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
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
OR
For the transition period from 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
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.0001 per share
SAGE
The Nasdaq Global Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to 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 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during
the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☒
☐
Accelerated filer
Smaller reporting company
Emerging Growth Company
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 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-affiliates of the registrant as of June 30, 2021 was approximately
$2,934,255,531, computed by reference to the closing price of the registrant’s common stock on the Nasdaq Global Market reported for such date.
As of February 16, 2022, there were 59,053,749 shares of common stock, $0.0001 par value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K incorporates by reference certain information from the registrant’s definitive Proxy Statement for its 2022 annual meeting of
shareholders, which the registrant intends to file pursuant to Regulation 14A with the Securities and Exchange Commission not later than 120 days after the registrant’s fiscal year end
of December 31, 2021. Except with respect to information specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed as part of this Form
10-K.
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.
[Reserved]
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 About Market Risk
Item 8.
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Part III.
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Part IV.
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
Signatures
Page
6
47
85
85
86
86
87
88
89
110
110
110
110
111
111
112
112
112
112
112
113
113
128
Cautionary Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K, or Annual Report, contains forward-looking statements that involve risks and uncertainties. We make
such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal
securities laws. All statements other than statements of historical facts contained in this Annual Report are forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expects”, “intends”, “plans”, “anticipates”,
“believes”, “estimates”, “predicts”, “potential”, “continue” or the negative of these terms or other comparable terminology. These forward-
looking statements include, but are not limited to, statements about:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our views as to potential future results of our ongoing commercialization efforts in the U.S. with respect to ZULRESSO®
(brexanolone) CIV injection, which is approved in the U.S. for the treatment of postpartum depression, or PPD, in adults;
our planned clinical and regulatory activities with respect to zuranolone (SAGE-217) for the treatment of major depressive
disorder, or MDD, and PPD and related timelines, including: potential regulatory pathways for zuranolone approval; our planned
submission of a new drug application, or NDA, for zuranolone to the U.S. Food and Drug Administration, or FDA, as a
treatment for MDD and an associated NDA filing for zuranolone as a treatment for PPD; the adequacy of the data we plan to
submit to support such filings; and the potential for future approval and commercialization of zuranolone in MDD and PPD;
our view of the potential for zuranolone for the treatment of MDD and PPD, if approved, including the potential product profile
and treatment benefit, and the potential for zuranolone to be developed in additional indications;
our plans for the development of our other product candidates for the treatment of brain health diseases and disorders, and
potentially for other indications; our plans with respect to other research and development activities; and expected timelines for
our planned activities;
our ability, within the expected time frames, to initiate clinical trials and non-clinical studies of existing or future product
candidates, including pivotal clinical trials, and to successfully complete and announce the results of ongoing or future clinical
trials;
our belief as to potential outcomes of our clinical development and commercialization activities;
our plans and potential outcomes with respect to interactions with regulatory authorities;
our plans for and the potential costs, benefits and outcomes of our existing collaborations with Biogen MA Inc., or BIMA, and
Biogen International GmbH, or, together with BIMA, Biogen, and Shionogi & Co., Ltd., or Shionogi, and our plans for and
potential outcomes of any additional business development efforts;
our plans and expectations with respect to the potential development of any product or product candidate for markets outside the
U.S.;
our estimates regarding the level of expenses we may incur in connection with our activities; use of cash and projected cash on
hand at any given timepoint; timing of future cash needs; capital requirements; sources of future financings; and our ability to
obtain additional financing when needed to fund future operations;
our expectations with respect to the availability of supplies of ZULRESSO and our product candidates, and the expected
performance of our third-party manufacturers;
our ability to obtain and maintain intellectual property protection for our proprietary assets and other forms of exclusivity
relevant to our business;
the estimated number of patients with diseases or disorders of interest to us and the potential size of the market for ZULRESSO
in PPD and for our product candidates in the indications we are pursuing or plan to study;
the potential for our current product and current or future product candidates, if successfully developed and approved, for the
indications and in the markets for which they are approved and our ability to serve those markets;
the potential for success of competing products that are or become available for PPD or MDD or any of the other indications that
we are pursuing or may pursue in the future with our products and our product candidates;
•
•
the impact of the COVID-19 pandemic on our activities, business and results of operations, and the potential success of our
efforts to address or mitigate such impact; and
other risks and uncertainties, including those listed under Part I, Item 1A, Risk Factors.
Any forward-looking statements in this Annual Report reflect our current views with respect to future events and with respect to our
business and future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual
results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by
these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other
things, those described under Part I, Item 1A, Risk Factors and elsewhere in this Annual Report. Given these uncertainties, you should not
place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these
forward-looking statements for any reason, even if new information becomes available in the future.
We may from time to time provide estimates, projections and other information concerning, among other things, our industry, the
general business environment, and the markets for certain diseases, including estimates regarding the potential size of those markets and the
estimated incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market
research or similar methodologies is inherently subject to uncertainties, and actual events, circumstances or numbers, including actual disease
prevalence rates and market size, may differ materially from the information we provide in this Annual Report. Unless otherwise expressly
stated, we obtained this industry and business information, market data, prevalence information and other data from reports, research surveys,
studies and similar data prepared by market research firms and other third parties; industry, medical and general publications; government
data; and similar sources, in some cases applying our own assumptions and analysis that may, in the future, prove not to have been accurate.
Summary of Risks Related to our Business
Our business, prospects, financial condition, and operating results are subject to numerous risks and uncertainties that you should be
aware of before making an investment decision, as more fully described under Part I, Item 1A, Risk Factors and elsewhere in this Annual
Report. These risks may include, but are not limited to, the following:
• We may never be able to generate meaningful revenues from sales of ZULRESSO® (brexanolone) CIV injection, or revenues at
levels or on timing necessary to support our investment and goals.
•
•
•
•
Our future business prospects depend heavily on our ability, and that of our collaborators, where applicable, to successfully develop
and gain regulatory approval of our current product candidates, including zuranolone (SAGE-217). We cannot be certain that we or
our collaborators will be able to complete ongoing clinical trials, initiate new clinical trials or announce results of ongoing or future
clinical trials of our product candidates on the timelines we expect or at all, or that the results of our development programs will be
positive or sufficient to file for or gain regulatory approval. Decisions or actions of the FDA or other regulatory agencies may
adversely affect our plans, progress or results at any stage of development. We cannot be certain that we or our collaborators will be
able to successfully file or obtain regulatory approval for, or successfully commercialize, if approved, any of our current or future
product candidates, including zuranolone, on the timelines we expect or at all.
Obtaining regulatory approval to market any of our product candidates is a complex, lengthy, expensive and uncertain process, and
the FDA and regulatory authorities outside of the U.S. may decide not to accept an NDA or may delay, limit or deny approval of
any of our product candidates for many reasons.
If the affected populations for indications our products and product candidates are targeting, including the addressable markets
within such populations, or the number of patients within such markets who are actually treated with our products, if successful
developed and approved, are smaller than we anticipate, our ability to achieve profits from the commercialization of such products
at the levels or on the timing we expect could be materially adversely impacted.
Positive results from non-clinical studies and clinical trials of our product candidates are not necessarily predictive of the results of
later non-clinical studies and clinical trials of our product candidates in the same indications or other indications. Interim results
from non-clinical studies and clinical trials may not be predictive of results of such non-clinical studies or clinical trials once
completed.
•
If serious adverse events or other undesirable side effects are identified during the use of any of our marketed products or product
candidates, including during commercial use or in clinical trials, such events may adversely affect market acceptance or result in
other significant negative consequences for an approved product; delay or prevent further development or regulatory approval with
respect to product candidates; or cause regulatory authorities to require labeling statements, such as boxed warnings, or a Risk
Evaluation and Mitigation Strategy, on approved products.
• We rely completely on third-party suppliers to manufacture commercial supplies of ZULRESSO and clinical drug supplies for our
product candidates and intend to rely on third-party manufacturers for commercial supplies of any of our product candidates that is
successfully developed and approved for marketing.
•
•
•
Our current product candidates, if successfully developed and approved, and other future products, if any, may not achieve broad
market acceptance or reimbursement at sufficient levels, which may limit the revenue that we generate from sales of such products.
Competing therapies may exist or could emerge that adversely affect the amount of revenue we are able to generate from the sale of
ZULRESSO or any of our current or future product candidates, if successfully developed and approved.
Our existing collaborations with Biogen and Shionogi, and any future collaborations, may not lead to the successful development or
regulatory approval of product candidates or commercialization of products. Our collaborators may have competing priorities,
conflicting incentives, or different views than us on key decisions, including appropriate program spending, that may hamper or
delay our development and commercialization efforts or increase our costs. Our business may be adversely affected if any of our
collaborators fails to perform its obligations or terminates our collaboration.
• We may not be successful in our efforts to identify new targets, generate new compounds, and successfully bring such new
compounds through investigational new drug application-enabling non-clinical studies. We may expend our limited resources to
pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more
profitable or for which there is a greater likelihood of success.
•
•
•
If we are unable to adequately protect our proprietary technology, or obtain and maintain issued patents that are sufficient to protect
our products or product candidates, others could compete against us more directly, which would have a material adverse impact on
our business, results of operations, financial condition and prospects.
For certain of our products and product candidates, we are dependent on licensed intellectual property. If we were to lose our rights
to licensed intellectual property, we may not be able to continue developing or commercializing certain of our products or product
candidates, if approved.
Existing or future laws, regulations, executive orders or policies aimed at reducing healthcare costs may have a material adverse
effect on our business or results of operations.
• We are subject to healthcare laws and regulations, which could expose us to the risk of criminal sanctions, civil penalties,
contractual damages, reputational harm and diminished profits and future earnings if we or our employees are alleged or determined
not to have complied with such laws and regulations.
• We are a biopharmaceutical company with a limited operating history, and have not generated significant revenue to date. We have
incurred significant operating losses since our inception, and anticipate that we will incur losses for the foreseeable future.
• We may need to raise additional funding, which may not be available on acceptable terms, or at all. Raising additional capital, even
opportunistically, may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights.
•
The COVID-19 pandemic may continue to adversely impact our business, including our sales of ZULRESSO and our initiation,
conduct and completion of clinical trials.
All brand names or trademarks appearing in this report are the property of their respective owners. Unless the context requires
otherwise, references in this report to “Sage,” the “Company,” “we,” “us,” and “our” refer to Sage Therapeutics, Inc. and its subsidiaries.
PART I
Item 1. Business
Overview
We are a biopharmaceutical company committed to developing and commercializing novel medicines with the potential to transform
the lives of people with debilitating disorders of the brain. Our first product, ZULRESSO® (brexanolone) CIV injection, is approved in the
U.S. for the treatment of postpartum depression, or PPD, in adults. We have a portfolio of other product candidates with a current focus on
modulating two critical central nervous system, or CNS, receptor systems, GABA and NMDA. The GABA receptor family, which is
recognized as the major inhibitory neurotransmitter in the CNS, mediates downstream neurologic and bodily function via activation of
GABAA receptors. The NMDA-type receptors of the glutamate receptor system are a major excitatory receptor system in the CNS.
Dysfunction in these systems is implicated in a broad range of CNS disorders. We are currently targeting diseases and disorders of the brain
with three key focus areas: depression, neurology and neuropsychiatry.
Our first product, ZULRESSO, is a proprietary intravenous, or IV, formulation of brexanolone, approved in the U.S. as a treatment for
PPD in adults. Brexanolone is chemically identical to allopregnanolone, a naturally occurring neuroactive steroid that acts as a positive
allosteric modulator of GABAA receptors. We launched ZULRESSO commercially in the U.S. for the treatment of PPD in June 2019.
Currently, ZULRESSO may only be administered in qualified, medically-supervised healthcare settings. We have initiated an open-label
clinical trial designed to assess the potential for safe-use administration of ZULRESSO in a patient’s home for the treatment of PPD, known
as the SUNBIRD Study, which is anticipated to be completed in late 2022.
Our next most advanced product candidate is zuranolone (SAGE-217), a novel oral compound being developed for certain affective
disorders, including major depressive disorder, or MDD, and PPD. Zuranolone is a neuroactive steroid that, like brexanolone, is a positive
allosteric modulator of GABAA receptors, targeting both synaptic and extrasynaptic GABAA receptors. We plan to submit a new drug
application, or NDA, to the U.S. Food and Drug Administration, or FDA, in the second half of 2022 seeking approval of zuranolone for the
treatment of MDD. An associated NDA filing seeking approval of zuranolone for PPD is anticipated in the first half of 2023, pending the
completion and results of the ongoing SKYLARK Study in PPD. The FDA granted Fast Track designation to zuranolone in PPD in early
2022, and previously granted zuranolone Breakthrough Therapy designation and Fast Track designation to zuranolone for the treatment of
MDD.
To date, we have completed five pivotal clinical trials of zuranolone, four in MDD and one in PPD. The completed pivotal trial
evaluating zuranolone for the treatment of PPD and three of the four completed pivotal trials evaluating zuranolone for the treatment of MDD
met their primary endpoints. We announced results from the following pivotal clinical trials of zuranolone in either 2021 or early 2022:
•
CORAL Study (completed)
On February 16, 2022, we announced results from the CORAL Study, a placebo-controlled Phase 3 clinical trial
evaluating a two-week course of zuranolone 50 mg, when co-initiated with a newly administered open-label standard
antidepressant therapy, or ADT, compared with open-label standard of care ADT co-initiated with placebo, as an
acute rapid response treatment in patients with MDD. Patients in the clinical trial received zuranolone 50 mg co-
initiated with an open-label standard of care ADT or open-label standard of care ADT co-initiated with placebo once
nightly for 14 days followed by continuation of the ADT for an additional short-term follow-up period. In the
CORAL Study, zuranolone 50 mg co-initiated with an ADT met the primary endpoint of statistically significant
reduction in depressive symptoms at Day 3 and met the key secondary endpoint of a
6
statistically significant improvement in depressive symptoms over the two-week treatment period, in each case as
compared to ADT co-initiated with placebo.
• WATERFALL Study (completed)
In June 2021, we announced that the WATERFALL Study, a pivotal, Phase 3, double-blind, randomized, placebo-
controlled clinical trial evaluating the efficacy and safety of zuranolone 50 mg in adults aged 18 to 64 years with
MDD, met its primary endpoint.
•
SHORELINE Study (ongoing)
In 2021, we reported positive topline 12-month data from both the 30 mg cohort and the 50 mg cohort of the
SHORELINE Study, an open-label Phase 3 clinical trial of zuranolone in MDD, which is designed to evaluate the
safety, tolerability, and need for repeat dosing of zuranolone in adults for up to one year. Enrollment in the 50 mg
cohort of the study is ongoing.
The SKYLARK Study, a Phase 3 placebo-controlled clinical trial evaluating a two-week course of zuranolone 50 mg in women with
PPD, with additional short-term follow-up, is ongoing, and we expect to report topline results in mid-2022.
We are jointly developing zuranolone and another of our late-stage compounds, SAGE-324, in the U.S. with Biogen MA Inc., or
BIMA, and Biogen International GmbH, or, together with BIMA, Biogen, under a collaboration and license agreement, or the Biogen
Collaboration Agreement, that became effective in December 2020.
Under the Biogen Collaboration Agreement, we will also jointly commercialize products containing zuranolone, which we refer to as
Licensed 217 Products, and products containing SAGE-324, which we refer to as Licensed 324 Products, with Biogen in the U.S. if our
development efforts are successful. We refer to the Licensed 217 Products and Licensed 324 Products individually as a Product Class and
collectively as the Licensed Products. In addition, we have granted Biogen sole rights to develop and commercialize the Licensed Products
outside the U.S., other than in Japan, Taiwan and South Korea, or the Shionogi Territory, with respect to zuranolone, where we have granted
rights to Shionogi & Co., Ltd., or Shionogi. We refer to the territories outside the U.S. to which Biogen has rights under the Biogen
Collaboration Agreement with respect to the applicable Licensed Product as the Biogen Territory. We also have a collaboration agreement
with Shionogi for the development of zuranolone in the Shionogi Territory. Shionogi recently reported completion of a Phase 2 clinical trial
of zuranolone for the treatment of patients with moderate to severe MDD in Japan, which Shionogi reported achieved its primary endpoints.
In addition to zuranolone, we have a portfolio of other novel compounds that target GABAA receptors, including SAGE-324. SAGE-
324 is a novel GABAA receptor positive allosteric modulator intended for chronic oral dosing. In April 2021, we announced that our
placebo-controlled Phase 2 KINETIC Study evaluating SAGE-324 for the treatment of adults with essential tremor achieved its primary
endpoint. We initiated a Phase 2b placebo-controlled dose-ranging clinical trial of SAGE-324 in patients with essential tremor in late 2021,
known as the KINETIC 2 Study. Additional development plans for SAGE-324 will be determined as part of our strategic collaboration with
Biogen. We plan to initiate a Phase 2 clinical trial evaluating the safety of SAGE-324 in patients with essential tremor in mid-2022. We
believe SAGE-324 also has potential for the treatment of a number of other neurological conditions, including epilepsy and Parkinson’s
disease.
Our second area of focus for development is novel compounds that target the NMDA receptor. Our lead product candidate selected in
this area is SAGE-718, an oxysterol-based positive allosteric modulator of the NMDA receptor, which we are exploring in certain cognition-
related disorders associated with NMDA receptor dysfunction, including cognition dysfunction associated with diseases such as Huntington’s
disease, Parkinson’s disease and Alzheimer’s disease.
SAGE-718 is currently being studied in a double-blind placebo-controlled Phase 2 clinical trial of SAGE-718 in patients with
Huntington’s disease cognitive impairment, known as the DIMENSION Study, which is designed to evaluate the efficacy of once-daily dosed
SAGE-718 over three months. Dosing in the DIMENSION Study commenced in
7
early 2022. We plan to initiate, in mid-2022, a second placebo-controlled Phase 2 clinical trial of SAGE-718 in patients with Huntington’s
disease cognitive impairment, with a healthy volunteer component, known as the SURVEYOR Study, with the goal of generating evidence
linking efficacy signals on cognitive performance to domains of real-world functioning. We also plan to initiate a Phase 3 open-label study of
SAGE-718 in patients with Huntington’s disease cognitive impairment in late 2022. The FDA has granted SAGE-718 Fast Track designation
as a potential treatment for patients with Huntington’s disease.
We also achieved development milestones in 2021 evaluating SAGE-718 for the treatment of cognitive issues associated with
Parkinson’s disease and Alzheimer’s disease. In May 2021, we announced results from the first part of a Phase 2a open-label study of SAGE-
718 evaluating patients with mild cognitive impairment due to Parkinson’s disease, known as the PARADIGM Study. Data from the
PARADIGM Study showed that SAGE-718 had a positive impact on multiple domains of cognition, including executive function and
learning and memory, while leaving domains altering simple attention or reaction time unaffected. A four-week dosing cohort in the
PARADIGM Study is ongoing to gather additional data in the Parkinson’s disease patient population. We plan to initiate a placebo-controlled
Phase 2 clinical trial of SAGE-718 in patients with mild cognitive impairment due to Parkinson’s disease in mid-2022. In December 2021,
we reported topline data from a Phase 2a open-label clinical trial of SAGE-718 in patients with mild cognitive impairment and mild dementia
due to Alzheimer’s disease, known as the LUMINARY Study. Data from the LUMINARY Study showed treatment with SAGE-718 resulted
in consistent improvement across multiple tests of executive performance, as well as improvement on key tests of learning and memory. In
addition, SAGE-718 has been well-tolerated in studies to date. We also plan to initiate a randomized placebo-controlled Phase 2 clinical trial
of SAGE-718 in patients with mild cognitive impairment and mild dementia due to Alzheimer’s disease in late 2022.
We have other programs at earlier stages of development with a focus on both acute and chronic brain health disorders. We expect to
continue our work on allosteric modulation of the GABAA and NMDA receptor systems in the brain. The GABAA and NMDA receptor
systems are broadly accepted as impacting many psychiatric and neurological disorders, spanning disorders of mood, seizure, cognition,
anxiety, sleep, pain, and movement, among others. We believe that we may have the opportunity to develop molecules from our internal
portfolio with the goal of addressing a number of these disorders in the future. We also believe that we may have the opportunity to use our
scientific approach to explore targets beyond the GABAA and NMDA receptor systems and to develop compounds in areas of unmet need
outside of brain health.
Our Strategy
Our goal is to build a top-tier biopharmaceutical company that is the leader in developing and commercializing brain health therapies.
Our current focus is on building on our multi-franchise opportunities in depression, neurology, and neuropsychiatry. Key elements of our
strategy are to:
•
•
•
•
seek regulatory approval of zuranolone in PPD and MDD in the U.S., begin permitted pre-launch and launch-readiness activities
for zuranolone, and potentially advance zuranolone for other indications as part of our strategic collaboration with Biogen;
continue our commercialization efforts with respect to ZULRESSO for the treatment of PPD in the U.S., with a primary focus in
geographies that have existing, active ZULRESSO treating sites, and complete the SUNBIRD Study designed to assess the
potential for safe-use administration of ZULRESSO in a patient’s home for the treatment of PPD;
complete the ongoing Phase 2b KINETIC 2 Study of SAGE-324 in essential tremor to explore dose and frequency, and initiate
additional development activities, including potential future development in epilepsy, Parkinson’s disease, and other
neurological conditions, as part of our strategic collaboration with Biogen;
complete the four-week dosing cohort of our ongoing Phase 2a open-label PARADIGM Study of SAGE-718 in patients with
mild cognitive impairment due to Parkinson’s disease, complete the ongoing placebo-controlled Phase 2 DIMENSION Study of
SAGE-718 in patients with Huntington’s disease cognitive impairment, initiate the planned placebo-controlled Phase 2 clinical
trials of SAGE-718 in patients with mild cognitive impairment due to Parkinson’s disease and patients with mild cognitive
impairment and mild dementia due to Alzheimer’s
8
•
•
•
•
•
•
•
•
•
•
disease, and initiate the planned SURVEYOR Study and the Phase 3 open-label extension study of SAGE-718 in patients with
Huntington’s disease cognitive impairment;
support our collaboration with Biogen with respect to zuranolone and SAGE-324 in the U.S., and support Biogen’s development
of zuranolone and SAGE-324 in the Biogen Territory and Shionogi’s development of zuranolone in the Shionogi Territory;
advance our earlier-stage compounds;
continue our research and development efforts to evaluate the potential for our existing product candidates for the treatment of
additional indications or in new formulations;
identify new targets, and generate and test new compounds and product candidates, with a focus on indications where we believe
we can make well-informed, rapid go/no-go decisions, with the goal of developing a diversified portfolio of assets with
differentiated features;
prepare and file NDAs with the FDA, and conduct permitted pre-launch activities with respect to any of our product candidates,
beyond zuranolone, that may be successfully developed;
commercialize any product candidates for which we obtain regulatory approval, including the manufacture of commercial
supplies;
continue to add personnel at the appropriate time, as our efforts and activities progress, including personnel to support product
development, launch planning and ongoing and future commercialization efforts;
evaluate the market potential and regulatory pathways for our product candidates beyond zuranolone and SAGE-324 in the
European Union, or EU, and other countries outside the U.S., and determine how best to move forward where and when it may
make business and strategic sense;
continue to build, maintain, defend, leverage, and expand our intellectual property portfolio, including by utilizing the strengths
of our proprietary chemistry platform and scientific know-how to expand our portfolio of new chemical entities to lessen our
long-term reliance on the success of any one program and to facilitate long-term growth; and
continue to explore opportunities to establish agreements or alliances with other pharmaceutical companies, at the appropriate
time, where we believe a collaboration will add significant value to our efforts, including through capabilities, infrastructure,
speed or financial contributions, or to acquire new compounds, product candidates or products if we believe such opportunities
will help us achieve our goals or meet other strategic objectives.
9
Understanding the Foundations of Our Approach
The CNS is composed of a vast and complex network of different structures and cell types, most of which serve, directly or indirectly,
to provide a means for the nervous system to signal or communicate with other nerve cells to regulate brain function. The cell type
responsible for this signaling is called a neuron. One way chemical or electrical signals exert their effects on neurons is by traveling across a
physical gap located between two neurons, called a synapse. Presynaptic neurons transmit signals whereas postsynaptic neurons react to the
signals. The human brain contains approximately 86 billion neurons, each having hundreds to tens of thousands of synapses to allow for this
communication. This process is essential to all things, from organ function, to movement, to memory and all behavioral processes.
Neurotransmission is the process by which signaling molecules, called neurotransmitters, are released by a presynaptic neuron, travel over
the synaptic 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.
We are currently focused on developing drugs based on selective allosteric modulation of neurotransmitter receptors in the CNS.
Allosteric modulators are a class of small molecules that interact at a site different from the site where neurotransmitters bind, and allow the
potential for fine-tuning of neuronal signals. We believe that nowhere in the body is it more important to maintain normal rhythms than in the
brain, and accordingly we believe that allosteric modulation approaches are well-suited for the treatment of diseases and disorders of the
brain.
We utilize our proprietary chemistry capabilities to design and identify drugs that are allosteric modulators, and that have properties
targeted to the indications of interest. Our goal is to select for development compounds that we believe are capable of varying degrees of
desired activity rather than complete activation or inhibition of the receptor. Our focus as a company is on brain health, and we are currently
targeting two critical CNS receptor systems: GABA and NMDA. The GABA receptor family, which is recognized as the major inhibitory
neurotransmitter in the CNS, mediates downstream neurologic and bodily function in part via activation of GABAA receptors. GABAA
receptors play a key role in regulating neuron excitability. The NMDA-type receptors of the glutamate receptor system are a major excitatory
receptor system in the CNS. NMDA receptors serve a critical role in CNS-related activities. Dysfunction in these systems is implicated in a
broad range of brain disorders.
Our proprietary chemistry platform is centered, as a starting point, on our knowledge of the chemical scaffolds of endogenous
neuroactive steroids that are allosteric modulators of GABAA or NMDA receptors. We have leveraged this platform to assemble a chemistry
portfolio of greater than 8,000 compounds. We believe our proprietary chemistry platform allows us to:
•
•
control important properties such as half-life, brain penetration and the types of receptors our drugs act upon, thereby modulating
either inhibition or excitation either acutely or chronically; and
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-target side effects than current CNS
therapies or previous therapies that have failed in development.
We target diseases and disorders of the brain where we believe patient populations are easily identified, clinical endpoints are well-
defined, and development pathways are feasible.
10
Our Product Pipeline
The following table summarizes the status of our product and product candidate portfolio as of the filing date of this Annual Report.
ZULRESSO® (Brexanolone) CIV Injection
Our first product, ZULRESSO, is a proprietary IV formulation of brexanolone. Brexanolone is chemically identical to
allopregnanolone, a naturally occurring neuroactive steroid that acts as a positive allosteric modulator of GABAA receptors. We launched
ZULRESSO commercially in the U.S. in June 2019 for the treatment of PPD in adults, after approval by the FDA and completion of
controlled substance scheduling of brexanolone by the U.S. Drug Enforcement Administration, or DEA, and incorporation of the scheduling
into the FDA-approved label and other product information. The DEA placed ZULRESSO into Schedule IV of the Controlled Substances
Act, or CSA. ZULRESSO is administered as a continuous infusion given over two and a half days. Because of the risk of serious harm
resulting from excessive sedation or sudden loss of consciousness during the ZULRESSO infusion, ZULRESSO must be administered in a
medically-supervised healthcare setting that has been certified under a Risk Evaluation and Mitigation Strategy, or REMS, program and
meets the other requirements of the REMS program, including requirements related to monitoring of the patient during the infusion. Patients
who are prescribed ZULRESSO are required to enroll in a registry which may allow us to compile additional information to further our
understanding of the risk of excessive sedation or sudden loss of consciousness during administration of ZULRESSO and management of the
risk. Given the mode and setting of administration of ZULRESSO and the requirements of the REMS program, ZULRESSO has been
administered to date primarily to treat women with severe PPD, and we expect that to continue to be the case. We estimate that about 20% to
30% of women diagnosed with PPD fall into this category. We have initiated an open-label clinical trial designed to assess the potential for
safe-use administration of ZULRESSO in a patient’s home for the treatment of PPD, known as the SUNBIRD Study, which is anticipated to
be completed in late 2022.
PPD is one of the most common medical complications during and after pregnancy, and is characterized by depressive symptoms that
may occur during pregnancy or following childbirth up to 12 months. PPD symptoms may 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; hypervigilance about the baby or lack of interest in the baby; and feelings of worthlessness, shame or guilt. In the
U.S., estimates of mothers experiencing symptoms of PPD each year vary state-to-state from 9.7% to 23.5%, with an overall average of
13.2%. Based on these data, we estimate that 500,000 or more women in the U.S. each year may experience symptoms of PPD, and
approximately 50% are formally diagnosed. We estimate that 20% to 30% of women diagnosed with PPD will
11
experience severe symptoms. PPD can lead to devastating consequences for a woman and for her family. Suicide is one of the leading causes
of maternal death following childbirth.
ZULRESSO is the only pharmacological therapy specifically approved for PPD. The current standard of care for PPD is comprised of
psychotherapy and, in women with moderate or severe PPD, the cautious use of pharmacological therapies such as selective serotonin
reuptake inhibitors, or SSRIs, and serotonin and norepinephrine reuptake inhibitors, or SNRIs.
Naturally occurring allopregnanolone is found at its highest levels in women during the third trimester of pregnancy, returning to
normal levels generally within 24 hours after giving birth. Levels of allopregnanolone have been found to be lower in women with PPD than
in healthy women. It may be that women with PPD are particularly sensitive to the rapid decline in allopregnanolone after birth, potentially
causing GABAA-system mediated mood disruption. These data led to our interest in evaluating allosteric modulators of the GABAA receptor
—such as brexanolone and zuranolone—for the treatment of PPD.
The approval of ZULRESSO in the U.S. was based on positive results from our HUMMINGBIRD Phase 3 clinical program, which
was comprised of two multicenter, randomized, double-blind, parallel-group, placebo-controlled, Phase 3 clinical trials designed to evaluate
the safety and effectiveness of brexanolone in women with PPD, with supportive evidence from a Phase 2 clinical trial of brexanolone in
PPD. Results from the HUMMINGBIRD Phase 3 clinical program were published in the September 22, 2018 issue of The Lancet.
Zuranolone (SAGE-217)
Our next most advanced product candidate is zuranolone (SAGE-217), a novel oral compound being developed for the treatment of
MDD and PPD. We plan to submit an NDA to the FDA in the second half of 2022 seeking approval of zuranolone in MDD. An associated
NDA filing seeking approval of zuranolone for PPD is anticipated in the first half of 2023, pending the completion and results from the
ongoing SKYLARK Study, a Phase 3 placebo-controlled clinical trial evaluating a two-week course of zuranolone 50 mg in women with
PPD, with additional short-term follow-up. Zuranolone is a neuroactive steroid that, like brexanolone, is a positive allosteric modulator of
GABAA receptors, targeting both synaptic and extrasynaptic GABAA receptors. We also believe zuranolone has potential in other indications
such as treatment resistant depression, bipolar depression and generalized anxiety disorder. We are jointly developing zuranolone in the U.S.
with Biogen under the Biogen Collaboration Agreement that became effective in December 2020, and will jointly commercialize zuranolone
in the U.S. if our development efforts are successful and zuranolone is approved in the U.S. The Biogen Collaboration Agreement covers any
products incorporating zuranolone. We have granted Biogen sole rights to develop and commercialize the Licensed 217 Products outside the
U.S., other than in the Shionogi Territory, where we have granted rights to Shionogi. The FDA granted Fast Track designation to zuranolone
in PPD in early 2022, and previously granted zuranolone Breakthrough Therapy designation and Fast Track designation to zuranolone for the
treatment of MDD.
