Sage Therapeutics
Annual Report 2016

Plain-text annual report

2016 ANNUAL REPORT PPD patients and another in moderate PPD patients, collectively known as the Hummingbird Study. In 2016, the FDA granted Breakthrough Therapy Designation and the EMA granted PRIority MEdicines (PRIME) designation to brexanolone for the treatment of PPD. Sage’s most advanced, next-generation product candidate is SAGE- 217, a novel, orally-active neuroactive steroid that, like brexanolone, is a positive allosteric modulator of GABAA receptors, targeting both synaptic and extrasynaptic GABAA receptors. In the fourth quarter of 2016, Sage initiated Phase 2 development for SAGE-217 in various mood and move- ment disorders, with four Phase 2 clinical programs now underway in major depressive disorder, PPD, essential tremor and Parkinson’s disease. Sage is also currently evaluating a series of novel GABA modulators in pre-clinical development, including SAGE-324 and SAGE-689. Sage has initiated IND-enabling studies of SAGE-324, a novel, orally-active April 20, 2017 TO OUR SHAREHOLDERS we are proud of the progress we have made in almost three years since next-generation modulator intended to be developed for GABA-related our initial public offering. Sage is continuing its vision to “rethink” the indications such as orphan epilepsies and other disorders involving development of treatments for central nervous system (CNS) disorders GABA hypofunction. and, in doing so, attempting to close the innovation gap in an area of We are also developing novel compounds that target the NMDA disease that represents approximately one-third of the worldwide burden receptor, a critical excitatory receptor system implicated in a broad range of illness. The human brain is a complex, integrated network, and this has of CNS disorders and an area of research that we are seeking to help provided a challenge in developing new treatments for CNS diseases. pioneer. SAGE-718, a unique, first-in-class oral compound, has completed Conventional approaches have failed to provide breakthroughs in treating IND-enabling studies, and Sage expects to initiate Phase 1 clinical a number of brain disorders, and to this day new treatments are needed development for SAGE-718 in the first half of 2017. to address these unmet needs. Our primary focus at Sage is on delivering On the corporate side, we continued to grow our team in order to truly differentiated medicines developed through innovative approaches position Sage for long-term success. We have expanded with over 160 to research and development, with a corporate dedication to making employees, including key development, research, technical operations and people’s lives better. In 2017, we have achieved significant momentum medical affairs appointments. We also continue to make important prog- following progress across our pipeline in 2016. We expect to report results ress in expanding our commercial team to prepare for potential near-term from a number of clinical trials this year, including our Phase 3 clinical commercialization, including hires in market access, payor management programs, which, if positive, will put us on the cusp of a potential product and sales and marketing. commercialization in 2018. Sage is advancing a portfolio of novel CNS product candidates target- ing the GABA and NMDA receptor systems. Dysfunction in these systems is known to be at the core of numerous psychiatric and neurological disorders. We believe that Sage is pursuing a unique, data-driven approach to CNS drug development by employing efficient human proof-of-concept studies not only to uncover both activity signals, but also to guide the design of future clinical trials before investing in larger programs. We are developing our lead product candidate, brexanolone (SAGE- 547) in two separate Phase 3 clinical programs – one program studying brexanolone as an acute interventional treatment for super-refractory status epilepticus (SRSE), and a second program for the treatment of postpartum depression (PPD). Brexanolone is Sage’s proprietary IV formu- lation of allopregnanolone, a naturally occurring neuroactive steroid that In 2017, our key objectives include: — Completing Phase 3 clinical development of brexanolone in both SRSE and PPD, and, if successful, expeditiously filing for regulatory approval; — Preparing for a potential commercial launch of brexanolone in both SRSE and PPD; — Advancing Phase 2 development of our next generation oral compound, SAGE-217, in mood and movement disorders; — Advancing our lead NMDA modulator, SAGE-718, into Phase 1 clinical development; — Continuing discovery and development of other novel compounds, including IND-enabling studies for SAGE-324; — And further growing our translational science expertise to better enhance the probability of future development success. acts as a synaptic and extrasynaptic modulator of the GABAA receptor. Our Phase 3 STATUS Trial is a global, randomized, double-blind, We are extremely proud of the great work and progress achieved by the Sage team towards our goal of delivering therapies that we hope will placebo-controlled trial, designed to evaluate brexanolone as a potential advance science in the service of making people’s lives better. As always, adjunctive therapy for SRSE, a rare and life-threatening seizure condition. we thank our clinical collaborators, board members and stockholders for The Phase 3 clinical program is being conducted with a design that is their continued support. Most importantly, we want to thank the people based on an agreement with the U.S. Food and Drug Administration (FDA) who have participated in our clinical trials. Without their support and under a Special Protocol Assessment (SPA). In the fourth quarter of 2016, commitment, we would not be able to pursue our goal of developing truly Sage also received positive scientific advice on the development of brex- novel, differentiated medicines that can make a difference in people’s lives. anolone in SRSE from the European Medicines Agency (EMA). Based on While we are proud of our progress over the past three years, we are even this advice, we believe the Phase 3 clinical program, if successful, will be more excited by what lies ahead. sufficient to support submission of a marketing authorization application (MAA) to the EMA seeking approval of brexanolone for SRSE in the EU. Sage is also conducting a Phase 3 clinical program evaluating brex- anolone as a potential treatment for PPD, a distinct and readily identified major depressive disorder that is a biological complication of childbirth. This program consists of two studies – a placebo-controlled trial in severe Sincerely, Jeff Jonas, M.D. Chief Executive Officer UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2016 OR ☐☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period froff m to Commission file number: 001-36544 Sage Therapeutics, Inc. (Exact Name of Registrant as Specified in its Charter) Delaware (State or Other Jurisdiction of Incorporation or Organization) 215 First Street Cambridge, Massachusetts (Address of Principal Executive Offices) 27-4486580 (I.R.S. Employer Identification No.) 02142 (Zip Code) (617) 299-8380 (Registrant’s Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Stock, $0.0001 par value Name of each exchange on which registered NASDAQ Global Market Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-knowkk n sww easoned issuer, as defined in RuleRR 405 of the Securities Act. Yes ☒ No ☐ Indicate by check markaa if the registratt ntaa is not required to file repor e tsrr pursuant tnn o Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒ Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 durdd ing the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subjeb ct to such filff ing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically and posted on its corporateaa Web site, if any, every Interactive Data t thet File required to be submitted and posted pursuant to RulRR e 405 of Regulation S-T during the preceding 12 months (or forff registrant was required to submit and post such files). Yes ☒ No ☐ such shorter period that Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or inforff mation statements incorpor or any amendment to this Form 10-K. ☐ rated by referff ence in Part III of this Form 10-K r thett Indicate by check markaa whethet definitions of “large accelerateaa d fileff tt registrant r,” “accelerated filer” and “smaller reporting compamm nyaa See thett is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reportirr ng company. ” in RulRR e 12b-2 of the Exchangaa e Act. (Check one): Large accelerated filer ☒ Non-accelerated filer ☐ (Do not check if a smaller reporting company) ☐ Accelerated filer Smaller reporting company ☐ Indicate by check mark whether the registrant is a shell compamm ny (as defined in RulRR e 12b-2 of the Exchange Act). Yes ☐ No ☒ The aggregate market value of the registrant’s voting and non-voting common stock held by non-affiff liates of the registrant (without admitting d by that any person whose shares are not included in such calculation is an affiff liate) as of June 30, 2016 was approx reference to the closing price of the registrant’s common stock on the NASDAQ Global Market reported forff imately $670,259,868, computemm such date. a As of Februarr ry 15, 2017, thet re were 37,270,180 shares of common stock, $0.0001 par value per share, outstandi aa ng. Part I. TABLE OF CONTENTS Business Item 1. Item 1A. Risk Factors Item 1B. Unresolved Staff Comments Item 2. Item 3. Item 4. Mine Safety Disclosures Properties Legal Proceedings Part II. Selected Consolidated Financial Data Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Item 6. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures AbouA Item 8. ementary Data Item 9. Item 9A. Controls and Procedures Item 9B Other Inforff mation Financial Statements and Suppl Changes in and Disagreements with Accountants on Accounting and Financial Disclosure t Market Risk uu Part III. Item 10. Directors, Executive Officers ff Item 11. Executive Compemm nsation Item 12. Security Ownership of Certain Beneficff Item 13. Certain Relationships and Related Transactions, and Director Independence Item 14. Principal Accounting Fees and Services r and Corporate Governance ial Owners and Management and Related Stockhokk lder Matters Part IV. Item 15. Exhibits and Financial Statement Schedules Item 16. Form 10-K Summary Signatures Page 1 30 58 58 59 59 60 62 63 75 76 76 76 76 77 77 77 77 77 77 78 79 Cautionary Note Regarding Forward-Lookingkk Statements This Annual Report orr n Form 10-K, or Annual Report, contann ins forff ward-looking statementsnn that involve risks and uncertarr r fedff eral securities laws. All statements other than statements of historical facts contained in this Annual Report arr make such forward-looking statements pursuant to the safe harbor provisions of thett othet statementsnn . In some cases, you can identify forward-looking statementsnn by terminology such as “may”, “will”, “should”, “expects”, r “intends”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potentiann l”, “continn nue” or the negative of these terms or othet comparable terminology. These forward-looking statements include, but are not limited to, statements aboa ut: reaa intinn es. We Private Securiuu ties Litigation Reforff m Act of 1995 and forward-looking                our plans to develop and commercialize our product candidates in the central nervous system, or CNS, disorders we discuss in this Annual Report, and potentially in other indications; our ability, within the expected timeframes, to complete our ongoing non-clinical studies and clinical trials; to announce the results of such studt clinical trials; and to successfulff ies and trials; to advance our product candidates into additional clinical trials, including pivotal ly complete such clinical trials; our expectations as to the suffiff ciency of the planned clinical development programs for our product candidates, if regulatory approval; our plans with respect to filing for regulatory approval of our product successful, to support candidates, if clinical development is successfulff approval and to commercialize any product, if approved; ; and the anticipated review path and potential to obtain regulatory uu our estimates regarding expenses; use of cash; timing of future cash needs; and capital requirements; the potential forff future revenues; our expectations with respect to the availability of supplies of our product candidates, and the expected perforff mance of our third-party manufn act urers; ff our expectations with respect to the perforff mance of our contract research organizations and other third parties whose activities are impormm tant to our development and future commercialization efforff ts; our ability to obtain and maintain intellectual property protection forff relevant to our business; our proprietary assets and other forff ms of exclusivity the estimated number of patients in indications of interest to us; the potential for our product candidates in those indications, if appr markets; our product candidates; and our ability to serve those oved; the size of the potential markets forff a the anticipated rate and degree of market acceptance of our product candidates forff any indication if approved; our plans for expanding our activities, including outside the U.S., and the potential for futff ure collabor typesyy of contractual relationships, if appropriate, for accomplmm ishing our strategic objectives; a ations and other the level of costs we may incur in connection with our activities, the possible timing and sources of futff ure finff ancings, and our ability to obtain additional finff ancing when needed; the potential for success of competing products that are or become available for the indications that we are pursuing or may in the future pursue; the potential risk of loss of key scientific or management personnel; and other risks and uncertainties, including those listed under Part II, Item 1A, Risk Factors. Any forff warda -looking statements in this Annual Report rrr efleff ct our cuu urrerr nt views with respect to futuuu reuu eventsnn and with respect to involve knokk wn and unkno our fuu utff urtt e finff ancial performance, anda perforff mance or achievements to be materially diffeff these forff warda -looking statements. Factors that may cause actuat othett should not place undue reliance on these forward-looking statementsnn . Except as required by law, we assume no obligation to updauu revise these forff wardaa -looking statementsnn for any reason, even if new information becomes availabla e in the futureuu . rent from any futff urt e results, performance or achievements expressed or implmm ied by ations include, among l results to differff materially from currerr nt expect I, Item 1A, Risk Factors and elsewhew re in this Annual Report. Given these uncuu ertainties, you teaa or wn risks, uncertaintinn es and other factors that may cause our actuatt r things, those described under Part Irr u xx l results, This Annual Report contains estimates, projections and other information concerning our industry, the general business environment, and the markets forff certain diseases, including estimates regarding the potential size of those markets and the estimated incidence and prevalence of certain medical conditions. Inforff mation that is based on estimates, forff ecasts, projections, market research or similar methodologies is inherently subjeb ct to uncertainties, and actuat l disease prevalence rates and market size, may diffeff expressly stated, we obtained this industry, business inforff mation, market data, prevalence information and other data froff m reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publu ications, government data, and similar sources, in some cases applying our own assumptions and analysis that may, in the futff ure, prove not to have been accurate. r materially froff m the information refleff cted in this Annual Report. Unless otherwise l events, circumstances or numbersm , including actuatt PART I All brand names or trademarksrr seii , referff ences in this report to “Sage” SS s rii eport are the propeo rty ott the “Company,”yy “we,” “us,” and “our” referff ir respective owners.rr Unless the context requires to Sage Therapeutics, Inc. and its f to hett appearing in thitt otherwirr subsidiaries. Item 1. Business Overview We are a clinical-stage biopharmaceutical company committed to developing and commercializing novel medicines to treat life-ff altering central nervous system, or CNS, disorders, where there are no approved therapies or existing therapies are inadequate. We have a portfolio of product candidates with a current focff us on modulating two critical CNS receptor systems, GABA and NMDA. ff The GABA receptor famff neurologic and bodily function via activation of GABAA receptors. The NMDA-type receptors of the glutamate receptor system are a majoa r excitatory receptor system in the CNS. Dysfunction in these systems is implmm icated in a broad range of CNS disorders. We are targeting CNS indications where patient populations are easily identified, clinical endpoints are well-definff ed, and development pathways are feasible. ily, which is recognized as the major inhibitory neurotransmitter in the CNS, mediates downstream Our lead product candidate, SAGE-547 (brexanolone USAN)A , is a proprietary intravenous, or IV, formulm ation of allopregnanolone, a naturally occurring neuroactive steroid that acts as a positive allosteric modulator of GABAA receptors, including both synaptic and extrasynaptic populations. We are currently conducting Phase 3 clinical trials of SAGE-547 in both super- ff refract ory status epilepticus, or SRSE, and post-partum depression, or PPD. Our Phase 3 clinical trial in SRSE, known as the STATUS Trial, is evaluating SAGE-547 as a potential adjunctive therapy in the treatment of SRSE. SRSE is a rare and life-ff altering condition in which a patient experiences a state of continuous seizure called status epilepticus, or SE, that continues or recurs despite standard treatment regimens normally suffiff cient to stop the seizure activity. We expect to report top-line results from the STATUS Trial in the first half of 2017. If successful, we believe the results froff m this Phase 3 clinical trial, together with other data froff m the SAGE-547 development program will be sufficff Drugr Application, or NDA, submission to the FDA seeking approval for SAGE-547 in SRSE in the U.S. Based on scientificff we received in the fourth quarter of 2016 from the European Medicines Agency, or EMA, we also believe our current Phase 3 clinical program in SRSE, if successful, will be sufficff approval of SAGE-547 for SRSE in the European Union, or EU. ient to support a marketing authorization application, or MAA, to the EMA seeking ient to form the basis of a New advice Our Phase 3 clinical program in PPD is evaluating SAGE-547 as a potential treatment for PPD. PPD is a distinct and readily r weeks after identified majoa r depressive disorder that is a biological complication of childbid rth, affecti giving birth. We anticipate announcing top-line data from the Phase 3 in the third trimester of pregnancy or within fouff clinical program, known as the Hummingbird Studt y, encompassing two placebo-controlled trials, in the second half of 2017. In the third quarter of 2016, we received Breakthkk rough Therapy designation froff m the FDA forff SAGE-547 as a potential treatment forff PPD. Based on input we received from the FDA during a Breakthrough Therapy meeting in the fouff successful, the results of the Phase 3 clinical program, together with the results of prior clinical studies of SAGE-547 in PPD, and ongoing non-clinical studies, will be sufficff PPD. treatment of PPD. In the fourth quarter of 2016, we also received PRIority MEdicines (PRIME) designation from the EMA for SAGE-547 in the ission of an NDA to the FDA seeking approval for SAGE-547 nin ng a subset of women typiyy cally commencing rth quarter of 2016, we believe that, iff ient to suppor t the submu uu ff ff Our most advanced next-generation product candidate is SAGE-217, a novel neuroactive steroid that, like SAGE-547, is a positive allosteric modulator of GABAA receptors, targeting both synaptic and extrasynaptia of 2016, we initiated our Phase 2 clinical program forff SAGE-217 with a focff us on four indications: two movement disorder indications, essential tremor and Parkinson’s disease, and two mood disorder indications, major depressive disorder, or MDD, and PPD. In February 2017, we announced top-line results from the open-label, proof-of-concept portion (Part A) of our Phase 2 clinical trial SAGE-217 in MDD which met our criteria for advancing SAGE-217 into the blinded, placebo-controlled portion of the Phase 2 MDD clinical trial (Part B). We expect to initiate Part B in the second quarter of 2017. We area clinical trials of SAGE-217 in PPD, essential tremor and Parkinson’s disease. We expect to report top-line results from the open-label pportion of the Phase 2 clinical trial of SAGE-217 in Parkinson's disease in the first half of 2017. We anticipate reporting top-line results from the blinded, placebo-controlled Phase 2 clinical trials of SAGE-217 in essential tremor and PPD in the second half fof 2017. We also have a portfolio of other novel compounds that target the GABAA receptors, including SAGE-105, SAGE-324 and SAGE-689, which are at earlier stages of development with a focff us on both acute and chronic CNS disorders. also currently conducting the Phase 2 c GABAA receptors. In the fouff rth quarter fof 1 development of SAGE-718 will be cerebrosterol deficff Our second area of focus is the development of novel compounds that target the NMDA receptor. The first product candidate selected for development from this program is SAGE-718, an oxysterol-based positive allosteric modulator of the NMDA receptor. it disorders, Anti-NMDA Receptor Encephalitis, Our initial areas of focus forff and other indications involving NMDA receptor hypofun decreased levels of cerebrosterol, a naturally occurring oxysterol, may represent biomarkers to identify, forff patient populations characterized by cognitive dysfunction and neuropsychiatric symptoms resulting from NMDA receptor ction or hypofunction. Examplmm es of these potential areas for futff ure evaluation include certain types, aspects or subpopulations dysfunff of a numn vity disorder, schizophrenia, Huntington’s bem r of diseases such as depression, Alzheimer’s disease, attention deficff disease, and neuropathic pain. We have completed Investigational New Drug, or IND-enabling non-clinical studies of SAGE-718, and plan to commence the Phase 1 clinical program in the first half of 2017. ction. We believe measuring levels of anti-NMDA receptor antibodies or future study, broader it hyperacti yy yy We expect to continuen our focff us on allosteric modulation of the GABAA and NMDA receptor systems in the brain. The GABAA t ty to develop molecules froff m our internal portfolff and NMDA receptor systems are broadly accepted as impacting many psychiatric and neurological disorders, spanning disorders of mood, seizure, cognition, anxiety, sleep, pain, epilepsy, and movement disorders, among others. We believe that we will have the opportuni ability to identify aff point, on knowledge of the chemical scaffoff and activity of allosteric modulators allows us to efficff to regulate importan the potential forff therapies which have failed in development. bem r of these disorders in the futff ure. Our io with the goal of addressing a numn nd develop such novel CNS therapies is enabled by our proprietary chemistry platforff m that is centered, as a starting lds of certain endogenous neuroactive steroids. We believe our knokk wledge of the chemistry iently design molecules with different characteristics. This diversity enables us t have s than either current CNS therapies or previous fe, brain penetration and receptor pharmacology to develop product candidates that better selectivity, increased tolerability, and fewff t properties such as half-liff target side effect er off-ff m ff Our goal is to continue to be a leading biopharmaceutical company focff used on development and commercialization of novel proprietary therapies for the treatment of life-altering CNS disorders. Key elements of our strategy are to: Our Strategy         Complete Phase 3 clinical development of SAGE-547 as a treatment for both SRSE and PPD, and, if successfulff expeditiously file for regulatory approval. , Prepare forff SAGE-547 and other CNS therapeutics, if and when approved, to physicians and patients forff a potential commercial launch of SAGE-547 in both SRSE and PPD, and build commercial capability to bring the approved indications. Rapia dly advance development of our next generation product candidate, SAGE-217, in movement and mood disorders, to determine which indications, if any, are appropriate to continue further in development. Continue development of other novel compounmm SAGE-105 and SAGE-324. ds that act through allosteric modulation of the GABAA receptor such as Advance SAGE-718 into clinical development, and diversify off target the NMDA receptor. ur efforff ts by also focusing on other novel compomm unds that Grow our product candidate pipeline more broadly utilizing the strengths of our proprietary chemistry platforff m and translational science expertise, and focff using our development activities on CNS indications where we can make well- informed, rapid go/no-go decisions to facil itate long-term growth. ff Enhance the probability of future success by utilizing our discovery research expertise to continue to design unique urt es, with a continued focff us on allosteric modulation of the GABAA and NMDA compounmm receptor systems in the brain. ds with differentiated feat ff Continue to refinff e and execute possible strategic options for development and potential future commercialization of product candidates outside the U.S. and Canada. Neurotransmission Understanding the Foundations of Our Approach The CNS is composed of a vast and complex network of differen ff indirectly, to provide a means for the nervous system to signal or communicate with other nerve cells in order to regulate and control all brain funff effeff cts on neurons is by traveling across a physical gap la signals whereas postsynapta ic neurons react to the signals. The human brain contains approximately 86 billion neurons, each having this signaling is called a neuron. One way chemical or electrical signals exert their ocated between two neurons, called a synapsa ction. The cell type responsible forff , most of which serve directly or tures and cell typesyy neurons transaa mit e. Presynaptic t strucrr a 2 hundreds to tens of thousands of synapsa to movement, to memory and all behavioral processes. es to allow for this communication. This process is essential to all things, froff m organ function, Neurotransmission is the process by which signaling molecules, called neurotransmitters, are released by a presynapta ic neuron, travel over the synaptia c space and bind to and interact with receptors on a postsynaptic neuron. Depending on the nature of the neurotransmitter and receptor, this interaction results in excitation, inhibition or modulation of the receiving neuron’s behavior. a Synaptic receptors are primarily located inside the synapta ic cleft, or the space where the neurons communicate, and have been historically considered to be thet most importa function has shown there are many extrasynapta ic receptors that also respond to neurotransmitters to exert their effeff cts. For example, it is becoming increasingly understood that extrasynapta ic GABAA receptor-mediated neurotransmission is critical to generalized neurological function and has demonstrated influff ence over general physiological states such as sleep, hunger, anxiety and seizure, among other things. nt part of the neuron. However, recent understanding of neurotransmission and brain mm Allosteric Modulation We are focused on developing drugs based on selective allosteric modulation of key CNS synaptia c and extrasynaptic receptors. Molecules that function directly on synaptic or extrasynaptia or activate them are known as orthosteric molecules. Alternatively, allosteric modulators are a class of small molecules very diffeff from classical orthosteric drugs, as allosteric modulators interact at a site diffeff tuning of neuronal signals. rent rent from the native site and allow the potential for finff e- c receptors at the site where the native, or natural, molecule binds to inhibit Orthosteric drugr s aimed at key synapta ic receptors typiyy cally have a targeted effect of complete activation or compmm lete inhibition of the neuron, with little subtu lety in how they exert their effeff ct. As a result, neurons may be unable to respond to normal stimuli, and can become over-stimulated by a neurotransmitter or be unable to respond to normal neurotransmission, thus potentially negatively impactmm body is it more importan approaches are well-suited for the treatment of CNS diseases and disorders. t to maintain normal rhythms than in the brain, and accordingly we believe that allosteric modulation of an orthosteric CNS drug development candidate. We believe that nowhere in the ing both the effiff cacy and safety profileff mm ff We utilize our proprietary chemistry capabilities to design and identify dff rugs that are allosteric modulators that bind to either or a and extrasynaptia both synaptic development compounds that we believe are capable of varying degrees of desired activity rather than complete activation or inhibition of the receptor as is typicall positive allosteric modulators of both synapta ic and extrasynaptic sites of either the GABAA receptor or the NMDA receptor system. c receptors, and that have properties targeted to the indications of interest. Our goal is to select forff y observed with orthosteric drugs. Our current focff us is on developing compounds that are yy Allosteric Modulation of Extrasynaptic GABAA Receptors GABAA receptors are the majoa r inhibitory neurotransmitter receptors in the human brain, playing a key role in reducing neuron ff vely avoid some of the limitations of BDZs, by developing compounmm excitability. Our initial focus is on the development of positive allosteric modulators of both synaptic and extrasynaptic sites of the GABAA receptor. Benzodiazepines, or BDZs, are allosteric modulators that primarily act at a particular receptor, the synapta ic GABAA receptor, with little or no activity at extrasynapta ic sites. We believe we can enhance the potential utility of modulating the GABAA receptor for certain indications, and effecti ds that bind to both synapta ic and extrasynapta ic GABAA receptors. The extrasynaptic GABAA receptor is structurt ally distinct froff m the synapta ic receptor, possesses unique pharmacology and is located in a diffeff GABAA receptor. In addition, the extrasynapta ic GABAA receptor remains intact during prolonged periods of seizure with no down-regulation while synaptic GABAA receptors are down-regulated, or diminished in their activity causing, forff pharmacology, of drugs that only target the synaptic GABAA receptors, such as BDZs. Published non-clinical testing utilizing well- validated animal models of SE and sophisticated instruments for identifying the expression of both synapta ic and extrasynaptic GABAA receptors on the surface of neurons support this hypothesis. These studies, perforff med in rats, showed a reduced number and activity of synapta ic GABAA receptors during SE, in contrast to the preserved number and activity of extrasynapta ic GABAA receptors under the same conditions. These studies were done by measuring the amount of GABAA synapta ic and GABAA extrasynaptia present on the surface of the neurons. The analysis of protein present forff versus normal animals, shows the differeff examplmm e, some refraff ctory SE patients to be resistant to the action, or each of the respective receptors in animals in the SE-state, nce in GABAA receptor expression. rent place than the synaptic c receptors that are a 3 The figff ure below shows the results of a rodent study where the subjeb ct animals were placed into an SE-like condition of prolonged seizure resulting in continuous spontaneous seizures. SAGE-547 was then administered to certain animals while the others received a BDZ. In this animal model, BDZs were unable to adequately control the seizure condition which we believe is due to down-regulation of synaptic GABAA receptors. In contrast, SAGE-547, working at both synaptic and extrasynaptic GABAA receptors, appears to have treated the seizures in these animals and resolved their SE. Allosteric Modulation of NMDA Receptors to Address Certain CNS Conditions NMDA receptors serve a critical role in CNS-related activities. Orthrr osteric drug candidate approaches to modulating the NMDA receptor have also been fraff ught with diffiff culties. NMDA receptor antagonists have been explored for treating Alzheimer’s disease and neuropathic pain and for inducing anesthesia. Drugs that antagonize NMDA receptors have generally been limited by adverse effeff cts, such as neurotoxicity, deteriorating mental status and psychotomimetic, or the onset of psychotic symptoms, folff administration of the drug. NMDA receptor agonists have been tested in schizophrenia, and many believe that they may have a role in enhancing cognition and mood. However, their ability to be used at effecti clinical findings indicating these agents may induce cell death through excess excitation of nerve cells. ve doses in humans has generally been limited by non- lowing the ff We have identifiedff , and continue to evaluate, a numbem r of positive and negative allosteric modulators of the NMDA receptor that we believe have the potential to overcome the difficulties associated with orthosteric approaches. Like our GABAA allosteric modulators, our NMDA receptor allosteric modulators work at sites located in the synaptic and extrasynaptic spaces of the neuron and enhance, or modulate, the activity of the native molecule without directly activating the NMDA receptor. Initial animal testing of our NMDA receptor allosteric modulators has provided evidence that targeting the synaptic and extrasynaptic spaces may help avoid the a 4 excitotoxicity and psychotomimesis observed with directly activating, orthosteric compounds. This in turt n may eventually allow us to discover and develop, alone or with partners, compounmm role in cognitive dysfunff Alzheimer’s disease, attention deficff tivity disorder, schizophrenia, Huntington’s disease, and neuropathic pain. ds to treat certain conditions where NMDA receptor dysfunff ction and neuropsychiatric symptoms such as certain typesyy , aspects or subpopulations of depression, ction may play a yy it hyperac Our proprietary chemistry platform Our proprietary chemistry platform is centered, as a starting point, on knowledge of the chemical scaffoff lds of endogenous neuroactive steroids that are allosteric modulators of GABAA or NMDA receptors. We have leveraged this platforff m to assemblm e a chemistry portfolio of greater than 2,000 compounmm ds. We believe our proprietary chemistry platform allows us to:    optimize the properties of neuroactive steroid compounmm to be used as oral, IV, or intramuscular therapies; ds to develop proprietary, new chemical entities, with the potential control impormm tant properties such as half-life, brain penetration and the typesyy modulating either inhibition or excitation either acutely or chronically; and of receptors our drugs act upon, thereby create drugs that are designed to exert control over the intensity of receptor activation or deactivation, with the potential to hit targets in the brain with more precision, with the goal of increased tolerability and fewer off-ff target side effects current CNS therapies. than ff 5 Our Product Pipeline The folff lowing table summarizes the status of our development programs as of the date of this Annual Report: SAGE-547 Overview Our lead product candidate, SAGE-547, is in Phase 3 clinical development both as a potential adjunctive therapy in the treatment of SRSE and as a potential treatment forff PPD. SAGE-547 is a proprietary IV formulation of synthesized allopregnanolone, a naturally occurring neurosteroid that acts as a synaptic and extrasynaptic modulator of the GABAA receptor. Our Phase 3 clinical trial of SAGE-547 in SRSE, known as the STATUS Trial (SAGE-547 Treatment as Adjud nctive Therapy Utilized in Status Epilepticus), is a global, randomized, doublu e-blind, placebo-controlled Phase 3 clinical trial to evaluate SAGE-547 as a treatment for patients with SRSE. Enrollment in the STATUS Trial is ongoing. We expect to announce top-line results from the STATUS Trial in the firff st half of 2017. If successful, we believe the results froff m this Phase 3 clinical trial, together with other data obtained froff m the SAGE-547 development program, will be suffiff cient to forff m the basis of an NDA submission for SAGE-547 in the U.S. in SRSE. The FDA has granted us orphan drug designation forff SAGE-547 in the treatment of SE, including SRSE, and Fast Track designation forff 2016 froff m the EMA, we also believe our current Phase 3 clinical program in SRSE, if successfulff MAA filing with the EMA seeking approval of SAGE-547 for SRSE in the EU. our IND for SAGE-547 as a treatment forff SRSE. Based on scientificff advice we received in the fourth quarter of ient to support an , will be sufficff The Phase 3 clinical trials of SAGE-547 in PPD, known together as the Hummingbird Study, are comprmm ised of a randomized, promising drug candidates, which includes increased interaction and guidance from the FDA. In placebo-controlled dose-ranging clinical trial of SAGE-547 in patients with severe PPD and a randomized, placebo-controlled clinical trial to evaluate SAGE-547 effiff cacy and safety in patients with moderate PPD. We anticipate announcing top-line data froff m the Hummingbird Study in the second half of 2017. In the third quarter of 2016, we received Breakthkk rough Therapy Designation froff m the FDA forff SAGE-547 as a potential treatment for PPD. Breakthk rough Therapy Designation is intended to offer a potentially expedited development path and review forff December 2016, we announced input from an FDA Breakthkk rough Designation meeting confirff ming that our ongoing clinical trial in PPD, with minor modifications, including increased sample size, is considered a Phase 3 clinical trial. Based on input from the FDA, we believe that, if successful, the results of the Hummingbird Study,dd together with the results of prior clinical studies of SAGE-547 in ff PPD, and ongoing non-clinical studies, will be sufficff treatment of PPD. ff In the fourt of PPD. The PRIME program was launched by the EMA in March 2016, and the designation is designed to aid and expedite the regulatory process forff a major therapeutic advantage over existing treatments, or benefitff patients without treatment options. h quarter of 2016, we also received PRIME designation froff m the EMA forff SAGE-547 in the treatment ission of an NDA with the FDA forff SAGE-547 in the investigational medicines that may offerff ort the submu ient to suppuu 6 SRSESS SRSE is rare, life-ff threatening condition where a patient is in a state of SE and all standard treatment regimens normally nt in stopping seizure activity have fail sufficie ff lasting longer than fivff e minutes, or recurrent seizures without regaining consciousness between seizures for greater than fivff e minutes. Seizures are episodes of abnormal excessive or synchronous neuronal activity in the brain. Causes of SE include: low antiepileptic drug levels in patients with pre-existing epilepsy; cerebrovascular disease; metabolic and electrolyteyy disturbanr head trauma; drug or substance intoxication; hypoxyy ed. The Neurocritical Care Society definff es SE as one continuous unremitting seizure ious diseases; genetic disorders or unknown causes. ia; CNS infections; infect ces; encephalopathies; ff ff sion or deeper near-complete electroencephalogram, or EEG, suppres An SE patient is firff st treated with BDZs and if no response, is then treated with other, second-line, anti-seizure drugs. If the seizure persists after second-line therapy, the patient is diagnosed as having refraff ctory SE, or RSE, admitted to the intensive care unit, or ICU, and placed into a medically induced coma. RSE is commonly managed in the ICU by inducing either sustained seizure suppres uu general anesthetics. The primary drugs used to induce coma are continuously infused IV agents such as propofolff pentobarbital. The RSE patient is commonly monitored on a continuous basis through EEG to ensure sustained seizure suppression or burst suppression is achieved. The goal of sustained seizure suppression or burst suppression using continuous IV general anesthetics is to allow the brain and corresponding neuronal tissue to restore function and reset to normal pre-seizure levels. After a short period, typiyy cally 24 hours, physicians attempt to wean the patient from the medically induced coma to evaluate EEG activity to assess if the neuronal activity has returned to normal levels. If unsuccessful, the patient is placed back into the medically induced coma in order to ction. At this point, patients are considered to be in a state of SRSE. The current protect underlying neurological activity and brain funff standard of care for SRSE is empiric, and there are no therapies at present that have been specificff ally approved for this indication. We estimate that there are between 25,000 and 41,000 cases of SRSE each year in the U.S. sion, called “burst suppression”, using continuous IV , midazolam or u ll Clinic al Trials oll f So AGSS E-GG 547 in SRSE We are currently conducting the STATUS Trial, a global, randaa omized, doublu e-blind, placebo-controlled Phase 3 clinical trial, to evaluate SAGE-547 as a treatment for patients with SRSE. We expect to enroll up tu STATUS trial in order to obtain an estimated 126 evaluable patients. We anticipate that we will qualify approximately 180 sites in the U.S., Canada and Europe. The trial design, endpoints and statistical analysis approach forff reached with the FDA under a Special Protocol Assessment. Subjeb cts are being randomized in a 1:1 ratio to receive either SAGE-547 or placebo in addition to standard-of-cff are third-line anti-seizure agents forff continued resolution of SE forff 24 hours folff Patients who do not respond during the initial treatment period are eligible for open-labeled treatment with SAGE-547. lowing wean of all third-line agents and the blinded studt o 140 patients, ages two and above, in the six days. The primary effiff cacy endpoin the trial are based on an agreement we y drug (SAGE-547 or placebo). t of the trial is d 7 We expect to report top-line results from this trial in the first half of 2017. If successfulff , we believe the results from this Phase 3 clinical trial, together with other data obtained from the SAGE-547 development program, will be sufficient to forff m the basis of an NDA submission for SAGE-547 in SRSE in the U.S. The FDA has granted us orphan drug designation forff SAGE-547 in the treatment advice we of SE including SRSE, and Fast Track designation forff received in the fourth quarter of 2016 from the EMA, we also believe our current Phase 3 program, if successful, will be sufficff ient to uu support an MAA submission to the EMA seeking approval of SAGE-547 forff SRSE in the EU. our IND for SAGE-547 as a treatment for SRSE. Based on scientificff u u int of being successfulff On May 14, 2015, we reported finff al results from our open-label Phase 1/2 clinical trial of SAGE-547 in SRSE. In the Phase 1/2 ly weaned off their anesthetic agents d t of the ongoing Phase 3 clinical trial. SAGE-547 also showed favff orable tolerability and a benefit-risk profileff y endpoin further development for this acutely ill patient population. Overall, 64% of the 25 patients enrolled in the trial experienced clinical trial, 17 of 22 (77%) evaluable patients met the key effiff cacy endpod while SAGE-547 was being administered at the maintenance dose. Subsu equent post-hoc analysis involving duration of the weaning period (fivff e days versus six days) showed that 16 of 22 (73%) evaluable subject and SAGE-547 within five days of starting the SAGE-547 infusion without the need to reinstate anesthetic agents in the folff hour period, while 18 of 22 (82%) evaluable subject starting the SAGE-547 infusion without the need to reinstate anesthetic agents in the folff efficac ff uu supporting at least one serious adverse event, though none were deemed drug-related as determined by the Safety Review Committee. Independent of treatment response, six patient deaths occurred within the study period, all driven by underlying medical conditions. Safetff y and tolerability were assessed by monitoring adverse eventsnn , EEG, physical examinations, neurological examinations, vital signs, clinical laboratory measures, electrocardiograms and concomitant medication usage. In order to allow fulff pharmacologic activity, the trial emplomm yed broad inclusion criteria, primarily excluding patients only if there is majoa r damage to the brain, such as anoxic injun ry, devastating stroke or the presence of a large lesion. Other secondary objectives used to measure efficac included scores on global and specificff assurance that the positive results observed in the Phase 1/2 trial will be replicated in the ongoing Phase 3 clinical trial. ff scales relating to cognition, agitation and depth of coma and survival. We can provide no s were weaned off both anesthetic agents and SAGE-547 within six days of lowing 24-hour period which is the key s were successfully weaned off both anesthetic agents lowing 24- l assessment of y We also expect to continue enrollment in a Phase 3 open-label expanded access trial, designated Study 302, which was initiated y 302 is designed to make SAGE-547 available to patients in the U.S. who are affected by SRSE, but who have not in April 2015. Studt been admitted to, nor can be transferff red to, a STATUS trial site. PPD PPD is a distinct and readily identifieff d major depressive disorder affeff cting an estimated 10-20% of women in the U.S. after childbid rth, of whom an estimated 80% have moderate to severe symptoms. PPD is the most common biological complication of 8 ff nt treatment, PPD may inhibit the mother’s abia lity to perforff m daily activities and to ily. PPD also carries an increased risk forff childbirth, and is characterized by symptoms that often include sadness and depressed mood; anxiety or agitation; loss of interest in daily activities; changes in eating and sleeping habits; feeling overwhelmed; fatigue and decreased energy; inability to concentrate; hypeyy rvigilance about the baby or lack of interest in the newbow rn; and feelings of worthlessness, shame or guilt, which can lead to significant functional impairment. Without sufficie bond with the baby and other members of the famff moderate or severe symptmm oms is typically in the third trimester of pregnancy or within 4 weeks after giving birth. Current standard of care for PPD comprmm ises psychotherapy, and in some cases, the cautious use of pharmacological therapies such as selective serotonin reuptake inhibitors, or SSRIs and serotonin and norepinephrine reuptuu ake inhibitors, or SNRIs. Women with severe PPD may be hospitalized to provide a safe aff care for themselves, or require monitoring during a change in or trial of a new medication. There are no current approved therapia es specificff ally forff PPD. Naturally occurring allopregnanolone is fouff pregnancy, returtt ning to normal levels generally within 24 hours of giving birth. Levels of allopregnanolone have been found to be lower in women with PPD than in healthy women. Data also suggest that women with PPD may be unusually sensitive to the rapid decline in allopregnanolone, potentially causing GABAA -system mediated mood disruption. Given these data, we believe that allosteric modulators of the GABAA receptor may have potential in the treatment of PPD. recovery if they have suicidal ideation or attempt, are unable to funff nd at its highest levels in women during the third trimester of suicide in some women. Onset of nd stable environment forff ction and nn ll Clinic al Triali s oll f So AGSS E-GG 547 in PPD ff and to enroll 100 patients with moderate PPD in part 202C of the Hummingbird Studt a potentially expedited development path and rth quarter of The Phase 3 Hummingbird Study of SAGE-547 in PPD commenced in the third quarter of 2016 as an extension of the Phase 2 y. The Hummingbird Study is comprised of a randomized, placebo-controlled dose-ranging clinical trial of SAGE-547 clinical studt in patients with severe PPD (202B) and a randomized, placebo-controlled clinical trial to evaluate SAGE-547 effiff cacy and safetff yy in patients with moderate PPD (202C). We received Breakthrough Therapy Designation froff m the FDA forff SAGE-547 in PPD in the third quarter of 2016. Breakthrough Therapy Designation is intended to offer promising drug candidates, which includes increased interaction and guidance froff m the FDA. In the fouff review forff 2016, we announced input from an FDA Breakthkk rough Designation meeting confirming that the Hummingbird Study, with minor modifications, including increased sample size, is considered a Phase 3 clinical trial. We expect to enroll 120 patients with severe PPD in part 202B of the Hummingbird Study, with patients randomized 1:1:1 to receive either 60 mcg/kg/h or 90 mcg/kg/h of SAGE- 547 or placebo (40 per group),uu y, with patients randomized 1:1 to receive 90 mcg/kg/h of SAGE-547 or placebo (50 per group).uu We anticipate announcing top-line data from the Hummingbird Study in the second half of 2017. Based on the input we received froff m the FDA during the Breakthrough Designation meeting, we believe that, if successfulff clinical studies of SAGE-547 in PPD, and ongoing non-clinical studies, will be sufficient to support the submission of an NDA to the FDA for SAGE-547 in the treatment of PPD. Additional patient safety data may be acquired through an open-label program. In the fouff PRIME program was launched by the EMA in March 2016, and the designation is designed to aid and expedite the regulatory process forff a major therapeutic advantage over existing treatments, or benefit patients without treatment options. To be accepted, an investigational medicine must show the potential to benefit patients with unmet medical needs based on early clinical data. Once an investigational candidate has been selected for PRIME, developers are assigned a dedicated contact point and a rapporteur from the Committee for Medicinal Products forff Human Use, or CHMP, to provide continuous support and help ahead of a marketing-authorization application, as well as a meeting with a multidisciplinary group of experts to provide broader guidance on the overall development plan and regulatory strategy. Companies who receive PRIME designation for a product candidate in an indication are also eligible forff assessment at the time of their regulatory application. rth quarter of 2016, we also received PRIME designation froff m the EMA forff , the results of the Hummingbird Study, together with the results of prior SAGE-547 in the treatment of PPD. The investigational medicines that may offerff accelerated In the third quarter of 2016, we announced positive top-line results from our multi-center, placebo-controlled, double- Phase 2 clinical trial of SAGE-547 for the treatment of severe PPD. Twenty-one patients were enrolled in the Phase 2 clinical trial. Patients were required to have had a majoa r depressive episode that began no earlier than the third trimester and no later than the firff st four weeks folff lowing delivery, and also to be less than six months postpartum at the time of enrollment. Trial parta icipants were also required to have a Hamilton Rating Scale forff Depression, or HAM-D, score of 26 or above prior to treatment. In the trial, SAGE-547 nt reduction in the HAM-D compared to placebo at 60 hours (p=0.008). In the trial, there achieved the primary endpoint of a significaff was a greater than 20 point mean reduction in the depression scores of the SAGE-547 group at 60 hours through completion of the trial with a greater than 12 point differen (p=0.006) with an effeff ct that was maintained at similar magnitude through to the 30-day folff depression, as determined by a HAM-D <7, measured at 60 hours, was seen in 7 of 10 of the SAGE-547 group cuu in the placebo group.uu Similarly, at 30 days, 7 of 10 of the SAGE-547 group auu SAGE-547 was fouff events. nd to be generally well-tolerated. There were no deaths, serious adverse events or discontinuations due to adverse began at 24 hours ff low-up period (p=0.01). Remission from ce from placebo. The statistically significant differff ence in treatment effect nd 2 of 11 in the placebo group wuu ompamm red with 1 of 11 ere in remission. blind u ff 9 t indicated a statistically significff ant improvmm The results of the Phase 2 PPD trial replicated and extended the findings of an earlier open-label probe studt y of SAGE-547 in ement froff m baseline in depression in four women within severe PPD reported in 2015 that 24 hours after administration of intravenous SAGE-547. During the SAGE-547 treatment period, all fouff remission, as measured by HAM-D, and improved from a mean HAM-D score of 26.5 at baseline to a mean HAM-D score of 1.8 at the end of the 60-hour treatment period. All four patients also demonstrated consistent imprmm ovement as measured by the Clinical Global Impremm ssion-Improvmm observed on therapy or during the 30-day follow-up period, and no discontinuations due to adverse events. A total of 14 adverse events were reported in four patients. The only adverse event reported in more than one patient was sedation (sleepiness) observerr d in two patients, which led to a decrease in dose. ement, or CGI-I scale. SAGE-547 was well-tolerated in all patients treated with no serious adverse events r patients rapidly achieved SAGE-217 Overview SAGE-217 is a novel neuroactive steroid that is a positive allosteric modulator of GABAA receptors. Like SAGE-547, SAGE- 217 targets synaptic and extrasynapta ic GABAA receptors. Our Phase 2 clinical program is focff used on studt indications: two movement disorder indications, essential tremor and Parkinson’s disease, and two mood disorder indications, MDD and PPD. While SAGE-547 is an IV infusion intended for acute administration, SAGE-217 is currently being studied as an oral solution. We are in the process of developing solid oral dosage forff ms of SAGE-217 which we plan to introduce into our Phase 2 clinical program in the first half of 2017. r ying SAGE-217 in fouff Proof-off f-o Concept and PhaPP se 1 u f-concept clinical trial of SAGE-547 in blind, placebo-controlled, crossover trial of 25 patients affeff cted by Given the similar mechanism of action of SAGE-217 to SAGE-547 as a modulator of the GABAA receptor, the selection of mood and movement disorders as initial indications for development of SAGE-217 was determined based, in part, on the results of complmm eted clinical trials of SAGE-547 in PPD, as described above, and the results of a proof-off essential tremor complmm eted in 2015. In the randomized, double- essential tremor, where patients were exposed to the target steady state dose of SAGE-547 for only two hours, several clinician-rated and accelerometer-rated measures showed significaff in accelerometer-measured upper limb km inetic tremor (p=0.046) which is one of the major manifesff morbidity. Likewise, clinician ratings of large tremor motions, as well as smaller movements such as writing and spiral drawing, also showed imprmm ovement appr oaching statistical significance (p=0.056). In addition, SAGE-547 demonstrated a clinically meaningfulff reduction of tremor amplmm itude as measured by accelerometer (at least a 30% reduction froff m baseline) in 33% of patients, compamm red with 16% of patients in the placebo arm. In this phase of the trial, anti-tremor activity of SAGE-547 was observed at non-sedating doses, and peak anti-tremor activity correlated with steady state SAGE-547 levels. The time points showing the greatest reductions in tremor corresponded to peak plasma measurements. Seventeen of these patients were exposed to higher doses of SAGE-547 in an open-label extension with 44% demonstrating at least a 30% reduction in tremor amplitude from baseline. The most common adverse ension led to discontinuation of one patient. No serious adverse events were events at higher doses were fatigue and dizziness. Hypotyy observed on therapy or during the 30-day folff nt reductions in tremor. These changes included a statistically significff ant reduction tations of tremor impacting low-up period. a In the second quarter of 2016, we announced positive top-line results of a Phase 1 clinical program of SAGE-217. In the trial, nd to be generally well-tolerated with no serious adverse events reported during the treatment and follow-upuu SAGE-217 was fouff periods. Assessment of electrical activity in the brain using an EEG, showed clear evidence of target engagement (GABAA receptor modulation) starting at the lowest dose tested (15 mg). The observed EEG effeff ct was sustained throughout the 7-day dosing period without diminution. Rates of moderate to deep sedation defined by a structured rating scale (MOAA/S < 3) were comparable to placebo until the maximum tolerated dose (MTD) was reached, in both the single and multiple ascending dose phases of the trial. The presence of sedation was associated with maximum drug exposure. As part of the Phase 1 clinical program, the safetff y, tolerability and pharmacokinetics of SAGE-217 were also studied in a small open-label cohort of essential tremor patients (n=6). While not designed to demonstrate efficacy, preliminary data show that single doses of SAGE-217 resulted in a similar reduction in tremor symptoms as achieved with a single 12 hour infusff ion of SAGE-547 in our previous placebo-controlled probe studt y (n=25). SAGE-21EE 7 MooMM d Disorder Programs Our SAGE-217 clinical program in mood disorders is comprmm ised of Phase 2 clinical trials in MDD and PPD. MDD is a condition in which a patient experiences at least two weeks of a major depressive episode which causes significant distress or disability where the episode is not due to medical or substance use and there is no history of mania or hypoyy mania. In typiyy cal depressive episodes, the person experiences depressed mood, loss of interest and enjoyment, and reduced energy leading to diminished activity forff unexplained somatic symptoms. A person with moderate or severe MDD will typiyy cally have diffiff culties carrying out his or her usual work, school, domestic or social activities due to symptoms of depression. Antidepressants are widely used in the treatment of MDD, at least two weeks. Many people with depression also sufferff from anxiety symptoms and medically 10 ff a d d in the brain, cerebrospinal fluff oximately 16 million adults in the t of Part A was to evaluate safetff y and tolerability. SAGE-217 was founff ction in depression. Low GABA and allopregnanolone levels have been foun f-concept portion (Parta A) of the Phase 2 clinical trial evaluating SAGE-217 in 13 MDD patients. The but many patients do not adequately respond to existing treatments. According to estimates, appr U.S. reported one major depressive episode in 2015. Preclinical and clinical evidence suggest the role of GABAA receptor dysfunff depressed patients. Our SAGE-217 MDD program is a two-part Phase 2a clinical trial evaluating the safetff y, tolerability, pharmacokinetics and effiff cacy of SAGE-217 in moderate to severe MDD patients. In