SAGE THERAPEUTICS, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K, or Annual Report. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. We caution you that forward-looking statements are not guarantees of future performance, and that our actual results of operations, financial condition and liquidity, and the developments in our business and the industry in which we operate, may differ materially from the results discussed or projected in the forward-looking statements contained in this Annual Report. We discuss risks and other factors that we believe could cause or contribute to these potential differences elsewhere in this report, including under Part I, Item 1A, "Risk Factors" and under "Cautionary Note Regarding Forward-Looking Statements" in this Annual Report. In addition, even if our results of operations, financial condition and liquidity, and the developments in our business and the industry in which we operate are consistent with the forward-looking statements contained in this Annual Report, they may not be predictive of results or developments in future periods. We caution readers not to place undue reliance on any forward-looking statements made by us, 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. Information pertaining to fiscal year 2018 was included in the Company's Annual Report on Form 10-K for the year-endedDecember 31, 2019 , on pages 82 through 100, under Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," which was filed with theSEC onFebruary 27, 2020 . 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 theU.S. for the treatment of postpartum depression, or PPD, in adults. We have a portfolio of other product candidates with a current focus on modulating two critical central nervous system, or CNS, receptor systems, GABA and NMDA. The GABA receptor family, which is recognized as the major inhibitory neurotransmitter in the CNS, mediates downstream neurologic and bodily function via activation of GABAA receptors. The NMDA-type receptors of the glutamate receptor system are a major excitatory receptor system in the CNS. Dysfunction in these systems is implicated in a broad range of CNS disorders. We are currently targeting diseases and disorders of the brain with three key focus areas: depression, neurology and neuropsychiatry. Our first product, ZULRESSO, is a proprietary intravenous formulation of brexanolone, approved in theU.S. as a treatment for postpartum depression, or 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 theU.S. inJune 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. We are currently conducting three Phase 3 placebo-controlled clinical trials of zuranolone - the WATERFALL Study and the CORAL Study in MDD, and the SKYLARK Study in PPD - as well as an open-label Phase 3 clinical trial in MDD known as the SHORELINE Study. We expect to report topline results from the WATERFALL Study in the first half of 2021, and topline results from the other zuranolone Phase 3 clinical trials at various times throughout the remainder of 2021. 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. We are currently conducting a placebo-controlled Phase 2 clinical trial evaluating the safety and efficacy of SAGE-324 in the treatment of essential tremor, known as the KINETIC Study. We expect to report topline data from this study in early 82 -------------------------------------------------------------------------------- 2021. If the results of the KINETIC Study support further development, we expect to initiate additional development activities including the next placebo-controlled Phase 2 clinical trial of SAGE-324 in essential tremor in late 2021 to explore dose and frequency, including potential formulations. We believe SAGE-324 also has potential for the treatment of a number of other neurological conditions, including epilepsy and Parkinson's disease. We are jointly developing zuranolone and SAGE-324 in theU.S. withBiogen MA Inc. , or BIMA, andBiogen International GmbH , or, together with BIMA, Biogen, under a collaboration and license agreement, or the Biogen Collaboration Agreement, that became effective inDecember 2020 . Under the Biogen Collaboration Agreement, we will also jointly commercialize products containing zuranolone, which we refer to as Licensed 217 Products, and products containing SAGE-324, which we refer to as Licensed 324 Products, with Biogen in theU.S. if our development efforts are successful. We refer to the Licensed 217 Products and Licensed 324 Products collectively as the Licensed Products. In addition, we have granted Biogen sole rights to develop and commercialize the Licensed Products outside theU.S. , other than inJapan ,Taiwan andSouth Korea , or the Existing Partner Territory, where we have granted rights to Shionogi & Co., Ltd., or Shionogi, with respect to zuranolone. We refer to the territories outside theU.S. to which Biogen has rights under the Biogen Collaboration Agreement with respect to the applicable Licensed Product as the Biogen Territory. Our second area of focus for future clinical development is 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 cognition dysfunction associated with diseases such as Huntington's disease, Parkinson's disease and Alzheimer's disease. We are currently conducting a Phase 2a open-label study of SAGE-718 evaluating patients with Parkinson's disease cognitive dysfunction, known as the PARADIGM Study, and 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 PARADIGM Study in early 2021 and from the LUMINARY Study in late 2021. We plan to initiate further development activities including a placebo-controlled Phase 2 clinical trial with SAGE-718 in late 2021 with the indication and design to be informed by the results of these clinical trials as well as results of an earlier Phase 1 clinical trial in Huntington's disease. We have other compounds at earlier stages of development with a focus on both acute and chronic brain healthy disorders. Our early-stage GABAA modulators include SAGE-689, expected to begin Phase 1 development in 2021 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. 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 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 inJune 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 for the clinical development and commercialization of zuranolone in the Existing Partner Territory. In the fourth quarter of 2020, we recorded revenue from the strategic collaboration with and stock purchase by Biogen. We have incurred net losses in each year since our inception, except for net income of$606.1 million for the year endedDecember 31, 2020 , because of revenue recognized under a license and collaboration agreement with Biogen, and we had an accumulated deficit of$1.0 billion as ofDecember 31, 2020 . Our net losses were$680.2 million and$372.9 million for the years endedDecember 31, 2019 and 2018, respectively. These losses have resulted principally from costs incurred in connection with research and development activities and selling, general and administrative costs associated 83 --------------------------------------------------------------------------------