MDD is a serious mental health disorder commonly characterized by symptoms of depressed mood and/or loss of interest in
pleasurable activities causing impairment in daily life. MDD is characterized by a period of depressive symptoms lasting at least two weeks
and is associated with changes in affect, cognition, and function. In typical depressive episodes, the person experiences depressed mood, loss
of interest and enjoyment, and reduced energy leading to diminished activity for at least two weeks. Many people with MDD also suffer from
anxiety symptoms and medically unexplained somatic symptoms. A person with moderate or severe MDD will typically have difficulties
carrying out his or her usual work, school, domestic or social activities due to symptoms of depression. Antidepressants are widely used for
the treatment of MDD, but many patients do not adequately respond to existing treatments. According to estimates, more than 19 million
adults in the U.S. reported at least one major depressive episode in 2019. Among U.S. adults reporting at least one major depressive episode
in 2019, approximately 12.8 million (66.3%) received treatment within the prior year; and 9.7 million received pharmacologic treatment.
Research conducted between April 2020 and April 2021 reported a three- to four-fold increase in symptoms of depression among adults in
the U.S. compared to prior to the COVID-19 pandemic. Preclinical and clinical evidence suggest the role of GABAA receptor dysfunction in
depression. Low GABA and allopregnanolone levels have been found in the brain, cerebrospinal fluid and plasma of depressed patients.
12
To date, we have completed five pivotal clinical trials evaluating zuranolone, four in MDD and one in PPD, the results of which have
been previously disclosed. The completed pivotal trial evaluating zuranolone for the treatment of PPD and three of the four completed pivotal
trials evaluating zuranolone for the treatment of MDD met their primary endpoints. We announced results from the following pivotal clinical
trials of zuranolone in either 2021 or early 2022:
•
CORAL Study (completed)
On February 16, 2022, we announced results from the CORAL Study, a placebo-controlled Phase 3 clinical trial evaluating a
two-week course of zuranolone 50 mg, when co-initiated with a newly administered open-label ADT, compared with open-
label standard of care ADT co-initiated with placebo, as an acute rapid response treatment in patients with MDD. Patients in
the clinical trial received zuranolone 50 mg co-initiated with an open-label standard of care ADT or open-label standard of care
ADT co-initiated with placebo once nightly for 14 days followed by continuation of the ADT for an additional short-term
follow-up period. The study results showed a mean change from baseline in the 17-item Hamilton Rating Scale for Depression,
or HAMD-17, total score of -8.9 ± 0.39 (n=210) at Day 3 for patients in the zuranolone co-initiated with ADT arm compared
with -7.0 ± 0.38 (n=215) mean change from baseline for patients in the ADT co-initiated with placebo arm. The key secondary
endpoint measured the treatment effect over the two-week treatment period at all scheduled visits (measured using equal
weighted means for Days 3, 8, 12 and 15 of the study). The mean change over the treatment period for patients who received
zuranolone co-initiated with an ADT was -11.7 ±0.40 (n=210) compared with -10.1 ±0.39 (n=215) for patients who received
ADT co-initiated with placebo. Other secondary endpoints demonstrated a statistically significant reduction in HAMD-17
score in the zuranolone co-initiated with ADT arm compared to the ADT arm at Days 8 and 12, while Day 15 demonstrated
numerical superiority and Day 42 showed equivalence. The results also indicate that zuranolone 50 mg co-initiated with a
standard of care ADT was generally well-tolerated with no new safety signals identified. The majority of patients in the study
experienced treatment emergent adverse events, or TEAEs, that were mild or moderate in severity, consistent with previous
data. The adverse events occurring 10% or higher in either treatment arm (zuranolone with ADT vs. ADT with placebo) were
somnolence (18.4% vs. 8.3%), dizziness (13.2% vs. 7.3%), headache (11.8% vs. 14.7%), and nausea (9.0% vs 23.4%). The
percentage of patients reporting TEAEs leading to drug discontinuation was 6.6% in the zuranolone co-initiated with an ADT
arm, and 3.7% in the ADT co-initiated with placebo arm, respectively. The percentage of patients reporting TEAEs leading to
discontinuation of ADT were 7.5% in the zuranolone co-initiated with an ADT arm, and 5.5% in the ADT co-initiated with
placebo arm, respectively.
• WATERFALL Study (completed)
In June 2021, we announced that the WATERFALL Study, a pivotal, Phase 3, double-blind, randomized, placebo-controlled
clinical trial evaluating the efficacy and safety of zuranolone 50 mg in adults aged 18 to 64 years with MDD, met its primary
endpoint. In the WATERFALL Study, zuranolone 50 mg showed a statistically significant and clinically meaningful reduction
in depressive symptoms as measured by HAMD-17 total score at Day 15 (p-value=0.0141) compared to placebo. Patients in
the zuranolone arm with a decrease in HAMD-17 baseline score of ≥50% at Day 15 retained on average 86% of their HAMD-
17 improvement at Day 42 (four weeks after dosing ended). A rapid onset of treatment effect was seen in the HAMD-17 results
at Days 3, 8 and 12. Zuranolone was generally well-tolerated in the WATERFALL Study and demonstrated a safety profile
consistent with previous clinical studies. The rate of TEAEs reported in the zuranolone group was 60.1% (161/268) compared
to the placebo group at 44.6% (120/269). The majority of the TEAEs reported were mild to moderate. The most common
TEAEs that were reported by ≥ 5% of patients treated with zuranolone (rates compared to placebo) included somnolence
15.3% (3.0%), dizziness 13.8% (2.2%), headache 10.8% (7.8%), and sedation 7.5% (0.4%). These events predominantly
occurred during the 14-day treatment period. Throughout the study, a total of four patients reported serious adverse events, two
(0.7%) each in the zuranolone and placebo groups; no deaths occurred in the study. The percent of patients reporting TEAEs
leading to drug discontinuation was 3.4% (9/268) and 1.5% (4/269), in the zuranolone and placebo groups, respectively.
•
SHORELINE Study (ongoing)
13
We are also conducting an open-label Phase 3 clinical trial, known as the SHORELINE Study, evaluating the safety,
tolerability, and need for repeat dosing with zuranolone in adults with MDD, in which patients receive an initial two-week
course of zuranolone and those who have a clinical response (decrease in HAMD-17 baseline score of ≥50%) from the first
cycle have the opportunity to be followed for up to one year and are eligible to receive as-needed retreatment during the
follow-up period. The need for repeated dosing is assessed every 14 days based on the results of a patient-reported Patient
Health Questionnaire-9 score (≥10) and HAMD-17 assessment (≥20). The protocol of the clinical trial requires a minimum of
56 days between zuranolone 14-day courses, to allow for a maximum of five treatments during the follow-up period.
In December 2021, we reported 12-month data from the 50 mg cohort of the SHORELINE Study. Data reported for this cohort
of patients (n=199), showed that a majority of the patients who had a clinical response to the initial 14-day course received
only one two-week course of treatment in total during their time in the study and nearly 80% received only one or two
treatment courses in total. Specifically, of the 146 patients who had a clinical response to the initial 2-week treatment, 80
(54.8%) patients received only the single initial zuranolone course during their time in the study, while 36 (24.7%) received a
total of two course, 15 (10.3%) received a total of three courses, 10 (6.8%) received a total of four courses and 5 (3.4%)
received a total of five courses in total. Zuranolone 50 mg was generally well-tolerated with no new safety finding or trend
identified in the long-term safety data available to date on patients followed up to one year who received a single or repeat
dosing courses. Safety was assessed during treatment and in between treatment courses and over multiple treatment courses to
help inform tolerability over time. Over the entire study, 137 of 199 (68.8%) patients who initiated treatment with zuranolone
50 mg reported at least one TEAE, similar to the previously reported 30 mg cohort. The most common TEAEs that were
reported by ≥ 5% of patients treated with zuranolone were somnolence (32; 16.1%), dizziness (30; 15.1%), headache (25;
12.7%), sedation (20; 10.1%), insomnia (14; 7.0%), nausea (13; 6.5%), and tremor (11; 5.5%). The majority of patients
reported TEAEs with a maximum severity of mild to moderate.
The data from the 50 mg cohort is consistent with 12-month data we reported in March 2021, from the completed 30 mg cohort
of the SHORELINE Study. In the 30 mg zuranolone cohort, approximately 70% of participants with a clinical response to an
initial 2-week treatment required at most one additional zuranolone treatment during their time in the 12-month study. Of the
489 patients continuing in the study, 210 (42.9%) patients received only the single initial zuranolone course during their time in
the study, while 125 (25.6%) received a total of two courses, 58 (11.9%) received a total of three courses, 53 (10.8%) received
a total of four courses, and 43 (8.8%) received a total of five courses. In the 30 mg cohort, 368 (51%) patients reported at least
one TEAE. The most common TEAEs that were reported by ≥ 5% of patients treated with zuranolone were somnolence (86;
11.9%), headache (103; 14.2%), and dizziness (54; 7.4%). Most of the reported TEAEs were mild or moderate.
We are also conducting the SKYLARK Study, from which we expect to report topline results in mid-2022.
In September 2021, Shionogi announced that it achieved the primary endpoints from a Phase 2 clinical trial of zuranolone for the
treatment of patients with moderate to severe MDD in Japan. The data reported by Shionogi for this Phase 2 study showed significant
improvement over placebo from day three (first observation) to day 15 (end of administration) of change in HAMD-17 total score from
baseline in a group of 80 patients who received zuranolone 20 mg once daily for two weeks and a group of 85 patients who received 30 mg
once daily for two weeks, as compared to 82 patients who received the placebo. Shionogi reported that all adverse events were mild or
moderate. Shionogi previously completed a Phase 1 clinical trial in Japan to evaluate the safety and tolerability of zuranolone in Japanese and
Caucasian subjects.
We may consider additional development opportunities for zuranolone as part of the Biogen collaboration.
SAGE-324
In addition to zuranolone, we have a portfolio of other novel compounds that target GABAA receptors, including SAGE-324, which we
are jointly developing with Biogen under the Biogen Collaboration Agreement. SAGE-324 is a
14
novel GABAA receptor positive allosteric modulator intended for chronic oral dosing. In April 2021, we and Biogen reported topline results
from our placebo-controlled Phase 2 clinical trial evaluating the safety and efficacy of SAGE-324 for the treatment of essential tremor,
known as the KINETIC Study. Essential tremor is a neurodegenerative condition characterized by rhythmic trembling most commonly of the
upper limbs, including the hands. The head, voice, legs or trunk may also be affected. Symptoms generally evolve over time, are persistent,
and affect patients’ ability to function independently. Essential tremor is among the most common movement disorders, estimated to affect
more than 6 million adults in the U.S., with increasing prevalence among patients 50 years and older. First-line treatments for essential
tremor include β-adrenergic blocker propranolol and anticonvulsant primidone.
The Phase 2 KINETIC Study evaluating SAGE-324 for the treatment of adults with essential tremor (n=67 full analysis set) achieved
its primary endpoint of a statistically significant reduction from baseline compared to placebo in The Essential Tremor Rating Assessment
Scale, or TETRAS, Performance Subscale Item 4 upper limb tremor score on Day 29 (p-value=0.049), which corresponded to a 36%
reduction from baseline in upper limb tremor amplitude in patients receiving SAGE-324 compared to a 21% reduction in patients receiving
placebo. Patients were randomized 1:1 to receive SAGE-324 (60 mg) or matched placebo once daily in the morning. The trial evaluated
treatment of SAGE-324 at the higher end of the dose range and the daily dose could be down-titrated to 45 mg or 30 mg. Activities of daily
living, or ADL, scores showed a statistically significant correlation with upper limb tremor score at all timepoints. Although the clinical trial
was not powered to fully examine TETRAS ADL, SAGE-324 was numerically superior to placebo at all time points during treatment.
Reported TEAEs were generally consistent with the safety profile of SAGE-324 previously reported. The most common TEAEs that were
reported by 10% or more of patients in the SAGE-324 treatment group and at a rate at least twice as high as that of patients in the placebo
group were: somnolence 68%; dizziness 38%; balance disorder 15%; diplopia 12%; dysarthria 12%; and gait disturbance 12%. In the
KINETIC Study, patients with a more severe tremor at baseline (at or above the median TETRAS Performance Subscale upper limb tremor
Item 4 score of 12) (n=47) who received SAGE-324 demonstrated a statistically significant reduction (p-value=0.007) from baseline in
TETRAS Performance Subscale Item 4 upper limb tremor score compared to placebo at Day 29, corresponding to a 41% reduction from
baseline in upper limb tremor amplitude in patients receiving SAGE-324 compared to an 18% reduction for placebo.
In late 2021, we initiated a Phase 2b double-blind, randomized, placebo-controlled, dose-response study of SAGE-324 in patients with
moderate to severe essential tremor, known as the KINETIC 2 Study. The primary aim of the KINETIC 2 Study is to evaluate different doses
of SAGE-324 in reducing upper limb tremors. The primary endpoint of the study is change from baseline in TETRAS Performance Subscale
Item 4 total score at Day 91. We plan to initiate a Phase 2 clinical trial evaluating the safety of SAGE-324 in patients with essential tremor in
mid-2022. We believe SAGE-324 also has potential for the treatment of a number of other neurological conditions, including epilepsy and
Parkinson’s disease.
We are jointly developing SAGE-324 in the U.S. with Biogen, and will jointly commercialize Licensed 324 Products with Biogen in
the U.S. if our development efforts are successful and SAGE-324 is approved in the U.S. We have granted Biogen sole rights to develop and
commercialize SAGE-324 outside the U.S. We may consider additional development plans and opportunities for SAGE-324 as part of our
collaboration with Biogen.
SAGE-718
Our second area of focus is the development of novel compounds that target the NMDA receptor. Examples of indications involving
NMDA receptor dysfunction include certain types, aspects or subpopulations of a number of diseases such as Huntington’s disease,
Parkinson’s disease, Alzheimer’s disease, depression, attention deficit hyperactivity disorder, schizophrenia, and neuropathic pain.
Our lead product candidate selected in this area is SAGE-718, an oxysterol-based positive allosteric modulator of the NMDA receptor,
which we are exploring in certain cognition-related disorders associated with NMDA receptor dysfunction, including cognition dysfunction
associated with diseases such as Huntington’s disease, Parkinson’s disease and Alzheimer’s disease.
Huntington’s disease
SAGE-718 is currently being studied in a double-blind placebo-controlled Phase 2 clinical trial of SAGE-718 in patients with
Huntington’s disease cognitive impairment, known as the DIMENSION Study, which is designed to evaluate the efficacy of once-daily dosed
SAGE-718 over three months. Dosing in the DIMENSION Study commenced in
15
early 2022. We plan to initiate, in mid-2022, a second placebo-controlled Phase 2 clinical trial of SAGE-718 in patients with Huntington’s
disease cognitive impairment, with a healthy volunteer component, known as the SURVEYOR Study, with the goal of generating evidence
linking efficacy signals on cognitive performance to domains of real-world functioning. We are also planning to initiate a Phase 3 open-label
extension study of SAGE-718 in patients with Huntington’s disease cognitive impairment, expected to be initiated in late 2022. The FDA has
granted SAGE-718 Fast Track designation as a potential treatment for Huntington’s disease.
Parkinson’s disease
In May 2021, we announced results from the first part of a Phase 2a open-label clinical trial of SAGE-718 evaluating patients with
mild cognitive impairment due to Parkinson’s disease, known as the PARADIGM Study. In this clinical trial, eight patients aged 50 to 75
years with mild cognitive impairment due to Parkinson’s disease received 3 mg of SAGE-718 daily for 14 days. Patients showed
performance improvements from baseline on multiple tests in the cognitive domain of executive function during the 14 days of treatment.
Emerging signals on several measures also suggested improved performance from baseline on cognitive tests in the domains of learning and
memory over a similar timeframe. SAGE-718 was generally well-tolerated in the study; there were no serious adverse events reported, and
no TEAEs were determined to be related to SAGE-718 or resulted in study drug discontinuation or withdrawal from the study. As expected,
given its profile, SAGE-718 demonstrated neutral results in certain tests of attention and psychomotor speed. A four-week dosing cohort in
the PARADIGM Study is ongoing to gather additional data in the Parkinson’s disease patient population. In addition, we plan to initiate a
placebo-controlled Phase 2 clinical trial of SAGE-718 in patients with mild cognitive impairment due to Parkinson’s disease in mid-2022.
Alzheimer’s disease
In December 2021, we reported topline data from the LUMINARY Study, a Phase 2a open-label clinical trial of SAGE-718 in patients
with mild cognitive impairment and mild dementia due to Alzheimer’s disease (n=26 full analysis set), who received 3 mg of SAGE-718
daily for 14 days. The results showed performance improvements from baseline on five out of five unique tests in the cognitive domain of
executive function and two out of four unique tests in the cognitive domains of learning and memory during the 14 days of treatment,
consistent with positive signals seen in clinical trials evaluating SAGE-718 as a treatment for Parkinson’s disease and Huntington’s disease.
Patients also showed performance improvement as measured by the Montreal Cognitive Assessment (MoCA) Test, a global measure of
cognition, that reached statistical significance at Day 28 when compared to baseline in patients treated with SAGE-718. In certain tests of
attention and psychomotor speed, SAGE-718 demonstrated neutral results. SAGE-718 was generally well tolerated in the LUMINARY
Study. Seven subjects reported a total of 11 TEAEs, seven of which were considered related to the study treatment and all of which were
rated as mild or moderate in severity. The most commonly reported TEAEs were headache (n=2) and constipation (n=2). We plan to initiate a
randomized placebo-controlled Phase 2 clinical trial of SAGE-718 in patients with mild cognitive impairment and mild dementia due to
Alzheimer’s disease in late 2022.
Further Exploration of GABAA and NMDA Receptors and New Areas of Interest
We expect to continue to focus our research and development efforts on allosteric modulation of the GABAA and NMDA receptor
systems in the brain. Our portfolio of novel GABAA receptor positive allosteric modulators includes SAGE-689, a product candidate in
Phase 1 clinical development intended for intramuscular administration. We also have other compounds at earlier stages of development with
a focus on both acute and chronic brain health disorders, including SAGE-319, an extrasynaptic GABAA receptor-preferring positive
allosteric modulator that we plan to study for potential use as an oral therapy in treating disorders of social interaction. We also have earlier
stage compounds focused on NMDA receptor modulation, including SAGE-421, an NMDA receptor positive allosteric modulator that we
plan to study for potential use in neurodevelopmental disorders and cognitive recovery and rehabilitation. We recently decided to discontinue
development of SAGE-904, another NMDA receptor positive allosteric modulator, following results from the Phase 1 clinical program that
showed SAGE-904 did not achieve our target product profile for further development. The GABAA and NMDA receptor systems are broadly
accepted as impacting many psychiatric and neurological disorders, spanning disorders of mood, seizure, cognition, anxiety, sleep, pain, and
movement among others. We believe that we may have opportunities to develop molecules from our internal portfolio to address a number of
these disorders in the future. Our ability to identify and develop such novel brain health therapies is enabled by our proprietary chemistry
platform that is centered, as a starting point, on knowledge of the chemical scaffolds of certain endogenous neuroactive steroid compounds.
We believe our knowledge of the chemistry and activity of allosteric modulators allows us to efficiently design molecules with different
characteristics. This diversity enables us to regulate important properties such as half-life, brain penetration and receptor pharmacology to
develop product candidates that have the potential for better
16
selectivity, increased tolerability, and fewer off-target side effects than either current therapies or previous therapies which have failed in
development. We believe that we may also have the opportunity to use our scientific approach to explore targets beyond the GABAA and
NMDA receptor systems and to develop compounds in areas of unmet need outside of brain health disorders.
We believe our broad potential pipeline lessens our reliance on the success of any one program. We believe our ability to design and
develop novel molecules with distinct profiles and receptor subtype selectivity may also provide us with the option, if we choose, to
potentially partner certain assets with third parties who possess the development and commercialization capabilities to pursue these
programs, like our recent strategic collaboration with Biogen. We may also evaluate opportunities to acquire new compounds, product
candidates or products from other companies or from academic institutions if we believe such opportunities will help us achieve our goals or
meet other strategic objectives.
Manufacturing and Supply
We neither own nor operate, and currently have no plans to own or operate, any manufacturing facilities. We currently source all of our
clinical and non-clinical material supply through third-party contract manufacturing organizations, or CMOs. We have also sourced our
existing inventory of our proprietary formulation of ZULRESSO for commercial sale from CMOs, and intend to source all of our future
commercial supplies of ZULRESSO and zuranolone and other product candidates, if approved by the FDA, from CMOs.
We have long-term supply agreements with our CMOs with respect to ZULRESSO drug substance and drug product. We have an
inventory of ZULRESSO drug substance and drug product in place to help mitigate any potential supply risks. All commercial supplies are
intended to be manufactured applying current Good Manufacturing Practices, or cGMP.
We have established relationships with several CMOs under which the CMOs manufacture clinical and non-clinical supplies of drug
substance and drug product for zuranolone, SAGE-324, SAGE-718 and other product candidates on a purchase order basis under master
service and quality agreements. All clinical supplies of drug substance and drug product are intended to be manufactured under cGMP.
Starting materials and key intermediates to support the production of these product candidates are manufactured by other CMOs. We do not
currently have arrangements in place for either long-term supply or redundant supply of drug substance or drug product for zuranolone,
SAGE-324, or SAGE-718. We intend to put a long-term supply agreement in place at the appropriate time for drug substance and drug
product for zuranolone and each other product candidate, if development continues. We plan to mitigate potential commercial supply risks for
any products that are approved in the future through inventory management and through exploring additional manufacturers to provide drug
substance or drug product.
We are currently working with our CMOs to prepare for validation and commercial manufacturing of zuranolone, if we are successful
in our efforts to file for and gain regulatory approval in the U.S. We also intend to improve the manufacturing process for our other product
candidates and manufacture clinical supplies as development progresses. We believe we currently have sufficient zuranolone drug substance
on hand for our ongoing Phase 3 clinical trials.
ZULRESSO, zuranolone, SAGE-324 and SAGE-718 are small molecules isolated as stable crystalline solids. We believe the syntheses
of ZULRESSO, zuranolone, SAGE-324 and SAGE-718 are reliable and reproducible from readily available starting materials, and the
synthetic routes are amenable to large-scale manufacturing and do not require unusual equipment in the manufacturing process. We expect to
continue to identify and develop drug candidates that are amenable to cost-effective manufacturing at contract manufacturing facilities.
Sales and Marketing
Our first product, ZULRESSO, was made commercially available in the U.S. as a treatment for PPD in adults in June 2019. Our
revenue from sales of ZULRESSO has been negatively impacted by significant barriers arising from the complex requirements for treatment
and, more recently, by the COVID-19 pandemic, and these factors are expected to continue to impact revenues negatively in the
future. ZULRESSO is administered as a continuous infusion given over two and a half days. Because of the risk of serious harm resulting
from excessive sedation or sudden loss of consciousness during the ZULRESSO infusion, ZULRESSO is approved for administration only in
a medically-supervised healthcare
17
setting that has been certified under a REMS program and meets the other requirements of the REMS program, including requirements
related to monitoring of the patient during the infusion. The actions required for a healthcare setting to be ready and willing to treat women
with PPD are complex and time-consuming. These actions include becoming REMS-certified; achieving formulary approvals; establishing
protocols for administering ZULRESSO; and securing satisfactory reimbursement. Sites must often negotiate reimbursement on a payor-by-
payor basis under commercial coverage. The availability, terms and timing of coverage for ZULRESSO vary from payor to payor, both for
commercially insured patients and from state Medicaid systems, and we have encountered some states that impose significant coverage
restrictions or lengthy delays on reimbursement of ZULRESSO. As a result, certain healthcare settings will not treat Medicaid patients with
ZULRESSO even if they are active sites of care for ZULRESSO. These requirements have created significant barriers to treatment for
women with PPD. We expect these barriers will continue to negatively impact ZULRESSO revenue growth.
These barriers have been compounded by the COVID-19 pandemic. The spread of COVID-19 in the U.S. has resulted in a significant
number of sites of care pausing, limiting or delaying treatment of new patients with ZULRESSO and potential new sites of care pausing site
activation activities for a period of time. We believe concerns about exposure to the virus or its variants as well as the disruption to the
healthcare system in the U.S. caused by the pandemic have also caused a significant reduction in the number of women with PPD seeking
treatment with ZULRESSO and in the number of physicians willing to prescribe it. Given the continuing concerns about the COVID-19
pandemic across the country, including as a result of the spread of variants and “breakthrough” cases among fully vaccinated people, and the
resulting disruption in many locations to healthcare resources, we expect the significant adverse impact of the pandemic on ZULRESSO
revenues, and our results of operations from sales of ZULRESSO, to continue for the foreseeable future. The scope and timing of the
expected negative impact of the COVID-19 pandemic will depend on, among other factors, the scope and duration of the pandemic and the
timing of any return to normal business operations across the U.S.; the effectiveness of vaccination campaigns, vaccine mandates, and other
efforts to control the pandemic; the extent of healthcare staffing shortages; impact on customers and vendors; and the duration and severity of
restrictive measures taken to curb the spread of COVID-19. Given the continued fluidity of the COVID-19 pandemic, we cannot
predict its course or for how long and to what extent it will have an adverse impact on ZULRESSO sales.
Our ZULRESSO commercial operations, including our account management field-based team and sales representatives, are primarily
focused on geographies that have existing, active ZULRESSO treating sites. We expect that this approach to our commercial efforts may
continue to substantially limit the revenue opportunity for ZULRESSO. Given the limited focus of our commercial efforts and the continued
impact of the COVID-19 pandemic, the number of new healthcare settings that become treating sites for ZULRESSO may be very limited for
the foreseeable future. We may also find that certain healthcare settings that have in the past been active treating sites may not be willing to
remain infusion-ready as a result of the complex requirements related to administration of ZULRESSO and compliance with the REMS,
related limitations and restrictions, or because of actual or perceived difficulties obtaining satisfactory reimbursement or limitations on
reimbursement or for other reasons. Healthcare settings that are active sites may also limit capacity used for ZULRESSO infusions or
continue to wait to gain more experience with the clinical profile of ZULRESSO and to secure direct experience with reimbursement prior to
increasing patient intake. Sage Central, our patient support center located in Raleigh, North Carolina, continues to provide a range of patient
support resources to assist women with PPD and their families in the ZULRESSO treatment journey. In addition, our commercialization
infrastructure includes capabilities in medical affairs, market access, manufacturing, quality control, drug safety and pharmacovigilance,
health economics and outcomes research (HEOR), and compliance.
We plan to continue to evaluate opportunities to raise awareness and help reduce hurdles to appropriate treatment for women with
PPD. For example, in 2021, we initiated an open-label clinical trial designed to assess the safe-use administration of ZULRESSO in a
patient’s home for the treatment of PPD, known as the SUNBIRD Study, which is anticipated to be completed in late 2022.
Permitted pre-launch planning and launch-readiness activities for zuranolone are underway, and we are actively working on our
commercialization strategy with Biogen in the event we are successful in our efforts to file for and gain regulatory approval of zuranolone in
the U.S. We expect that we will need substantial additional sales and marketing capabilities in the U.S. if zuranolone receives regulatory
approval for MDD and/or PPD, as it may be prescribed by both specialty physicians (such as psychiatrists, neurologists and
obstetricians/gynecologists) and primary care physicians. We also plan to leverage additional promotional strategies to provide product and
disease education to healthcare providers
18
and patients with MDD and PPD if zuranolone is approved. These strategies include, but are not limited to, direct-to-patient and direct-to-
consumer advertising delivered through a range of media, as well as online physician education. As described above, we and Biogen have
agreed as part of our collaboration that, if zuranolone and SAGE-324 are successfully developed and approved, we will jointly
commercialize the products in the U.S., including sharing equally in sales and marketing activities and profits and losses in the U.S. If we
obtain regulatory approval of such products, Biogen will book sales of Licensed 217 Products and we will book sales of Licensed 324
Products. We have granted Biogen sole rights to commercialize the Licensed Products outside the U.S., other than in the Shionogi Territory
with respect to zuranolone, where we have granted such rights to Shionogi.
We have entered into several material license agreements with respect to our product and clinical-stage product candidates, which are
Licenses
described below.
CyDex Pharmaceuticals
In September 2015, we amended and restated our existing commercial license agreement with CyDex Pharmaceuticals, Inc., a wholly
owned subsidiary of Ligand Pharmaceuticals Incorporated, 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 brexanolone and the Company’s compound known as SAGE-689, and the
development and commercialization of the resulting products 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 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 efforts 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 up to $0.8 million in clinical milestones and up to $3.8
million in regulatory milestones for each of the first two fields with respect to brexanolone; up to $1.3 million in clinical milestones and up to
$8.5 million in regulatory milestones for each of the third and fourth fields with respect to brexanolone; and up to $0.8 million in clinical
milestones and up to $1.8 million in regulatory milestones for one field with respect to SAGE-689. The CyDex license is perpetual 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 failure to cure a material breach in the applicable cure period. We pay royalties to CyDex on sales
of ZULRESSO, and will also be required to pay royalties on sales of SAGE-689, if successfully developed, in the low single digits based on
levels of net sales. We met a clinical development milestone related to SAGE-689 under the CyDex license in late 2021, and accordingly
made a $0.1 million payment to CyDex.
We are also party to a supply agreement with CyDex. Under the supply agreement, we are required to purchase all of our requirements
for Captisol with respect to brexanolone and SAGE-689 from CyDex, and CyDex is required to supply us with Captisol for such purposes,
subject to certain limitations.
University 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 subject 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 investigational new drug, or IND, application package owned by the Regents, or the Data, and a specified quantity of
cGMP grade allopregnanolone, or the Material, to (i) use the Data for reference or incorporation in an IND for the use of the Material as a
treatment of status epilepticus, or SE, essential tremor and/or PPD and (ii) use the Material or modifications of the Material to develop a
19
pharmaceutical formulation for clinical trials for SE, essential tremor and/or PPD. The rights licensed to us are not sublicensable.
This agreement required us to make up to $0.1 million in milestone payments in connection with the first derived product that met the
relevant milestones, all of which we have already paid. We must also pay royalties of less than 1% to the Regents on ZULRESSO and for
each other derived product, if any, for a period of 15 years following the first 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 the last-derived product is first commercially sold.
We may terminate this agreement early for convenience upon providing 60 days’ prior written notice to the Regents. The Regents may
terminate this agreement early in the event of material default, including failure to provide timely progress reports, after the applicable cure
period, or in the event of our bankruptcy. In the event of early termination of this agreement, we have the right to sell any partially made
derived products for a period of 120 days from 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 for sale or import products containing allopregnanolone.
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 made annual maintenance fees of $15,000 until the calendar year following the first sale of ZULRESSO. We are obligated to
make milestone payments following the achievement of specified regulatory and sales milestones of up to $0.7 million and $2.0 million in
the aggregate, respectively. We pay royalties to the Regents at a low single digit percentage of net sales of ZULRESSO, subject to specified
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 applications expire, whichever is later.
Collaboration and License Agreement with Biogen
In November 2020, we entered into the Biogen Collaboration Agreement with Biogen for the development, manufacture and
commercialization of Licensed 217 Products and Licensed 324 Products, which became effective in December 2020.
We and Biogen have agreed that we will jointly develop and commercialize the Licensed Products in the U.S., and that Biogen solely
will develop and commercialize the Licensed Products outside the U.S., except, with respect to the Licensed 217 Products, in the Shionogi
Territory. Each of we and Biogen is obligated to use commercially reasonable efforts to develop at least one product in each Product Class in
the U.S., and Biogen is also obligated to use commercially reasonable efforts to develop at least one product in each Product Class in the
Biogen Territory. We and Biogen have agreed to share jointly in the performance of the activities under the Biogen Collaboration Agreement
in the U.S. and to share all costs for activities under the Biogen Collaboration Agreement solely for the U.S. equally. The Biogen
Collaboration Agreement provides that Biogen has sole responsibility and decision-making authority with respect to such activities in the
Biogen Territory. Biogen is solely responsible for all costs for activities under the Biogen Collaboration Agreement in the Biogen Territory.
