SAGE THERAPEUTICS, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q, or Quarterly Report, and the audited financial statements and related notes contained in our Annual Report on Form 10-K for the year endedDecember 31, 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 theSecurities and Exchange Commission , orSEC , to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements. Overview We are a biopharmaceutical company committed to developing and commercializing novel medicines with the potential to transform the lives of people with debilitating disorders of the brain. Our first product, ZULRESSO® (brexanolone) CIV injection, 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.
The following table summarizes the status of our product and product candidate portfolio as of the filing date of this Quarterly Report.
[[Image Removed]]
32
--------------------------------------------------------------------------------
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 . We are also evaluating brexanolone in a Phase 3 clinical trial as a
treatment for advanced COVID-19-related acute respiratory distress syndrome,
known as ARDS. We expect data from this clinical trial in 2021.
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 March 2021 , we reported complete, topline 12-month data from the 30 mg cohort
and interim topline data from the 50 mg cohort of the ongoing Phase 3 open-label
SHORELINE Study evaluating zuranolone. The SHORELINE Study is designed to
evaluate the safety and tolerability of zuranolone in adults for up to one
year. Data reported showed that after the initial 2-week zuranolone treatment,
more than 70% of patients who received 30 mg and 80% of patients who received 50
mg achieved positive response at Day 15. In the 30 mg zuranolone cohort,
approximately 70% of participants with positive response to an initial 2-week
treatment required at most one additional zuranolone treatment during the
12-month study. Of the 489 patients continuing in the study, 210 (42.9%)
patients used only the single initial zuranolone course, while 125 (25.6%) used
a total of two courses, 58 (11.9%) used a total of three courses, 53 (10.8%)
used a total of four courses, and 43 (8.8%) used a total of five courses. In the
199 patients who received zuranolone 50 mg only, approximately 80% achieved
response and 43.2% achieved remission after the initial 2-week treatment
period. In the 50 mg cohort, the adverse event profile was similar to that seen
in patients who received 30 mg zuranolone. In both the 30 mg and 50 mg cohorts,
zuranolone was generally well-tolerated with an adverse event profile consistent
with data reported earlier. In the 30 mg cohort, 368 (51%) patients reported at
least one adverse event. The most common treatment emergent adverse events
(reported ?5%) were somnolence (86; 11.9%), headache (103; 14.2%), and dizziness
(54; 7.4%). Most adverse events were mild or moderate. The overall incidence
rates of treatment emergent adverse events during the second, third, fourth, and
fifth treatment courses were 42% (120/286), 28.6% (45/157), 29% (28/96), and
27.9% (12/43), respectively. The incidence of treatment emergent adverse events
in the first treatment course was 51% (368/725). In the 50 mg cohort, 62.8%
(125/199) of subjects reported at least one adverse event. Events >5% of
somnolence, dizziness, and sedation were observed to be more frequent in the 50
mg cohort, but were similar in severity to the events seen with 30 mg. Most
adverse events were mild or moderate. We plan to re-open enrollment in the 50 mg
cohort of the open-label SHORELINE Study, increasing the target enrollment
to 500 patients. Additionally, we plan to offer patients from the CORAL Study
the ability to roll-over into the SHORELINE Study following completion of the
CORAL Study. These extensions of the SHORELINE Study will allow us to collect
additional long-term data on patients treated with zuranolone 50 mg.
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 jointly
developing zuranolone and 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.
33
--------------------------------------------------------------------------------
In April 2021 , we and Biogen announced that our Phase 2 KINETIC Study
evaluating SAGE-324 in the treatment of adults with essential tremor (n=67 full
analysis set) had achieved its primary endpoint of a statistically significant
reduction from baseline compared to placebo in The Essential Tremor Rating
Assessment Scale, or TETRAS, Performance Subscale Item 4 upper limb tremor score
on Day 29 (P=0.049), which corresponded to a 36% reduction from baseline in
upper limb tremor amplitude in patients receiving SAGE-324 compared to a 21%
reduction in patients receiving placebo. Activities of daily living, or ADL,
scores showed a statistically significant correlation with upper limb tremor
score at all timepoints. Although the clinical trial was not powered to fully
examine TETRAS ADL, SAGE-324 was numerically superior to placebo at all time
points during treatment. Reported treatment-emergent adverse events were
generally consistent with the safety profile of SAGE-324 previously reported.