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 and regulatory activities
with respect to zuranolone in PPD and MDD, 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 in geographies that
have existing, active ZULRESSO treating sites;
• complete the ongoing KINETIC Study in essential tremor, and, if the
results support further development, initiate additional development
activities including the next placebo-controlled Phase 2 clinical trial
with SAGE-324 in essential tremor to explore dose and frequency, including
potential formulations, with potential future development in epilepsy,
Parkinson's disease, and other neurological conditions, as part of our
strategic collaboration with Biogen;
• complete the ongoing Phase 2a open-label PARADIGM Study of patients with
Parkinson's disease cognitive dysfunction and Phase 2a open-label LUMINARY
Study of patients with Alzheimer's disease mild cognitive impairment and
mild dementia, and initiate planned placebo-controlled Phase 2 clinical
trial with indication and design to be determined based on results of
completed and ongoing SAGE-718 clinical trials;
• support our collaboration with Biogen with respect to zuranolone and
SAGE-324 in the
SAGE-324 in Biogen's licensed territories outside the
development of zuranolone in the Existing Partner Territory;
• advance SAGE-689 and SAGE-904 in Phase 1 clinical development, including
conducting planned Phase 1 clinical trials;
• continue our research and development efforts to evaluate the potential
for our existing product candidates in the treatment of additional
indications or in new formulations;
• 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
Administration, or FDA, and conduct pre-launch activities with respect to
any of our product candidates that have been successfully developed;
• commercialize any product candidates for which we obtain regulatory
approval, including the manufacture of commercial supplies;
• at the appropriate time, as our development efforts progress, addpersonnel, 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
84
--------------------------------------------------------------------------------
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 financialcontributions, 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, Shionogi, and potentially, in the future, additional
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
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 December 31, 2020 , will enable us to fund our operating expenses and capital
expenditure requirements, based on our current operating plan, for at least the
next 12 months from the filing date of this Annual Report. See "-Liquidity and
Capital Resources".
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 . 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 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 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.
has 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. 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 continuing
concerns about the COVID-19 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
85
--------------------------------------------------------------------------------
duration and severity of precautionary measures taken to curb the spread of
COVID-19, the length, location and frequency of surges or waves of COVID-19
cases and the timing and success of the roll-out of vaccines for COVID-19 and
any return to normal business operations across the
InApril 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, are primarily focused on geographies that have existing, active ZULRESSO treating sites. We expect that this approach to our commercial efforts may continue to substantially limit the revenue opportunity for ZULRESSO. We expect that ZULRESSO revenues are likely to fluctuate quarter to quarter. We will not generate revenue from other products unless and until we or any of our collaborators successfully develop, obtain regulatory approval of, and commercialize one of our current or future product candidates. If we enter into additional collaboration agreements with third parties for our product candidates, we may generate revenue from those collaborations. We expect that revenue, if any, that we may generate under our collaboration agreements will fluctuate from quarter to quarter as a result of the timing and amount of license fees, payments for clinical materials or manufacturing services, milestone payments, royalties paid to us and our share of collaboration profits or losses resulting from sales of any commercialized products, and other payments. InJune 2018 , we entered into a strategic collaboration with Shionogi for the clinical development and commercialization of zuranolone for the treatment of MDD and other potential indications in the Existing Partner 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 Existing Partner Territory. InOctober 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 endedDecember 31, 2018 , and for the supply of active pharmaceutical agreement, or API, for Shionogi's clinical trials. InNovember 2020 , we entered into the Biogen Collaboration Agreement with Biogen for the development, manufacture and commercialization of the Licensed Products. In connection with the execution of the Biogen Collaboration Agreement, we also entered into a stock purchase agreement for the sale and issuance to BIMA of 6,241,473 shares of our common stock. The Biogen Collaboration Agreement became effective onDecember 28, 2020 , and the sale of the common stock under the stock purchase agreement closed onDecember 31, 2020 . Under the terms of the Biogen Collaboration Agreement we will jointly develop and commercialize the Licensed Products in theU.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 Existing Partner Territory. We and Biogen have agreed to share equally all costs for activities under the Biogen Collaboration Agreement solely for theU.S. Biogen is solely responsible for all costs for activities under the Biogen Collaboration Agreement in the Biogen Territory. In the year endedDecember 31, 2020 , we recorded collaboration revenue 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. 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. 86
--------------------------------------------------------------------------------
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.
Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites.
We have been developing our product candidates and focusing on other research and development programs, including exploratory efforts to identify new compounds, target validation for identified compounds and lead optimization for our earlier-validated programs. Our direct research and development expenses are tracked on a program-by-program basis, and consist primarily of external costs, such as fees paid to investigators, central laboratories, CROs and contract manufacturing organizations, in connection with our non-clinical studies and clinical trials; third-party license fees related to our product candidates; and fees paid to outside consultants who perform work on our programs. We do not allocate employee-related costs and other indirect costs to specific research and development programs because these costs are deployed across multiple product programs under research and development and, as such, are separately classified as unallocated or stock-based compensation in research and development expenses. Research and development activities are central to our business. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will continue to increase in the foreseeable future as we continue or initiate clinical trials and non-clinical studies for certain product candidates and pursue later stages of clinical development of our product candidates.
We cannot determine with certainty the duration and costs of the current or future clinical trials of our product candidates. The duration, costs, and timing of clinical trials and development of our product candidates will depend on a variety of factors, including:
• the scope, size, rate of progress, and expense of our ongoing as well as
any additional clinical trials, non-clinical studies, and other research
and development activities;
• future results of ongoing, planned or future clinical trials and
non-clinical studies;
• decisions by regulatory authorities related to our product candidates;
87
--------------------------------------------------------------------------------• 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. A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate or for regulatory approval, or if we experience significant delays in enrollment in any of our clinical trials or need to enroll additional patients, we could be required to expend significant additional financial resources and time on the completion of clinical development. Any failure to complete any stage of the development of any potential product candidates in a timely manner could have a material adverse effect on our operations, financial position and liquidity. A discussion of some of the risks and uncertainties associated with not completing our programs on schedule, or at all, and the potential consequences of failing to do so, are set forth in Part I, Item 1A, "Risk Factors".
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of personnel costs, including salaries, benefits and travel expenses for our executive, finance, business, commercial, corporate development and other administrative functions, and stock-based compensation expense. Selling, general and administrative expenses also include professional fees for expenses incurred under agreements with third parties relating to the commercialization of ZULRESSO; 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. InApril 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, 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. 88 -------------------------------------------------------------------------------- Critical Accounting Policies and Significant Judgments and Estimates Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in theU.S. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. We believe that the estimates and assumptions involved in the accounting policies described below may have the greatest potential impact on our consolidated financial statements and, therefore, consider these to be our critical accounting policies. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions and conditions. While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this Annual Report, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements. Revenue Recognition We generate revenue from the sale of our product, ZULRESSO, which was approved by the FDA inMarch 2019 and we subsequently began selling inJune 2019 , and from collaboration and supply agreements with our collaborators. To date, revenue from our collaboration agreements has come from initial, upfront consideration allocated to licenses of intellectual property, and from the supply of material for clinical trials under a supply agreement. Under Accounting Standards Codification, or ASC, Topic 606, "Revenue from Contracts with Customers", or Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. Arrangements that include rights to additional goods or services that are exercisable at a customer's discretion are generally considered options. We assess if these options provide a material right to the customer and if so, they are considered performance obligations. The exercise of a material right may be accounted for as a contract modification or as a continuation of the contract for accounting purposes. For contracts determined to be within the scope of Topic 606, we assess whether the goods or services promised within each contract are distinct to identify those that are performance obligations. This assessment involves subjective determinations and requires management to make judgments about the individual promised goods or services and whether such are separable from the other aspects of the contractual relationship. Promised goods and services are considered distinct provided that: (i) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and (ii) the entity's promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. We allocate the transaction price (the amount of consideration we expect to be entitled to from a customer in exchange for the promised goods or services) to each performance obligation and recognize the associated revenue when (or as) each performance obligation is satisfied. Our estimate of the transaction price for each contract includes all variable consideration to which we expect to be entitled.