We have an Opt-Out Right (as defined below) in the U.S. with respect to a Product Class.
We have granted to Biogen a non-transferable, sublicensable, except for certain specified exceptions, license to certain of our
intellectual property as needed to perform the activities under the Biogen Collaboration Agreement. Such license is co-exclusive with us in
the U.S. and exclusive, even as to us, in the Biogen Territory, subject to certain retained rights to allow us to exercise our rights and perform
our obligations under the Agreement and with respect to the Shionogi Territory.
Our activities for the U.S. are conducted pursuant to joint development plans agreed to by us and Biogen, on a Licensed Product-by-
Licensed Product basis, and overseen by a joint steering committee, or the JSC. The JSC is composed of an equal number of representatives
from each of us and Biogen.
20
Under the terms of the Biogen Collaboration Agreement, Biogen paid us an upfront payment of $875.0 million on December 31, 2020.
For so long as a Licensed Product is being sold in the U.S., we and Biogen will share in all operating profits and losses arising from such
Licensed Product in the U.S. (50 percent us and 50 percent Biogen). The Biogen Collaboration Agreement provides that Biogen will book
sales of Licensed 217 Products globally. We will book sales of Licensed 324 Products in the U.S. and Biogen will book sales of Licensed 324
Products outside of the U.S., in each case if Licensed Products are successfully developed and approved. We have the right to opt out of such
profit- and loss-sharing on a Product Class-by-Product Class basis in the U.S., or in each case, an Opt-Out Right. If we elect to exercise
our Opt-Out Right with respect to a Product Class, we have agreed to transition to Biogen applicable development and commercial activities
for such Product Class for the U.S., and Biogen has agreed to assume sole operational and financial responsibility for such activities.
The Biogen Collaboration Agreement provides for aggregate regulatory/commercial milestone payments from Biogen to us for
(i) Licensed 217 Products of up to $475.0 million and (ii) Licensed 324 Products of up to $520.0 million. It also provides for aggregate one-
time sales milestone payments from Biogen to us of (i) up to $300.0 million for each Product Class if we have not exercised our Opt-
Out Right with respect to such Product Class and (ii) up to $525.0 million for each Product Class if we have exercised our Opt-Out Right
with respect to such Product Class.
Biogen has also agreed to pay us tiered royalties based on net sales of the Licensed Products in the Biogen Territory of high-teens
to low-twenties percentages. If we have exercised our Opt-Out Right in the U.S. with respect to a Product Class, Biogen has agreed to pay us
specified royalties based on net sales of the Licensed Products of such Product Class. Royalty payments may be reduced in certain specified
customary circumstances. Due to the uncertainty of pharmaceutical development and the high historical failure rates generally associated
with drug development, we may never receive any milestone payments or any royalty payments from Biogen.
During the term of the Biogen Collaboration Agreement, neither us nor Biogen nor any of our respective affiliates is permitted outside
of the Biogen Collaboration Agreement to directly or indirectly develop, manufacture, conduct medical affairs activities or commercialize
certain products in specified indications, or enter into agreements or arrangements with third parties to perform any of the above activities.
Unless earlier terminated, the Biogen Collaboration Agreement expires on a Licensed Product-by-Licensed Product and country-by-
country basis on the later of (i) in the Biogen Territory, the expiration of the royalty term for such Licensed Product in such country or (ii) in
the U.S., until the parties agree to permanently stop commercializing such Licensed Product. Biogen may terminate the Biogen Collaboration
Agreement for convenience in its entirety or on a Product Class-by-Product Class basis or as to a region by providing advance written notice.
Either us or Biogen may terminate the Biogen Collaboration Agreement (i) in the event of a material breach in whole or in part, by the other
party subject to a cure period and (ii) in the event of the insolvency of the other party, in each case subject to specified conditions.
In connection with the execution of the Biogen Collaboration Agreement, we and BIMA also entered into a stock purchase agreement,
or the Biogen Stock Purchase Agreement, for the sale and issuance of 6,241,473 shares of our common stock, or the Biogen Shares, to BIMA
at a price of approximately $104.14 per share, a premium of 40% over the volume-weighted average share price for the 30 days ending on the
day prior to entry into the Biogen Stock Purchase Agreement, for an aggregate purchase price of $650.0 million. The sale of the Biogen
Shares was consummated on December 31, 2020.
We have granted BIMA specified demand and piggyback registration rights with respect to the Biogen Shares. The Biogen Stock
Purchase Agreement also includes standstill provisions, lock-up restrictions and a voting agreement with respect to the Biogen Shares.
Pursuant to the terms of the Biogen Stock Purchase Agreement, BIMA has agreed not to, and to cause its affiliates not to, directly or
indirectly acquire our securities, seek or propose a tender or exchange offer or merger between us and BIMA, solicit proxies or consents with
respect to any matter, or undertake other specified actions, in each case subject to specified conditions. The standstill restrictions terminate on
the earliest of (i) a specified regulatory milestone under the Biogen Collaboration Agreement, (ii) the date one year following the termination
of the Biogen Collaboration Agreement and (iii) December 28, 2027.
21
BIMA has also agreed not to, and to cause its affiliates not to, sell or transfer any of the Biogen Shares for a period of eighteen months
from the closing of the sale of the Biogen Shares, which period expires June 30, 2022, and to limit sales and transfers of the Shares for an
additional eighteen-month period, in each case subject to specified conditions and exceptions.
Collaboration Agreement with Shionogi & Co., Ltd.
In June 2018, we entered into a collaboration agreement with Shionogi. Pursuant to this agreement, Shionogi is responsible for all
clinical development, regulatory filings and commercialization of products containing zuranolone for the treatment of MDD and potentially
other indications in the Shionogi Territory. Shionogi made an upfront payment of $90.0 million in 2018, and we will be eligible to receive
additional payments of up to $485.0 million if certain regulatory and commercial milestones are achieved by Shionogi.
Under the terms of the agreement, the potential future milestone payments include up to $70.0 million for the achievement of specified
regulatory milestones, up to $30.0 million for the achievement of specified commercialization milestones, and up to $385.0 million for the
achievement of specified net sales milestones. We will receive tiered royalties on sales of zuranolone in the Shionogi Territory, if
development efforts are successful, with tiers averaging in the low to mid-twenty percent range, subject to other terms of the agreement. Due
to the uncertainty of pharmaceutical development and the high historical failure rates generally associated with drug development, we may
not receive any additional milestone payments or any royalty payments from Shionogi.
Shionogi has also granted us certain rights to co-promote zuranolone in Japan. As between us and Shionogi, we maintain exclusive
rights to develop and commercialize zuranolone outside of the Shionogi Territory. The upfront cash payment and any payments for
milestones and royalties are non-refundable and non-creditable.
The agreement with Shionogi will terminate on a licensed product-by-licensed product basis on the date on which the royalty term has
expired in each country in Shionogi’s territory for such licensed product and will ultimately expire upon the expiration of the last-to-expire
royalty term. Shionogi may remove South Korea or Taiwan from the covered territories, for any reason or no reason upon 180 days’ prior
written notice. Shionogi may terminate the agreement in its entirety for any reason or no reason upon 180 days’ prior written notice. Shionogi
may also terminate the agreement in the event of a serious adverse event or a clinical failure upon 60 days’ written notice to us. Either party
may terminate this agreement early in the event of an uncured material breach within 180 days’ after notice is delivered to the other party.
Intellectual Property
We strive to protect the proprietary know-how and technology that we believe is important to our business, including seeking and
maintaining patents intended to cover our product candidates and compositions, their methods of use and processes for their manufacture,
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 for, patent protection. To protect our rights to
our proprietary know-how and technology, we require all employees, as well as our consultants and contract research organization, or CROs,
when feasible, to enter into agreements that generally require disclosure and assignment to us of ideas, developments, discoveries and
inventions made by these employees, consultants, and CROs in the course of their service to us.
We plan to continue to expand our intellectual property estate by filing patent applications directed to compositions, methods of use,
treatment and patient selection, formulations and manufacturing processes created or identified from our ongoing development of our product
candidates. Our success will depend on our ability to obtain and maintain patent and other proprietary protection for commercially important
technology, inventions and know-how related to our business; defend and enforce our patents; preserve the confidentiality of our trade
secrets; and operate without infringing the valid and enforceable patents and proprietary rights of third parties. We also rely on know-how
and continuing technological innovation and may pursue in-licensing opportunities to develop and maintain our proprietary position. We seek
to obtain domestic and international patent protection, and endeavor to promptly file patent applications for new commercially valuable
inventions.
22
The patent positions of biopharmaceutical companies like us are generally uncertain and involve complex legal, scientific and factual
questions. In addition, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and patent scope
can be reinterpreted by the courts after issuance. Moreover, many jurisdictions, including the U.S., permit third parties to challenge issued
patents in administrative proceedings, which may result in further narrowing or even cancellation of patent 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
whether the claims of any issued patents will be enforceable or provide sufficient protection from competitors.
Because patent applications in the U.S. and certain other jurisdictions are maintained in secrecy for 18 months or potentially even
longer, and since publication of discoveries in the scientific or patent literature often 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 U.S. Patent and Trademark
Office, or U.S. PTO, or similar proceedings outside the U.S., to determine priority of invention.
Patents
We hold issued patents and pending patent applications in the U.S., and in certain foreign countries. Our intellectual property holdings
include, but are not limited to:
•
•
•
•
•
•
One issued U.S. patent, exclusively licensed to us, covering a method of using our proprietary brexanolone formulation to treat
PPD, which will expire in 2033; one U.S. issued patent and one granted patent in Europe covering our proprietary formulation of
brexanolone, which will expire in 2033; and one U.S. issued patent covering the dosage regimen of brexanolone to treat PPD,
which will expire in 2037;
Pending U.S. and foreign patent applications covering certain aspects of brexanolone, including courses of treatment, dosage
regimens, methods for manufacturing, and additional uses of the formulation of brexanolone to treat various brain health
diseases and disorders, including PPD;
One issued U.S. patent covering the composition of matter of zuranolone, three issued U.S. patents covering methods of using
zuranolone, one granted European patent covering the composition of matter of zuranolone, and one granted European patent
covering methods of using zuranolone, each of which expires in April 2034, subject to any potential extensions; one issued U.S.
patent covering solid forms of zuranolone, which expires in August 2037, subject to any potential extensions; and pending U.S.
and foreign patent applications covering zuranolone, uses of zuranolone to treat various brain health diseases and disorders, and
solid forms of zuranolone;
Issued patents covering the composition of matter for SAGE-324 in Europe and Japan, expiring in May 2035, and U.S. and
foreign patent applications covering SAGE-324, SAGE-319, and many other modulators of the GABAA receptor and uses of
these compounds to treat various brain health diseases and disorders;
Two issued U.S. patents covering composition of matter and method of use of SAGE-689 which expire in December 2033, and
U.S. and foreign patent applications covering SAGE-689 and uses of SAGE-689 to treat various brain health diseases and
disorders. These patents and patent applications are co-owned with Washington University, and Sage has an exclusive license to
Washington University’s rights in these patents and patent applications; and
U.S. and foreign patents and patent applications covering SAGE-718 and many other modulators of the NMDA receptor, and
uses of these compounds to treat various brain health diseases and disorders.
Patent Term
The base term of a U.S. patent is 20 years from the filing date of the earliest-filed non-provisional patent application from which the
patent claims priority. The term of a U.S. patent can be lengthened by patent term adjustment, which compensates the owner of the patent for
administrative delays at the U.S. PTO. In some cases, the term of a U.S. patent is shortened by terminal disclaimer that reduces its term to
that of an earlier-expiring patent.
The term of a U.S. patent may also be eligible for patent term extension under the Drug Price Competition and Patent Term
Restoration Act of 1984, referred to as the Hatch-Waxman Act, to account for at least some of the time the drug is under development and
regulatory review after the patent is granted. With regard to a drug for which FDA
23
approval is the first 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 composition of matter of an FDA-approved drug, an FDA-approved method of treatment using
the drug, and/or a method of manufacturing the FDA-approved drug. The extended patent term cannot exceed the shorter of five years
beyond the non-extended 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 for extension of the term of a patent that covers a drug
approved by the applicable foreign regulatory agency. In the future, if and when our pharmaceutical products receive FDA approval, we
expect to apply for patent term extension on patents covering those products, their methods of use, and/or methods of manufacture.
Trade Secrets
In addition to patents, we may rely on trade secrets and know-how to develop and maintain our competitive position. Companies
typically rely on trade secrets to protect aspects of their business that are not amenable to, or that they do not consider appropriate for, patent
protection. We protect trade secrets, if any, and know-how by establishing confidentiality agreements and invention assignment agreements
with our employees, and, where feasible, with consultants, scientific advisors, contractors and certain other entities with whom we do
business. These agreements generally provide that all confidential information developed or made known during the course of an individual
or entity’s relationship with us must be kept confidential during and after the relationship. These agreements also generally provide that all
relevant inventions resulting from work performed for us or relating to our business and conceived or completed 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, designed to guard against misappropriation of our proprietary information by third parties.
Competition
The biopharmaceuticals industry is highly competitive. There are many public 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 probable that the number of companies seeking to develop products and therapies similar to our
products or targeting similar indications will increase.
Currently, there are no pharmacological therapies specifically approved for the treatment of PPD other than ZULRESSO. Current
standard of care for PPD commonly consists of psychotherapy; however, patients with moderate or severe PPD are often prescribed
antidepressant medications such as SSRIs and SNRIs.
Our most advanced product candidate, zuranolone, is being developed for the treatment of MDD and PPD. Patients with MDD are
typically treated with a variety of antidepressant medications, including SSRIs, SNRIs and atypical antipsychotics. If successfully developed
and approved, zuranolone may also face competition from esketamine, which is approved for the treatment of treatment resistant depression.
A number of companies are developing product candidates intended for the treatment of MDD, including NMDA receptor antagonists or
partial antagonists such as dextromethorphan/ bupropion. In April 2021, Axsome Therapeutics, Inc. announced that the FDA had accepted
and granted priority review to the NDA package for its NMDA receptor antagonist, AXS-05, which has previously received Breakthrough
Therapy designation for MDD, but the expected Prescription Drug User Fee Act, as amended, or PDUFA, target action date of August 2021
has been delayed. In addition, if zuranolone is successfully developed and approved for PPD, it could reduce our commercial opportunity for
ZULRESSO.
In the field of neuroactive steroids focused specifically on modulation of GABAA receptors, we also face competition from a number
of companies, including Marinus Pharmaceuticals, Inc., or Marinus, and Praxis Precision Medicines, or Praxis. In September 2021, Marinus
announced that the FDA had accepted for filing and granted priority review of the NDA for its product candidate ganaxolone, a known
GABAA positive allosteric modulator neuroactive steroid, to treat seizures associated with CDKL5 deficiency disorder, a rare, genetic
epilepsy. Marinus has announced that the FDA has set a PDUFA target action date for ganaxolone for this indication for March 2022.
Ganaxolone is also in Phase 3 development for status epilepticus and tuberous sclerosis complex. Praxis is developing PRAX-114, a GABAA
receptor modulating neuroactive steroid, that is currently in Phase 2/3 development for MDD.
SAGE-324, a novel GABAA receptor positive allosteric modulator, is in Phase 2 development for essential tremor. If successfully
developed and approved as a treatment for essential tremor, SAGE-324 will face competition from current
24
first-line treatments which include β-adrenergic blocker propranolol and anticonvulsant primidone. SAGE-324 may also face competition
from a T-type calcium channel modulator that Jazz Pharmaceuticals, Inc. is currently evaluating in Phase 2b development for essential tremor
and a Phase 2 T-type calcium channel modulator being developed by Praxis.
A number of companies are working to develop products targeted at the NMDA receptor, both antagonists and agonists. Aptinyx Inc.
has multiple Phase 2 NMDA receptor modulators in development for multiple indications, including NYX-458 being developed for the
treatment of cognitive impairment in Parkinson’s disease.
Many of our potential competitors, 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 number of our competitors. We expect
competition in the indications we are pursuing will focus on efficacy, safety, convenience, availability, and price. Our commercial
opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer
or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may
obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our
competitors establishing a strong market position before we are able to enter the market.
Government Regulation
Government authorities in the U.S. at the federal, state and local level and in other countries extensively regulate, among other things,
the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion,
advertising, distribution, post-approval monitoring/pharmacovigilance, safety and periodic reporting, marketing and export and import of
drug products. Generally, before a new drug can be marketed in a given jurisdiction, considerable data demonstrating its quality, safety and
efficacy must be obtained and/or generated, organized into a format specific to each regulatory authority, submitted for review and the drug
must be approved by the relevant regulatory authority or authorities.
U.S. Drug Development
In the U.S., the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and its implementing regulations.
Drugs are also subject to other federal, state and local statutes and regulations. The process of obtaining regulatory approvals and the
subsequent compliance with appropriate federal, state, and local statutes and regulations require the expenditure of substantial time and
financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval
process or after approval, may subject a company to administrative or judicial sanctions. These sanctions could include, among other actions,
the FDA’s delay or refusal to approve pending applications, withdrawal of an approval, a clinical hold on a clinical investigation, warning or
untitled letters, product recalls or withdrawals from the market, product seizures, total or partial suspension of production or distribution,
injunctions, fines, refusals of government contracts, restitution, disgorgement, or civil penalties or criminal prosecution. Any agency or
judicial enforcement action could have a material adverse effect on us.
Our product candidates must be approved by the FDA through the NDA process before they may be legally marketed in the U.S. The
process required by the FDA before a drug may be marketed in the U.S. requires substantial time, effort and financial resources and 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 formulation studies, in accordance with applicable regulations, including the FDA’s current Good Laboratory
Practice, or GLP, regulations;
Submission to the FDA of an IND application, which must become effective before human clinical trials may begin;
Approval by an independent institutional review board, or IRB, or ethics committee representing each clinical trial site before
each trial may be initiated;
25
•
•
•
•
•
•
Performance of adequate and well-controlled human clinical trials in accordance with applicable IND and other clinical trial-
related regulations, sometimes collectively referred to as good clinical practice, or GCP, to establish the safety and efficacy of
the proposed drug for each proposed indication;
Submission to the FDA of an NDA for marketing approval of a new drug;
Determination by the FDA within 60 days of its receipt of an NDA to accept and file the NDA for review;
Satisfactory completion of a potential FDA pre-approval inspection of the manufacturing facility or facilities where the drug is
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;
Potential FDA audit of the non-clinical and/or clinical trial sites that generated the data in support of the NDA; and
Payment of applicable user fees 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 U.S.
The data required to support an NDA are generated in two distinct development stages: non-clinical and clinical. For new chemical
entities, the non-clinical development stage generally involves synthesizing the active component, developing the formulation and
determining the manufacturing process, as well as carrying out non-human toxicology, pharmacology and drug metabolism studies in the
laboratory, which support subsequent clinical testing. Non-clinical tests include laboratory evaluation of product chemistry, formulation,
stability and toxicity, as well as animal studies to assess the characteristics and potential safety and efficacy of the product. The conduct of
the non-clinical tests must comply with federal laws and regulations, including, for animal studies, the Animal Welfare Act and GLP. The
sponsor must submit the results of the non-clinical tests, together with manufacturing information, analytical data, any available clinical data
or literature and a proposed clinical protocol, to the FDA as part of the IND.
An IND is a request for authorization from the FDA to administer an investigational drug product to humans. Some non-clinical testing
may continue even after the IND is submitted, but an IND must become effective before human clinical trials may begin. The central focus of
an IND submission is on the general 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 subjects
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 must resolve any outstanding concerns before 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 safety concerns or non-compliance. Accordingly, we cannot be sure that
submission of an IND will result in the FDA allowing clinical trials to begin, or that, once begun, issues will not arise that could cause the
trial to be suspended or terminated.
The clinical stage of development involves the administration of the drug candidate to healthy volunteers or to patients with the disease
or condition being studied under the supervision of qualified investigators, generally physicians not employed by or under the trial sponsor’s
control. Clinical trials must be conducted in accordance with GCPs, which establish standards for conducting, recording data from, and
reporting the results of, clinical trials, and are intended to assure that the data and reported results are credible and accurate, and that the rights,
safety, and well-being of study participants are protected. GCPs include the requirement that all research subjects provide their informed
consent for their participation in any given clinical trial. Clinical trials are conducted under protocols describing, among other details, the
objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria, and the parameters to be used to monitor subject
safety and assess efficacy. Each protocol, and any subsequent amendments to the protocol, must be submitted to the FDA as part of the IND.
Further, each clinical trial must be reviewed and approved by an IRB at or servicing each institution at which the clinical trial will be
conducted. An IRB is charged with protecting the welfare and rights of trial 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 benefits. The IRB also approves the
informed consent form that must be provided to each clinical trial subject or his or her legal representative and must monitor the clinical trial
until completed. Companies sponsoring the clinical trials, investigators, and IRBs also must comply with, as applicable, regulations and
guidelines for obtaining informed consent from the study patients, following the protocol and investigational plan, adequately monitoring the
clinical trial, and timely reporting of adverse events. There are also requirements governing the reporting of ongoing clinical trials and
completed clinical trial results to public registries.
26
A sponsor who wishes to conduct a clinical trial outside the U.S. may, but need not, obtain FDA authorization to conduct the clinical
trial under an IND. Foreign studies conducted under an IND must meet the same requirements that apply to studies being conducted in the
U.S. If a foreign clinical trial is not conducted under an IND, the sponsor may submit data from the clinical trial to the FDA in support of an
NDA so long as the clinical trial is conducted in compliance with GCP, including review and approval by an independent ethics committee
and compliance with informed consent principles, and FDA is able to validate the data from the study through an onsite inspection if deemed
necessary.
Clinical Trials
Clinical trials are generally conducted in three phases that may overlap, known as Phase 1, Phase 2 and Phase 3 clinical trials.
•
•
•
Phase 1 clinical trials generally involve a small number 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 patients afflicted with the target disease to determine the dose required to
produce the desired benefits. At the same time, safety and further pharmacokinetic and pharmacodynamic information is
collected, as well as identification of possible adverse effects and safety risks and preliminary evaluation of efficacy.
Phase 3 clinical trials generally involve large numbers of patients afflicted with the target disease at multiple sites (typically from
several hundred to several thousand subjects), and are designed to provide the data necessary to demonstrate the effectiveness of
the product for its intended use, its safety in use, and to establish the overall benefit/risk relationship of the product and provide
an adequate basis for product approval and labeling. Phase 3 clinical trials may include comparisons with placebo and/or other
comparator treatments. The duration of treatment is often extended for drugs intended for chronic dosing to mimic the actual use
of a product during marketing.
Post-approval trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval. 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 performance of Phase 4 clinical trials as a condition of approval of an NDA.
Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and written IND safety reports
must be submitted to the FDA and the investigators for serious and unexpected suspected adverse events, increased rates of serious suspected
adverse events, or findings from other studies or from animal or in vitro testing that suggests a significant risk for human subjects. Phase 1,
Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified 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. If concerns arise about the safety of
the product candidate, the FDA or other regulatory authorities can stop clinical trials by placing them on a “clinical hold” pending receipt of
additional data, which can result in a delay or termination of a clinical development program. The sponsoring company, the FDA, or the IRB
may suspend or terminate a clinical trial at any time on various grounds, including a finding that the patients are being exposed to an
unacceptable health risk.
Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the 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 provides authorization for whether or not a trial may move forward at designated check points
based on access to certain data from the trial, and may suspend a clinical trial at any time on various grounds, including a finding that the
research subjects are being exposed to an unacceptable health risk. Concurrent with clinical trials, companies usually complete additional
animal studies and must also develop additional information about the chemistry and physical characteristics of the drug as well as finalize a
process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be
capable of consistently producing quality batches of the drug candidate and, among other things, we must develop methods for testing the
identity, strength, quality and purity of the final drug product.
27
Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the drug
candidate does not undergo unacceptable deterioration over its shelf life.
NDA and FDA Review Process
The results of non-clinical studies and of the clinical trials, together with other detailed information, including extensive manufacturing
information and information on the composition of the drug and proposed labeling, are submitted to the FDA in the 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 drug is safe and effective for its intended use and whether the product is being manufactured in accordance with cGMP to assure
and preserve the product’s identity, strength, quality and purity. FDA approval of an NDA must be obtained before a drug may be offered for
sale in the U.S.
In addition, under the Pediatric Research Equity Act certain NDAs or supplements to an NDA must contain data to assess the safety
and efficacy of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each
pediatric subpopulation for which the product is safe and effective. The FDA may grant deferrals for submission of pediatric data or full or
partial waivers. Under the Best Pharmaceuticals for Children Act, the FDA may also issue a Written Request asking a sponsor to conduct
pediatric studies related to a particular active moiety; if the sponsor agrees and meets certain requirements, the sponsor may be eligible to
receive additional marketing exclusivity for its drug product containing such active moiety.
Under PDUFA, each NDA must be accompanied by a user fee, unless subject to a waiver. The FDA adjusts the PDUFA user fees on an
annual basis. According to the FDA’s fee schedule, effective through September 30, 2022, the user fee for an application requiring clinical
data, such as an NDA, is approximately $3.11 million. PDUFA also imposes an annual prescription drug program fee for human drugs of
approximately $0.3 million. Fee waivers or reductions are available in certain circumstances, including a waiver of the application fee for the
first application filed by a small business. Additionally, no user fees are assessed on NDAs for products designated as orphan drugs, unless
the product also includes a non-orphan-designated indication.
The FDA reviews all NDAs submitted before it accepts them for filing, and may request additional information rather than accepting
an NDA for filing. The FDA must make a decision on accepting an NDA for filing within 60 days of receipt. Once the submission is
accepted for filing, the FDA begins an in-depth review of the NDA. Under the goals and policies agreed to by the FDA under PDUFA, the
FDA aims to complete its initial review of an NDA and respond to the applicant within 10 months from the filing date for a standard NDA
and, and within six months from the filing date for a priority NDA. The FDA does not always meet its PDUFA goal dates for standard and
priority NDAs, and the review process is often significantly extended by FDA requests for additional information or clarification.
After the NDA submission is accepted for filing, the FDA reviews the NDA to determine, among other things, whether the proposed
product is safe and effective for its intended use, and whether the product is being manufactured in accordance with cGMP 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 manufacturing facilities for the new product to determine whether the facilities comply with cGMPs. The FDA will not
approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and
adequate to assure consistent production of the product within required specifications. Before approving an NDA, the FDA may also audit
data from clinical trials to ensure compliance with GCP requirements and integrity of the data submitted in the NDA. Additionally, the FDA
may refer applications for novel drug products or drug products which present difficult questions of safety or efficacy to an advisory
committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the
application should be approved and under what conditions. For example, the advisory committee may recommend or the FDA may determine
that a REMS program is necessary to ensure safe use of the product. The FDA is not bound by the recommendations of an advisory
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 complete, and we may not receive a
timely approval, if at all.
28
After the FDA evaluates an NDA, it may issue an approval letter or a Complete Response Letter. An approval letter authorizes
commercial marketing of the drug with specific prescribing information for specific indications. A Complete Response Letter indicates that
the review cycle of the application is complete and the application is not ready for approval. A Complete Response Letter usually describes
all of the specific deficiencies in the NDA identified by the FDA. The Complete Response Letter may require 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 manufacturing. If a Complete Response Letter is issued, the applicant may either resubmit the NDA, addressing all of the
deficiencies identified in the letter, or withdraw the application. Even if such additional data and information are submitted, the FDA may
ultimately decide that the NDA does not satisfy the criteria for approval. Data obtained from clinical trials are not always conclusive, and the
FDA may interpret data differently than we interpret the same data.
There is no assurance that the FDA will ultimately approve a drug product for marketing in the U.S., and we may encounter significant
difficulties or costs during the review process. If a product receives marketing approval, the approval may be significantly limited to specific
patient populations and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product.
Further, the FDA typically requires that certain contraindications, warnings or precautions be included in the product labeling, and may
condition the approval of the NDA on other changes to the proposed labeling, development of adequate controls and specifications, or a
commitment to conduct post-marketing testing or clinical trials and surveillance to monitor the effects of approved products. For example,
the FDA may require Phase 4 testing which may involve clinical trials designed to further assess a drug’s safety and/or efficacy and may
require testing and surveillance programs to monitor the safety of approved products that have been commercialized. The FDA may also
place other conditions on approvals including the requirement for a 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 the
FDA determines that a REMS is required. A REMS could include medication guides, physician communication plans, or elements to assure
safe use, such as restricted distribution methods, patient registries and other risk minimization tools. For example, the FDA has required a
REMS for ZULRESSO to mitigate the potential for harm associated with the risk of excessive sedation and loss of consciousness during the
ZULRESSO infusion. As part of the REMS, administration of ZULRESSO is limited to healthcare settings that have been certified under a
REMS program under the supervision of qualified staff, and patients who are prescribed ZULRESSO are required to enroll in a patient
registry which may allow us to compile additional information to further our understanding of the risk of serious harm resulting from
excessive sedation or sudden loss of consciousness during administration of ZULRESSO and management of the risk. Any limitations on
approval, marketing or use for any of our products could restrict the commercial promotion, distribution, prescription or dispensing of those
products. Product approvals may be withdrawn for non-compliance with regulatory requirements if problems occur following launch, or if
FDA determines that the product is no longer safe or effective.
Orphan Drug Designation
Under the Orphan Drug Act, the FDA may grant orphan designation to a drug product intended to treat a “rare disease or condition,”
which is generally a disease or condition that affects fewer than 200,000 individuals in the U.S., or more than 200,000 individuals in the U.S.,
but for which there is no reasonable expectation that the cost of developing and making a drug product available in the U.S. for this type of
disease or condition will be recovered from sales of the product. If orphan product designation is sought, it must be requested before
submitting an NDA for the drug for the proposed rare disease or condition. If the FDA grants orphan drug designation, the common name of
the therapeutic agent and its designated orphan use are disclosed publicly by the FDA. Orphan product designation does not, by itself, 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 for which it has such
designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other sponsors’
applications to market the same drug for the same indication for seven years, except in limited circumstances, such as a showing of clinical
superiority to the product with orphan exclusivity. Orphan exclusivity operates independently from other regulatory exclusivities and other
protection against generic competition, including patents that we hold for our products. A sponsor of a product application that has received
an orphan drug designation may also be granted tax incentives for clinical research undertaken to support the application. In addition, the
FDA may coordinate with the sponsor on research study design for an orphan drug and may exercise its discretion to grant marketing
approval on the basis of more limited product safety and efficacy data than would ordinarily be required, based on the limited size of the
applicable patient population.
29
Competitors, however, may receive approval of different products for the indication for which the orphan product has exclusivity or
obtain approval for the same product but for a different indication than that for which the orphan product has exclusivity. Orphan product
exclusivity also could block the approval of one of our products for seven years if a competitor obtains approval of the same product as
defined by the FDA or if our product candidate is determined to be contained within the competitor’s product for the same indication or
disease. If a drug designated as an orphan product receives marketing approval for an indication broader than what is designated, it may not
be entitled to orphan product exclusivity. The FDA can revoke a product’s orphan drug exclusivity under certain circumstances, including
when the holder of the approved orphan drug application is unable to assure the availability of sufficient quantities of the drug to meet patient
needs. Orphan drug status in the EU has similar, but not identical, benefits.
Expedited Development and Review Programs
The FDA has several programs that are intended to expedite or facilitate the process for reviewing new drugs that are intended to treat
a serious or life-threatening condition and demonstrate the potential to address unmet medical needs for the condition and provides
meaningful therapeutic benefit over existing treatments. Fast Track designation and Breakthrough Therapy designation are two of these
programs and apply to the combination of the product and the specific indication for 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 development of the product and may
request the FDA to designate the drug as a Breakthrough Therapy based on preliminary clinical evidence which meet the criteria outlined in
the FDA’s programs. Under the Fast Track or Breakthrough Therapy expedited programs, the FDA may review sections of the marketing
application on a rolling basis before the complete NDA is submitted if the sponsor provides a schedule for the submission of the sections of
the application, the FDA agrees to accept sections of the application and determines that the schedule is acceptable, and the sponsor pays any
required user fees upon submission of the first section of the application.