The most common treatment-emergent adverse events that occurred in 10% or more
of patients in the SAGE-324 treatment group and at a rate at least twice as high
as that of patients in the placebo group were: somnolence 68%; dizziness 38%;
balance disorder 15%; diplopia 12%; dysarthria 12%; and gait disturbance 12%. In
the KINETIC Study, patients with a more severe tremor at baseline (at or above
the median TETRAS Performance Subscale upper limb tremor Item 4 score of 12)
(n=47) who received SAGE-324 demonstrated a statistically significant reduction
(P=0.007) from baseline in TETRAS Performance Subscale Item 4 upper limb tremor
score compared to placebo at Day 29, corresponding to a 41% reduction from
baseline in upper limb tremor amplitude in patients receiving SAGE-324 compared
to an 18% reduction for placebo. We expect to initiate a dose-ranging Phase 2
clinical trial with SAGE-324 in 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 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 recently completed 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. In this clinical trial,
eight patients aged 50 to 75 years old with mild cognitive impairment due
to Parkinson's disease received 3 mg of SAGE-718 daily for 14
days. Patients showed performance improvements from baseline on multiple
tests in the cognitive domain of executive function during the 14 days of
treatment. Emerging signals on several measures also suggested improved
performance from baseline on additional cognitive tests in the domains
of learning and memory over a similar timeframe. SAGE-718 was generally well
tolerated; there were no serious adverse events reported, and no treatment
emergent adverse events were determined to be related to SAGE-718. In certain
tests of attention and psychomotor speed, SAGE-718 demonstrated neutral
results. Based on data generated with SAGE-718 to date, we intend to
pursue several paths forward for SAGE-718 in parallel, including our plans to
initiate a placebo-controlled Phase 2 clinical trial with SAGE-718 in patients
with early to moderate Huntington's disease in late 2021, and to activate a
new 4-week dosing cohort in the PARADIGM study to gather additional data in the
Parkinson's disease patient population. 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.
We have other compounds at earlier stages of development with a focus on both
acute and chronic brain health 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.
34
--------------------------------------------------------------------------------
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
We have incurred net losses in each year since our inception, except for net income of$606.1 million for the year endedDecember 31, 2020 , reflecting revenue recognized under the Biogen Collaboration Agreement, and we had an accumulated deficit of$1.1 billion as ofMarch 31, 2021 . Our net loss was$95.8 million for the three months endedMarch 31, 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.
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
next 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 activate a
new 4-week dosing cohort in the PARADIGM study to gather additional data
in the Parkinson's disease patient population;
• support our collaboration with Biogen with respect to zuranolone and
SAGE-324 in the
SAGE-324 in Biogen's licensed territories outside the
development of zuranolone in the Shionogi Territory;
• advance 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 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;
• 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
35
--------------------------------------------------------------------------------
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 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 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 March 31, 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 OverviewRevenue
We began to generate revenue from product sales in the second quarter of 2019 in
conjunction with the launch of our first product, ZULRESSO, in
Our revenue from sales of ZULRESSO has been negatively impacted by significant barriers arising from the complex requirements for treatment, and, more recently, by the spread of COVID-19 in theU.S. ZULRESSO is administered as a continuous infusion given over two and a half days. Because of the risk of serious harm resulting from excessive sedation or sudden loss of consciousness during the ZULRESSO infusion, ZULRESSO must be administered only in a medically-supervised healthcare setting that has been certified under a Risk Evaluation and Mitigation Strategies, or REMS, program and meets the other requirements of the REMS program, including requirements related to monitoring of the patient during the infusion. The actions required for a healthcare setting to be ready and willing to treat women with PPD are complex and time-consuming. These actions include: becoming REMS-certified; achieving formulary approvals; establishing protocols for administering ZULRESSO; and securing satisfactory reimbursement. Sites must often negotiate reimbursement on a payor-by-payor basis under commercial coverage. These requirements have created significant barriers to treatment, and are expected to continue to limit future revenue growth. These barriers have been compounded by the COVID-19 pandemic. The spread of COVID-19 in theU.S. resulted in a significant number of sites of care pausing 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 continue to have an adverse impact on our results of operations from sales of ZULRESSO even as vaccination rates increase, as some level of pandemic-related restrictions are likely 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 success of the roll-out of vaccines for COVID-19; the length, location and frequency of surges or waves of COVID-19 cases and the duration of the pandemic, even after the vaccines 36 -------------------------------------------------------------------------------- become readily available to all adults; 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 continued precautionary measures taken to curb the spread of COVID-19; and the timing and success of any return to normal business operations across theU.S. InApril 2020 , we implemented a workforce reduction that primarily affected the ZULRESSO commercial operation and related support functions, including eliminating the 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 Shionogi Territory. Under the terms of the agreement, Shionogi is responsible for all clinical development, regulatory filings and commercialization and manufacturing of zuranolone for MDD, and potentially other indications, in the Shionogi Territory. InOctober 2018 , we also entered into a supply agreement with Shionogi 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 . 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 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 Shionogi 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. 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 37 -------------------------------------------------------------------------------- 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. 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.