Collaboration and license revenue
In assessing whether a promised good or service is distinct in the evaluation of
a collaboration or license arrangement subject to Topic 606, we consider factors
such as the research, manufacturing and commercialization capabilities of the
collaboration partner and the availability of the associated expertise in the
general marketplace. We also consider the intended benefit of the contract in
assessing whether a promised good or service is separately identifiable from
other promises in the contract. If a promised good or service is not distinct,
we are required to combine that good or service with other promised goods or
services until we identify a bundle of goods or services that is distinct.
89
--------------------------------------------------------------------------------
The transaction price is then determined and allocated to the identified
performance obligations in proportion to their standalone selling prices, or
SSP, on a relative SSP basis. SSP is determined at contract inception and is not
updated to reflect changes between contract inception and when the performance
obligations are satisfied. Determining the SSP for performance obligations
requires significant judgment. In developing the SSP for a performance
obligation, we consider applicable market conditions and relevant
entity-specific factors, including factors that were contemplated in negotiating
the agreement with the customer and estimated costs. In certain circumstances,
we may apply the residual method to determine the SSP of a good or service if
the standalone selling price is considered highly variable or uncertain. We
validate the SSP for performance obligations by evaluating whether changes in
the key assumptions used to determine the SSP will have a significant effect on
the allocation of arrangement consideration between multiple performance
obligations.
If the consideration promised in a contract includes a variable amount, we
estimate the amount of consideration to which we will be entitled in exchange
for transferring the promised goods or services to a customer. We determine the
amount of variable consideration by using the expected value method or the most
likely amount method. We include the unconstrained amount of estimated variable
consideration in the transaction price. The amount included in the transaction
price is constrained to the amount for which it is probable that a significant
reversal of cumulative revenue recognized will not occur. At the end of each
subsequent reporting period, we re-evaluate the estimated variable consideration
included in the transaction price and any related constraint, and if necessary,
adjust our estimate of the overall transaction price. Any such adjustments are
recorded on a cumulative catch-up basis in the period of adjustment.
If an arrangement includes development and regulatory milestone payments, we
evaluate whether the milestones are considered probable of being reached and
estimate the amount to be included in the transaction price using the most
likely amount method. If it is probable that a significant revenue reversal
would not occur, the associated milestone value is included in the transaction
price. Milestone payments that are not within our control or the licensee's
control, such as regulatory approvals, are generally not considered probable of
being achieved until those approvals are received.
In determining the transaction price, we adjust consideration for the effects of
the time value of money if the timing of payments provides us with a significant
benefit of financing. We do not assess whether a contract has a significant
financing component if the expectation at contract inception is such that the
period between payment by the licensees and the transfer of the promised goods
or services to the licensees will be one year or less. We assessed our
arrangements with Shionogi and Biogen and concluded that a significant financing
component does not exist in either arrangement. For arrangements with licenses
of intellectual property that include sales-based royalties, including milestone
payments based on the level of sales, and the license is deemed to be the
predominant item to which the royalties relate, we recognize royalty revenue and
sales-based milestones at the later of (i) when the related sales occur, or (ii)
when the performance obligation to which the royalty has been allocated has been
satisfied.
We then recognize as revenue the amount of the transaction price that is
allocated to the respective performance obligation when (or as) each performance
obligation is satisfied at a point in time or over time, and if over time this
is based on the use of an output or input method. Revenue from our collaboration
agreement with Shionogi has come from initial, upfront consideration that was
allocated to the license of zuranolone and for the supply of drug product for
Shionogi clinical trials. Revenue from our collaboration agreement with Biogen
has come from initial, upfront consideration that was allocated to the licenses
for the Licensed 217 Products and the Licensed 324 Products. For additional
information, refer to Note 6, Collaboration Agreements, to our consolidated
financial statements appearing elsewhere in this Annual Report.
Product revenue
We recognize product revenues, net of variable consideration related to certain
allowances and accruals that are determined using the expected value method, in
our consolidated financial statements at the point in time when control
transfers to the customer, which is typically when the product has been
delivered to the customer's location. The amount included in the transaction
price is constrained to the amount for which it is probable that a significant
reversal of cumulative revenue recognized will not occur. Our only performance
obligation identified for ZULRESSO is to deliver the product to the location
specified by the customer's order. We record shipping and handling costs
associated with delivery of product to our customers within selling, general and
administrative expenses on our consolidated statements of operations and
comprehensive income (loss). We expense incremental costs of obtaining a
contract as incurred if the
90
--------------------------------------------------------------------------------
expected amortization period of the asset would be less than one year. If we
were to incur incremental costs with an amortization period greater than a year,
such costs would be capitalized as contract assets, as they are expected to be
recovered, and would be expensed by amortizing on a systematic basis that is
consistent with the transfer to the customer of the goods or services to which
the asset relates. We did not have any contract assets (unbilled receivables) at
December 31, 2020 , as customer invoicing generally occurs before or at the time
of revenue recognition. We did not have any contract liabilities at December 31,
2020 , as we did not receive any payments in advance of satisfying our
performance obligations to our customers. Amounts billed or invoiced are
included in prepaid expenses and other current assets on the consolidated
balance sheets.