Any product submitted to the FDA for marketing, including under a Fast Track or Breakthrough Therapy program, may be eligible for
other types of FDA programs intended to expedite development and review, such as priority review and accelerated approval.
Any product is eligible for priority review if it treats a serious condition and offers a significant improvement in the safety and
effectiveness of treatment, diagnosis or prevention compared to marketed products. Significant improvement may be shown by evidence of
increased effectiveness for the treatment of a condition, elimination or substantial reduction of a treatment-limiting product reaction,
documented enhancement of patient compliance that may lead to improvement in serious outcomes, and evidence of safety and effectiveness
in a new subpopulation. The FDA will attempt to direct additional resources to the evaluation of an application for a new drug designated for
priority review in an effort to facilitate the review, and to shorten the FDA’s goal for taking action on a marketing application from ten
months to six months from the date of the NDA filing.
A product may also be eligible for accelerated approval if the product is intended to treat a serious or life-threatening illness and
provides meaningful therapeutic benefit over existing treatments. Accelerated approval for a product means that it may be approved on the
basis of adequate and well-controlled clinical trials establishing that the product has an effect on a surrogate endpoint that is reasonably likely
to predict a clinical benefit, or on the basis of an effect on a clinical endpoint other than survival or irreversible morbidity. As a condition of
approval, the FDA may require that a sponsor of a drug receiving accelerated approval perform adequate and well-controlled post-marketing
clinical trials. If the FDA concludes that a drug shown to be effective 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:
•
•
distribution restricted to certain facilities or physicians with special training or experience; or
distribution conditioned on the performance of specified medical procedures.
The limitations imposed would be commensurate with the specific 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 impact the timing of
the commercial launch of the product.
Fast Track designation, priority review, accelerated approval and Breakthrough Therapy designation do not change the standards for
approval, but may expedite the development or approval process.
30
Pediatric Trials
The Food and Drug Administration Safety and Innovation Act, 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 form, new dosing regimen or new route of administration submit an initial Pediatric Study Plan, or PSP, within sixty days of an end-
of-Phase 2 meeting or as may be agreed between the sponsor and FDA. The initial PSP must include an outline of the pediatric study or
studies that the sponsor plans to conduct, including study objectives and design, age groups, relevant endpoints and statistical approach, or a
justification for not including such detailed information, and any request for a deferral of pediatric assessments or a full or partial waiver of
the requirement to provide data from pediatric studies along with supporting information. FDA and the sponsor must reach agreement on the
PSP. A sponsor can submit amendments to an agreed-upon 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. The FDA, if it learns of
new information, may also request that the sponsor amend the initial PSP.
Post-Marketing Requirements
Following approval of a new product, a pharmaceutical company and the approved product are subject to continuing regulation by the
FDA, including, among other things, monitoring and recordkeeping activities, reporting to the applicable regulatory authorities of adverse
experiences with the product, providing the regulatory authorities with updated safety and efficacy information, product sampling and
distribution requirements, and complying with promotion and advertising requirements, which include, among others, standards for direct-to-
consumer advertising, restrictions on promoting drugs for uses or in patient populations that are not described in the drug’s approved labeling
(known as “off-label use”), limitations on industry-sponsored scientific and educational activities, and requirements for promotional activities
involving the Internet. Although physicians may prescribe legally available drugs for off-label uses, manufacturers may not market or
promote such off-label uses. Prescription drug promotional materials must be submitted to the FDA in conjunction with their first use.
Further, if there are any modifications to the drug, including changes in indications, labeling, or manufacturing processes or facilities, the
applicant may be required to submit and obtain FDA approval of a new NDA or NDA supplement, which may require the applicant to
develop additional data or conduct additional non-clinical studies and clinical trials. As with new NDAs, the review process is often
significantly extended by FDA requests for additional information or clarification. Any distribution of prescription drug products and
pharmaceutical samples must comply with the U.S. Prescription Drug Marketing Act and the Drug Supply Chain Security Act.
FDA regulations also require that approved products be manufactured in specific approved facilities and in accordance with cGMP. We
rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of our products in accordance
with cGMP regulations. NDA holders using contract manufacturers, laboratories or packagers are responsible for the selection and
monitoring of qualified firms, and, in certain circumstances, qualified suppliers to these firms. These manufacturers must 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 manufacturers and other entities involved in the
manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies, and are
subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws. Accordingly,
manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.
The discovery of violative conditions, including failure to conform to cGMP, could result in enforcement actions that interrupt the operation
of any such facilities or the ability to distribute products manufactured, processed or tested by them. Discovery of problems with a product
after approval may result in restrictions on a product, manufacturer, or holder of an approved NDA, including, among other things, recall or
withdrawal of the product from the market.
Discovery of previously unknown problems with a product or the failure to comply with applicable FDA requirements can have
negative consequences, including adverse publicity, administrative enforcement, warning or untitled letters from the FDA, mandated
corrective advertising or communications with doctors, and civil penalties or criminal prosecution, among others. Newly discovered or
developed safety or effectiveness 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 from
31
new legislation, may be established, 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 subject to regulation by numerous regulatory
authorities in addition to the FDA, including, in the U.S., the Department of Health and Human Services; the U.S. Department of Justice; the
DEA; the Consumer Product Safety Commission; the Federal Trade Commission; the Occupational Safety and Health Administration; the
Environmental Protection Agency; and state and local governments.
In the U.S., a drug product approved by the FDA may also be subject to regulation under the CSA as a controlled substance. The CSA
is administered by the DEA and establishes, among other things, certain registration, security, recordkeeping, reporting, import, export and
other requirements for controlled substances. The CSA classifies controlled substances into five schedules: Schedule I, II, III, IV or V. FDA
approved pharmaceutical products may be listed in Schedule II, III, IV or V, with Schedule II substances considered to present the highest
potential for abuse or dependence and Schedule V substances the lowest relative risk of abuse among such substances. An approved drug
product or drug candidate that has not yet been approved by the FDA may be subject to scheduling as a controlled substance under the CSA,
depending on the drug’s potential for abuse. For a drug approved by the FDA and determined to require control under the CSA, the CSA
requires the DEA to issue an interim final order scheduling the drug within 90 days after the FDA approves the drug and the DEA receives a
scientific and medical evaluation and scheduling recommendation from the Department of Health and Human Services, after it has been
completed by FDA. FDA recommended, and DEA adopted, that brexanolone be scheduled as a schedule IV controlled substance.
In the U.S., arrangements and interactions with health care professionals, third-party payors, patients and others expose us to broadly
applicable anti-fraud and abuse, anti-kickback, false claims and other health care laws and regulations. These broadly applicable laws and
regulations may constrain the business or financial arrangements or relationships through which we sell, market and distribute our approved
product and any future products that may obtain marketing approval. In the U.S., federal and state health care laws and regulations that may
affect our operations include:
•
The federal Anti-Kickback Statute, which makes it illegal for any person, including a company marketing a prescription drug (or
a party acting on its behalf) to knowingly and willfully solicit, receive, offer, or pay any remuneration (including any kickback,
bribe or rebate), directly or indirectly, in cash or in kind, that is intended to induce or reward the referral of an individual or
purchase, lease or order, or the arranging for or recommending the purchase or order, of a particular item or service, for which
payment may be made in whole or in part under a federal healthcare program, such as Medicare or Medicaid. This statute has
been interpreted to apply to arrangements between pharmaceutical companies on one hand and prescribers, patients, purchasers
and formulary managers on the other. Liability under the Anti-Kickback Statute may be established without proving actual
knowledge of the statute or specific intent to violate it. In addition, the government may assert that a claim including items or
services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the
federal civil False Claims Act. Although there are a number of statutory exemptions and regulatory safe harbors to the federal
Anti-Kickback Statute protecting certain common business arrangements and activities from prosecution or regulatory sanctions,
the exemptions and safe harbors are drawn narrowly. Practices that involve remuneration to those who prescribe, purchase, or
recommend pharmaceutical and biological products, including certain discounts, or engaging such individuals as consultants,
advisors, or speakers, may be subject to scrutiny if they do not fit squarely within an exemption or safe harbor. Our practices
may not in all cases meet all of the criteria for safe harbor protection from anti-kickback liability. Moreover, there are no safe
harbors for many common practices, such as educational and research grants, charitable donations, product support and patient
assistance. Violations of this law may be punishable by up to ten years in prison, criminal fines, damages, administrative civil
money penalties, and the potential for exclusion from participation in federal healthcare programs.
32
•
•
•
•
•
The federal civil False Claims Act, which prohibits anyone from, among other things, knowingly presenting, or causing to be
presented claims for payment of government funds that are false or fraudulent, or knowingly making, using, or causing to be
made or used a false record or statement material to a false or fraudulent claim or knowingly and improperly avoiding,
decreasing or concealing an obligation to pay money to the federal government. Actions under the False Claims Act may be
brought by the federal government or as a qui tam action by a private individual in the name of the government. Many
pharmaceutical manufacturers have been investigated and have reached substantial financial settlements with the federal
government under the civil False Claims Act for a variety of alleged improper activities. The government may deem companies
to have “caused” the submission of false or fraudulent claims by, for example, providing inaccurate billing or coding information
to customers or promoting a product off-label. In addition, our activities relating to the reporting of prices used to calculate
Medicaid rebate information and other information affecting federal, state, and third-party reimbursement for our products, and
the sale and marketing of our products, are subject to scrutiny under this law. Penalties for a False Claims Act violation may
include three times the actual damages sustained by the government, plus significant civil penalties for each separate false or
fraudulent claim, and the potential for exclusion from participation in federal healthcare programs.
Numerous federal and state laws, including state data breach notification laws, state health information and/or genetic privacy
laws, and federal and state consumer protection laws (e.g., Section 5 of the Federal Trade Commission Act and the California
Consumer Privacy Act), govern the collection, use, and disclosure and protection of health-related and other personal
information. Failure to comply with these laws and regulations could result in government enforcement actions and create
liability, private litigation, or adverse publicity. In addition, we or our collaborators may obtain health information from third
parties, such as hospitals, healthcare professionals, and research institutions, that are subject to privacy and security requirements
under the federal Health Insurance Portability and Accountability Act of 1996, and its implementing regulations, or collectively,
HIPAA. HIPAA imposes privacy and security obligations on covered entity health care providers, health plans, and health care
clearinghouses, as well as their “business associates” – independent contractors or agents of covered entities that receive or
obtain protected health information in connection with providing a service on behalf of a covered entity. Although we are not
directly subject to the HIPAA information privacy and security provisions – other than with respect to providing certain
employee benefits – we could potentially be subject to criminal penalties if we or our agents knowingly obtain, use, or disclose
individually identifiable health information maintained by a HIPAA-covered entity in a manner that is not authorized or
permitted by HIPAA. In addition, HIPAA does not replace federal, state, or other laws that may grant individuals even greater
privacy protections.
The HIPAA fraud provisions, which impose criminal and civil liability for knowingly and willfully executing a scheme to
defraud any healthcare benefit program, including private third-party payors, and prohibit knowingly and willfully falsifying,
concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement or representation, or
making or using any false writing or document knowing the same to contain any materially false fictitious or fraudulent
statement or entry, in connection with the delivery of or payment for healthcare benefits, items or services.
The federal Physician Payment Sunshine Act, being implemented as the Open Payments Program, which requires manufacturers
of drugs, devices, biologics, and medical supplies for which payment is available under Medicare, Medicaid or the Children’s
Health Insurance Program (with certain exceptions) to report annually to the Centers for Medicare & Medicaid Services, or
CMS, the agency that administers the Medicare and Medicaid programs, information related to direct or indirect payments and
other transfers of value to physicians and teaching hospitals, as well as ownership and investment interests held in the company
by physicians and their immediate family members. Beginning in 2022, applicable manufacturers also are required to report
information regarding payments and transfers of value provided to physician assistants, nurse practitioners, clinical nurse
specialists, certified nurse anesthetists, and certified nurse-midwives.
Analogous state and local laws and regulations, such as state anti-kickback and false claims laws, which may apply to items or
services reimbursed under Medicaid and other state programs or, in several states, regardless of the payor. We also may become
subject to other state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary
compliance guidelines and the relevant compliance guidance promulgated by the federal government or otherwise restrict
payments that may be made to healthcare providers; state laws that restrict the ability of manufacturers to offer co-pay support to
patients for certain prescription drugs; state laws that require drug manufacturers to report information related to clinical trials,
or information related to payments and other transfers of value to physicians and other healthcare providers or
33
marketing expenditures; state laws and local ordinances that require identification or licensing of sales representatives; and state
laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in
significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
Substantial resources are necessary to ensure that our business arrangements and interactions with health care professionals, third-party
payors, patients and others comply with applicable health care laws and regulations. Although compliance programs can mitigate the risk of
investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. It is possible that governmental authorities
will conclude that our business practices do not comply with current or future statutes, regulations or case law, and if we are found to be in
violation of any of these laws or any other governmental regulations, we may be subject to significant civil, criminal and administrative
penalties, imprisonment, damages, fines, exclusion from government funded health care programs such as Medicare and Medicaid, or the
curtailment or restructuring of our operations. Any action against us for violation of these laws or regulations, even if we successfully defend
against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business.
Numerous other laws may apply to our products. Pricing and rebate programs must comply with the Medicaid rebate requirements of
the U.S. Omnibus Budget Reconciliation Act of 1990 and more recent requirements in the Patient Protection and Affordable Care Act, as
amended, referred to herein as the ACA (addressed further below in the section on “U.S. Healthcare Reform”). If products are made available
to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. Many
states impose various requirements on pharmaceutical manufacturers to report development costs and pricing information when prices are
increased. Penalties for late or faulty reporting can be significant. 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 subject to federal
and state consumer protection and unfair competition laws.
The handling of any controlled substances must comply with the CSA and Controlled Substances Import and Export Act.
The distribution of pharmaceutical products is subject 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 comply with
any of these laws or regulatory requirements subjects firms to possible legal or regulatory action. Depending on the circumstances, failure to
meet applicable regulatory requirements can result in criminal prosecution, fines or other penalties, injunctions, issuance of warning or
untitled letters, recall or seizure of products, total or partial suspension of production, denial or withdrawal of product approvals, or refusal to
allow a firm to enter into supply contracts, including government contracts. Federal regulators, state attorneys general, and plaintiffs’
attorneys have been and will likely continue to be active in this space. Any action against us for violation of these laws, even if we
successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of
our business. Prohibitions or restrictions on sales or withdrawal of future products marketed by us could materially affect our business in an
adverse way.
Many of these laws differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
Many of the state laws enable a state attorney general to bring actions and provide private rights of action to consumers as enforcement
mechanisms. There is also heightened sensitivity around certain types of health information, such as sensitive condition information or the
health information of minors, which may be subject to additional protections. Compliance with these laws is difficult, constantly evolving,
and time consuming. Changes in statutes, regulations or the interpretation of existing laws or regulations could impact our business in the
future 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 imposed, they could
adversely affect 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, if any, some of our U.S. patents may
be eligible for limited patent term extension under the Drug Price Competition and Patent Term
34
Restoration Act of 1984, commonly referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent
restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process.
However, patent term 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 submission date of an NDA, or
the testing phase, plus the time between the submission date of an NDA and the approval of that application, or the approval phase. This
patent term restoration period may be reduced by the FDA if it finds that applicant did not act with due diligence during the testing phase or
the approval phase. Only one patent applicable to an approved drug is eligible for the extension and the application for the extension must be
submitted prior to the expiration of the patent. The U.S. PTO, in consultation with the FDA, reviews and approves the application for any
patent term extension or restoration. In the future, if circumstances permit, we intend to apply for restoration of patent term for one of our
then owned or licensed patents, if any, to add patent life beyond its current expiration date, depending on the expected length of the clinical
trials and other factors involved in the filing of the relevant NDA. Even if, at the relevant time, we have a valid issued patent covering our
product, we may not be granted an extension if we were, for example, to fail to apply within applicable deadlines, to fail to apply prior to
expiration of relevant patents or otherwise to fail to satisfy applicable requirements. Moreover, the applicable time period or the scope of
patent protection afforded could be less than we request. If we are unable to obtain patent term extension or restoration or the term of any
such extension is less than we request, and we do not have any other exclusivity, our competitors may obtain approval of competing products
following our patent expiration and our ability to generate revenues could be materially adversely affected.
Some of our products may also be entitled to certain non-patent-related data exclusivity under the FDCA. The FDCA provides a five-
year period of non-patent data exclusivity within the U.S. to the first applicant to obtain approval of an NDA for a new chemical entity, or
NCE. 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 for the action of the drug substance. During the exclusivity period, an abbreviated new drug application, or
ANDA, or a 505(b)(2) NDA may not be submitted by another company for another drug containing the same active moiety, regardless of
whether the drug is intended for the same indication as the original innovator drug or for another indication, where the applicant does not
own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it
contains a certification of patent invalidity or non-infringement to one of the patents listed with the FDA Orange Book by the innovator NDA
holder. The FDCA also provides three years of marketing exclusivity for a full NDA, or supplement to an existing NDA if new clinical
investigations, other 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, for example, for new indications, dosages or strengths of an existing drug. Three-year exclusivity prevents the
FDA from approving ANDAs and 505(b)(2) applications that rely on the information that served as the basis of granting three-year
exclusivity. 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. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant
submitting a full NDA would be required to conduct or obtain a right of reference to all of the non-clinical studies and adequate and well-
controlled clinical trials necessary to demonstrate safety and efficacy. We have obtained NCE exclusivity for brexanolone, and plan to seek
NCE exclusivity for our current and future product candidates, if eligible.
European Union Drug Development
In the European Economic Area, or EEA, our future products may also be subject to extensive regulatory requirements. As in the U.S.,
medicinal products can only be marketed if a marketing authorization from the competent regulatory authorities in the EU has been obtained.
Similar to the U.S., the various phases of non-clinical and clinical research in the EU are subject to significant regulatory controls.
Although the EU Clinical Trials Directive 2001/20/EC, or the Clinical Trials Directive, has sought to harmonize the EU clinical trials
regulatory framework, setting out common rules for the control and authorization of clinical trials in the EU, the EU Member States have
transposed and applied the provisions of the Directive in a manner that is often not uniform. This has led to variations in the rules governing
the conduct of clinical trials in the individual EU Member States. Under the regime of the Clinical Trials Directive, before a clinical trial can
be initiated, it must be approved in each EU Member State where there is a site at which the trial is to be conducted by two distinct bodies:
the
35
National Competent Authority, or NCA, and one or more Ethics Committees, or ECs. Under the regime of the Clinical Trials Directive, 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.
In order to streamline the regulation of clinical trials across the EU, the EU Parliament has adopted Regulation (EU) No 536/2014, or
the EU Clinical Trials Regulation. The new EU Clinical Trials Regulation, which repeals and replaces the Clinical Trials Directive,
introduces a complete overhaul of the existing regulation of clinical trials for medicinal products in the EU, including a new coordinated
procedure for authorization of clinical trials that is reminiscent of the mutual recognition procedure for marketing authorization of medicinal
products, and increased obligations on sponsors to publish clinical trial results. The main characteristics of the regulation include: a
streamlined application procedure through a single entry point, referred to as the “EU portal”; a single set of documents to be prepared and
submitted for the application as well as simplified reporting procedures for clinical trial sponsors; and a harmonized procedure for the
assessment of applications for clinical trials, which is divided in two parts. The EU Clinical Trials Regulation became effective on January
31, 2022 and is applicable directly in all countries of the EEA (which is comprised of 27 Member States of the EU plus Norway, Iceland and
Liechtenstein). The new EU Clinical Trials Regulation allows for starting and conducting a clinical trial in accordance with the Clinical
Trials Directive during a transitional period of one year after the effective date of January 31, 2022. The transition period for the trials
ongoing at the time of applicability will be a maximum of 3 years after the date of application of the EU Clinical Trials Regulation. Clinical
trials authorized under the current Clinical Trials Directive before January 31, 2023 can continue to be conducted under the Clinical Trials
Directive until January 31, 2025. Any application to transition ongoing trials from the current Clinical Trials Directive to the new EU Clinical
Trials Regulation will need to be submitted and authorized before the end of the transitional period. The new EU Clinical Trials Regulation is
intended to simplify and streamline the approval of clinical trials in the EEA.
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 application to the EMA or the competent authorities
of the EU Member States. In some EU countries, we may also be required to have an approved PIP before we can begin enrolling pediatric
patients in a clinical trial.
European Union Drug Review and Approval and Post-marketing Requirements
In the EEA (which is comprised of 27 Member States of the EU plus Norway, Iceland and Liechtenstein), medicinal products can only
be commercialized after a related marketing authorization has been granted. Marketing authorization for medicinal products can be obtained
through several different procedures. These are through a centralized, mutual recognition procedure, decentralized procedure, or national
procedure (if marketing authorization is sought for a single EU Member State). The centralized procedure allows a company to submit a
single application to the EMA. If a related positive opinion is provided by the EMA, the European Commission will grant a centralized
marketing authorization that is valid in all EU Member States and three of the four European Free Trade Associations countries (Iceland,
Liechtenstein and Norway), all of whom make up the EEA.
The UK’s withdrawal from the EU on January 31, 2020, commonly referred to as Brexit, has created significant uncertainty
concerning the future relationship between the UK and the EU. Although marketing authorizations granted through the EU centralized
procedure are valid in Northern Ireland, such marketing authorizations are not valid in the rest of the UK (England, Wales and Scotland, or
collectively Great Britain). Until the end of 2022, a marketing authorization for Great Britain can be applied for through the UK European
Commission Decision Reliance Procedure, after having received a positive opinion from the EMA’s Committee for Medicinal Products for
Human Use. It is uncertain whether the UK European Commission Decision Reliance Procedure will remain available after 2022.
The EU centralized procedure is mandatory for certain types of products, such as biotechnology medicinal products, orphan medicinal
products, and medicinal products containing a new active substance indicated for the treatment of HIV, AIDS, cancer, neurodegenerative
disorders, diabetes, auto-immune and other immune dysfunctions and viral diseases. The centralized procedure is optional for products
containing a new active substance that is not yet authorized in the EEA, or for products that constitute a significant therapeutic, scientific or
technical innovation or for which grant of centralized marketing authorization is in the interest of patients in the EU.
The decentralized authorization procedure permits companies to file identical applications for authorization to several EU Member
States simultaneously for a medicinal product that has not yet been authorized in any EU Member
36
State. The competent authorities of a single EU Member State, the reference member state, is appointed to review the application and provide
an assessment report. The competent authorities of the other EU Member States, the concerned member states, are subsequently required to
grant marketing authorization for their territories on the basis of this assessment. The only exception to this is where an EU Member State
considers that there are concerns of potential serious risk to public health related to authorization of the product. In these circumstances, the
matter is submitted to the Heads of Medicines Agencies for review. The mutual recognition procedure allows companies that have a
medicinal product already authorized in one EU Member State to apply for this authorization to be recognized by the competent authorities in
other EU Member States.
The maximum timeframe for the evaluation of a marketing authorization application in the EU is 210 days, not including clock stops
during which applicants respond to questions from the competent authority. The initial marketing authorization granted in the EU is valid for
five years. The authorization may be renewed and valid for an unlimited period unless the national competent authority or the European
Commission decides on justified grounds to proceed with one additional five-year renewal period. The renewal of a marketing authorization
is subject to a re-evaluation of the risk-benefit balance of the product by the national competent authorities or the EMA.
The holder of an EU marketing authorization for a medicinal product must also comply with the EU’s pharmacovigilance legislation.
This includes requirements to conduct pharmacovigilance, or the assessment and monitoring of the safety of medicinal products.
Various requirements apply to the manufacturing and placing on the EU market of medicinal products. Manufacture of medicinal
products in the EU requires a manufacturing authorization, and import of medicinal products into the EU requires a manufacturing
authorization allowing for import. The manufacturing authorization holder must comply with various requirements set out in the applicable
EU laws, regulations and guidance. These requirements include compliance with EU cGMP standards when manufacturing medicinal
products and active pharmaceutical ingredients, or APIs, including the manufacture of APIs outside of the EU with the intention to import the
APIs into the EU. Similarly, the distribution of medicinal products within the EU is subject to compliance with the applicable EU laws,
regulations and guidelines, including the requirement to hold appropriate authorizations for distribution granted by the competent authorities
of the EU Member States. Marketing authorization holders and/or manufacturing authorization holders and/or distribution authorization
holders may be subject to civil, criminal or administrative sanctions, including suspension of manufacturing authorization, in case of non-
compliance with the EU or EU Member States’ requirements applicable to the manufacturing of medicinal products.
In the EU, the advertising and promotion of medicinal products are subject to EU Member States’ laws governing promotion of
medicinal products, interactions with physicians and other healthcare professionals, misleading and comparative advertising and unfair
commercial practices. For example, applicable laws require that promotional materials and advertising in relation to medicinal products
comply with the product’s Summary of Product Characteristics, or SmPC, as approved by the competent authorities in connection with a
marketing authorization approval. The SmPC is the document that provides information to physicians concerning the safe and effective use
of the product. Promotional activity that does not comply with the SmPC is considered off-label and is prohibited in the EU. Breaches of the
rules governing the promotion of medicinal products in the EU could be penalized by civil, criminal or administrative sanctions, which may
include fines and imprisonment. These laws may further limit or restrict the advertising and promotion of medicinal products to the general
public and may also impose limitations on promotional activities with healthcare professionals.
37
European Union Regulatory Data Exclusivity
In the EU, innovative medicinal products that are subject to marketing authorization on the basis of a full dossier and do not fall within
the scope of the concept of global marketing authorization qualify for eight years of data exclusivity upon marketing authorization and an
additional two years of market exclusivity. The concept of global marketing authorization prevents the same marketing authorization holder
or members of the same group, or companies that have concluded tacit or explicit agreements concerning the marketing of the same
medicinal product, from obtaining separate data and market exclusivity periods for medicinal products that contain the same active substance.
This data exclusivity, if granted, prevents regulatory authorities in the EU from referencing the innovator’s data to assess a generic
application or biosimilar application for eight years from the date of authorization of the innovative product, after which a generic or
biosimilar marketing authorization application can be submitted, and the innovator’s data may be referenced. However, the generic product
or biosimilar products cannot be marketed in the EU for a further two years thereafter. The overall ten-year period may be extended for a
further year to a maximum of 11 years if, during the first eight years of those ten years, the marketing authorization holder obtains an
authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring
a significant clinical benefit in comparison with existing therapies.
European Union Orphan Designation and Exclusivity
In the EU, orphan drug designations are granted by the European Commission based on a scientific opinion by the EMA’s Committee
for Orphan Medicinal Products in relation to medicinal products that are intended for the diagnosis, prevention or treatment of life-
threatening or chronically debilitating conditions affecting not more than 5 in 10,000 persons in the EU and in relation to which there exists
no satisfactory method of diagnosis, prevention, or treatment (or the product would be a significant benefit to those affected). Additionally,
designation is granted for products intended for the diagnosis, prevention, or treatment of a life-threatening, seriously debilitating or serious
and chronic condition and when, without incentives, it is unlikely that sales of the drug in the EU would be sufficient to justify the necessary
investment in developing the medicinal product.
Orphan medicinal products are entitled to ten years of exclusivity in all EU Member States. However, marketing authorization may be
granted to a similar medicinal product with the same orphan indication during the ten-year period with the consent of the marketing
authorization holder for the original orphan medicinal product or if the manufacturer of the original orphan medicinal product is unable to
supply sufficient quantities of the product. Marketing authorization may also be granted to a similar medicinal product with the same orphan
indication if the similar product is deemed safer, more effective or otherwise clinically superior to the original orphan medicinal product. The
period of market exclusivity may, in addition, be reduced to six years if it is established that the criteria for orphan designation are no longer
met, such as if it can be demonstrated on the basis of available evidence that the original orphan medicinal product is sufficiently profitable
not to justify maintenance of market exclusivity.
In addition, grant of orphan designation by the European Commission also entitles the holder of this designation to financial incentives
such as reduction of fees or fee waivers. Orphan drug designation must be requested before submitting an application for marketing
authorization. Orphan drug designation does not, in itself, convey any advantage in, or shorten the duration of, the regulatory review and
authorization process.
European Union Data Protection
EU Member States and other jurisdictions where we may in the future operate have adopted data protection laws and regulations,
which impose significant compliance obligations. For example, the General Data Protection Regulation, or GDPR, imposes strict obligations
and restrictions on the ability to collect, analyze and transfer personal data, including health data from clinical trials and adverse event
reporting. In particular, these obligations and restrictions concern the consent of the individuals to whom the personal data relates, the
information provided to the individuals, the sharing of personal data with third parties, the transfer of personal data out of the EU, security
breach notifications, security and confidentiality of the personal data and imposition of substantial potential fines for violations of the data
protection obligations. Obligations also include the need to conclude arrangements with clinical trials sites concerning data processing
activities. Data protection authorities from the different EU Member States may interpret the GDPR and applicable related national laws
differently and impose requirements additional to those provided in the GDPR. In
38
addition, guidance on implementation and compliance practices may be updated or otherwise revised, which adds to the complexity of
processing personal data in the EEA.
In addition, the GDPR restricts the ability of companies to transfer personal data from the EEA to the U.S. and other countries, which
may adversely affect our ability to transfer personal data or otherwise may cause us to incur significant costs to come into compliance with
applicable data transfer impact assessments and implementation of legal data transfer mechanisms. One mechanism previously relied upon by
U.S. companies for such transfers was the EU-U.S. Privacy Shield Framework, or Privacy Shield. However, in July 2020, the European
Court of Justice ruled the Privacy Shield to be an invalid data transfer mechanism and confirmed that the European Commission’s Standard
Contractual Clauses, or the Model Clauses, remain valid and in June 2021, the European Commission published updated versions of the
Model Clauses, which must be incorporated into new and existing agreements within prescribed timeframes in order to continue to lawfully
transfer personal data outside of the EU. As a result, companies may no longer rely on the Privacy Shield as a basis on which to transfer
personal data from the EU to the U.S. U.S.-based companies are permitted to rely on other authorized means and procedures to transfer
personal data provided by the GDPR. The Model Clauses may also come under increased scrutiny as a result of the European Court of
Justice’s judgement in July 2020, though they remain the most common authorized procedure to transfer personal data out of the EU.
Following the European Court of Justice’s ruling, the European Data Protection Board issued a statement providing among other things that it
is a primary responsibility of the exporter and the importer, when considering whether to rely on the Model Clauses to export data from the
EU to third countries, to ensure that the importer maintains a level of protection that is essentially equivalent to that guaranteed by the GDPR
in light of the EU Charter of Human Rights. Companies may need to revise the Model Clauses used in their contracts in light of the July 2020
judgement. Companies that have not taken steps to demonstrate that their Model Clauses and personal data recipients in the U.S. are suitable
to transfer to receive the personal data may be subject to enforcement actions by competent authorities in the EU for failure to comply with
related data privacy rules.
In addition, the privacy and data security landscape in the EU continues to remain in flux. The United Kingdom’s exit from the EU,
often referred to as Brexit, has created uncertainty with regard to future data protection regulation in the United Kingdom. The European
Commission has adopted an adequacy decision concerning the level of data protection in the UK. Personal data may now flow freely from
the EEA to the UK; however, the European Commission may suspend the adequacy decision if it decides that the UK no longer provides for
an adequate level of data protection.
Rest of the World Regulation
For other countries outside of the U.S., UK and EU, 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 GCP requirements and the applicable regulatory requirements and the ethical principles that have
their origin in the Declaration of Helsinki.
Approval by a regulatory authority in one jurisdiction does not guarantee approval by comparable regulatory authorities in other
jurisdictions. If we fail to comply with applicable foreign regulatory requirements applicable 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 subject to, among other
things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal
prosecution.