38
-------------------------------------------------------------------------------- We consider the collaborative activities associated with the co-development, co-commercialization, and co-manufacturing of Licensed Products in theU.S. to be separate units of account within the scope of Topic 808 as we and Biogen are both active participants in the development and commercialization activities and are exposed to significant risks and rewards that are dependent on the development and commercial success of the activities in the arrangement. Payments to or reimbursements from Biogen related to the co-development and co-manufacturing activities are accounted for as an increase to or reduction of research and development expense. During the three months endedMarch 31, 2021 , research and development expense was reduced by$22.1 million 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.
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.
39
-------------------------------------------------------------------------------- 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 II, Item 1A of this Quarterly Report under the heading "Risk Factors".
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of personnel costs, including salaries, benefits and travel expenses for our executive, finance, business, commercial, corporate development and other administrative functions, and stock-based compensation expense. Selling, general and administrative expenses also include professional fees for expenses incurred under agreements with third parties relating to the commercialization of ZULRESSO; 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. We consider the collaborative activities associated with the co-development, co-commercialization, and co-manufacturing of SAGE-217 products and SAGE-324 products in theU.S. to be separate units of account within the scope of Topic 808 as we and Biogen are both active participants in the development and commercialization activities and are exposed to significant risks and rewards that are dependent on the development and commercial success of the activities in the arrangement. Payments to or reimbursements from Biogen related to the co-commercialization activities are accounted for as an increase to or reduction of selling, general and administrative expense. During the three months endedMarch 31, 2021 , selling, general and administrative expense was reduced by$2.7 million related to this net reimbursement. 40 --------------------------------------------------------------------------------
Results of Operations
Comparison of the Three Months Ended
The following table summarizes our results of operations for the three months
ended
Three Months Ended March 31, Increase
2021 2020 (Decrease)
(in thousands)
Product revenue, net $ 1,583 $ 2,286 $ (703 )
Operating costs and expenses:
Cost of goods sold 187 170 17
Research and development 58,056 63,610 (5,554 )
Selling, general and administrative 39,847 70,130 (30,283 )
Total operating costs and expenses 98,090 133,910 (35,820 )
Loss from operations (96,507 ) (131,624 ) 35,117
Interest income, net 708 4,729 (4,021 )
Other income, net 35 155 (120 )
Net loss $ (95,764 ) $ (126,740 ) $ 30,976
Product revenue, net
During the three months ended
Collaboration revenue For the three months endedMarch 31, 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 endedMarch 31, 2021 and 2020, cost of goods sold was$0.2 million and$0.2 million , respectively, and is made up of a low-single digit royalty paid toCyDex Pharmaceuticals, Inc. and The Regents of theUniversity of California on net product revenue from sales of ZULRESSO, the amortization of intangible assets associated with ZULRESSO and third-party manufacturing and distribution costs associated with labeling, packaging, and shipping of ZULRESSO. Prior to receiving initial FDA approval for ZULRESSO onMarch 19, 2019 , we manufactured ZULRESSO inventory to be sold upon commercialization and recorded approximately$8.9 million related to this inventory build-up as research and development expense. As a result, the manufacturing costs related to the ZULRESSO inventory build-up incurred before FDA approval were already expensed in a prior period and are therefore excluded from the cost of goods sold for the three months endedMarch 31, 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. 41 --------------------------------------------------------------------------------
Research and development expenses
Three Months Ended March 31, Increase
2021 2020 (Decrease)
(in thousands)
zuranolone (SAGE-217) $ 16,832 $ 20,142 $ (3,310 )
SAGE-324 2,500 3,418 (918 )
SAGE-718 2,581 672 1,909
Other research and development programs 8,884 8,222 662
Unallocated expenses 17,978 18,932 (954 )
Stock-based compensation 9,281 12,224 (2,943 )
Total research and development expenses
Research and development expenses for the three months endedMarch 31, 2021 were$58.1 million , compared to$63.6 million for the three months endedMarch 31, 2020 . The decrease of$5.6 million was primarily due to the following:
• a decrease of
amount for the three months ended
expenses of
million due to reimbursement from Biogen pursuant to the Biogen
Collaboration Agreement. The primary reasons for the increase in expenses
were spending on the WATERFALL Study and the CORAL Study;
• a decrease of
amount for the three months ended
expenses of
due to reimbursement from Biogen pursuant to the Biogen Collaboration
Agreement. The primary reason for the increase in expenses was the
initiation of the Phase 2 clinical trial in mid- to late 2020;
• an increase of
primarily attributable to the initiation of the open-label Phase 2a
clinical trials in mid- to late 2020;
• a decrease of
three months ended
million offset by a reduction in expenses of
reimbursement from Biogen pursuant to the Biogen Collaboration Agreement;
and
• a decrease of
The decrease in expenses is primarily from the impact of the cancellation
of stock option grants that had been made to terminated employees,
including those terminated in the April 2020 restructuring. There was no
non-cash stock-based compensation expense recognized related to the
achievement of performance-based vesting criteria during the three months
ended March 31, 2021 and 2020.