We record reserves, based on contractual terms, for the following components of
variable consideration related to product sold during the reporting period, as
well as our estimate of product that remains in the distribution channel
inventory of our customers at the end of the reporting period. On a quarterly
basis, we will update our estimates and record any necessary material
adjustments in the period they are identified.
Chargebacks: We estimate chargebacks from our customers who directly purchase
the product from us for discounts resulting from contractual commitments to sell
products to eligible healthcare settings at prices lower than the list prices
charged to our customers. Customers charge us for the difference between what
they pay to us for the product and the selling price to the eligible healthcare
settings. Reserves for chargebacks consist of credits that we expect to issue
for units that remain in the distribution channel inventories at the end of each
reporting period that we expect will be sold to eligible healthcare settings,
and chargebacks that customers have claimed, but for which we have not yet
issued a credit.
Government Rebates: We are subject to discount obligations under government
programs, including Medicaid. We record reserves for rebates in the same period
the related product revenue is recognized, resulting in a reduction of ZULRESSO
product revenues and a current liability that is included in accrued expenses on
our consolidated balance sheets. Our liability for these rebates consists of
invoices received for claims from prior quarters that have not been paid or for
which an invoice has not yet been received, estimates of claims for the current
quarter, and estimates of future claims that will be made for product that has
been recognized as revenue, but which remains in the distribution channel at the
end of each reporting period.
Trade Discounts and Allowances: We generally provide customary invoice discounts
on ZULRESSO sales to our customers for prompt payment and we pay fees for sales
order management, data, and distribution services. We estimate our customers
will earn these discounts and fees and deduct these discounts and fees in full
from gross ZULRESSO revenues and accounts receivable at the time we recognize
the related revenues.
Financial Assistance: We provide voluntary financial assistance programs to
patients with commercial insurance that have coverage and reside in states that
allow financial assistance. We estimate the financial assistance amounts for
ZULRESSO and record any such amounts within accrued expenses on the consolidated
balance sheets. The calculation of the accrual for financial assistance is based
on an estimate of claims and the cost per claim that the we expect to receive
using demographics for patients who have registered and been approved for
assistance. Any adjustments are recorded in the same period the
related revenue is recognized, resulting in a reduction of product revenue and
the establishment of a current liability, which is included as a component of
accrued expenses on the consolidated balance sheets.
Product Returns: Consistent with industry practice, we offer product return
rights to direct customers for damaged, defective or expiring product, provided
it is within a specified period around the product expiration date as set forth
in our return goods policy. We estimate the amount of our product sales that may
be returned by our customers and record this estimate as a reduction
of revenue in the period the related product revenue is recognized, as well as a
reserve within accrued expenses on our consolidated balance sheets. We have
experienced no product returns to date. We will update our estimated refund
liability, on at least a quarterly basis, based on actual shipments of ZULRESSO
subject to contractual return rights, changes in expectations about the amount
of estimated refunds or actual returns.
91
--------------------------------------------------------------------------------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 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 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 described above.
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel and vendors to identify services that have been performed on our behalf and estimating the level of service performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance payments. We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. Examples of estimated accrued research and development expenses include fees paid to:
• CROs in connection with performing research and development services on
our behalf;
• other providers in connection with clinical trials;
• vendors in connection with non-clinical development activities; and
• vendors related to product manufacturing, development and distribution of
clinical supplies.
We base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple CROs that conduct and manage clinical trials on our behalf. The financial terms of these agreements vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the clinical expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. When determining accruals, we estimate the time period over which services will be performed, enrollment of patients, number of sites activated and level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting expenses that are too high or too low in any particular period. To date, we have not made any material adjustments to our prior estimates of accrued research and development expenses.
Stock-Based Compensation
We recognize compensation expense for stock-based awards, including grants of
stock options and restricted stock units, made to employees and non-employee
directors based on the estimated fair value on the date of grant, over the
requisite service period. We recognize stock-based compensation expense for only
the portion of awards that are expected to vest.