Coverage and Reimbursement
U.S. Healthcare Reform
The containment of healthcare costs has become a priority of federal and state governments, and the prices of drugs have been a focus
in this effort. Changes in government legislation or regulation and changes in private third-party payors’ policies toward reimbursement for
our products, if successfully developed and approved, may reduce reimbursement of our products’ costs to physicians, pharmacies, patients,
and distributors. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost-
containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products.
Adoption of
39
price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures,
could limit our net revenue and results for products, if any, we commercialize in the future.
The pricing and reimbursement environment for our products may change in the future and become more challenging due to state and
federal healthcare reform measures. The American Recovery and Reinvestment Act of 2009, or ARRA, for example, allocated new federal
funding to compare the effectiveness of different treatments for the same condition. The plan for the research was published in 2012 by the
Department of Health and Human Services, the Agency for Healthcare Research and Quality and the National Institutes for 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 for reimbursement purposes, it is not clear what effect, if any, the research will have on the sales
of any products for which we receive marketing approval or on the reimbursement policies of public and private payors. It is possible that
comparative effectiveness research demonstrating benefits in a competitor’s product could adversely affect the sales of any product for which
we receive marketing approval. For example, if third-party payors find our products not to be cost-effective compared to other available
therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be
sufficient to allow us to sell our products on a profitable basis.
The ACA is a sweeping measure intended to expand healthcare coverage within the U.S., primarily through the imposition of health
insurance mandates on employers and individuals, the provision of subsidies to eligible individuals enrolled in plans offered on the health
insurance exchanges, and the expansion of the Medicaid program. This law has substantially changed the way healthcare is financed by both
governmental and private insurers and has significantly impacted the pharmaceutical industry. Changes that may affect our business include
those governing enrollment in federal healthcare programs, reimbursement changes, benefits for patients within a coverage gap in the
Medicare Part D prescription drug program (commonly known as the “donut hole”), rules regarding prescription drug benefits under the
health insurance exchanges, changes to the Medicaid Drug Rebate Program, expansion of the Public Health Service Act’s 340B drug pricing
program, or 340B program, and fraud and abuse enforcement. These changes have impacted previously existing government healthcare
programs and have resulted in the development of new programs, including Medicare payment for performance initiatives and improvements
to the Medicare physician quality reporting system and feedback program.
One of the goals of ACA was to expand coverage for the uninsured while at the same time containing overall healthcare costs. With
regard to pharmaceutical products, among other things, the ACA increased minimum rebates a manufacturer must pay under the Medicaid
Drug Rebate Program and extended manufacturers’ Medicaid rebate liability to drugs dispensed to individuals who are enrolled in Medicaid
managed care organizations. The ACA also requires manufacturers of drugs, devices, biologics, and medical supplies for which payment is
available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to CMS
information related to direct or indirect payments and other transfers of value to physicians and teaching hospitals, as well as ownership and
investment interests held in the company by physicians and their immediate family members. Beginning in 2022, applicable manufacturers
also will be required to report information regarding payments and transfers of value provided to physician assistants, nurse practitioners,
clinical nurse specialists, certified nurse anesthetists, and certified nurse-midwives. Failure to submit required information may result in civil
monetary penalties of $1,000 to $10,000 for each payment or ownership interest that is not timely, accurately, or completely reported (annual
maximum of $150,000), and $10,000 to $100,000 for each knowing failure to report (annual maximum of $1 million).
Some states have elected not to expand their Medicaid programs by raising the income limit to 133% of the federal poverty level, as is
permitted under the ACA. For each state that does not choose to expand its Medicaid program, there may be fewer insured patients overall,
which could impact sales of our products that are approved and that we successfully commercialize, and our business and financial condition.
Where Medicaid patients receive insurance coverage under any of the new options made available through the ACA, the possibility exists
that manufacturers may be required to pay Medicaid rebates on drugs used under these circumstances, a decision that could impact
manufacturer revenues.
Certain provisions of the ACA have been subject to judicial challenges as well as efforts to repeal or replace them or to alter their
interpretation or implementation. For example, the U.S. Tax Cuts and Jobs Act of 2017, signed into law in December 2017, included a
provision repealing, effective January 1, 2019, the tax-based shared responsibility payment
40
imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred
to as the “individual mandate.” We expect that the ACA, its implementation, efforts to repeal or replace, or invalidate the ACA or portions
thereof, and other healthcare reform measures that may be adopted in the future, could have a material adverse effect on our industry
generally and on our ability to commercialize our product candidates, if approved.
Other legislative changes relating to reimbursement have been adopted in the U.S. since the ACA was enacted. For example, on
August 2, 2011, the Budget Control Act of 2011, among other things, created the Joint Select Committee on Deficit Reduction to recommend
to Congress proposals for spending reductions. The Joint Select Committee did not achieve a targeted deficit reduction, which triggered the
legislation’s automatic reductions. In concert with subsequent legislation, this has resulted in aggregate reductions to Medicare payments to
providers of, on average, 2% per fiscal year through 2030 (with the exception of a temporary suspension from May 1, 2020 through March
31, 2022, due to the COVID-19 pandemic). On December 10, 2021, President Biden signed a law that provides for 1% Medicare
sequestration in the second quarter of 2022 and allows the full 2% sequestration thereafter until 2030. To offset the temporary suspension
during the COVID-19 pandemic, in 2030, the sequestration will be 2.25% for the first half of the year, and 3% in the second half of the year.
As long as these cuts remain in effect, they could adversely impact payment for any products we may commercialize in the future. We expect
that additional federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state
governments will pay for healthcare products and services, and in turn could significantly reduce the projected value of certain development
projects and reduce our profitability.
Additional legislative changes, regulatory changes, or guidance could be adopted, which may impact potential marketing approvals
and reimbursement for our product candidates, if approved. For example, there has been increasing legislative, regulatory, and enforcement
interest in the U.S. with respect to drug pricing practices. There have been several Congressional inquiries and proposed and enacted federal
and state legislation and regulatory initiatives designed to, among other things, bring more transparency to product pricing, evaluate the
relationship between pricing and manufacturer patient programs, and reform government healthcare program reimbursement methodologies
for drug products. Individual states in the U.S. have also increasingly passed legislation and implemented regulations designed to control
pharmaceutical and biological product pricing, including by requiring pharmaceutical manufacturers to report to state agencies when they
introduce new drugs to market with prices over a certain threshold, or when they increase the price of a drug over a certain threshold. If
healthcare policies or reforms intended to curb healthcare costs are adopted, the prices that we charge for any approved products may be
limited, our commercial opportunity may be limited and/or our revenues from sales of our product and any future products, if approved, may
be negatively impacted.
It is possible that the ACA, as currently enacted or may be amended in the future, as well as other healthcare reform measures that may
be adopted in the future, may result in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria, and
new payment methodologies and additional downward pressure on coverage and payment and the price that we receive for any approved
product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from
private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate
revenue, attain profitability or commercialize our products. We cannot be sure whether additional legislative changes will be enacted in the
U.S. or outside of the U.S., or whether regulatory changes, guidance or interpretations will be changed, or what the impact of such changes
on the marketing approvals of our product candidates, if any, may be.
Pharmaceutical Pricing and Reimbursement
Sales of ZULRESSO and any product candidates we successfully commercialize, if approved, in the future depend on the availability
and extent of coverage and reimbursement from third-party payors, which are increasingly reducing reimbursements for medical products
and services. Decreases in third-party reimbursement for our products or a decision by a third-party payor not to cover a product or to
manage utilization by, for example, requiring prior authorization, could reduce physician usage of our products and have a material adverse
effect on our sales, results of operations and financial condition. In the U.S., healthcare providers are reimbursed for covered services and
products through Medicare, Medicaid, and other government healthcare programs, as well as through commercial insurance and managed
healthcare organizations. No uniform policy of coverage and reimbursement for drug products exists. Accordingly, decisions regarding the
extent of coverage and amount of reimbursement to be provided for any of our products will be made on a payor-by-payor basis. As a result,
the coverage determination process is often a time-consuming and costly process that
41
will require us to provide scientific and clinical support for the use of our products to each payor separately, with no assurance that coverage
and adequate reimbursement will be obtained.
We participate in the Medicaid Drug Rebate Program and other governmental programs. The Medicaid Drug Rebate Program and
other governmental programs impose obligations to report certain pricing data to the federal government as well as other compliance
obligations. Other programs impose limits on the price we are permitted to charge certain entities for our products. Statutory and regulatory
changes or other agency action regarding these programs and their requirements could negatively affect the coverage and reimbursement by
these programs of our products for which we receive regulatory approval and could negatively impact our results of operations or expand our
rebate liability. For example, Congress recently expanded the availability of postpartum coverage under Medicaid and the Children’s Health
Insurance Program (CHIP) and could enact legislation that would extend rebates under the Medicaid Drug Rebate Program to all CHIP
utilization.
Under the Medicaid Drug Rebate Program, we are required to pay a rebate to each state Medicaid program for our covered outpatient
drugs that are dispensed to Medicaid beneficiaries and paid for by a state Medicaid program as a condition of having federal funds being
available for our drugs under Medicaid and Medicare Part B. Those rebates are based on pricing data we report on a monthly and quarterly
basis to CMS, the federal agency that administers the Medicare and Medicaid programs. These data include the average manufacturer price
and, in the case of innovator products, the best price for each drug, which, in general, represents the lowest price available from the
manufacturer to any wholesaler, retailer, provider, health maintenance organization, nonprofit entity, or governmental entity in the U.S. in any
pricing structure, calculated to include all sales and associated rebates, discounts, and other price concessions. Where our average
manufacturer price increases faster than the pace of inflation, we may be subject to an additional rebate in the amount that our average
manufacturer price has exceeded the pace of inflation. Currently, the rebate is capped at 100 percent of the average manufacturer price, but,
effective January 1, 2024, this cap on the rebate will be removed, and our rebate liability could increase accordingly.
The ACA (addressed further above in the section on “U.S. Healthcare Reform”) made significant changes to the Medicaid Drug
Rebate Program, and CMS issued a final regulation, which became effective on April 1, 2016, to implement the changes to the Medicaid
Drug Rebate Program under the ACA. On December 31, 2020, CMS issued a final regulation that modified prior Medicaid Drug Rebate
Program regulations to permit reporting multiple best price figures with regard to value‑based purchasing arrangements (beginning in 2022);
provide definitions for “line extension,” “new formulation,” and related terms, with the practical effect of expanding the scope of drugs
considered to be line extensions that are subject to an alternative rebate formula (beginning in 2022); and revise best price and average
manufacturer price exclusions of manufacturer-sponsored patient benefit programs, specifically regarding applicability of such exclusions in
the context of pharmacy benefit manager “accumulator” programs (beginning in 2023). Our failure to comply with these price reporting and
rebate payment options could negatively impact our financial results.
Federal law requires that any company that participates in the Medicaid Drug Rebate Program also participate in the 340B drug pricing
program in order for federal funds to be available for the manufacturer’s drugs under Medicaid and Medicare Part B. The 340B program,
which is administered by the Health Resources and Services Administration, or HRSA, requires participating manufacturers to agree to
charge statutorily defined covered entities no more than the 340B “ceiling price” for the manufacturer’s covered outpatient drugs. These
340B covered entities include a variety of community health clinics and other entities that receive health services grants from the Public
Health Service, as well as hospitals that serve a disproportionate share of low-income patients. The ACA expanded the list of covered entities
to include certain free-standing cancer hospitals, critical access hospitals, rural referral centers and sole community hospitals, but exempts
“orphan drugs” from the ceiling price requirements for these covered entities. The 340B ceiling price is calculated using a statutory formula,
which is based on the average manufacturer price and rebate amount for the covered outpatient drug as calculated under the Medicaid Drug
Rebate Program, and, in general, products subject to Medicaid price reporting and rebate liability are also subject to the 340B ceiling price
calculation and discount requirement. Changes to the definition of average manufacturer price and the Medicaid Drug Rebate amount also
could affect our 340B ceiling price calculations and negatively impact our results of operations.
HRSA issued a final regulation regarding the calculation of the 340B ceiling price and the imposition of civil monetary penalties on
manufacturers that are found to have knowingly and intentionally overcharged covered entities, which became effective on January 1,
2019. It is unclear how HRSA will apply its enforcement authority under the
42
regulation. We also are required to report our 340B ceiling prices to HRSA on a quarterly basis, and HRSA then publishes them to covered
entities. Moreover, under a final regulation effective January 13, 2021, HRSA newly established an administrative dispute resolution, or
ADR, process for claims by covered entities that a manufacturer has engaged in overcharging, and by manufacturers that a covered entity
violated the prohibitions against diversion or duplicate discounts. Such claims are to be resolved through an ADR panel of government
officials rendering a decision that could be appealed only in federal court. An ADR proceeding could subject a manufacturer to onerous
procedural requirements and result in additional liability.
Federal law also requires that a company that participates in the Medicaid Drug Rebate Program report average sales price information
each quarter to CMS for certain categories of drugs that are paid under the Medicare Part B program. Manufacturers calculate the average
sales price based on a statutorily defined formula as well as regulations and interpretations of the statute by CMS. CMS uses these
submissions to determine payment rates for drugs under Medicare Part B. Starting in 2023, manufacturers must pay refunds to Medicare for
single source drugs or biologics, or biosimilar biological products, reimbursed under Medicare Part B and packaged in single-dose containers
or single-use packages, for units of discarded drug reimbursed by Medicare Part B in excess of 10 percent of total allowed charges under
Medicare Part B for that drug. Manufacturers that fail to pay refunds could be subject to civil monetary penalties of 125 percent of the refund
amount.
Statutory or regulatory changes or CMS guidance could affect the average sales price calculations for our approved products and the
resulting Medicare payment rate, and could negatively impact our results of operations. Also, the Medicare Part B drug payment
methodology is subject to change based on legislation enacted by Congress. For example, Congress could enact a Medicare Part B inflation
rebate, under which manufacturers would owe additional rebates if the average sales price of a drug were to increase faster than the pace of
inflation.
Congress also could enact additional changes that affect our overall rebate liability and the information we report to the government as
part of price reporting calculations. In addition, Congress could enact a drug price negotiation program under which the prices for certain
high Medicare spend single source drugs would be capped by reference to the non-federal average manufacturer price. This or any other
legislative change could impact the market conditions for our products. We further expect continued scrutiny on government price reporting
and pricing more generally from Congress, agencies, and other bodies, and are seeing an increase in state interest in price reporting,
transparency, and other policies to address drug pricing concerns.
Pricing and rebate calculations vary among products and programs. The calculations are complex and are often subject to interpretation
by us, governmental or regulatory agencies and the courts. The Medicaid rebate amount will be computed each quarter based on our
submission to CMS of our current average manufacturer prices and best prices for the quarter. If we become aware that our Medicaid
reporting for a prior period was incorrect, or has changed as a result of recalculation of the pricing data, we are obligated to resubmit the
corrected data for a period not to exceed three years from the period in which the data originally were due. Such restatements and
recalculations would increase our costs for complying with the laws and regulations governing the Medicaid Drug Rebate Program. Any
corrections to our rebate calculations could result in an overage or underage in our rebate liability for past quarters, depending on the nature
of the correction. Price recalculations also may affect the ceiling price at which we are required to offer our products to covered entities under
the 340B program, and may require us to issue refunds to 340B covered entities, which can be costly and burdensome.
We could be held liable for errors associated with our submission of pricing data. Civil monetary penalties can be applied if we are
found to have made a misrepresentation in the reporting of our average sales price for each misrepresentation and for each day in which the
misrepresentation was applied, or if we are found to have charged 340B covered entities more than the statutorily mandated ceiling price. In
addition to retroactive rebates and the potential for 340B program refunds, if we are found to have knowingly submitted false average
manufacturer price or best price information to the government, or to have misrepresented that information, we may be liable for significant
civil monetary penalties per item of false information. Our failure to submit monthly/quarterly average manufacturer price and best price data
on a timely basis could result in a significant civil monetary penalty per day for each day the information is late beyond the due date. Such
failures also could be grounds for CMS to terminate our Medicaid drug rebate agreement, pursuant to which we participate in the Medicaid
program, or, if we fail to comply with 340B program requirements, HRSA could decide to terminate our 340B program participation
agreement. In the event that CMS terminates our rebate
43
agreement or HRSA terminates our 340B program participation agreement, no federal payments would be available under Medicaid or
Medicare Part B for our covered outpatient drugs.
CMS and the Office of Inspector General have pursued manufacturers that were alleged to have failed to report these data to the
government in a timely manner. Governmental agencies may also make changes in program interpretations, requirements or conditions of
participation, some of which may have implications for amounts previously estimated or paid. We cannot guarantee that our submissions will
not be found by CMS to be incomplete or incorrect.
In order to be eligible to have our products paid for with federal funds under the Medicaid and Medicare Part B programs and
purchased by the Department of Veterans Affairs, or VA, Department of Defense, or DoD, Public Health Service, and Coast Guard
(collectively, the Big Four agencies) and certain federal grantees, we are required to participate in the VA Federal Supply Schedule, or FSS,
pricing program, established under Section 603 of the Veterans Health Care Act of 1992. Under this program, we are obligated to make our
“covered” drugs (i.e., innovator drugs and biologics) available for procurement on an FSS contract and charge a price to the Big Four
agencies that is no higher than the Federal Ceiling Price, or FCP, which is a price calculated pursuant to a statutory formula. The FCP is
derived from a calculated price point called the “non-federal average manufacturer price”, or Non-FAMP, which we are required to calculate
and report to the VA on a quarterly and annual basis. Pursuant to applicable law, knowing provision of false information in connection with a
Non-FAMP filing can subject a manufacturer to significant civil monetary penalties for each item of false information. The FSS contract also
contains extensive disclosure and certification requirements. In addition, Section 703 of the National Defense Authorization Act for FY 2008,
requires us to pay quarterly rebates to DoD on utilization of covered drugs that are dispensed through DoD’s Tricare network pharmacies to
Tricare beneficiaries. The rebates are calculated as the difference between the annual Non-FAMP and FCP for the calendar year that the
product was dispensed. If we overcharge the government in connection with the FSS contract or Tricare Retail Pharmacy Rebate Program,
whether due to a misstated FCP or otherwise, we will be required to refund the difference to the government. Failure to make necessary
disclosures and/or to identify contract overcharges can result in allegations against us under the False Claims Act and other laws and
regulations. Unexpected refunds to the government, and any response to government investigation or enforcement action, would be
expensive and time-consuming, and could have a material adverse effect on our business, financial condition, results of operations and
growth prospects.
In addition, in many foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The
requirements governing drug pricing vary widely from country to country. For example, the EU Member States have the power to restrict the
range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal
products for human use. An EU Member State may approve a specific price for the medicinal product or it may instead adopt a system of
direct or indirect controls on the profitability of the company placing the medicinal product on the market. There can be no assurance that any
country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing
arrangements for any of our products, if approved. Historically, products launched in the EU do not follow price structures of the U.S., and
generally prices tend to be significantly lower.
In various EU Member States, we expect to be subject to continuous cost-cutting measures, such as lower maximum prices, lower or
lack of reimbursement coverage and incentives to use cheaper, usually generic, products as an alternative. Health Technology Assessment, or
HTA, of medicinal products is becoming an increasingly common part of the pricing and reimbursement procedures in some EU Member
States, including countries representing major markets. The HTA process, which is governed by the national laws of these countries, is the
procedure according to which the assessment of the public health impact, therapeutic impact and the economic and societal impact of use of a
given medicinal product in the national healthcare systems of the individual country is conducted. The outcome of HTA regarding specific
medicinal products will often influence the pricing and reimbursement status granted to these medicinal products by the competent
authorities of individual EU Member States. On January 31, 2018, the European Commission presented a proposal for a regulation on health
technologies assessment. The proposal was adopted in December 2021 and will apply as of January 2025. This EU HTA Regulation is
intended to boost cooperation among EU Member States in assessing health technologies, including new medicinal products, and providing
the basis for cooperation at the EU level for joint clinical assessments in these areas.
44
Employees and Human Capital
Our mission to pioneer solutions to deliver life-changing brain health medicines so every person can thrive depends on our ability to
attract, develop, engage, and retain the industry’s highest quality talent across all dimensions of diversity. This understanding guides our
approach to recruiting, managing and supporting our human capital resources. At Sage, we strive for a best-in-class working culture and a
spirit of collaboration and inclusivity. We have worked hard to build a great company and to evolve the business and culture as we grow.
General Information. As of February 16, 2022, we employed 471 full-time employees, including 253 in research and development
and 218 in selling, general and administrative and no part-time employees. 38 of our employees hold M.D. or Ph.D. degrees. We have never
had a work stoppage, and none of our employees are represented by a labor organization or under any collective-bargaining arrangements.
We consider our employee relations to be good.
Diversity, equity, and inclusion.
We are committed to taking action to integrate diversity, equity, inclusion, and equal opportunity to foster a diverse workforce, sense of
belonging and innovative thinking. We have four core areas of focus:
•
•
•
•
Experience: Foster a diverse and inclusive culture that enables a sense of belonging and innovative thinking.
Talent: Recruit and develop diverse, high-performing individuals and teams.
External: Identify and partner with diverse community organizations and vendors to increase diversity in our ecosystem.
Patients: Continue to grow and nurture long-term and transparent partnerships to ensure diverse voices are represented.
Our commitment to diversity, equity, and inclusion is a core focus of our leadership team: seven of our fourteen leadership team
members are women and/or from diverse racial and ethnic groups. As of year-end 2021, approximately 61% of our U.S. workforce identified
as female and 28% identified as racially or ethnically diverse.
Compensation, Benefits and Ongoing Professional Development.
Our vision is to fearlessly lead the way to create a world with better brain health, which requires everyone to consistently give their
best. We aim to spur every single employee on to realize their true potential. To do this, we appreciate what it takes to be at one’s best, which
is why we prioritize the health and well-being of all team members. To promote our employees’ continued well-being and development, we
offer a variety of inclusive benefits and opportunities. We offer comprehensive work-life and income protection benefits, including health,
dental, vision, life insurance, disability and retirement savings programs, paid time off and family leave, mental health days, caregiving
support, fitness subsidies, technology benefits, tuition reimbursement and an employee assistance program.
We have enhanced our benefits in response to the COVID-19 pandemic and to support our employees’ brain health and wellness. For
example, we increased company-wide personal time off, provided resources and stipends to enable employees to work from home, and
introduced educational and tutoring support. We continue to prioritize the needs of our employees through a robust listening strategy and are
focused on assessing and responding to evolving needs throughout the COVID-19 pandemic and beyond.
Our employees are encouraged to take advantage of an array of professional development resources delivered through a variety of
venues, including continued learning courses, company-wide coaching, podcasts, and leadership circles. We believe our investment in
learning and growth gives us a competitive edge and our strategies are focused on optimal performance, ongoing professional growth, and
future of work capabilities, with the following areas of focus:
•
Critical Leadership Capabilities: Build a culture where leaders drive inclusion, performance, curiosity, and personal and
professional growth.
45
•
Create a change agile and integrated organization: Maximize our ability to collaborate and forge new pathways in the face of
change.
Strengthen our commitment to personal and professional growth: Increase engagement and retention through learning
investment in individual employees.
We are committed to fostering an environment in which everyone feels valued, respected, and empowered to contribute and provided
access to the resources and opportunities to do so, while making a positive difference for patients and their families.
Corporate Information
We commenced operations on January 19, 2011 as Sterogen Biopharma, Inc. On September 13, 2011, we changed our name to Sage
Therapeutics, Inc. under our Second Amended and Restated Certificate of Incorporation. Our mailing address and executive offices are
located at 215 First Street, Cambridge, Massachusetts and our telephone number at that address is (617) 299-8380. We maintain an Internet
website at the following address: www.sagerx.com. The information on our website is not incorporated by reference in this Annual Report or
in any other filings we make with the Securities and Exchange Commission, or SEC.
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 furnished 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 after we
electronically file the information with, or furnish it to, the SEC.
The SEC 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.
46
Item 1A. Risk Factors
Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the
other information in this Annual Report and in our other public filings before making an investment decision. Our business, prospects,
financial condition, or operating results could be harmed by any of these risks, as well as other risks not currently known to us or that we
currently consider immaterial. If any such risks or uncertainties actually occur, our business, financial condition or operating results could
differ materially from the plans, projections and other forward-looking statements included in this Annual Report, including in the foregoing
Business section and later in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
and elsewhere in this report and in our other public filings and public statements. The trading price of our common stock could decline due
to any of these risks, and as a result, our stockholders may lose all or part of their investment.
Risks Related to Product Development, Regulatory Approval and Commercialization
We may never be able to generate meaningful revenues from sales of ZULRESSO® (brexanolone) CIV injection at levels or on timing
necessary to support our investment and goals.
Our first product, ZULRESSO, was approved by the U.S. Food and Drug Administration, or FDA, in March 2019 as a treatment for
postpartum depression, or PPD, in adults, and was made commercially available in June 2019. We may never be able to generate meaningful
revenues from sales of ZULRESSO or revenues at levels or on timing necessary to support our investment and goals. Our revenues from
sales of ZULRESSO has been negatively impacted by significant barriers arising from the complex requirements for treatment and, more
recently, by the COVID-19 pandemic, and these factors are expected to continue to impact revenues negatively in the future.
ZULRESSO is administered as a continuous infusion given over two and a half days. Because of the risk of serious harm resulting
from excessive sedation or sudden loss of consciousness during the ZULRESSO infusion, ZULRESSO is approved for administration only in
a medically-supervised healthcare setting that has been certified under a Risk Evaluation and Mitigation Strategy, or REMS, program and
meets the other requirements of the REMS program, including requirements related to monitoring of the patient during the infusion. The
actions required for a healthcare setting to be ready and willing to treat women with PPD are complex and time-consuming. These actions
include becoming REMS-certified; achieving formulary approvals; establishing protocols for administering ZULRESSO; and securing
satisfactory reimbursement. Sites must often negotiate reimbursement on a payor-by-payor basis under commercial coverage. These
requirements have created significant barriers to treatment for women with PPD. We expect these barriers will continue to negatively impact
ZULRESSO revenue growth, but we do not know the extent of the anticipated impact. The COVID-19 pandemic has compounded these
barriers and further impacted sales of ZULRESSO in the U.S. The spread of COVID-19 in the U.S. resulted in a significant number of sites
of care pausing treatment of new patients with ZULRESSO and potential new sites pausing site activation activities for a period of time. We
believe concerns about the risk of exposure to the virus as well as the disruption to the healthcare system in the U.S. caused by the pandemic
have also caused a significant reduction in the number of women with PPD seeking treatment with ZULRESSO and in physicians willing to
prescribe it. We expect the significant adverse impact of the pandemic on ZULRESSO revenues to continue for the foreseeable future. Given
the continuing nature of the pandemic, we cannot predict the length or scope of such continued adverse impact.
While we are committed to working with healthcare providers and women with PPD seeking access to ZULRESSO and plan to
continue to evaluate opportunities to raise awareness and help reduce hurdles to appropriate treatment, our commercial efforts for
ZULRESSO, including our account management field-based team and sales representatives, are primarily focused on geographies that have
existing, active ZULRESSO treating sites. We expect that this approach may continue to substantially limit the revenue opportunity for
ZULRESSO, and may make it difficult for us to achieve revenue growth and meet our revenue goals. Given this approach, the number of
new healthcare settings that become treating sites for ZULRESSO, if any, may also be limited. We may also find that certain healthcare
settings that have in the past been active treating sites may not be willing to remain infusion-ready as a result of the complex requirements
related to administration of ZULRESSO and compliance with the REMS, related limitations and restrictions, or because of actual or
perceived difficulties obtaining satisfactory reimbursement or limitations on coverage and reimbursement or for other reasons. Healthcare
settings that are active treating sites may also limit capacity used for ZULRESSO infusions.
47
We may encounter other issues and challenges in commercializing ZULRESSO and generating revenues, including:
• Women with PPD who need treatment may find it too onerous to undergo an infusion or to be treated at a certified healthcare setting
overnight for the length of stay required for treatment, or to be enrolled in the registry that is part of the REMS process or may be
concerned about the risk of excessive sedation and sudden loss of consciousness.
• More healthcare providers than we expected have been unwilling to accept ZULRESSO as a treatment paradigm for women with
PPD and this may continue; we believe this unwillingness is due primarily to the product profile and reimbursement challenges
associated with ZULRESSO.
• We may not be able to compete effectively with lower cost antidepressants.
•
Given the mode of administration, the nature of the REMS and the limitation on the administration of ZULRESSO to a medically-
supervised healthcare setting certified under the REMS, use of ZULRESSO in the U.S. has been focused primarily on women with
more severe symptoms of PPD, and we expect that to continue.
• We may be unable to fully comply with our obligations under the ZULRESSO REMS, which include auditing of healthcare settings,
collection and analysis of required data, and other requirements, to the satisfaction of the FDA, or the FDA may require
modifications to or additional restrictions under the ZULRESSO REMS.
•
Although we are actively investigating whether ZULRESSO can be safely administered in a patient’s home in an open-label clinical
trial, it is uncertain whether the trial will be successful. Even if we receive favorable data from this trial, we may never be able to
generate sufficient data for the FDA to permit administration of ZULRESSO in the home setting, even with monitoring and
supervision requirements, or administration in the home setting may not result in an increase in market acceptance of ZULRESSO
or an increase in our revenues from the product.
We may also continue to encounter challenges related to coverage and reimbursement of ZULRESSO. These include restrictions
related to the severity of PPD cases for which ZULRESSO will be reimbursed, requirements that other treatments be used prior to
ZULRESSO, or other limitations in the scope, breadth, availability or amount of reimbursement covering ZULRESSO or the infusion. For
example, the availability, terms and timing of coverage for ZULRESSO by state Medicaid systems is expected to continue to vary
significantly by state, and we may encounter states that impose significant restrictions or lengthy delays. Similarly, certain healthcare settings
or patients may determine that the financial burdens of treatment are not acceptable. For example, a number of healthcare settings that are
willing to administer ZULRESSO to women with PPD who have commercial insurance do not currently treat Medicaid patients, which
adversely affects our ability to generate revenue from ZULRESSO.
Any of these issues could impair our ability to generate revenues or to meet our expectations with respect to the amount or timing of
revenues. Any issues or hurdles related to our commercialization efforts may materially adversely affect our business, results of operations,
financial condition and prospects and could lead us to make significant further changes to the scope and nature of our efforts. There is no
guarantee that we will be successful in our commercialization efforts with respect to ZULRESSO, or that we will be able to generate
meaningful revenues or revenues at the levels or on the timing necessary to support our investment and goals.
48
Our future business prospects depend heavily on our ability, alone or through our collaborations, to successfully develop and gain
regulatory approval of our current product candidates, including zuranolone (SAGE-217), which is in Phase 3 clinical development for
major depressive disorder, or MDD, and PPD and for which we intend to submit a new drug application, or NDA, for the treatment of
MDD in the second half of 2022 and an associated NDA filing for the treatment of PPD in the first half of 2023, pending the completion
and results of the ongoing SKYLARK Study in PPD. We may not be successful in our plans to file for and obtain regulatory approval of
zuranolone for the treatment of MDD or PPD on the timelines we expect or at all. We cannot be certain that we will be able to initiate
planned clinical trials, to complete ongoing clinical trials or to announce results of such trials with respect to any of our other product
candidates, on the timelines we expect or at all, or that the results of our development programs will be positive. We cannot be certain that
we or our collaborators will be able to advance our product candidates into additional trials or to successfully develop, obtain regulatory
approval for, or successfully commercialize any of our current or future product candidates.
Our future business prospects depend heavily on our ability, alone or through our collaborations, to successfully develop and gain
regulatory approval of product candidates beyond ZULRESSO, including zuranolone. Drug development and obtaining regulatory approval
for a product involves a long, expensive and uncertain process, involving a high degree of risk.