February 2017, we announced top-line results from the open-label proof-off primary endpoin adverse events or discontinuations reported. The most common adverse events were sedation/sn omnolence, headache, dizziness, and myalgia. The trial also examined the effeff ct of SAGE-217 on the HAM-D total score, in addition to other secondary measures. Patients in the trial had a mean HAM-D total score of 27.2 at baseline. Data demonstrated a mean reduction froff m baseline in the HAM-D of 19.9 points at Day 15, with 85% (11 of 13) patients showing at least a 50% reduction of their HAM-D and 62% (8 of 13) of patients achieving remission, as determined by a HAM-D ≤7. Statistically significff ant mean change from baseline was observed by Day 2 of the study, folff baseline was maintained throughout the treatment period (p<0.0001 at Day 15). The reduction froff m baseline in depression ratings seen in Part A of the trial, met our criteria for advancing SAGE-217 into the double- clinical trial (Part B). We expect to initiate Part B of the Phase 2 clinical trial in the second quarter of 2017. lowing the firff st of once-daily, nighttime oral dosing of 30 mg of SAGE-217. A significff ant mean change froff m blind, placebo-controlled portion of the Phase 2 d to be generally well-tolerated with no serious id and plasma of u As discussed above, data suggest that women with PPD may be unusually sensitive to this rapid decline in allopregnanolone, tion. Given this data, we believe that allosteric modulators of the GABAA potentially causing GABAA-system mediated mood disrupr receptor may have potential in the treatment of PPD. Our Phase 2 clinical trial of SAGE-217 in PPD is a Phase 2a doublu e-blind, placebo-controlled, randomized trial that will evaluate the efficaff approximately 32 patients with severe PPD. The primary endpoint of the trial is evaluation of the effeff ct of SAGE-217 compared to placebo following two weeks of treatment as measured by the HAM-D total score. We expect to report top-line results from the SAGE-217 Phase 2 PPD trial in the second half of 2017. cy, safetff y, tolerability and pharmacokinetics of SAGE-217 in EE SAGE-217 Movement Disoii rderdd Program Our SAGE-217 clinical program in movement disorders is comprised of Phase 2 clinical trials in essential tremor and Parkinson’s disease. Essential tremor is one of the most common neurological disorders. It is a non-life threatening, chronic, progressive disorder associated with involuntary, rhythmic shaking in the upper limbsm and head that can cause subsu tantial disability. Some cases of essential tremor are inherited, and for others there is no known cww ause. We estimate that essential tremor affects seven million people in the U.S., a significant portion of whom are thought to be undiagnosed and untreated. We estimate that approximately 1.5 million of those essential tremor patients have moderate to severe symptoms. Common pharmacological treatments for essential tremor include primidone; propranolol; anti-anxiety medications; and anticonvulsant drugs such as gabapentin and BDZs. Current treatments are only moderately effective, reducing, but not resolving, tremor amplitudes in approximately 50% of patients. Non-pharmaceutical interventions in the treatment of essential tremor include the responsible use of alcohol, deep brain stimulation, focused ultrasound and thalamotomy. Data suggest that essential tremor is associated with brain neurodegeneration, and GABAA receptor dysfunction, thus providing a rationale forff ds that are allosteric modulators of the GABAA receptor and show anti-convulsant activity as potential treatments for essential tremor. We are currently studying the effiff cacy, safety, tolerability -blind, placebo-controlled, randomized withdrawal trial of approximately 80 and pharmacokinetics of SAGE-217 in a Phase 2a doubleu patients with essential tremor. The primary endpoint of the trial is to compare the effeff ct of one week of SAGE-217 on overall kinetic tremor symptm oms. Secondary endpoints include additional accelerometer-derived and clinician-rated rating scales. We expect to report top-line results froff m the Phase 2 clinical trial of SAGE-217 in essential tremor in the second half of 2017. approximately six to studying compounmm ff Parkinson’s disease is a progressive neurodegenerative disorder associated with motor and non-motor symptoms, including resting tremor, and mood disorders. We estimate that Parkinson’s disease affecff ts an estimated 700,000 patients in the U.S, with an estimated 60,000 new cases each year. Parkinson’s disease is thought to be caused by a reduction of dopamine levels as a result of loss of dopamine producing cells in the brain. Dopamine plays a key role in smooth and coordinated muscle movements. Current treatments forff Parkinson’s disease include: levodopa/carbidopa, dopamine antagonists, MAO-B inhibitors and anticholinergics. The part of the brain that produced dopamine also produces high levels of allopregnanolone. Dopamine neurons are under control of the GABA system. Decreased levels of allopregnanolone have been measured in the plasma and cerebrospinal fluff Parkinson’s disease. Given these data, we believe that allosteric modulators of the GABAA receptor may have potential in the treatment of Parkinson’s disease. Our Parkinson's disease Phase 2 program is comprised of a two-part Phase 2 clinical trial evaluating the safetff y, tolerability, pharmacokinetics and efficac trial is an open-label, proof-off Part B randomized, placebo-controlled Phase 2 trial. The primary endpoint for the Part A studt tolerability of SAGE-217. The secondary endpoint is evaluation of improvement in motor symptoms as assessed by the change froff m baseline after one week in the Movement Disorder Society - Unified Parkinson's Disease Rating Scale (MDS-UPDRS) Part 3 (Motor f-concept study evaluating SAGE-217 in approximately 10 patients which, if promising, may lead to the y of SAGE-217 in moderate Parkinson's disease patients. Part A of the Phase 2 y is evaluation of the safety and id of patients with ff 11 Examination) total score. We expect to report top-line results from the Part A open-label study of SAGE-217 in Parkinson's disease in the firff st half of 2017. SAGE-718 SAGE-718 is the firff st product candidate selected for development from our NMDA receptor modulator program. SAGE-718 is a u hed an article novel oxysterol-based positive allosteric modulator of NMDA receptors. In 2013, our scientists and collaborators publis in The Journal of Neuroscience describing data froff m animal studies demonstrating that 24(S)-Hydroxycholesterol (cerebrosterol), a naturally occurring oxysterol, shows potent and selective activity in animal models as a positive allosteric modulator of NMDA receptors acting at a novel oxysterol modulatory site. SAGE-718 has been designed to be a highly potent and selective modulator of NMDA receptors with an optimized pharmacokinetic profile intended to support activity in preclinical models of NMDA receptor hypofyy ff Anti-NMDA Receptor Encephalitis and cerebrosterol (24S-HC) deficit disorders such as Smith-Lemli-Opitz Syndrome, or SLOS. Anti-NMDA Receptor Encephalitis, or ANRAA E, is a rare autoimmune disorder in which antibodies attack NMDA receptors. Symptoms of ANRE include a highly characteristic set of neuropsychiatric deficff disorders and loss of consciousness. SLOS is a rare metabolic disorder caused by a mutation in the DHCR7 (7-dehydrocholesterol an enzyme that is involved in the production of cholesterol in the brain. SLOS is associated with reducd tase) gene which codes forff ntly decreased plasma levels of cerebrosterol, suggesting that normal oxysterol-based modulation of NMDA receptors is significaff disrupr ted in these patients. People affected by SLOS are unable to make enough of the necessary cholesterol in the brain to support normal growthww and development, and are affect complmm eted IND-enabling non-clinical studt 2017. ies of SAGE-718, and plan to commence the Phase 1 clinical program in the first half of ed by a broad range of neuropsychiatric and neurodevelopmental symptm oms. We have tion. We are developing SAGE-718 with an initial development focff us on its, including cognitive and behavioral disturbances, movement oral dosing. SAGE-718 has demonstrated robust unc uu ff Beyond SLOS and ANRE, we believe measuring levels of anti-NMDA antibodies or decreased cerebrosterol levels may represent biomarkers to identify f orff neuropsychiatric symptoms resulting from NMDA receptor dysfunff evaluation include certain types, aspects or subpopulations of a numn deficff future studt it hyperact yy ff ivity disorder, schizophrenia, Huntington’s disease, and neuropathic pain. ction or hypofunction. Examples of these potential areas for futff ure bem r of diseases such as depression, Alzheimer’s disease, attention y broader patient populations characterized by cognitive dysfunff ction and SAGE-105, SAGE-324 and SAGE-689 SAGE-105 and SAGE-324 are novel neuroactive steroids that, like SAGE-547 and SAGE-217, target synapta ic and extrasynapta ic GABAA receptors. In late 2016, we initiated non-clinical studies of SAGE-105 and SAGE-324 with a focff us on orphan epilepsies and indications involving GABA hypofunction. Based on data generated with SAGE-217 showing dose-related anticonvulsant activity in multiple acute seizure and chronic epilepsy models, we plan to develop SAGE-105 or SAGE-324 as an oral therapy forff neurologic conditions associated with high frequencies of seizures, such as Tuberou Lennox-Gastaut syndromes, all of which have small patient populations and an unmet medical need for additional treatment options to treat the seizures. s Sclerosis, Dravet, Rett, PCDH-19, Dup15q rare uu and u t SAGE-689 is a novel positive allosteric modulator of GABAA receptors shown to have anticonvulsant, anxiolytic and sedative properties in animal models. The characteristics of SAGE-689 include a wide therapeutic window to allow forff modulation of the GABAA receptor without inducing deep anesthesia, and a short half-life to permit rapid onset and loss of activity. In 2015, we filed an IND forff SAGE-689 with an intended focus on the treatment of SE patients whose seizures have not resolved after treatment with BDZs prior to the patient being placed in a medically-induced coma. In response to the IND, the FDA requested additional non- clinical study data prior to commencement of a Phase 1 clinical trial. We are in the process of assessing next steps for the SAGE-689 program, and are evaluating possible alternative forff mulations for SAGE-689. Further Exploitation of GABAA and NMDA Receptors We expect to continue to focus our research and development efforff ts on allosteric modulation of the GABAA and NMDA receptor systems in the brain. The GABAA and NMDA receptor systems are broadly accepted as impacting neurological disorders, spanning disorders of mood, seizure, cognition, anxiety, sleep, pain, epilepsy, and movement disorders among others. We believe that we will have the opportunity to develop molecules from our internal portfolio to address a number of these disorders in the futff ure. Our ability to identify and develop such novel CNS therapies is enabled by our proprietary chemistry platform that is centered, as a starting point, on knowledge of the chemical scaffoff lds of certain endogenous neuroactive steroid compomm unds. We believe our knowledge of the chemistry and activity of allosteric modulators allows us to effiff ciently design molecules with differff ent many psychiatric and mm 12 characteristics. This diversity enables us to regulate importa nt properties such as half-lff ife,ff brain penetration and receptor pharmacology to develop product candidates that have the potential for better selectivity, increased tolerability, and fewff side effeff cts than either current CNS therapies or previous therapia es which have failed in development. mm er off-ff target Our current focff us will remain on those indications where we can independently develop and commercialize our products, if approved. We believe our broad potential pipeline lessens our reliance on the success of any one program. We believe our ability t tt o s and receptor subtu ype selectivity will also provide us, in the future, with an design and develop novel molecules with distinct profileff opportuni commercialization capabilities to pursue these programs. ty to create value by potentially partnering these assets with third parties who possess the development and t We neither own nor operate, and currently have no plans to own or operate, any manufacff turing facilities. We currently resource Manufacff turing and Supply all of our non-clinical and clinical material suppl buy all of our future commercial supplies froff m CMOs if our product candidates are approved. y through third party contract manufact urtt uu ff ing organizations, or CMOs, and intend to ies are manufacturtt ed under current Good Manufn act We have established relationships with several CMOs under which the CMOs have manufacturt ed non-clinical and clinical of SAGE-547, SAGE-217 and SAGE-718 active pharmaceutical ingredient, or API, as well as drug product. All clinical uu supplies uu uu suppl the production of these candidates are manufact arrangements in place for either long-term supply or redundant supply of bulk drug subsu tance or drug product forff candidates. It is our intent to put long-term supply agreements in place for commercial manufn act mitigate potential commercial suppl ff through exploring additional manufact y risks for any products that are approved in the futff ure through inventory management and ured by other CMOs on a purchase order basis. We do not currently have any of our product uring at the appropriate time, and to ing Practices, or cGMP. Starting materials and key intermediates to suppo urers to provide API and/or drugr product. urt uu ff ff ff rt We currently have sufficff ient SAGE-547 drug product on hand for our Phase 3 clinical trials in SRSE and PPD and ongoing non- uring of SAGE-547. We currently ies, and are working with our CMOs to prepare for validation and commercial manufact ient SAGE-217 drug substance on hand for our ongoing Phase 2 clinical trials using an oral solution as the dosage forff m. clinical studt have sufficff We are in the process of developing solid oral dosage forff ms of SAGE-217 which we plan to introduce into our Phase 2 clinical program in the first half of 2017. ff SAGE-547, SAGE-217 and SAGE-718 are small molecules isolated as stable crystalline solids. We believe the syntheses of SAGE-547, SAGE-217 and SAGE-718 are reliable and reproducible from readily available starting materials, and the synthetic routes are amenable to large-scale manufn act uring and do not require unusual equipment in the manufn acff purity of SAGE-547, SAGE-217 and SAGE-718 is derived froff m starting materials that are obtained froff m natural sources. We expect to continue to identify and develop drug candidates that are amenable to cost-effeff ctive manufacff facilities. turing process. The enantiomeric turing at contract manufacff turing ff Research and development expenses forff the years ended December 31, 2016, 2015 and 2014 were $120.8 million, $69.4 million and $24.1 million, respectively. Research and Development Given our stage of development, we have not yet established a commercial organization or distribution capabilities, nor have we Sales and Marketing entered into any partnership or co-promotion arrangements with an established pharmaceutical company. We believe that we can successfully launch and commercialize SAGE-547 on our own in SRSE and PPD in the U.S. and Canada, if the product is approved for both indications, using a small and highly specialized sales forcff e similar in size to sales forff ces that other companies have used to marketing products forff both indications, on critical care specialists, neurologists, epileptologists and clinical pharmacologists, in the case of SRSE, and OB/GYNs, psychiatrists, select primary care physicians, clinics, home infusion companies, and group practices, in the case of PPD, and together approximately 1,200 target hospitals particularly tertiary care centers where there are ICUs and staff trained to treat SRSE and other areas in the hospital capable of treating PPD patients with IV infusions. orphan indications. We expect to focus our future sales and marketing efforff ts, if SAGE-547 is approved in We may decide to establa ish agreements or alliances with one or more distributors or pharmaceutical company collaborators to develop and commercialize our products, if approved, particularly in certain territories outside the United States where we do not 13 believe it makes commercial sense for us to proceed on our own. We may also consider other partnering opportunities if we believe the partnering opportunity will add significant value to our effoff contributions, particularly in areas such as depression and cognition that impact large patient populations, in each case depending on, among other things, the applicable indications, the expected development pathway and related costs, deal terms, our available resources and whether the transaction makes strategic sense. rts, including through capabilities, infraff structure, speed or financial We have entered into several license agreements to support our various programs. Licenses Washington UniveUU rsity In November 2013, we entered into a license agreement with Washington University, or WU. Under this agreement, and subju ect to certain rights of the U.S. government and rights retained by WU, WU granted to us an exclusive, worldwide license under certain sale, use and import products covered by certain of its patent rights. WU’s rights patent rights to make, have made, sell, and offer forff in patent applications disclosing and claiming SAGE-689 are included in this license agreement. Under this agreement, WU also granted us non-exclusive license under certain technical information and tangible research information to use such technical information and/or tangible research information to make, have made, sell, offeff sale, use and impormm t products that embodm y or were made using a method or process covered in the technical information and/or tangible research inforff mation. The WU license also grants us a right to sublu icense our licensed rights to third parties, provided each sublu icensee enters into a written agreement with us with terms consistent with our agreement with WU. We must pay to WU a percentage of the revenue we receive froff m sublicensing our rights under this agreement, initially in the mid-teens and decreasing to the mid-single digits over time. r forff Pursuant to the WU license, we are required to use commercially reasonable efforff ts to continue active, diligent development of licensed products and to use commercially reasonable efforff territory and in the fiel January 31 and July 31 of the first two calendar years of the agreement, and no later than Januan ry 31 of each calendar year thereafter ff d during the term of the agreement. We must deliver written reportsrr ure, promote and sell licensed products throughout the to WU describing our progress no later than ts to manufact ff ff . We must pay to WU an annuan l maintenance fee until and including the year in which our first Phase 2 clinical trial is initiated, and we must make up tuu o $0.7 million and $0.5 million in clinical development and regulatory milestones, respectively, to WU, for each licensed product, upon reaching certain milestones relating to the clinical development of our producd t candidates. The license agreement also requires us to make low single-digit royalty payments to WU in connection with the sales of licensed products. The WU agreement will expire on a licensed product-by-licensed product basis upon the later of (i) the last day that at least one valid patent claim covering the licensed product exists, or (ii) the tenth anniversary of the day of the first commercial sale of the licensed product. We may terminate the WU agreement early forff may terminate this agreement early in the event of our failure to cure a material breach within the applic bankrupr immediately discontinue manufacturt e, sale and distribution of any licensed products. tcy. In the event of early termination of this agreement before the expiration of the last to expire of the patent rights, we must providing WU with 90 days’ written notice. WU able cure period or our convenience upon uu a CyDex yy Pharmarr ceuticalsll In Septemberm 2015, we amended and restated our existing commercial license agreement with CyDex Pharmaceuticals, Inc., or CyDex. Under the terms of the commercial license agreement, as amended and restated, CyDex has granted us an exclusive license to CyDex’s Captisol drug formulation technology and related intellectual property for the manufacture of pharmaceutical products incorporating SAGE-547 or SAGE-689, and the development and commercialization of the resulting products in the treatment, prevention or diagnosis of any disease or symptmm om in humans or animals other than (i) the ocular treatment of any disease or condition with a forff mulation, including a hormone; (ii) topical ocular treatment of inflammatory conditions; (iii) treatment and prophylaxis of fungal infections in humans; and (iv) any ocular treatment for retinal degeneration. Pursuant to the CyDex license, we are required during the term of the agreement to use commercially reasonable efforff ts to continue active, diligent development of the licensed product, to seek regulatory approval of the licensed product and to commercialize the licensed product following regulatory approval. We must deliver periodic progress reports to CyDex. We are obligated to make milestone payments under the amended and restated license agreement with CyDex based on the achievement of clinical development and regulatory milestones in the amount of $0.8 million in clinical milestones and $3.8 million in regulatory milestones forff t two fields with respect to SAGE-547; $1.3 million in clinical milestones and $8.5 million in regulatory milestones forff each of the firsff each of the third and fourth fields with respect to SAGE-547; and $0.8 million in clinical milestones and 14 $1.8 million in regulatory milestones forff al until terminated. We may terminate the CyDex agreement for convenience upon providing 180 days’ prior written notice to CyDex. Either party has the right to terminate the agreement for faiff ld with respect to SAGE-689. The CyDex license is perpetu lure to cure a material breach in the applic able cure period. one fieff a rr We will also be required to pay raa single digits based on levels of net sales. We are also party to a suppl y ating SAGE-689. Under the amended suppl to cover the supply of CyDex’s Captisol for use in the manufn act agreement with CyDex, we are also required to purchase all of our requirements forff Capta isol with respect to SAGE-547 and SAGE- y us with Captisol for such purpos 689 from CyDex, and CyDex is required to suppl es, subjeb ct to certain limitations. urt e of products incorpor oyalties to CyDex on sales of SAGE-547 and SAGE-689, if successfulff ly developed, in the low y agreement with CyDex which was amended in Septemberm 2015 uu uu uu ff r r University rr of California In October 2013, we entered into a license agreement with The Regents of the University of California, or the Regents, which was amended in May 2014. Pursuant to this agreement, and subju ect to certain rights of the U.S. government and rights retained by the Regents, the Regents granted us a non-exclusive, non-transferable license under all personal property rights of the Regents covering the tangible personal property in an IND application package owneww d by the Regents, or the Data, and a specifieff d quantity of cGMP grade allopregnanolone, or the Material, to (i) use the Data for refereff nce or incorporation in an IND for the use of the Material as a treatment of SE, essential tremor and/or severe PPD and (ii) use the Material or modifications of the Material to develop a pharmaceutical formulmm ation forff sublu icenseable. clinical trials for SE, essential tremor and/or postpartum depression. The rights licensed to us are not Pursuant to this agreement, we are required to use commercially reasonable effoff ff manufact ure and sale of one or more products containing allopregnanolone, a derived producdd t under the agreement, forff of SE, essential tremor and/or severe PPD. As of January 1, 2014, we must deliver wriww tten reports to the Regents describing our progress no later than 60 days subsequent to June 30 and Decembem r 31 of each fisff cal year. rts to proceed with the development, the treatment This agreement requires us to make up tuu o $0.1 million in milestone payments in connection with the first derived product that meets the relevant milestones, and we must also pay royalties of less than 1% to the Regents for each derived product for a period of 15 years following the firff st commercial sale of such derived product. This agreement will terminate on the earlier to occur of (i) 27 years after the effective date or (ii) 15 years after early forff the event of material default, including failure to provide timely progress reports, after our bankrupr period of 120 days froff m the date of termination, but would not otherwise have rights after termination under the licensed rights to make, have made, use, sell, have sold, offer forff the last-derived product is first commercially sold. We may terminate this agreement convenience upon providing 60 days’ prior wriww tten notice to the Regents. The Regents may terminate this agreement early in tcy. In the event of early termination of this agreement, we have the right to sell any partially made derived products for a sale or impormm t products containing allopregnanolone. icable cure period, or in the event of a the appl ff ff In June 2015, we entered into an exclusive license agreement with the Regents whereby we were granted an exclusive license to certain patent rights related to the use of allopregnanolone to treat various diseases. In exchange for such license, we paid an upfront payment of $50,000, and will make annual maintenance fees of $15,000 until the calendar year following the firff st sale, if any, of a licensed product. We are obligated to make milestone payments folff milestones of up tuu we are obligated to pay royalties at a low single digit percentage of net sales, if any, subjeb ct to specifieff d minimum annual royalty amounts. Unless terminated by operation of law or by acts of the parties under the terms of the agreement, the license agreement will terminate when the last-to-expire patents or last-to-be abandoned patent appl o $0.7 million and $2.0 million in the aggregate, respectively. Following the first sale, if any, of a licensed product, lowing the achievement of specifieff d regulatory and sales ications expire, whichever is later. a Intellectual Property We strive to protect the proprietary technology that we believe is important to our business, including seeking and maintaining patents intended to cover our product candidates and composmm itions, their methods of use and processes forff ture, and any other aspects of inventions that are commercially important to the development of our business. We may also rely on trade secrets to protect aspects of our business that are not amenable to, or that we do not consider appropriate forff , patent protection. their manufacff We plan to continue to expand our intellectual property estate by filiff ng patent appl ications directed to composmm itions, methods of use, treatment and patient selection and formulations and manufn act development of our product candidates. Our success will depend on our ability to obtain and maintain patent and other proprietary protection forff preserve the confiden of third parties. We also rely on know-how, continuing technological innovation and in-licensing opportunities to develop and commercially important technology, inventions and knokk w-how related to our business; defenff d and enfoff rce our patents;nn tiality of our trade secrets; and operate without infriff nging the valid and enforceable patents and proprietary rights from our ongoing ff ff a uring processes created or identifiedff 15 maintain our proprietary position. We seek to obtain domestic and international patent protection, and endeavor to promptmm ly file patent applications forff new commercially valuable inventions. The patent positions of biopharmaceutical companies like us are generally uncertain and involve complex legal, scientificff and factual questions. In addition, the coverage claimed in a patent application can be significaff patent scope can be reinterpreted by the courts after issuance. Moreover, many jurisdictions, including the United States, permit third ther narrowing or even cancellation of patent parties to challenge issued patents in administrative proceedings, which may result in furff claims. We cannot predict whether the patent applications we are currently pursuing, or may in the future pursue, will issue as patents in any particular jurisdiction or whew ther the claims of any issued patents will provide sufficff ntly reduced before the patent is issued, and ient protection froff m compem titors. ff Because patent applications in the United States and certain other jurisdictions are maintained in secrecy forff 18 months or potentially even longer, and since publu ication of discoveries in the scientificff or patent literature ofteff n lags behind actual discoveries, we cannot be certain of the priority of inventions covered by our issued patents, our pending patent applications or of patent applications we may file in the future. Moreover, we may have to participate in interference proceedings or derivation proceedings declared by the United States Patent and Trademark Officff e, or U.S. PTO, or similar proceedings outside the U.S., to determine priority of invention. Patents We currently have one issued patent covering the composition of matter of SAGE-217. We have received notices of allowances for genus and species claims covering SAGE-689 as well as for methods of use of SAGE-689. We have a portfolio of patent applications at various stages of prosecution that falff including genus and species claims to SAGE-217, SAGE-105, SAGE-324 and SAGE-689; and (3) NMDA receptor modulators, including SAGE-718. l into three categories: (1) SAGE-547-related; (2) GABAA receptor modulators; We own six patent application families generally related to SAGE-547. One of these families includes a patent application a. Two additional famff having claims to compositions containing allopregnanolone and a cyclodextrin. The compomm sitions can be used for the treatment of CNS disorders such as SRSE, PPD and traumatic brain injun ry. The second patent family includes patent applications having claims directed to methods of treating seizure disorders, such as SRSE, by administering allopregnanolone using particular dosing regimens or multiple dosage phases. Any U.S. patents that may issue froff m these families of patent applications would have a statutory expiration date in January and August of 2033, respectively. The applications are also pending in foreign countries, including Australia, Brazil, Canada, China, Europe, Hong Kong, Israel, Indian, Japan, Mexico, New Zealand, RusRR sia, Singapore, and South Africff Included in these patent applications are courses of treatment and dosage regimens. A fifff thff claims to deuterated neuroactive steroid compounds and compomm sitions. A sixth famff formulation and manufacff statutt ory expiration date in September 2035, ApriA l 2036, and June 2036, respectively. The time period for electing to pursue forff eign patent protection forff jurisdictions has not yet expired, and we will need to decide whether and where to pursue ex-U.S. protection beforff e expiration of the applicable deadlines. ilies of patent applications include methods of treating essential tremor and depression such as PPD. turing of SAGE-547. Any U.S. patents that may issue from these famff ications by filing national stage patent applications in individual the inventions disclosed in these patent appl ily of patent applications includes claims to family of patent applications includes ilies of patent applications would have a a In addition to the patent appl a ications licensed from WU, we own 23 families of patent applications, resulting from work done exclusively by us and our contract research organizations, directed to additional GABA receptor modulating compounds beyond SAGE-547 and SAGE-689, including SAGE-217 and methods of using these compounds. Any U.S. patents that may issue from these patent applications would have a statutory expiration ranging froff m October 2032 to Novembem r 2036. For example, our issued patent covering the composition of SAGE-217 has a statutory expiration date of ApriA l 2034. We have pending within these famff applications genus and species claims to the majority of the other compoumm nds in our GABAA receptor modulating compomm und collection. These famff provisional appl applications in individual jurisdictions has not yet expired for some of these patent famff where to pursue ex-U.S. protection beforff e expiration of the applicable deadlines. ications have been filed. The time period for electing to pursue forff eign patent protection by filff ing national stage patent ilies of patent applications are at various stages of patent prosecution and include famff ilies, and we will need to decide whether and ilies forff which only ilies of patent a ff We have exclusively licensed a portfoli o of patent applications owned by WU, which are directed to certain GABA receptor modulating compounds and methods of using these compounds, for example in anesthesia or treatment of GABA-related disorders. This portfolff ilies of patent applications is co-owned by us, and ications. One of these seven famff this co-owned family includes pending patent applications in the United States, Australia, Brazil, Canada, China, Europe, Israel, India, Japan, Korea, Mexico, New Zealand, Philippines, RusR sia, Singapore, a claims SAGE-689 and its use in anesthesia or treatment of GABA-related disorders. Any U.S. patents that may issue from the . This co-owned application discloses and io includes seven families of patent appl and South Africa a ff 16 SAGE-689 patent famff SAGE-689 have been allowed. ily would have a statutory expiration date of December 2033. Claims generically and specifically covering a ilies of appl We also own twenty famff ications directed to modulators of NMDA receptors. Fifteff en of these families of patent applications are directed to compomm unds that modulate NMDA receptors, including SAGE-718, which can be used to treat NMDA receptor-related disorders such as CNS-related conditions. One of these families of patent appl occurring compomm und as a biomarker for a subju ect who would benefitff these families of patent appl disorder. Any patents that may issue, if any, from these famff have statutory expiration dates in Septemberm 2032 and October 2037. ications is directed to using a modulator of NMDA receptors to treat a rare NMDA loss of func ilies of applications directed to modulators of NMDA receptors would from treatment with a modulator of NMDA receptors. One of ications is directed to using a naturally tion a a ff Patent term The base term of a U.S. patent is 20 years from the filff ing date of the earliest-fileff d non-provisional patent application froff m which the patent claims priority. The term of a U.S. patent can be lengthened by patent term adjustment, which compensates the owneww r of the patent forff reduces its term to that of an earlier-expiring patent. administrative delays at the U.S. PTO. In some cases, the term of a U.S. patent is shortened by terminal disclaimer that The term of a U.S. patent may be eligible for patent term extension under the Drug Price Competition and Patent Term redrr to as the Hatch-Waxman Act, to account forff at least some of the time the drug is under development Restoration Act of 1984, referff and regulatory review after the patent is granted. With regard to a drugr permitted marketing of the active ingredient, the Hatch-Waxman Act allows for extension of the term of one U.S. patent that includes at least one claim covering the composmm ition of matter of an FDA-approved drug, manufact expiration of the patent or 14 years from the date of the FDA approval of the drug. Some foreign jurisdictions, including Europe and Japan, also have patent term extension provisions, which allow forff applicable foreign regulatory agency. In the futff ure, if and when our pharmaceutical products receive FDA appr apply forff uring the FDA-approved drug. The extended patent term cannot exceed the shorter of fivff e years beyond the non-extended patent term extension on patents covering those products, their methods of use, and/or methods of manufacture. extension of the term of a patent that covers a drug approved by the an FDA-approved method of treatment using the drug, for which FDA appr and/or a method of oval, we expect to oval is the first a a ff r ff r Trade secrets In addition to patents, we may rely on trade secrets and know-how to develop and maintain our competitive position. Companies , y rely on trade secrets to protect aspects of their business that are not amenabla e to, or that they do not consider appropriate forff yy typicall patent protection. We protect trade secrets, if any, and know-how by establa ishing confidff entiality agreements and invention assignment agreements with our emplmm oyees, consultants, scientificff confidff ential information developed or made known during the course of an individual or entity’s relationship with us must be kept confidff ential during and after the relationship. These agreements also generally provide that all relevant inventions resulting froff m work performed for us or relating to our business and conceived or complmm eted during the period of employment or assignment, as applicable, shall be our exclusive property. In addition, we take other appropriate precautions, such as physical and technological security measures, to guard against misappropriation of our proprietary information by third parties. advisors, contractors and partners. These agreements provide that all The biopharmaceuticals industry is highly compemm titive. There are many publu ic and private companies, universities, governmental agencies and other research organizations actively engaged in the research and development of products that may be similar to our product candidates or address similar markets. It is probabla e that the number of companies seeking to develop products and therapies similar to our products will increase. Competition Currently, there are no therapies that have been specifically approved for the treatment of SRSE. However, many products approved for other indications, including general anesthetics, ketamine and anti-seizure drugs, are used off-label for various stages of SE therapy, including in the treatment of SRSE. Additionally, though not indicated, acupun hermia, and electroconvulsive therapy are sometimes also used prior to withdrawal of care for patients with SRSE. cturt e, hypotyy uu There are also no pharmacological therapies specificall ff y approved forff the treatment of PPD. Current standard of care for PPD commonly consists of psychotherapy, however, patients with moderate or severe PPD are oftenff such as SSRIs and SNRIs. prescribed anti-depressant medications 17 Current treatments forff Parkinson’s disease include levodopa/carbidopa, dopamine antagonists, MAO-B inhibitors and anticholinergics. Common pharmacological treatments for essential tremor include primidone; propranolol; anti-anxiety medications; and anticonvulsant drugs such as gabapentin and benzodiazepines. Non-pharmaceutical interventions in the treatment of essential tremor include the responsible use of alcohol, deep brain stimulatio n, focused ultrasound and thalamotomy. mm MDD patients are typicyy ally treated with a variety of anti-depressant medications such as SSRIs and SNRIs. A numberm of compamm nies are developing product candidates intended for the treatment of MDD. In the fieff ld of neuroactive steroids focused specifically on modulation of GABAA receptors, our principal competitor is Marinusn Pharmaceuticals, Inc., or Marinus. Marinus is developing a form of ganaxolone, a known GABAA positive allosteric modulator neuroactive steroid. A numn agonists. bem r of compamm nies are working to develop products targeted at the NMDA receptor, both antagonists and Many of our potential compemm titors, alone or with their strategic partners, have substantially greater financial, technical and human resources than we do and significantly greater experience in the discovery and development of product candidates, obtaining FDA and other regulatory approvals of treatments and the commercialization of those treatments. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated among a smaller numberm of our in developing and gaining approval of any of our product candidates, we expect competition in the competitors. If we are successfulff indications we are pursuing will focus on efficff acy, safety, convenience, availability, and price. Our commercial opportunity could be reduced or eliminated if our compemm titors develop and commercialize products that are safer, more effecti er or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our compmm etitors also may obtain FDA ff or other regulatory approval for their products more rapidly than we may obtain approval forff competitors establishing a strong market position beforff e we are able to enter the market. ours, whiw ch could result in our ve, have fewff ff Government authorities in the United States at the federal, state and local level and in other countries extensively regulate, Government Regulation among other things, the research, development, testing, manufacturtt e, quality control, approval, labeling, packaging, storage, record- keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and impormm t of drug products. Generally, beforff e a new drug can be marketed, considerable data demonstrating its quality, safety and efficff acy must be obtained, organized into a forff mat specific to each regulatory authority, submu review and approved by the regulatory authuu ority. itted forff U.S. drug development In the United States, the FDA regulates drugs under the Federal Food, Drug, r and Cosmetic Act, or FDCA, and its implementing regulations. Drugs are also subject to other federal, state and local statutt es and regulations. The process of obtaining regulatory approvals and the subu sequent complmm iance with appropriate fedff expenditure of substantial time and finff ancial resources. Failure to compmm ly with the appl icable U.S. requirements at any time during the product development process, approval process or after approval, may subjeb ct a compamm ny to administrative or judicial sanctions. These sanctions could include, among other actions, the FDA’s refusal to approve pending applications, withdrawal of an approval, a clinical hold, warning letters, product recalls or withdrawals froff m the market, product seizures, total or partial suspension of production or distribution, injun nctions, fines, refusals of government contracts, restitution, disgorgement, or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us. eral, state, local and foreign statutes and regulations require the a Our product candidates must be approved by the FDA through the NDA process beforff e they may be legally marketed in the United States. The process requiqq red by the FDA before a drug may be marketed in the United States generally involves the following:    Completion of extensive non-clinical studies and testing, sometimes referred to as non-clinical laboratory tests, non- clinical animal studies and forff mulation studies, in accordance with applicable regulations, including the FDA’s current Good Laboratory Practice, or GLP, regulations; Submu ission to the FDA of an IND application, which must become effeff ctive before human clinical trials may begin; Approval by an independent institutt trial may be initiated; ional review board, or IRB, or ethics committee at each clinical trial site before each 18       Performff ance of adequate and well-controlled human clinical trials in accordance with applicable IND and other clinical trial-related regulations, sometimes referred to as good clinical practices, or GCPs, to establish the safety and efficff acy of the proposed drudd g forff each proposed indication; Submu ission to the FDA of an NDA, for a new drug; A determination by the FDA within 60 days of its receipt of an NDA to accept the NDA filff ing forff review; Satisfactory completion of an FDA pre-approval inspection of the manufact produced to assess compliance with cGMP requirements to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity; lities where the drug is ility or faci uring facff ff ff Potential FDA audit of the non-clinical and/or clinical trial sites that generated the data in support of the NDA; and FDA review and approval of the NDA, including consideration of the views of any FDA advisory committee, prior to any commercial marketing or sale of the drug in the United States. The non-clinical and clinical testing and approval process requires substantial time, effoff rt and finff ancial resources, and we cannot be certain that any appr laboratory evaluation of product chemistry, formulation, stabia lity and toxicity, as well as animal studt and potential safetff y and efficff acy of the product. ovals for our product candidates will be granted on a timely basis, if at all. Non-clinical tests include ies to assess the characteristics a The data required to support an Na DA are generated in two distinct development stages: non-clinical and clinical. For new uu it the results of the non-clinical tests, together with manufn act turing process, as well as carrying out non-human toxicology, pharmacology and drug chemical entities, the non-clinical development stage generally involves synthesizing the active componmm ent, developing the formulation and determining the manufacff t subsequent clinical testing. Non-clinical tests include laboratory evaluation of metabolism studies in the laboratory, which suppor product chemistry, formulation, stability and toxicity, as well as animal studies to assess the characteristics and potential safety and effiff cacy of the product. The conduct of the non-clinical tests must comply with federal regulations, including GLPs. The sponsor musmm t submu literature and a proposed clinical protocol, to the FDA as part of the IND. An IND is a request forff administer an investigational drug product to humans. Some non-clinical testing may continue even after the IND is submu IND must become effeff ctive beforff e human clinical trials may begin. The central focus of an IND submu investigational plan and the protocols for human trials. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA raises concerns or questions regarding the proposed clinical trials, including whether subjeb cts will be exposed to unreasonable health risks, and places the IND on clinical hold within that 30-day time period. In such a case, the IND sponsor and the FDA musm t resolve any outstanding concerns beforff e the clinical trial can begin. The FDA may also impose clinical holds on a drug candidate at any time before or during clinical trials due to safetff y concerns or non-compliance. Accordingly, we cannot be sure that submu the trial to be suspended or termi uring inforff mation, analytical data, any available clinical data or authorization from the FDA to ission of an IND will result in the FDA allowing clinical trials to begin, or that, once begun, issues will not arise that could cause ission is on the general itted, but an nated. ff rr The clinical stage of development involves the administration of the drug candidate to healthy volunteers or to patients with the investigators, generally physicians not employed by or under the disease or disorder being studies under the supervision of qualifiedff trial sponsor’s control, in accordance with GCPs, which include the requirement that all research subjeb cts provide their informed their participation in any clinical trial. Clinical trials are conducted under protocols describing, among other details, the consent forff objeb ctives of the clinical trial, dosing procedurd es, subjeb ct selection and exclusion criteria, and the parameters to be used to monitor subju ect safeff ty and assess efficff acy. Each protocol, and any subsequent amendments to the protocol, must be submu part of the IND. Further, each clinical trial must be reviewed and approved by an independent institutional review board, or IRB, at or and rights of trial servicing each institution at which the clinical trial will be conducted. An IRB is charged with protecting the welfareff participants, and considers such items as whether the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to anticipated benefitsff trial subju ect or his or her legal representative and must monitor the clinical trial until completed. There are also requirements governing the reporting of ongoing clinical trials and complmm eted clinical trial results to public registries. . The IRB also approves the inforff med consent form that must be provided to each clinical itted to the FDA as A sponsor who wishes to conduct a clinical trial outside the United States may, but need not, obtain FDA authorization to conduct the clinical trial under an IND. If a forff eign clinical trial is not conducted under an IND, the sponsor may submit data froff m the clinical trial to the FDA in support of an NDA so long as the clinical trial is conducted in compliance with an international guideline for the ethical conduct of clinical research known as the Declaration of Helsinki and/or the laws and regulations of the country or countries in which the clinical trial is perforff med, whichever provides the greater protection to the participants in the clinical trial. 19 Clinical trials Clinical trials are generally conducted in three sequential phases that may overlap, known as Phase 1, Phase 2 and Phase 3 clinical trials.    Phase 1 clinical trials generally involve a small numbem r of healthy volunteers who are initially exposed to a single dose and then multiple doses of the product candidate. The primary purpose of these clinical trials is to assess the metabolism, pharmacologic action, side effect tolerability and safety of the drug. Phase 2 clinical trials typically involve studies in disease-affect desired benefitsff . At the same time, safety and furff well as identification of possible adverse effects ed patients to determine the dose required to produce the ther pharmacokinetic and pharmacodynamic inforff mation is collected, as and safetff y risks and preliminary evaluation of effiff cacy. ff ff Phase 3 clinical trials generally involve large numbem rs of patients at multiple sites (typically from several hundred to several thousand subju ects), and are designed to provide the data necessary to demonstrate the effecti for its intended use, its safety in use, and to establa ish the overall benefit/risk relationship of the product and provide an adequate basis for product approval. Phase 3 clinical trials may include comparisons with placebo and/or other compamm rator treatments. The duration of treatment is often extended to mimic the actual use of a product during marketing. veness of the product ff Post-approval trials, sometimes referff oval. These trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, FDA may mandate the perforff mance of Phase 4 clinical trials as a condition of appr red to as Phase 4 clinical trials, may be conducted afteff r initial marketing appr oval of an NDA. a a Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and written IND safety itted to the FDA and the investigators for serious and unexpected suspected adverse events, findings from other reports must be submu human subju ects. Phase 1, Phase 2 and Phase studies, or any findings froff m animal or in vitro testing that suggests a significant risk forff 3 clinical trials may not be complmm eted successfully within any specifieff d period, if at all. Success in one phase does not mean that the results will be observed in subsequent phases. Each phase may involve multiple studies. The FDA, the IRB, or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subju ects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approv clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients. Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee. This group puu trial may move forff ward at designated check points based on access to certain data from the trial. Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information abou characteristics of the drug as well as finalize a process forff manufact cGMP requirements. The manufacturt among other things, we must develop methods for testing the identity, strength, quality and purity of the finff al drug product. Additionally, appr candidate does not undergo unacceptable deterioration over its shelf life. opriate packaging must be selected and tested and stabia lity studies must be conducted to demonstrate that the drug ing process must be capable of consistently producing quality batches of the drug candidate and, uring the product in commercial quantities in accordance with rovides authorization for whether or not a al of a clinical trial at its institution if the t the chemistry and physical a a a ff NDA and FDA review process The results of non-clinical studi t es and of the clinical trials, together with other detailed information, including extensive turing information and information on the composition of the drugrr manufacff form of an NDA requesting approval to market the drug for one or more specified indications. The FDA reviews an NDA to determine, among other things, whether a drugrr ured in accordance with cGMP to assure and preserve the product’s identity, strength, quality and purity. FDA approval of an NDA musm t be obtained beforff e a drug may be offeff is safe and effeff ctive for its intended use and whether the product is being manufact and proposed labeling, are submitted to the FDA in the sale in the United States. red forff ff In addition, under the Pediatric Research Equity Act, or PREA, an NDA or suppl uu the safetff y and efficff acy of the drug forff administration for each pediatric subpopulation for which the product is safe and effect l or partial waivers. submission of pediatric data or fulff ff the claimed indications in all relevant pediatric subpopulations and to suppo ive. The FDA may grant deferr rt dosing and als for ff ement to an NDA must contain data to assess uu Under the Prescription Drug User Fee Act, or PDUFA, as amended, each NDA must be accompamm nied by a user fee. ff The FDA ff adjusts the PDUFA user fees fee forff fee forff ff manufact ive through December 31, 2017, the user an application requiring clinical data, such as an NDA, is approximately $2.1 million. PDUFA also imposes an annual product lities used to human drugr ure prescription drugs. Fee waivers or reductions are available in certain circumstances, including a waiver of the application s of approximately $0.1 million and an annual establishment feeff on an annual basis. According to the FDA’s fee schedule, effect of approximately $0.6 million on faci ff ff 20 ff the first fee forff orphan drugs, unless the product also includes a non-orphr application fileff an indication. d by a small business. Additionally, no user fees are assessed on NDAs forff products designated as The FDA reviews all NDAs submu itted before it accepts them for filiff ng, and may request additional inforff mation rather than filing. The FDA musm t make a decision on accepting an NDA for filff ing within 60 days of receipt. Once the accepting an NDA forff submu ission is accepted for filiff ng, the FDA begins an in-depth review of the NDA. Under the goals and policies agreed to by the FDA under PDUFA, the FDA has 10 months froff m the filing date in which to complete its initial review of a standard NDA and respond to the appli a standard and priority NDAs, and the review process is ofteff n significantly extended by FDA requests forff ff clarificat DA. The FDA does not always meet its PDUFA goal dates for cant, and six months from the filiff ng date for a priority Ntt additional inforff mation or ion. ff ff s forff e forff ff After ff uring facilitie the new product to determine whether the facff ove the product unless it determines that the manufn act its intended use, and whether the product is being manufacturt ed in accordance with cGMP ission is accepted for filff ing, the FDA reviews the NDA to determine, among other things, whether the the NDA submu proposed product is safe and effectiv to assure and preserve the product’s identity, strength, quality and purity. Before approving an NDA, the FDA will generally conduct a pre-approval inspection of the manufact ities are in compliance with a The FDA will not appr cGMP requirements and adequate to assure consistent production of the product within required specificff ations. In addition, before approving an NDA, the FDA may also audit data from clinical trials to ensure compliance with GCP requirements. Additionally, the FDA may referff advisory committee, typically a panel that includes clinicians and other experts, forff whether the application should be appa committee, but it considers such recommendations carefully when making decisions. The FDA will likely re-analyze the clinical trial data, which could result in extensive discussions between the FDA and the applicant during the review process. The review and evaluation process for an NDA by the FDA is extensive and time consuming and may take longer than originally planned to complmm ete, and we may not receive a timely approv applications for novel drug products or drug products which present diffiff cult questions of safety or efficff acy to an roved and under what conditions. The FDA is not bound by the recommendations of an advisory review, evaluation and a recommendation as to ilities complmm y with cGMPs. uring processes and facil al, if at all. a ff ff ff After the FDA evaluates an NDA, it may issue an appr a oval letter or a Complete Response Letter. An appa roval letter authorizes commercial marketing of the drugr with specific prescribing inforff mation forff a indicates that the review cycle of the applicatio Letter usually describes all of the specific deficff additional clinical data and/or one or more additional pivotal Phase 3 clinical trials, and/or other significant and time-consuming requirements related to clinical trials, non-clinical studies or manufact may either resubmit the NDA, addressing all of the defici and inforff mation are submu itted, the FDA may ultimately decide that the NDA does not satisfy t from clinical trials are not always conclusive, and the FDA may interpret data differently than we interpret the same data. n is complmm ete and the application is not ready forff iencies in the NDA identified by the FDA. The Complete Response Letter may require uring. If a Complm ete Response Letter is issued, the applicant ication. Even if such data oval. Data obtained a encies identified in the letter, or withdraw the appl indications. A Complete Response Letter a he criteria for appr approval. A Complm ete Response specificff ff ff ff There is no assurance that the FDA will ultimately appr a ove a drug product for marketing in the United States, and we may a lties or costs during the review process. If a product receives marketing approval, the approval may be encounter significant difficuff significff antly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA typiyy cally requires that certain contraindications, warnings or precautions be included in the product labeling, and may condition the appr of adequate controls and specifications, or a commitment to conduct post-marketing testing or clinical trials and surveillance to monitor the effeff cts of approved products. For example, the FDA may require Phase 4 testing which involves clinical trials designed to further assess a drug’s safetff y and efficff acy and may require testing and surveillance programs to monitor the safeff ty of approved products that have been commercialized. The FDA may also place other conditions on approvals including the requirement forff a risk evaluation and mitigation strategy, or REMS, to assure the safe use of the drug. If the FDA concludes a REMS is needed, the sponsor of the NDA must submit a proposed REMS. The FDA will not approve the NDA without an approved REMS, if a REMS is required. A REMS could include medication guides, physician communication plans, or elements to assure safe uff distribution methods, patient registries and other risk minimization tools. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription or dispensing of products. Product approvals may be withdrawn forff compliance with regulatory requirements or if problems occur following initial marketing. oval of the NDA on other changes to the proposed labeling, development se, such as restricted non- Orphan drug designation Under the Orphan Drug Act, the FDA may grant orphan designation to a drugr product intended to treat a rare disease or condition, which is generally a disease or condition that affeff cts fewff 200,000 individuals in the United States, but for which there is no reasonable expectation that the cost of developing and making a drug product available in the United States forff an an product designation, the identity of product designation must be requested beforff e submitting an NDA. After the FDA grants orphr this type of disease or condition will be recovered froff m sales of the product. Orphrr er than 200,000 individuals in the United States, or more than 21 the therapeutic agent and its potential orphan use are disclosed publu icly by the FDA. Orphan product designation does not convey any advantage in or shorten the duration of the regulatory review and approval process. If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition forff which it uu the same indication forff an product exclusivity, which means that the FDA may not appr ority to the product with orphan exclusivity. Compemm titors, however, may receive approval of differen has such designation, the product is entitled to orphr applications to market the same drug forff clinical superi indication forff which the orphan product has exclusivity or obtain approval for the same product but forff for which the orphan product has exclusivity. Orphan product exclusivity also could block the approval of one of our products forff seven years if a compemm titor obtains appr contained within the compemm titor’s product for the same indication or disease. If a drug designated as an orphan product receives marketing appr drugr seven years, except in limited circumstances, such as a showing of the oval for an indication broader than what is designated, it may not be entitled to orphan product exclusivity. Orphan oval of the same product as defined by the FDA or if our product candidate is determined to be t products forff ff rent indication than that a diffeff . status in the EU has similar, but not identical, benefitsff ove any other a a a Expedited development and review programs The FDA has a Fast Track program that is intended to expedite or facilitate the process for reviewing new drugs that meet certain criteria. Specificff ally, new drugs are eligible for Fast Track designation if they are intended to treat a serious or life-ff condition and demonstrate the potential to address unmet medical needs forff combim nation of the product and the specific indication forff which it is being studied. The sponsor of a new drug or biologic may request the FDA to designate the drug as a Fast Track product at any time during the clinical development of the product. Unique to a Fast Track product, the FDA may review sections of the marketing appl the sponsor provides a schedule for the submu application and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submu section of the application. ication on a rolling basis beforff e the complete NDA is submu ission of the sections of the application, the FDA agrees to accept sections of the the condition. Fast Track designation appl ission of the firff st threatening ies to the itted, if a a Any product submu itted to the FDA for marketing, including under a Fast Track program, may be eligible forff other types of FDA nd effecff threatening illnesses and that provide meaningfulff programs intended to expedite development and review, such as priority review and accelerated approval. Any producd t is eligible for tive therapy where no satisfactory alternative therapy exists or offers a priority review if it has the potential to provide safe aff significff ant improvement in the treatment, diagnosis or prevention of a disease compamm red to marketed products. The FDA will attemptmm to direct additional resources to the evaluation of an application forff litate accelerated approval. Drugs studied for their safety and efficff acy in treating serious or the review. A product may also be eligible forff roval, therapeutic benefitff over existing treatments, may receive accelerated appa life-ff which means that they may be appr effeff ct on a surrogate endpoi other than survival or irreversible morbidity. As a condition of approval, the FDA may require that a sponsor of a drug receiving accelerated approval performff be effeff ctive can be safely used only if distribution or use is restricted, it will require such post-marketing restrictions, as it deems necessary to assure safe use of the drug, such as: adequate and well-controlled post-marketing clinical trials. If the FDA concludes that a drug shown to oved on the basis of adequate and well-controlled clinical trials establishing that the product has an nt that is reasonably likely to predict a clinical benefit,ff or on the basis of an effeff ct on a clinical endpoi designated for priority review in an efforff a new drugr ff t to faci nt d d a   distribution restricted to certain facilities or physicians with special training or experience; or distribution conditioned on the performff ance of specified medical procedures. The limitations impomm sed would be commensurate with the specificff safety concerns presented by the drug. In addition, the FDA currently requires as a condition for accelerated approval pre-approval of promotional materials, which could adversely impamm ct the timing of the commercial launch of the product. Additionally, a drug may be eligible for designation as a breakthkk rough therapy if the drug is intended, alone or in combim nation with one or more other drugs, to treat a serious or life-ff threatening disease or condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more indications. The benefitff s of breakthkk rough therapy designation includes the same benefitff s as fasff guidance froff m FDA to ensure an efficff and breakthkk rough designation do not change the standards for approval, but may expedite the development or approval process. ient drug development program. Fast Track designation, priority review, accelerated approval t track designation, plus intensive Pediatric trials The Food and Drug Administration Safetff y and Innovation Act, or FDASIA, which was signed into law on July 9, 2012, amended the FDCA to require that a sponsor who is planning to submit a marketing application for a drug that includes a new active ingredient, new indication, new dosage forff m, new dosing regimen or new route of administration submu Plan, or PSP, within sixty days of an end-of-Pff hase 2 meeting or as may be agreed between the sponsor and FDA. The initial PSP musmm t include an outline of the pediatric study or studies that the sponsor plans to conduct, including study objectives and design, age it an initial Pediatric Study 22 nts and statistical approach, or a justificff ation forff groupsuu , relevant endpoi d deferral of pediatric assessments or a fulff uu uu support initial PSP at any time if changes to the pediatric plan need to be considered based on data collected from non-clinical studies, early phase clinical trials, and/or other clinical development programs. ing inforff mation. FDA and the sponsor must reach agreement on the PSP. A sponsor can submu l or partial waiver of the requirement to provide data froff m pediatric studies along with not including such detailed inforff mation, and any request forff it amendments to an agreed-upon a Post-marketing requirements a oved labeling (known as “off-ff label use”), limitations on industry-sponsored scientificff Following approval of a new product, a pharmaceutical company and the approved producdd t are subju ect to continuing regulation icable regulatory authorities by the FDA, including, among other things, monitoring and recordkeeping activities, reporting to the appl cy information, product of adverse experiences with the product, providing the regulatory authorities with updated safetff y and effica sampling and distribution requirements, and complmm ying with promotion and advertising requirements, which include, among others, standards for direct-to-consumer advertising, restrictions on promoting drugs forff uses or in patient populations that are not described in the drug’s appr and educational activities, and requirements for promotional activities involving the Internet. Although physicians may prescribe legally available drugs forff off-ff label urers may not market or promote such off-label uses. Prescription drug promotional materials must be submitted to the uses, manufn act FDA in conjun nction with their first use. Further, if there are any modifications to the drug, including changes in indications, labeling, or manufacturing processes or facilities, the appl suppl ement, which may require the appl uu As with new NDAs, the review process is oftenff Any distribution of prescription drug products and pharmaceutical samples must complmm y with the U.S. Prescription Drug Marketing Act, or the PDMA, a part of the FDCA. icant to develop additional data or conduct additional non-clinical studies and clinical trials. it and obtain FDA approval of a new NDA or NDA significantly extended by FDA requests forff additional information or clarificati icant may be required to submu on. a a a ff ff ff In the United States, once a product is approved, its manufacff ture is subu jeb ct to comprmm ehensive and continuing regulation by the oved facilities and in accordance with cGMP. We a ff ff FDA. The FDA regulations require that products be manufactured in specific appr rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of our products in rers, laboratories or packagers are responsible forff accordance with cGMP regulations. NDA holders using contract manufactu selection and monitoring of qualifiedff s to these firms. These manufn actu firms, and, in certain circumstances, qualified supplier comply with cGMP regulations that require among other things, quality control and quality assurance as well as the corresponding maintenance of records and documentation and the obligation to investigate and correct any deviations from cGMP. Drug manufact establishments with the FDA and certain state agencies, and are subjeb ct to periodic unannounced inspections by the FDA and certain state agencies for complmm iance with cGMP and other laws. Accordingly, manufacturers must continue to expend time, money, and effoff failure to conform to cGMP, could result in enforcement actions that interrupt the operation of any such faci lities or the abia lity to distribute products manufacturt ed, processed or tested by them. Discovery of problems with a product after approval may result in turer, or holder of an approved NDA, including, among other things, recall or withdrawal of the restrictions on a product, manufacff product from the market. rt in the area of production and quality control to maintain cGMP compliance. The discovery of violative conditions, including urers and other entities involved in the manufacture and distribution of appr are required to register their oved drugs the uu a r ff ff reuu rs must Discovery of previously unknown problems with a product or the faiff lure to complmm y with applicable FDA requirements can have negative consequences, including adverse publicity, judicial or administrative enforcement, warning letters from the FDA, mandated corrective advertising or communications with doctors, and civil or criminal penalties, among others. Newly discovered or developed safety or effeff ctiveness data may require changes to a product’s approved labeling, including the addition of new warnings and contraindications, and also may require the implementation of other risk management measures. Also, new government requirements, including those resulting froff m new legislation, may be establa ished, or the FDA’s policies may change, which could delay or prevent regulatory approval of our products under development. Other regulatory matters Manufacturing, sales, promotion and other activities following product approval are also subjeb ct to regulation by numn regulatory authorities in addition to the FDA, including, in the United States, the Centers for Medicare & Medicaid Services; other divisions of the Department of Health and Human Services; the United States Department of Justice; the Drug Enforcement Administration; the Consumer Product Safetff y Commission; the Federal Trade Commission; the Occupau tional Safetff y and Health Administration; the Environmental Protection Agency; and state and local governments. erous In the United States, sales, marketing and scientific/educational programs must also complmm y with state and fedff eral fraff ud and abuse laws. These laws include the federal Anti-Kickback Statute, which makes it illegal forff marketing a prescription drug (or a party acting on its behalf) to knowingly and willfulff remuneration (including any kickback kk any person, including a compmm any ly solicit, receive, offeff r, or pay any , bribe or rebate), directly or indirectly, in cash or in kind, that is intended to induce or reward 23 ral of business, including the purchase or order, or recommending the purchase or order, of a particular drug, for which the referff payment may be made in whole or in part under a fedff eral healthcare program, such as Medicare or Medicaid. Violations of this law are punishable by up to five years in prison, criminal finff es, administrative civil money penalties, and exclusion from participation in federal healthcare programs. In addition, the Patient Protection and Afforff dabla e Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively the ACA, among other things, amends the intent requirement of the feder Anti-Kickback Statute and criminal healthcare fraud statutes created by the fedff Act of 1996, or HIPAA. A person or entity no longer needs to have actuat Moreover, the ACA provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a falsff l knowledge of the statute or specific intent to violate it. eral Health Insurance Portability and Accountability purposes of the False Claims Act. e or fraff udulent claim forff al ff ff e or frauff l False Claims Although we would not submu turers can be held liable under the federa ission of falff se or fraudulent claims by, forff eral dulent, or knokk wingly making, using, or causing to be made or used a dulent claim. The government may deem compamm nies to have “caused” the examplmm e, providing inaccurate billing or coding information to customers or it claims directly to payors, drug manufacff Act, which prohibits anyone froff m, among other things, knowingly presenting, or causing to be presented claims forff programs (including Medicare and Medicaid) that are false or frauff false record or statement material to a falsff submu promoting a product off-ff label. In addition, our futff ure activities relating to the reporting of wholesaler or estimated retail prices for our products, the reporting of prices used to calculate Medicaid rebate information and other information affeff cting federal, state, and third- party reimbursement forff a False Claims Act violation include three times the actual damages sustained by the government, plus mandatory civil penalties of between $10,781 and $21,563 forff programs, and, although the fedff implicmm ate various fede laws, we could be subju ect to a substantial fine and may sufferff ability to bring actions under the fedff Act. our products, and the sale and marketing of our products, are subju ect to scrutiny under this law. Penalties for eral False Claims Act is a civil statute, conduct that results in a False Claims Act violation may also each separate false claim, the potential for exclusion from participation in federal healthcare ral criminal statutt es. If the government were to allege that we were, or convict us of, vff eral False Claims Act and certain states have enacted laws modeled after a decline in our stock price. In addition, private individuals have the iolating these falsff eral False Claims payment to fedff e claims the fedff ff ff Numerous other laws may apply to our products. Pricing and rebate programs must complmm y with the Medicaid rebate requirements of the U.S. Omnibus Budget Reconciliation Act of 1990 and more recent requirements in ACA. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. Products must meet applicable child-resistant packaging requirements under the U.S. Poison Prevention Packaging Act. Manufacturing, sales, promotion and other activities are also potentially subjeb ct to federal and state consumer protection and unfair competition laws. The handling of any controlled substances must complmm y with the U.S. Controlled Subsu tances Act and Controlled Substances Importmm and Export Act. The distribution of pharmaceutical products is subju ect to additional requirements and regulations, including extensive record- keeping, licensing, storage and security requirements intended to prevent the unauthorized sale of pharmaceutical products. The failure to complmm y with any of these laws or regulatory requirements subjeb cts firff ms to possible legal or regulatory action. Depending on the circumstances, failure to meet applicable regulatory requirements can result in criminal prosecution, finff es or other penalties, injun nctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of product approvals, or refusff al to allow a firm to enter into suppl even if we successfulff from the operation of our business. Prohibitions or restrictions on sales or withdrawal of future products marketed by us could materially affect ly defenff d against it, could cause us to incur significant legal expenses and divert our management’s attentinn on y contracts, including government contracts. Any action against us for violation of these laws, our business in an adverse way. uu ff Changes in statutes, regulations or the interpretation of existing laws or regulations could impact our business in the futff ure by requiring, for example: (i) changes to our manufacturing arrangements; (ii) additions or modifications to product labeling; (iii) the recall or discontinuation of our products; or (iv) additional record-keeping requirements. If any such changes were to be impomm sed, they could adversely affeff ct the operation of our business. U.S. patent term restoration and marketing exclusivity Depending upon the timing, duration and specifics of the FDA approval of our drug candidates, some of our U.S. patents may limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly red to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to fivff e years be eligible forff referff as compensation forff restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the time between the effective date of an IND and the submu patent term lost during product development and the FDA regulatory review process. However, patent term ission date of an NDA plus the 24 time between the submission date of an NDA and the approval of that application. Only one patent applicable to an approved drug is ication forff eligible for the extension and the appl expiration of the patent. The U.S. PTO, a in consultation with the FDA, reviews and appr intend to apply forff restoration of patent term forff expiration date, depending on the expected length of the clinical trials and other factors involved in the filing of the relevant NDA. the extension must be submitted prior to thett oves the appl one of our then owned or licensed patents to add patent life bff any patent term extension or restoration. In the futff ure, we eyond its current ication forff a a Marketing exclusivity provisions under the FDCA can also delay the submission or the approval of certain marketing ance. application, or ANDAA the action of the drug substu another indication, where the appl approval. However, an application may be submu based on the same active moiety, regardless of whether the drug is intended forff icant does not own or have a legal right of n four years if it contains a certificatio ff applications. The FDCA provides a fivff e-year period of non-patent marketing exclusivity within the United States to the firff st applicant to obtain approval of an NDA forff a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible forff During the exclusivity period, the FDA may not accept for review an abbreviated new drugr NDA submitted by another compamm ny for another drugr the same indication as the original innovator drug or forff refeff rence to all the data required forff of patent invalidity or non-infringement to one of the patents listed with the FDA by the innovator NDA holder. The FDCA also provides three years of marketing exclusivity for a fulff than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, forff examplmm e new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the modification for which the drug received approval on the basis of the new clinical investigations and does not prohibit the FDA from approving ANDAA exclusivity will not delay the submu to conduct or obtain a right of referen demonstrate safetff y and efficff acy. Orphr except in certain circumstances. Pediatric exclusivity is another type of regulatory market exclusivity in the United States. Pediatric exclusivity, if granted, adds six months to existing exclusivity periods and patent terms. This six-month exclusivity, which runs from the end of other exclusivity protection or patent term, may be granted based on the voluntary complmm etion of a pediatric trial in accordance with an FDA-issued “Written Request” forff l NDA would be required l NDA. However, an applicant submitting a fulff ce to all of the non-clinical studies and adequate and well-controlled clinical trials necessary to an drug exclusivity, as described above, may offerff As for drugs containing the active agent for the original indication or condition of use. Five-year and three-year l NDA, or supplement to an existing NDA if new clinical investigations, other a seven-year period of marketing exclusivity, a itted after A, or a 505(b)(2) ission or appr oval of a fulff such a trial. a ff ff European Union drug development In the European Union, our future producd ts may also be subjeb ct to extensive regulatory requirements. As in the United States, medicinal products can only be marketed if a marketing authorization froff m the competent regulatory agencies has been obtained. Similar to the United States, the various phases of non-clinical and clinical research in the European Union are subju ect to significff ant regulatory controls. Although the EU Clinical Trials Directive 2001/20/EC has sought to harmonize the EU clinical trials regulatory framework, setting out common rulrr es for the control and authorization of clinical trials in the EU, the EU Membem r States have transposed and applied the provisions of the Directive diffeff regimes. Under the current regime, before a clinical trial can be initiated it must be approved in each of the EU countries where the trial is to be conducted by two distinct bodies: the National Competent Authority, or NCA, and one or more Ethics Committees, or ECs. Under the current regime all suspected unexpected serious adverse reactions to the investigated drug that occur during the clinical trial have to be reported to the NCA and ECs of the Member State where they occurred. rently. This has led to significant variations in the member state The EU clinical trials legislation is currently undergoing a revision process mainly aimed at harmonizing and streamlining the clinical trials authorization process, simplifying adverse event reporting procedures, imprmm oving the supeuu rvision of clinical trials, and increasing their transparency. In the EU, pediatric data or an approved Pediatric Investigation Plan, or PIP, or waiver, is required to have been approved by the European Medicines Agency, or EMA, prior to submission of a marketing authorization appl countries, we are also required to have an appr yet have an approved PIP for any of our product candidates. a oved PIP beforff e we can begin enrolling pediatric patients in a clinical trial. We do not ication to the EMA. In most EU a European Union drug review and approval In the European Economic Area, or EEA, (which is comprmm ised of 27 Membem r States of the EU (excludes Croatia) plus Norway, Iceland and Liechtenstein), medicinal products can only be commercialized after obtaining a Marketing Authorization, or MA. There are two types of marketing authorizations: The Community MA is issued by the European Commission through the Centralized Procedure, based on the opinion of the Committee forff Medicinal Products for Human Use, or CHMP, of the EMA and is valid throughout the entire territory of the EEA. The 25 Centralized Procedure is mandatory forff products, and medicinal products containing a new active substance indicated for the treatment of AIDS, cancer, neurodegenerative disorders, diabetes, auto-immune and viral diseases. The Centralized Procedure is optional forff subsu tance not yet authorized in the EEA, or forff which are in the interest of public health in the EU. certain types of products, such as biotechnology medicinal products, orphan medicinal products that constitute a significant therapeutic, scientificff or technical innovation or products containing a new active ff National MAs, which are issued by the competent authorities of the Membem r States of the EEA and only cover their respective territory, are available for products not falli ng within the mandatory scope of the Centralized Procedure. Where a product has already been authorized for marketing in a Member State of the EEA, this National MA can be recognized in another Membem r State through the Mutual Recognition Procedure. If the product has not received a National MA in any Member State at the time of appl ication, it can be approved simultaneously in various Member States through the Decentralized Procedure. Under the Decentralized Procedure an identical dossier is submu selected by the applica ssessment report, a draft summary of the product characteristics, or SPC, and a draft of the labeling and package leaflet, which are sent to the other Member States (referred to as the Membem r States Concerned) for their approval. If the Member States Concerned raise no objeb ctions, based on a potential serious risk to publu ic health, to the assessment, SPC, labeling, or packaging proposed by the RMS, the product is subsu equently granted a national MA in all the Membem r States (i.e., in the RMS and the Member States Concerned). itted to the compemm tent authorities of each of the Membem r States in which the MA is sought, one of which is nt as the Reference Membem r State, or RMS. The competent authority of the RMS prepares a draft aff a a Under the above described procedures, before granting the MA, the EMA or the compemm tent authorities of the Membem r States of criteria concerning its quality, safetff y the EEA make an assessment of the risk-benefit balance of the product on the basis of scientificff and efficff acy. European Union new chemical entity exclusivity In the European Union, new chemical entities, sometimes referr ff exclusivity upon marketing authorization and an additional two years of market exclusivity. This data exclusivity, if granted, prevents regulatory authorities in the European Union froff m refereff ication for eight years, after which a generic marketing authorization appl for two years. The overall ten-year period will be extended to a maximum of 11 years if, dff the marketing authorization holder obtains an authorization forff ff evaluation prior to their authorization, are held to bring a significan one or more new therapeutic indications which, during the scientific itted, and the innovator’s data may be referff enced, but not approved ed to as new active substances, qualify for eight years of data ncing the innovator’s data to assess a generic appl uring the first eight years of those ten years, in comparison with existing therapies. ication can be submu t clinical benefitff a a European Union orphan designation and exclusivity In the European Union, the EMA’s Committee forff Orphr an Medicinal Products grants orphan drug designation to promote the ting not more than 5 in 10,000 persons in the European Union Community and for which no satisfactor development of products that are intended forff conditions affecff diagnosis, prevention, or treatment has been authorized (or the product would be a significant benefitff designation is granted forff serious and chronic condition and when, without incentives, it is unlikely that sales of the drug in the European Union would be sufficff the diagnosis, prevention or treatment of life-threatening or chronically debilitating producdd ts intended for the diagnosis, prevention, or treatment of a life-ff he necessary investment in developing the medicinal product. threatening, seriously debilitating or y method of ed). Additionally, ient to justify t to those affect ff ff ff In the European Union, orphr an drugr designation entitles a party to finff ancial incentives such as reduction of feeff s or feeff waivers an drugr designation criteria are no longer met, including where it is shown that the product is sufficie and ten years of market exclusivity is granted folff orphr maintenance of market exclusivity. Orphan drug designation must be requested before submu approval. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. lowing medicinal product approval. This period may be reduced to six years if the itting an application forff marketing ntly profitabff le not to justify ff Rest of the world regulation For other countries outside of the European Union and the United States, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, the clinical trials must be conducted in accordance with cGCP requirements and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki. If we fail to comply with applicable foreign regulatory requirements appl a icabla e to a given country, we may not be able to obtain regulatory approval for our product candidates in such country if we choose to seek such approval, or we may be subju ect to, among 26 other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution. Reimbursement If we are successfulff in developing and gaining regulatory approval for our product candidates, sales of our products will be dependent on the availability and extent of coverage and reimbursement from third-party payors. In the United States, healthcare providers are reimbum rsed for covered services and products they use through Medicare, Medicaid, and other government healthcare programs as well as through commercial insurance and managed healthcare organizations. In the United States no uniformff policy of coverage and reimbursement for drug products exists. Accordingly, decisions regarding the extent of coverage and amount of reimbursement to be provided forff process is often a time-consuming and costly process that will require us to provide scientific and clinical support products to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained. any of our products will be made on a payor-by-payor basis. As a result, the coverage determination for the use of our uu Third-party payors are increasingly reducing reimbursements forff medical products and services. Additionally, the containment of healthcare costs has become a priority of federal and state governments, and the prices of drugs have been a focff us in this effoff Changes in government legislation or regulation and changes in private third-party payors’ policies toward reimbursement forff products, if successfully developed and approved, may reduce reimbursement of our producdd ts’ costs to physicians, pharmacies, and distributors. The U.S. government, state legislaturt es and forff eign governments have shown significant interest in implm ementing cost- containment programs, including price controls, restrictions on reimbursement and requirements forff subsu titution of generic producd ts. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could limit our net revenuen party reimbursement forff approval could reduce physician usage of our products and have a material adverse effect financial condition. and results for any producd ts we commercialize in the futff ure. Decreases in third- our products or a decision by a third-party payor not to cover a product for which we received marketing on our sales, results of operations and rt. ouruu ff The pricing and reimbursement environment forff our products may change in the future and become more challenging due to, ff the research was publiu examplmm e, allocated new fedff agencies, new healthcare legislation passed by among other reasons, policies advanced by the new presidential administration, federal Congress or fisff cal challenges faced by all levels of government health administration authorities. The American Recovery and Reinvestment Act of 2009, or ARRA, forff for the same condition. The plan forff for Healthcare Research and Quality and the National Institutes forff Health, and periodic reports on the status of the research and related expenditures are made to Congress. Although ARRA does not mandate the use of the results of comparative effectiveness studies forff receive marketing approval or on the reimbursement policies of publiu research demonstrating benefitff s in a competitor’s product could adversely affeff ct the sales of any product for which we receive marketing approval. For examplm e, if third-party payors finff d our products not to be cost-effective compamm red to other available therapies, they may not cover our products after approval as a benefitff under their plans or, if they do, the level of payment may not be sufficff to allow us to sell our products on a profitable basis. reimbum rsement purposes, it is not clear what effeff ct, if any, the research will have on the sales of any products for which we c and private payors. It is possible that comparative effeff ctiveness shed in 2012 by the Department of Health and Human Services, the Agency eral funding to compare the effect iveness of diffeff rent treatments ient ff One of the goals of the federal Patient Protection and Affordable Care Act, as amended by the Health Care and Education ff to herein as ACA, was to expand coverage for the uninsured while at the same time Reconciliation Act of 2010, collectively referred containing overall healthcare costs. With regard to pharmaceutical products, among other things, the ACA expanded and increased industry rebates for drugs covered under Medicaid. The ACA also imposmm ed new reporting requirements on drug manufacturt ers for payments made to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Failure to submu each payment or ownership interest that is not timely, accurately, or complmm etely reported (anna ual maximum of $150,000), and $10,000 to $100,000 forff manufaff cturers of products for which reimbum rsement is available under Medicare, Medicaid, or the Children’s Health Insurance Program. it required infoff rmation may result in civil monetary penalties of $1,000 to $10,000 forff each knok wing failure to report (annual maximum of $1 million). The reportinrr g requirements appl y only to a The new presidential administration has identifieff d repeal and replacement of the ACA as one of its priorities. We do not know at this time what implications such an action would have on the current requirements or on our future business. Other health eral civil False Claims Act, have been applied to marketing and regulatory laws, such as the federal Anti-Kickbakk ck Statute and the fedff other activities engaged in by pharmaceutical compamm nies whose products are reimbum rsed by federal healthcare programs, and, in many cases, government investigations or private lawsuits under these laws have led such companies to enter settlements that include significaff nt monetary and other penalties, We cannot predict the full impam ct of the laws described above on our business until we have a marketed product. Many states have adopted laws similar to the federal laws discussed above. Some of these state laws apply to the 27 ff of patients for healthcare services reimbursed by any insurer, not just fede referral Medicaid. There has also been a recent trend of increased state regulation of payments made to physicians. Certain states mandate implmm ementation of complmm iance programs, imposmm e restrictions on drug manufactu and reporting of giftsff , compemm nsation and other remunmm eration to physicians. ral healthcare programs such as Medicare and rers’ marketing practices and/or require the tracking ff ff Other legislative changes relating to reimbursement have been proposed and adopted in the United States since the ACA was all items and services under Part A and B, including drugs and nts forff enacted. For example, beginning April 1, 2013, Medicare payme biologicals, and most payments to plans under Medicare Part D were reduced by 2% under the sequestration (i.e., automatic spending reductions) required by the Budget Control Act of 2011, or BCA, as amended by the American Taxpayer Relief Act of 2012. The BCA requires sequestration forff most federal programs, excluding Medicaid, Social Security, and certain other programs. Subsu equent legislation extended the 2% reduction, on average, to 2025. As long as these cuts remain in effect payment for any products we may commercialize in the futff ure. We expect that additional fedff adopted in the futff urt e, any of which could limit the amounts that fedff services, and in turn could significantl y reduce the projected value of certain development projeo cts and reduce our profitabili , they could adversely impactmm ff eral healthcare reforff m measures will be healthcare products and ff eral and state governments will pay forff ty. aa ff In addition, in many foreign countries, the proposed pricing forff a drug must be approved before it may be lawfully marketed. The requirements governing drugr pricing vary widely froff m country to country. For examplmm e, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbum rsement and to control the prices of medicinal products for human use. A membem r state may approve a specificff price for the medicinal product y of the company placing the medicinal product on the or it may instead adopt a system of direct or indirect controls on the profitabilit market. There can be no assurance that any country that has price controls or reimbursement limitations forff pharmaceutical products will allow favff orable reimbursement and pricing arrangements forff any of our products, if approved. Historically, products launched in the EU do not follow price structures of the United States, and generally prices tend to be significantly lower. ff As of February 15, 2017, we emplmm oyed 135 full-time employees, including 94 in research and development and 41 in general and administrative and no part-time employees. 34 of our emplm oyees hold M.D. or Ph.D. degrees. We have never had a work stoppage, and none of our emplm oyees is represented by a labor organization or under any collective-bargaining arrangements. We consider our emplmm oyee relations to be good. Employees Facilities Our corporate headquarters are located in Cambridge, Massachusetts, and consist of 22,067 square feet ff in a multi-tenant building under a lease that will expire on February 28, 2022. In May 2016, we entered into a separate lease under which, beginning on Septemberm 1, 2016, we rent 19,805 square feet of additional offiff ce space in a separate multi-tenant building. The lease for the additional space will also expire in February 2022. We expect to lease additional space prior to the expiration of our leases to meet the needs of the business. As of the date of this Annual Report on Form 10-K, we were not party to any legal matters or claims. In the future, we may become party to legal matters and claims arising in the ordinary course of business, the resolution of which we do not anticipate would have a material adverse impam ct on our finff ancial position, results of operations or cash flows. Legal Proceedings We were incorporated under the laws of the state of Delaware on April 16, 2010 and commenced operations on January 19, Corporate Information 2011 as Sterogen Biopharma, Inc. On Septemberm 13, 2011, we changed our name to Sage Therapeutics, Inc. under our Second Amended and Restated Certificate of Incorporation. Our mailing address and executive officff es are located at 215 First Street, Cambridge, Massachusetts and our telephone numberm at that address is (617) 299-8380. We maintain an Internet website at the following address: www.sagerx.com. The inforff mation on our website is not incorporated by referen 10-K or in any other filiff ngs we make with the Securities and Exchange Commission, or SEC. ce in this annual report on Form ff 28 We make available on or through our website certain reports and amendments to those reports that we file with or furnish to the SEC in accordance with the Securities Exchange Act of 1934, as amended. These include our annual reports on Form 10-K, our quarterly reports on Form 10-Q, and our current reports on Form 8-K, and amendments to those reports filed or furff nished pursuant to Section 13(a) or 15(d) of the Exchange Act. We make this information available on or through our website free of charge as soon as reasonably practicable afteff r we electronically filff e the information with, or furnish it to, the SEC. You may read and copy any materials we file with the SEC, at the SEC’s Publu ic Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain inforff mation on the operation of the Publu ic Reference Room by calling the SEC at 1-800- SEC-0330. The SEC also maintains an Internet website that contains reports, proxy and information statements, and other information regarding us and other issuers that file electronically with the SEC. The SEC’s Internet website address is http://www.sec.gov. 29 Item 1A. Risk Factors e . Ykk ouYY tion in this Aii degree of riskii s a highi t and in our other public filings before making an investment decdd ision. Our business, nowkk Investing in our common stock involvel nnual Repor , finff ancial condition, or operating resuee lts could be harmed as the other informarr prospects s us or that we currently consider immaterial. If aII operating results could differff materially from the plans, projections and other Report, including in the foregoe Financial Condition and Results of Operations” and elsewhere in this report and in our other public filings agg The trat ding price of oo to any of these risks, and as a resrr ult, our stockholder ine duedd their investment. rr r uncertainties actually occur, or dd rd-looking ing Business section and later in the section entitled “Management’s Discussion and Analysis of ur business, financial condition or statements included in this Annual f to hese risks, as well as other risks not currently kll nd public statements. s mrr ur common stock could dl the risks described below, aw s well ny such riskii ly considerdd by any on should cll arefulff forwar ecldd s okk l tt ay lose all or part ofo n to Risks Related to Product Development, Regulatory Approval and Commercialization -rrr efraff ctory sr essentiatt We depend heavily oll superu for PPD,PP stagea s. We cannot be certaitt n t trials, or to announce results ott candiddd atdd estt into additioii nal triatt . our product candiddd atdd estt is in Phase 3 clinical development for ticus, or SRSE, aEE nd post-partum depdd ression, or PPD; SAGE 217 is in Phase 2 clinical development tes, of which SAGE-547 EE success of oo ur current product candidadd n thett e tatus epilep l trett mor, Parkinson’s disdd ease and major depressive disoii rderdd , orr ee the expe e able t omplm etll e,tt withinii t we will bll ll o ctt ii hatt r MDD;MM and other product candidatestt cted time-fra- mes, our non-clinical studiedd s or clinica are at earlirr er ii l n thett ls, or to successfullyll develop,o time-lines we expexx ct. We cannot be certain that we will be able t ii or obtaitt n r roval forff egulatll ortt y ar ppa , or ll o att dvance our product ommercializeii r successfully cll , ae ny of We currently have no drugr products forff sale, and may never be able to successfulff ly develop marketable drug products. Our ly commercialize those product candidates. Beforff e obtaining regulatory the commercial sale of any product candidate, we must demonstrate through non-clinical studies and clinical trials that business depends heavily on our ability to successfully complmm ete non-clinical and clinical development of our current product candidates, and to obtain regulatory approval and successfulff approvals forff the product candidate is safe aff use in each target indication. Our lead product candidate, SAGE-547, is currently in Phase 3 clinical development for the treatment of SRSE and PPD; SAGE-217 is in Phase 2 clinical development for PPD, essential tremor, Parkinson’s disease and MDD; and other product candidates are at earlier stages. ff nd effect ive forff Drug development involves a high degree of risk. We may not be able to complete our clinical trials or announce results from our clinical trials on the time-lines we expect. For instance, we have experienced slower than expected enrollment and randomization of patients in our Phase 3 clinical trial in SRSE. We may encounter similar difficuff lties in our other trials, particularly in clinical trials where an in-patient stay in required. These typeyy s of delays can lead to delays in complmm etion of a trial and announcement of results. Similarly, there is also the potential for slower than expected clinical site initiation, delays or problems in analyzing data, and the potential need for additional analysis or data or the need to enroll additional patients in any of our clinical trials. We may also encounter delays arising from unexpected adverse events in a trial or other unexpected hurdles or issues in the conduct of any trial. We may not be able to demonstrate the effiff cacy and safety of our current product candidates or any other product candidate at chronic use, which we are planning to do with respect to SAGE-217 for the ongoing Phase 2 clinical each stage of clinical development. Changes in formulmm ations of our product candidates, such as moving froff m oral solution to solid dosage forff m intended forff program and later clinical trials, could delay development or require us to conduct additional clinical trials or non-clinical studies. The results of clinical trials or non-clinical studies of our product candidates at any stage may not support further development or may not be sufficff ient to obtain regulatory approval. Clinical trials of our product candidates are, and the manufacturing and marketing of our product candidates will be, subject to extensive and rigorous review and regulation by numerous government authorities in the U.S. and in other countries where we intend to test and, if approved, market any product candidate. Drugr and uncertain process, and delay or failure can occur at any stage of our clinical trials. Success in non-clinical studt stage clinical trials may not be repeated or observed in ongoing or futff ure studies involving the same compound or other product candidates. The drug development process can take many years, and may include post-marketing studies and surveillance, which will require the expenditure of subsu tantial resources. Of the large number of drugr s in development in the U.S., only a small percentage will successfully complmm ete the U.S. Food and Drug Administration, or FDA, regulatory approval process and will be commercialized. Accordingly, even if we have the requisite financial resources, when needed, to continue to fund our development efforff assure you that any of our product candidates will be successfulff development is a long, expensive ly developed or commercialized. ies or in earlier ts, we cannot uu We are not permitted to market our product candidates in the U.S. until we receive appr a oval of a New Drug Application, or an NDA, from the FDA, or in any foreign countries until we receive the requisite marketing approval from such countries. Obtaining approval of an NDA in the U.S. or marketing approval in any country outside the U.S. is a complmm ex, lengthy, expensive and uncertain 30 process, and the FDA and regulatory authorities outside the U.S. may delay, limit or deny appr for many reasons, including, among others: a oval of any of our product candidates           we may not be able to demonstrate, to the satisfaction of the FDA or other regulatory authorities that our product candidates are safe and effecti ve in any indication and that the benefitsff outweigh the safety risks; ff the results of our non-clinical studies and clinical trials may be negative, or may not meet the level of statistical or clinical significance required by the FDA or regulatory authorities outside the U.S. forff marketing approval, or the FDA or regulatory authorities outside the U.S. may disagree with our interpretation of data from our non-clinical studies and clinical trials, or may not accept data generated at our non-clinical studt ies and clinical trial sites; the FDA or regulatory authorities outside the U.S. may disagree with the numnn on-clinical studies or clinical trials or changes in drud g forff mulation used in our non-clinical studt our nuu if the regulatory authorities have previously reviewed and commented on the design and details of our puu design, size, conduct, or implementation of ies or clinical trials even ber,m lans; the FDA or regulatory authorities outside the U.S. may require that we conduct additional non-clinical studies and clinical trials prior to approval or post-approval; the FDA or applicable foreign regulatory authorities may not approve the formulation, labeling or specifications of any of our product candidates; if our NDA, if and when submu against approval of our appl clinical studt itted, is reviewed by an advisory committee, the advisory committee may recommend ication or may recommend that the FDA require, as a condition of appr ies or clinical trials, limitations on approved labeling or distribution and use restrictions; a a oval, additional non- if an NDA for one of our product candidates is submu patient population than we expect; itted, the FDA may approve the product candidate forff a more limited the FDA may require development of a Risk Evaluation and Mitigation Strategy, or REMS, as a condition of appro post-approval; a val or the FDA or applicable foreign regulatory authorities may determine that the manufactu party contract manufacturers with which we contract do not conform to applicable requirements, including current Good Manufacff turing Practices, or cGMPs; or ring processes or facilities of third- ff the FDA or applicable forff eign regulatory agencies may change their approval policies or adopt new regulations. a Even if we receive marketing appr oval for our product candidates, regulatory or other governmental authorities may still impomm se significff ant restrictions on our products, including restrictions on indicated uses or marketing, or may impose ongoing requirements forff potentially costly post-approval studies. For example,mm product candidates, we expect that, prior to product launch, the U.S. Drug Enforff cement Agency, or DEA, will need to determine the controlled substance schedule of SAGE-547 and possibly such other product candidates, taking into account the recommendation of the FDA. The process may delay our ability to market any such product if it is approved. Any of these facto beyond our control, could jeopardize or delay our ability to obtain regulatory appr candidates. Any such setback would have a material adverse effect on our business and prospects. ts to obtain approval of SAGE-547 and other oval for and successfulff ly market our product rs, many of which are if we are successfulff in our efforff a ff We cannot be certain that thett suppou ion of ao n NDANN additioii nal clinical and non-clinica rt the submissii ll results ott f oo ur ongoin ngii Phase 3 clinical triatt ls of SAGE-GG 547 in SRSE aSS nd PPD will bll e suffiff cient to or MAA for this product candidate l datdd a btt dd or MAA may ba eforff e an NDANN in SRSE and PPDPP .dd e submitted ii , aD nd in any en vent we must obtain In general, the FDA requires two pivotal trials to support approval of an NDA, but in certain circumstances, will approve an NDA based on only one pivotal trial. The trial design, endpoints and statistical analysis approach for our Phase 3 clinical trial of SAGE-547 in SRSE are based on an agreement we reached with the FDA under a Special Protocol Assessment. As a result, if we are successful, we believe the results from the Phase 3 clinical trial, together with other safetff y and efficac development program, could formff scientific advice we recently received from the European Medicines Agency, or EMA, we also believe our current Phase 3 clinical program in SRSE, if successful, in the EU. However, depending upon current program, the FDA or EMA may, despite the earlier input and advice on our study design, require that we conduct additional clinical trials or additional non-clinical studies before we can submit an NDA or MAA forff SAGE-547 in SRSE or in order to gain approval of an NDA or MAA. the basis of an NDA submission with the FDA forff SAGE-547 in the treatment of SRSE. Based on the outcome of the Phase 3 clinical program and the other development activities under the ission to the EMA seeking approval of SAGE-547 for SRSE y data from the SAGE-547 t to support a MAA submu ff will be sufficien uu ff ff 31 Based on input we received from the FDA during a Breakthrough Therapy meeting for SAGE-547 in PPD, we also believe that, ff ies, will be suffici ent to support the submu if successful, the results of the Phase 3 clinical program in PPD, together with the results of prior clinical studies and ongoing non- ission of an NDA with the FDA seeking marketing approval for SAGE-547 in clinical studt PPD. However, depending upon the outcome of the Phase 3 clinical program and the other development activities under the current program, the FDA may, despite the input we received at the Breakthkk rough Designation meeting and our current expectations, require that we conduct additional clinical trials or non-clinical studies beforff e we can submu gain approval of the NDA in PPD. Similarly, since we do not yet have scientificff PPD program, we do not know whether the EMA will require additional pivotal trials or additional non-clinical studt submu it an NDA forff SAGE-547 in PPD or in order to advice from the EMA with respect to our SAGE-547 ies before we can it an MAA forff SAGE-547 in PPD in the EU or in order to gain approval of an MAA in PPD. Furthermore, we will need to complete several other clinical and non-clinical studies prior to submitting an NDA to the FDA, including studies to evaluate the pharmacokinetics and/or pharmacodynamics of SAGE-547 in special populations. If the results of these additional clinical and non-clinical studies are delayed or yield unanticipated results, it may delay or prevent the submission or approval of an NDA forff SAGE-547 for both SRSE and PPD. A FasFF t TraTT ck designati regue gg latory review or approval process. on or Breakthrough Therapy designation gg by the FDA mDD ay not actually lead to a fasff ter develop dd ment or We have received Fast Track designation for our investigational new drug application, or IND, for SAGE-547 for the treatment of SRSE, and in the future we may seek Fast Track designation for other product candidates as well. If a product is intended for the treatment of a serious or life-ff altering condition and the product demonstrates the potential to address unmet medical needs forff condition, the sponsor may apply forff the FDA Fast Track designation. We have also received Breakthkk rough Therapy designation in the U.S. and PRIME designation in the EU forff SAGE-547 in the treatment of PPD. Fast Track designation, Breakthkk rough Therapy er development pathway or regulatory review process, and do not ff designation and PRIME designation do not necessarily lead to a fast increase the likelihood of regulatory approval. The FDA may withdraw Fast Track designation or Breakthkk rough Therapy designation, and the EMA may withdraw PRIME designation, if the relevant agency believes that the designation is no longer support from our clinical development programs. ed by data this uu ff The number of patients establisll hed with ptt candiddd atdd estt or preventing development of our product candidates achieve profitaff with the disdd eases and disorders for which we are devdd elopino the diseii ases or disoii ll nrolling actual number of paff tt ate,tt we may encounter difficultie i .dd lly adversely affected than we anticip recisiii on. If tII hett bilityii may ba tients withii is smallerll tt e materia , as nd even if such product candidatedd s in eii ff ii g our product candidates rdersdd to pursue withii ll we elect patiett nts in our clinical tritt als,ll i our product thereby db ingn s are approved, our revenue and ability to eldd ayll has not been Our lead product, SAGE-547, is currently in Phase 3 development for the treatment of patients with SRSE and PPD. The t ff clinical trials, particularly tly smaller than our estimates. In estimating the potential prevalence of indications we areaa espect to many of the indications in which we are conducting trials or plan to develop our product ring from these disorders is small. We also have Phase 2 clinical programs of our next generation product number of patients suffeff candidate, SAGE-217 in essential tremor, PPD, Parkinson’s disease and MDD. There is no precise method of establishing the actual number of patients with any of these disorders in any geography over any time period. Moreover, SRSE is an acute episodic condition. If we are not able to identify patients at the time of SRSE onset, we will have difficff ulty completing our Phase 3 clinical trial. Given the small number of patients, and nature of the disease, it may also be diffiff cult to identify PPD patients forff patients with severe PPD. With r candidates, we have or will provide estimates of the prevalence of the disease or disorder. Our estimates as to prevalence may not be accurate, and the actual prevalence or addressable patient population for some or all of those indications, or any other indication that we elect to pursue, may be significan pursuing, or may in the futff urtt e pursue, including