For awards that vest upon achievement of a performance condition, we recognize
compensation expense when achievement of the performance condition is met or
during the period from which meeting the condition is deemed probable until the
expected date of meeting the performance condition.
92
--------------------------------------------------------------------------------
We have historically granted stock options with exercise prices equivalent to
the fair value of our common stock as of the date of grant. For grants of
restricted stock units, we base the fair value on the stock price as of the date
of grant. Prior to January 1, 2019 , the majority of our grants were stock
options. Effective January 1, 2019 , for grants to employees, we began to grant a
mix of stock options and restricted stock units.
Effective January 1, 2019 , we recognize compensation expense for stock-based
awards made to non-employee consultants based on the estimated fair value on the
date of grant, over the requisite service period. Through December 31, 2018 , we
recognized compensation expense for stock-based awards granted to non-employee
consultants based on the fair value of the awards on each date on which the
awards vest. Compensation expense was recognized over the vesting period,
provided that services were rendered by such non-employee consultants during
that time. At the end of each financial reporting period, the fair value of
unvested options was re-measured using the then-current fair value of our common
stock and updated assumptions using the Black-Scholes option-pricing model.
The fair value of each option grant is estimated using the Black-Scholes
option-pricing model. For the years ended December 31, 2019 and 2018, we
estimated our expected volatility using a weighted average of the historical
volatility of publicly-traded peer companies and the volatility of our common
stock. Effective January 1, 2020 , the Company began using the historical
volatility of only our common stock, as there is adequate historical data for
the duration of the expected term.
The expected term of the options granted to employees and non-employee directors
by us has been determined utilizing the "simplified" method for awards that
qualify as "plain-vanilla" options. Through December 31, 2018 , the expected term
of our options granted to non-employee consultants was determined based on the
contractual term of the options, and since January 1, 2019 , the "simplified"
method has been used. The risk-free interest rate is determined by reference to
the U.S. Treasury yield curve in effect at the time of grant of the award for
time periods approximately equal to the expected term of the award. The expected
dividend yield is based on the fact that we have never paid cash dividends and
do not expect to pay any cash dividends in the foreseeable future.
The fair value of each stock option granted under our equity plans has been
calculated on the date of grant using the following weighted average
assumptions:
Year Ended December 31,
2020 2019 2018
Expected dividend yield 0 % 0 % 0 %
Expected volatility 77.86 % 71.34 % 74.45 %
Risk-free interest rate 0.97 % 2.21 % 2.68 %
Expected term 5.98 years 6.05 years 6.04 years
These assumptions represented our best estimates, but the estimates involve
inherent uncertainties and the application of our judgment. As a result, if
factors change and we use significantly different assumptions or estimates when
valuing our stock options, our stock-based compensation expense could be
materially different. In developing a forfeiture rate estimate for pre-vesting
forfeitures, we have considered our historical experience of actual forfeitures.
If our future actual forfeiture rate is materially different from our estimate,
our stock-based compensation expense could be significantly different from what
we have recognized in the current period.
At December 31, 2020 , we had unrecognized stock-based compensation expense
related to our unvested time-based stock option awards of $120.5 million , which
is expected to be recognized over the remaining weighted average vesting period
of 1.76 years.
At
AtDecember 31, 2020 , 957,695 restricted stock units were both outstanding and unvested, and the total unrecognized stock-based compensation expense related to those awards was$58.2 million . 93 --------------------------------------------------------------------------------
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is set forth in Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements appearing elsewhere in this Annual Report.
Results of Operations
Comparison of the Years Ended
The following table summarizes our results of operations for the years endedDecember 31, 2020 and 2019: Year Ended December 31, Increase 2020 2019 (Decrease) (in thousands) Product revenue, net$ 6,700 $ 3,957 $ 2,743 Collaboration revenue 1,107,500 2,911 1,104,589 Total revenue 1,114,200 6,868 1,107,332 Operating costs and expenses: Cost of goods sold 565 400
165
Research and development 292,714 368,815 (76,101 ) Selling, general and administrative 196,952 345,777 (148,825 ) Restructuring 27,743 -
27,743
Total operating costs and expenses 517,974 714,992 (197,018 ) Income (loss) from operations 596,226 (708,124 ) 1,304,350 Interest income, net 9,597 27,804 (18,207 ) Other income, net 250 82 168 Net income (loss)$ 606,073 $ (680,238 ) $ 1,286,311 Product revenue, net
During the years ended
Collaboration revenue During the year endedDecember 31, 2020 , we recognized collaboration revenue of$1.1 billion related to the execution of the Biogen Collaboration Agreement and the Biogen stock purchase agreement. The revenue consisted of an upfront payment of$875.0 million plus$232.5 million in excess proceeds from the equity investment under the stock purchase agreement that was allocated to the licenses for the Licensed 217 Products and the Licensed 324 Products delivered to Biogen inDecember 2020 . During the year endedDecember 31, 2020 , we recognized no collaboration revenue from our agreement with Shionogi. During the year endedDecember 31, 2019 , we recognized$2.9 million in collaboration revenue from our agreement with Shionogi related to the supply of zuranolone API for clinical development. 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 Biogen and Shionogi and the accounting for revenue from collaboration agreements, refer to Note 6, Collaboration Agreements appearing elsewhere and Note 2, 94 --------------------------------------------------------------------------------
Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements, appearing elsewhere in this Annual Report.