Selling, general and administrative expenses
Three Months Ended March 31, Increase
2021 2020 (Decrease)
(in thousands)
Personnel-related $ 10,914 $ 28,753 $ (17,839 )
Stock-based compensation 12,695 18,886 (6,191 )
Professional fees 8,722 11,051 (2,329 )
Other 7,516 11,440 (3,924 )
Total selling, general and
administrative expenses $ 39,847 $ 70,130 $ (30,283 )
42
--------------------------------------------------------------------------------
Selling, general and administrative expenses for the three months ended
• a decrease of
three months ended
million and a reduction in expenses of
from Biogen pursuant to the Biogen Collaboration Agreement. The primary
reason for the decrease in expenses was the termination of employees in
the
• a decrease of
The decrease in expenses is primarily from the impact of the cancellation
of stock option grants that had been made to terminated employees,
including those terminated in the
non-cash stock-based compensation expense recognized related to the
achievement of performance-based vesting criteria during the three months
ended March 31, 2021 and 2020;
• a decrease of
months ended
million and a reduction in expenses of
from Biogen pursuant to the Biogen Collaboration Agreement. The primary
reason for the decrease in expenses was the impact of the April 2020
restructuring on our spending for commercial activities; and
• a decrease of
ended
reduction in expenses of
pursuant to the Biogen Collaboration Agreement. The primary reasons for
the decrease in expenses were the impact of the
and the impact of the COVID-19 pandemic, resulting in our employees
working remotely and a reduction in business travel.
Interest income, net and Other income, net
Interest income, net, and other expense, net, for the three months endedMarch 31, 2021 and 2020 were$0.7 million and$4.9 million , respectively. The primary reason for the decrease was the reduction in interest rates that started during the three months endedMarch 31, 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, inJune 2019 . To date, we have incurred recurring net losses, except for net income of$606.1 million for the year endedDecember 31, 2020 , reflecting revenue recognized under the Biogen Collaboration Agreement. As ofMarch 31, 2021 , we had an accumulated deficit of$1.1 billion . OnDecember 31, 2020 , we completed the sale of 6,241,473 shares of our common stock in a private placement to BIMA at a price to the public of approximately$104.14 per share, resulting in aggregate gross proceeds of$650.0 million . From our inception throughMarch 31, 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 inJuly 2014 , follow-on offerings and to BIMA. We also received$1.0 billion in upfront payments under our collaborations with Biogen and Shionogi. As ofMarch 31, 2021 , our primary sources of liquidity were our cash, cash equivalents and marketable securities, which totaled$2.0 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. 43 --------------------------------------------------------------------------------
The following table summarizes the primary sources and uses of cash for the
three months ended
Three Months Ended March 31,
2021 2020
(in thousands)
Net cash provided by (used in):
Operating activities $ (109,086 ) $ (136,691 )
Investing activities (658,816 ) 206,270
Financing activities 5,623 3,160
Total $ (762,279 ) $ 72,739
Operating Activities
During the three months ended
During the three months endedMarch 31, 2020 , net cash used in operating activities primarily resulted from our net loss of$126.7 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$41.5 million , partially offset by$31.5 million of non-cash items. Investing Activities During the three months endedMarch 31, 2021 and 2020, net cash used in investing activities was$658.8 million and net cash provided by investing activities was$206.3 million , respectively. During the three months endedMarch 31, 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 three months endedMarch 31, 2021 , we invested cash that we received from Biogen onDecember 31, 2020 in marketable securities. Financing Activities
During the three months ended
Operating Capital Requirements
We began to generate revenue from product sales in the second quarter of 2019 in
conjunction with the launch of our first product, ZULRESSO. We anticipate that
we will continue to generate losses for the foreseeable future, and we expect
the losses to increase as we continue the development of our current and future
product candidates, and seek regulatory approvals for 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.
44
--------------------------------------------------------------------------------
Based on our current operating plans, we expect that our existing cash, cash
equivalents and marketable securities as of March 31, 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 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
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 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, 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 otherclinical-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 othercommitments 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;
45
--------------------------------------------------------------------------------
• 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
Application of Critical Accounting Policies
We have prepared our condensed consolidated financial statements in accordance with accounting principles generally accepted in theU.S. Our preparation of these condensed consolidated financial statements requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets, liabilities, expenses, and related disclosures at the date of the condensed consolidated financial statements, as well as revenue and expenses recorded during the reporting periods. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could therefore differ materially from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in the notes to our consolidated financial statements to our Annual Report, we believe that our most critical accounting policies are those relating to revenue recognition, collaborative arrangements, accrued research and development expenses, and stock-based compensation. 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 46
--------------------------------------------------------------------------------
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.
© Edgar Online, source
