterly Report. During that time, we expect to incur significant expenses as we continue to develop and commercialize our product and product candidates and pursue our strategic plan.

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.

Our future capital requirements will depend on many factors, including:

    •   the amount and timing of revenues from sales of ZULRESSO, which we expect
        will continue to be impacted by a number of factors, including: the rate,
        degree and level of market acceptance for ZULRESSO for the treatment of
        PPD in the U.S.; our decision to focus our efforts primarily on
        geographies that have existing, active ZULRESSO treating sites; the
        continued availability of healthcare settings in those geographies 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
        coverage and reimbursement; the number of healthcare professionals willing
        to prescribe ZULRESSO and women with PPD who agree to be treated with
        ZULRESSO; and the scope, duration and timing of the impact of the COVID-19
        pandemic;


    •   the timing and amount of costs associated with our commercialization of
        ZULRESSO;


    •   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, SAGE-324 and SAGE-718 and our other
        clinical-stage product candidates to progress through clinical development
        successfully; the outcome of discussions with regulatory authorities on
        regulatory pathways with respect to our product candidates; the timing,
        scope and outcome of regulatory filings and reviews and approvals of such
        product candidates, if we are successful in our development efforts; the
        scope and cost of any clinical trials or other commitments required
        post-approval for any approved products resulting from such development
        efforts, if successful; and the level, timing and amount of costs
        associated with permitted prelaunch activities and preparing for a
        potential future commercial launch of any such product candidate that is
        successfully developed and approved;


    •   the amounts we are entitled to receive, if any, from Biogen and Shionogi
        under our collaborations for cost-sharing, development, regulatory, and
        sales milestones, and royalty payments;


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    •   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 may present challenges. Markets may experience volatility or become disrupted in the future for any number of reasons, including if current efforts to control the COVID-19 pandemic are not successful. 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 SEC rules.


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Application of Critical Accounting Policies

We have prepared our condensed consolidated financial statements in accordance with accounting principles generally accepted in the U.S. Our preparation of these condensed consolidated financial statements requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets, liabilities, expenses, and related disclosures at the date of the condensed consolidated financial statements, as well as revenue and expenses recorded during the reporting periods. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could therefore differ materially from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in the notes to our consolidated financial statements to our Annual Report, we believe that our most critical accounting policies are those relating to revenue recognition, collaborative arrangements, accrued research and development expenses, and stock-based compensation.

Except for the collaborative arrangements policy described below, 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.

Collaborative arrangements

We analyze our collaboration arrangements to assess whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities and therefore within the scope of Topic 808. This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements within the scope of Topic 808 that contain multiple elements, we first determine which elements of the collaboration are deemed to be within the scope of Topic 808 and which elements of the collaboration are more reflective of a vendor-customer relationship and therefore within the scope of Topic 606. For elements of collaboration arrangements that are accounted for pursuant to Topic 808, an appropriate recognition method is determined and applied consistently, either by analogy to authoritative accounting literature or by applying a reasonable and rational policy election. For those elements of the arrangement that are accounted for pursuant to Topic 606, we apply the five-step model and present the arrangement as collaboration revenue in the condensed consolidated statements of operations and comprehensive loss. For further discussion regarding the accounting for the Biogen Collaboration Agreement, please refer to Note 6, Collaboration Agreements, in the accompanying Notes to Condensed Consolidated Financial Statements appearing in Part I, Item 1 of this Quarterly Report.

For collaboration arrangements that are within the scope of Topic 808, we evaluate the income statement classification for presentation of amounts due from or owed to other participants associated with multiple activities in a collaboration arrangement based on the nature of each separate activity. Payments or reimbursements that are the result of a collaborative relationship, instead of a customer relationship, such as co-development and co-commercialization activities, are recorded as research and development expense or selling, general and administrative expense in the event of a payment to the collaborative partner in a period, or a reduction to these expense line items in the event of a reimbursement from the collaboration partner in a period, as appropriate.

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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