Cost of goods sold During the years endedDecember 31, 2020 and 2019, cost of goods sold was$0.6 million and$0.4 million , respectively, and is made up of a low-single digit royalty cost on net product revenue toCyDex Pharmaceuticals, Inc. and The Regents of theUniversity of California , or the Regents, 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 years endedDecember 31, 2020 and 2019. 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
Year Ended December 31, Increase
2020 2019 (Decrease)
(in thousands)
zuranolone (SAGE-217) $ 116,614 $ 146,819 $ (30,205 )
SAGE-324 19,482 21,449 (1,967 )
SAGE-718 6,388 11,887 (5,499 )
Other research and development programs 38,222 53,267 (15,045 )
Unallocated expenses 69,638 72,462 (2,824 )
Stock-based compensation 42,370 62,931
(20,561 )
Total research and development expenses
Research and development expenses for the year 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 and the SKYLARK Study;
• a decrease of
completion of Phase 1 clinical trials while the initiation of Phase 2
clinical trials did not occur until mid- to late 2020;
• a decrease of
completion of Phase 1 clinical trials in 2019 while the initiation of
Phase 2 clinical trials did not occur until mid- to late 2020;
• a decrease of
programs, related to a decrease in spending on non-clinical studies; 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 year
ended
expense related to the achievement of performance-based vesting criteria
was
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 April 2020 restructuring.
95
--------------------------------------------------------------------------------
Selling, general and administrative expenses
Year Ended December 31, Increase
2020 2019 (Decrease)
(in thousands)
Personnel-related $ 58,403 $ 122,857 $ (64,454 )
Stock-based compensation 51,836 90,300 (38,464 )
Professional fees 50,533 76,594 (26,061 )
Other 36,180
56,026 (19,846 )
Total selling, general and administrative expenses
Selling, general and administrative expenses for the years endedDecember 31, 2020 and 2019 were$197.0 million and$345.8 million , respectively. The decrease of$148.8 million was primarily due to the following:
• a decrease of
of the termination of employees in the April 2020 restructuring;
• a decrease of $38.5 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 year
ended
expense related to the achievement of performance-based vesting criteria
was
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 April 2020 restructuring;
• a decrease of
incurred in the year ended
the commercial launch of ZULRESSO in the
of the
and
• a decrease of
the
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 year ended December 31, 2020 , we recorded $27.7 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 income, net, for the years endedDecember 31, 2020 and 2019 were$9.8 million and$27.9 million , respectively. The primary reason for the decrease was the decrease in the balance of marketable securities, along with a reduction in interest rates. The payments of$1.5 billion that were received from Biogen onDecember 31, 2020 ,$875.0 million of which was an upfront payment and$650.0 of which was received in exchange for shares of our common stock, were in cash and cash equivalents in the balance sheet as ofDecember 31, 2020 .