Before obtaining regulatory approvals for the commercial sale of any product candidate, non-clinical studies and clinical trials must
demonstrate that the product candidate is safe and effective for use in each target indication. We or our collaborators may not be able to
demonstrate the efficacy and safety of any of our current product candidates or any future product candidate at each stage of clinical
development or we may encounter other issues with any clinical trials or non-clinical studies required for regulatory submissions. Success in
non-clinical studies or in earlier clinical trials or interim results of clinical trials may not be repeated or observed in ongoing, future or
completed studies or trials involving the same compound or other product candidates. Some or all of our or our collaborators’ clinical trials
may fail to meet their primary or key secondary endpoints, raise safety issues or generate mixed results. For example, in December 2019, we
announced that the MOUNTAIN Study, a Phase 3 clinical trial of zuranolone for the treatment of MDD, did not meet its primary endpoint.
We may find that studying alternate formulations of our product candidates or doses that achieve higher or lower patient exposure may result
in unexpected adverse events or raise other safety issues or may otherwise generate negative results. For example, in our ongoing dose-
ranging study of SAGE-324, the KINETIC 2 Study, we are evaluating multiple doses, including the same maximum dose of SAGE-324 that
we evaluated in prior studies, but we plan to increase the duration of dosing. We might decide to evaluate different doses, formulations, and
durations of dosing for any of our product candidates with other studies or programs in the future. 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 sufficient to file for and obtain regulatory
approval on the timelines we expect or at all. Other decisions or actions of the FDA or other regulatory agencies may affect our plans,
progress or results.
Changes in formulation or the need to refine or scale-up the manufacturing process as we do for any of our product candidates could
also delay development or require us to conduct additional clinical trials or non-clinical studies or conduct post-approval analyses, or could
lead to different results than achieved with the earlier formulation or processes. We or our collaborators may not be able to initiate or
complete our clinical trials or announce results from our clinical trials on the timelines we expect. We or our collaborators may experience
slower than expected recruitment of sites or enrollment and randomization of patients in our clinical trials, particularly in clinical trials where
an in-patient stay or frequent site visits are required, the patient population is small, enrollment criteria are more selective than historically
used or there are existing therapies or where other companies are running large clinical trials. There is also the potential for slower than
expected clinical site initiation, delays or problems in analyzing data, the potential need for additional analysis or data or the need to enroll
additional patients, or other unexpected issues such as adverse events in any of our clinical trials. These types of delays or issues could lead
to delays in the completion of a trial and announcement of results.
49
The continuing COVID-19 pandemic in the U.S. and outside the U.S. may negatively impact our ongoing and planned development
activities. Continuing concerns about COVID-19 and related precautions, restrictions and healthcare staffing shortages may make it difficult
to enroll patients in our clinical trials or may increase the rates of patients withdrawing from our clinical trials following enrollment. Some
clinical sites may decline or delay participation in our trials so as to prioritize medical resources for the treatment of COVID-19 patients or as
a result of recommended or required restrictions on nonessential businesses. These concerns, precautions, restrictions and resource
constraints arising from the COVID-19 pandemic may substantially slow clinical site recruitment and initiation and enrollment in our clinical
trials, or cause us to pause trials, which may, in each case, significantly impact our ability to meet our expected timelines or may significantly
impact our costs or other aspects of our business or cause us to have to change our plans. For example, we have seen slower recruitment in
certain of our clinical trials, especially with respect to older patients and, in our SKYLARK Study, in patients with PPD. We believe the
slower than expected enrollment in the SKYLARK Study was due to a lower number of women seeking care for PPD and a lower rate of
childbirth during the COVID-19 pandemic. As a result of the slower than expected enrollment, we revised our expected timeline for reporting
topline data from the SKYLARK Study.
In response to the COVID-19 pandemic or as a result of restrictions imposed or recommended by federal, state or local authorities,
we or our clinical sites have, in some cases, taken steps to help minimize the number of visits a clinical trial participant is required to make to
a site, including by limiting or modifying clinical trial procedures and visits for data collection. Similarly, some clinical sites have imposed
other restrictions or limitations on key clinical trial activities such as restrictions related to monitoring of the sites by clinical research
organizations. Some of these measures may continue or increase in the future depending on a number of factors, including the COVID-19
case rate in a particular community, the success of vaccination campaigns, and any adverse impact of the spread of variants of the virus that
causes COVID-19, including “breakthrough” cases among fully-vaccinated people. Limitations or modifications to study procedures, study
visits or data collection, restrictions on key clinical trial activities such as monitoring or auditing, or other restrictions that may affect data
analysis activities may require additional assessment and evaluation from institutional review boards; negatively impact the integrity or
completeness of our trial data, the powering of a trial, the integrity or relevance of clinical study endpoints; or impact the timing of
availability of results.
The drug development process can take many years, and may include post-marketing studies and surveillance, which will require
the expenditure of substantial resources. Of the large number of drugs in development in the U.S., only a small percentage will successfully
complete the 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 efforts, we cannot assure you that any of our current or future product candidates will be
successfully developed or commercialized either in the U.S. or in any country outside the U.S. Even if we or our collaborators conduct the
trials required by or discussed with the FDA, the FDA may ultimately decide that the design, number and type of trials, number of patients
studied or results, even if positive, are not sufficient to file for or gain regulatory approval of any of our product candidates in the indications
we study, or do not support the safety or efficacy or our intended profile for the product. For example, we may not be successful in our plans
to file NDAs with the FDA and obtain regulatory approval of zuranolone for the treatment of MDD and/or PPD on the timelines we expect or
at all. The FDA may find inadequacies and deficiencies in our planned NDA for zuranolone or in the data we submit, despite our prior
discussions with the FDA, and may decide not to accept the NDA for filing. Even if the FDA accepts an NDA seeking approval of
zuranolone for filing, the FDA may find that the data included in the NDA are not sufficient for approval and may not approve the NDA. We
may receive negative results from ongoing clinical trials of zuranolone that adversely affect our ability to obtain approval of zuranolone or
that impair the potential product profile of zuranolone. The FDA may require additional trials or data to approve zuranolone as a treatment
for MDD and/or PPD, any of which may significantly delay and put at risk our efforts to obtain approval and may not be successful. The
FDA may not meet expected review timelines or there may be delays at any point in the regulatory submission and review cycle that
negatively impact our plans and expectations, including anticipated launch timelines and plans in MDD or PPD, if zuranolone is approved.
Other decisions or actions of the FDA or other regulatory agencies may also adversely affect the zuranolone program, our plans, progress or
results and the potential product profile and success of zuranolone.
Even if we or a collaborator of ours gains approval of any of our current or future product candidates, we may never be able to
successfully commercialize such new product or to meet our expectations with respect to timing and revenues or profits from sales of such
product. For example, even if zuranolone is approved, we cannot be certain that we or our collaborators will be able to successfully
commercialize zuranolone in the approved indications.
50
ZULRESSO, our current or future product candidates and any future products, if successfully developed and approved, may cause
undesirable side effects that limit their commercial profile; delay or prevent further development or regulatory approval; cause regulatory
authorities to require labeling statements, such as boxed warnings or a REMS; or result in other negative consequences.
We may observe undesirable side effects or other potential safety issues in nonclinical studies or in clinical trials at any stage of
development of our product candidates. Clinical trials by their nature utilize a sample of the potential patient population. With a limited
number of patients and limited duration of exposure, certain side effects of ZULRESSO, any current or future product candidates, or any
future products, if successfully developed and approved, may only be uncovered with a larger number of patients exposed to the product.
Those side effects could be serious or life-threatening. If we or others identify undesirable side effects caused by ZULRESSO, zuranolone,
any other existing or future product candidate or any future approved product:
•
•
•
•
•
•
•
•
•
•
•
regulatory authorities may withdraw or limit their approval of such products;
the FDA or regulatory authorities outside the U.S. may impose a clinical hold or partial clinical hold prior to the initiation of
development or during development of our product candidates which could cause us or our collaborators to have to stop, delay or
restrict further development; or we or our collaborators may, even without a clinical hold, decide to interrupt, delay or halt existing
non-clinical studies and clinical trials or stop development;
we may have difficulty enrolling patients in our clinical trials and completing such trials on the timelines we expect or at all, or we
may have to conduct additional non-clinical studies or clinical trials as part of a development program;
if an NDA for any of our product candidates is reviewed by an advisory committee of the FDA, the advisory committee may
recommend against approval of the application or may recommend that the FDA require, as a condition of approval, additional non-
clinical studies or clinical trials, limitations on approved labeling or distribution and use restrictions, and the FDA may ultimately
agree with the recommendations of the advisory committee;
we or our collaborators may not be able ultimately to demonstrate, to the satisfaction of the FDA or other regulatory authorities, that
our product candidates are safe and that the benefits outweigh the safety risks, and the FDA or applicable foreign regulatory
authorities may not approve the product candidate;
regulatory authorities may require the addition of labeling statements, such as a boxed warning or additions to an existing boxed
warning, or a contraindication, including as a result of inclusion in a class of drugs for a particular disease, or may require a REMS,
or modifications to an existing REMS;
we or our collaborators may be required to change the way such products are distributed or administered, conduct post-approval
studies or change the labeling of the products;
we or our collaborators may be subject to regulatory investigations and government enforcement actions;
we or our collaborators may decide to remove such products from the marketplace;
we or our collaborators could be sued and held liable for injury caused to individuals exposed to or taking our products or product
candidates; and
our reputation may suffer.
We believe that any of these events could prevent us from achieving or maintaining market acceptance of the affected products, could
substantially increase the risks and costs of developing our product candidates or commercializing our products, and could significantly
adversely impact our ability and that of our collaborators to successfully develop, gain regulatory approval for, and commercialize our
current product candidates or future products and generate revenues.
Obtaining regulatory approval to market any of our product candidates is a complex, lengthy, expensive and uncertain process, and the
FDA and regulatory authorities outside of the U.S. may delay, limit or deny approval of any of our product candidates for many
reasons. Any setback or delay in obtaining regulatory approval for our product candidates or in our ability to commence marketing of our
products, if approved, may have a material adverse effect on our business and prospects.
51
We are not permitted to market any of our product candidates in the U.S. until we or our collaborators receive approval of an NDA from
the FDA or in any foreign countries until we or our collaborators 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 complex, lengthy, expensive and uncertain
process. The FDA and regulatory authorities outside the U.S. may delay, limit or deny approval of any of our product candidates for many
reasons, including, among others:
•
•
•
•
•
•
•
•
•
•
•
•
we or our collaborators may not be able to demonstrate, to the satisfaction of the FDA or other regulatory authorities, that our
product candidates are safe and effective in any indication and that the benefits outweigh the safety risks;
the results of our non-clinical studies and clinical trials may be negative, or may not meet the level of statistical or clinical
significance or other criteria required by the FDA or regulatory authorities outside the U.S. for marketing approval;
the FDA or regulatory authorities outside the U.S. may impose a clinical hold or partial clinical hold prior to the initiation of
development or during development of our product candidates which could cause us to have to stop, delay or restrict further
development;
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 one or more of our sites conducting non-clinical studies or clinical trials which
may cause the study or trial to fail;
the FDA or regulatory authorities outside the U.S. may determine that the number, design, size, conduct, implementation or result of
our non-clinical studies or clinical trials is inadequate for regulatory approval or that changes in dosing or drug formulation used in
our non-clinical studies or clinical trials require additional trials or studies, even if the regulatory authorities have previously
reviewed and commented on the design and details of our plans;
the FDA or regulatory or other government authorities outside the U.S. may require that we or our collaborators 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 an NDA for any of our product candidates is reviewed by an advisory committee of the FDA, the advisory committee may
recommend against approval of the application or may recommend that the FDA require, as a condition of approval, additional non-
clinical studies or clinical trials, limitations on approved labeling or distribution and use restrictions, and the FDA may ultimately
agree with the recommendations of the advisory committee;
the FDA or applicable foreign regulatory authorities may approve a product candidate for which we or our collaborators are seeking
regulatory approval for a more limited patient population than expected or with substantial use restrictions;
as was the case with ZULRESSO, the FDA may require a REMS as a condition of approval or post-approval for our product
candidates, or may modify an existing REMS;
the FDA or applicable foreign regulatory authorities may determine that the manufacturing processes or facilities of third-party
contract manufacturers with which we contract do not conform to applicable requirements, including current Good Manufacturing
Practices, or cGMPs; or
the FDA or applicable foreign regulatory agencies may change their approval policies or adopt new regulations.
Any of these factors, many of which are beyond our control, could jeopardize or delay our or our collaborators’ ability to obtain
regulatory approval for and successfully market our product candidates. Even if we or our collaborators
52
receive marketing approval for any of our product candidates, regulatory or other governmental authorities may still impose significant
restrictions, including restrictions on the indicated use or marketing, or may impose ongoing requirements for potentially costly post-
approval studies. For example, the FDA has imposed post-approval obligations in connection with approval of ZULRESSO. We may not be
able to fulfill these obligations in accordance with the FDA’s timelines, or at all. The FDA may recommend scheduling with respect to
zuranolone or any of our other current or future product candidates. In such event, as was the case with ZULRESSO, prior to a product
launch, the U.S. Drug Enforcement Administration, or DEA, will need to determine the controlled substance schedule of the product, taking
into account the recommendation of the FDA. The timing of the scheduling process would delay our ability to market any product candidate
that is successfully developed and approved.
Additionally, delays, resource constraints, and other disruptions at the FDA and other agencies may slow the time necessary for new
drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the
last several years, the U.S. government has shut down several times and certain regulatory agencies, including the FDA, have had to furlough
critical employees and stop critical activities. If a prolonged government shutdown occurs in the future, it could significantly impact the
ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business.
Fast Track and Breakthrough Therapy designations from the FDA or PRIority Medicines, or PRIME, designation from the
European Medicines Agency, or EMA, do not necessarily lead to a faster development pathway or regulatory review process, and do not
increase the likelihood of regulatory approval. The FDA may withdraw Fast Track designation or Breakthrough Therapy designation, and the
EMA may withdraw PRIME designation, if the relevant agency believes that the designation is no longer supported by data from our clinical
development programs.
The COVID-19 pandemic has adversely impacted and may continue to adversely impact our business, including our sales of ZULRESSO
and our initiation, conduct and completion of non-clinical studies and clinical trials.
The COVID-19 pandemic in the U.S. resulted in a significant number of sites of care pausing treatment of new patients with
ZULRESSO and potential new sites of care pausing site activation activities for a period of time. We believe concerns about exposure to the
virus or its variants, as well as the disruption to the healthcare system in the U.S. caused by the pandemic, have also caused a significant
reduction in the number of women with PPD seeking treatment with ZULRESSO and in physicians willing to prescribe it. Given continuing
concerns about the COVID-19 pandemic across the country, including as a result of the spread of variants and “breakthrough” cases among
fully-vaccinated people, and the resulting disruption in many locations to healthcare resources, we expect the significant adverse impact of
the pandemic on ZULRESSO revenues to continue. The scope and timing of the expected negative impact will depend on, among other
factors, the scope and duration of the pandemic and the timing of any return to normal business operations across the U.S.; the effectiveness
of vaccination campaigns, vaccine mandates, and other efforts to control the pandemic; the duration of the vaccines’ efficacy against
COVID-19 and its variants; the extent to which variants of the virus that causes COVID-19 negatively impact vaccination and other efforts to
control the pandemic; the duration and severity of any restrictive measures taken to curb the spread of COVID-19; the extent of healthcare
staffing shortages due to COVID-19; and the impact of the pandemic on our customers and vendors. We cannot predict for how long and to
what extent the COVID-19 pandemic will have an adverse impact on ZULRESSO sales.
As a result of the COVID-19 pandemic, we may also continue to experience delays or other disruptions that could negatively
impact our ongoing and planned development activities, including the timing of initiation and completion of non-clinical studies and clinical
trials or the integrity, completeness or usefulness of the data we collect in those studies or trials. These delays and disruptions may include:
•
•
delays or difficulties in recruiting clinical sites and in clinical site initiation, or the diversion of other healthcare resources and
personnel, due to prioritization of medical resources to the treatment of COVID-19 patients, healthcare staffing shortages or as a
result of recommended or required precautions or limitations intended to curb the spread of the virus;
delays or difficulties in enrolling patients in our clinical trials, including, for example, with respect to recruiting older patients as we
have seen in certain of our clinical trials, or an increase in the number of patients who withdraw from our clinical trials prior to
completion as a result of concerns about COVID-19 or as a result of
53
recommended or required precautions or limitations intended to curb the spread of the virus, or the potential that patients in our
trials may have or contract COVID-19 which may impact the trial results;
delays or disruptions in non-clinical studies due to precautions taken by contract research organizations, or CROs, or other vendors
in light of the spread of COVID-19 or related restrictions recommended or imposed by federal, state or local authorities;
limitations or modifications to study procedures, the number and type of study visits or data collection or data analysis activities, or
other restrictions on other key clinical trial activities such as monitoring and auditing, in response to the COVID-19 pandemic or as
a result of restrictions imposed or recommended by federal, state or local governments;
interruption or delays in the operations of the FDA and foreign regulatory agencies, which may impact timelines for initiation of
clinical trials, amendments of protocols, inspections of manufacturing facilities and review of regulatory submissions;
interruption of, or delays in, availability of supplies of our product candidates if the COVID-19 pandemic continues in surges or
recurs in waves for an extended period, including the potential for shortages of raw materials, other drugs or materials used in our
clinical trials, or staff available to our contract manufacturing organizations or other vendors in the supply chain or as the result of
restrictions or limitations in their businesses or activities; and
limitations on employee resources that would otherwise be focused on the conduct of our non-clinical studies and clinical trials,
including due to illness as a result of the COVID-19 pandemic.
•
•
•
•
•
The COVID-19 pandemic has also caused economic disruption, which could impair our business prospects. Additionally, future
surges of COVID-19 or the failure of current efforts to control the pandemic may cause further economic disruptions and may in the future
adversely impact the capital markets and make additional capital unavailable to us on acceptable terms, or at all if we were to seek it.
The number of people with the diseases and disorders for which our products and product candidates are targeted may be smaller than
we expect or our other assumptions with respect to the potential markets for our products and product candidates may not be correct and
the markets may be significantly smaller than we expect.
Our first product, ZULRESSO, has been approved in the U.S. for the treatment of PPD in adults. We plan to file an NDA in the
U.S. seeking approval of zuranolone for the treatment of MDD in the second half of 2022, and anticipate an associated NDA filing seeking
approval of zuranolone for PPD in the first half of 2023, pending the completion and results of the ongoing SKYLARK Study in PPD. We
are developing SAGE-324 as a potential oral therapy for neurological conditions, such as essential tremor, epilepsy and Parkinson’s disease.
We are developing SAGE-718 as a potential treatment for cognitive dysfunction associated with Huntington’s disease, Parkinson’s disease
and Alzheimer’s disease. There is no precise method of establishing the actual number of patients with any of these disorders in any
geography over any time period. With respect to PPD, MDD, essential tremor and the other indications in which we are developing, or plan
to develop, our product candidates, we estimate the prevalence of the disease or disorder, and our estimates as to prevalence, including the
assumptions we apply in determining our estimate, may not be accurate. In each case, there is a range of estimates in the published literature
and in marketing studies, which include estimates within the range that are lower than our estimates. For example, our estimates of the
prevalence of PPD are higher than estimates reported in some of the published literature and results obtained from certain studies analyzing
claims databases. We believe these differences may be the result of variations in analytical methodologies and possibly under-diagnosis of
PPD as a result of lack of screening and under-reporting and some patients being reluctant to seek treatment in clinical practice. The actual
number of patients with PPD, MDD, essential tremor, Huntington’s disease, Parkinson’s disease, Alzheimer’s disease, or any other indication
in which we elect to pursue development of our product candidates may, however, be significantly lower than we believe. Even if our
prevalence estimates are correct, any approved product that we develop may only be indicated for or used by a subset of patients with the
relevant disease or disorder. Our assumptions and estimates about the market for ZULRESSO and the potential market for zuranolone and
our other current and future product candidates may not be accurate. In the event the number of patients with the diseases and disorders we
are studying is significantly lower than we expect, we or our collaborators may have difficulties in enrolling patients in our clinical trials
which may delay or prevent development of our product candidates. If our prevalence estimates with
54
respect to any indication or our other market assumptions are not accurate, the markets for any approved product for these indications may be
smaller than we anticipate, which could limit our revenues and our ability to achieve profitability or to meet our expectations with respect to
the level and timing of revenues or profits.
Positive results from non-clinical studies and clinical trials of our product candidates are not necessarily predictive of the results of later
non-clinical studies and clinical trials of our product candidates in the same indications or other indications. Interim results from non-
clinical studies and clinical trials may not be predictive of results of such non-clinical studies or clinical trials once completed. If we
cannot replicate the positive results from our earlier non-clinical studies and clinical trials of our product candidates in our later non-
clinical studies and clinical trials in the same indications or other indications, or we cannot replicate our interim results in our completed
non-clinical studies and clinical trials, we may be unable to successfully develop, obtain regulatory approval for and commercialize our
product candidates.
Positive results from non-clinical studies and clinical trials of our product candidates may not necessarily be predictive of the results
we or our collaborators may obtain from subsequent non-clinical studies or clinical trials using the same product candidate or other product
candidates. For example, unlike earlier trials of zuranolone in MDD and PPD, the Phase 3 MOUNTAIN Study evaluating zuranolone in
patients with MDD did not meet its primary endpoint. We or our collaborators may find that ongoing or future clinical trials of zuranolone or
any of our other product candidates may also fail to meet their primary endpoints. Similarly, interim results from non-clinical studies and
clinical trials may not be predictive of results of a non-clinical study or clinical trial once completed.
We or our collaborators may also observe safety issues in clinical trials or non-clinical studies of our product candidates that we or
they did not observe or appreciate in earlier stage clinical studies or non-clinical studies, or a different rate or severity of events, including as
a result of an increase in dosing or in frequency or duration of dosing, studying a different patient population or different indication than
previously studied, or administering a product candidate with a concomitant medication. For example, in our ongoing dose-ranging study of
SAGE-324, we are evaluating multiple doses, including the same maximum dose of SAGE-324 that we evaluated in prior studies, but we
plan to increase the duration of dosing. Any of these studies may result in unexpected adverse events or raise other safety issues or may
otherwise generate negative results.
The results from non-clinical animal models may not be replicated in clinical trials. Many product candidates, including many
targeting central nervous system disorders, with promising non-clinical profiles have failed to demonstrate similar safety, non-toxicity and
efficacy in humans.
Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in later-stage clinical trials
after achieving positive results in earlier-stage development, and we cannot be certain that we will not face similar setbacks. Many drugs
have failed to replicate efficacy and safety results in larger or more complex later stage trials. Moreover, non-clinical and clinical data are
often susceptible to varying interpretations and analyses, and many companies that believed their product candidates performed satisfactorily
in non-clinical studies and clinical trials nonetheless failed to obtain FDA approval. If we or our collaborators fail to produce positive results
in our ongoing and planned non-clinical studies or clinical trials of any of our product candidates, the development timeline and regulatory
approval and commercialization prospects for our product candidates, and, correspondingly, our business and financial prospects, would be
materially adversely affected.
Failures or delays in the commencement or completion of our ongoing and planned clinical trials of our current and future product
candidates could cause us not to meet our expected timelines or result in increased costs to us, and could delay, prevent or limit our ability
to gain regulatory approval of any such product candidate and to generate revenue from resulting products, if any.
Successful completion of clinical trials at each applicable stage of development is a prerequisite to submitting an NDA to the FDA
or equivalent filings outside the U.S. and, consequently, the ultimate approval and commercial marketing of any of our product candidates for
the indications in which we develop them. We do not know whether any of our ongoing clinical trials will be completed, and results
announced, or whether future trials will begin, as planned or expected, if at all, as the commencement and completion of clinical trials and
announcement of results can be delayed or prevented for a number of reasons, including, among others:
55
•
•
•
•
•
•
•
•
•
•
•
•
•
denial by the FDA or other regulatory authority of permission to proceed with our planned clinical trials or any other clinical trials
we may initiate, or placement of one or more clinical trials on full or partial clinical hold;
delay or inability to satisfy the requirements of the FDA to commence clinical trials, including chemistry, manufacturing and
control, or CMC, requirements, or to file or receive approvals of additional investigational new drug applications, or INDs, that may
be required;
negative or inconclusive results from our ongoing non-clinical studies or clinical trials;
challenges in identifying, recruiting, enrolling and retaining patients to participate in clinical trials;
the impact of the COVID-19 pandemic;
delays in reaching or failing to reach agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of
which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
inadequate quantity or quality of supplies of a product candidate or other materials necessary to conduct clinical trials;
difficulties obtaining Institutional Review Board, or IRB, approval, and equivalent approval for sites outside the U.S., to conduct a
clinical trial at a prospective site or sites;
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 studies;
delays in validating endpoints utilized in a clinical trial;
the FDA or applicable regulatory authorities outside the U.S. disagreeing with our clinical trial design and our interpretation of data
from clinical trials, or changing the requirements for approval even after the regulatory authority has reviewed and commented on
the design for our clinical trials; and
reports from non-clinical or clinical testing of other therapies that raise safety or efficacy concerns.
In addition, a clinical trial may be suspended or terminated by us, the FDA or other regulatory authorities, the IRB or Ethics Committee,
or EC, at the sites where the IRBs or ECs are overseeing a clinical trial, or recommended for termination or suspension by a data and safety
monitoring board 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 deficiencies or
violations that require us to undertake corrective action, including the imposition of a partial or full clinical hold;
unforeseen safety issues, including any that could be identified in our ongoing non-clinical studies, or adverse side effects or lack of
effectiveness identified in ongoing clinical trials;
changes in government regulations or administrative actions; and
problems with clinical supply materials.
56
Additionally, changes in regulatory requirements or guidance or unanticipated events during our non-clinical studies and clinical
trials may force us or our collaborators to amend non-clinical studies and clinical trial protocols or the applicable regulatory authorities may
impose additional non-clinical studies and clinical trial requirements. Amendments or changes to clinical trial protocols would require
resubmission to the FDA and IRBs for review and approval, which may adversely impact the cost, timing or successful completion of clinical
trials. If we or our collaborators experience delays completing, or if we or our collaborators terminate, any of our non-clinical studies or
clinical trials, or if we or our collaborators are required to conduct additional non-clinical studies or clinical trials, the development pathway,
and ultimately the commercial prospects, for our product candidates may be harmed and our ability to generate product revenue from
resulting products, if any, will be delayed.
We or our collaborators may never seek or receive regulatory approval to market any of our products or product candidates outside of the
U.S., or receive pricing and reimbursement outside the U.S. at acceptable levels.
We or our collaborators may not seek, or may seek but never receive, regulatory approval to market our products or product
candidates outside of the U.S. or in any particular country or region. In order to market any product outside of the U.S., we or our
collaborators must establish and comply with the numerous and varying safety, efficacy and other regulatory requirements of other countries.
Approval procedures vary among countries and can involve additional non-clinical studies or clinical trials, additional work related to
manufacturing and analytical testing on controls, and additional administrative review periods. The time required to obtain approvals in other
countries might differ from that required to obtain FDA approval. Marketing approval in one country does not ensure marketing approval in
another, but a failure or delay in obtaining marketing approval in one country may have a negative effect on the regulatory process in other
countries. The marketing approval processes in other countries may implicate all of the risks detailed above regarding FDA approval in the
U.S. as well as other risks. In particular, in many countries outside of the U.S., products must receive pricing and reimbursement approval
before the product can be commercialized. Obtaining this approval may require additional studies and data, and can result in substantial
delays in bringing products to market in such countries and such investment may not be justified from a business standpoint given the market
opportunity or level of required investment. Even if we or our collaborators generate the data and information which we believe may be
sufficient to file an application for regulatory approval of any of our products or product candidates in a region or country outside the U.S.,
the relevant regulatory agency may find that we did not meet the requirements for approval, or even if our application is approved, we may
have significant post-approval obligations.
Even if we or our collaborators are able to successfully develop our product candidates and obtain marketing approval in a country
outside the U.S., we or they may not be able to obtain pricing and reimbursement approvals in such country at acceptable levels or at all, and
any pricing and reimbursement approval we or they may obtain may be subject to onerous restrictions such as caps, rebates or other hurdles
or restrictions on reimbursement. Failure to obtain marketing and pricing approval in countries outside the U.S. without onerous restrictions
or limitations related to pricing, or any delay or other setback in obtaining such approval, would impair our ability or that of our collaborators
to market our product candidates successfully or at all in such foreign markets. Any such impairment would reduce the size of our potential
market or revenue potential, which could have a material adverse impact on our business, results of operations and prospects.
Any setback or delay in obtaining regulatory approval or commencing marketing, if approved, for our product candidates in a
country or region outside the U.S. where we or our collaborators have decided it makes business sense to proceed may have a material
adverse effect on our business and prospects.
We rely completely on third-party suppliers to manufacture commercial supplies of ZULRESSO and clinical drug supplies for our
product candidates, and we intend to rely on third parties to produce commercial supplies of zuranolone, if approved, and non-clinical,
clinical and commercial supplies of our approved products and product candidates in the future.
We do not currently have, nor do we plan to acquire or develop, the infrastructure or capability internally to manufacture supplies of
ZULRESSO for commercial use, or of any of our other existing or future product candidates, for use in the conduct of our clinical trials and
non-clinical studies or for future commercial use, and we rely completely on third-party suppliers for both active drug substances and
finished drug products.
57
We rely on our contract manufacturers for commercial supplies of active drug substance, finished drug product and packaged and
labeled product with respect to ZULRESSO. We also rely on our contract manufacturers to manufacture sufficient quantities of zuranolone to
complete our ongoing clinical trials, produce validation batches, and, if zuranolone is approved by the FDA, to manufacture commercial
supplies of active drug substance, finished drug product and packaged and labeled product. We also rely on our contract manufacturers to
manufacture sufficient quantities of SAGE-324, SAGE-718, SAGE-689 and our other product candidates for ongoing and planned clinical
trials and non-clinical studies and expect to rely on them to scale our manufacturing processes for future clinical trials, if our development
efforts are successful. We expect our contract manufacturers to comply with cGMPs in the manufacture of our products. The facilities used
by our contract manufacturers to manufacture the active pharmaceutical ingredient and final drug product must typically complete a pre-
approval inspection by the FDA and other comparable foreign regulatory agencies to assess compliance with applicable requirements,
including cGMPs, after we submit the relevant NDA or equivalent foreign regulatory submission to the applicable regulatory agency, which
we expect to occur in connection with our planned submission of an NDA for zuranolone for the treatment of MDD in the second half of
2022. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory
requirements of the FDA or applicable foreign regulatory agencies, and pass regulatory inspections, on the timelines we expect or at all, they
will not be able to secure and/or maintain regulatory approval for their manufacturing facilities with respect to our products. In addition, we
have no direct control over our contract manufacturers’ ability to maintain adequate quality control, quality assurance and qualified
personnel. Furthermore, all of our third-party contract manufacturers are engaged with other companies to supply and/or manufacture
materials or products for such companies, which exposes our third-party contract manufacturers to regulatory risks for the production of such
materials and products. As a result, failure to satisfy the regulatory requirements for the production of those materials and products may
affect the regulatory clearance of our contract manufacturers’ facilities generally. If the FDA or an applicable foreign regulatory agency
determines now or in the future that these facilities for the manufacture of our products and product candidates are noncompliant, we may
need to find alternative manufacturing facilities, which would significantly adversely delay or impact our commercialization efforts for any
approved product and our ability to develop and obtain regulatory approval for our product candidates. Our reliance on contract
manufacturers also exposes us to the possibility that they, or third parties with access to their facilities, will have access to and may
appropriate our trade secrets or other proprietary information. Also, if a natural disaster were to interrupt or halt production of our drug
substance or drug product at one of our third-party contract manufacturers, or cause the loss of batches, we could encounter a supply shortage
or face significant costs to rebuild our supply.