our estimates as to the prevalence of SRSE, PPD, essential tremor and Parkinson’s disease, we apply assumptmm ions to available inforff mation that may not prove to be accurate. In each case, there is a range of estimates in the published literature which include estimates within the range that are lower than our estimates. For example, there are estimates in the literature on the prevalence of SRSE, particularly froff m studies outside the U.S. that are significantly lower than our estimates. We believe that diffeff rences in prevalence rates forff SRSE among studies in the published literature may be the result of: differences from country-to-country in the prevalence or rate of occurrence of the underlying conditions and disorders that cause SRSE; challenges in making an accurate diagnosis of SRSE, particularly in a patient population with multiple complmm ications; limitations and variations in the diagnosis coding for these conditions; the small size of the populations studied in the literature; and diffeff rences and limitations in the analytical plans underlying the various publu ished studies. Similarly, our estimates of the prevalence of PPD are higher than estimates reported in some of the published literature or results obtained froff m certain studies analyzing limited claims databases. We believe this differen reluctant to seek treatment in clinical practice. The actual numbem r of patients with SRSE, PPD, essential tremor, Parkinson’s disease, MDD or any other indication in which we elect to pursue development of our product candidates may, however, be significantly lower than we believe. If the actual number of patients with SRSE, PPD, essential tremor, Parkinson’s disease, MDD or any other indication in which we elect to pursue development of our product candidates is lower than our estimates, we may experience difficff ulty in ce is due to under-diagnosis of PPD as a result of lack of screening and under-reporting, and patients being ff 32 enrolling patients in our clinical trials, thereby delaying development of our product candidates. A prevalence calculation is an estimate of the total numberm of patients with a disease or disorder or the rate of occurrence of a disease or disorder in a population. Even if our prevalence estimates are correct, our products, if appr disease or condition. In addition, the IV infusion mode of administration for SAGE-547 may furff who will be treated with the product if it is ultimately approved. roved and our prevalence estimates with respect to any indication or our market assumptions are not accurate, the markets for our product candidates for these indications may be smaller than we anticipate, which could limit our revenues and our ability to achieve profitabff oved, may be indicated for only a subsu et of patients with a particular ther limit the numberm of PPD patients If any of our product candidates are appa ility. a If serious adverse events or othett other product candidatestt in clini clinical studies, it may aa able side effects are identiftt dd r undesir emergenr ii cal trials,ll dd ly affect our develop duringii cy-use cases, investigator sponsored tritt als, es xpan ment of such product candidates. the use of SAGE-5EE 47, SAGE-21EE ee dverserr iedff 7, or any on f oo ur ded access progro ams, or non- ff Undesirable side effect s caused by our product candidates could cause us or regulatory authorities to interruptuu , delay or halt non- clinical studies and clinical trials, or could make it more diffiff cult for us to enroll patients in our clinical trials. If serious adverse events or other undesirable side effecff are observed in clinical trials, emergency-use cases, investigator sponsored clinical trials, or non-clinical studies, furff development of such product candidate may be delayed or we may not be able to continue development of such product candidates at all or we may also need to discontinue development of other product candidates, and the occurrence of these events could have a material adverse effeff ct on our business. Undesirable side effecff denial of regulatory appr ts, or unexpected characteristics of SAGE-547 or SAGE-217 or of any of our other product candidates oval by the FDA or other regulatory authorities or in a more restrictive label than we expect. ts caused by our product candidates could also result in the delay or ther clinical a Positii ve results from earlyrr non-clinical studies and clinical trials resultsll of later non-clinical studiedd s and clinical triatt earlier non-clini be unable t ii cal studiesdd uccessfulff and clinical triatt obtain regue lyll develop, ll o stt rr ll of our product candidates are not necessarilyii predictivt e of to hett ls of our product candiddd atdd es. tt If we cannot replicate the positive results ftt roff m our ii cal tritt ali s,ll we maya ls of our product candiddd atdd estt in our latll ertt non-clinical studiesdd and clini latory approval for and commerciali izll e our product candidates. Positive results froff m non-clinical studies and clinical trials, including proof-off f-concept trials, of our product candidates may not ff t than the formulation used in the Phase 1/2 trial. We do not believe the change in formulation will negatively s in important ways from the Phase 1/2 clinical trial, which could cause the outcome of the Phase 3 clinical trial to necessarily be predictive of the results we may obtain froff m subsequent non-clinical studies or clinical trials using the same product candidate or other product candidates. For examplmm e, the positive results from our Phase 1/2 clinical trial of SAGE-547 in SRSE and results from earlier emergency use cases, may not be replicated in our ongoing Phase 3 clinical trial. Our Phase 3 clinical trial of SAGE-547 differff differ froff m the earlier stage clinical trial. The Phase 3 clinical trial of SAGE-547 is a placebo-controlled trial, while our Phase 1/2 clinical trial was open-label, and in our Phase 3 clinical trial an intent-to-treat statistical analysis, which is a more rigorous statistical analysis, will be employed in evaluating the Phase 3 data. In addition, the formulation of SAGE-547 we are using in our Phase 3 trial is somewhat differen affeff ct trial results, but we cannot be sure. Similarly, the results from our Phase 2 clinical trials of SAGE-547 in severe PPD may not be replicated in our ongoing Phase 3 clinical trial of SAGE-547 in PPD, which involves a greater number of patients and also includes a moderate PPD arm, or in the Phase 2 clinical trial of SAGE-217 in PPD. Similarly, proof-of-concept data generated with SAGE-547 in essential tremor may not be replicated in the Phase 2 clinical trial of SAGE-217 in essential tremor. Many compamm nies in the pharmaceutical and biotechnology industries have suffeff results in early-stage development, and we cannot be certain that we will not faceff by, among other things, non-clinical finff dings made while clinical trials were underway or safeff ty or effiff cacy observations made in non- nt than in earlier trials or studies, including previously unreported or otherwise clinical studies and clinical trials that are differeff unexpected adverse events. For example,mm we may observe safetff y issues in clinical studies of our product candidates that we did not observe or appreciate in earlier stage clinical studies or in non-clinical studies. The results from non-clinical animal models may not ff be replicated in clinical trials. Many drug candidates, including many targeting CNS disorders, with promising non-clinical profiles have failed to demonstrate similar safeff ty, non-toxicity and effiff cacy in humans. Moreover, non-clinical and clinical data are oftenff susceptible to varying interpretations and analyses, and many compamm nies that believed their product candidates perforff med satisfactorily in non-clinical studies and clinical trials nonetheless failed to obtain FDA approval. If we faiff in our planned non-clinical studies or clinical trials of any of our product candidates, the development timeline and regulatory approval and commercialization prospects forff would be materially adversely affeff cted. our product candidates, and, correspondingly, our business and financial prospects, s in later-stage clinical trials after achieving positive similar setbacks. These setbacks have been caused l to produce positive results red significff ant setback t Failures or delayll cause us not to mtt regue ii hett s in t eet our expe commencement or complm etll ee cted timelines or result in increarr ct candidate and generate rtt ngii and planned clinll sed costs to us, and could delaya , pyy ss. evenue and continue our busineii iott n of oo ur ongoin latory apprpp oval of ao ny produrr ical trials of our product candidates could revent or limi t oii ur abiliii tyii ii to gainii Successfulff itting an NDA to the FDA and, consequently, the ultimate approval and commercial marketing of SAGE-547 for SRSE or PPD and SAGE-217 or any of completion of clinical trials at each applicabla e stage of development is a prerequiqq site to submu 33 our other product candidates for the indications in which we develop them. We do not know whether any of our clinical trials will begin or be complmm eted, and results announced, as planned or expected, if at all, as the commencement and complmm etion of clinical trials and announcement of results can be delayed or prevented forff bem r of reasons, including, among others: a numn               the FDA may deny permission to proceed with our planned clinical trials or any other clinical trials we may initiate, or may place a clinical trial on hold; delays in filff ing or receiving appa rovals of additional investigational new drugr applications, or INDs that may be required; negative results from our ongoing non-clinical studies or clinical trials; a challenges in identifyiff ng, recruiting and enrolling patients to participate in clinical trials, including, in the case of SAGE- due to: the small size of the patient population and acute nature of SRSE; the lack of proximity of 547, challenges we faceff some patients to trial sites; the lack of an appro itted to enroll pediatric patients in most EU countries; challenges in meeting regulatory and material requirements to commence clinical trials in countries outside the U.S.; eligibility criteria for the clinical trial; and challenges associated with the nature of the some or all of the same issues with respect to SAGE-547 in PPD or with respect to clinical trial protocol; the potential forff SAGE-217 or our other product candidates with respect to future clinical trials or other issues with respect to any of our clinical trials, such as the availability of existing treatments for the relevant disease, the requirement for in-patient stays with respect to some of our trials; and compemm tition froff m other clinical trial programs for similar indications, to delay enrollment of patients in existing or future clinical trials of our other product candidates; ved pediatric investigation plan which is required to be submu delays in reaching or fail terms of which can be subju ect to extensive negotiation and may vary significantly among differeff ing to reach agreement on acceptable terms with prospective CROs and clinical trial sites, the nt CROs and trial sites; ff inadequate quantity or quality of a product candidate or other materials necessary to conduct clinical trials, for example delays in the manufn act uring of suffiff cient supply of finff ished drug product; ff difficulties obtaining Institutional Review Board, or IRB, appa conduct a clinical trial at a prospective site or sites; roval, and equivalent approval for sites outside the U.S., to delays or problems in analyzing data, or the need for additional analysis or data or the need to enroll additional patients; the occurrence of serious adverse events or unexpected drug-related side effects experienced by patients in a clinical trial or unexpected results in ongoing non-clinical studt ies; delays in validating any endpoints utilized in a clinical trial; our inabia lity to satisfy the requirements of the FDA to commence clinical trials, including chemistry, manufact control, or CMC, requirements, or other FDA requirements prior to the initiation of a clinical trial; ff uring and a the FDA and appl interpretation of data from clinical trials, or changing the requirements forff reviewed and commented on the design forff our clinical trials; icable regulatory authorities outside the U.S. disagreeing with our clinical trial design and our approval even after ff the regulatory authority has reports froff m non-clinical or clinical testing of other CNS therapies that raise safetff y or efficff acy concerns; and difficulties retaining patients who have enrolled in a clinical trial but may be prone to withdraw due to rigors of the clinical trials, lack of effiff cacy, side effects, personal issues or loss of interest. Clinical trials may also be delayed or terminated as a result of ambiguous or negative interim results. For examplm e, in 2015, in response to an IND filff ed with respect to SAGE-689, the FDA requested additional non-clinical study data prior to commencement of a Phase 1 clinical trial. There is no guarantee that we will generate data to satisfy the FDA or commence a Phase 1 clinical trial with respect to SAGE-689. We are in the process of evaluating possible alternative forff mulations of SAGE-689. In addition, a clinical trial may be suspended or terminated by us, the FDA, the IRBs at the sites where the IRBs are overseeing a clinical trial, a data and safetff y monitoring board, or DSMB, overseeing the clinical trial at issue or other regulatory authorities due to a number of factors, including, among others:    failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols; inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities that reveals defici or violations that require us to undertake corrective action, including the imposition of a partial or full clinical hold; ff encies unforeseen safetff y issues, including any that could be identified in our ongoing non-clinical studies, or adverse side effeff cts or lack of effecti veness identified in ongoing clinical trials; ff 34    changes in government regulations or administrative actions; problems with clinical supply materials; and lack of adequate funding to continue clinical trials. e y rr Changes in regulator our product candidatestt may oa addidd tioii nal non-clinicii ii timeline. equirements ott r FDAFF guidance or unanticipatedtt al studiedd s and clinica ccur, which may result in changesn s,ll which could rll l tritt ali ii events during our non-clinical studies and clinll to non-clinic ll ii ncii esult ill n i tt o us and could delay oa al studiedd s and clinic al trial protocols oll reased costs t ll r thett ur developmo ical trials of need for ent Changes in regulatory requirements or FDA guidance or unanticipated events during our non-clinical studies and clinical trials icable regulatory authorities outside the U.S. may forff ce us to amend non-clinical studies and clinical trial protocols or the FDA or appl may impose additional non-clinical studies and clinical trial requirements. Amendments or changes to our clinical trial protocols would require resubmission to the FDA and IRBs for review and approval, which may adversely impact the cost, timing or successfulff completion of clinical trials. Similarly, amendments to our non-clinical studt complmm etion of those non-clinical studies. If we experience delays completing, or if we terminate, any of our non-clinical studt clinical trials, or if we are requiqq red to conduct additional non-clinical studies or clinical trials, the commercial prospects forff product candidates may be harmed and our ability to generate product revenue will be delayed. ies may adversely impact the cost, timing, or successful ies or our a ee We rely, and expe third parties do not successfulff regue latory approval for or commerciali ct that we will cll ontinue to rely, oyy n thi rdii carry out their contractual duties or meet expecxx to conduct any cn rr parties lyll tt linical triatt ted deadlindd izll e our products,tt if approved, and our busineii ss could bll es, ws ls for our product candiddd atdd es. tt btaintt e may not be able t armerr tially hll ll o ott d. e substantt If these We do not have the ability to independently conduct clinical trials. We rely on medical institutions, clinical investigators, contract laboratories and other third parties, such as CROs, to conduct clinical trials of our product candidates. We enter into agreements with third-party CROs to provide monitors for and to manage data for our ongoing clinical trials. We rely heavily on these parties for execution of clinical trials for our product candidates and control only certain aspects of their activities. As a result, we have less direct control over the conduct, timing and complmm etion of these clinical trials and the management of data developed through clinical trials than would be the case if we were relying entirely upon challenging, potentially leading to mistakes as well as difficff ulties in coordinating activities. Outside parties may: our own staff.ff Communicating with outside parties can also be uu      have staffinff g diffiff culties; fail to comply with contractual obligations; experience regulatory complmm iance issues; undergo changes in priorities or become financially distressed; or form relationships with other entities, some of which may be our compemm titors. These factors may materially adversely affeff ct the willingness or ability of third parties to conduct our clinical trials, and may a subjeb ct us to unexpected cost increases that are beyond our control. Nevertheless, we are responsible for ensuring that each of our clinical trials is conducted in accordance with the appl icable protocol, legal, regulatory and scientific requirements and standards, and our reliance on CROs does not relieve us of our regulatory responsibilities. We and our CROs are required to comply with regulations and guidelines, including current Good Clinical Practices, or cGCPs, forff conducting, monitoring, recording and reporting the results of clinical trials to ensure that the data and results are scientificff ally credible and accurate, and that the trial patients are adequately informed of the potential risks of participating in clinical trials. These regulations are enforff ced by the FDA, the Competent Authorities of the Membem r States of the European Economic Area and compamm rable foreign regulatory authorities forff development. The FDA enforff ces cGCP regulations through periodic inspections of clinical trial sponsors, principal investigators and trial sites. If we or our CROs or clinical sites faiff icable cGCPs, the clinical data generated in our clinical trials a may be deemed unreliable and the FDA or compamm rable forff eign regulatory authorities may require us to perforff m additional clinical trials beforff e approving our marketing applications. We cannot assure you that, upon icabla e regulatory authorities outside the U.S. will determine that our clinical trials complmm y with cGCPs. In addition, our clinical trials must be conducted with product candidates produced under cGMPs regulations. Our failure or the failure of our CROs or contract manufacturers to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process, and could also subjeb ct us to enforff cement action up to and including civil and criminal penalties. inspection, the FDA or appl any products in clinical l to complmm y with appl uu a If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs. If CROs do not successfulff replaced or if the quality or accuracy of the clinical data they obtain is comprmm omised due to the failure to adhere to our clinical ly carry out their contractual duties or obligations or meet expected deadlines, if they need to be 35 protocols or regulatory requirements or forff repeat, extend the duration of, or increase the size of our clinical trials and this could significan tly delay commercialization and require significff antly greater expenditures. In such an event, we believe that our finff ancial results and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenue could be delayed. other reasons, and we are unable to rely on clinical data collected, we could be required to ff We rely completely on third-par rely on third parties to ptt - tyrr supplu roduce non-clinical, cll iell rs to manufact al drug supplu linical and commercial supplpp iell s of oo ur product candidatestt ure our clinic iell s forff our product candidatestt in the future. ff ll , as nd we intend to We do not currently have, nor do we plan to acquire, the infraff strucrr ture or capability internally to manufacturt e supplies of our product candidates, or any future product candidates, forff commercial use, and we rely complmm etely on third-party suppliers forff use in the conduct of our non-clinical studies and clinical trials, or forff future both active drug subsu tances and finff ished drug products. ff ff ff ff ilities used by our contract manufact We will rely on our contract manufact it our NDA or equivalent forff eign regulatory submu subsu tances and finished drugr ure. We expect our contract ture material that conforff ms to our specifications and the strict regulatory requirements of the FDA or applicable ff we ission to the applicable regulatory agency. If our contract manufacturers cannot urers to manufacture registration batches of both active drugr products required for regulatory approval as well as validation batches required for commercial manufact manufact urers to comply with cGMPs in the manufacture of our products. The facff ure the active pharmaceutical ingredient and finff al drug product must typiyy cally complmm ete a pre-approval inspection by the manufact FDA and other comparable forff eign regulatory agencies to assess compliance with applicable requirements, including cGMPs, after submu successfully manufn acff foreign regulatory agencies, and pass regulatory inspections, they will not be able to secure and/or maintain regulatory approval for their manufacturt quality control, quality assurance and qualified personnel. Furthermore, all of our third-party contract manufactu other compamm nies to suppl manufact requirements forff facilities generally. If the FDA or an applicable forff eign regulatory agency determines now or in the futff ure that these facilities forff manufact lities, which would adversely impact our ability to develop and obtain regulatory approval for our product candidates and to market any approved ff products in the futff ure. Our reliance on contract manufact to their facilities, will have access to and may appropriate our trade secrets or other proprietary inforff mation. ure materials or products for such compamm nies, which exposes our third-party contract the production of such materials and products. As a result, failure to satisfy the regulatory ure of our product candidates are noncomplmm iant, we may need to finff d alternative manufact urers also exposes us to the possibility that they, or third parties with access lities. In addition, we have no direct control over our contract manufacff the production of those materials and products may affect the regulatory clearance of our contract manufacturers’ turers’ ability to maintain adequate urers to regulatory risks forff rers are engaged with y and/or manufact uring faci ff ing faci urers to the uu ff ff ff ff ff ff ff ff uu We do not have long-term supply agreements in place with our contract manufacturtt ers, and each batch of our product candidates urers are ly agreements, or are not willing or are unable to supply drug substance or drug product to us, turers must scale up the manufactu urers, such contractor manufacff is individually contracted under a quality agreement, service agreement and purchase order. If our existing contract manufact not willing to enter into long-term suppuu and we engage new contract manufact validation batches, pass an inspection by the FDA and other applicable forff eign regulatory agencies, and be approved by regulatory rr ture for commercial purpos ff authorities as our manufact which could result in significant delays or gapsa turers to manufact manufact connection with our contract manufact commercialize our products, if approved. ure commercial quantities of our products, if appa uring, or are unable to do so on commercially reasonable terms, or are unable to obtain timely regulatory approvals in in product availability. We plan to continue to rely upon contract manufacff roved. If we are unable to maintain arrangements for third-party y complmm ete development of our product candidates or urer before we are able to use drug product or drugr urers, we may not be able to successfull subsu tance they manufacff ring process, complmm ete es ff ff ff ff ff ff ff Even if we receive marketing an a our product candidatestt outside odd ppr f to hett U.S. oval for our product candidates in the U.SUU .,SS we may na ever receive regue a latory ar ppr oval to market from that required to obtain FDA approval. Market Even if we receive marketing approval for our product candidates in the U.S., we may never receive regulatory approv idates outside of the U.S. In order to marka et any producdd t outside of the U.S., we must establa ish anda roduct canda our puu numerous and varya ing safetff y, effiff cacy and other regulatory requiqq rementsnn of other countuu ritt es. ApproAA among countritt es and can involve additional product candidate testing and additional administrative review periods. The time required to obtain approvals in other countu ritt es might differff val in one countrnn y does not ensure markaa eting approval in another, but auu process in others. The marka eting appaa approval in the U.S. as well as other risks. In particular, in many countries outside of the U.S., products musmm t receive pricing and reimbum rsuu ement ann ppr products to market a countrnn y, we may not be able to obtain pricing anda aa pricing and reimbursement approval we may obtain may be subject to onerous restritt ctions such as caps or other hurh dles or restritt ctions on ck in obtaining reimbursement. Failureuu to obtain marketing and pricing approval in countrnn ies outside the U.S. or anya oval beforff e thet in such countrnn ies. Even if we are able to successfulff roval processes in other countrnn ies may implmm icate all of the risks detailed above regarding FDA esult in substantial delays in bringing aa ing approv product can be commercialized. Obtaining this approval can ra in one countu rytt may have a negative effeff ct on the regulatory vals in such countrnn y at acceptable levels or at all, and any ly develop our product candidates and obtain market failure or delay in obtaining marka eting approval reimbum rsuu ement ann ppro delay or other setbat comply with the val proceduresuu al to marka et aa ing appro varyaa aa rr aa aa rr rr al in 36 such approval would impaimm r our ability to market our product candidates in such foreign marka ets. Any such impairmm ment would reduce the otentiann l market, which could have a material adverse impact on our business, results of operations and prospects. size of our puu If we are unable t product candidatestt ll o ett , ws e may not be able t ll o gtt ny revenue.ee ting cn enerate att stabtt lishii sales and markerr apabiliii ties ii or enter into agreements with third parties to market and sell oll ur We do not currently have an infraff structure forff the sales, marketing and distribution of pharmaceutical products. In order to market our product candidates, if approved by the FDA or any other regulatory body, we must build our sales, marketing, managerial and other non-technical capabilities or make arrangements with third parties to perforff m these services. If we are unable to establish adequate sales, marketing and distribution capabilities, whether independently or with third parties, or if we are unable to do so on commercially reasonabla e terms, our business, results of operations, finff ancial condition and prospects will be materially adversely affeff cted. Even if we receive marketing an a tt acceptance, which would limit the revenue that we generate froff m thett ir sales. ppr oval for our product candidates dd , os ur approved products mtt ay not achieve broad markerr t The commercial success of our product candidates, if approved by the FDA or other applicable regulatory authorities, will uu depend upon and healthcare payors. Market acceptance of our products, if approved, will depend on a numbem r of facto the awareness and acceptance of our approved products among the medical community, including physicians, patients rs, including, among others: ff              the efficff acy of our products as demonstrated in clinical trials, and, if required by any appl icable regulatory authority in connection with the approval for the applicable indications, our ability to demonstrate in clinical trials that our products provide patients with incremental health benefits, as compamm red with other available CNS therapies; a limitations or warnings contained in the labeling approved for our products by the FDA or other applicable regulatory authorities; the clinical indications and size of patient populations for which our products are approved; availability of alternative treatments already appr a oved or expected to be commercially launched in the near future; the potential and perceived advantages and limitations of our products, including in the case of SAGE-547 limitations arising from the IV infusff future alternative treatments; ion mode of administration, over current treatment options or alternative treatments, including the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies; the strength of marketing and distribution support uu and timing of market introduction of compemm titive products; publu icity concerning our producdd ts or competing products and treatments; pricing and cost effecti ff veness; ff the effecti veness of our sales and marketing strategies; our ability to increase awareness of our approved products through marketing efforts; our ability to obtain sufficie ff nt third-party coverage or reimbursement; or the willingness of patients to pay out-of-pocket in the absence of third-party coverage or as co-pay amounts under third party coverage. If our product candidates are approved, but do not achieve an adequate level of acceptance by patients, physicians and payors, or if the patient population forff which any such product is approved is smaller than we expect, we may not generate suffiff cient revenuen from our products to become or remain profitaff ble. Beforff e granting reimbursement approval, healthcare payors may require us to demonstrate that our product candidates, in addition to treating these target indications, also provide incremental health benefitsff patients or healthcare costs savings. Our efforff . products, if approved and to the extent permitted, may require significant resources and may never be successfulff ts to educate the medical community and third-party payors about the benefitsff to of our 37 Our product candidates may ca commerciali profileii of an apprpp oved label, oll ause undesdd irable side effects that could delay or prevent thett ppr ivtt e consequences followingii marketingtt a latory ar ir regue oval, limit the apprpp oval, ill f ai ny.yy r result ill n s ii ignigg fii cant negat e Undesirabla e side effect ff s caused by our product candidates could cause us or regulatory authorities to interruptuu , delay or halt non- clinical studies and clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other regulatory authorities. Clinical trials by their nature utilize a samplmm e of the potential patient population. With a limited number of patients and limited s of our product candidates may only be uncovered with a significantly larger number duration of exposure, rare and severe side effect of patients exposed to the product candidate. If our product candidates receive marketing approval and we or others identify undesirable side effecff bem r of potentially significff ant negative consequences could result, including: ts caused by such products (or any other similar products) afteff r such approval, a numn ff        regulatory authorities may withdraw or limit their approval of such products; regulatory authorities may require the addition of labeling statements, such as a “boxed” warning or a contraindication; we may be required to change the way such products are distributed or administered, conduct additional clinical trials or change the labeling of the products; we may be subjeb ct to regulatory investigations and government enforff cement actions; we may decide to remove such products from the marketplace; we could be sued and held liable forff injun ry caused to individuals exposed to or taking our product candidates; and our reputation may suffeff r. We believe that any of these events could prevent us from achieving or maintaining market acceptance of the affeff cted products, and could subsu tantially increase the costs of commercializing our products and significantly impamm ct our abia lity to successfully commercialize our products and generate revenues. Even if we receive marketing appr a oval for our product candidates dd , ws e may still tt face future development and regulato e ry difficulties. tt Even if we receive marketing appr a oval for our product candidates, regulatory authorities may still impose significant restrictions potentially costly post-approval studies. For on our products, indicated uses or marketing or impose ongoing requirements forff examplmm e, if we are successful in our effoff rts to obtain approval of SAGE-547 and other product candidates, we expect that, prior to product launch, the DEA will need to determine the controlled substance schedule of SAGE-547, and possibly such other product candidates, taking into account the recommendation of the FDA. The process may delay our ability to market any such product if it is approved. Our products, if approved, will also be subjeb ct to ongoing FDA requirements governing the labeling, packaging, storage and promotion of the product and record keeping and submission of safety and other post-market inforff mation. The FDA has significff ant post-marketing authority, including, forff and to require post-marketing studies or clinical trials to evaluate serious safety risks related to the use of a drugr the authority to require, as part orr increased costs to assure compliance with additional post-approval regulatory requirements and potential requirements or restrictions on the sale of approved products, all of which could lead to lower sales volume and revenue. examplmm e, the authority to require labeling changes based on new safeff ty information ission of a REMS. Any REMS required by the FDA may lead to f an NDA or post-approval, the submu . The FDA also has Manufacturers of drugr products and their facilities are subju ect to continual review and periodic inspections by the FDA and compliance with cGMPs and other regulations. If we or a regulatory agency discover problems with other regulatory authorities forff our products, if approved, such as adverse events of unanticipated severity or frequency, or problems with the facility where our products are manufactured, a regulatory agency may imposmm e restrictions on our products, the manufacturer or us, including requiring withdrawal of such products from the market or suspension of manufacff turing. If we, our product candidates or approved products or the manufactu agency may, among other things: ring facilities for our product candidates or products fail to comply with applicable regulatory requirements, a regulatory ff      issue warning letters or untitled letters; seek an injunction or imposmm e civil or criminal penalties or monetary finff es; suspend or withdraw marketing approval; suspend any ongoing clinical trials; refuse to approve pending applications or suppu lements to appl a ications submu itted by us; 38   suspend or impose restrictions on operations, including costly new manufacturing requirements; or seize or detain products, refusff e to permit the import or export of products, or require that we initiate a product recall. Competing tn hett f ai candiddd atdd estt , is rapies a ppa roved.dd could emerger adverserr ly affecting on ur opportunity to generate rtt evenue from the sale oll f oo ur producdd t The biopharmaceuticals industry is highly compemm titive. There are many publu ic and private companies, universities, governmental agencies and other research organizations actively engaged in the research and development of products that may be similar to our product candidates or address similar markets. It is probabla e that the number of companies seeking to develop products and therapies similar to our products will increase. Currently, there are no therapies that have been specifically approv a ed for treatment of SRSE. However, many products approved for other indications, including general anesthetics, ketamine and anti-seizure drugs, are used off-ff label for various stages of SE therapy, including in the treatment of SRSE. Additionally, though not indicated, acupuuu therapy are sometimes also used prior to withdrawal of care for patients with SRSE. hermia, and electroconvulsive ncture, hypotyy There are no pharmacological therapies specifically approved for the treatment of PPD. Current standard of care for PPD commonly consists of psychotherapy, however, patients with moderate or severe PPD are oftenff such as selective serotonin reuptake inhibitors, or SSRIs and serotonin and norepinephrine reuptu ake inhibitors, or SNRIs. prescribed anti-depressant medications Current treatments forff Parkinson’s disease include Levodopa/carbidopa, dopamine antagonists, MAO-B inhibitors and anticholinergics. Common pharmacological treatments for essential tremor include primidone; propranolol; anti-anxiety medications; and anticonvulsant drugs such as gabapentin and benzodiazepines. Non-pharmaceutical interventions in the treatment of essential tremor include the responsible use of alcohol, deep brain stimulatio n, focused ultrasound and thalamotomy. mm MDD patients are typiyy cally treated with a variety of anti-depressant medications, including SSRIs and SNRIs. A numbem r of companies are developing product candidates intended for the treatment of MDD. In the fieff ld of neuroactive steroids focused specifically on modulation of GABAA receptors, our principal compemm titor is Marinusn Pharmaceuticals, Inc., or Marinus. Marinus is developing a form of ganaxolone, a known GABAA positive allosteric modulator neuroactive steroid. A numn agonists. bem r of compamm nies are working to develop products targeted at the NMDA receptor, both antagonists and Many of our potential compemm titors, alone or with their strategic partners, have substantially greater financial, technical and human resources than we do, and significantly greater experience in the discovery and development of product candidates, obtaining FDA and other regulatory approvals of treatments and the commercialization of those treatments. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated among a smaller numbem r of our compemm titors. Even if we are successful in developing and gaining approval of any of our product candidates, we expect competition in the indications we are pursuing will focff us on efficff acy, safety, convenience, availability, and price. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, severe side effect obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our compemm titors establishing a strong market position before we are able to enter the market. er or less s, are more convenient or are less expensive than any products that we may develop. Our compemm titors also may ff more effeff ctive, have fewff ff We may seek to establisll h collall boratiott ns and, if we are not able t ee s or expan to altell r our developll ment and commercializll ation planll d our internarr l effor e ts and growth. tt ll ott establisll h thett m on commercially reasonable t rr ertt ms , ws ll e may have Our drug development programs and the potential commercialization of our product candidates will require subsu tantial additional cash to fund expenses. For some of our product candidates, we may decide to collaborate with pharmaceutical and biotechnology companies for the development and potential commercialization of those product candidates in some or all markets. We face significant competition in seeking appropriate collaborators. Whether we reach a definff itive agreement for a collaboration will depend, among other things, upon conditions of the proposed collaboration and the proposed collaborator’s evaluation of a numberm of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the U.S., the potential market for the applicable product candidate, the costs and complmm exities of manufacff our assessment of the collaborator’s resources and expertise, the terms and turing and delivering such product uu 39 candidate to patients, the potential of compemm ting products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge and industry and market conditions generally. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such collaboration could be more attractive than the one with us forff candidate. The terms of any collaboration or other arrangements that we may establish may not be favff orable to us. our product We may also be restricted under existing license agreements from entering into future agreements on certain terms with potential collaborators. Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significaff potential future collaborators. nt numberm of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable or unwilling to do so, we may have to curtail the development of the product candidate for which we are seeking to collaborate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization in some or all markets or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense, including potentially increasing our infraff structure and investment outside the U.S.. If we elect to increase our expenditures to fundff which may not be available to us on acceptable terms or at all. If we do not have suffiff cient funds, we may not be able to further develop our product candidates or bring them to market and generate product revenuen . In addition such efforff of a disproportionate amount of our attention away froff m other day-to-day activities, and require devotion of a substantial amountuu our time to managing these expansion activities. development or commercialization activities on our own, we may need to obtain additional capital, ts may require diversion of In addition, any futff ure collabor a ations that we enter into may not be successful. The success of our collaboration arrangements rts and activities of our collaborators. Collaborators generally have significant discretion in determining ts and resources that they will apply to these collaborations. Disagreements between parties to a collaboration arrangement will depend heavily on the effoff the efforff regarding clinical development and commercialization matters can lead to delays in the development process or commercializing thet applicable product candidate and, in some cases, termination of the collaboration arrangement. These disagreements can be diffiff cult to resolve if neither of the parties has finff al decision-making authority. Collaborations with pharmaceutical or biotechnology compamm nies and other third parties ofteff n are terminated or allowed to expire by the other party. Any such termination or expiration would adversely affect us financially and could harm our business reputation. ff ot be successfulff We may na resources to ptt ursue a particularll may be more profio table or for which there is aii rts to identi product candidate ott in our effoe fyi dd r indii icdd atiott n and fail to capia taii greatertt likelihood of success. or discii over additioii nal product candiddd atdd estt ee or we may ea xpe lize on product candidatestt nd our limll or indicdd atiott ns that ited The success of our business depends primarily upon our ability to identify,ff develop and commercialize products based on our proprietary chemistry platform. Although some of our producdd t candidates are in non-clinical and clinical development, our research programs may faiff methodology may be unsuccessful in identifying additional potential product candidates or our potential producd t candidates may be shown to have harmfuff l side effect product candidates unmarketable or unlikely to receive marketing approval. ther potential product candidates for clinical development for a number of reasons. Our research s or may not have a positive risk/be// nefit profile or may have other characteristics that may make the l to identify off uu ff Because we have limited finff ancial and management resources, we focus on a limited numbem r of clinical and research programs ew product candidates require substantial technical, finff ancial and human resources. We may focff us our efforts and product candidates and are currently focff used on certain CNS disorders. As a result, we may forff ego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Research programs to identify nff and resources on potential programs or product candidates that ultimately prove to be unsuccessfulff may cause us to fail to capia talize on viable commercial drugrr research and development programs and product candidates for specificff we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through futff ure collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate. s or profitable market opportunities. Our spending on current and futurt e indications may not yield any commercially viable drugs. If . Our resource allocation decisions If any of these events occur, we may be forff ced to abandon our development effort ff s forff a program or programs, which would have a material adverse effect ff on our business. 40 We are subject damagea s, repue b to healthcare laws and regulati tational harm and dimdd e inished profio tsii and futff ure earnirr ngs.gg ons, ws hich could ell xpee ose us to ctt ii naii rimi l sanctions, cs ivil penalties, contractual Although we do not currently have any products on the market, once we begin commercializing our products, we will be subju ect to additional healthcare statutory and regulatory requirements and enforcement by the fedff governments in which we conduct our business. Healthcare providers, physicians and others will play a primary role in the a recommendation and prescription of our product candidates, if appro us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our product candidates, if we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations include the following: ved. Our futff ure arrangements with third-party payors will expose eral government and the states and foreign       kk ral anti-kickback ing, ff The fede receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referr al of an individual for, or the purchase, order or recommendation of, any good or service, for whiw ch payment may be made under federal healthcare programs such as Medicare and Medicaid. statute prohibits, among other things, persons froff m knowingly and willfully soliciting, offerff ff eral False Claims Act imposes criminal and civil penalties, including those from civil whistleblower or qui tam knowingly presenting, or causing to be presented, to the federal government, The fedff actions, against individuals or entities forff claims for payment that are false or fraff udulent or making a false statement to avoid, decrease, or conceal an obligation to pay money to the fedff eral government. al Health Insurance Portability and Accountability Act of 1996, as amended by the Health Inforff mation ff The feder Technology for Economic and Clinical Health Act, imposmm es criminal and civil liability forff any healthcare benefit program and also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information. executing a scheme to defraff ud false statements statute prohibits knowingly and willfulff ff The federal or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services. ly falsifyiff ng, concealing or covering up auu material fact al transparency requirements, sometimes referred ff The feder Affoff rdable Care Act, require manufacturers of drugs, devices, biologics and medical suppuu Medicare, Medicaid, or the Children’s Health Insurance Program to report to the Department of Health and Human Services information related to physician payments and other transferff interests. to as the “Sunshine Act”, under the Patient Protection and s of value and physician ownership and investment lies that are reimbursable under ff Analogous state laws and regulations, such as state anti-kickbak ck and falff se claims laws and transparency laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, and some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary complmm iance guidelines and the relevant complmm iance guidance promulgated by the federal government in addition to requiring drug manufn act and other healthcare providers or marketing expenditures and drug pricing. urers to report information related to payments to physicians a ff Ensuring that our futff ure business arrangements with third parties complmm y with applicable healthcare laws and regulations could a be costly. It is possible that governmental authorities will conclude that our business practices do not complmm y with current or futff ut re statutes, regulations or case law involving appl icable fraud and abuse or other healthcare laws and regulations. If our operations, including anticipated activities to be conducted by our sales team, were found to be in violation of any of these laws or any other governmental regulations that may appl fines and exclusion froff m government funff ded healthcare programs, such as Medicare and Medicaid, any of which could substantially disruptuu our operations. If any of the physicians or other providers or entities with whom we expect to do business are found not to be in compliance with appl a government funded healthcare programs. icable laws, they may be subju ect to criminal, civil or administrative sanctions, including exclusions from y to us, we may be subjeb ct to significant civil, criminal and administrative penalties, damages, a The FDA and other regulatll ortt off-label uses. If we are founff y ar d to htt nd enforcement agencies actively enforce the laws and regulatll ll ave imprm operlyrr promoted offo -lff abel uses, ws e may become subject to significant i iott ns prohibiting tn hett promotiott n ofo ii liability. t The FDA and other regulatory and enforcement agencies strictly regulate the promotional claims that may be made abou prescription products, if approved, and enforff ce laws and regulations prohibiting the promotion of off-lff abel uses. In particular, a product may not be promoted for uses that are not approved by the FDA or such other regulatory agencies as refleff cted in the approved labeling of the product. If we are found to have promoted off-lff abel uses forff liability. The fedff enjon ined several companies from engaging in off-ff label promotion. The FDA has also requested that companies enter into consent eral government has levied large civil and criminal finff es against compamm nies for alleged imprmm oper promotion and has any product, we may become subju ect to significff ant a 41 decrees or permanent injun nctions under which specified promotional conduct is changed or curtailed. If we cannot successfully manage the promotion of our product candidates, if approved, we could become subju ect to significant liability, which would materially adversely affect our business and financial condition. ff SAGE-547 EE exportation, prescribing and disdd tribution of wo i will, hich are subjeb ct to regue lation by the DEA.EE and our other product candidates may,a contain controlledll substances, ts hett manufacture, use, sale, importation, Before we can commercialize SAGE-547, and potentially our other product candidates, it is expected that the DEA will need to determine the controlled subsu tance schedule, taking into account the recommendation of the FDA. This could delay our marketing of a product candidate and could potentially shorten the benefitff of any regulatory exclusivity periods for whiw ch we may be eligible. If approved, SAGE-547 is expected to be, and our other product candidates may be, regulated as “controlled substances” as definff ed in the Controlled Substances Act of 1970, or CSA, and the implm ementing regulations of the DEA, which establish registration, security, recordkeeping, reporting, storage, distribution, importmm ation, exportation, inventory, quota and other requirements administered by the DEA. These requirements are applicable to us, to our third-party manufacturers and to distributors, prescribers and dispensers of our product candidates. The DEA regulates the handling of controlled substances through a closed chain of distribution. This control extends to the equipment and raw materials used in their manufacture and packaging, in order to prevent loss and diversion into illicit channels of commerce. A number of states and forff eign countries also independently regulate these drugs as controlled substances. The DEA regulates controlled substances as Schedule I, II, III, IV or V substances. Schedule I substances by definff ition have no established medicinal use, and may not be marketed or sold in the U.S. A pharmaceutical product may be listed as Schedule II, III, IV or V, with Schedule II substances considered to present the highest risk of abuse and Schedule V substances the lowest relative risk of abuse among such substances. We expect that SAGE-547 will be, and our other product candidates may be, listed by the DEA as Schedule IV controlled substances under the CSA. Consequently, the manufact additional regulation. Distribution, prescribing and dispensing of these drugr include sedative hypnyy otics such as benzodiazepines. ff uring, shipping, storing, selling and using of the products will be subjeb ct to an s are also regulated. Other Schedule IV compoumm nds Annual registration is required for any facility that manufact ff ures, distributes, dispenses, imports or exports any controlled subsu tance. The registration is specificff to the particular location, activity and controlled substance schedule. Because of their restrictive nature, these laws and regulations could limit commercialization of our product candidates containing controlled subsu tances. Failure to comply with these laws and regulations could also result in withdrawal of our DEA registrations, disruptuu ion in manufn act among other consequences. uring and distribution activities, consent decrees, criminal and civil penalties and state actions, ff Even if approved, rdd eimbii urserr ment policies could limi t oi ur ability to sell our product candidates. ii Market acceptance and sales of our product candidates will depend on reimbursement policies and may be affected ff by and establa ish reimbursement levels for those medications. Cost containment healthcare reforff m measures. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay forff is a primary concern in the U.S. healthcare industry and elsewhere. Government authorities and these third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. The pricing and reimbursement environment forff our products may change in the futff ure and become more challenging due to, among other reasons, policies advanced by the new presidential administration, federal agencies, new healthcare legislation passed by Congress or fisff cal challenges faced available for our product candidates and, if reimbursement is available, the level of such reimbum rsement and whether patients will be required to try other therapies prior to being prescribed our product candidate. Reimbursement may impact the demand forff price of, off successfully commercialize our product candidates. ur product candidates. If reimbursement is not available or is availabla e only at limited levels, we may not be able to by all levels of government health administration authorities. We cannot be sure that reimbursement will be , or the ff In many foreign countries, including Canada and European countries, the pricing of prescription pharmaceuticals is subjeb ct to strict governmental control. In these countries, pricing negotiations with governmental authorities can take six to twelve months or longer after the receipt of regulatory approval and product launch. To obtain favorable reimbursement for the indications sought or pricing approval in some countries, we may be required to conduct a clinical trial that compam res the cost-effeff ctiveness of our product candidates with other available therapies. If reimbursement for our product candidates is unavailable in any country in which we seek reimbursement, if it is limited in scope or amount, if it is conditioned upon conditioned on unreasonabla e caps or rebates, or if pricing is set at unsatisfacto ff adversely affected. ry levels, our operating results could be materially our complmm etion of additional clinical trials, if it is uu ff 42 Even though wgg may be limi ii indicdd atiott ns for which SAGSS e have obtaitt neii e ts to the regulator E-GG 547 may be approved. d orphan drudd g du ee y er a usivity att xcl esdd ignation for SAGSS E-GG 547 as a treatmett gg nt for SE,SS n, and such exclusivity willii not apply t ded by sb uch desdd ignatio includingdd SRSE in the U.S.,SS there ll o att ny non-orphan ffor Even though we have obtained orphan drug designation forff SAGE-547 for treatment of SE, including SRSE, from the FDA in an drugr for the specifiedff for the same orphr rare disease or condition receives orphan drug marketing exclusivity forff rded by such designation. In the U.S., the compamm ny that first obtains FDA appa a period of seven years. This orphan drug exclusivity prevents the FDA froff m approving another application, including a the U.S., there are limitations to exclusivity affoff a designated orphr indication forff full NDA to market the same drugr concludes that the later drug is safer, drugs , the FDA defines “same drug” as a drug that contains the same active moiety and is intended forff rr question. To obtain approval for a drug that shares the same active moiety as an already approved orphrr demonstrated to the FDA that the drug is saferff contribution to patient care. In addition, a designated orphr that is broader than the indication forff which it received orphan designation. In addition, orphan drug exclusive marketing rights in the ive or if the manufacturer is unable U.S. may be lost if the FDA later determines that the request for designation was materially defect to assure suffiff cient quantity of the drugr an indication, except in very limited circumstances, including when the FDA ive or makes a major contribution to patient care. For purposes of small molecule in or more effeff ctive than the approved orphan designated drug, or that it makes a major an drugr may not receive orphan drug exclusivity if it is approved for a use the same use as the drugrr an-designated drug, it musm t be to meet the needs of patients with the rare disease or condition. ff more effect roval for in such that drugr ff ff Our future growth may da dd latory burdendd regue s and othett epen r risks akk nd uncertaintiett s. d, in part, on our ability to penetrate foreign markets, ws here we would bll e subjeb ct to additional Our futff ure profitabia lity may depend, in part, on our ability to gain approval of, aff nd commercialize, our product candidates in foreign markets for which we may rely on collaboration with third parties. If we are able to gain approval for, and commercialize our product candidates in foreign markets, we would be subju ect to additional risks and uncertainties, including:             the amount of reimbursement for our product candidates in foreign markets, and the nature of any limitations and caps on such reimbum rsement; our inabia lity to directly control commercial activities to the extent we are relying on third parties; the burden of complying with complmm ex and changing forff eign regulatory, tax, accounting and legal requirements; diffeff rent medical practices and customs in forff eign countries affect ff ing acceptance in the marketplt ace; importmm or export licensing requirements; longer accounts receivable collection times; longer lead times forff shipping; language barriers for technical training; reduced protection of intellectual property rights in some forff eign countries; the existence of additional potentially relevant third party intellectual property rights; foreign currency exchange rate fluff ctuat tions; and the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute. Foreign sales of our product candidates could also be adversely affected ff by the imposition of governmental controls, political . and economic instability, trade restrictions and changes in tariffsff Risks Related to Our Intellectual Property Rights ll o att If we are unable t protect tt business, rs our product candidatestt dequateltt y pll , os rotect our propro ietary technology a thers could compete att ll r obtaitt n aii t us more dirdd ectlytt , oyy gai nsii nd maintain issued patett nts t hich would have a matertt , wyy tt hatt t are suffiu cient tott ial adverse impii act on our esultsll of operations, finaii nciali conditdd iott n and prospes cts. We strive to protect and enhance the proprietary technologies that we believe are importmm ant to our business, including seeking patents intended to cover our products and compomm sitions, their methods of use and any other inventions that are importmm development of our business. We may also rely on trade secrets to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. ant to the 43 Our success will depend significantly on our ability to obtain and maintain patent and other proprietary protection for commercially imporm tant technology, inventions and know-how related to our business; defend and enforcff issue; preserve the confidentiality of our trade secrets; and operate without infringing the valid and enforff ceable patents and proprietary rights of third parties. We also rely on know-how, continuing technological innovation and in-licensing opportunities to develop, strengthen and maintain the proprietary position of our producdd t candidates. Our owned and licensed patent appl ications relate to formulations and methods of use of SAGE-547, and composmm itions and methods of use of certain other GABAA receptor modulators, including genus and species claims to SAGE-217, SAGE-105, SAGE-324 and SAGE-689 and NMDA receptor modulators, including SAGE-718. We have an issued patent covering the composition of matter of SAGE-217, as well as forff mulations and methods of use. and species claims covering SAGE-689 which we expect to issue in a patent. We also have allowed genusn e our patents, should they a We currently have one issued patent covering the composition of matter of SAGE-217. We do not have any other issued patents ff covering our lead product candidates, SAGE-547, SAGE-217, SAGE-718, SAGE 105, SAGE-324, or SAGE-689. We have received notices of allowance directed to genus and species claims covering SAGE-689 as well as for methods of use of SAGE-689. We cannot provide any assurances that any of our pending patent applications will mature into issued patents and, if they do, that such patents will include, claims with a scope suffici ent to protect our product candidates or otherwise provide any competitive advantage. For examplmm e, the patent applications that may provide coverage forff SAGE-547 only cover particular formulations and particular methods of using such forff mulations to treat seizure conditions, such as SRSE and to treat depressive disorders such as PPD and MDD. As a result, if a patent issues from such patent applications, it would not prevent third-party compem titors from creating, making and marketing alternative forff mulations, that fall assurance that any such alternative forff mulations will not be equally effecff parties have developed technologies that may be related or competitive to our approach, and may have filff ed or may filff e patent applications and may have received or may receive patents that may overlap or conflict with our patent applications, either by claiming the same methods or formulations or by claiming subju ect matter that could dominate our patent position. Such third-partyrr patent positions may limit or even eliminate our ability to obtain patent protection forff outside the scope of our patent claims or practicing alternative methods. There can be no tive as our forff mulation of SAGE-547. Moreover, other certain inventions. ff The patent positions of biotechnology and pharmaceutical companies, including our patent position, involve complmm ex legal and factual questions, and, thereforff e, the issuance, scope, validity and enforff ceability of any patent claims that we may obtain cannonn t be predicted with certainty. Patents, if issued, may be challenged, deemed unenforff ceable, invalidated, or circumvented. U.S. patents and patent applications may also be subjeb ct to interferen suppl emental examination and challenges in district court. Patents may be subju ected to opposition, post-grant review, or comparable uu proceedings lodged in various foreign, both national and regional, patent officff es. These proceedings could result in either loss of the patent or denial of the patent application or loss or reduction in the scope of one or more of the claims of the patent or patent application. In addition, such proceedings may be costly. Thus, any patents, should they issue, that we may own or exclusively license may not provide any protection against competitors. Furthermore, an adverse decision in an interference proceeding can result in a third party receiving the patent right sought by us, which in turn could affect our ability to develop, market or otherwise commercialize our product candidates. ce proceedings, ex parte reexamination, or inter partes review proceedings, ff Furthermore, though a patent, if it were to issue, is presumed valid and enforff ceable, its issuance is not conclusive as to its validity or its enforceability, and it may not provide us with adequate proprietary protection or compemm titive advantages against competitors with similar producdd ts. Even if a patent issues, and is held to be valid and enforff ceable, competitors may be abla e to design around our patents, such as using pre-existing or newly developed technology. Other parties may develop and obtain patent protection ive technologies, designs or methods. We may not be abla e to prevent the unauthorized disclosure or use of our technical for more effect knowledge or trade secrets by consultants, vendors, forff mer employees and current employees. The laws of some foreign countries do problems in protecting not protect our proprietary rights to the same extent as the laws of the U.S., and we may encounter significant our proprietary rights in these countries. If these developments were to occur, they could have a material adverse effect on our suu ales if any of our product candidates are approved in those countries. ff ff ff Our ability to enforff ce our patent rights depends on our ability to detect infringement. It is diffiff cult to detect infringers who do not advertise the componmm ents that are used in their products. Moreover, it may be diffiff cult or impossible to obtain evidence of infringement in a compemm titor’s or potential competitor’s producdd t. Any litigation to enforff ce or defend our patent rights, even if we were to prevail, could be costly and time-consuming, and would divert the attention of our management and key personnel froff m our business operations. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded if we were to . prevail may not be commercially meaningfulff In addition, proceedings to enforce or defend our patents, if and when issued, could put our patents at risk of being invalidated, held unenforff ceable, or interprr eted narrowly. Such proceedings could also provoke third parties to assert claims against us, including that some or all of the claims in one or more of our patents are invalid or otherwise unenforceable. If any of our patents, if and when issued, covering our product candidates are invalidated or found unenforff ceable, our finff ancial position and results of operations would 44 be materially and adversely impacted. In addition, if a court found that valid, enforceable patents held by third parties covered our product candidates, our finff ancial position and results of operations would also be materially and adversely impacted. The degree of future protection forff our proprietary rights is uncertain, and we cannot ensure that:            any of our pending patent applications, if issued as a patent, will include claims having a scope suffiff cient to protect our current product candidates or any other products or product candidates; any of our pending patent appl a ications will issue as patents at all; we will be able to successfulff ly commercialize our product candidates, if approved, beforff e our relevant patents expire; we were the firff st to make the inventions covered by each of our pending patent applications and any patents that may issue in the future; we were the firff st to file patent applications for these inventions; others will not develop similar or alternative technologies that do not infringe any patents that may be issued to us; others will not use pre-existing technology to effecti ff vely compete against us; any of our patents, if issued, will be found to ultimately be valid and enforff ceable; any patents issued to us will provide a basis forff with any compemm titive advantages or will not be challenged by third parties; an exclusive market for our commercially viable products, will provide us we will develop additional proprietary t rr echnologies or product candidates that are separately patentable; or that our commercial activities or products will not infriff nge upon the patents or proprietary rights of others. uu unpatn We may rely upon ented trade secrets, and depend on unpatented know-how and continuing technological innovation to develop and maintain our compem titive position, which we seek to protect, in part, by confidentiality agreements with our emplmm oyees and our collaborators and consultants. It is possible that technology relevant to our business will be independently developed by a person that is not a party to such an agreement. Furthermore, if the employees and consultants who are parties to these agreements breach or violate the terms of these agreements, we may not have adequate remedies for any such breach or violation, and we could lose our trade secrets through such breaches or violations. Further, our trade secrets could otherwise become known or be independently discovered by our compemm titors. We may infriff nge from commerciali the intellectual propertyrr ing or increase thett izll ii i rights of others,rr which may pa costs of commercializiii ngii revent or delay oa , is our product candidatestt ur product developll ment efforff a f ai oved. ppr tsrr and stoptt us Our success will depend in part on our ability to operate without infriff nging the intellectual property and proprietary rights of third parties. We cannot assure you that our business, products and methods do not or will not infriff nge the patents or other intellectual property rights of third parties. The pharmaceutical industry is characterized by extensive litigation regarding patents and other intellectual property rights. Other parties may allege that our product candidates or the use of our technologies infringes patent claims or other intellectuatt property rights held by them or that we are emplmm oying their proprietary technology without authorization. As we continue to develop and, if approved, commercialize our current product candidates and futff ure products, compemm titors may claim that our technology ges their intellectual property rights as part of business strategies designed to impede our successfulff infrinff may be third-party patents or patent applications with claims to materials, forff mulations, methods of manufact treatment related to the use or manufact parties may have currently pending patent applications which may later result in issued patents that our product candidates may infringe, or which such third parties claim are infringed by our technologies. The outcome of intellectual property litigation is subju ect in advance. The coverage of patents is subju ect to interpretation by the courts, and to uncertainties that cannot be adequately quantifiedff the interpret patent infriff ngement, we would need to demonstrate that our product candidates, products or methods either do not infring e the patent claims of the relevant patent or that the patent claims are invalid, and we may not be able to do this. Even if we are successful in these proceedings, we may incur substantial costs and the time and attention of our management and scientific personnel could be diverted in pursuing these proceedings, which could have a material adverse effeff ct on us. In addition, we may not have sufficff ure of our product candidates. Because patent applications can take many years to issue, third commercialization. There urt e or methods for ff ient resources to bring these actions to a successfulff ation is not always uniforff m. If we are sued forff conclusion. r ff ff l Patent and other types of intellectual property litigation can involve complmm ex factual and legal questions, and their outcome is ly uncertain. Patent litigation is costly and time-consuming. Any claim relating to intellectual property infriff ngement that is successfulff 45 asserted against us may require us to pay substantial damages, including treble damages and attorney’s fees if we are found to be willfully infriff nging another party’s patents, forff past use of the asserted intellectual property and royalties and other consideration going forff ward if we are forced to take a license. In addition, if any such claim were successfully asserted against us and we could not obtain such a license, we may be forff ced to stop or delay developing, manufact ing, selling or otherwise commercializing our product candidates. In the case of trademark claims, if we are found to be infringing, we may be required to redesign, or rename, some or all of our product candidates to avoid infriff nging the intellectuat possible, could be costly and time-consuming. Even if we are successfulff divert management time and attention in pursuing these proceedings, which could have a material adverse effect l property rights of third parties, which may not be possible and, even if in these proceedings, we may incur substantial costs and on us. urt ff ff Any of these risks coming to fruition could have a material adverse effect ff on our business, results of operations, finff ancial condition and prospects. We may be subject to claill ms ii challell nging the inventorship oii r ownershi rr p oii f oo ur patents and other intellecll tual propero ty.yy We enter into confidff entiality and intellectual property assignment agreements with our employees, consultants, outside scientificff collaborators, sponsored researchers and other advisors. These agreements generally provide that inventions conceived by the party in the course of rendering services to us will be our exclusive property. However, these agreements may not be honored and may not effeff ctively assign intellectual property rights to us. For example, even if we have a consulting agreement in place with an academic advisor pursuant to which such academic advisor is required to assign to us any inventions developed in connection with providing services to us, such academic advisor may not have the right to assign such inventions to us, as it may conflict with his or her obligations to assign all such intellectual property to his or her emplmm oying institution or another party. Litigation may be necessary to defenff d against these and other claims challenging inventorship or ownership. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect business. Even if we are successful in defending against such claims, litigation could result in subsu tantial costs and be a distraction to management and other emplmm oyees. on our ff nd maintii aitt niii ngii Obtaining an payment and other requireii ments i eliminated for non-compliance with these requirements. t protectiott n depdd ends on compliani osed by governmrr our patentt tt mpii ental patentt ce withii various procedural, document submission, feeff t agea ncies, and our patentt t protectiott n could be reduced or The U.S. Patent and Trademark Officff e, or U.S. PTO, and various forff eign governmental patent agencies require compliance with berm of procedural, documeuu a numn ntary, fee payment and other provisions during the patent process. There are situations in which noncomplmm iance can result in abandonment or lapse of a patent or patent application, resulting in partial or complmm ete loss of patent rights in the relevant jurisdiction. In such an event, compemm titors might be able to enter the market earlier than would otherwise have been the case. We may ba consuming and unsuccessful. awll suits to protect ff olvell d in l e invii tt ii or enforn ce our patentt ts or the patentt ts of our licll ensors, which could be expensive, time- Even if the patent applications we own or license are issued, compemm titors may infriff nge these patents. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. In addition, in an infriff ngement proceeding, a court may decide that a patent of ours or our licensors is not valid, is unenforceab le and/or is not infriff nged, or may refuse to stop the other party froff m using the technology at issue on the grounds that our patents do not cover the technology in se proceedings could put one or more of our patents at risk of being invalidated or question. An adverse result in any litigation or defenff interpreted narrowly and could put our patent applications at risk of not issuing. ff Interferff ence proceedings provoked by third parties or brought by us may be necessary to determine the priority of inventions with respect to our patents or patent applications or those of our licensors. An unfavff orable outcome could require us to cease using the related technology or to attempt to license rights to it froff m the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Our defenff and, even if successful, may result in substantial costs and distract our management and other emplomm yees. We may not be able to prevent, alone or with our licensors, misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the U.S. se of litigation or interfereff nce proceedings may fail ff Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be 46 announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or public u investors perceive these results to be negative, it could have a material adverse effect on the price of our common stock. Issued patentt ts covering our product candidatestt could be found invalidll or unenforff ll ceable i f ci hallenged in court.tt a validity challenge include alleged fail If we or one of our licensing partners initiated legal proceedings against a third party to enforff ce a patent, if and when issued, covering one of our product candidates, the defenff dant could counterclaim that the patent covering our product candidate is invalid and/or unenforff ceable. In patent litigation in the U.S., defendant counterclaims alleging invalidity and/or unenforff ceability are commonpln ace. Grounds forff of novelty, obviousness or non-enablement. Grounds forff prosecution of the patent withheld relevant information froff m the U.S. PTO, or made a misleading statement, during prosecution. Third parties may also raise similar claims beforff e administrative bodies in the U.S. or abroad, even outside the context of litigation. Such mechanisms include re-examination, post grant review, ex parte reexamination, or inter partes review and equivalent proceedings in foreign jurisdictions, e.g., opposition proceedings. Such proceedings could result in revocation or amendment of our patents in such a way that they no longer cover our product candidates or competitive products. The outcome following legal assertions of invalidity and unenforff ceability is unpredictable. With respect to validity, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defenff dant were to prevail on a legal assertion of invalidity and/or unenforff ceability, we would lose at least part, and perhar psa all, of the patent protection on our product candidates. Such a loss of patent protection would have a material adverse impactm ures to meet any of several statutory requirements, including lack unenforceability assertions include allegations that someone connected with on our business. ff We willii not seek to protectt ii adequately enforff ce our intel t our intellect ll lell ctual propero ual propeo rty righi ictio dd ts in all jll urisdii ictions dd even in the jurisdii ns throughout the world all where we seek protection. i ty rights nd we may na ll ott ot be able t Filing, prosecuting and defenff ding patents on product candidates in all countries and jurisdictions throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the U.S. could be less extensive than thott the U.S., assuming that rights are obtained in the U.S. In addition, the laws of some forff eign countries do not protect intellectual property rights to the same extent as federal and state laws in the U.S. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the U.S., or from selling or importing products made using our inventions in and into the U.S. or other jurisdictions. The statutory deadlines for pursuing patent protection in individual forff eign jurisdictions are based on the priority date of each of our patent applications. se in Competitors may use our technologies in jurisdictions where we do not pursue and obtain patent protection to develop their ownww products and further, may export otherwise infringing products to territories where we have patent protection, but enforff cement is not as strong as that in the U.S. These products may compete with our products and our patents or other intellectual property r ights may not be effective or suffiff cient to prevent them froff m compemm ting. Even if we pursue and obtain issued patents in particular jurisdictions, our patent claims or other intellectuat l property rights may not be effeff ctive or suffiff cient to prevent third parties froff m so competmm ing. tt The laws of some forff eign countries do not protect intellectual property rights to the same extent as the laws of the U.S. Many a numbem r of countries, including India and China, where challenges to the procurement and companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, do not favff or the enforff cement of patents and other intellectual property protection, especially those relating to biotechnology. For examplmm e, an April 2014 report from the Officff e of the U.S. Trade Representative identifiedff enforcement of patent rights have been reported. Several countries, including India and China, have been listed in the report every year since 1989. This could make it diffiff cult for us to stop the infringement of our patents, if obtained, or the misappropriation of our other intellectual property rights. For example, many forff eign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefitff . Patent protection must ultimately be sought on a country-by-country basis, which is an expensive and time-consuming process with uncertain outcomes. Accordingly, we may choose not to seek patent protection in certain countries, and we will not have the benefitff of patent protection in such countries. Furthermore, proceedings to enforce our patent rights in forff eign jurisdictions could result in substantial costs and divert our effoff rts and attention froff m other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly, could put our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningfulff . Accordingly, our efforff commercial advantage froff m the intellectual property that we develop or license. ts to enforce our intellectual property rights around the world may be inadequate to obtain a significff ant 47 t on licll ensed inteii We are depedd ndendd able to continue developing which we license the use, development and commercialization right in certain cases, ws i ent deadd dlinll es, ws ty. Iyy our product candidates e were to l osll ii or commercializiii ngii llectual propero to meet certai evdd elopmo rr n dii ff e fail f wII o tt icell tt o l e our rights t ot be tt f ai oved. If we breach any of the agreements under a ppr ur product candidatestt nsed intellectual property, we may na or technology from third parties or,rr , is tt o ott s t e could lose licen ll se righi ts that are impii ortant to our business. We are a party to a numberm of license agreements under which we are granted rights to intellectual property that are impomm rtant to our business and we expect that we may need to enter into additional license agreements in the future. Our existing license agreements imposmm e, and we expect that future license agreements will impose on us, various development, regulatory and/or commercial diligence obligations, payment of milestones and/or royalties and other obligations. If we faiff agreements, or we are subju ect to a bankrupr be able to market products covered by the license. Our business could suffer, the licensors faiff if we are unable to enter into necessary licenses on acceptable terms. for example, if any current or future licenses terminate, if eable, or l to abia de by the terms of the license, if the licensed patents or other rights are found to be invalid or unenforcff tcy, the licensor may have the right to terminate the license, in which event we would not l to complm y with our obligations under these ff As we have done previously, we may need to obtain licenses from third parties to advance our research or allow commercialization of our producdd t candidates, and we cannot provide any assurances that third-party patents do not exist that might be enforced against our current product candidates or futff ure products in the absence of such a license. We may fail to obtain any of these licenses on commercially reasonable terms, if at all. Even if we are able to obtain a license, it may be non-exclusive, thereby giving our compemm titors access to the same technologies licensed to us. In that event, we may be required to expend significaff resources to develop or license replacement technology. If we are unable to do so, we may be unable to develop or commercialize the affeff cted product candidates, which could materially harm our business and the third parties owning such intellectuat could seek either an injunction prohibiting our sales, or, with respect to our sales, an obligation on our part to pay royalties and/or other forff ms of compensation. l property rights nt time and Licensing of intellectual property is of critical imporm tance to our business and involves complex legal, business and scientificff issues. Disputes may arise between us and our licensors regarding intellectual property subject to a license agreement, including:      the scope of rights granted under the license agreement and other interpretation-related issues; whether and the extent to which our technology and processes infriff nge on intellectual property of the licensor that is not subju ect to the licensing agreement; our right to sublu icense patent and other rights to third parties under collaborative development relationships; our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of our producdd t candidates, and what activities satisfy t hose diligence obligations; and ff the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners. If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfulff ly develop and commercialize the affected product canda idates. We have entered into several licenses to support our various programs. We are parties to an exclusive license agreement with Washington University, or WU, under which we have licensed certain patent famff allosteric modulators of GABAA receptors and forff which we have the worldwide right to develop and commercialize. A patent famff that discloses and claims SAGE-689 is licensed to us under this agreement. We are obligated to pay WU certain clinical/regulatory milestones and single-digit royalties on products developed froff m this technology. Termination of our license agreement with WU would have a material adverse impactmm on our ability to develop and commercialize SAGE-689. ilies that comprmm ise a variety of small molecule ily We have also entered into an exclusive license agreement with CyDex Pharmaceuticals, Inc., or CyDex, a wholly owned subsidiary of Ligand Pharmaceuticals, Inc., to use its Capta isol technology to develop SAGE-547 and SAGE-689 for the field of use, which includes all fields for the treatment, prevention or diagnosis of any disease or symptom in humans or animals other than (i) the ocular treatment of any disease or condition with a formulation, including a hormone; (ii) topical ocular treatment of inflaff mmatoaa ry conditions; (iii) treatment and prophylaxis of fungal infectio retinal degeneration. We are obligated to pay CyDex certain clinical/regulatory milestones and, if approved and marketed, single-digit royalties on SAGE-547 us with Captisol and SAGE-689. In addition, we have entered into a supply agreement with CyDex, pursuant to which CyDex supplies to formulmm ate both products. Absent an alternative agreement by the parties, our rights under our exclusive license agreement terminate in the event that the supply agreement terminates. Currently, our SAGE-547 and SAGE-689 product candidates are formulated in Captisol. Termination of our license agreement with CyDex would have a material adverse impamm ct on our ability to develop and commercialize SAGE-547 and SAGE-689 in their current formulmm ations. ns in humans; and (iv) any ocular treatment forff u ff 48 We also entered into a non-exclusive license with The Regents of the University of California, or the Regents. Pursuant to this e license under all personal property rights of the Regents covering agreement the Regents granted us a non-exclusive, non-transferabl the tangible personal property in an IND application package owneww d by the Regents, or the Data, and a specifieff d quantity of cGMP grade allopregnanolone, or the Material, to (i) use the Data for referen ff treatment of SE, essential tremor and/or postpartumt pharmaceutical formulmm ation forff milestone payments in connection with the first derived product, which would include SAGE-547, that meets the relevant milestones and we must also pay single-digit royalties forff such derived product. Termination of our license agreement with the Regents would have a material adverse impam ct on our ability to develop and commercialize derived products, which would include SAGE-547. depression and (ii) use the Material or modifications of the Material to develop a ce or incorporation in an IND for use of the Material as a clinical trials for SE, essential tremor and/or postpartumt each derived product for a period of 15 years folff depression. This agreement requires us to pay lowing the firff st commercial sale of ff In June 2015, we entered into an exclusive license agreement with the Regents under which we were granted an exclusive license to certain patent rights related to the use of allopregnanolone to treat various diseases. In exchange forff such license, we paid an upfront payment and will pay annual maintenance fees until the calendar year following the first sale, if any, of a licensed product. We are obligated to make milestone payments folff sale, if any, of a licensed product, we are obligated to pay royalties at a low single digit percentage of net sales, if any, of licensed products, subjeb ct to specifieff d minimum annual royalty amounts. lowing the achievement of specified regulatory and sales milestones. Following the first We may enter into additional licenses to third-party intellectual property that are necessary or useful to our business. Our curreuu nt as is the case forff licenses and any future licenses that we may enter into imposmm e various royalty payment, milestone, and other obligations on us. For example,mm the Washington University license, the licensor may retain control over patent prosecution and maintenance under a license agreement, in which case, we may not be able to adequately influff ence patent prosecution or prevent inadvertent lapses of coverage due to failure to pay maintenance fees. If we faiff l to complmm y with any of our obligations under a current or futff ure license agreement, the licensor may allege that we have breached our license agreement, and may accordingly seek to terminate our license. In addition, future licensors may decide to terminate their licenses with us at will. Termination of any of our current or futureuu could result in our loss of the right to use the licensed intellectual property, which could materially adversely affect our ability to develop and commercialize a product candidate or product, if approved, as well as harm our competitive business position and our business prospects. licenses In addition, if our licensors faiff l to abia de by the terms of the license, if the licensors fail ff to prevent infriff ngement by third parties, if the licensed patents or other rights are found to be invalid or unenforceable, acceptable terms, our business could suffer. ff or if we are unable to enter into necessary licenses on ll Some intellectu be subject to federal regue Compliance with such regue requirements, and limll al propertyrr which we have licensed may ha lations such as “ma“ lations may la imll rch-in” rightgg s,tt it our excee to contract with ntt it our abilityii ave been discii overed throughu ff ent fund ting requirements, as nd a prefere governmrr eddd certain repor e lusive rights, ss ubjeb ct us to expexx nditudd on-U.SUU . mSS anufacff turers.rr re of resources with r tt programs and thus maya .yy ence for U.S. industrytt tingii ct to repor espes ee tt Some of the intellectual property rights we have licensed may have been generated through the use of U.S. government funff ding and may therefore be subju ect to certain federal regulations. For examplmm e, some of the intellectual property rights licensed to us under the license agreements with WU and the Regents may have been generated using U.S. government funds. As a result, the U.S. government may have certain rights to intellectual property embodied in our current or futff ure product candidates pursuant to the Bayh-Dole Act of 1980, or Bayhaa -Dole Act. These U.S. government rights in certain inventions developed under a government-funded program include a non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the U.S. government has the right to require us to grant exclusive, partially exclusive, or non-exclusive licenses to any of f the government determines that: (i) adequate steps have not been taken to commercialize the these inventions to a third party i invention; (ii) government action is necessary to meet public health or safeff ty needs; or (iii) government action is necessary to mtt requirements for public use under federal regulations (also referred take title to these inventions if we fail, or the appa licable licensor fail application to register the intellectual property within specifieff d time limits. In addition, the U.S. government may acquire title to these inventions in any country in which a patent application is not filed within specifieff d time limits. Intellectual property generated under a government funff ded program is also subju ect to certain reporting requirements, complmm iance with which may require us, or the applicable licensor, to expend subsu tantial resources. In addition, the U.S. government requires that any products embodm ying the subjeb ct invenn ntion or produced through the use of the subjeb ct invention be manufacturt ed subsu tantially in the U.S. The manufacturing preferff ence requirement can be waived if the owner of the intellectual property can show that reasonable but unsuccessfulff to grant licenses on similar terms to potential licensees that would be likely to manufact circumstances domestic manufact contract with non-U.S. product manufact to as “march-in rights”). The U.S. government also has the right to s, to disclose the invention to the government and faiff rts have been made ure substantially in the U.S. or that under the ure is not commercially feasible. This preference forff U.S. manufactu urers for products covered by such intellectuat rers may limit our ability to l property. l to filff e an effoff eet ff ff ff ff ff ff 49 If we enter into futff urtt e arrangements involving government fundff ing, and we discover compomm unds or drug candidates as a result of such funding, intellectual property rights to such discoveries may be subjeb ct to the appl a icable provisions of the Bayh-Dole Act. If we do not obtaitt n aii patent tt candidatestt terms and if we do not obtaitt n nii e matertt , os ur busineii ss may ba the Hatch-WaxWW maxx ew chemical entity or other d. ially hll armerr dditioii nal protectiott n underdd tt n Amendmedd types of marketingii nts and similarll and datdd a ett foreign legll tt xcee lusivity f islation by eb orff our product xtee endtt ingdd the Depending upon the timing, duration and specifics of FDA marketing approval of our product candidates, one or more of the o fivff e years as compensation forff red to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent future U.S. patents we own or license may be eligible for limited patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984, referff restoration term of up tuu process. However, we may not be granted an extension because of, for example, fail apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. For example, we may not be granted an extension if the active ingredient of SAGE-547, allopregnanolone, is used in another drug compamm ny’s product candidate and that product candidate is the first to obtain FDA approval. Moreover, the applicable time period or the scope of patent protection affoff extension is less than we request, and we do not have any other exclusivity, our compemm titors may obtain appr products following our patent expiration, and our ability to generate revenues could be materially adversely affected. rded could be less than we request. If we are unable to obtain patent term extension or restoration or the term of any such patent term lost during product development and the FDA regulatory review ing to apply within applicable deadlines, failing to oval of competing a ff a A, or a 505(b)(2) NDA submu Marketing exclusivity provisions under the Federal Food, Drug, is intended for the same indication as the original innovator drug or forff icant does not own oww r have a legal right of reference to all the data required for appa itted after a new chemical entity, or NCE. During the exclusivity period, the FDA may not accept forff another drug based on another and Cosmetic Act, or FDCA, can also delay the submission or r the approval of certain marketing applications by other compam nies for a product with the same active moiety as a product we may in the futff ure sell. The FDCA provides a five-year period of non-patent marketing exclusivity within the United States to the first applicant to obtain approval of an NDA forff review an abbreviated new drug application, or ANDAA the same active moiety, regardless of whether the drugr indication, where the appl application may be submu listed with the FDA by the innovator NDA holder. The FDCA also provides three years of marketing exclusivity for a fulff suppl uu the appl a strengths of an existing drug. This three-year exclusivity covers only the modification for which the drug received approval on the basis of the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the active agent for the original indication or condition of use. Even if we are abla e to obtain NCE or data exclusivity under the FDCA, the applicable five-year and three-year exclusivity periods will not delay the submu l NDA. There is also no guarantee that oval of a fulff any of our product candidates will qualify f orff marketing or data exclusivity under these provisions or that such exclusivity will alone be sufficff financial condition or results of operations could be adversely affected ement to an existing NDA, if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by icant are deemed by the FDA to be essential to the approval of the application, for example new indications, dosages or ient to for our business. If we do not have adequate patent protection or other exclusivity forff n of patent invalidity or non-infringement to one of the patents four years if it contains a certificatio itted by another company forff our products, our business, roval. However, an ission or appr l NDA, or a ff ff ff ff . Changes in U.S. patent tt ii law could dimi ii nis h thett tt value of pat ents ff in general, thereby impam iring our abilityii to protect tt our products.tt As is the case with other biotechnology companies, our success is heavily dependent on intellectuat l property, particularly patents. Obtaining and enforff cing patents in the biotechnology industry involve both technological and legal complexity, and is therefore costly, time-consuming and inherently uncertain. In addition, the U.S. has recently enacted and is currently implementinn ng wide-ranging patent reform legislation: the Leahy-Smith America Invents Act, referred to as the America Invents Act. The America Invents Act includes a numberm of significff ant changes to U.S. patent law. These include provisions that affect the way patent applications will be prosecuted and may also affect will have on the operation of our business. However, the America Invents Act and its implmm ementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforff cement or defens our patent applications, all of which could have a material adverse effect patent litigation. It is not yet clear what, if any, impact the America Invents Act on our business and finff ancial condition. e of any patents that may issue froff m ff ff ff ff In addition, recent U.S. Supruu eme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. The full impactm March 20, 2012 in Mayoa Collaborative SerSS vices, DBADD Mayoa Medical Laboratories, et al. v. Prometheus Laboratories, Inc., the Court doses were not held that several claims drawn to measuring drug metabolite levels from patient samples and correlating them to drugr patentable subjeb ct matter. The decision appears to impactmm diagnostics patents that merely apply a law of nature via a series of routine steps and it has created uncertainty around the abia lity to obtain patent protection forff in Association forff Moleculal r Pathtt ology vgg patentable, but claims to complementary DNA molecules are patent eligible because they are not a natural product. The effeff ct of the decision on patents for other isolated natural products is uncertain. On June 19, 2014 in Alice CorCC por certain inventions. Additionally, on Juneuu . MyrMM iad Genetics, Inc., the Court held that claims to isolated genomic DNA are not of these decisions is not yet known. For example, on ation Pty. Ltd. vdd . CLSCC Bank 13, 2013 rr 50 t al., a case involving patent claims directed to a method forff mitigating settlement risk, the Court held that the patent International, el eligibility of claims directed to abstract ideas, products of nature, and laws of nature should be determined using the same framework set forff eligibility of claims directed to abstract ideas, products of nature, and laws of nature in line with the Prometheus, Myriad, and Alice decisions. The guidance does not limit the application of Myriad to DNA but, rather, applies the decision to other natural products. th in Prometheus. The U.S. PTO recently issued a set of guidelines setting forff th procedures for determining subju ect matter In addition to increasing uncertainty with regard to our ability to obtain futff ure patents, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on these and other decisions by the U.S. Congress, the federal courts and the U.S. PTO, the laws and regulations governing patents could change in unpredi our ability to obtain new patents or to enforff ce any patents that may issue in the future. ctable ways that would weaken n We may ba dd confidentia e subjeb ct to damages resulting froff m claims thatt ees have wrongfugg lly used or disclo ii sed allegll ed l infoii rmatiott n or tratt de secrets of their former employero t we or our emplm oyll s.rr Most of our emplmm oyees have been previously emplm oyed at other biotechnology or pharmaceutical companies, including our competitors or potential compemm titors. We also engage advisors and consultants who are concurrently employed at universities or who performff other entities. services forff Although we are not aware of any claims currently pending against us, we may be subjeb ct to claims that we or our employees, er emplmm oyer or other third party. We may be subju ect to claims that an emplmm oyee, advisor or advisors or consultants have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary inforff mation, of a formff consultant perforff med work forff third party has an ownership interest in the intellectuat defenff d against these claims. Even if we are successfulff be a distraction to management. If we fail in defending such claims, in addition to paying monetary claims, we may lose valuable intellectual property rights or personnel. A loss of key personnel or their work product could hampemm r or prevent our ability to develop and commercialize our product candidates, which would materially adversely affect our efforts and results. ts with that person’s obligations to a third party, such as an employer, and thus, that the ed for us. Litigation may be necessary to l property arising out of work performff in defending against these claims, litigation could result in substantial costs and us that conflicff Numerous facff tors may la imll it any pn otentia tt l compem titive advantagea provideddd by our intellectua ii l propeo rty rights.tt The degree of future protection afforff ded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, provide a barrier to entry against our competitors or potential competitors, or permit us to maintain our competitive advantage. Moreover, if a third party has intellectual property rights that cover the practice of our technology, we may not be able to fulff illustrative: ly exercise or extract value froff m our intellectual property rights. The folff lowing examplmm es are            others may be able to develop and/or practice technology that is similar to our technology or aspects of our technology but that is not covered by the claims of any patents that have, or may, issue from our patent applications; we might not have been the firff st to make the inventions covered by a pending patent application that we own; we might not have been the first ff to file patent appl a ications covering an invention; others may independently develop similar or alternative technologies without infringing our intellectual property rights; pending patent appl a ications that we own or license may not lead to issued patents; patents, if issued, that we own or license may not provide us with any competitive advantages, or may be held invalid or unenforcff eable, as a result of legal challenges by our compemm titors; third parties may compete with us in jurisdictions where we do not pursue and obtain patent protection; we may not be able to obtain and/or maintain necessary or usefulff licenses on reasonable terms or at all; third parties may assert an ownership interest in our intellectuatt from exercising exclusive rights over that intellectual property; l property and, if successfulff , such disputes may preclude us we may not develop or in-license additional proprietary t rr echnologies that are patentable; and the patents of others may have an adverse effect ff on our business. Should any of these events occur, they could significff antly harm our business and results of operations. 51 General Company-Related Risks As our product candiddd atdd estt encounter difficulties in mii reach latll ertt anaging this tt lopmo xx development and expans . ion, which could disruptu our operations stagea clinica ii l devedd ent, we will need to develop ao d our company,n and we may nd expanxx tt As we plan for a potential commercial launch of our product candidates, if approved, we expect to continue to increase our ly execute our activities, and to manage our anticipated personnel. This may result in weaknesses in our infrastrucrr t and train additional qualified personnel. In addition, our management may need to divert a disproportion number of emplomm yees and the scope of our operations. To successfulff expansion, we must continue to implmm ement and imprm ove our managerial, operational and financial systems, expand our facilities and continue to recruirr of its attention away froff m its day-to-day activities, and devote a subsu tantial amount of time to managing these expansion activities. Due to our limited resources, we may not be able to effeff ctively manage the expansion of our operations or recruit and train additional qualifiedff opportunities, loss of employees and reduced productivity among remaining employees. The physical expansion of our operations may lead to significff ant costs, and may divert finff ancial resources froff m other projects, such as the development of our product candidates. If our management is unable to effeff ctively manage our expected expansion, our expenses may increase more than expected, and our oval of our product candidates and generate or increase our revenue, if such ability to successfully develop and gain regulatory appr product candidates are approved, could be reduced and we may not be able to implement our business strategy. Our futff ure finff ancial perforff mance and our ability to commercialize our product candidates, if appr ability to effecti ture, give rise to operational mistakes or delays, loss of business vely manage the futff ure expansion of our compmm any. ively will depend, in part, on our oved, and compete effect ate amount a a rr ff ff Our future success depeee nds odd qualifll ieff d persorr nnel. n our abilityii to retain our PrePP sident and ChieCC f Ee xeEE cutive OfficO er and to att ttract, rtt etain and motivtt atett We are highly dependent on Dr. Jeffrey M. Jonas, our Chief Executive Offiff cer, President, and Director. We have entered into an emplmm oyment agreement with Dr. Jonas, but he may terminate his employment with us at any time. Although we do not have any reason to believe that we will lose the services of Dr. Jonas in the forff eseeable futff ure, the loss of his services might impede the achievement of our research, development and commercialization objectives. We do not have any key-man life insurance on Dr. Jonas. We rely on consultants and advisors, including scientificff , clinical and regulatory advisors, to assist us in forff mulating and implmm ementing our development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us, and may not be subjeb ct to our standard non-compete agreements. Recruiting and retaining qualified personnel will also be critical to our success. We may not be able to attract and retain these personnel on acceptable terms given the compemm tition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience compemm tition forff personnel froff m universities and research institutions. Failure to succeed in clinical trials may make it more challenging to recruit and retain qualified scientificff personnel. the hiring of scientificff Our emplom yees requirements or engagi may ea n ngagegg ngii o in miscii onduct or other imprm oper activitiestt udingii violating applicable rll egulatory sr tandards and in insider tradingii , wgg hich could signi arm o ur busineii ss. ii , is ncl rr ificff antly hll We are exposed to the risk of employee frauff d or other misconduct. Misconduct by employees could include intentional faiff lures tion laws and regulations in the U.S. and abroad; report finff ancial information or data to: complmm y with the regulations of the FDA and applicable non-U.S. regulators; provide accurate inforff mation to the FDA and applicable non-U.S. regulators; complmm y with healthcare fraud and abuse and anti-kick-back laws and regulations, in the U.S. and abroad; complmm y with anti-bribery and anti-corruprr accurately; or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subju ect to extensive laws and regulations intended to prevent fraff ud, misconduct, kickbakk cks, self-dff ealing and other abusive practices. These laws and regulations restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Emplmm oyee misconduct could also involve the improper mm use of, including trading on, inforff mation obtained in the course of clinical trials or other material information, which could result in regulatory sanctions and serious harm to our reputation. We have adopted a code of conduct, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may be ineffeff ctive in controlling unknown or unmanaged risks or losses or in protecting us fromff from a faiff defending ourselves or asserting our rights, those actions could have a significant impam ct on our business, including the imposition of significff ant finff es or other sanctions. lure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in governmental investigations or other actions or lawsuits stemming We face potential product liabilityll exposure, and, if claims ii are brought against us, we may ia ncur ii substantial tt liability.tt The use of our product candidates in clinical trials and the sale of our products, if approved, expose us to the risk of product liability claims. Product liability claims might be brought against us by patients, healthcare providers or others selling or otherwise 52 coming into contact with our product candidates. For examplm e, we may be sued if any product candidate we study or product we develop allegedly causes injury or is founff such product liability claims may include allegations of defects in manufacturing, defects in design, a faiff inherent in the product, including as a result of interactions with alcohol or other drugr and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we become subju ect to product liability claims and cannot successfully defenff d ourselves against them, we could incur substantial liabilities. In addition, regardless of merit or eventual outcome, product liability claims may result in, among other things: uring, marketing or sale. Any lure to warn of dangers d to be otherwise unsuitable during clinical trials, manufact s, knowledge of risks, negligence, strict liability ff          withdrawal of patients froff m our clinical trials, or difficulty in enrolling clinical trials; subsu tantial monetary awards to patients or other claimants; decreased demand forff our products folff lowing marketing approval, if obtained; damage to our reputation and exposure to adverse publu icity; increased FDA warnings on product labels; litigation costs; distraction of management’s attention froff m our primary business; loss of revenue; and the inability to successfulff approved. ly gain approval and commercialize our product candidates or any futff ure product candidates, if We maintain product liabia lity insurauu nce coverage forff our cuu linical trials with a $10 million annual aggregate coverage limit. Nevertheless, our iuu nsurance coverage may be insuffiff cient to reimburse us for any expexx nses or losses we may sufferff futuuu re,uu we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses, including if insurauu nce coverage becomes increasingly expexx nsive. If and wheww n we obtain marka eting approval for our product candidates, we intenn nd to expaxx nd our iuu nsurance coverage to include the sale of commercial products; however, we may not be able to obtain this product liability insurauu nce on commem rcially reasonabla e terms. Large judgments have been awarded s in class action lawsuits based on drugr that had unanticipated side effeff cts. The cost of any product liability litigation or other proceedings, even if resolved in our fuu avff or, could be subsu tantial, particularly in light of the size of our business and financial resourcuu es. A product liability claim or series of claims broughthh against us could cause our suu tock price to decline and, if we are unsuccessfulff judgmentsnn exceed our iuu nsurance coverage, our financial condition, business and prospects could be materially adversely affect in defending such a claim or claims and the resulting ed. . Moreover, in the a ff We will continue to incur significa tial timtt devote substantt e to ctt i omplm iall nce initiatives. nt costs as a result oll f oo peo rating an s a publicll company,n and our managea ment team is requiredii to As a public compamm ny, we incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002 and rulr es subsu equently implemented by the Securities and Exchange Commission and The NASDAQ Stock Market have imposmm ed various requirements on publu ic companies, including establishment and maintenance of effeff ctive disclosure and financial controls and corporate governance practices. Our management and other personnel devote a subsu tantial amount of time to these compliance initiatives. Moreover, these rules and regulations cause us to incur significff ant legal and financial complmm iance costs, and make some activities more time-consuming and costly. Pursuant to Section 404 of the Sarbanr es-Oxley Act of 2002, or Section 404, we are required to furnish a report by our u management on our internal control over finff ancial reporting, including an attestation report on internal control over financial reporting issued by our independent registered public accounting firff m. We conduct a process each year to document and evaluate our internal control over finff ancial reporting, which is both costly and challenging. In this regard, we dedicate internal resources, engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue ctioning as documented and impmm lement steps to improve control processes as appropriate, validate through testing that controls are funff a continuous reporting and improvement process for internal control over finff ancial reporting. Despite our efforff neither we nor our independent registered publu ic accounting firm will be able to conclude that our internal control over financial reporting is effect ive as required by Section 404. This could result in an adverse reaction in the finff ancial markets due to a loss of confidff ence in the reliability of our consolidated financial statements. ts, there is a risk that ff Our abiliii tyii to use our net operating loss carryforwards and certaitt n t ii axtt creditdd carryforwards mdd ay be subject b ii to limi taii . tionii As of Decembem r 31, 2016, we had federal and state net operating loss carryforff wards of $235.4 million and $234.3 million, respectively, which begin to expire in 2031. As of December 31, 2016, we also had fedff eral and state research and development tax 53 a eral orphrr credit carryforwards of $4.1 million and $1.6 million, respectively, which begin to expire in 2031 and 2027, respectively. As of December 31, 2016, we had fedff an drug tax credit carryforwards of $29.8 million, which begin to expire in 2034. Under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, changes in our ownership may limit the amount of our net operating loss carryforff wards and tax credit carryforwards that could be utilized annuan lly to offsff et our futff ure taxable income, if any. This limitation would generally appl three-year period. Any such limitation may significaff and development tax credit carryforwards beforff e they expire. The complmm etion of folff 2016, September 2016 and our initial public occurred since our inception, may have triggered such an ownership change pursuant to Section 382. Any such limitation, whether as the result of our IPO, follow-on offering additional sales of our common stock by us, could have a material adverse effect not complmm eted a study to assess whether an ownership change for purpos multiple ownership changes since our inception, due to the significant costs and complmm exities associated with such study. ntly reduce our ability to utilize our net operating loss carryforff wards and research low-on publu ic offeff y in the event of a cumulative change in ownership of our company of more than 50% within a s, prior private placements, sales of our common stock by our existing stockholders or ng, or IPO, together with private placements and other transactions that have es of Section 382 has occurred, or whether there have been on our results of operations in future years. We have rings in AprA il 2015, Januan ry ff offeri u r ff ff Unfavff orable Ull .S.UU or globll al economic conditiodd ns could adverserr ly affeff ct our business, financialii conditdd iott n or results ott f oo peo rations. Our results of operations could be adversely affeff cted by general conditions in the U.S. and global economy and finff ancial markets. A severe or prolonged economic downturn could result in a variety of risks to our business, including, weakened demand forff our products, if any, and our ability to raise additional capital when needed on acceptabla e terms, if at all. A weak or declining y disruptuu ion, or cause our customers to delay making payments forff uu economy could also strain our suppl our products if we receive marketing approval. Any of the forff egoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and finff ancial market conditions could adversely impact our business. iers, possibly resulting in suppl uu We or the third parties upon whom we depend may be adverserr disaii edtt rotect us from a serious disaii ot adequateltt y pll lans may na recovery pr ff ly affect stertt by natural disdd asters and our business continuity and .rr stertt Natural disasters could severely disrupuu t our operations, and have a material adverse effect ff on our business, results of operations, financial condition and prospects. If a natural disaster, power outage or other event occurred that prevented us from using all or a s of our third-party significant portion of our headquarters, that damaged critical infrastructure, such as the manufn act contract manufacturers, or that otherwise disruptuu ed operations, it may be difficuff business for a substantial period of time. The disaster recovery and business continuity plans we have in place may prove inadequate in the event of a serious disaster or similar event. We may incur subsu tantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which could have a material adverse effect lt or, in certain cases, impossible for us to continue our on our business. ff uring facilitie ff ff Our internal compum ter syss breaches, ws hich could result in a material disdd ruption tems, os r thott se of our thir d-pa- tt u rty Ctt ROCC ctortt of our development programs. s or other contratt s orr r consultantt ts, ms ay fail or suffeu r securityii Despite the implementation of security measures, our internal compumm ter systems and those of our third-party CROs and other contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such system failure, accident, or security breach to date, if such an event were to occur and cause interruptuu ions in our operations, it could result in a material disruption of our programs. For examplmm e, the loss of clinical trial data for our product candidates could result in delays in our regulatory submission and approval effoff in a loss of or damage to our data or applications or other data or applications relating to our technology or product candidates, or inappropriate disclosure of confidff ential or proprietary information, we could incur liabilities and the further development of our product candidates could be delayed. ntly increase our costs to recover or reproduce the data. To the extent that any disruptuu ion or security breach results rts and significaff We may aa acquisitions. cquireii ii businesse s or products, or form strategic alliall nces, is n t ii hett future, and we may not realize the benefits of such We may acquire additional businesses or products, form strategic alliances or create joint ventures with third parties that we believe will complement or augment our existing business. If we acquire businesses with promising markets or technologies, we may not be able to realize the benefit of acquiring such businesses if we are unable to successfulff operations and compamm ny culture. We may encounter numerous diffiff culties in developing, manufacturing and marketing any new products resulting from a strategic alliance or acquisition that delay or prevent us from realizing their expected benefits or enhancing our business. We cannot guarantee that, folff transaction. lowing any such acquisition, we will achieve the expected synergies to justify the ly integrate them with our existing 54 Risks Related to Our Financial Position and Need forff Capital rr armac We are a biopho have incurred significant operatingii .ee ff foreseeable f ll uture eutical company wn ith a limll operatingtt losses since our inception, and anticipate t history, ayy nd have not generatedtt tt hatt itedtt t we will ill ncii ur continued losses forff the any rn evenue from product sales. We We are a biopharmaceutical company with a limited operating history on which investors can base an investment decision. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We were incorporated in April 2010. Our operations to date have been limited primarily to organizing and staffiff ng our compamm ny, raising capital and conducting research and development activities and clinical trials of our product candidates. We have never generated any revenue from product sales. We have not obtained regulatory approvals forff any of our product candidates. We have funded our operations to date through proceeds froff m sales of common stock, redeemable convertible preferred ff stock and, to a lesser extent, the issuance of convertible notes.  On July 23, 2014, we completed the sale of 5,750,000 shares of our common stock in our IPO, at a price to the public of $18.00 per share, resulting in net proceeds of $94.0 million after deducting underwriting discounts and commissions and offering costs paid by us.  On April 20, 2015, we completed the sale of 2,628,571 shares of our common stock in a public offeff ring, at a price to the public of $52.50 per share, resulting in net proceeds of $129.1 million after deducting underwriting discounts and commissions and offeff ring costs paid by us.  On January 12, 2016, we completed the sale of 3,157,894 shares of our common stock in a public offeff ring at a price to the public of $47.50 per share, resulting in net proceeds of $140.4 million after deducting underwriting discounts and commissions and offeff ring costs paid by us.  On Septemberm 14, 2016, we complmm eted the sale of 5,062,892 shares of our common stock in a public offerff ing at a price to the public of $39.75 per share, resulting in net proceeds of $189.2 million after deducting underwriting discounts and commissions and offering costs paid by us. From our inception through December 31, 2016, we had received net proceeds of $643.3 million from such transactions. As of December 31, 2016, our cash, cash equivalents and marketable securities were $397.5 million. We have incurred significff ant net losses in each year since our inception, including net losses of $159.0 million for the year ended December 31, 2016 and $94.5 million for the year ended December 31, 2015. Subsu tantially all of our operating losses have resulted froff m costs incurred in connection with our research and development programs and froff m general and administrative costs associated with our operations. We expect to incur increasing levels of operating losses over the next several years and forff expected futff ure losses, have had, and will continue to have, an adverse effeff ct on our stockholders’ deficff expect our research and development expenses to significantly increase in connection with clinical trials of our product candidates and rts to seek regulatory approval for any product candidates that successfully complmm ete clinical development. We also expect our effoff general and administrative costs to increase as we expand our operations, including in anticipation of potential future commercialization effoff marketing and outsourced-manufn act with operating as a public company. As a result, we expect to continue to incur significant and increasing operating losses forff the foreseeable future. Because of the numerous risks and uncertainties associated with developing pharmaceutical products, we are unable to predict the extent of any future losses or when we will become profitable, not be abla e to sustain or increase our profitabff uring expenses. As a public compamm ny, we incur additional legal and accounting costs associated oval for our product candidates, we will incur significant sales, the forff eseeable future. Our prior losses, combined with if at all. Even if we do become profitff able, we may rts. In addition, if we obtain marketing appr ility on a quarterly or annual basis. it and working capital. We a ff ff Our ability to become profitabff le depends upon u our product candidates, and we do not know when, or if, wff revenue unless and until we obtain marketing appr number of factors, including, but not limited to, our ability to: a our ability to generate revenue. To date, we have not generated any revenue from e will generate any revenue. We do not expect to generate significant oval of, aff nd begin to sell a product. Our ability to generate revenue depends on a    initiate and successfully complmm ete all efficff acy and safety clinical trials and non-clinical studies required to file for, and obtain, U.S. and forff eign marketing approval for our product candidates; commercialize our product candidates, if approved, by developing a sales force or entering into collaborations with third parties; and achieve market acceptance of our product candidates in the medical community and with third-party payors. Absent our entering into a collaboration or partnership agreement, we expect to incur significant sales and marketing costs as we prepare to commercialize our product candidates, if and when approved. Even if we successfully complmm ete clinical development of our 55 product candidates, and our product candidates are approved for commercial sale, and despite expending these costs, our product candidates may not be commercially successfulff r generating product sales, if ever. If we are unable to generate product revenue, we will not become profitff able, and may be unable to continue operations without continued funding. . We may not achieve profitability soon afteff We willii need to raise additional funding, ll capital when neededdd may force us to delay, dd which may na ii limi t or tertt mi ot be availabl rr naii , os n accepte abtt rr le terms ff te our product developll ment effor e oll aiFF luii r at all. Fll ts or other opero tt re to obtain t ii his atiott ns. ll necessary We are currently advancing our product candidates through non-clinical and clinical development, and preparing forff a potential ly developed and approved. Developing small molecule products and a potential launch are expensive, and we expect our research and development and general and administrative expenses commercial launch if our product candidates are successfulff preparing forff to increase subsu tantially in connection with our ongoing activities, particularly as we continue to advance our product candidates in clinical trials and if we generate positive data in our clinical programs. Depending on the status of regulatory approval or, if approved, commercialization of our producdd t candidates, as well as the progress we make in selling our products, if approved, we will also require additional capia tal to fund operating needs. We may also need to raise additional funff ds if we choose to pursue additional indicatioaa ns and/or geographies for our product candidates, identify new potential opportunities or otherwise expand our activities more rapidly than we presently anticipate. As of December 31, 2016, our cash, cash equivalents and marketable securities were $397.5 million. Based on our current nt to fund our anticipated operating plans, we expect that our existing cash, cash equivalents and marketable securities will be sufficie level of operations into the second quarter of 2018. Our current operating plan does not contemplmm ate other development activities we may pursue or that all of the currently planned activities will proceed at the same pace, or that all of the activities will be fully initiated or complmm eted during that time. We may use available capital resources sooner than we expect under our current operating plan. In addition, our operating plan may change. We may need or choose to seek additional funff ds sooner than planned, through public or debt financings, government or other third-party funff ding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or a combination of these approaches. In any event, we expect to require additional capital to obtain regulatory approval for, and to commercialize, our product candidates. Raising funds in the current economic environment may present additional challenges. Even if we believe we have suffici ent funff additional capital if market conditions are favorable or in light of specific strategic considerations. ds for our current or future operating plans, we may seek ff ff Any additional fundraising efforff ts may divert our management froff m their day-to-day activities, which may adversely affecff t our ability to develop and commercialize our product candidates. In addition, we cannot guarantee that future financing will be available the holdings or in sufficient amounts or on terms acceptable to us, if at all. Moreover, the terms of any finff ancing may adversely affect the rights of our stockholders and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our shares to decline. The sale of additional equity or convertible securities would dilute all of our stockholders. The incurrence of indebtedness would result in increased fixff ed payment obligations and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. We could also be required to seek funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise would be desirable and we may be required to relinquish rights to some of our technologies or product candidates or otherwise agree to terms unfavff orable to us, any of which may have a material adverse effect on our business, operating results and prospects. ff ff If we are unable to obtain fundi ff ng on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any product, if approved, or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, finff ancial condition and results of operations. ff Raising additioii nal capitaii l may cause dilutio ii n to ott ur existing stockholderdd s,rr restrict our operations or require us to relinquish righi ts. We may seek additional capital through a combination of private and public equity offeff rings, debt financings, collaborations and strategic and licensing arrangements. To the extent that we raise additional capital through the sale of common stock or securities convertible or exchangeable into common stock, the ownership interest of our stockhokk lders in our compamm ny will be diluted. In addition, the terms of any such securities may include liquidation or other preferen stockholders. Debt finff ancing, if available, would increase our fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specificff declaring dividends. If we raise additional funds through collabor parties, we may have to relinquish valuable rights to our product candidates, our intellectual property, futff ure revenue streams or grant licenses on terms that are not favff orable to us. actions, such as incurring additional debt, making capital expenditures or ation, strategic partnerships and licensing arrangements with third ces that materially adversely affect the rights of our a ff 56 Risks Related to Our Common Stock Market volatility may aa ff ffa ect our stock price and thett value of an investment in our stock.kk The market price for our common stock, similar to that of other biopharmaceutical companies, is volatile. The market price of our common stock may fluff ctuate significff antly in response to a number of factors, most of which we cannot control, including, among others:                    plans forff candidates, including any adverse events, delays or announcements related to such studies or trials; , progress of, timing of, cff hanges to, delays in or results froff m, non-clinical studies and clinical trials of our product any delay in filing for regulatory approval of our product candidates; lure or delay of the FDA or any other regulatory authority to approve our product candidates, or any unexpected the faiff limitation on the appr a oved indication or onerous condition of approval; announcements of new products, technologies, commercial relationships, acquisitions or other events by us or our compemm titors; the success or failuff re of our CNS therapies; regulatory or legal developments in the U.S. and other countries; adverse developments with respect to our intellectual property portfolff io or failure to obtain or loss of exclusivity; failure of our product candidates, if approved, to achieve commercial success; fluctuations in stock market prices and trading volumes of similar companies; general market conditions and overall fluctuations in U.S. equity markets; changes in healthcare laws affect ff ing pricing, reimbursement or access; variations in our quarterly operating results; changes in our financial guidance or securities analysts’ estimates of our finff ancial perforff mance; changes in accounting principles; our abia lity to raise additional capital and the terms on which we can raise it; sales of large blocks of our common stock, including sales by our executive officff ers, directors and significant stockholders; additions or departures of key personnel; discussion of us or our stock price by the press and by online investor communities; and other risks and uncertainties described in these risk factor ff s. Our executive offo icff ers,rr direct company,n which will limit the abilityii rr corpor ate control.ll ii ors,rr principal stockholderdd s arr nd their aii ii of our stockholderdd s trr o i tt nflu ffa ilff iall tes will continue to exercise significa i and could delay oa nt control over our r prevent a change inii ence corporate mtt tt atters As of December 31, 2016, our executive officff ers, directors and principal stockholders, if they act together, given their existing oval, including the election of directors and any sale, merger, consolidation, or sale of all or subsu tantially all of our assets. holdings, will be able to influence significantly our management and affaiff for appr a Some of these stockholders acquired some or all of their shares of common stock forff common stock acquired in our IPO or any follow-on offerff stock, that are different from those of investors in our IPO or any follow-on offeff these stockholders may have an adverse effect on the price of our common stock. In addition, this concentration of ownership might adversely affect ing, and these stockholders may have interests, with respect to their common rs and the outcome of matters submitted to our stockhokk lders ring and the concentration of voting power among subsu tantially less than the price of the shares of the market price of our common stock by: ff    delaying, deferff ring or preventing a change of control of us; impedimm ng a merger, consolidation, takeover or other business combim nation involving us; or discouraging a potential acquirer froff m making a tender offeff r or otherwise attempting to obtain control of us. 57 Future sales of oo ur common stocktt .ee may cause our stock price tott declinell Sales of a subsu tantial numbem r of shares of our common stock in the public market or the perception that these sales might occur could significantly reduce the market price of our common stock, and impamm ir our ability to raise adequate capital through the sale of additional equity securities. We have broad discretion in how we use the proceeds fdd roff m our follow-on public offo erff atiott ns and cause our stock price to dtt f oo effecff hich could affect our results ott tively, wyy pero ingsn , as nd may na ecldd .ee inell ot use thett se proceeds We have considerable discretion in the application of the net proceeds from our folff rings. We may use the net purposes that do not yield a significant return or any return at all for our stockholders. In addition, pending their use, we low-on public offeff u low-on offerin ff gs in a manner that does not produce income or that loses value. proceeds forff may invest the net proceeds from the folff keover provisions in our chartertt Anti-taii i ial to ott beneficff management.tt tt ur stockh s,rr more diffi ll older documents att cult and may prevent attempts by our stockholderdd s trr o rtt nd under Delawll are lawll could make an acquisition of us, even one thatt t may be eplace or remove our current Provisions in our amended and restated certificff ate of incorporation and amended and restated bylaws may delay or prevent an acquisition of us or a change in our management. These provisions include a classified board of directors, a prohibition on actiot ns by written consent of our stockholders and the ability of our board of directors to issue preferred stock without stockhokk lder approval. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which limits the abia lity of stockholders owning in excess of 15% of our outstanding voting stock to merge or combim ne with us. Although we believe these provisions collectively provide forff by requiring potential acquirers to negotiate with our board of directors, they would apply even if an offerff rejected by our board were trate or prevent any attempts by our stockhokk lders to considered beneficial by some stockhokk lders. In addition, these provisions may frus replace or remove our current management by making it more diffiff cult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. ty to obtain greater value forff an opportuni stockholders ff tt We do not intend their investmett ii nt willii depend on appr a eciation in t ii hett price of our common stock. tt to pay dividendd ds on our common stock and, consequently, the abilityii of our stockholderdd s trr o att chieve a return on We have never declared or paid any cash dividend on our common stock, and do not currently intend to do so in the forff eseeable future. We currently anticipate that we will retain futff ure earnings for the development, operation and expansion of our business, and do not anticipate declaring or paying any cash dividends in the foreff the success of an investment in shares of our common stock will depend upon any future appreciation in their value. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which an investor purchased them. seeable future. Therefore, ff If equity research analysll downgrade our common stock, tk hett ts stoptt price of oo ur common stocktt .ee could declinell publisll hing rn esearch or reportsrr about our busineii ss or if they issue unfavor ff able cll ommentartt y or r The trading market forff our common stock relies in part on the research and reports that equity research analysts publis u h about us and our business. We do not control these analysts. The price of our common stock could decline if one or more equity research analysts downgrade our common stock or if analysts issue other unfavorable commentary or cease publishing reports about us or our business. Item 1B. Unresolved Staff Comments None. Item 2. Properties Our corporate headquarters are located in Cambridge, Massachusetts, and consist of 22,067 square feet in a multi-tenant building under a lease that will expire on February 28, 2022. In May 2016, we entered into a separate lease under which, beginning on Septemberm 1, 2016, we rent 19,805 square feet of additional offiff ce space in a separate multi-tenant building. The lease for the additional space will also expire in Februarr the needs of the business. ry 2022. We expect to lease additional space prior to the expiration of our leases to meet 58 Item 3. Legal Proceedings We are not a party to any legal proceedings, and we are not aware of any claims or actions pending or threatened against us. In the futff ure, we might froff m time to time become involved in litigation relating to claims arising froff m our ordinary course of business, the resolution of which we do not anticipate would have a material adverse impamm ct on our finff ancial position, results of operations or cash floff ws. Item 4. Mine Safety Disclosures a Not appl icable. 59 Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information PART II On July 18, 2014, our common stock began trading on the NASDAQ Global Markerr there was no public market rr for our common stock. Shares sold in our initial publiu c offerff t unduu er the symbolm “SAGE”. Prior to that time, ing on JulJJ y 17, 2014 were priced at $18.00 per share. On February 15, 2017, the closing price for our common stock as reported on the NASDAQ Global Market was $57.58. The following table sets fort ff the period indicated. First uarter d Quarter Third Quarter Fourth Quarter Stockholders h the high and low sales prices per share of our common stock as reported on the NASDAQ Global Market for Year Ended December 31, 2016 2015 High Low High Low $ $ $ $ 58.22 39.99 49.89 56.45 $ $ $ $ 26.28 26.55 29.81 38.30 $ $ $ $ 55.01 89.04 77.48 62.64 $ $ $ $ 35.00 45.50 39.98 38.85 As of February 16, 2017, there were 9 stockholders of record of our common stock. The actuat l numberm of holders of our common stock is greater than this numberm of record holders, and includes stockholders who are beneficff are held in street name by brokers or held by other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust ial owners, but whose shares by other entities. r Performance Graph The folff lowing graph illustrates a comparison of the total cumulative stockholder return forff our common stock since July 18, 2014, which is the date our shares began trading, through December 31, 2016, to two indices: the NASDAQ Composite Index and the NASDAQ Biotechnology Index. The graph assumes an initial investment of $100 on July 18, 2014, in our common stock, the stocks comprimm sing the NASDAQ Compomm site Index, and the stocks comprimm sing the NASDAQ Biotechnology Index. Historical stockhokk lder return is not necessarily indicative of the perforff mance to be expected forff any future periods. Comparison of Cumulative Total Return* Among Sage Therapeutics, Inc., the NASDAQ Composite Index and the NASDAQ Biotechnology Index 60 * $100 invested on July 18, 2014 in stock or index. The performff ance graph shall not be deemed to be incorporated by reference by means of any general statement incorporating by referff ence this Form 10-K into any filing under the Securities Act of 1933, as amended or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate such information by referff ence, and shall not otherwise be deemed filed under such acts. Dividend Policy We have never paid or declared any cash dividends on our common stock, and we do not anticipate paying any cash dividends on our common stock in the forff eseeable future. We intend to retain all available funds and any future earnings to funff d the development and expansion of our business. Any futff urt e determination to pay dividends will be at the discretion of our board of directors and will depend upouu contractuat l restrictions, restrictions imposm ed by applicable law and other factors our board of directors deems relevant. rs, including our results of operations, finff ancial condition, futff ure prospects, n a numbem r of facto ff Equity Compensation Plans The inforff mation required by Item 5 of Form 10-K regarding equity compemm nsation plans is incorporated herein by reference to Item 12. of Part III of this Annual Report. Issuer Purchases of Equity Securities We did not purchase any of our registered equity securities during the period covered by this Annual Report. 61 Item 6. Selected Consolidated Financial Data The selected consolidated financial data set forff th below are derived from our audited consolidated financial statements and may not be indicative of futff ure operating results. The following selected consolidated financial data should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the notes thereto included elsewhere in this Annual Report. The consolidated selected financial data in this section are not intended to replace our consolidated finff ancial statements and the related notes included elsewhere in this Annual Report. Our historical results are not necessarily indicative of our future results. Consolidated statements of operations data: Operating expenses: Research and development General and administrative Total operating expenses Loss from operations Interest income, net her expense, net Net loss Accretion of redeemable convertible preferred stock to ff redemptmm ion value Net loss attributable to common stockholders Net loss per share attributable to common Year Ended December 31, 2016 2015 (in thousands, except forff 2014 2013 2012 per share and per share data) $ 120,756 $ 39,407 160,163 (160,163) 1,211 (35) (158,987) 69,357 $ 25,293 94,650 (94,650) 178 (23) (94,495) 24,100 $ 9,710 33,810 (33,810) 8 (9) (33,811) 14,357 $ 3,922 18,279 (18,279) 1 (3) (18,281) 7,229 2,402 9,631 (9,631) — (1) (9,632) —— $ (158,987) $ —— (94,495) $ (2,294) (36,105) $ (18,288) $ (7) (4) (9,636) stockhokk lders—basic and diluted(1) $ (4.75) $ (3.40) $ (1.67) $ (12.26) $ (8.62) Weighted average number of common shares used in net loss per share attributable to common stockholders—basic and diluted(1) Consolidated balance sheet data: Cash and cash equivalents Marketable securities Working capital(2) Total assets Redeemable convertible preferff Common stock and additional paid-in capital Total stockhok lders’ equity (deficit) red stock 33,492,795 27,778,288 21,574,347 1,492,288 1,118,288 2016 2015 Year Ended December 31, 2014 (in thousands) 2013 2012 $ 168,517 228,962 367,410 404,531 —— 688,963 368,517 $ 186,753 — 173,184 189,016 —— 335,035 173,695 $ 127,766 — 121,065 129,665 —— 188,730 121,885 $ $ 8,066 — 6,092 8,532 37,709 139 (31,536) 2,802 — 1,407 2,995 14,970 — (13,394) (1) See Note 9 to our consolidated financial statements appe calculation of basic and diluted net loss per share attributable to common stockholders. aring elsewhere in this Annual Report forff a further details on the (2) We definff e working capital as current assets less current liabilities. 62 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation We are a clinical-stage biopharmaceutical company committed to developing and commercializing novel medicines to treat life-ff altering central nervous system, or CNS, disorders, where there are no approved therapies or existing therapia es are inadequate. We have a portfolio of product candidates with a current focff us on modulating two critical CNS receptor systems, GABA and NMDA. ff The GABA receptor famff receptors of the glutamate receptor system are a neurologic and bodily function via activation of GABAA receptors. The NMDA-typeyy majoa r excitatory receptor system in the CNS. Dysfunction in these systems is implmm icated in a broad range of CNS disorders. We are targeting CNS indications where patient populations are easily identified, clinical endpoints are well-definff ed, and development pathways are feasible. ily, which is recognized as the major inhibitory neurotransmitter in the CNS, mediates downstream The folff lowing table summarizes the status of our development programs as of the date of this Annual Report. Our lead product candidate, SAGE-547 (brexanolone USAN), is a proprietary intravenous, or IV, formulation of allopregnanolone, a naturally occurring neuroactive steroid that acts as a positive allosteric modulator of GABAA receptors, including both synaptic and extrasynaptic populations. We are currently conducting Phase 3 clinical trials of SAGE-547 in both super- refractory status epilepticus, or SRSE, and post-partum depression, or PPD. Our Phase 3 clinical trial in SRSE, known as the STATUS Trial, is evaluating SAGE-547 as a potential adjunctive therapy in the treatment of SRSE. SRSE is a rare and life-ff altering condition in which a patient experiences a state of continuous seizure called status epilepticus, or SE, that continues or recurs despite standard treatment regimens normally suffiff cient to stop the seizure activity. We expect to report top-line results from the STATUS Trial in the firff st half of 2017. If successful, we believe the results from this Phase 3 clinical trial, together with other data froff m the SAGE-547 development program will be sufficff Drug ApplA ication, or NDA, submission to the FDA seeking approval for SAGE-547 in SRSE in the U.S. Based on scientific advice we received in the fourth quarter of 2016 froff m the European Medicines Agency, or EMA, we also believe our current Phase 3 clinical program in SRSE, if successful, will be suffici approval of SAGE-547 for SRSE in the European Union, or EU. a marketing authorization application, or MAA, to the EMA seeking ient to form the basis of a New uu ent to support ff Our Phase 3 clinical program in PPD is evaluating SAGE-547 as a potential treatment forff PPD. PPD is a distinct and readily identified majoa r depressive disorder that is a biological complication of childbirth, affecti giving birth. We anticipate announcing top-line data from the Phase 3 in the third trimester of pregnancy or within fouff clinical program, known as the Hummingbird Study, encompasm sing two placebo-controlled trials, in the second half of 2017. In the third quarter of 2016, we received Breakthkk rough Therapy designation froff m the FDA forff SAGE-547 as a potential treatment for PPD. Based on input we received from the FDA during a Breakthrough Therapy meeting in the fouff successful, the results of the Phase 3 clinical program, together with the results of prior clinical studies of SAGE-547 in PPD, and rth quarter of 2016, we believe that, iff ng a subset of women typiyy cally commencing r weeks after ff ff 63 In the fourth quarter of 2016, we also received PRIority MEdicines (PRIME) designation from the EMA for SAGE-547 in the ient to suppor uu t the submu ission of an NDA to the FDA seeking approval for SAGE-547 nin ongoing non-clinical studies, will be sufficff PPD. treatment of PPD. Our most advanced next-generation product candidate is SAGE-217, a novel neuroactive steroid that, like SAGE-547, is a positive allosteric modulator of GABAA receptors, targeting both synaptic and extrasynaptia of 2016, we initiated our Phase 2 clinical program forff SAGE-217 with a focff us on four indications: two movement disorder indications, essential tremor and Parkinson’s disease, and two mood disorder indications, major depressive disorder, or MDD, and PPD. In February 2017, we announced top-line results from the open-label, proof-of-concept portion (Part A) of our Phase 2 clinical trial SAGE-217 in MDD which met our criteria for advancing SAGE-217 into the blinded, placebo-controlled portion of the Phase 2 MDD clinical trial (Part B). We expect to initiate Part B in the second quarter of 2017. We area clinical trials of SAGE-217 in PPD, essential tremor and Parkinson’s disease. We expect to report top-line results from the open-label pportion of the Phase 2 clinical trial of SAGE-217 in Parkinson's disease in the first half of 2017. We anticipate reporting top-line results from the blinded, placebo-controlled Phase 2 clinical trials of SAGE-217 in essential tremor and PPD in the second half fof 2017. We also have a portfolio of other novel compounds that target the GABAA receptors, including SAGE-105, SAGE-324 and SAGE-689, which are at earlier stages of development with a focff us on both acute and chronic CNS disorders. also currently conducting the Phase 2 c GABAA receptors. In the fouff rth quarter fof development of SAGE-718 will be cerebrosterol deficff Our second area of focus is the development of novel compomm unds 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. it disorders, Anti-NMDA Receptor Encephalitis, Our initial areas of focus forff and other indications involving NMDA receptor hypofun decreased levels of cerebrosterol, a naturally occurring oxysterol, may represent biomarkers to identify, forff patient populations characterized by cognitive dysfunction and neuropsychiatric symptoms resulting from NMDA receptor ction or hypofunction. Examplmm es of these potential areas for futff ure evaluation include certain types, aspects or subpopulations dysfunff of a numn vity disorder, schizophrenia, Huntington’s bem r of diseases such as depression, Alzheimer’s disease, attention deficff disease, and neuropathic pain. We have completed Investigational New Drug, or IND-enabling non-clinical studies of SAGE-718, and plan to commence the Phase 1 clinical program in the first half of 2017. ction. We believe measuring levels of anti-NMDA receptor antibodies or future study, broader it hyperacti yy yy We expect to continuen our focff us on allosteric modulation of the GABAA and NMDA receptor systems in the brain. The GABAA t ty to develop molecules froff m our internal portfolff and NMDA receptor systems are broadly accepted as impacting many psychiatric and neurological disorders, spanning disorders of mood, seizure, cognition, anxiety, sleep, pain, epilepsy, and movement disorders, among others. We believe that we will have the opportuni ability to identify aff point, on knowledge of the chemical scaffoff and activity of allosteric modulators allows us to efficff to regulate importan the potential forff therapies which have failed in development. bem r of these disorders in the futff ure. Our io with the goal of addressing a numn nd develop such novel CNS therapies is enabled by our proprietary chemistry platforff m that is centered, as a starting lds of certain endogenous neuroactive steroids. We believe our knokk wledge of the chemistry iently design molecules with different characteristics. This diversity enables us t have s than either current CNS therapies or previous fe, brain penetration and receptor pharmacology to develop product candidates that better selectivity, increased tolerability, and fewff t properties such as half-liff target side effect er off-ff m ff We have not generated any revenue to date. We have incurred net losses in each year since our inception, and we have an it of $320.3 million as of December 31, 2016. Our net losses were $159.0 million, $94.5 million and $33.8 million accumulated deficff for the years ended December 31, 2016, 2015 and 2014, respectively. These losses have resulted principally from costs incurred in connection with research and development activities and general and administrative costs associated with our operations. We expect to incur significant expenses and increasing operating losses forff the forff eseeable future. We expect that our expenses will increase substantially in connection with our ongoing activities, as we:     complmm ete the ongoing Phase 3 clinical trials forff SAGE-547 in SRSE and PPD, as well as additional clinical trials and non-clinical studies of SAGE-547 required for regulatory approval in SRSE and PPD; complmm ete the ongoing and planned Phase 2 clinical trials of SAGE-217 in essential tremor, Parkinson’s disease, PPD and MDD, and advance SAGE-217 furff ther in development depending on the outcome of the ongoing trials; continue to advance SAGE-718, our early-stage novel allosteric modulator forff NMDA, including planned commencement of a Phase 1 clinical program; continue non-clinical studies of SAGE-105 and SAGE-324with a focff us on orphan epilepsies and indications involving GABA hypofun ction; yy 64        continue our research and development efforts to evaluate the potential forff treatment of additional indications or in new forff mulations, and the identification of new drugr of CNS disorders; our other existing product candidates in the candidates in the treatment advancing regulatory activities focff used on a potential filiff ng of an NDA and MAA forff SAGE-547 in SRSE and an NDA in PPD; continue initial preparations for a potential future commercial launch; seek regulatory approvals for our product candidates that successfulff ly complete clinical development; add personnel, including personnel to support our product development and futff ure commercialization efforts, and incur increases in stock compemm nsation expense related to existing and new personnel with respect to both service-based and performff ance-based awards; add operational, financial and management inforff mation systems; and maintain, leverage and expand our intellectual property portfolio. As a result, in the futff ure, we will need additional financing to support our continuing operations. Until such time that we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combim nation of public or debt financings or other sources, which may include collaborations with third parties. Arrangements with collaborators or othet require us to relinquish rights to certain of our technologies or product candidates. In addition, we may never successfully complmm ete development of any of our product candidates; obtain adequate patent protection or other exclusivity forff obtain necessary regulatory appa oved product. Adequate additional finff ancing may not be available to us on acceptable terms, or at all. Our inabia lity to raise capital as and when needed would have a negative impact on our finff ancial condition and on our ability to pursue our business strategy. We will need to generate significant revenue to achieve profitability, and we may never do so. our product candidates; or achieve commercial viability forff our product candidates; a any appr roval forff rs may We expect that our existing cash, cash equivalents and marketable securities as of December 31, 2016 will enabla e us to fundff operating expenses and capital expenditure requirements, based on our current operating plan, into the second quarterr Liquidity and Capital Resources”. our r of 2018. See “— Revenue Financial Operations Overview We have not generated any revenue from product sales since our inception, and do not expect to generate any revenuen rts result in clinical success and regulatory approval or collaboa ration from the sale of products in the near future. If our developmental effoff agreements with third parties forff our product candidates, we may generate revenue from those product candidates. Operatingtt Expexx nses Our operating expenses since inception have consisted primarily of costs associated with research and development activities and general and administrative activities. Research and Development Expenses Research and development expenses, which consist primarily of costs associated with our product research and development effoff rts, are expensed as incurred. Research and development expenses consist primarily of:     personnel costs, including salaries, benefitff s, stock-based compemm nsation and travel expenses, forff research and development function s; ff emplmm oyees engaged in expenses incurred under agreements with contract research organizations, or CROs, and sites that conduct our non-clinical studies and clinical trials; expenses associated with manufacturtt capabilities; ing materials for use in clinical trials and developing external manufacturing costs of outside consultants engaged in research and development activities, including their fees, stock-based compemm nsation and travel expenses; 65   other expenses related to our non-clinical studies and clinical trials and expenses related to our regulatory activities; and payments made under our third-party license agreements. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using inforff mation and data provided to us by our vendors and our clinical sites. We have been developing our product candidates and focff using on other research and development programs, including rts to identify nff ew compounds, target validation forff exploratory effoff validated programs. Our direct research and development expenses are tracked on a program-by-program basis, and consist primarily of external costs, such as feeff uring organizations, or CMOs, in connection with our non-clinical studies and clinical trials; third-party license fees outside consultants who perforff m work on our programs. We do not allocate emplomm yee-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 research and development expenses. s paid to investigators, central laboratories, CROs and contract manufact identified compounds and lead optimization forff related to our product candidates; and fees our earlier- paid to ff ff ff 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 futff ure 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 futff ure clinical trials of our product candidates or if,ff when, or to what extent we will generate revenue from the commercialization and sale of any of our product candidates, if approved for marketing and sale. The duration, costs, and timing of clinical trials and development of our product candidates will depend on a variety of facto rs, including: ff       the scope, size, rate of progress, and expense of our ongoing as well as any additional clinical trials, non-clinical studies, and other research and development activities; future clinical trial and non-clinical study results; decisions by regulatory authorities related to our product candidates; uncertainties in clinical trial enrollment rate or design; significff ant and changing government regulation; and the receipt and timing of any regulatory approvals, if any. A change in the outcome of any of these variables with respect to the development of a product candidate could mean a nt change in the costs and timing associated with the development of that product candidate. For example, if the FDA or significaff another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the complmm etion of clinical development of a product candidate, or if we experience significff ant delays in enrollment in any of our clinical trials or need to enroll additional patients, we could be required to expend significant additional finff ancial resources and time on the complmm etion of clinical development. General and Administrative Expenses General and administrative expenses consist primarily of personnel costs, consisting of salaries, benefits, stock-based compemm nsation and travel expenses of our executive, finff ance, business, commercial, corporate development and other administrative functions. General and administrative expenses also include expenses incurred under agreements with third parties relating to evaluation, planning and preparation forff depreciation, maintenance of facilities expenses to pursue patent protection of our intellectual property. a potential commercial launch; facilities and other related expenses, including rent, , insurance and supplies; and professional fees for audit, tax and legal services, including legal ff ff We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support the expected growth in our business and the potential commercialization of our product candidates. We also anticipate increased expenses associated with general operations, including costs related to audit, tax and legal services, director and officer insurance premiums, and investor relations costs. Additionally, we anticipate an increase in payroll and related expenses as we continue to build our organizational capabilities, expand our operations, and prepare for possible futff ure commercial operations, including sales and marketing of our product candidates, if approved. 66 Critical Accounting Policies and Significaff nt Judgments and Estimates Our consolidated finff ancial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptm ions that affeff ct the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. We believe that thett estimates and assumptmm ions involved in the accounting policies described below may have the greatest potential impam ct 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 froff m these estimates under differen t 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. ff Accrued Research and Developll ment Expens xx es 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 perforff med on our behalf and estimating the level of service perforff med and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs. The majoa rity 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 ff paid to: and development expenses include fees and circumstances known to us at that time. Examplmm es of estimated accrued research ff     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 finff ancial terms of these agreements vary froff m 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 complmm etion 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 effoff rt to be expended in each period. If the actual timing of the performance of services or the level of effoff 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 perforff med relative to the actuat l status and timing of services perforff med may vary and may result in us 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. rt varies from our Stock-B tt ased Compensation We recognize compensation expense for stock-based awards made to emplmm oyees and non-emplmm oyee directors, including grants of stock options and restricted stock, based on the estimated fair value on date of grant, over the requisite service period. For awards ance condition, we recognize compensation expense when achievement of the perforff mance that vest upon achievement of a performff condition is met or during the period froff m which meeting the condition is deemed probable until the expected date of meeting the perforff mance condition. We have historically granted stock options with exercise prices equivalent to the faiff r value of our common stock as of the date of grant. We measure stock-based awards granted to non-emplom yee consultants at the fair ff value of the award on each date on which the awards vest. Compem nsation expense is recognized over the period during which services are rendered by such non-emplomm yee consultants until complmm eted. At the end of each finff ancial reporting period prior to the completion of the service, the fair awards is re-measured using, for options, the then-current fair value of our common stock and updat Scholes option-pricing model and using, forff restricted stock, the then-current fair value of our common stock. ed assumptions in the Black- uu ff value of these 67 ff The fair value of each stock option grant is estimated using the Black-Scholes option-pricing model. Until July 18, 2014, we were a private company and we lacked company-specific historical and implmm ied volatility information. Considering this and the short history of being a public company, starting in 2016, we estimate our expected volatility using a weighted average of the historical volatility of our publu icly traded peer companies and the volatility of our common stock, and expect to continue to do so until such time as we have adequate historical data regarding the volatility of our traded stock price. The expected term of our options has been determined utilizing the “simplifieff d” method for awards that qualify as “plain-vanilla” options, while the expected term of our options granted to consultants and non-emplmm oyees has been determined based on the contractual term of the options. The risk-free interest rate is determined by referen equal to the expected term of the award. The expected dividend yield is based on the fact do not expect to pay any cash dividends in the forff eseeable future. at the time of grant of the award for time periods approximately that we have never paid cash dividends and ce to the U.S. Treasury yield curve in effect ff ff ff The assumptions we used to determine the fair ff value of stock options granted to employees and non-emplm oyee directors are as follows, presented on a weighted average basis: Expected dividend yield Expected volatility Risk-free interest rate Expected life off f option Year Ended December 31, 2015 2014 2016 0% 80.15% 1.47% 0% 90.54% 1.59% 0% 98.86% 1.95% 6.05 years 6.03 years 6.38 years These assumptions represented our best estimates, but the estimates involve inherent uncertainties and the application of our nt assumptmm ions or estimates when valuing our stock options, judgment. As a result, if factors change and we use significantly differeff our stock-based compensation expense could be materially diffeff awards that are expected to vest. In developing a forff experience of actual forff compensation expense could be significant feitures. If our future actual forfeit ff ly differen ff ff feiture rate estimate forff rent. We recognize compensation expense for only the portion of pre-vesting forff feitures, we have considered our historical ure rate is materially differeff nt from our estimate, our stock-based t froff m what we have recorded in the current period. Stock-based compensation expense recognized during the years ended December 31, 2016, 2015 and 2014 was as folff lows: Research and development General and administrative 2016 Year Ended December 31, 2015 (in thousands) 2014 $ $ 11,197 $ 11,823 23,020 $ 5,924 $ 9,316 15,240 $ 1,093 1,419 2,512 During the years ended Decemberm 31, 2016 and 2015, we recorded $0.2 million and $0.1 million, respectively, of stock-based compensation expense related to our Employee Stock Purchase Plan. As of December 31, 2016, we had unrecognized stock-based compemm nsation expense related to our unvested service-based stock option awards of $43.6 million, which is expected to be recognized over the remaining weighted average vesting period of 2.77 years. In addition, we granted 245,872 stock options that are both outstanding and unvested that will vest upon the achievement of certain perforff mance criteria in the futff ure. Total unrecognized stock-based compensation expense related to those awards was $5.2 million at December 31, 2016. Recently Issued Accounting Pronouncements A description of recently issued accounting pronouncements that may potentially impact our financial position and results of th in Note 2 to the consolidated financial statements included in this Annual Report on Form 10-K. operations is set forff 68 Results of Operations Comparison of the Years Ended December 31, 2016 and 2015 The folff lowing table summarizes our results of operations for the years ended December 31, 2016 and 2015: Year Ended December 31, 2016 2015 (in thousands) Increase (Decrease) Operating expenses: Research and development General and administrative tal operating expenses Loss from operations Interest income, net Other expense, net Net loss Research and developmo xx ent expens es $ $ $ $ 120,756 39,407 160,163 (160,163) 1,211 (35) $ (158,987) $ $ $ 69,357 25,293 94,650 (94,650) 178 (23) (94,495) $ 51,399 14,114 65,513 (65,513) 1,033 (12) (64,492) SAGE-547 SAGE-217 SAGE-689 SAGE-718 Other research and development programs allocated expenses Total research and development expenses Year Ended December 31, 2016 54,363 18,668 1,667 6,457 7,927 31,674 120,756 2015 (in thousands) 38,104 $ 6,408 3,051 3,317 4,484 13,993 69,357 $ $ $ $ $ Increase (Decrease) 16,259 12,260 (1,384) 3,140 3,443 17,681 51,399 Research and development expenses forff the year ended December 31, 2016 were $120.8 million, compared to $69.4 million for the year ended December 31, 2015. The increase of $51.4 million was primarily due to the folff lowing:       an increase of $16.3 million in expenses related to our SAGE-547 program, due to the continued advancement of the program in clinical development, including ongoing enrollment in the Phase 3 clinical trial in SRSE; completion of the Phase 2 clinical trial of SAGE-547 in PPD; commencement of the Phase 3 clinical trial of SAGE-547 in PPD; conduct of ff support uu preparation forff regulatory approval. Expenses related to payments to consultants and licensors upon achievement of certain clinical development milestones were $0.8 million and $2.7 million for the years ended December 31, 2016 and 2015, respectively; ing clinical pharmacology studies; and an increase in chemistry, manufn act uring and control (CMC) work in a potential filff ing forff uu an increase of $12.3 million in expenses related to our SAGE-217 program due to the conduct of the Phase 1 clinical program; the initiation of Phase 2-enabling toxicology, forff mulation and manufacturt Phase 2 clinical trials; ing activities; and commencement of a decrease of $1.4 million in expenses related to our SAGE-689 program due to the delay in commencement of a Phase 1 clinical trial as a result of a request from the FDA for additional non-clinical study data; an increase of $3.1 million in expenses due to the progression of our SAGE-718 program to IND-enabling non-clinical development and CMC activities in preparation forff IND filing; an increase of $3.4 million in expenses related to research and development programs and discovery efforff identifying new clinical candidates and additional indications of interest, and on our back-up puu rograms; and ts focused on an increase of $17.7 million in unallocated expenses, mainly due to the hiring of additional fulff l-time employees to support the growth in our operations, including an increase of $5.3 million of non-cash stock-based compensation expense and an increase of $10.9 million in other employee-related costs, mainly for salaries. The amount of non-cash stock-based compemm nsation expense recorded to research and development expense related to the achievement of perforff mance-based uu 69 vesting criteria was $2.3 million and $2.0 million forff increase of $0.3 million. the years ended December 31, 2016 and 2015, respectively, an General and administrativtt e expen ee ses Personnel-related sional fees Profesff Commercial planning Other Total general and administrative expenses Year Ended December 31, 2016 22,107 6,941 5,268 5,091 39,407 2015 (in thousands) 14,927 $ 4,333 3,076 2,957 25,293 $ $ $ $ $ Increase (Decrease) 7,180 2,608 2,192 2,134 14,114 General and administrative expenses forff the years ended December 31, 2016 and 2015 were $39.4 million and $25.3 million, respectively. The increase of $14.1 million was primarily due to the following:     ff s of hiring additional fulff operations, finff ance, human resources, legal and early commercial planning activities. Non-cash stock-based an increase of $7.2 million in personnel-related costs due to the effect uu support compensation expense related to the achievement of perforff mance-based vesting criteria was $2.7 million for the years ended December 31, 2016 and 2015; an increase of $2.6 million in professional fees due to increased costs associated with expanding operations, including costs related to audit, legal, and tax-related services, as well as investor relations costs; an increase of $2.2 million in commercial planning due to preparations for a potential commercial launch; and an increase of $2.1 million in other due to increased costs associated with facilities, mainly due to the increase in the amount of rented square feet of officff e space to accommodate our increase in employees. l-time emplm oyees to Interest income, net and Other expe ee nse, ne et Interest income, net, and other expense, net, for the years ended Decemberm 31, 2016 and 2015 were $1.2 million and $0.2 million, respectively. The primary reason forff securities during the year ended December 31, 2016. the increase was the increase in interest income froff m the purchase of marketable Comparison of the Years Ended December 31, 2015 and 2014 The folff lowing table summarizes our results of operations for the years ended December 31, 2015 and 2014: Operating expenses: Research and development General and administrative tal operating expenses Loss from operations Interest income, net Other income, net Net loss Year Ended December 31, 2015 2014 (in thousands) Increase (Decrease) $ $ $ 69,357 25,293 94,650 (94,650) 178 (23) (94,495) $ $ 24,100 9,710 33,810 (33,810) 8 (9) (33,811) $ 45,257 15,583 60,840 (60,840) 170 (14) (60,684) 70 Research and developmo xx ent expens es SAGE-547 SAGE-217 SAGE-689 SAGE-718 Other research and development programs allocated expenses Total research and development expenses Year Ended December 31, 2015 38,104 6,408 3,051 3,317 4,484 13,993 69,357 2014 (in thousands) 9,137 $ 2,764 3,058 - 3,088 6,053 24,100 $ $ $ $ $ Increase (Decrease) 28,967 3,644 (7) 3,317 1,396 7,940 45,257 Research and development expenses forff the year ended December 31, 2015 were $69.4 million, compamm red to $24.1 million forff the year ended December 31, 2014. The increase of $45.3 million was primarily due to the folff lowing: • • • • • an increase of $29.0 million in expenses of our SAGE-547 program, due to the advancement of the program into clinical our Phase 3 clinical development, including the completion of the Phase 1/2 clinical trial, commencement of activities forff trial, an increase in work related to CMC and toxicology. For the years ended December 31, 2015 and 2014, payments made to consultants and licensors in connection with the achievement of development milestones met by consultants and licensors were $2.7 million and $0.4 million, respectively; an increase of $3.6 million in expenses of our SAGE-217 program with advancement of the lead optimization program through IND-enabla ing non-clinical development activities (e.g., toxicology studies, process development, and drug subsu tance manufacff turing), filing of the IND and initiation of the Phase 1 clinical trial in October 2015; an increase of $3.3 million in expenses of our SAGE-718 program, which became a development program during the year ended December 31, 2015; an increase of $1.4 million in expenses of our other research and development programs and discovery effoff clinical candidates and back-up programs; and rts forff our next an increase of $7.9 million in unallocated expenses, including an increase of $4.8 million of non-cash stock-based compemm nsation expense, due to the hiring of additional full-time emplomm yees to support amount of non-cash stock-based compensmm achievement of perforff mance-based vesting criteria was $2.0 million forff the year ended Decemberm 31, 2015. No stock- based compensation expense related to the achievement of perforff mance-based vesting criteria was recorded to research and development expense forff the growth in our activities. The uu ation expense recorded to research and development expense related to the the year ended December 31, 2014. General and administrativtt e expen ee ses Personnel-related Profesff sional fees Commercial planning Other Total general and administrative expenses Year Ended December 31, 2015 14,927 4,333 3,076 2,957 25,293 2014 (in thousands) 4,337 $ 2,881 907 1,585 9,710 $ $ $ $ $ Increase (Decrease) 10,590 1,452 2,169 1,372 15,583 eral and administrative expenses forff the years ended December 31, 2015 and 2014 were $25.3 million and $9.7 million, respectively. The increase of $15.6 million in general and administrative expenses was primarily due to a $10.6 million increase in personnel-related costs due to the effect operations, finance, human resources, s of hiring additional full-time employees to support legal and early commercial planning activities, including an increase of $7.9 million in non-cash stock-based compensation expense. The amount of non-cash stock-based compensation includes amounts related to the achievement of the perforff mance-based vesting the year ended December 31, 2015. No stock-based compemm nsation expense related to the achievement of criteria of $2.7 million forff the year ended December 31, 2014. The performff ance-based vesting criteria was recorded to general and administrative expenses forff uu ff increase of $1.5 million in profesff costs related to audit, legal, regulatory and tax-related services, as well as investor relations costs. The increase of $2.2 million in commercial planning was associated preparations forff sional fees was primarily due to increased costs associated with being a publu ic company, including a potential commercial launch. Interest income, net Interest income, net, forff the years ended December 31, 2015 and 2014 was $0.2 million and $8,000, respectively. The increase in interest income was primarily due to increased cash and cash equivalent balances due to our July 2014 and AprA il 2015 publu ic offeff rings of common stock. Other expexx nse, ne et Other expense, net was insignificff ant forff the years ended December 31, 2015 and 2014. Liquidity and Capital Resources Since our inception in AprA il 2010, we have not generated any revenuen , and have incurred recurring net losses. As of December 31, 2016, we had an accumulated deficff net proceeds of $643.3 million froff m the sales of redeemable convertible preferr proceeds from our IPO in July 2014 and folff low-on offerff ff it of $320.3 million. From our inception through December 31, 2016, we received ed stock, the issuance of convertible notes and the ings in April 2015, January 2016 and September 2016. On January 12, 2016, we completed the sale of 3,157,894 shares of our common stock in an underwritten public offeff ring at a price to the public of $47.50 per share, resulting in net proceeds of $140.4 million afteff discounts and offerff ing costs paid by us. r deducting commissions and underwriting On September 14, 2016, we complmm eted the sale of 5,062,892 shares of our common stock in an underwritten public offerff ing at a price to the public of $39.75 per share, resulting in net proceeds of $189.2 million afteff discounts and offerff ing costs paid by us. r deducting commissions and underwriting As of December 31, 2016, our primary sources of liquidity were our cash, cash equivalents and marketable securities, which totaled $397.5 million. We invest our cash in money market funff ds, U.S. government securities, corporate bonds and commercial paper, with the primary objectives to preserve principal, provide liquidity and maximize income without significantl y increasing risk. ff The folff lowing table summarizes the primary sources and uses of cash forff the periods presented below: Net cash provided by (used in): Operating activities Investing activities Financing activities Net increase (decrease) in cash and cash equivalents 2016 Year Ended December 31, 2015 (in thousands) 2014 $ $ (118,678) $ (230,540) 330,982 (18,236) $ (70,681) $ (198) 129,866 58,987 $ (27,042) (128) 146,870 119,700 eratingii Activitiett s Cash used in operating activities forff the year ended December 31, 2016 was $118.7 million as compamm red to $70.7 million for the year ended December 31, 2015. The increase of $48.0 million was primarily due to the following:    An increase of $64.5 million in cash used related to our net loss, primarily due to increased research and development activities related to our lead programs in development and increased general and administrative expenses due to increased headcount to support our operations; uu Offseff t by an increase of $6.3 million in non-cash charges, primarily due to an increase in stock-based compensation expense due to increased hiring during the year, including $5.0 million of stock-based compensation expense related to the achievement of perforff mance-based vesting criteria; and t by an increase of $10.2 million in cash provided by changes in our operating assets and liabilities, primarily due to Offseff the growth of the business and the timing of vendor invoicing and payments. 