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, inJune 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, except for net income of$606.1 million for the year endedDecember 31, 2020 , because of revenue recognized under a license and collaboration agreement with Biogen. As of 96
--------------------------------------------------------------------------------December 31, 2020 , we had an accumulated deficit of$1.0 billion . From our inception throughDecember 31, 2020 , we have received aggregate net proceeds of$2.8 billion from the sales of redeemable convertible preferred stock prior to our initial public offering, the issuance of convertible notes, and the sales of common stock in our initial public offering inJuly 2014 , follow-on offerings and the sale of stock to Biogen. We also received$1.0 billion in upfront payments under our collaborations with Biogen and Shionogi. 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 described below, onDecember 31, 2020 , we completed the sale of 6,241,473 shares of our common stock in a private placement to Biogen at a price to the public of approximately$104.14 per share, resulting in aggregate gross proceeds of$650.0 million . As ofDecember 31, 2020 , our primary sources of liquidity were our cash, cash equivalents and marketable securities, which totaled$2.1 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
years ended
Year Ended December 31,
2020 2019
(in thousands)
Net cash provided by (used in):
Operating activities $ 664,280 $ (528,706 )
Investing activities 442,684 (143,156 )
Financing activities 426,762 607,624
Total $ 1,533,726 $ (64,238 )
Operating Activities
During the year ended December 31, 2020 , net cash used in operating activities
primarily resulted from our net income of $606.1 million , which was primarily
attributable to collaboration revenue from our collaboration with Biogen,
partially offset by our research and development activities and our selling,
general and administrative expenses, along with changes in our operating assets
and liabilities of $39.7 million , partially offset by $97.9 million of non-cash
items. During the year ended December 31, 2019 , net cash used in operating
activities primarily resulted from our net loss of $680.2 million , which was
primarily attributable to our research and development activities and our
selling, general and administrative expenses, partially offset by changes in our
operating assets and liabilities of $6.7 million and $144.9 million of non-cash
items.
Investing Activities
During the years ended December 31, 2020 and 2019, net cash provided by
investing activities was $442.7 million and net cash used in investing
activities was $143.2 million , respectively. During the years ended December 31,
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.
Financing Activities
During the years ended December 31, 2020 and 2019, net cash provided by
financing activities was $426.8 million and $607.6 million , respectively. During
the year ended December 31, 2020 , we received $650.0 million of proceeds from
our sale of 6,241,473 shares of our common stock to Biogen under the stock
purchase agreement, of which $417.5 million
97
--------------------------------------------------------------------------------
was recorded as equity and the remainder was recorded as revenue. During the
year ended December 31, 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 ofDecember 31, 2020 , will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months from the filing date of this Annual Report. During that time, we expect 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 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 coverage and reimbursement; the number ofhealthcare 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, plannedand 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;
98
--------------------------------------------------------------------------------
• the ability of zuranolone, SAGE-324, SAGE-718 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 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;
• 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 the current
economic environment may present challenges. The COVID-19 pandemic initially
caused major volatility in the stock market and has caused 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.
99
--------------------------------------------------------------------------------Contractual Obligations and Commitments
The following table summarizes our contractual obligations atDecember 31, 2020 and the effect such obligations are expected to have on our liquidity and cash flow in future periods: Payments Due by Period Less Than More Than Total 1 Year 1-3 Years 3-5 Years 5 Years (in thousands) Operating lease commitments(1)$ 32,225 $ 8,662 $ 18,003 $ 5,560 $ - Total(1)(2)(3)$ 32,225 $ 8,662 $ 18,003 $ 5,560 $ - Amounts related to contingent milestone payments are not considered contractual obligations as they are contingent on the successful achievement of certain milestones. These contingent milestones may not be achieved. We have not included any of these amounts in the table as we cannot estimate or predict when, or if, these amounts will become due. We do not include amounts related to milestones for indications that we are no longer pursuing.
(1) We lease office space in three multi-tenant buildings in
the first building under an operating lease that will expire on
2024, 40,419 square feet in the second building under an operating lease that
will expire on
under an operating lease that will expire on
office space in a multi-tenant building in
consisting of 15,525 square feet under an operating lease that will expire on
lease for office space in the first building and thereby increased the amount
of square feet of office space from 58,442 square feet to 63,017 square feet.
The increase of 4,575 square feet began on
additional space will expire on
we terminated the operating lease for the third building in
leases to meet the needs of the business. The minimum lease payments in the
table do not include related common area maintenance costs or real estate
taxes, because those costs are variable.
(2) We have acquired exclusive and non-exclusive rights to use, research, develop
and offer for sale certain products and patents under license agreements with
with the Regents. The license agreements obligate us to make payments to the
licensors for license fees, milestones, license maintenance fees and
royalties. We are obligated to make future remaining milestone payments under
these agreements of up to an aggregate of
certain milestones, related to clinical development, regulatory approvals and
sales. During the year ended December 31, 2020 , we recorded expense and
accrued expenses of $1.3 million for milestones under these license
agreements.
(3) We enter into contracts in the normal course of business with CROs for
clinical trials, non-clinical research studies and testing, manufacturing and
other services and products as part of general operations. These contracts
generally provide for termination upon notice, and we believe that our
non-cancelable obligations under these agreements are not material.
Off-Balance Sheet Arrangements
We do not currently have, nor did we have during the periods presented, any
off-balance sheet arrangements as defined by
100--------------------------------------------------------------------------------
© Edgar Online, source