We have long-term supply agreements with our contract manufacturers with respect to ZULRESSO drug substance and drug
product. We have an inventory of ZULRESSO drug product and drug substance in place to help mitigate any potential supply risks, but there
is no guarantee that this inventory will be adequate. We do not yet have long-term supply agreements in place with our contract
manufacturers with respect to drug substance or drug product for zuranolone or any of our other product candidates. Each batch of drug
substance and drug product for our product candidates is individually contracted through a purchase order governed by our master service
and quality agreements. If our existing contract manufacturers for our other product candidates are not willing to enter into long-term supply
agreements, or are not willing or are unable to supply drug substance or drug product to us, we could be required to engage new contract
manufacturers who would need to scale up the manufacturing process before we would be able to use the drug product or drug substance they
manufacture for clinical trials or for future commercialization, if we are successful and gain approval. In addition, any contract manufacturer
will need to complete validation batches, pass an inspection by the FDA and other applicable foreign regulatory agencies, and be approved
by regulatory authorities as our manufacturer before we would be able to use drug product or drug substance they manufacture for
commercial purposes, which could result in significant delays or gaps in product availability. We plan to continue to rely upon contract
manufacturers to manufacture commercial quantities of our products, if approved. If we are unable to maintain arrangements for third-party
manufacturing, or are unable to do so on commercially reasonable terms, or are unable to obtain timely regulatory approvals in connection
with our contract manufacturers, we may not be able to successfully commercialize any approved product or successfully complete
development of our current or future product candidates.
ZULRESSO or any future product, if our ongoing development efforts are successful, may not achieve broad market acceptance or
reimbursement at sufficient levels, which would limit the revenue that we generate from its sales.
The commercial success of ZULRESSO or of zuranolone or any of our other current or future product candidates, if successfully
developed and approved by the FDA or other applicable regulatory authorities, will depend upon the awareness and acceptance among the
medical community, including physicians, patients and healthcare payors, and reimbursement at sufficient levels.
58
The availability of coverage and adequacy of reimbursement is essential for most patients to be able to access and afford treatments.
Patients who are prescribed medications for the treatment of their conditions generally rely on third-party payors to reimburse all or part of
the costs associated with their prescription drugs. Government authorities, including the Centers for Medicare & Medicaid Services, or CMS,
an agency within the Department of Health and Human Services, or HHS, in the U.S., and third-party payors, such as private health insurers
and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels for those medications.
Cost containment 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. Payors may adopt
restrictions on coverage such as requiring patients to try other lower cost therapies prior to reimbursing our product, requiring patients to
meet severity or other criteria more restrictive than the approved label for our product, or requiring onerous and time-consuming prior
authorization procedures, or they may limit the amount of reimbursement. These restrictions or limitations might impede appropriate use of
our product for the approved indication. Restrictions and limitations on reimbursement or delays in obtaining coverage may vary
significantly among payors and payor types. As a result, there is significant uncertainty related to third-party payor coverage and
reimbursement of approved drugs. Regulatory approvals, pricing and reimbursement for drug products vary widely from country to country.
Coverage and reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s determination
that use of a product is a covered benefit under its health plan; safe, effective and medically necessary; appropriate for the specific patient;
cost-effective; and neither experimental nor investigational.
The inability of us or our collaborators to promptly obtain and maintain coverage and adequate reimbursement rates from both
government-funded and private payors for ZULRESSO and any other approved products that we develop could have a material adverse
effect on our operating results, our ability to successfully commercialize our products, our ability to raise capital and our overall financial
condition. Even if coverage is provided, we may not be able to establish or maintain pricing sufficient to realize a sufficient return on our
investment.
Obtaining coverage and reimbursement approval for a product from a government or other third-party payor can be an expensive
and time-consuming process that could require us to provide supporting scientific, clinical and cost effectiveness data for the use of our
products to the payor. For example, the availability, terms and timing of coverage for ZULRESSO varies from payor to payor, both for
commercially insured patients and from state Medicaid systems, and we have encountered some states that impose significant coverage
restrictions or lengthy delays on reimbursement of ZULRESSO. As a result, certain healthcare settings will not treat Medicaid patients with
ZULRESSO even if they are active treating sites of care for ZULRESSO. The industry competition to be included in third-party payors’ drug
formularies, or lists of medications for which third-party payors provide coverage and reimbursement, often leads to downward pricing
pressures on pharmaceutical products. In addition, third-party payors may refuse to include a particular branded drug in their formularies or
otherwise restrict patient access to a branded drug when a less costly generic equivalent or other alternative is available. Net prices for drugs
may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors, and by any future
relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the U.S. Increasingly,
third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the
prices charged for medical products. In addition, many pharmaceutical manufacturers must calculate and report certain price reporting
metrics to the government, such as average sales price and best price. Penalties may apply when such metrics are not submitted accurately
and on a timely basis. Before granting reimbursement approval, payors may require us to demonstrate that our product candidates, in addition
to treating the target indications, also provide incremental health benefits to patients or healthcare costs savings. If zuranolone receives
regulatory approval, we plan to pursue a value-based agreement strategy with payors. Payors may not be receptive to the use of value-based
agreements or may not agree with our approach and such a strategy may not increase market acceptance or access. If we believe a value-
based agreement strategy will not be successful we may change our approach. We cannot be sure that adequate coverage or reimbursement
will be available for zuranolone or any other product candidate that we or our collaborators commercialize.
Market acceptance with respect to ZULRESSO, zuranolone, if approved, or any of our other product candidates that we
successfully develop will depend on a number of factors, including, among others:
•
the efficacy and safety of our products as demonstrated in clinical trials;
59
•
•
•
•
•
•
•
•
•
•
the potential and perceived advantages and limitations of our products over current or future alternative treatment options, including
in the case of ZULRESSO, the impact of limitations arising from the intravenous infusion mode of administration, the length of stay
required for treatment, restrictions on site of care to REMS certified healthcare settings and other requirements of the REMS, the
risk of excessive sedation and loss of consciousness during administration, and, in the case of ZULRESSO and zuranolone, if
approved, the availability of lower cost antidepressants;
the incidence and severity of any side effects of the products;
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;
the convenience, benefit, ease and availability of alternative treatments already approved or expected to be commercially launched
in the near future;
the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies, and our ability to
increase awareness of our approved products through marketing efforts;
the strength and effectiveness of our sales, marketing and distribution strategies and support or that of our collaborators;
publicity concerning our products or competing products and treatments;
pricing and cost effectiveness; or
the availability of sufficient third-party coverage or reimbursement, and the willingness of patients to pay out-of-pocket in the
absence of such coverage or reimbursement, including in the case of ZULRESSO for both the product and the cost of the infusion.
Our efforts to change the treatment paradigm for a given disorder or to educate the medical community and third-party payors about
the benefits of any current or future products, to the extent permitted, may require significant resources and may never be successful. If
ZULRESSO or any of our product candidates, including zuranolone, that may be approved in the future, do not achieve an adequate level of
acceptance by patients, physicians, healthcare settings and payors, or reimbursement at reasonable levels, or if the patient population for
which any such product is approved is smaller than we expect, we may not generate sufficient revenue from our products to become or
remain profitable or to adequately fund operations or may not do so on the timelines we expect.
Even if marketing approval is granted for a product, we may face significant post-marketing obligations and future development and
regulatory difficulties.
Regulatory authorities may impose significant and potentially costly post-marketing obligations with respect to approval of any
product, including post-marketing studies, additional CMC work and additional pediatric studies. For example, the FDA has imposed post-
marketing commitments with respect to approval of ZULRESSO, and we may encounter issues or delays in the conduct of these post-
marketing commitments or we may generate unexpected results.
In the event we or our collaborators elect, or are required, to proceed with pediatric studies of any of our product candidates in any
indication, regulatory authorities may also require additional non-clinical studies or clinical trials be completed prior to commencement of
such pediatric studies.
As was the case with brexanolone, the FDA may recommend controlled substance scheduling for our current or future product
candidates, including zuranolone, if approved. In such event, the DEA will need to determine the controlled substance schedule taking into
account the recommendation of the FDA. If products are determined to be controlled substances, the manufacturing, shipping, storing, selling
and using of the products will be subject to an additional
60
regulation. Distribution, prescribing and dispensing of these drugs are also regulated. Because of their restrictive nature, these laws and
regulations could limit commercialization of our product candidates containing controlled substances. Failure to comply with these laws and
regulations could also result in withdrawal of our DEA registrations, disruption in manufacturing and distribution activities, consent decrees,
criminal and civil penalties and state actions, among other consequences. The DEA regulates controlled substances as Schedule I, II, III, IV
or V substances. Schedule I substances by definition 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. Brexanolone is currently regulated as a Schedule IV
controlled substance. Other Schedule IV controlled substances include sedative hypnotics such as benzodiazepines.
ZULRESSO is, and any future approved products will also be, subject 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 information. The FDA
has significant post-marketing authority, including, for example, the authority to require labeling changes based on new safety information
and to require post-marketing studies or clinical trials to evaluate serious safety risks, safety and efficacy in pediatric populations or alternate
doses or dose regimens.
The FDA also has the authority to require, as part of an NDA or post-approval, the submission of a REMS. For example, the FDA
has required a REMS for ZULRESSO. Any REMS required by the FDA may lead to increased costs to assure compliance with the REMS
and 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. In addition, if we are unable to comply with the ZULRESSO REMS or any REMS
imposed for a future product, we may face additional restrictions, limitations or substantial penalties, any of which may materially adversely
affect our business and results of operations.
We, our collaborators and the third-party manufacturers of our drug substance and drug products and our respective facilities are
subject to extensive regulations in the manufacture of our products and product candidates, including GMP, and are subject to continual
review and periodic inspections by the FDA and other regulatory authorities for compliance with GMPs and other regulations. If we, our
collaborators or a regulatory agency discover problems with our approved products or product candidates such as poor control of production
processes or other problems with the facility where our products are manufactured or in the manufacturing process, introduction of
contaminants, or adverse events of unanticipated severity or frequency, a regulatory agency may impose restrictions on our products, the
manufacturer or us or our collaborators, including requiring withdrawal of such products from the market or suspension of manufacturing. If
we, our collaborators, our approved products, our product candidates, or the manufacturers for our products or product candidates fail to
comply with applicable regulatory requirements, a regulatory agency may, among other things:
•
•
•
•
•
•
•
issue warning letters or untitled letters;
seek an injunction or impose civil or criminal penalties or monetary fines;
suspend or withdraw marketing approval;
suspend any ongoing clinical trials;
refuse to approve pending applications or supplements to applications submitted by us;
suspend or impose restrictions on operations, including costly new manufacturing requirements; or
seize or detain products, refuse to permit the import or export of products, or require that we initiate a product recall.
61
Competing therapies may exist or could emerge that adversely affect the amount of revenue we are able to generate from the sale of
ZULRESSO or any of our current or future product candidates, if successfully developed and approved.
The biopharmaceuticals industry is highly competitive. There are many public 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 products
or product candidates or address similar markets. It is probable that the number of companies seeking to develop products and therapies
similar to our products or targeting similar indications will increase. Many of our potential competitors, 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 number of our competitors. We expect competition in the indications we are pursuing will focus on efficacy,
safety, convenience, availability, and price. Our commercial opportunity could be reduced or eliminated if our competitors develop and
commercialize products that are perceived to be safer, more effective, have fewer or less severe side effects, are more convenient or are less
expensive than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more
rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able
to enter the market.
Currently, there are no pharmacological therapies specifically approved for the treatment of PPD other than ZULRESSO. Current
standard of care for PPD commonly consists of psychotherapy; however, patients with moderate or severe PPD are often prescribed
antidepressant medications such as selective serotonin reuptake inhibitors, or SSRIs, and serotonin and norepinephrine reuptake inhibitors, or
SNRIs.
Our most advanced product candidate, zuranolone, is in Phase 3 development for MDD and PPD. Patients with MDD are typically
treated with a variety of antidepressant medications, including SSRIs, SNRIs and atypical antipsychotics. If successfully developed and
approved, zuranolone may also face competition from esketamine, which is approved for the treatment of treatment-resistant depression. A
number of companies are developing product candidates intended for the treatment of MDD, including NMDA receptor antagonists or partial
antagonists such as dextromethorphan/ bupropion. In April 2021, Axsome Therapeutics, Inc. announced that the FDA had accepted and
granted priority review to the NDA package for its NMDA receptor antagonist, AXS-05, which had previously received Breakthrough
Therapy designation for MDD, but the expected PDUFA target action date of August 2021 has been delayed. In addition, if zuranolone is
successfully developed and approved for PPD, it could reduce our commercial opportunity for ZULRESSO.
In the field of neuroactive steroids focused specifically on modulation of GABAA receptors, we also face competition from a number
of companies, including Marinus Pharmaceuticals, Inc., or Marinus, and Praxis Precision Medicines, or Praxis. In September 2021, Marinus
announced that the FDA had accepted for filing and granted priority review of the NDA for its product candidate ganaxolone, a known
GABAA positive allosteric modulator neuroactive steroid, to treat seizures associated with CDKL5 deficiency disorder, a rare, genetic
epilepsy. Marinus has announced that the FDA has set a PDUFA target action date for ganaxolone for this indication for March 2022.
Ganaxolone is also in Phase 3 development for status epilepticus and tuberous sclerosis complex. Praxis is developing PRAX-114, a GABAA
receptor modulating neuroactive steroid, for MDD that is currently in Phase 2/3 development.
SAGE-324, a novel GABAA receptor positive allosteric modulator, is in Phase 2 development for essential tremor. If successfully
developed and approved as a treatment for essential tremor, SAGE-324 will face competition from current first-line treatments which include
β-adrenergic blocker propranolol and anticonvulsant primidone. SAGE-324 may also face competition from a T-type calcium channel
modulator that Jazz Pharmaceuticals, Inc. is currently evaluating in Phase 2b development for essential tremor and a Phase 2 T-type calcium
channel modulator being developed by Praxis.
A number of companies are working to develop products targeted at the NMDA receptor, both antagonists and agonists. Aptinyx Inc.
has multiple Phase 2 NMDA receptor modulators in development for multiple indications, including NYX-458 being developed for the
treatment of cognitive impairment in Parkinson’s disease.
62
Our existing collaborations with Biogen and Shionogi, and any future collaborations, may not lead to the successful development or
regulatory approval of product candidates or commercialization of products. Our collaborators may have competing priorities, conflicting
incentives, or different views than us on key decisions, including appropriate program spending, that may hamper or delay our
development and commercialization efforts or increase our costs. Our business may be adversely affected if any of our collaborators fails
to perform its obligations or terminates our collaboration, or if we are not able to establish future collaborations that we believe to be
important to our business on commercially reasonable terms.
Our drug development programs and the potential commercialization of our product candidates will require substantial 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.
Our existing and future collaborations, if any, may not lead to the successful development and commercialization of any
products. Our collaborators face both the same challenges and hurdles that we would face in the development and commercialization of
product candidates if we were engaged in the activities solely ourselves, as well as additional challenges related to operating under a
collaboration. For example, we have entered into a collaboration and license agreement with Biogen MA Inc., or BIMA, and Biogen
International GmbH, or, collectively with BIMA, Biogen, to jointly develop and commercialize zuranolone and SAGE-324 in the U.S. and
granting Biogen rights to develop and commercialize those product candidates in the rest of the world other than Japan, Taiwan and South
Korea, or the Shionogi Territory, in the case of zuranolone. We have a separate collaboration with Shionogi & Co., Ltd., or Shionogi, under
which we granted rights to Shionogi for the development and commercialization of zuranolone in the Shionogi Territory. The efforts under
these collaborations may not be successful and we may never receive any additional milestone payments, profit-share revenue or royalty
payments from Biogen or Shionogi. In addition, under most collaborations, including our existing collaborations, a certain degree of control
in decision-making is transferred to or shared with our collaborators. Our collaborators may use their decision-making authority to make
decisions that could delay, decrease the potential of, or otherwise adversely impact, development and commercialization of our product
candidates. Similarly, where we share decision-making authority, the need to gain alignment on decisions may slow or impede advancement
of our programs and cause us not to be able to meet our timelines or achieve our goals. Our collaborators may have competing priorities or
different incentives that cause them to divert resources away from our collaboration, or we may not agree on appropriate spending levels,
which could hamper our overall development and commercialization efforts or increase our overall spending. Our collaborators may
independently develop, or develop with a competitor, competitive products or may believe that product candidates being evaluated in the
collaboration could be competitive with the collaborator’s own products. In the case of the collaboration with Biogen, both companies have
agreed to certain exclusivity provisions for certain products in specified indications which may limit certain development opportunities
outside the collaboration. In addition, if we depend on collaborators for capabilities and funding for major product development efforts
globally or in key territories then our business may be adversely affected if our collaborator fails to perform its obligations under the
agreement or the collaboration terminates. Disputes may also arise with respect to the ownership of rights to technology or products
developed with collaborators, which could have an adverse effect on our ability to develop and commercialize any affected product
candidate.
Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of
recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators.
We may not be able to negotiate additional collaborations on a timely basis, on acceptable terms, or at all.
63
We may not be successful in our efforts to identify or discover additional product candidates beyond our existing product candidates or to
file investigational new drug, or IND, applications for clinical development of new compounds at the rate we expect, or we may expend
our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications
that may be more profitable or for which there is a greater likelihood of success.
The success of our business depends upon our and our collaborators’ ability to successfully develop, gain approval of and
commercialize products based on our current product candidates and on our ability to generate new compounds for development in the future
and to successfully complete the non-clinical work necessary to file INDs to pursue clinical development of such new compounds. Our
research programs may fail to generate new compounds that meet the standards for non-clinical development, and, if even we are successful
in generating such compounds, we may not be able to produce the non-clinical and other data necessary to support IND applications for
clinical development, in each case in the number or at the rate we expect or at all for a number of reasons. For example, we may not be able
to identify a sufficient number of new targets in areas of interest to us. Our research methodology may be unsuccessful in generating a
sufficient number of new compounds appropriate for non-clinical testing in the target areas we identify. Even if we generate new compounds
in areas of interest to us, we may determine that those compounds are not appropriate for non-clinical development, or we may generate data
in non-clinical development that do not support IND filings for clinical development. We may not have, or devote, sufficient technical,
financial, and human resources to our research efforts at the various stages needed to identify targets, generate compounds, conduct non-
clinical studies and prepare INDs. Additional potential product candidates may be shown to have harmful side effects or may not have a
positive risk/benefit profile or may have other characteristics that may make the product candidates not appropriate for further development
or unlikely to receive marketing approval.
Because we have limited financial and management resources, we focus on a limited number of clinical and research programs and
product candidates and are currently focused on certain brain health disorders. As a result, we may forego 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
new product candidates require substantial technical, financial and human resources. We may focus our efforts and resources on potential
programs or product candidates that ultimately prove to be unsuccessful and may not yield any commercially viable drugs. Our resource
allocation decisions may cause us to fail to capitalize on other viable opportunities. If we do not accurately evaluate the commercial potential
or target market for a particular product candidate, we may relinquish valuable rights through future collaboration, licensing or other royalty
arrangements in cases in which it would have been more advantageous for us to retain such sole development and commercialization
rights. If any of these events occur, it may have a material adverse effect on our business.
We rely, and expect that we will continue to rely, on third parties to conduct any clinical trials for our product candidates. If these third
parties do not successfully carry out their contractual duties, comply with applicable standards and meet expected deadlines, we may not
be able to obtain regulatory approval for or commercialize our products, if approved, and our business could be substantially harmed.
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 completion of these clinical trials and the management of data developed through clinical trials than would be the case if
we were relying entirely upon our own staff. Communicating with outside parties can also be challenging, potentially leading to mistakes as
well as difficulties in coordinating activities. Outside parties may:
•
•
•
•
have staffing difficulties;
fail to comply with contractual obligations;
fail to comply with current Good Clinical Practices, or GCPs, or experience other regulatory compliance issues;
undergo changes in priorities or become financially distressed;
64
•
•
form relationships with other entities, some of which may be our competitors; or
be impacted by the COVID-19 pandemic in ways that adversely affect our business.
These factors may materially adversely affect the willingness or ability of third parties to conduct our clinical trials, and may
subject 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 applicable protocol, legal and regulatory requirements, and scientific standards, and our reliance on
CROs does not relieve us of our regulatory responsibilities. We, clinical investigators, and our CROs are required to comply with regulations
and guidelines, including GCPs, for conducting, monitoring, recording and reporting the results of clinical trials to ensure that the data and
results are scientifically credible and accurate, and that the trial patients are adequately informed of the potential risks of participating in
clinical trials. These regulations are enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area,
or EEA, and comparable foreign regulatory authorities for any product candidates in clinical development or where clinical trials are being
conducted. If we or our CROs or contract manufacturers fail to comply with these regulations or if the quality or accuracy of the clinical data
obtained is compromised due to the failure to adhere to our clinical protocols or other regulatory requirements or for other reasons, and we
are unable to rely on clinical data collected, we may be required to repeat clinical trials or extend the duration of, or increase the size of our
clinical trials. This would delay the regulatory approval process, and could also subject us to enforcement action up to and including civil and
criminal penalties. If any of our relationships with third-party CROs terminate or if a CRO needs to be replaced, we may not be able to enter
into arrangements with alternative CROs in a timely manner or at all. Any of these issues could significantly delay or prevent regulatory
approval of our product candidates and require significantly greater expenditures. In such an event, we believe that our financial results might
be harmed, our costs could increase and our ability to generate revenue from products beyond ZULRESSO could be delayed.
As our development and commercialization efforts advance, we expect to continue to significantly develop and expand our company, and
we may encounter difficulties in managing this development and expansion, which could disrupt our operations.
Given the complexity and level of activities and resources that are necessary to develop and commercialize pharmaceutical
products, we have been growing and expanding our company and, if our planned development and regulatory efforts are successful, we
expect to continue to need to significantly increase our number of employees and the scope of our operations. For example, to commercialize
any future products, we will need to recruit and train additional qualified sales personnel, and continue to implement and improve our
managerial, operational and financial systems. We may not be able to effectively manage any expansion of our operations or recruit and train
additional qualified personnel. This may result in weaknesses in our infrastructure and give rise to operational mistakes or delays, loss of
business opportunities, loss of employees and reduced productivity among remaining employees. If our management is unable to effectively
manage any potential significant expansion, our expenses may increase more than expected, and our ability to successfully develop and gain
regulatory approval of our product candidates and generate or increase our revenue, if such product candidates are approved, could be
reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize any
future products that we successfully develop, and to compete effectively will depend, in part, on our ability to effectively manage the
potential future expansion of our company.
65
Our future success depends on our ability to attract, retain and motivate qualified personnel.
To accomplish our objectives, we require a strong management team with expertise in research and development, clinical
development and commercialization. Although we have entered into employment agreements with each of our executive officers, each of
them is employed “at will” and may terminate his or her employment with us at any time. We do not maintain “key person” insurance for any
of our executives or other employees. Recruiting and retaining qualified personnel is critical to our success. We may not be able to attract and
retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar
personnel. We also experience competition for the hiring of scientific personnel from universities and research institutions. Failure to succeed
in clinical trials or in obtaining regulatory approval may make it more challenging to recruit and retain qualified personnel. If we are unable
to continue to attract and retain high quality personnel, our development efforts, commercialization activities, business, financial condition,
results of operations and growth prospects could be adversely affected.
We face potential product liability exposure, and, if claims are brought against us, we may incur substantial liability.
The sale of ZULRESSO and any future approved products and use of our product candidates in clinical trials will expose us to the
risk of product liability claims. Product liability claims might be brought against us by patients, healthcare providers or others using,
prescribing, selling or otherwise coming into contact with our products and product candidates. For example, we may be sued if any product
or product candidate allegedly causes injury or is found to be otherwise unsuitable during clinical trials, manufacturing, marketing, sale or
commercial use. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of
dangers inherent in the product, including as a result of interactions with alcohol or other drugs, knowledge of risks, negligence, strict
liability and a breach of warranties. Claims could also be asserted under state consumer protection laws. If we become subject to product
liability claims and cannot successfully defend ourselves against them, we could incur substantial liabilities. Regardless of merit or eventual
outcome, product liability claims may result in, among other things:
•
•
•
•
•
•
•
•
•
withdrawal of patients from our clinical trials, or difficulty in enrolling clinical trials;
substantial monetary awards to patients or other claimants;
decreased demand for our approved products;
damage to our reputation and exposure to adverse publicity;
increased FDA warnings on product labels;
litigation costs;
distraction of management’s attention from our primary business;
loss of revenue; and
withdrawal of products from the market or our inability to successfully gain approval of product candidates.
We maintain product liability insurance coverage with a $20.0 million annual aggregate coverage limit. Nevertheless, our insurance
coverage may be insufficient to reimburse us for any expenses or losses we may suffer. Moreover, in the future, we may not be able to
maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses, including if insurance coverage
becomes increasingly expensive. Large judgments have been awarded in class action lawsuits based on drugs that had unanticipated side
effects. The cost of any product liability litigation or other proceedings, even if resolved in our favor, could be substantial, particularly in
light of the size of our business and financial resources. A product liability claim or series of claims brought against us could cause our stock
price to decline and, if we are unsuccessful in defending such a claim or claims and the resulting judgments exceed our insurance coverage,
our financial condition, business and prospects could be materially adversely affected.
66
If we fail to comply with our reporting and payment obligations under the Medicaid Drug Rebate Program or other governmental pricing
programs, we could be subject to additional reimbursement requirements, penalties, sanctions and fines, which could have a material
adverse effect on our business, financial condition, results of operations and growth prospects.
The Medicaid Drug Rebate Program, which we participate in, and other governmental programs impose obligations to report
pricing figures to the federal government, require us to pay rebates and participate in discount programs. Other programs impose limits on the
price we are permitted to charge certain entities for ZULRESSO or for any future products for which we receive regulatory approval.
Statutory and regulatory changes or binding guidance regarding these programs and their requirements could negatively affect the coverage
and reimbursement by these programs of ZULRESSO or any future products for which we receive regulatory approval and could negatively
impact our results of operations. Our failure to comply with these price reporting and rebate payment obligations could negatively impact our
financial results. The Patient Protection and Affordable Care Act, as amended, referred to herein as the ACA, and regulations promulgated
thereunder could affect our obligations in ways we cannot anticipate.
Pricing and rebate calculations vary among products and programs. The calculations are complex and are often subject to
interpretation by us, governmental or regulatory agencies and the courts. If we become obligated to restate or recalculate the amounts we
report under these programs, our costs for complying with the laws and regulations governing the Medicaid Drug Rebate Program and our
price discounts and rebates could be increased. Additionally, we could be held liable for errors associated with our submission of pricing data
under the Medicaid Drug Rebate Program and other federal or state drug pricing programs, including retroactive rebates and program
refunds, and if we are found to have knowingly submitted false average manufacturer price or best price information to the government, civil
monetary penalties per item of false information. Certain failures to submit required data could result in a civil monetary penalty for each day
the information is late beyond the due date and be grounds for CMS to terminate our Medicaid drug rebate agreement, pursuant to which we
participate in the Medicaid program, or, if we fail to comply with 340B program requirements, the Health Resources and Services
Administration, or HRSA, could decide to terminate our 340B program participation agreement. In the event that CMS terminates our rebate
agreement or HRSA terminates our 340B program participation agreement, no federal payments would be available under Medicaid or
Medicare Part B for our covered outpatient drugs.
We are subject to other laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages,
reputational harm and diminished profits and future earnings.
We are subject to a number of healthcare and other statutory and regulatory requirements and enforcement by the federal
government and the states and foreign governments in which we currently or may in the future conduct our business.
Our current or future interactions and arrangements with third-party payors, healthcare providers, patients, healthcare settings, and
others who play a role in the recommendation, prescription, reimbursement and administration of ZULRESSO and will play similar role with
respect to any of our future products, if successfully developed and approved, are governed in part by 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 ZULRESSO or expect to market, sell and distribute any future approved products. Restrictions under applicable federal
and state healthcare laws and regulations include the following:
•
•
The federal anti-kickback statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving
or providing remuneration, directly or indirectly (including any kickback, bribe or certain rebates), in cash or in kind, to induce or
reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment
may be made under federal healthcare programs such as Medicare and Medicaid. This statute has been interpreted to apply to
arrangements between pharmaceutical companies on the one hand, and prescribers, purchasers and formulary managers, among
others, on the other.
The federal False Claims Act imposes criminal and civil penalties, including those from civil whistleblower or qui tam actions,
against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment
that are false or fraudulent or making a false statement to avoid, decrease, or conceal an obligation to pay money to the federal
government, with potential liability including mandatory treble damages and significant per-claim penalties. Pharmaceutical
companies have been prosecuted under the False Claims Act in connection with their alleged off-label promotion of drugs,
purportedly concealing price
67
concessions in the pricing information submitted to the government for government price reporting purposes, and allegedly
providing free product to customers with the expectation that the customers would bill federal health care programs for the product,
among other activities. In addition, the government may assert that a claim including items or services resulting from a violation of
the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the False Claims Act.
The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for
executing a scheme to defraud 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.
HIPAA, and its implementing regulations, imposes privacy, security and breach reporting obligations, including mandatory
contractual terms, with respect to safeguarding the privacy and security of individually identifiable health information upon covered
entities subject to the rule.
The federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making
any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services.
The federal transparency requirements, sometimes referred to as the “Sunshine Act”, under the ACA, require manufacturers of
drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance
Program to report to HHS information related to physician payments and other transfers of value made to physicians and teaching
hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Effective January
1, 2022, these reporting obligations will extend to include transfers of value made to certain non-physician providers such as
physician assistants and nurse practitioners.
Analogous state laws and regulations, such as state anti-kickback and false 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 compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to
requiring drug manufacturers to report information related to payments to physicians and other healthcare providers or marketing
expenditures and drug pricing.
Various federal and state health information and data protection laws and regulations, and similar types of laws outside the U.S.,
govern the collection, use, disclosure and protection of health-related and other personal information by us and our collaborators.
•
•
•
•
•
•
Ensuring that our future practices and business arrangements comply with applicable healthcare laws and regulations is costly. It is
possible that governmental authorities will conclude that our business practices and arrangements do not comply with current or future
statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our practices or operations,
including activities conducted by our commercial team or other of our employees, consultants or vendors, were found to be in violation of
any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and
administrative penalties, damages, fines and exclusion from government funded healthcare programs, such as Medicare and Medicaid, any of
which could substantially disrupt our operations and materially adversely affect our business and financial condition. We may also be
substantially negatively impacted if governmental authorities conclude that the business practices of one of our collaborators does not comply
with applicable laws. 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 applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government
funded healthcare programs.
We and our employees are also subject to other statutes and regulations related to our business, including: regulations imposed by
the FDA and applicable non-U.S. regulators, as previously discussed; anti-bribery and anti-
68
corruption laws and regulations applicable to activities outside the U.S.; rules on reporting financial and other information or data timely and
accurately; and rules related to insider trading.
Although we have adopted a code of conduct, it is not always possible to identify and deter employee misconduct, and the
precautions we take to detect and prevent this activity may be ineffective in controlling unknown or unmanaged risks or losses or in
protecting us from governmental investigations or other actions or lawsuits stemming from a failure by our employees to comply with these
laws or regulations.
Data collection is governed by restrictive regulations governing the use, processing, and cross-border transfer of personal information.
We must comply with numerous federal, state and non-U.S. laws which govern the privacy and security of health and other personal
information. As described above, HIPAA, imposes certain requirements relating to the privacy, security and transmission of individually
identifiable health information. In addition, when we conduct clinical trials in the U.S., any personal information that is collected in
connection with these trials also is regulated by the Federal Policy for the Protection of Human Subjects (the Common Rule) which creates
obligations for our company when conducting these trials.