72 Cash used in operating activities forff the fisff cal year ended December 31, 2015 was $70.7 million, compamm red to $27.0 million for the fisff cal year ended December 31, 2014. The increase of $43.7 million was primarily due to the following: • • • An increase of $60.7 million in cash used related to our net loss, primarily due to increased research and development activities related to our lead programs in development and increased general and administrative expenses due to increased headcount to support our operations; uu An increase of $13.9 million in non-cash charges, primarily due to an increase in stock-based compemm nsation expense due to increased hiring during the year, including $4.8 million of stock-based compensation expense recognized upon the achievement of a perforff mance-based vesting criteria; and An increase of $3.1 million in cash provided by changes in our operating assets and liabilities, primarily due to the growth of the business and the timing of vendor invoicing and payments. Investingt Activities During the years ended December 31, 2016 and 2015, net cash used by investing activities was $230.5 million and $0.2 million, respectively. During the year ended December 31, 2016, we used $259.1 million to purchase marketable securities and received proceeds of $30.5 million fromff sales of marketable securities. During the years ended Decemberm 31, 2015 and 2014, we purchased no marketable securities; however, during the years ended purchases of property and equipment. December 31, 2015 and 2014, we used $0.2 million and $0.1 million, respectively, of cash forff Financing Activities During the years ended December 31, 2016, 2015 and 2014, net cash provided by financing activities was $331.0 million, $129.9 million and $146.9 million, respectively.    Net cash provided by finff ancing activities in the year ended Decembem r 31, 2016 primarily consisted of $329.6 million of net proceeds froff m folff underwriting discounts and offerff rings of our common stock after deducting commissions and low-on underwritteww n public offeff ing costs. Net cash provided by finff ancing activities in the year ended Decembem r 31, 2015 primarily consisted of $129.1 million of net proceeds froff m a follow-on underwritten public offeri underwriting discounts and offerff ng of our common stock after deducting commissions and ing costs. ff ff Net cash provided by finff ancing activities in the year ended December 31, 2014 consisted primarily of $94.0 million in net proceeds fromff convertible preferred our IPO on July 23, 2014 and $52.9 million from the issuance of Series B and Series C redeemable ff stock. Operating Capia taii l Requirements from product sales. We do not knokk w when, or if, wff To date, we have not generated any revenuen product sales. We do not expect to generate significan ff regulatory approval of and commercialize one of our current or future product candidates. We anticipate that we will continue to generate losses forff approvals forff products, if approved. We expect to incur additional costs associated with general operations. In addition, subju ect to obtaining regulatory approval of any of our product candidates, we expect to incur significant commercialization expenses for product sales, marketing and outsourced manufacturing. Accordingly, we anticipate that we will need substantial additional fundff with our continuing operations. , our product candidates, continue preparations for potential future commercialization, and begin to commercialize any the forff eseeable future, and we expect the losses to increase as we continue the development of, aff nd seek regulatory from product sales unless and until we successfulff e will generate any revenue from ly develop, obtain ing in connection t revenuen Based on our current operating plans, we expect that our existing cash, cash equivalents and marketable securities as of Decembem r 31, 2016, will enable us to fund our operating expenses and capia tal expenditure requirements into the second quarter of 2018. During that time, we expect that our expenses will increase substantially as we:   complmm ete the ongoing Phase 3 clinical trials forff SAGE-547 in SRSE and PPD, as well as additional clinical trials and non- clinical studt ies of SAGE-547 required for regulatory approval in SRSE and PPD; complmm ete the ongoing and currently planned Phase 2 clinical trials of SAGE-217 in essential tremor, Parkinson’s disease, PPD and MDD, and advance SAGE-217 further in development depending on the outcome of the ongoing trials; 73          continue to advance SAGE-718, our early-stage novel allosteric modulator for NMDA, including planned commencement of a Phase 1 clinical program; continue non-clinical studies of SAGE-105 and SAGE-324with a focff us on orphan epilepsies and indications involving GABA hypofyy ction; unff continue our research and development efforts to evaluate the potential forff treatment of additional indications or in new forff mulations, and the identification of new drugr of CNS disorders; our other existing product candidates in the candidates in the treatment advancing regulatory activities focff used on a potential filff ing of an NDA and MAA for SAGE-547 in SRSE and an NDA in PPD; continue initial preparations for a potential future commercial launch; seek regulatory approvals for our product candidates that successfulff ly complete clinical development; add personnel, including personnel to support our product development and futff ure commercialization efforts, and incur increases in stock compemm nsation expense related to existing and new personnel with respect to both service-based and performff ance-based awards; add operational, financial and management inforff mation systems; and maintain, leverage and expand our intellectual property portfolio. Our current operating plan does not contemplm ate 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 assumptmm ions that could change, and we may use our available capital resources sooner than we currentlnn y expect. We may also choose to change or increase our development efforts. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures necessary to complm ete the development and commercialization of our product candidates. Our futff ure capital requirements will depend on many factors, including:          the abia lity of our product candidates to progress through clinical development successfully; the initiation, progress, timing, costs, and results of non-clinical studt product candidates; the numbem r and length of clinical trials required by regulatory authorities to support approval; and the costs of preparing regulatory filings; ies and clinical trials for our existing and future regulatory uu the cost, timing, and outcome of regulatory reviews and approvals; the level, timing and amount of costs associated with preparing for a potential futff ure commercial launch in the near term, and if we are successfulff in obtaining regulatory approval of any of product candidates, the cost of executing a commercial launch of the approved product, including manufacturtt ing-related costs; the numberm and characteristics of the product candidates we pursue and the nature and scope of our discovery and development programs; the scope and timing of potential expansion of our activities outside the U.S.; the costs of preparing, filing and prosecuting patent applications, maintaining and enforff cing our intellectual property rights and defenff ding 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 favff orable terms, if at all. Until such time, if ever, as we can generate subsu tantial product revenue, we expexx ct to financa e our cash needs through a combim natiaa on ff ent funff ds for our curreuu rings, debt financings, collaborations, strategic alliances, licensing arraaa of equity offeff believe we have suffici favorable or in light of specific strategic considerations. To thett convertible debt securities, thet liquiqq dation or other preferences that adversely affect the rights of our common stockhokk lders. Debt finff ancing, if availabla e, may involve agreements that include covenantsnn limiting or restritt cting our ability to take specific actions, such as incurrirr ng additional debt, making capital expexx nditurtt es or declaring dividends and may require the issuance of warraa nt or futuuu reuu operating plans, we may seek additional capital if marka et conditions are extent that we raise additional capital through the sale of equity or the terms of these securities may include owneww rship interest of our stockholders will be diluted, anda nts, which could potentially dilute the ownership ngements and other sources of funff ding. Even if we ff 74 intenn rest of our stockholders. If we raise additional funff ds through partirr es, we may have to relinquish valuabla e rights to our technologies, futff ut reuu revenue streams or research programs or to grant licenses on terms that may not be favorabla e to us. If we are unabla e to raise additional funff ds throhh ugh equiqq ty or debt financings when needed, we may be required to delay, limit, reduce or terminate our puu marka et products or product canda roduct development onn r futff urt e commercialization efforff idates that we would otherwise preferff to develop anda marka et oursuu elves. tsrr or grant rnn ights to develop and collaborations, strategic allianca ngementsnn with third es or licensing arraa hh Contractual Obligations and Commitments The folff lowing table summarizes our contractual obligations at December 31, 2016 and the effeff ct such obligations are expected to have on our liquidity and cash floff w in futff urt e periods: Operating lease commitments(1) Total(1)(2)(3)(4) Payments Due by Period Total Less Than 1 year $ $ 14,314 14,314 $ $ 2,666 2,666 1-3 Years (in thousands) 5,500 $ 5,500 $ 3-5 Years More Than 5 years $ $ 5,668 5,668 $ $ 480 480 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. (1) We lease 22,067 square feet of offiff ce space in Cambridge, Massachusetts, in a multi-tenant building under an operating lease that will expire in February 2022. In May 2016, we entered into a lease under which, beginning in September 2016, we rent 19,805 square feet of additional office space, also in Cambrm idge, Massachusetts, in a separate multi-tenant building. The lease for the additional space will expire in February 2022. The minimum lease payments in the table do not include related common area maintenance charges or real estate taxes, because those costs are variable. (2) We have acquired exclusive and non-exclusive rights to use, research, develop and offer forff sale certain products and patents under license agreements with Washington University, CyDex Pharmaceuticals, Inc. and two license agreements with The Regents of the University of Californff ia. 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 tuu o an aggregate of $33.4 million upon achieving certain milestones, related to clinical development, regulatoryrr approvals and sales. For the year ended December 31, 2016, we recorded $0.8 million of research and development expense under these license agreements related to milestones. (3) We enter into contracts in the normal course of business with CROs forff clinical trials, non-clinical research studies and testing, uring and other services and products as part of general operations. These contracts generally provide for termination manufact upon notice, and we believe that our non-cancelable obligations under these agreements are not material. ff (4) Under a Januan ry 2014 consulting agreement, we are obligated to make remaining milestone payments of up tuu o $1.5 million and o 87,303 shares of our common stock to a nonemplmm oyee consultant upon achieving certain clinical development to issue up tuu milestones and regulatory approval milestones. For the year ended December 31, 2016, we did not record any expense or make any milestone payments under this consulting agreement. Off-Balance Sheet Arrangements We do not currently have, nor did we have during the periods presented, any off-bff alance sheet arrangements as definff ed by SEC rules. Item 7A. Quantitative and Qualitative Disclosures about Market Risk We had cash, cash equivalents and marketable securities of approximately $397.5 million as of December 31, 2016. The primary objectives of our investment activities are to preserve principal, provide liquidity and maximize income without significantly increasing risk. Our primary exposure to market risk relates to fluctuations in interest rates, which are affecte general level of U.S. interest rates. Given the short-term nature of our cash, cash equivalents and marketable securities, we believe that a sudden change in market interest rates would not be expected to have a material impact on our finff ancial condition and/or results of operation. We do not have any foreff ign currency or other derivatives finff ancial instruments. d by changes in the ff 75 We do not believe that our cash, cash equivalents and marketable securities have significant risk of defauff lt or illiquidity. While we believe our cash, cash equivalents and marketable securities do not contain excessive risk, we cannot provide absolute assurance that in the futff ure our investments will not be subjeb ct to adverse changes in market value. In addition, we maintain significant amounts of cash, cash equivalents and marketable securities at one or more financial institutions that are in excess of fedff erally insured limits. Inflation generally affect ff s us by increasing our cost of labor and clinical trial costs. We do not believe that inflat ff ion had a material effeff ct on our results of operations during the year ended Decemberm 31, 2016. Item 8. Financial Statements and Supplementary Data The finff ancial statements required to be filff ed pursuant to this Item 8 are appended to this Annual Report. An index of those financial statements is fouff nd in Item 15. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that inforff mation required to be disclosed in the or submu reports that we fileff the time periods specifieff d in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our President and Chief Executive Officff er, who is our principal executive offiff cer and Chief Financial Officff er, who is also our principal financial and accounting officff er, as appropriate, to allow timely decisions regarding required disclosure. it under the Securities Exchange Act of 1934 is (1) recorded, processed, summarized, and reported within As of December 31, 2016, our management, with the participation of our principal executive officff er and principal financial and veness of our disclosure controls and procedures (as definff ed in Rules 13a-15(e) and 15d-15(e) accounting officff er, evaluated the effecti under the Securities Exchange Act of 1934). Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our principal executive officff er and principal financial and accounting officff er have concluded based upon the evaluation described above that, as of December 31, 2016, our disclosure controls and procedures were effeff ctive at the reasonable assurance level. ff Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in nder the Exchange Act). Our internal control over financial reporting is a process designed under the supervision of Rule 13a—15(f) uff our principal executive offiff cer and principal financial officeff reporting and the preparation of our finff ancial statements forff principles. Management evaluated the effect Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Controt Framework). Management, under the supervision and with the participation of the principal executive offiff cer and principal financial offiff cer, assessed the effect iveness of our internal control over financial reporting as of Decemberm 31, 2016 and concluded that it was effeff ctive. r to provide reasonabla e assurance regarding the reliability of financial external purposes in accordance with generally accepted accounting iveness of our internal control over finff ancial reporting using the criteria set forff l—Int— egrated FraFF mework (the 2013 th by the ff ff The effectiveness of our internal control over financial reporting as of December 31, 2016 has been audited by PricewaterhouseCoopers LLP, an independent registered public u accounting firff m, as stated in their report, which is included herein. Changes in Internal Control over Financial Reporting There were no changes to our internal control over financial reporting that occurred during the period covered by this Annual Report that have materially affeff cted, or are reasonably likely to materially affect, ff our internal control over financial reporting. Item 9B. Other Inforff mation a Not appl icable. 76 Item 10. Directors, Executive Officff ers and Corporate Governance PART III The inforff mation required by this Item is incorpor ated herein by reference to the information that will be contained in our proxyxx statement related to the 2017 Annual Meeting of Stockholders, which we intend to file with the Securities and Exchange Commission within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K. rr Item 11. Executive Compensation The inforff mation required by this Item is incorpor ated herein by reference to the information that will be contained in our proxyxx statement related to the 2017 Annual Meeting of Stockholders, which we intend to file with the Securities and Exchange Commission within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K. rr Item 12. Security Ownership of Certain Beneficia ff l Owners and Management and Related Stockholder Matters The inforff mation required by this Item is incorpor ce to the inforff mation that will be contained in our proxyxx ated herein by referen statement related to the 2017 Annual Meeting of Stockholders, which we intend to file with the Securities and Exchange Commission within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K. ff rr Item 13. Certain Relationships and Related Transactions, and Director Independence The inforff mation required by this Item is incorpor ce to the inforff mation that will be contained in our proxyxx ated herein by referen statement related to the 2017 Annual Meeting of Stockholders, which we intend to file with the Securities and Exchange Commission within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K. ff rr Item 14. Principal Accounting Fees and Services The inforff mation required by this Item is incorpor ce to the inforff mation that will be contained in our proxyxx ated herein by referen statement related to the 2017 Annual Meeting of Stockholders, which we intend to file with the Securities and Exchange Commission within 120 days of the end of our fiscal year pursuant to General Instruction G(3) of Form 10-K. ff rr PART IV Item 15. Exhibits, Financial Statement Schedules (a) The folff lowing documents are filed as part of this report: (1) Financial Statements: Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations and Comprehensive Loss Consolidated Statements of Changes in Redeemable Convertible Preferred Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements ff (2) Financial Statement Schedules: Stock and Stockhokk lders’ Equity (Deficff F-1 F-2 F-3 it) F-4 F-6 F-7 All finff ancial statement schedules have been omitted because they are not applicable, not required or the information required is shown in the financial statements or the notes thereto. (3) Exhibits. The exhibits filed as part of this Annual Report on Form 10-K are set fort ff h on the Exhibit Index immediately following our consolidated financial statements. The Exhibit Index is incorporated herein by referff ence. 77 Item 16. Form 10-K Summary a Not appl icable. 78 Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURES SAGE THERAPEUTICS, INC. Date: February 24, 2017 By: /s/ Jeffrff ey M. Jonas Jeffrey M. Jonas, M.D. Chief Executive Offiff cer, President and Director (Principal Executive Officff er) Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons in the capacities indicated below and on the dates indicated: Signature Title Date /s/ Jeffreff y M. Jonas Jeffrey M. Jonas, M.D. Chief Executive Offiff cer, President and Director (Principal Executive Officff er) February 24, 2017 /s/ Kimi Iguchi Kimi Iguchi /s/ Michael F. Cola Michael F. Cola /s/ Steven Paul Steven Paul, M.D. /s/ Kevin P. Starr Kevin P. Starr /s/ Howard Pien Howard Pien /s/ James Frates James Frates /s/ Geno Germano Geno Germano Chief Financial Officeff Accounting Officff er) r (Principal Financial and February 24, 2017 February 24, 2017 February 24, 2017 February 24, 2017 February 24, 2017 February 24, 2017 February 24, 2017 Director Director Director Director Director Director 79 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Sage Therapeutics, Inc. it) and of cash floff ws present red stock and stockhokk lders’ equity (deficff l—Int— egrated FraFF mework (2013) issued by the Committee of Sponsoring Organizations of the Treadway In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and comprmm ehensive loss, of changes in redeemable convertible preferff fairly, in all material respects, the finff ancial position of Sage Therapeutics, Inc. and its subsu idiaries at Decembem r 31, 2016 and 2015, and the results of their operations and their cash floff ws for each of the three years in the period ended Decemberm 31, 2016 in conforff mity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effeff ctive internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Contrott Commission (COSO). The Compamm ny’s management is responsible forff control over finff ancial reporting and for its assessment of the effectiveness of internal control over finff ancial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over finff ancial reporting based on our audits (which were integrated audits in 2016 and 2015). We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perforff m the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effeff ctive internal control over finff ancial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the finff ancial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over finff ancial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknekk ss exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performff ing such other procedurdd es as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. these financial statements, for maintaining effecti ve internal ff A compamm ny’s internal control over finff ancial reporting is a process designed to provide reasonable assurance regarding the reliability of es in accordance with generally accepted accounting financial reporting and the preparation of financial statements forff principles. A compamm ny’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the compamm ny; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the compamm ny; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effeff ct on the finff ancial statements. external purpos r Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projeo ctions of any evaluation of effecti veness to future periods are subjeb ct to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. ff /s/ PricewaterhouseCoopers LLP Boston, Massachusetts February 24, 2017 F-1 Sage Therapeutics, Inc. and Subsidiaries Consolidated Balance Sheets (in thousands, except share and per share data) Assets Current assets: Cash and cash equivalents etable securities Prepaid expenses and other current assets tal current assets Property and equipment, net Restricted cash Deferred offering costs Total assets Liabilities and Stockholders’ Equity Current liabilities: Accounts payable Accrued expenses Total current liabilities Other liabilities Total liabilities Commitments and contingencies (Note 5) Stockholders’ equity: ff Preferred stock, $0.0001 par value per share; 5,000,000 shares authorized at Decemberm 31, 2016 and 2015; no shares issued or outstanding at December 31, 2016 and 2015 Common stock, $0.0001 par value per share; 120,000,000 shares authorized at December 31, 2016 and 2015; 37,222,518 and 28,823,549 shares issued at December 31, 2016 and 2015, respectively; 37,222,172 and 28,823,549 shares outstanding at December 31, 2016 and 2015, respectively Treasury stock, at cost; 346 shares at December 31, 2016 and none at December 31, 2015 Additional paid-in capital Accumulated deficit Accumulated other comprehensive income (loss) Total stockhokk lders’ equity Total liabilities and stockholders’ equity December 31, 2016 December 31, 2015 $ $ $ $ $ $ $ 168,517 228,962 5,100 402,579 1,388 564 — 404,531 12,817 22,352 35,169 845 36,014 —— 4 (17) 688,959 (320,327) (102) 368,517 404,531 $ 186,753 —— 1,738 188,491 286 39 200 189,016 5,159 10,148 15,307 14 15,321 —— 3 - 335,032 (161,340) — 173,695 189,016 The accompam nying notes are an integral part of to hett se consolidatdd ed financial statements.tt F-2 Sage Therapeutics, Inc. and Subsidiaries Consolidated Statements of Operations and Comprehensive Loss (in thousands, except share and per share data) Operating expenses: Research and development General and administrative tal operating expenses Loss from operations Interest income, net Other expense, net Net loss Accretion of redeemable convertible preferred stock to redemption value Net loss attributable to common stockholders Net loss per share attributable to common stockholders—basic and diluted Weighted average numberm of common shares used in net loss per share attributable to common stockholders—basic and diluted Comprehensive loss: Net loss Other comprehensive items: Unrealized loss on marketable securities Total other comprehensive loss Total comprehensive loss 2016 Year Ended December 31, 2015 2014 $ 120,756 39,407 160,163 (160,163) 1,211 (35) (158,987) $ $ 69,357 25,293 94,650 (94,650) 178 (23) (94,495) $ — (158,987) $ — (94,495) $ 24,100 9,710 33,810 (33,810) 8 (9) (33,811) (2,294) (36,105) (4.75) $ (3.40) $ (1.67) 33,492,795 27,778,288 21,574,347 (158,987) $ (94,495) $ (33,811) (102) (102) (159,089) $ — — (94,495) $ —— — (33,811) $ $ $ $ $ $ The accompam nying notes are an integral part of to hett se consolidatdd ed financial statements.tt F-3 l a t o T ’ s r e d l o h k kk c o t S d e t a l u m u c c A r e h t o l a n o i t i d d A y t i u q E ) t i c i f e D ( d e t a l u m u c c A e v i s n e h e r p m o c t i c i f e D ) s s o l ( e m o c n i n i - d i a P l a t i p a C t n u o m A s e r a h S t n u o m A s e r a h S t n u o m A s e r a h S k c o t S y r u s a e r T k c o t S n o m m o C e l b a m e e d e R C d n a B , A s e i r e S k c o t S d e r r e f e r P e l b i t r e v n o C s e i r a i d i s b u S d n a . c n I , s c i t u e p a r e h T e g a S ) t i c i f e D ( y t i u q E ’ s r e d l o h k c o t S d n a k c o t S d e r r e f e r P e l b i t r e v n o C e l b a m e e d e R n i s e g n a h C f o s t n e m e t a t S d e t a d i l o s n o C ) a t a d e r a h s t p e c x e , s d n a s u o h t n i ( ) 6 3 5 , 1 3 ( $ ) 5 7 6 , 1 3 ( $ - $ 9 3 1 $ - $ — —— — 0 4 4 1 7 2 1 2 1 5 , 2 — — — — — — ) 4 9 2 , 2 ( ) 9 5 3 , 1 ( 3 6 8 , 2 9 0 7 9 , 3 9 ) 1 1 8 , 3 3 ( 5 8 8 , 1 2 1 — — ) 1 1 8 , 3 3 ( ) 5 4 8 , 6 6 ( 7 1 3 0 6 7 2 1 1 1 2 , 1 6 7 1 , 5 1 ) 5 9 4 , 4 9 ( 1 7 1 , 9 2 1 5 9 6 , 3 7 1 — — — — — — ) 5 9 4 , 4 9 ( ) 0 4 3 , 1 6 1 ( 1 1 1 1 0 , 1 — — —— — —— — —— — —— — —— — —— — —— — —— — —— — —— — —— —— — 0 4 4 1 7 2 1 2 1 5 , 2 ) 5 3 9 ( 1 6 8 , 2 9 — 9 6 9 , 3 9 7 2 7 , 8 8 1 7 1 3 0 6 7 2 1 1 1 2 , 1 6 7 1 , 5 1 — 1 7 1 , 9 2 1 2 3 0 , 5 3 3 1 1 1 1 0 , 1 —— — —— — —— — —— — —— — —— — —— — —— — —— — —— — —— —— — —— — —— — —— — —— — —— — —— — —— — —— — —— — —— - —— — —— — —— — —— 2 1 3 — — —— — —— — —— — 3 — —— $ 1 6 7 , 2 2 6 , 1 9 0 7 , 7 3 $ 0 0 0 , 0 5 7 , 7 3 —— — — —— 5 7 4 , 7 8 8 0 1 , 8 3 1 2 7 8 , 5 1 —— — —— — 4 9 2 , 2 —— — —— — —— 0 7 9 , 4 1 9 9 9 , 9 9 9 , 9 0 9 8 , 7 3 5 0 9 , 3 7 9 , 8 5 7 5 , 7 0 0 , 8 1 ) 3 6 8 , 2 9 ( ) 4 0 9 , 3 2 7 , 6 5 ( — 0 0 0 , 0 5 7 , 5 1 9 7 , 1 2 6 , 5 2 5 7 4 , 7 1 4 1 5 0 , 8 2 1 2 5 8 , 3 — 9 0 8 , 3 2 — 1 7 5 , 8 2 6 , 2 9 4 5 , 3 2 8 , 8 2 1 8 7 , 2 4 7 5 5 , 4 2 1 4 - F —— — —— — —— — —— — —— — —— — —— —— — —— — —— — —— — —— — —— — —— f o t e n , k c o t S d e r r e f ff e r P B s e i r e S f o e c n a u s 3 1 0 2 , 1 3 r e b m e c e D t a s e c n a l a B 0 3 $ f o s t s o c e c n a u s s i f o t e n , k c o t S d e r r e f e r P C s e i r e S f o e c n a u s s I 0 1 1 $ f o s t s o c e c n a u s s i f o e s i c r e x e m o r f k c o t s n o m m o c f o e c n a u s f o t n e m y a p n i k c o t s n o m m o c f o e c n a u s s I e u l a v n o i t p m mm e d e r o t k c o t s d e r r e f ff e r p e l b i t r e v n o c e l b a m e e d e r f o n o i t e r c c A e l b i t r e v n o c e l b a m e e d e r f o n o i s r e v n o C k c o t s n o m m o c o t k c o t s d e r r e f e r p e s n e p x e n o i t a s n e p m o c d e s a b - k c o t S s e e f t n a t l u s n o c k c o t s d e t c i r t s e r f o g n i t s e V s n o i t p o k c o t s f o t e n , k c o t s n o m m o c f o g n i r e f ff f o c i l b u p l a i t i n I f o e s i c r e x e m o r f k c o t s n o m m o c f o e c n a u s s I 4 1 0 2 , 1 3 r e b m e c e D t a s e c n a l a B k c o t s d e t c i r t s e r f o g n i t s e V s n o i t p o k c o t s e e y o l p m e r e d n u k c o t s n o m m o c f o e c n a u s s I n a l p e s a h c r u p k c o t s f o t n e m y a p n i k c o t s n o m m o c f o e c n a u s s I f o t e n , k c o t s n o m m o c f o g n i r e f ff f o c i l b u u P e s n e p x e n o i t a s n e p m o c d e s a b - k c o t S s e e f t n a t l u s n o c s t s o c g n i r e f ff f o s s o l t e N f o e s i c r e x e m o r f k c o t s n o m m o c f o e c n a u s s I 5 1 0 2 , 1 3 r e b m e c e D t a s e c n a l a B k c o t s d e t c i r t s e r f o g n i t s e V s n o i t p o k c o t s s t s o c g n i r e f ff f o s s o l t e N s e i r a i d i s b u S d n a . c n I , s c i t u e p a r e h T e g a S ) t i c i f e D ( y t i u q E ’ s r e d l o h k c o t S d n a k c o t S d e r r e f e r P e l b i t r e v n o C e l b a m e e d e R n i s e g n a h C f o s t n e m e t a t S d e t a d i l o s n o C ) a t a d e r a h s t p e c x e , s d n a s u o h t n i ( ) 7 1 ( 0 1 5 5 5 8 , 2 2 ) 2 0 1 ( 1 4 5 , 9 2 3 — — — — — — —— — —— ) 2 0 1 ( ) 7 8 9 , 8 5 1 ( ) 7 8 9 , 8 5 1 ( —— —— 0 1 5 5 5 8 , 2 2 — ) 7 1 ( — — —— 0 4 5 , 9 2 3 —— — —— — — 6 4 3 —— — —— 7 1 5 , 8 6 3 $ ) 7 2 3 , 0 2 3 ( $ ) 2 0 1 ( $ 9 5 9 , 8 8 6 $ ) 7 1 ( $ 6 4 3 — —— — 1 — —— 4 —— — 9 9 4 , 0 1 — —— 6 8 7 , 0 2 2 , 8 $ 2 7 1 , 2 2 2 , 7 3 — —— — —— — —— — $ — —— — —— — —— — l a t o T ’ s r e d l o h k kk c o t S d e t a l u m u c c A r e h t o l a n o i t i d d A y t i u q E ) t i c i f e D ( d e t a l u m u c c A e v i s n e h e r p m o c t i c i f e D ) s s o l ( e m o c n i n i - d i a P l a t i p a C t n u o m A s e r a h S t n u o m A s e r a h S t n u o m A s e r a h S k c o t S y r u s a e r T k c o t S n o m m o C e l b a m e e d e R C d n a B , A s e i r e S k c o t S d e r r e f e r P e l b i t r e v n o C s e i t i r u c e s e l a s - r o f - e l b a l i a v a n o s s o l d e z i l a e r n U f o t e n , k c o t s n o m m o c f o s g n i r e f ff f o c i l b u u P e s n e p x e n o i t a s n e p m o c d e s a b - k c o t S s t s o c g n i r e f ff f o 6 1 0 2 , 1 3 r e b m e c e D t a s e c n a l a B s s o l t e N e e y o l p m e r e d n u k c o t s n o m m o c f o e c n a u s s I k c o t s y r u s a e r t f o e s a h c r n a l p e s a h c r u p k c o t s . s t tt n e m e t a t s l a i c n a n i f d e t a d dd i l o s n o c e s e h t tt f o o t r a p l a r g e t n i n a e r a s e t o n g n i y n a p m m o c c a e h T 5 - F Sage Therapeutics, Inc. and Subsidiaries Consolidated Statements of Cash Flows (in thousands) Cash flows from operating activities Net loss Adjustments to reconcile net loss to net cash used in operating activities: 2016 Year Ended December 31, 2015 2014 $ (158,987) $ (94,495) $ (33,811) Stock-based compensation expense Non-cash licensing and consulting fees Premium on marketable securities Amortization of premium on marketable securities Depreciation Changes in operating assets and liabilities: epaid expenses and other current assets Accounts payable Accrued expenses and other liabia lities Net cash used in operating activities investing activities Cash flows fromff Proceeds from sales and maturities of marketable securities Purchases of marketable securities Purchases of property and equipment Increase in restricted cash Net cash used in investing activities financing activities Cash flows fromff Proceeds from the issuance of Series B preferred Proceeds froff m the issuance of Series C preferff Proceeds from stock option exercises and employee stock purchase plan stock, net of issuance costs red stock, net of issuance costs ff issuances Payments of offering costs Proceeds from public offerings of common stock, net of commissions and underwriting discounts Net cash provided by financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental disclosure of non-cash financing activities Accretion of redeemable convertible preferred stock to redemption value red stock to common stock Conversion of preferff Purchases of property and equipment included in accounts payable u Public ring costs included in accounts payable or accrued expenses offeff 23,020 — (756) 286 281 (3,362) 7,796 13,044 (118,678) 30,499 (259,093) (1,421) (525) (230,540) - - 1,406 (599) 330,175 330,982 (18,236) 186,753 168,517 $ — $ —— $ $ 8 —— $ 15,240 1,211 —— — 115 (681) 2,590 5,339 (70,681) — —— (198) —— (198) - - 730 (584) 129,720 129,866 58,987 127,766 186,753 $ — $ —— $ — $ $ 165 2,512 127 —— — 51 (715) 441 4,353 (27,042) — —— (128) —— (128) 14,970 37,890 40 (2,285) 96,255 146,870 119,700 8,066 127,766 2,294 92,863 — —— $ $ $ $ $ The accompam nying notes are an integral part of to hett se consolidatdd ed financial statements.tt F-6 SAGE THERAPEUTICS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 1. Nature of the Business Sage Therapeutics, Inc. (“Sage” or the “Compamm ny”) is a clinical-stage biopharmaceutical compamm ny committed to developing and commercializing novel medicines to treat life-altering central nervous system, or CNS, disorders, where there are no approved therapia es or existing therapies are inadequate. The Compamm ny has a portfolio two critical CNS receptor systems, GABA and NMDA. The GABA receptor family, which is recognized as the majoa r inhibitory neurotransmitter in the CNS, mediates downstream neurologic and bodily funff typeyy implmm icated in a broad range of CNS disorders. The Company is targeting CNS indications where patient populations are easily identified, clinical endpoints are well-definff ed, and development pathways are feasible. receptors of the glutamate receptor system are a major excitatory receptor system in the CNS. Dysfunff ction via activation of GABAA receptors. The NMDA- of product candidates with a current focus on modulating ction in these systems is ff The Compamm ny was incorporated under the laws of the State of Delaware on April 16, 2010, and commenced operations on January 19, 2011 as Sterogen Biopharma, Inc. On Septembem r 13, 2011, the Companmm y changed its name to Sage Therapeutics, Inc. under its Second Amended and Restated Certificate of Incorporation. The Compamm ny is subju ect to risks and uncertainties common to compmm anies in the biotech industry, including, but not limited to, the risks associated with developing producd t candidates at each stage of non-clinical and clinical development; the challenges associated with gaining regulatory approval of such product candidates; the risks associated with commercializing pharmaceutical products, if it is able to obtain regulatory approval; the potential for development by third parties of new technological innovations that may compemm te with the Compamm ny’s products; the dependence on key personnel; the challenges of protecting proprietary technology; the need to comply with government regulations; the high costs of drugr secure additional capital when needed to fund operations. development; and the uncertainty of being abla e to The Compamm ny has incurred losses and negative cash flows froff m operations since its inception. As of December 31, 2016, the it of $320.3 million. From its inception through December 31, 2016, the Compamm ny received net Company had an accumulm ated deficff proceeds of $643.3 million from the sales of redeemable convertible preferred proceeds from its initial publiu and September 2016. Untilnn its cash needs through a combim nation of equity offeff othet Company may be required to delay, limit, reduce or terminate product development onn r futff ut reuu commercialization efforff develop and market products or producdd t candidates that the Company would otherwise prefer to develop and market itself. r sourcuu es of funding. If the Compamm ny is unable to raise additional funduu s through equity or debt financings when needed, thet ngs in AprA il 2015, January 2016 antinn al product revenue, the Compamm ny expexx cts to financaa e ions, strategic alliances, licensing arrangements and such time, if ever, as the Company can generate substu stock, the issuance of convertible notes, and the c offering (“IPO”) in July 2014 and folff rings, debt financings, collaborat low-on underwritten public tsrr or grant rnn ights to ff offeri u a ff Based on its current operating plans, the Compamm ny believes its cash, cash equivalents and marketable securities of $397.5 million as of December 31, 2016 will be suffiff cient to fund its anticipated level of operations and capita second quarter of 2018. a l expenditures into the 2. Summary of Significff ant Accounting Policies The folff lowing is a summary of significant accounting policies followed in the preparation of these finff ancial statements. Basis of Presentation The accompamm nying consolidated financial statements include those of the Compamm ny and its subsidiaries after elimination of all intercompany accounts and transactions. The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Use of Eo stEE imtt atestt The preparation of consolidated finff ancial statements in conforff mity with GAAP requires management to make estimates and assumptmm ions that affect the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ froff m those estimates. the reported amounts of assets and liabia lities and the disclosure of contingent assets and liabilities at the date of ff F-7 Cash and CasCC h Equivalenll ts The Compamm ny considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. Marketable sll ecurities Marketable securities consist of investments with original maturities greater than ninety days. The Company considers its io of investments to be available-for-sale. Accordingly, these investments are recorded at fair value, which is based investment portfolff on quoted market prices. Unrealized gains and losses are reporterr d as a componmm ent of accumulated other comprehensive items in stockholders’ equity. Realized gains and losses and declines in value judged to be other than temporary are included as a compomm nent of other expense, net, based on the specificff temporary, the Company considers various factors , including whether the Company has the intent to sell the security, and whether it is more likely than not that the Company will be required to sell the security prior to recovery of its amortized cost basis. No declines in value were deemed to be other than temporm ary during the year ended Decemberm 31, 2016. identificff ation method. When determining whether a decline in value is other than ff Restrictt ted CasCC h A deposit of $39,000 was restricted froff m withdrawal as of December 31, 2016 and 2015. The restriction is related to securing the Compamm ny’s facility lease and expires in 2022 in accordance with the operating lease agreement. This balance is included in restricted cash on the accompamm nying consolidated balance sheets. A deposit of $0.5 million was restricted from withdrawal as of December 31, 2016. The restriction is related to securing the facility lease in May 2016, under which the Company rented 19,805 square feet of additional officff e space in a separate multi-tenant building beginning in Septemberm 2016. The lease forff 2022, in accordance with the operating lease agreement. This balance is included in restricted cash on the accompanying consolidated balance sheet. the additional space will expire in February 2022. The restriction expires in Property and Equipment Property and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line method. Upon retirement or sale, the cost of assets disposed of and the related accumulm ated depreciation are removed froff m the accounts and any resulting gain or loss is credited or charged to income. Repairs and maintenance costs are expensed as incurred. Impaim rmii ent of Lo ong-Ln ived Assets Long-lived assets consist of property and equipment. Long-lived assets to be held and used are tested forff recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Compamm ny considers in deciding when to perforff m an impairment review include significff ant underperformff ance of the business in relation to expectations, significant negative industry or economic trends, and significaff nt changes or planned changes in the use of the assets. An impam irment loss would be recognized whew n estimated undiscounted futff ure cash floff ws expected to result froff m the use of an asset are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaimm red asset over its fair value, determined based on discounted cash floff ws. To date, the Compamm ny has not recorded any impairment losses on long-lived assets. Research and Developmll ent Research and development expenses are comprised of costs incurred in performing research and development activities, including salaries and benefitff s, overhead costs, depreciation, contract services and other related costs. Research and development costs are expensed to operations as the related obligation is incurred. Research Contract Costs and Accruals The Compamm ny has entered into various research and development contracts with research institutions and other companies both nts are recorded as research and inside and outside of the United States. These agreements are generally cancelable, and related payme development expenses as incurred. The Company records accruals for estimated ongoing research costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies, including the phase or complmm etion of events, invoices received and contracted costs. Significff ant judgments and estimates may be made in determining the accrued balances at the end of any reporting period. Actual results could differff have not been materially differff ent froff m the actual costs. from the Compamm ny’s estimates. The Compamm ny’s historical accruar l estimates aa F-8 Patent CosCC ts The Compamm ny expenses patent costs as incurred and classifies such costs as general and administrative expenses in the accompanying statements of operations and comprehensive loss. Stock-B tt ased Compensation The Compamm ny recognizes compensation expense forff stock-based awards made to emplmm oyees and nonemployee directors, including grants of stock options and restricted stock, based on the estimated fair value on the date of grant, over the requisite service period. For stock-based options and restricted stock issued to nonemployee consultants, the Compamm ny recognizes the faiff r value of the award as an expense over the period in which the related services are received. The fair value of the awards and measurement of related stock-based compensation is subju ect to periodic adjud stments as the awards vest. For awards that vest upon uu achievement of a perforff mance condition, the Compam ny recognizes compensation expense when achievement of the perforff mance condition is deemed probable over the implmm icit service period. The faiff r value of each option grant is estimated using the Black-Scholes option-pricing model. Through July 2014, the Compamm ny was a private company and lacked suffiff cient Company-specificff historical and implied volatility inforff mation. Thereforff e, in 2016, the Company began estimating its expected volatility using a weighted average of the historical volatility of publicly traded peer companies and the volatility of its common stock, and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its traded stock price for the duration of the expected term. The expected term of the Company’s options has been determined utilizing the “simplified” method forff options granted to consultants and nonemployees has been determined based on the contractual term of the options. The risk-freeff 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 cash dividends and does not expect to pay any cash dividends in the forff eseeable future. awards that qualify as “plain-vanilla” options, while the expected term of its that the Compamm ny never paid ff ff The Compamm ny also applies a forf ures differff ff forfeit ff are revised. The Compamm ny recognizes stock-based compemm nsation expense forff Expected forfeit from the estimates, the differen ff ff ff ure rate in order to calculate stock-based compensation expense. To the extent actual eit ce will be recorded as a cumulative adjustment in the period in which the estimates ures are based on the Company’s historical experience and management’s expectations of future forfeiff tures. only the portion of awards that are expected to vest. Treasury Stoctt k The Compamm ny records treasury stock at cost. Treasury stock includes shares received froff m an employee as consideration for an exercise of stock options. Basic and Diluted NetNN Loss Per ShaSS re Upon the closing of the Compamm ny’s IPO in July 2014, all of the Company’s outstanding shares of redeemable convertible ed stock were converted into shares of common stock. Prior to this conversion, the Company folff preferr ff when computing net loss per share as the Compamm ny had issued shares that meet the definff method determines net loss per share for each class of common and participating securities according to dividends declared or accumulm ated and participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon dividends as if all income forff entitled the holders of such shares to participate in dividends, but did not contractually require the holders of such shares to participate periods in which the Company reported a net loss or a in losses of the Compamm ny. Accordingly, the two-class method did not apply forff net loss attributable to common stockholders resulting from dividends or accretion related to its redeemable convertible preferff shares. the period had been distributed. The Company’s redeemable convertible preferred their respective rights to receive shares contractually ition of participating securities. The two-class lowed the two-class method red uu ff Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net loss per share attributable to common stockholders is computed by dividing the diluted net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period, including potential dilutive common shares assuming the dilutive effeff ct of outstanding stock options and unvested restricted common shares, as determined using the treasury stock method. For periods in which the Company has reported net losses, diluted net loss per common share attributable to common stockholders is the same as F-9 basic net loss per common share attributable to common stockhokk lders, since dilutive common shares are not assumed to have been issued if their effect is antidilutive. ff The Compamm ny reported a net loss attributable to common stockhokk lders for the years ended December 31, 2016, 2015 and 2014. Risks akk nd Uncertaintiett s The product candidates developed by the Compamm ny require approvals froff m the U.S. Food and Drug Administration or forff eign regulatory agencies prior to commercial sales. There can be no assurance that the Compamm ny’s current and future product candidates will receive the necessary approvals. If the Company fail sufficff Company’s business and its financial statements. ient to file for regulatory approval or is denied approval or approval is delayed, it may have a material adverse impamm ct on the ly complete clinical development and generate results s to successfulff ff Concentratiott n of Co reCC dit Rii isk and of Signi ificff ant Supplpp iell rs Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Compamm ny has all cash and cash equivalents balances at two accredited financial institutt federally insured limits. The Company does not believe that it is subjeb ct to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. ions, in amounts that exceed The Compamm ny is dependent on third-party manufn act ff urers to suppl uu y products for research and development activities in its programs. In particular, the Compamm ny relies and expects to continue to rely on a small numbem r of manufn acff requirements for the active pharmaceutical ingredients and formulm ated drugr adversely affeff cted by a significant interruption in the supply of active pharmaceutical ingredients and forff mulated drugs. s related to these programs. These programs could be turers to suppl uu y it with its uu income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are Income Taxeaa s The Compamm ny accounts forff recognized for the estimated futff urtt e tax consequences attributable to differences between finff ancial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted rates in effeff ct for the year in which these temporary diffeff based on the weight of available evidence, it is more likely than not that some or all of the deferr During November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Defeff rred Taxes, which simplmm ifieff s the presentation of deferff Adoption of this ASU resulted in a reclassification of the current deferr amount of $0.6 million, which is netted with the long-term deferr 2015. ed tax liability to a non-current deferred tax liability, in the ed tax asset in its consolidated balance sheet as of Decembem r 31, red income taxes. The Company early adopted ASU 2015-17 effeff ctive December 31, 2015 on a prospective basis. rences are expected to be recovered or settled. Valuation allowances are provided if ed tax assets will not be realized. ff ff ff Fair Value Measurements Fair value is the price that would be received to sell an asset or paid to transferff a liability in an orderly transaction between market participants at the measurement date. Financial assets and liabilities carried at fair value are classified and disclosed in one of the folff lowing three categories: Level 1 — Quoted market prices in active markets forff identical assets or liabilities. Level 2 — Observable inpun ts other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inpun ts that are observable or can be corroborated by observable market data forff subsu tantially the fulff l term of the assets or liabilities. Level 3 — Unobservable inputs that are support uu ed by little or no market activity and that are significaff nt to the fair ff value of the assets or