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
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-
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
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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