liabilities. The Compamm ny’s cash equivalents and marketable securities at December 31, 2016 and 2015 were carried at fair value, determined according to the fair value hierarchy; see Footnote 3, Fair Value Measurements. The carrying amounts refleff cted in the consolidated balance sheets for accounts payable and accrued expenses approximate their fair values due to their short-term maturities at December 31, 2016 and 2015, respectively. F-10 Defee rred OffeO ring Coststt kk The Compamm ny capitalizes certain legal, accounting and other third-party feeff s that are directly associated with in-process equity financings as other assets until such finff ancings are consummated. After consummation of the IPO in July 2014, $2.3 million of these costs were recorded in stockhol consummation of the folff stockholders’ equity as a reduction of additional paid-in capital generated as a result of the offering. As of December 31, 2015, the red offering costs of $0.2 million, which are shown as a non-current asset, that were for the follow-on Company had recorded deferff publu ic offeff ring of common stock in January 2016, $0.6 million of these costs were recorded in stockhokk lders’ equity as a reduction of additional paid-in capital generated as a result of the offeri ders’ equity as a reduction of additional paid-in capital generated as a result of the IPO. After of common stock in April 2015, $0.5 million of these costs were recorded in ring that was consummated in January 2016. Afteff r consummation of the follow-on public offeff low-on public offering ng. u ff ff Segmegg nt Data The Compamm ny manages its operations as a single segment for the purposes of assessing perforff mance and making operating decisions. The Compamm ny’s singular focus is on advancing medicines to treat central nervous system disorders, where there are inadequate or no approved existing therapies. All tangible assets are held within the United States. Comprehensive Loss Comprehensive loss includes net loss as well as other changes in stockholders’ equity (deficit) that result froff m transactions and economic events other than those with stockholders. For the year ended December 31, 2016, the diffeff comprehensive loss was the unrealized loss on marketable securities. For the years ended Decembem r 31, 2015 and 2014, there was no diffeff rence between net loss and comprmm ehensive loss. rence between net loss and Public Offerin ff gs On July 23, 2014, the Compamm ny completed the sale of 5,750,000 shares of its common stock in its IPO (the “IPO”), at a price to the public of $18.00 per share, resulting in net proceeds to the Company of $94.0 million after commissions and offeff ring costs paid by the Company. The shares began trading on Nasdaq Global Market on July 18, 2014. deducting underwriting discounts and ff In connection with preparing forff the IPO, the Company’s board of directors and stockhokk lders approved a 1-for-3.15 reverse stock split of the Company’s common stock effeff ctive July 2, 2014. All share and per share amounts in the finff ancial statements contained herein and notes thereto have been retroactively adjusted, whew re necessary, to give effect connection with the closing of the IPO, all of the Compamm ny’s outstanding redeemable convertible preferred converted into shares of common stock as of July 23, 2014, resulting in the issuance by the Company of an additional 18,007,575 shares of common stock. The significant increase in common stock outstanding in July 2014 will impamm ct the year-over-year comparability of the Company’s net loss per share calculations over the next year. to this reverse stock split. In stock automatically ff ff On April 20, 2015, the Compamm ny completed the sale of 2,628,571 shares of its common stock at a price to the public of $52.50 per share, resulting in net proceeds to the Compamm ny of $129.1 million after offeff ring costs paid by the Company. ff deducting underwriting discounts and commissions and On Januan ry 12, 2016, the Compam ny completed the sale of 3,157,894 shares of its common stock at a price to the public of $47.50 per share, resulting in net proceeds to the Compamm ny of $140.4 million afteff and offeri ng costs paid by the Compamm ny. ff r deducting underwriting discounts and commissions On Septemberm 14, 2016, the Compamm ny completed the sale of 5,062,892 shares of its common stock at a price to the public of $39.75 per share, resulting in net proceeds to the Compamm ny of $189.2 million afteff and offeri ng costs paid by the Compamm ny. ff r deducting underwriting discounts and commissions Recently Ill ssII ued Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customersrr (Topic 606), which supeuu rsedes all existing revenuen The new standard requires a compamm ny to recognize revenuen when it transfersff the consideration that the company expects to receive forff standards updates to clarify and provide implementation guidance related to Revenue from Contracts with Customers, including ASU those goods or services. The FASB has continued to issue accounting recognition requirements, including most industry-specific guidance. goods or services to customers in an amount that reflects F-11 nd Practical Expedi ct with Customers: Principal versurr rmance Obligations and Licensing, and ASU 2016-12, Revenue from Contracts wtt 2016-08, Revenue from Contrat with Customers: Idendd tifying Perfor NNarrow-Scope Imprm ovements att identification of its perforff mance obligations in a contract, collectability, non-cash consideration, presentation of sales tax and an entity’s evaluation of the nature of its promise to grant a license of intellectual property and whether or not that revenue is recognized over time or at a point in time. These new standards will be effect could early adopt the standard for the year ending December 31, 2017. The Company plans to early adopt the standard as of January 1, 2017, although there is no impamm ct of this new guidance on its consolidated finff ancial statements as it does not currently have any revenue generating arrangements. s Agent Considerdd ations, ASU 2016-10, Revenue from Contracts ith Customers: ents.tt These amendments address a number of areas, including the entity’s the Compamm ny beginning Januan ry 1, 2018. The Compamm ny ive forff x ff In February 2016, the FASB issued ASU No. 2016-02, Leases, which will replace the existing guidance in ASC 840, “Leases.” standard aims to increase transparency and compamm rability among organizations by requiring lessees to recognize leased The updated uu assets and leased liabilities on the consolidated balance sheets and requiring disclosure of key information abou The standard will be effecti impamm ct that this new guidance will have on its consolidated financial statements. ve on January 1, 2019, with early adoption permitted. The Compam ny is in the process of evaluating the t leasing arrangements. a ff In March 2016, the FASB issued ASU No. 2016-09, Imprm ovements to Employee Share-Based Payment Accounting, whiw ch intends to simplmm ify several aspects of accounting for share-based payment transactions, including the income tax consequences, classificff ation of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forf eiff recognized as they occur, as well as certain classifications on the statement of cash floff ws. The standard will be effecti 2017. The Compamm ny is in the process of evaluating the impact that this new guidance will have on its consolidated financial statements. ff ff tures ve on January 1, In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - CreCC dit Losses (TopiTT c 326):6 Measurement of Credit -sale debt securities. The guidance establishes a new "expected loss model" that requires entities to estimate Losses on FinFF ancial Instruments, which introducd es a new methodology for accounting forff including available-forff current expected credit losses on finff ancial instrumrr to be refleff cted as allowances rather than reductions in the amortized cost of available-for-sale debt securities. Early adoption is r December 15, 2018, and interim periods therein. The Compamm ny is in the process of permitted forff evaluating the impact that this new guidance will have on its consolidated finff ancial statements. ents by using all practical and relevant information. Any expected credit losses are credit losses on finff ancial instruments, annuan l periods beginning afteff In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (ww To(( pio c 230): ClaCC ssifica i tion of Co erCC tain Cash Receipts and Cash Payments. The standard rreduces the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The standard will be effecti pprocess of evaluating the impamm ct that this new guidance will have on its consolidated finff ancial statements. ve on January 1, 2018. The Compamm ny is in the ff In November 2016, the FASB issued ASU No. 2016-18, Statemtt pio c 230): Restricted CasCC h that changes the presentation of restricted cash and cash equivalents on the statement of cash floff ws. Restricted cash and restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-pff eriod total amounts shown on the statement of cash flows. This standard is effect permissible. The Company is in the process of evaluating the impact that this new guidance will have on its consolidated financial statements. After adopting the standard, the amounts of restricted cash shown on the consolidated balance sheets would be included in cash and cash equivalents in the statement of cash floff ws. the Compamm ny in the fisff cal year beginning January 1, 2018, but early adoption is ent of Cash Flows (ww To(( ive forff ff Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a futff ure date are not expected to have a material impact on the Compamm ny’s consolidated financial statements upon adoption. 3. Fair Value Measurements The Compamm ny’s cash equivalents are generally classified within Level 1 of the fair value hierarchy. The Company’s investments in marketable securities are classified within Level 2 of the fair ff value hierarchy. ff The fair values of the Compamm ny’s marketable securities are generally based on prices obtained from independent pricing sources. Consistent with the fair value hierarchy described above, securities with validated quotes from pricing services are generally refleff cted within Level 2, as they are primarily based on observable pricing for similar assets or other market observable inpun ts. Typical yy offeff ts used by these pricing services include, but are not limited to, reported trades, benchmark yields, issuer spreads, bids, rs or estimates of cash floff w, prepayment spreads and default rates. inpun ff F-12 The folff lowing tables summarize the Compamm ny’s money market funff ds and marketable securities as of December 31, 2016 and 2015: December 31, 2016 Quoted Prices in Active Marketkk s (Level 1) Significff ant Other Observable Inputs (Level 2) (in thousands) Significff ant Unobservable Inputs (Level 3) Total Cash equivalents: Money market fundff s Total cash equivalents Marketable securities: U.S. government securities U.S. corporate bonds International corporate bonds U.S. commercial paper International commercial paper Total marketable securities $ 168,517 $ 168,517 $ 168,517 168,517 —— $ — 100,031 58,452 24,190 30,351 15,938 228,962 — 100,031 58,452 —— 24,190 — 30,351 —— — 15,938 —— 228,962 Total cash equivalents and marketable securities $ 397,479 $ 168,517 $ 228,962 $ —— — — —— — —— — —— — Cash and cash equivalents: Money market fundff s Total cash and cash equivalents December 31, 2015 Quoted Prices in Active Marketkk s (Level 1) Significff ant Other Observable Inputs (Level 2) (in thousands) Significff ant Unobservable Inputs (Level 3) Total $ 186,753 $ 186,753 $ $ 186,753 $ 186,753 $ —— $ — $ —— — During the years ended Decemberm 31, 2016 and 2015, there were no transfersff among the Level 1, Level 2 and Level 3 categories. Marketable Securities The folff lowing table summarizes the Compam ny’s marketable securities as of December 31, 2016: December 31, 2016 Assets: U.S. government securities (due within 1 year) U.S. corporate bonds ternational corpora U.S. commercial paper International commercial papea te bonds rr r Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (in thousands) $ $ 100,055 58,508 24,212 30,351 15,938 229,064 $ $ 2 — —— — —— 2 $ $ (26) $ (56) (22) — —— (104) $ 100,031 58,452 24,190 30,351 15,938 228,962 The Compmm any held no marketable securities as of December 31, 2015. As of December 31, 2016, all marketable securities held by the Compamm ny had remaining contractual maturities of one year or less. As of December 31, 2016, the Company held 27 marketable securities which were in a loss position due to fluctuations in interest rates for less than one year. F-13 There have been no impairmm ments of the Company’s assets measured and carried at fair value during the years ended December 31, 2016 and 2015. 4. Balance Sheet Components Property and Equipment, net Property and equipment, net consists of the folff lowing: December 31, 2016 2015 Computer hardware and software rniture and equipment Leasehold improvements Less: Accumulated depreciation Property and equipment, net $ $ $ (in thousands) 708 695 527 1,930 (542) 1,388 $ 400 147 - 547 (261) 286 Depreciation expense forff the years ended December 31, 2016, 2015 and 2014 was $0.3 million, $0.1 million and $0.1 million, respectively. The useful life f is the lesser of the useful life off orff ff f the term of the respective lease. compumm ter hardware and softwff are is 3 years; furff niture and equipment is 5 years; and leasehold improvmm ements Accrued Expenses Accrued expenses consist of the following: Development costs Employee-related expenses Profesff sional services Other accrued expenses 5. Commitments and Contingencies Operatingtt Leases December 31, 2016 2015 (in thousands) $ $ 14,541 $ 5,948 1,751 112 22,352 $ 6,466 2,718 935 29 10,148 The Compamm ny rents 22,067 squaqq re feet of officff e space in a multi-tenant building under an operating lease that will expire in February 2022. In May 2016, the Compamm ny entered into a lease under which, beginning in Septemberm 2016, the Compamm ny rents 19,805 square feet of additional office space, in a separate multi-tenant building. The lease for the additional space will expixx re in February 2022. Rent expense, net of sublease income, forff the years ended December 31, 2016, 2015 and 2014, was $2.0 million, $0.4 million, and $0.3 million, respectively. F-14 Future minimum lease payments under non-cancelable operating leases are as folff lows at December 31, 2016: Years Ending December 31, 2017 2018 2019 2020 2021 Thereafter ff (in thousands) 2,666 $ 2,729 2,771 2,813 2,855 480 14,314 $ License Agreements CyDeyy x Lee icense Agreement In September 2015, the Compamm ny and CyDex Pharmaceuticals, Inc. (“CyDex”) amended and restated their existing commercial license agreement. Under the terms of the commercial license agreement as amended and restated, CyDex has granted to the Compamm ny an exclusive license to CyDex’s Captisol drug forff mulation technology and related intellectual property for the manufact pharmaceutical products incorporating the Company’s compomm unds knokk wn as SAGE-547 and SAGE-689, and the development and commercialization of the resulting products in the treatment, prevention or diagnosis of any disease or symptmm om in humans or animals other than (i) the ocular treatment of any disease or condition with a formulation, including a hormone; (ii) topical ocular treatment of inflammatory conditions; (iii) treatment and prophylaxis of funff gal infectio degeneration. ns in humans; and (iv) any ocular treatment for retinal ure of ff ff As consideration forff the inclusion of SAGE-689 in the license granted by CyDex, the Company paid to CyDex $0.1 million, which was recorded as research and development expense for the three months ended Septemberm 30, 2015 in connection with the execution of the amended and restated license agreement. The Compamm ny is obligated to make milestone payments under the amended and restated license agreement with CyDex based on the achievement of clinical development and regulatory milestones in the amount of up to $0.8 million in clinical milestones and up to $3.8 million in regulatory milestones for each of the firff st two fieff milestones and up tuu $0.8 million in clinical milestones and up tuu ff rth fields ff d with respect to SAGE-689. one fiel lds with respect to SAGE-547; up to $1.3 million in clinical o $1.8 million in regulatory milestones forff o $8.5 million in regulatory milestones forff with respect to SAGE-547; and upuu to each of the third and fouff For the year ended December 31, 2016, additional clinical development milestones were met forff the SAGE-547 program under the license agreement with CyDex, and accordingly, the Compamm ny recorded research and development expense and made cash payments totaling $0.8 million. For the year ended December 31, 2015, additional clinical development milestones were met forff the SAGE-547 program under the license agreement with CyDex, and accordingly, the Compamm ny recorded research and development expense and made cash payments totaling $0.8 million. Washington UnivUU ersirr ty License Agreement In November 2013, the Compmm any entered into a license agreement with Washington University whereby the Company was granted exclusive, worldwide rights to develop and commercialize a novel set of neuroactive steroids developed by Washington University. In exchange for development and commercialization rights, the Compamm ny paid an upfront, non-refundable payment of $50,000 and is required to pay an annuan l license maintenance fee of $15,000 on each subsu equent anniversary date, until the firsff 2 clinical trial for a licensed product is initiated. The Company is obligated to make milestone payments to Washington University based on achievement of clinical development and regulatory milestones of up to $0.7 million and $0.5 million, respectively. Additionally, the Company fulff 2013. The fair value of these shares of $0.1 million was recorded as research and development expense in 2013. filled its obligation to issue to Washington University 47,619 shares of common stock on Decembem r 13, t Phase ff The Compamm ny is obligated to pay royalties to Washington University at rates in the low single digits on net sales of licensed products covered under patent rights and royalties at rates in the low single digits on net sales of licensed products not covered under patent rights. Additionally, the Company has the right to sublu icense and is required to make payments at varying percentages of sublu icensing revenue received, initially in the mid-teens and descending to the mid-single digits over time. F-15 For the year ended December 31, 2016, the Compamm ny did not record any expense or make any milestone payments under the license agreement with Washington University For the year ended December 31, 2015, a regulatory milestone was met for one of the programs under the license agreement with Washington University, and accordingly, the Compam ny recorded research and development expenses and made a cash payment of $50,000. Universirr ty of Californiarr License Agreement In October 2013, the Compamm ny entered into a non-exclusive license agreement with The Regents of the University of Californff ia whereby the Company was granted a non-exclusive license to certain clinical data and clinical material for use in the development and commercialization of biopharmaceutical products in the licensed fieff May 2014, the license agreement was amended to add the treatment of essential tremor to the licensed field of use, materials and milestone feeff milestones of up tuu following the sale of the firff st product. The license will terminate on the earlier to occur of (i) 27 years after years after the last-derived product is first commercially sold. o $0.1 million and will be required to pay royalties of less than 1% on net sales for a period of fifff teeff the effect provisions of the agreement. The Company paid to The Regents of the University of California clinical development ld, including status epilepticus and post-partum depression. In n yearsaa ive date or (ii) 15 ff ff For the years ended December 31, 2014 and 2013, the Compamm ny did not record any expense or make any milestone or royalty payments under the license agreement with the University of Califorff nia. In June 2015, the Compamm ny entered into an exclusive license agreement with The Regents of the University of Califorff nia whereby the Company was granted an exclusive license to certain patent rights related to the use of allopregnanolone to treat various diseases. In exchange for such license, the Company paid an upfu roff nt payment of $50,000 and will make payments of $15,000 for annual maintenance fees until the calendar year following the first sale, if any, of a licensed product. The Compamm ny is obligated to make milestone payments folff million in the aggregate, respectively. Following the firsff oyalties at a low single digit percentage of net sales, if any, of licensed products, subju ect to specifieff d minimum annual royalty amounts. Unless terminated by operation of law or by acts of the parties under the terms of the agreement, the license agreement will terminate when the last-to-expire patents or last-to-be abandoned patent appl t sale, if any, of a licensed product, the Compamm ny is obligated to pay raa regulatory and sales milestones of up to $0.7 million and $2.0 lowing the achievement of specifiedff ications expire, whichever is later. a For the year ended December 31, 2015, three clinical development milestones were met, and accordingly, the Compam ny recorded research and development expenses and made cash payments totaling $0.1 million. For the year ended December 31, 2016, the Compamm ny did not record any expense or make any milestone or royalty payments under either license agreement with The Regents of the University of California. Consultinll g An greement In Januan ry 2014, the Compamm ny entered into a consulting agreement with a non-emplm oyee advisor whereby the Company is obligated to make cash payments of up tuu clinical development and regulatory milestones. o $2.0 million and to issue up to 126,984 shares of common stock upon attainment of certain In Januan ry and March 2014, the firff st clinical development milestones forff each of two programs included in the consulting agreement were met. Accordingly, the Compamm ny recorded research and development expense for the year ended December 31, 2014 of $0.2 million, comprised of $50,000 in cash and $0.1 million related to the issuance of 15,872 shares of the Compamm ny’s common stock. For the year ended December 31, 2015, the second and third clinical development milestones for one of the programs included in the consulting agreement were met. Accordingly, the Compamm ny recorded research and development expense forff December 31, 2015 of $1.7 million, comprised of $0.5 million in cash and $1.2 million related to the issuance of 23,809 shares of the Company’s common stock, related to the achievement of these milestones. the year ended For the year ended December 31, 2016, the Compamm ny did not record any expense or make any milestone payments under the consulting agreement with the non-emplmm oyee advisor. F-16 6. Preferred Stock As of December 31, 2016 and 2015, the Compamm ny has authorized 5,000,000 shares of preferred ff stock. The preferred ff stock was classified under stockholders’ equity (deficff it) as of December 31, 2016 and 2015. The Compamm ny had issued Series A, Series B and Series C redeemable convertible preferr ed Stock”). The Redeemable Preferr ff Preferr because the shares contained redemptmm ion feaff outstanding Redeemable Preferre d Stock was converted to common stock, see Note 2. ed Stock was classified outside of stockholders’ equity (deficff it) as of December 31, 2013 tures that are not solely within the control of the Compamm ny. In July 2014, all issued and ed stock (collectively, the “Redeemable ff ff ff 7. Common Stock As of December 31, 2016 and 2015, the Compamm ny has authorized 120,000,000 shares of common stock with a par value of $0.0001 per share. Each share of common stock entitles the holder to one vote on all matters submu itted to a vote of the Compam ny’s stockholders. Common stockholders are entitled to receive dividends, as may be declared by the Board of Directors, if any. As of December 31, 2016 and 2015, no dividends have been declared. During the year ended December 31, 2016, the Compamm ny received 346 shares of the Compam ny’s common stock from an emplomm yee as proceeds for an exercise of stock options. The total cost of shares held in treasury at December 31, 2016 was $17,000. 8. Stock-Based Compensation Stocktt Option PlaPP ns On July 2, 2014, the Compamm ny’s stockholders approved the 2014 Stock Option and Incentive Plan (the “2014 Stock Option ff ve upon the complmm etion of the IPO. The 2014 Stock Option Plan provides for the grant of restricted stock Plan”), which became effecti awards, restricted stock units, incentive stock options and non-statutory stock options. The 2014 Stock Option Plan replaced the Company’s 2011 Stock Option and Grant Plan (the “2011 Stock Option Plan”). The Compam ny will no longer grant stock options or other awards under the 2011 Stock Option Plan. Any options or awards outstanding under the 2011 Stock Option Plan remained outstanding and effeff ctive. As of December 31, 2016, the total number of shares reserved under all equity plans is 4,891,922, and the Company had 660,115 shares available forff future issuance under such plans. On Decembem r 15, 2016, the Board of Directors of the Company approved the 2016 Inducement Equity Plan, for which no grants were made as of December 31, 2016. The 2014 Stock Option Plan provides for an annual increase, to be added on the firsff t day of each fiscal year, by up to 4% of the Company’s issued and outstanding shares of common stock on the last day of the prior fiscal year. On January 1, 2017, 1,488,886 shares of common stock, representing 4% of the Compamm ny’s issued and outstanding shares of common stock as of December 31, 2016, were added to the 2014 Stock Option Plan. Terms of restricted stock awards, restricted stock units, and stock option agreements, including vesting requirements, are determined by the Board of Directors or the Compemm nsation Committee of the Board of Directors, subjeb ct to the provisions of the applicable stock option plan. Options and restricted stock awards granted by the Compamm ny, that are not perforff mance-based, generally vest based on the continued service of the grantee with the Company during a specified period following grant. These awards, wheww n granted to emplmm oyees, generally vest ratably over fouff esting at the one year anniversary. All option awards r years, with a 25% cliff vff expire in 10 years. During the years ended Decemberm 31, 2016 and 2015, the Compamm ny granted 74,039 and 497,100 options, respectively, to emplomm yees to purchase shares of common stock that contain performff certain clinical and regulatory development milestones related to product candidates. Recognition of stock-based compemm nsation expense associated with these performff achievement, using management’s best estimates. ance-based stock options commences when the perforff mance condition is considered probable of ance-based vesting criteria, primarily related to achievement of During the year ended December 31, 2015, one milestone was achieved. This milestone represents 35% of the perforff mance- based option grants that were made during the year ended December 31, 2015. During the year ended December 31, 2015, the Company recognized stock-based compensation expense related to this milestone of $4.8 million. During the year ended December 31, 2016, one milestone was achieved. This milestone represents 50% and 30%, of the ance-based option grants that were made during the years ended December 31, 2016 and 2015, respectively. During the year performff ended December 31, 2016, the Compamm ny recognized stock-based compemm nsation expense related to this milestone of $5.0 million. F-17 The achievement of the remaining milestones was deemed to be not probable as of Decemberm 31, 2016, and thereforeff no expense has been recognized related to these awards for the year ended December 31, 2016. Stock-based compensation expense recognized during the years ended December 31, 2016, 2015 and 2014 was as folff lows: Research and development General and administrative 2016 Year Ended December 31, 2015 (in thousands) 2014 $ $ 11,197 $ 11,823 23,020 $ 5,924 $ 9,316 15,240 $ 1,093 1,419 2,512 During the years ended Decemberm 31, 2016 and 2015, the Compamm ny recorded $0.2 million and $0.1 million, respectively, of stock-based compensation expense related to the Employee Stock Purchase Plan. For stock option awards, the fair ff value is estimated at the grant date using the Black-Scholes option-pricing model, taking into account the terms and conditions upon which options are granted. The fair value of the options is amortized on a straight-line basis for awards to emplomm yees and on a graded basis for awards to non-emplomm yees over the requisite service period of the awards. The weighted average grant date faiff the years ended December 31, 2016, 2015 and 2014 was $24.97, $34.08 and $14.33, respectively. r value per share relating to outstanding stock options granted under the Compamm ny’s stock option plans during ff The fair value of each option granted to employees and nonemplmm oyee directors during the years ended Decembem r 31, 2016, 2015 and 2014 under the Compamm ny’s stock option plans has been calculated on the date of grant using the following weighted average assumptmm ions: Expected dividend yield Expected volatility Risk-free interest rate Expected life off f option Year Ended December 31, 2015 2014 2016 0% 80.15% 1.47% 0% 90.54% 1.59% 0% 98.86% 1.95% 6.05 years 6.03 years 6.38 years Expected dividend yield:l the Compamm ny has not paid, and does not anticipate paying, any dividends in the forff eseeable future. Riskii -fkk reff e interest rate: the Compamm ny determined the risk-free interest rate by using a weighted average equivalent to the expected term based on the U.S. Treasury yield curve in effecff t as of the date of grant. Expected volatility: the Compamm ny does not have suffiff cient history to support uu a calculation of volatility using only its historical data. Starting in 2016, the Compamm ny uses a weighted-average volatility considering the Compamm ny’s own volatility since the IPO in July 2014 and the volatilities of a peer group ouu used volatilities based on an analysis of reported data for a peer group ouu f compamm rable compamm nies for time periods prior to the IPO. Prior to 2016, the Compamm ny f compamm rable companies. rr in(( Expected term ( years)rr : the expected term represents the period that the Compamm ny’s stock option grants are expected to be outstanding. The Compamm ny has been publu icly traded since July 2014, and there is not suffiff cient historical term data to calculate the expected term of the options. Therefore, the Company elected to utilize the “simplified” method to estimate the expected term of options granted to employees. Under this approach, the weighted average expected life i term and the contractual term of the option. s presumed to be the average of the vesting ff ff Forfeit ures are estimated at the time of grant and revised, if necessary, in subsu equent periods if actual forfeiff tures diffeff r froff m estimates. The Compamm ny estimates forff and 2014, forfeiff ture rates of 9.58%, 10% and 10%, respectively, were applied. feitures based on historical termination behavior. For the years ended December 31, 2016, 2015 For options granted to non-employees, the expected life off f the option used is 10 years, which is the contractual term of each option. All other assumptions used to calculate the grant date fair value are generally consistent with the assumptions used for options granted to employees. F-18 The table below summarizes activity related to stock options: Weighted Average Exercise Price Weighted Avera ege Remaining Lifeff (in years) Shares Outstanding as of December 31, 2015 Granted Exercised Forfeited ff Outstanding as of December 31, 2016 Vested and expected to vest as of Decembem r 31, 2016 Vested and exercisable as of December 31, 2016 3,002,809 $ 1,454,568 (124,903) (100,667) 4,231,807 $ 3,727,837 $ 1,702,819 $ 26.67 35.98 8.09 44.76 29.99 29.36 24.11 Aggregate Intrinsic Value (in thousands) 96,479 8.67 $ 8.24 $ 8.21 $ 7.59 $ 92,843 84,395 48,096 As of December 31, 2016, the Company had unrecognized stock-based compensation expense related to its unvested service- based stock option awards of $43.6 million, which is expected to be recognized over the remaining weighted average vesting period of 2.77 years. The total fair value of options vested for the years ended December 31, 2016, 2015 and 2014 was $24.1 million, $9.2 million, and $1.0 million, respectively. In addition, the Compamm ny granted 245,872 stock options that are both outstanding and unvested that will vest upon uu the achievement of certain performff awards was $5.2 million at Decembem r 31, 2016. ance criteria in the futff ure. Total unrecognized stock-based compensation expense related to those The intrinsic value of stock options exercised during the years ended December 31, 2016, 2015 and 2014 was $4.6 million, $28.4 million and $2.4 million, respectively. Restritt ctedtt Stock Awardsdd During the years ended Decemberm 31, 2013, 2012 and 2011, the Company granted restricted stock awards to certain offiff cers, emplmm oyees, directors, and consultants of the Company. The table below summarizes activity relating to restricted stock: Outstanding as of December 31, 2015 sued Vested ff Forfeited Repurchased Outstanding as of December 31, 2016 As of December 31, 2016, all of the restricted stock was vested. 2014 EmpEE loyeo e StoSS ck Purchase Plan Shares 42,781 —— (42,781) —— — —— On July 2, 2014, the Companmm y’s stockholders approved the 2014 Emplmm oyee Stock Purchase Plan, which had been previously approved by the Board of Directors. A total of 282,000 shares of common stock were initially authorized for issuance under this plan. The 2014 Employee Stock Purchase Plan became effeff ctive upon the complmm etion of the IPO. As of December 31, 2016, 14,351 shares have been issued under this plan. At December 31, 2016, accrued expenses includes $67,000 of stock-based compensation expense related to an enrollment period for whiw ch the related shares had not been issued as of Decemberm 31, 2016. F-19 9. Net Loss Per Share Basic and diluted net loss per share attributable to common stockholders was calculated as follows for the years ended December 31, 2016, 2015 and 2014: 2016 Year Ended December 31, 2015 2014 Basic net loss per share attributable to common stockholders: Numerator: Net loss attributable to common stockholders (in thousands) Denominator: Weighted average common stock outstanding—basic lutive effeff ct of shares of common stock equivalents resulting from common stock options and preferred ff Weighted average common stock common stock (as converted) $ (158,987) $ (94,495) $ (36,105) 33,492,795 27,778,288 21,574,347 —— —— —— outstanding—diluted 33,492,795 27,778,288 21,574,347 Net loss per share attributable to common stockholders— bbasic and diluted $ (4.75) $ (3.40) $ (1.67) The folff lowing common stock equivalents outstanding as of Decembem r 31, 2016 and 2015 were excluded from the compumm tation of diluted net loss per share forff the periods presented because including them would have been anti-dilutive: Stock options plmm oyee stock purchase plan Restricted stock 10. Income Taxes Year Ended December 31, 2015 2016 2,643,833 3,985,935 3,307 6,784 42,781 — 2,689,921 3,992,719 There is no provision for income taxes because the Compamm ny has historically incurred operating losses and maintains a fulff tax assets. The reported amount of income tax expense for the years differff s froff m the valuation allowance against its net deferred amount that would result froff m applying domestic federal statutory tax rates to pretax losses primarily because of changes in valuation allowance. ff l A reconciliation of U.S. statutory rate to the Compamm ny’s effeff ctive tax rate is as folff lows: Tax at Statutory Rate State Taxes, net of federal benefitff Permanent Items Orphr Foreign Rate Differential Federal and State Credits Change in Valuation Allowance an Drugr Credit Addback er Year Ended December 31, 2015 2014 2016 34.0% 4.2 (1.0) (2.9) (3.1) 10.3 (41.5) —— 0.0% 34.0% 4.0 (0.9) (4.2) (3.1) 13.2 (43.1) 0.1 0.0% 34.0% 4.5 (1.0) —— — 8.5 (46.0) —— 0.0% F-20 Significff ant componmm ents of the Compamm ny’s net deferff red tax asset at December 31, 2016 and 2015 are as folff lows: osts Net operating losses alized start-up cuu Capita Accounting method change Tax credit carryrr Accrued expenses Depreciation and amortization Stock options Others forwards Total net deferred tax asset before valuation allowance Valuation allowance Net deferred tax asset December 31, 2016 2015 (in thousands) $ $ 84,374 $ 2,155 (673) 33,477 2,287 999 12,103 350 135,072 (135,072) - $ 44,172 2,335 (1,347) 17,013 1,062 716 5,097 21 69,069 (69,069) - of Decembem r 31, 2016, the Company had fede ral and state net operating loss carryforff wards of $235.4 million and $234.3 ff million, respectively, which begin to expire in 2031. As of December 31, 2016, the Compamm ny had fede development tax credits carryforff wards of $4.1 million and $1.6 million, respectively, which begin to expire in 2031 and 2027, respectively. As of December 31, 2016, the Compamm ny had fedff an drug tax credit carry forwards of $29.8 million, which begin eral orphrr to expire in 2034. At December 31, 2016, the Compamm ny has excess equity based compensation tax deductions related to net operating federal and state purposes of $20.4 million and $20.4 million respectively. The Company has excess equity based losses forff compemm nsation related to credits for fedff have not been included in the net deferred tax assets before valuation allowance since these benefitff s would be credited directly to additional paid in capital if subsequently recognized through a reduction in taxes payable. eral and state purposes of $1.3 million and $0.2 million, respectively. These excess tax benefitff s ral and state research and ff The deferr ff ed tax assets above exclude $8.0 million of net operating losses and $1.5 million of fedff eral and state research and development credits related to tax deductions from the exercise of stock options subsu equent to the adoption of the 2006 accounting standard on stock-based compensation. This amount represents an excess tax benefitff and has not been included in the gross deferff tax assets. The Compamm ny will adopt ASU 2016-09, Improvmm ended March 31, 2017. As a result of adoption, the deferff million and the deferr be offsff et by a corresponding increase in the valuation allowance. The adoption of ASU 2016-09 will have no impacmm t to the Company’s income statement, balance sheet, or retained earnings. ed tax assets associated with federal and state research credits will increase by $1.5 million. These amounts will red tax assets associated with net operating losses will increase by $8.0 ements to Employee Share-Based Payment Accounting, forff the quarter red ff As of December 31, 2016, net deferr ff ed tax assets increased approximately $66.0 million primarily due to the operating loss and tax credits incurred during the year. This increase in net deferff allowance. red tax assets was offseff t by a corresponding increase in the valuation Management of the Company has evaluated the positive and negative evidence bearing upouu n the realizability of its deferred tax assets, which are comprised principally of net operating loss carryforwards and tax credit carryforwards. Under the applicable accounting standards, management has considered the Company’s history of losses and concluded that it is more likely than not that the Compamm ny will not recognize the benefitsff million and $69.1 million has been established at December 31, 2016 and 2015, respectively. ed tax assets. Accordingly, a fulff of federal and state deferr l valuation allowance of $135.1 ff Pursuant to Section 382 of the Internal Revenuen Code, certain subsu tantial changes in the Compamm ny’s ownership may result in a limitation on the amount of net operating loss carryforff wards and tax carryforff wards that may be used in future years. Utilization of the net operating loss (“NOL”) and tax credit carryforwards may be subju ect to a substantial annuan l limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership change limitations that have occurred previously or that could occur in the future. These owneww rship changes may limit the amount of NOL and tax credit carryforwards that can be utilized annually to offseff taxable income and tax, respectively. The Company has not completed a study to assess whether an ownership change has occurred, or whether there have been multiple owneww rship changes since its formation, due to significant complexity and related costs associated with such a study. There could also be additional ownership changes in the future which may result in additional limitations on the utilization of NOL carryforff wards and credits. Further, until a study is completed and any limitation is known, no amounts are being presented as an uncertain tax position. t futff ure F-21 The Compamm ny applies the authoritative guidance on accounting forff and disclosure of uncertainty in tax positions, which requires the Compamm ny to determine whether a tax position of the Company is more likely than not to be sustained upon examination, including resolution of any related appe more likely than not threshold, the tax amount recognized in the finff ancial statements is reduced by the largest benefit that has a greater than fifty percent likelihood of being realized upon the ultimate settlement with the relevant taxing authority. als of litigation processes, based on the technical merits of the position. For tax positions meeting the a The folff lowing is a rollforff ward of the Compamm ny’s unrecognized tax benefits: Unrecognized tax benefits—as of the beginning of the year Gross increases—current period tax positions Gross decreases—tax positions of prior periods Unrecognized tax benefitff s—as of the end of the year $ $ — $ —— — —— $ — $ —— — —— $ 2,880 —— (2,880) —— 2016 Year Ended December 31, 2015 (in thousands) 2014 During 2014, the Compamm ny filed an application for change in accounting method with the IRS to capitalize start-up costs that were historically deducted and included as part of the NOL carryforff ward through December 31, 2013. As a result, the Compam ny’s unrecognized tax benefits, which historically related to start-up cuu conducted a study of its R&D credit carryforwards. This study may result in an adjustment to the Company’s R&D credit carryforff wards; however, until a study is completed and any adjud stment is known, no amounts are being presented as an uncertain tax position under Topic 740. A full valuation allowance has been provided against the Compamm ny’s R&D credits and, if an adjud stment is required, this adjustment would be offsff et by an adjustment to the valuation allowance. Thus, there would be no impact to the consolidated balance sheets or statements of operations if an adjustment were required. osts, are zero at Decemberm 31, 2016. The Company has not, as of yet, The Compamm ny will recognize interest and penalties related to uncertain tax positions in income tax expense when in a taxable income position. As of December 31, 2016 and 2015, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statement of operations. The Compamm ny files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Compam ny is subjeb ct to examination by federa tax examinations, and the Compamm ny’s tax returt ns are open under statute froff m 2013 to the present. The tax attributes prior to 2013 may still be adjud sted upon examination. The Compamm ny’s policy is to record interest and penalties related to income taxes as part of the tax provision. l and state jurisdictions, where applicable. There are currently no pending ff During November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Defeff rred Taxes, which simplmm ifieff s the ff ed income taxes. This ASU requires that deferff presentation of deferr statement of finff ancial position. The standard is effeff ctive for public companies forff including interim periods within that reporting period. Early adoption is permitted forff any interim and annual financial statements that have not yet been issued. The Compamm ny early adopted ASU 2015-17 effeff ctive December 31, 2015 on a prospective basis. Adoption of ed tax liability to a non-current deferred tax liability, in the amount of $0.6 this ASU resulted in a reclassification of the current deferr million, which is netted with the long-term deferr periods were retrospectively adjusted. ed tax asset in its consolidated balance sheet as of December 31, 2015. No prior red tax assets and liabilities be classified as non-current in a fiscal years beginning after ff Decembem r 31, 2016, ff ff 11. Employee Benefitff Plan The Compamm ny maintains a 401(k) profit sharing plan (the “Plan”) forff its emplmm oyees. Each participant in the Plan may elect to contribute a portion of his or her annual compemm nsation to the Plan subjeb ct to annual limits established by the Internal Revenue Service. Effeff ctive Novembem r 1, 2014, the Compamm ny instituted an emplmm oyer match of 50% of eligible contributions up to 6% of emplm oyee contributions. For the years ended Decemberm 31, 2016 and 2015, the Company contributed $0.4 million and $0.2 million, respectively. F-22 12. Selected Quarterly Financial Data (Unaudited) The folff lowing table contains quarterly financial inforff mation forff ff a fair inforff mation reflects all normal recurring adjustments necessary forff operating results for any quarter are not necessarily indicative of results for any future period. 2016 and 2015. The Compamm ny believes that the following statement of the inforff mation for the periods presented. The Total operating expenses Loss from operations Net loss Net loss per share attributable to common stockhokk lders—basic and diluted Total operating expenses Loss from operations Net loss Net loss per share attributable to common stockhokk lders—basic and diluted First Quarter Second Quarter 2016 Fourth Third Quarter Quarter (in thousands, except per share amounts) Total $ 30,714 (30,714) (30,543) $ 35,006 (35,006) (34,747) $ 38,064 (38,064) (37,796) $ $ 56,379 (56,379) (55,901) 160,163 (160,163) (158,987) (0.97) $ (1.08) $ (1.15) $ (1.50) $ (4.75) First Quarter 2015 Fourth Third Second Quarter Quarter Quarter (in thousands, except per share amounts) Total $ 16,897 (16,897) (16,871) $ 25,059 (25,059) (25,027) $ 24,082 (24,082) (24,035) $ 28,612 (28,612) (28,562) 94,650 (94,650) (94,495) (0.66) $ (0.90) $ (0.84) $ (0.99) $ (3.40) $ $ $ $ F-23 Exhibit No. 3.1 3.2 4.1 4.2 10.1+ 10.2* 10.3* 10.4* 10.5 10.6+ 10.7+ 10.8+ 10.9+ 10.10+ 10.11+ 10.12+ 10.13+ Exhibit List Description Fifthff Amended and Restated Certificate of Incorporation of the Registrant, as currently in effect (incorporated by referff ence to Exhibit 3.2 of the Registrant’s Current Report on Form 8-K (File No. 000-36544) filed on July 25, 2014) By-laws of the Registrant and the amendments thereto, as currently in effect of the Registrant’s Current Report on Form 8-K (File No. 000-36544) filed on July 25, 2014) ff (incorporated by reference to Exhibit 3.4 Specimen Common Stock Certificff ate (incorporated by referff ence to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-1 (File No. 333-196849) filed on July 8, 2014) Second Amended and Restated Investors’ Rights Agreement by and among the Registrant and certain of its stockholders dated March 11, 2014 (incorporated by referff ence to Exhibit 4.2 of the Registrant’s Registration Statement on Form S-1 (File No. 333-196849) filed on July 8, 2014) 2014 Stock Option and Incentive Plan and forff ms of award agreements thereunder (incorporated by referff ence to Exhibit 10.1 of the Registrant’s Registration Statement on Form S-1 (File No. 333-196849) filed on July 8, 2014) Exclusive License Agreement by and between the Registrant and Washington University, dated November 11, 2013 r (incorpora (File No. 333-196849) fileff d on July 8, 2014) ted by referff ence to Exhibit 10.3 of the Registrant’s Registration Statement on Form S-1 Amended and Restated Commercial License by and between the Registrant and CyDex Pharmaceuticals, Inc., dated Septemberm 25, 2015 (incorpor (File No. 001-36544) filed on Novemberm 6, 2015. ated by referff ence to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q rr Non-Exclusive License Agreement by and between the Registrant and the Regents of University of California, dated October 23, 2013, as amended May 14, 2014 (incorporated by referff ence to Exhibit 10.5 of the Registrant’s Registration Statement on Form S-1 (File No. 333-196849) filed on July 8, 2014) Lease Agreement, by and between the Registrant and ARE-MA Region No. 38, LLC, dated Decemberm 11, 2011, as amended by First Amendment to Lease, by and between ARE-MA Region No. 38, LLC, dated October 26, 2012, and Second Amendment to Lease, by and between ARE-MA Region No. 38, LLC, dated May 9, 2013 (incorporated by reference to Exhibit 10.6 of the Registrant’s Registration Statement on Form S-1 (File No. 333-196849) filed on July 8, 2014) Offeff r letter by and between the Registrant and Jeffrff ey M. Jonas, dated July 18, 2013 (incorporated by referff ence to Exhibit 10.7 of the Registrant’s Registration Statement on Form S-1 (File No. 333-196849) filed on July 8, 2014) Offeff r letter by and between the Registrant and Albert J. Robichaud, dated Septemberm 25, 2011 (incorporated by reference to Exhibit 10.8 of the Registrant’s Registration Statement on Form S-1 (File No. 333-196849) filff ed on July 8, 2014) r letter by and between the Registrant and Stephen J. Kanes, dated May 21, 2013 (incorporated by referff ence to Offeff Exhibit 10.9 of the Registrant’s Registration Statement on Form S-1 (File No. 333-196849) filed on July 8, 2014) r letter by and between the Registrant and Kimi Iguchi, dated February 7, 2013 (incorpora Offeff Exhibit 10.10 of the Registrant’s Registration Statement on Form S-1 (File No. 333-196849) filed on July 8, 2014) ted by referff ence to rr Non-Solicitation, Confidff entiality and Assignment Agreement by and between the Registrant and Jeffreff y M. Jonas, dated August 19, 2013 (incorporated by reference to Exhibit 10.11 of the Registrant’s Registration Statement on Form S-1 (File No. 333-196849) filed on July 8, 2014) Non-Solicitation, Confidff entiality and Assignment Agreement by and between the Registrant and Albert J. Robichaud, dated November 7, 2011 (incorpora Form S-1 (File No. 333-196849) filff ed on July 8, 2014) ted by referff ence to Exhibit 10.12 of the Registrant’s Registration Statement on r Non-Solicitation, Confidff entiality and Assignment Agreement by and between the Registrant and Stephen J. Kanes, dated July 17, 2013 (incorporated by referff ence to Exhibit 10.13 of the Registrant’s Registration Statement on Form S-1 (File No. 333-196849) filff ed on July 8, 2014) Non-Solicitation, Confidff entiality and Assignment Agreement by and between the Registrant and Kimi Iguchi, dated March 8, 2013 (incorpor rated by reference to Exhibit 10.14 of the Registrant’s Registration Statement on Form S-1 Exhibit No. (File No. 333-196849) filff ed on July 8, 2014) Description 10.14 10.15 10.16* 10.17+ 10.18+ 10.19+ 10.20+ 10.21+ 10.22+ 10.23+ 10.24* 10.25 10.26 10.27 10.28 10.29 Form of Indemnificff ation Agreement to be entered into between the Registrant and its directors (incorporated by reference to Exhibit 10.16 of the Registrant’s Registration Statement on Form S-1 (File No. 333-196849) filed on July 8, 2014) Form of Indemnificff ation Agreement to be entered into between the Registrant and its officff ers (incorporated by reference to Exhibit 10.17 of the Registrant’s Registration Statement on Form S-1 (File No. 333-196849) filed on July 8, 2014) y Agreement by and between the Registrant and CyDex Pharmaceuticals, Inc., dated December 13, 2012, as Suppl uu amended August 21, 2013 and AprA il 30, 2014 (incorporated by reference to Exhibit 10.18 of the Registrant’s Registration Statement on Form S-1 (File No. 333-196849) filed on July 8, 2014) 2014 Emplmm oyee Stock Purchase Plan (incorporated by referff ence to Exhibit 10.19 of the Registrant’s Registration Statement on Form S-1 (File No. 333-196849) filed on July 8, 2014) Offeff r Letter by and between the Registrant and Thomas D. Anderson, dated April 15, 2014 (incorporated by referff ence to Exhibit 10.20 of the Registrant’s Registration Statement on Form S-1 (File No. 333-196849) filed on July 8, 2014) Severance and Change In Control Agreement between the Registrant and Jeffreff y M. Jonas, dated Septemberm 25, 2014 (incorporat r filed on March 6, 2015) ed by referff ence to Exhibit 10.20 of the Registrant’s Annual Report on Form 10-K (File No. 001-36544) Severance and Change In Control Agreement between the Registrant and Kimi Iguchi, dated Septemberm 30, 2014 (incorporat r filed on March 6, 2015) ed by referff ence to Exhibit 10.21 of the Registrant’s Annual Report on Form 10-K (File No. 001-36544) Severance and Change In Control Agreement between the Registrant and Stephen J. Kanes, dated Septemberm 30, 2014 (incorporat r filed on March 6, 2015) ed by referff ence to Exhibit 10.22 of the Registrant’s Annual Report on Form 10-K (File No. 001-36544) Severance and Change In Control Agreement between the Registrant and Albert J. Robichaud, dated Septemberm 25, 2014 (incorporated by referff ence to Exhibit 10.23 of the Registrant’s Annual Report on Form 10-K (File No. 001-36544) filed on March 6, 2015) Severance and Change In Control Agreement between the Registrant and Thomas D. Anderson, dated Septemberm 26, 2014 (incorpora (File No. 001-36544) filed on March 6, 2015) ted by referff ence to Exhibit 10.24 of the Registrant’s Annual Report on Form 10-K r Exclusive License Agreement by and between the Registrant and the Regents of the University of Califorff nia, dated June 6, 2015 (incorpora ted by referff ence to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q/A (File No. 001-36544) filff ed on October 31, 2015) r Third Amendment to Lease, by and between Registrant and ARE-MA Region No. 38, LLC, dated as of Septemberm 9, 2015 (incorporated by referff ence to Exhibit 10.3 of the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36544) filed on Novemberm 6, 2015) Fourth Amendment to Lease, by and between the Registrant and ARE-MA Region No. 38, LLC, dated as of October 27, 2015 (incorporated by referff ence to Exhibit 10.4 of the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36544) filed on Novemberm 6, 2015) Amendment No. 3 to Supply Agreement, by and between the Registrant and CyDex Pharmaceuticals, Inc., dated Septemberm 25, 2015 (incorporated by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36544) filed on Novemberm 6, 2015) Fifth Amendment to Lease, by and between the Registrant and ARE-MA Region No. 38, LLC, dated as of December 9, 2015 (incorporated by referff ence to Exhibit 10.29 of the Registrant’s Annual Report on Form 10-K (File No. 001-36544) filff ed on February 29, 2016) Lease Agreement, by and between the Registrant and Jamestown Premier 245 First, LLC, dated May 24, 2016 (incorpora r filed on August 9, 2016) ted by referff ence to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36544) Exhibit No. 10.30+ 10.31+ Description 2016 Annual Bonus Incentive Plan (incorporated by referff ence to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (File No. 001-36544) filed on May 3, 2016) 2016 Inducement Equity Plan (incorporated by referff ence to Exhibit 99.2 of the Registrant’s Form S-8 (File No. 333- 216202) filed on February 23, 2017) 10.32+ Amended and Restated Non-emplmm oyee Director Compensation Plan 21.1 23.1 31.1 31.2 Subsu idiaries of the Registrant Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm Certification of Principal Executive Officff er pursuant to Rule 13a-14(a) and RulRR e 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbar nes-Oxley Act of 2002 Certification of Principal Financial Officer Act of 1934, as adopted pursuant to Section 302 of the Sarbar nes-Oxley Act of 2002 pursuant to Rule 13a-14(a) and RulRR e 15d-14(a) of the Securities Exchange ff 32.1** Certification of Principal Executive Officff er and Principal Financial Offiff cer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbar nes-Oxley Act of 2002 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Document 101.DEF XBRL Taxonomy Extension Definff ition Linkbase Document 101.LAB XBRL Taxonomy Extension Labels Linkbase Document 101.PRE XBRL Taxonomy Extension Presentation Link Document (+) Management contract or compensatory plan or arrangement. (*) Confidff ential treatment has been granted by the Securities and Exchange Commission as to certain portions. (**) The certification ff s furff nished in Exhibit 32.1 hereto are deemed to accompamm ny this Annual Report on Form 10-K and will not be es of Section 18 of the Securities Exchange Act of 1934, as amended. Such certificff ations will not be deemed “filff ed” for purpos deemed to be incorporated by reference into any filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Registrant specifically incorporates it by referen ce. ff r Sage Therapeutics is a clinical- stage biopharmaceutical company committed to developing novel medicines to transform the lives of patients with life-altering central nervous system (CNS) disorders. EXECUTIVE LEADERSHIP JEFF JONAS, M.D. Chief Executive Officer MICHAEL CLOONAN Chief Business Officer JIM DOHERTY, Ph.D. Chief Research Officer STEVE KANES, M.D., Ph.D. Chief Medical Officer KIMI IGUCHI Chief Financial Officer AL ROBICHAUD, Ph.D. Chief Scientific Officer ANNE MARIE COOK, J.D. SVP, General Counsel ERIN LANCIANI SVP, People and Organizational Strategy AMY SCHACTERLE, Ph.D. SVP, Regulatory Affairs and Quality Assurance HEINRICH SCHLIEKER, Ph.D. SVP, Technical Operations BOARD OF DIRECTORS KEVIN STARR JEFF JONAS, M.D. STEVEN PAUL, M.D. HOWARD H. PIEN JAMES M. FRATES MICHAEL C. COLA GENO GERMANO ANNUAL MEETING THE ANNUAL MEETING OF STOCKHOLDERS will be held at 9:00 a.m. EDT on June 7, 2017 at Sage Therapeutics 215 First Street Cambridge, MA 02142 INDEPENDENT AUDITORS PRICEWATERHOUSECOOPERS LLC 125 High Street Boston, MA 02110 (617) 530–5000 INVESTOR INQUIRIES Email: ir@sagerx.com Phone: (617) 299–8377 STOCK LISTING NASDAQ: SAGE TRANSFER AGENT The transfer agent is responsible, among other things, for handling stockholder questions regarding lost stock certificates, address changes, including duplicate mailings, and changes in ownership or name in which shares are held. These requests may be directed to the transfer agent at the following address: COMPUTERSHARE TRUST COMPANY 250 Royall Street Canton, MA 02021 http://www.computershare.com/us/contact/ SEC FORM 10-K A copy of Sage’s annual report on Form 10-K filed with the Securities and Exchange Commission is available free of charge from the company’s Investor Relations Department by calling (617) 299-8377, emailing ir@sagerx.com or sending a written request to Sage’s Investor Relations Department at: INVESTOR RELATIONS Sage Therapeutics 215 First Street Cambridge, MA 02142 RETHINKING CNS CORPORATE HEADQUARTERS 215 FIRST STREET CAMBRIDGE, MA 02142 (617) 299–8380 IR@SAGERX.COM WWW.SAGERX.COM NASDAQ: SAGE 

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