We plan to enroll subjects in our ongoing or future clinical trials in the European Union, or EU, or other countries, we may be
subject to additional privacy restrictions, including restrictions relating to the collection, use, storage, transfer, and other processing of
personal data, including personal health data, regarding these individuals. Clinical trial activities in the EEA, for example, are governed by
the General Data Protection Regulation, or GDPR, in relation to the processing of personal data. The GDPR imposes several requirements on
companies that process personal data, strict rules on the transfer of personal data out of the EEA, including to the U.S. and fines and penalties
for failure to comply with the requirements of the GDPR and the related national data protection laws of the EU Member States. The GDPR
also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek
judicial remedies, and obtain compensation for damages resulting from violations of the GDPR in some situations. The obligations under the
GDPR may be onerous and adversely affect our business, financial condition, results of operations and prospects. Compliance with the
GDPR is a rigorous and time-intensive process that may increase our cost of doing business or require us to change our business practices,
and despite those efforts, there is a risk that we may be subject to fines and penalties, litigation, and reputational harm in connection with any
European activities. The issues related to the transfer of personal data are subject to substantial uncertainty at this time, and there can be no
reasonable level of confidence that any such data transfers will be found to be consistent with EU law if they are challenged. The United
Kingdom’s, or UK’s, exit from the EU, often referred to as Brexit, has created uncertainty with regard to future data protection regulation in
the United Kingdom. The European Commission has adopted an adequacy decision concerning the level of data protection in the UK.
Personal data may now flow freely from the EEA to the UK; however, the European Commission may suspend the adequacy decision if it
decides that the UK no longer provides for an adequate level of data protection. Similar laws exist in many other countries around the world,
and these laws (which are evolving and expanding) create complicated and potentially inconsistent obligations that may impact our business.
We are also subject to the California Consumer Privacy Act, or CCPA, which creates individual privacy rights for California
consumers (as defined in the law) and places increased privacy and security obligations on entities handling personal data of consumers or
households. While there is currently an exception for protected health information that is subject to HIPAA and clinical trial regulations, as
currently written, the CCPA may impact our business activities. The CCPA also has been amended through a recent referendum in California
that creates additional obligations beginning in 2023. In November 2020, California voters approved the California Privacy Rights Act, or
CPRA, ballot initiative which introduced significant amendments to the CCPA and established and funded a dedicated California privacy
regulator, the California Privacy Protection Agency, or the CPPA. The amendments introduced by the CPRA are scheduled to go into effect
on January 1, 2023, and new implementing regulations are expected to be introduced by the CPPA. Failure to comply with the CCPA may
result in, among other things, significant civil penalties and injunctive relief, or statutory or actual damages. In addition, California residents
have the right to bring a private right of action in connection with certain types of incidents. These claims may result in significant liability
and damages. At least two states have passed general privacy legislation that may impact our business activities in the future, and additional
states are evaluating similar kinds of general privacy legislation. The uncertainty, ambiguity, complexity and potential inconsistency
surrounding the implementation and interpretation of CCPA and other enacted or potential laws in other states exemplify the vulnerability
69
of our business to the evolving regulatory environment related to the privacy, security and confidentiality of personal data and protected
health information. We may be subject to fines, penalties, or private actions in the event of non-compliance with such laws. We have
implemented processes to manage compliance with the CCPA and continue to assess the impact of the CPRA, and other federal and state
legislation, on our business as additional information and guidance becomes available.
The FDA and other regulatory and enforcement agencies actively enforce the laws and regulations prohibiting the promotion of off-label
uses. If we are found to have improperly promoted off-label uses, we may become subject to significant liability.
The FDA and other regulatory and enforcement agencies strictly regulate the promotional claims that may be made about
prescription products, and enforce laws and regulations prohibiting the promotion of off-label uses. In particular, a product may not be
promoted for uses that are not approved by the FDA or such other regulatory agencies as reflected in the approved labeling of the product. If
we are found to have promoted off-label uses for any product, we may become subject to significant liability. The federal government has
levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in
off-label promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified
promotional conduct is changed or curtailed. Pharmaceutical companies have also been prosecuted and incurred significant civil, criminal
and administrative penalties, damages, fines under the False Claims Act in connection with their alleged off-label promotion of drugs. Any
promotion of the off-label use of ZULRESSO or any of our future approved products by us or any of our employees could subject us to
significant liability, which would materially adversely affect our business and financial condition.
Our future growth may depend, in part, on our ability to penetrate foreign markets, where we would be subject to additional regulatory
burdens, price controls, reimbursement issues and other risks and uncertainties, and could negatively impact our U.S. business.
Our future profitability may depend, in part, on our ability, ourselves or through our collaborators, to commercialize our products
and product candidates in foreign markets.
The pricing of prescription pharmaceuticals is subject to governmental control outside the U.S. In these countries, pricing
negotiations with governmental authorities can take considerable time after the receipt of regulatory approval for a product. To obtain
reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of
our product candidates to other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if
pricing is set at unsatisfactory levels, our ability to generate revenues and become profitable could be impaired.
In some countries, including Member States of the EU, the pricing of prescription drugs is subject to governmental control.
Additional countries may adopt similar approaches to the pricing of prescription drugs. There can be considerable pressure by governments
and other stakeholders on prices and reimbursement levels, including as part of cost containment measures. Political, economic and
regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after coverage and
reimbursement have been obtained. Reference pricing used by various countries and parallel distribution, or arbitrage between low-priced
and high-priced countries, can further reduce prices. In the U.S., recent legislative and administrative proposals signal a desire to lower drug
prices in the U.S. Should such a legislative or administrative initiative be established, we or our collaborators outside the U.S. in the future
may be limited in the prices we are able to charge for our products in the U.S. Publication of discounts by third-party payors or authorities
may lead to further pressure on the prices or reimbursement levels within the country of publication and other countries. If pricing is set at
unsatisfactory levels or if reimbursement of our products is unavailable or limited in scope or amount, our revenues from sales by us or our
collaborators and the potential profitability of our products in those countries would be negatively affected.
Commercializing our products and product candidates in foreign markets would subject us to additional risks and uncertainties,
including:
•
our inability to directly control commercial activities to the extent we are relying on third parties;
70
•
•
•
•
•
•
the burden of complying with complex and changing foreign regulatory, tax, accounting and legal requirements, including the
interpretation of contractual provisions governed by foreign laws in the event of a contract dispute;
different medical practices and customs in foreign countries affecting acceptance in the marketplace;
import or export licensing requirements;
longer accounts receivable collection times;
reduced protection of intellectual property rights, and the existence of additional potentially relevant third-party intellectual property
rights, in some foreign countries; and
foreign currency exchange rate fluctuations.
Foreign sales of our product candidates could also be adversely affected by the imposition of governmental controls, political and
economic instability, trade restrictions and changes in tariffs. For example, Brexit has already and may continue to adversely affect European
and/or worldwide regulatory conditions. Brexit could continue to lead to legal uncertainty and potentially divergent national laws and
regulations in the EU and the United Kingdom, including those related to the pricing of prescription pharmaceuticals, as the United Kingdom
determines which EU laws to replicate or replace, which could impair our ability to transact business in the EU and the United Kingdom in
the future, if we elect to seek to commercialize any of our products there.
Risks Related to Our Intellectual Property Rights
If we are unable to adequately protect our proprietary technology, or obtain and maintain issued patents that are sufficient to protect our
product candidates, others could compete against us more directly, which would have a material adverse impact on our business, results
of operations, financial condition and prospects.
We strive to protect and enhance the proprietary technologies that we believe are important to our business, including seeking
patents intended to cover our products and compositions, their methods of use and any other inventions that are 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 for, patent protection.
Our success will depend significantly on our ability to obtain and maintain patent and other proprietary protection for commercially
important technology, inventions and know-how related to our business; defend and enforce our patents, should they issue; preserve the
confidentiality of our trade secrets; and operate without infringing the valid and enforceable 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 product candidates.
We cannot provide any assurances that any of our pending patent applications will mature into issued patents. For example, the U.S.
Patent and Trademark Office, or U.S. PTO, has issued a final rejection against one of our patent applications claiming one of our proprietary
GABAA positive allosteric modulator compounds, asserting a lack of novelty and non-obviousness. We are in the process of challenging the
rejection, and may not be successful in overturning the rejection.
We may be unable to obtain issued patents covering our proprietary compounds. We cannot provide any assurances that any of our
issued patents will be enforceable, or include claims with a scope sufficient to protect our product candidates or otherwise provide any
competitive advantage. For example, the issued patent and patent applications that provide coverage for ZULRESSO only cover particular
formulations and particular methods of using such formulations to treat depressive disorders such as PPD and MDD. As a result, such issued
patent and any patent that may issue from such patent applications, would not prevent third-party competitors from creating, making and
marketing alternative formulations of brexanolone that fall outside the scope of the patent claims or from practicing alternative methods.
Moreover, other parties have developed technologies that may be related or competitive to our approach, and may have filed or may file
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 subject matter that could
71
dominate our patent position. Such third-party patent positions may limit or even eliminate our ability to obtain patent protection for certain
inventions.
The patent positions of biotechnology and pharmaceutical companies, including our patent position, involve complex legal and
factual questions, and, therefore, the issuance, scope, validity and enforceability of any patent claims that we may obtain cannot be predicted
with certainty. Patents, if issued, may be challenged, deemed unenforceable, invalidated, or circumvented. U.S. patents and patent
applications may also be subject to interference proceedings, derivation proceedings, ex parte reexamination, or inter partes review
proceedings, post-grant review proceedings, supplemental examination and challenges in district court. Patents may be subjected to
opposition, post-grant review, or comparable proceedings lodged in various foreign, both national and regional, patent offices. 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. For example, our granted European patent covering
brexanolone i.v. has been opposed by a third party, and the opposition proceedings are ongoing. 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 or a derivation 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. Furthermore, though a patent, if it were to issue, is presumed valid
and enforceable, its issuance is not conclusive as to its validity or its enforceability, and it may not provide us with adequate proprietary
protection or competitive advantages against competitors with similar products. Even if a patent issues, and is held to be valid and
enforceable, competitors may be able to design around our patents, such as using pre-existing or newly developed technology. Other parties
may develop and obtain patent protection for more effective technologies, designs or methods.
We also may not be able to prevent the unauthorized disclosure or use of our technical knowledge or trade secrets by consultants,
vendors, former employees and current employees. The laws of some foreign countries do not protect our proprietary rights to the same
extent as the laws of the U.S., and we may encounter significant problems in protecting our proprietary rights in these countries. If these
developments were to occur, they could have a material adverse effect on our sales if any of our product candidates are approved in those
countries. Our ability to enforce our patent rights depends on our ability to detect infringement. It is difficult to detect infringers who do not
advertise the components that are used in their products. Moreover, it may be difficult or impossible to obtain evidence of infringement in a
competitor’s or potential competitor’s product. Any litigation to enforce 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 from 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
meaningful.
In addition, proceedings to enforce or defend our patents, if and when issued, could put our patents at risk of being invalidated, held
unenforceable, or interpreted 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 or product candidates is invalidated or found unenforceable, our financial position and results of operations may be materially and
adversely impacted. In addition, if a court found that valid, enforceable patents held by third parties covered our product candidates, our
financial position and results of operations may also be materially and adversely impacted.
The degree of future protection for 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 sufficient to protect our current
product candidates or any other products or product candidates;
any of our pending patent applications will issue as patents at all;
we will be able to generate significant revenue from sales of ZULRESSO or any of our product candidates, if successfully
developed and approved, before our relevant patents expire;
we were the first to make the inventions covered by each of our pending patent applications and any patents that may issue in the
future;
72
•
•
•
•
•
•
•
we were the first 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 effectively compete against us;
any of our patents, if issued or as issued, will provide us with a competitive advantage and be found ultimately to be valid and
enforceable;
any patents issued to us will provide a basis for an exclusive market for our commercially viable products, will provide us with any
competitive advantages or will not be challenged by third parties;
we will develop additional proprietary technologies or product candidates that are separately patentable; or
that our commercial activities or products will not infringe upon the patents or proprietary rights of others.
We may rely upon unpatented trade secrets and depend on unpatented know-how and continuing technological innovation to
develop and maintain our competitive position, which we seek to protect, in part, by confidentiality agreements with our employees and our
CROs, 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 competitors.
We may infringe the intellectual property rights of others, which may prevent or delay our product development efforts and stop us from
commercializing or increase the costs of commercializing ZULRESSO and our other product candidates, if approved.
Our success will depend in part on our ability to operate without infringing the intellectual property and proprietary rights of third
parties. We cannot assure you that our business, products and methods do not or will not infringe 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 products or product candidates or the use of our technologies infringes patent claims or other
intellectual property rights held by them or that we are employing their proprietary technology without authorization. As we continue to
develop our current product candidates and commercialize ZULRESSO and any future products, competitors may claim that our technology
infringes their intellectual property rights as part of business strategies designed to impede our successful commercialization. There may be
third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to
the use or manufacture of our product candidates. Because patent applications can take many years to issue, third parties may have currently
pending patent applications which may later result in issued patents that our product or product candidates may infringe, or which such third
parties claim are infringed by our technologies. The outcome of intellectual property litigation is subject to uncertainties that cannot be
adequately quantified in advance. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always
uniform. If we are sued for patent infringement, we would need to demonstrate that our product candidates, products or methods either do not
infringe the patent claims of the relevant patent or that the patent claims are invalid or unenforceable, 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 effect on us. In addition, we may not have
sufficient resources to bring these actions to a successful conclusion.
Patent and other types of intellectual property litigation can involve complex factual and legal questions, and their outcome is
uncertain. Patent litigation is costly and time-consuming. Any claim relating to intellectual property infringement that is successfully asserted
against us may require us to pay substantial damages, including treble damages and attorney’s fees if we are found to be willfully infringing
another party’s patents, for past use of the asserted intellectual property and royalties and other consideration going forward if we are forced
to take a license. In addition, if
73
any such claim were successfully asserted against us and we could not obtain such a license, we may be forced to stop or delay developing,
manufacturing, selling or otherwise commercializing our product or 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 infringing the intellectual property
rights of third parties, which may not be possible and, even if possible, could be costly and time-consuming. Even if we are successful in
these proceedings, we may incur substantial costs and divert management time and attention in pursuing these proceedings, which could have
a material adverse effect on us.
Any of these risks coming to fruition could have a material adverse effect on our business, results of operations, financial condition
and prospects.
We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.
We enter into confidentiality and intellectual property assignment agreements with our employees, consultants, CROs, outside
scientific collaborators, 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 effectively 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 employing institution or another party.
Most of our employees have also been previously employed at other biotechnology or pharmaceutical companies, including our
competitors or potential competitors. We also engage advisors and consultants who are concurrently employed at universities or who perform
services for other entities. We may be subject to claims that an employee, advisor or consultant performed work for us that conflicts with that
person’s obligations to a third party, such as an employer, and thus, that the third party has an ownership interest in the intellectual property
arising out of work performed for us.
Litigation may be necessary to defend 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 on our business. Even if we are
successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other
employees which could have a materially adverse effect on our business.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment
and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for
noncompliance with these requirements.
The U.S. PTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee
payment and other formalities and provisions during the patent process. There are situations in which noncompliance can result in
abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In
such an event, competitors might be able to enter the market earlier than would otherwise have been the case.
We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time-
consuming, and unsuccessful.
Even if the patent applications we own or license are issued, competitors may infringe 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
infringement proceeding, a court may decide that a patent of ours or our licensors is not valid, is unenforceable and/or is not infringed, or
may refuse to stop the other party from using the technology at issue on the grounds that our patents should be interpreted narrowly and do
not cover the technology in question. An adverse result
74
in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could
put our patent applications at risk of not issuing.
Interference proceedings or derivation 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 unfavorable outcome could require us to
cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the
prevailing party does not offer us a license on commercially reasonable terms. Our defense of litigation or interference proceedings may fail
and, even if successful, may result in substantial costs and distract our management and other employees. 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.
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 public
announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive
these results to be negative, it could have a material adverse effect on the price of our common stock.
Issued patents covering our product or any of our product candidates could be found invalid or unenforceable if challenged in court.
If we or one of our collaborators or licensors initiated legal proceedings against a third party to enforce a patent, if and when issued,
covering our product or any of our product candidates, the defendant could counterclaim that the patent covering our product or any of our
product candidates is invalid and/or unenforceable. In patent litigation in the U.S., defendant counterclaims alleging invalidity and/or
unenforceability are commonplace. Grounds for a validity challenge include alleged failures to meet any of several statutory requirements,
including lack of novelty, obviousness, lack of written description, or non-enablement. Grounds for unenforceability assertions include
allegations that someone connected with prosecution of the patent withheld relevant information from the U.S. PTO, or made a misleading
statement, during prosecution. Third parties may also raise similar claims before 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, inter partes review, derivation
proceedings or interferences and equivalent proceedings in foreign jurisdictions, e.g., opposition or revocation 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. For example, our granted European patent covering brexanolone i.v. has been opposed by a third party, and the opposition
proceedings are ongoing. The outcome following legal assertions of invalidity and unenforceability 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 defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps
all, of the patent protection on the applicable product or product candidates. Such a loss of patent protection would have a material adverse
impact on our business.
We will not seek to protect our intellectual property rights in all jurisdictions throughout the world and we may not be able to adequately
enforce our intellectual property rights even in the jurisdictions where we seek protection.
Filing patent applications and prosecuting and defending 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 those in the U.S., assuming that rights are obtained in the U.S. In addition, the laws of some foreign 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 foreign jurisdictions are based on the priority
date of each of our patent applications.
Competitors may use our technologies in jurisdictions where we do not pursue patent protection. They may pursue and obtain their
own patent protection to develop their own products. Further, they may export otherwise infringing products to territories where we have
patent protection, but enforcement is not as strong as that in the U.S.
75
These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to
prevent them from competing. Even if we pursue and obtain issued patents in particular jurisdictions, our patent claims or other intellectual
property rights may not be effective or sufficient to prevent third parties from so competing.
The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the U.S. Many
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 favor the enforcement of patents and other intellectual property
protection, especially those relating to biotechnology and pharmaceuticals. For example, a 2021 report from the Office of the U.S. Trade
Representative identified a number of countries, including India and China, where challenges to the procurement and 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 difficult for us to stop the infringement of our patents, if obtained, or the misappropriation of our other intellectual property rights in such
jurisdictions. Many foreign 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 benefit. 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 benefit of patent protection in such countries.
Furthermore, proceedings to enforce our patent rights in foreign jurisdictions could, among other things, result in substantial costs
and divert our efforts and attention from 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 meaningful.
Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial
advantage from the intellectual property that we develop or license.
For ZULRESSO and certain of our product candidates, we are dependent on licensed intellectual property. If we were to lose our rights
to licensed intellectual property, we may not be able to continue developing or commercializing certain of our products or product
candidates, if approved. If we breach any of the agreements under which we license the use, development and commercialization rights to
our product candidates or technology from third parties or, in certain cases, we fail to meet certain development deadlines, we could lose
license rights that are important to our business.
We are a party to a number of license agreements under which we are granted rights to intellectual property that are important to our
business and we expect that we may need to enter into additional license agreements in the future. Our existing license agreements impose,
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 fail to comply with our obligations under these agreements, or we are
subject to a bankruptcy, the licensor may have the right to terminate the license, in which event we would not be able to market products
covered by the license. Our business could suffer, for example, if any current or future licenses terminate, if the licensors fail to abide by the
terms of the license, if the licensed patents or other rights are found to be invalid or unenforceable, or if we are unable to enter into necessary
licenses on acceptable terms.
As we have done previously, we may need to obtain licenses from third parties to advance our research or allow commercialization
of our product candidates, and we cannot provide any assurances that third-party patents do not exist that might be enforced against our
current product candidates or future 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 competitors access to the same
technologies licensed to us. If we fail to obtain a license, we may be required to expend significant time and resources to develop or license
replacement technology. If we are unable to do so, we may be unable to develop or commercialize the affected product candidates, which
could materially harm our business and the third parties owning such intellectual property rights 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 forms of compensation.
76
Licensing of intellectual property is of critical importance to our business and involves complex legal, business and scientific
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 infringe on intellectual property of the licensor that is not subject to
the licensing agreement;
our right to sublicense patent and other rights to third parties under licenses or collaborative development relationships;
our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of
our product candidates, and what activities satisfy those diligence obligations; and
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 successfully commercialize our product or to successfully develop and
commercialize the affected product candidates.
We have entered into several licenses to support our various programs. We may enter into additional licenses to third-party
intellectual property that are necessary or useful to our business. Our current licenses and any future licenses that we may enter into impose
various royalty payment, milestone, and other obligations on us. For example, the licensor may retain control over patent prosecution and
maintenance under a license agreement, in which case, we may not be able to adequately influence patent prosecution or prevent inadvertent
lapses of coverage due to failure to pay maintenance fees. If we fail to comply with any of our obligations under a current or future 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 future licenses could
result in our loss of the right to use the licensed intellectual property, which could materially adversely affect our ability to develop a product
candidate or commercialize a product, as well as harm our competitive business position and our business prospects.
In addition, if our licensors fail to abide by the terms of the license, if the licensors fail to prevent infringement by third parties, if
the licensed patents or other rights are found to be invalid or unenforceable, or if we are unable to enter into necessary licenses on acceptable
terms, our business could materially suffer.
Some intellectual property which we have licensed may have been discovered through government funded programs and thus may be
subject to federal regulations such as “march-in” rights, certain reporting requirements, and a preference for U.S. industry. Compliance
with such regulations may limit our exclusive rights, subject us to expenditure of resources with respect to reporting requirements, and
limit our ability to contract with non-U.S. manufacturers.
Some of the intellectual property rights we have licensed may have been generated through the use of U.S. government funding and
may therefore be subject to certain federal regulations. For example, some of the intellectual property rights licensed to us under the license
agreement with The Regents of the University of California 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 product or current or future product candidates pursuant
to the Bayh-Dole Act of 1980, or Bayh-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 these
inventions to a third party if the government determines that: (i) adequate steps have not been taken to commercialize the invention;
(ii) government action is necessary to meet public health or safety needs; or (iii) government action is necessary to meet requirements for
public use under federal regulations (also referred to as “march-in rights”).
77
The U.S. government also has the right to take title to these inventions if we fail, or the applicable licensor fails, to disclose the invention to
the government and fail to file an application to register the intellectual property within specified 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 specified time limits.
Intellectual property generated under a government funded program is also subject to certain reporting requirements, compliance with which
may require us, or the applicable licensor, to expend substantial resources. In addition, the U.S. government requires that any products
embodying the subject invention or produced through the use of the subject invention be manufactured substantially in the U.S. The
manufacturing preference requirement can be waived if the owner of the intellectual property can show that reasonable but unsuccessful
efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the U.S.
or that under the circumstances domestic manufacture is not commercially feasible. This preference for U.S. manufacturers may limit our
ability to contract with non-U.S. product manufacturers for products covered by such intellectual property.
If we enter into future arrangements involving government funding, and we discover compounds or product candidates as a result of
such funding, intellectual property rights to such discoveries may be subject to the applicable provisions of the Bayh-Dole Act.
If we do not obtain new chemical entity or other types of marketing and data exclusivity for our product candidates and if we do not
obtain additional protection under the Hatch-Waxman Amendments and similar foreign legislation by extending the patent terms of our
product candidates, our business may be materially harmed.
Marketing exclusivity provisions under the Federal Food, Drug, and Cosmetic Act, or FDCA, can delay the submission or the
approval of certain marketing applications by other companies for a product with the same active moiety as a product we sell or may in the
future sell. The FDCA provides a five-year period of non-patent marketing exclusivity within the U.S. to the first applicant to obtain approval
of an NDA for a new chemical entity, or NCE. During the exclusivity period, the FDA may not accept for review an abbreviated new drug
application, or ANDA, or a 505(b)(2) NDA submitted by another company for another drug based on the same active moiety, regardless of
whether the drug is intended for the same indication as the original innovator drug or for another indication, where the applicant does not
own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it
contains a certification 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 full NDA, or supplement to an existing NDA, if new clinical investigations,
other 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, for example 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 ANDAs for drugs containing the active agent for the original indication or condition of use. We have obtained NCE exclusivity for
brexanolone and plan to seek NCE exclusivity for our current and future product candidates. There is no guarantee that our product
candidates will qualify for marketing or data exclusivity under these provisions or that such exclusivity for any of our products will alone be
sufficient for our business. The applicable five-year and three-year exclusivity periods of NCE or data exclusivity under the FDCA will not
delay the submission or approval of a full NDA.
Depending upon the timing, duration and specifics of FDA marketing approval of our product candidates, one or more of the U.S.
patents we own or license may be eligible for limited patent term restoration in the future under the Drug Price Competition and Patent Term
Restoration Act of 1984, referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term
of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. Even if, at the
relevant time, we have a valid issued patent covering our product, we may not be granted an extension if we were to fail to satisfy applicable
requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable
to obtain patent term extension or restoration or the term of any such extension is less than we request, and we do not have any other
exclusivity, our competitors may obtain approval of competing products following our patent expiration and our business, financial condition
or results of operations could be adversely affected.
78
Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.
Our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biotechnology
industry involves both technological and legal complexity, and is therefore costly, time-consuming and inherently uncertain. In addition, the
U.S. has recently enacted wide-ranging patent reform legislation: the Leahy-Smith America Invents Act, referred to as the America Invents
Act. The America Invents Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way
patent applications are prosecuted and may also affect patent litigation. It is not yet clear what, if any, impact the America Invents Act will
have on the operation of our business. However, the America Invents Act and its implementation could increase the uncertainties and costs
surrounding the prosecution of our patent applications and the enforcement or defense of any patents that may issue from our patent
applications, all of which could have a material adverse effect on our business and financial condition.
In addition, U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and
weakened the rights of patent owners in certain situations. For example, in March 2012, in Mayo Collaborative Services, DBA Mayo Medical
Laboratories, et al. v. Prometheus Laboratories, Inc., the U.S. Supreme Court held that several claims drawn to measuring drug metabolite
levels from patient samples and correlating them to drug doses were not patentable subject matter. The decision appears to impact diagnostics
patents that merely apply a law of nature via a series of routine steps and it has created uncertainty around the ability to obtain patent
protection for certain inventions. Additionally, in June 2013, in Association for Molecular Pathology v. Myriad Genetics, Inc., the U.S.
Supreme Court held that claims to isolated genomic DNA are not patentable, but claims to complementary DNA molecules are patent
eligible because they are not a natural product. In June 2014, in Alice Corporation Pty. Ltd. v. CLS Bank International, et al., a case involving
patent claims directed to a method for mitigating settlement risk, the U.S. Supreme Court held that the patent eligibility of claims directed to
abstract ideas, products of nature, and laws of nature should be determined using the same framework set forth in Prometheus. The U.S. PTO
has issued a set of guidelines setting forth procedures for determining subject matter 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. The full impact of these decisions on our business is not yet known.
In addition to increasing uncertainty with regard to our ability to obtain future 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 unpredictable ways that would weaken our ability to
obtain new patents or to enforce any patents that may issue in the future.
Proposed legislation in Congress, if passed into law, could limit the patent exclusivity on our products or facilitate earlier entry of generic
competition.
Members of Congress have proposed numerous legislative initiatives aimed at limiting the patent exclusivity on drug products or
facilitating earlier entry of generic versions of approved drugs. Examples of bills that have been proposed include a bill that, if passed, would
create a presumption of invalidity for patents beyond the first patent covering a drug product thus shifting the burden to the innovator to
prove that these subsequent patents are separately patentable inventions, distinct from the first patent; a bill that, if passed, would empower
the Federal Trade Commission to investigate whether large patent portfolios covering a drug product constitute an anti-competitive practice
and to file antitrust lawsuits in such instances; and a bill that, if passed, would limit the availability of a 30-month stay on approval by the
FDA of a generic version of a drug to only those instances where the ANDA litigation involves a composition of matter patent claiming the
drug substance. Such legislation, if passed into law, could adversely affect ZULRESSO or any future products or result in earlier entry into
the market of generic versions of our drugs.
79
Risks Related to our Industry
Healthcare regulations aimed at reducing healthcare costs may have a material adverse effect on our business or results of operation.
There have been, and likely will continue to be, legislation and legislative, administrative and regulatory proposals in the U.S., both
at the federal and state level, and in many foreign jurisdictions aimed at reducing healthcare costs. The implementation of unreasonable cost
containment measures, drug pricing controls or other reforms that do not recognize the clinical value of innovative medicines could have an
adverse effect on our revenue from ZULRESSO, zuranolone, if approved, or from the sales of any other products that are successfully
developed and approved, and may limit our ability to achieve profitability.
For example, in March 2010, the ACA was passed, which substantially changed the way healthcare is financed by both
governmental and private insurers, and significantly impacted the U.S. pharmaceutical industry. The ACA, among other things, subjects
biological products to potential competition by lower-cost biosimilars, provided a new methodology by which rebates owed by manufacturers
under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, increased the
minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to individuals
enrolled in Medicaid managed care organizations, established annual fees and taxes on manufacturers of certain branded prescription drugs,
and created a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 70% (pursuant to the
Bipartisan Budget Act of 2018, effective as of 2019) point-of-sale discounts off negotiated prices of applicable brand drugs to eligible
beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D.
Certain provisions of the ACA have been subject to judicial challenges as well as efforts to repeal or replace them or to alter their
interpretation or implementation. For example, the U.S. Tax Cuts and Jobs Act of 2017, signed into law in December 2017, included a
provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who
fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” We expect that
the ACA, its implementation, efforts to repeal or replace, or invalidate the ACA or portions thereof, and other healthcare reform measures
that may be adopted in the future, could have a material adverse effect on our industry generally and on our ability to commercialize our
product candidates, if approved.
There has been increasing legislative and enforcement interest in the U.S. with respect to drug pricing practices. Specifically, there
have been several U.S. Congressional inquiries and proposed federal and state legislation designed to, among other things, bring more
transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer
patient programs, and reform government program reimbursement methodologies for drugs. There have been multiple Congressional and
administrative efforts to address drug pricing. It is unclear whether any such legislation or other public policy will come to pass, and if so,
what effect it could have on our business. At the state level, legislatures have increasingly passed legislation and implemented regulations
designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts,
restrictions on certain product access and marketing cost disclosure and price transparency measures, and, in some cases, designed to
encourage importation from other countries and bulk purchasing.
There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels directed
at containing or lowering the cost of healthcare or limiting exclusivity periods for pharmaceutical products. We cannot predict the initiatives
that may be adopted in the future. The continuing efforts of the government, insurance companies, managed care organizations and other
payors of healthcare services to contain or reduce costs of healthcare and/or impose price controls may adversely affect:
•
•
•
•
•
the demand for ZULRESSO and for zuranolone or any of our other product candidates, if approved;
our ability to receive or set a price that we believe is fair for our products;
our ability to generate revenue and achieve or maintain profitability;
the amount of taxes that we are required to pay; and
the availability of capital.
80
We expect that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in additional
reductions in Medicare and other healthcare funding, more rigorous coverage criteria, lower reimbursement, and new payment
methodologies. This could lower the price that we receive for any approved product. Any denial in coverage or reduction in reimbursement
from Medicare or other government-funded programs may result in a similar denial or reduction in payments from private payors, which may
prevent us from being able to generate sufficient revenue from sales of ZULRESSO, successfully commercialize any products approved in
the future, and achieve profitability.
Our internal computer systems or networks, or cloud platforms or those of our collaborators, our third-party CROs or our other
contractors, consultants or service providers, may fail or suffer security breaches, which could result in a material disruption of our
development programs, compromise personal or sensitive information related to our business, or cause us to incur significant liabilities
which could adversely impact our business.
We are increasingly dependent upon information technology systems, infrastructure and data to operate our business, and despite
the implementation of security measures, our internal computer systems and those of our collaborators, our third-party CROs and our other
contractors, consultants and service providers are vulnerable to cyber security threats, including damage from unauthorized access, theft,
natural disasters, terrorism, war, telecommunication and electrical failures, and system malfunction, or from cyber-attacks by malicious third
parties (including the deployment of harmful malware, ransomware, viruses, worms, denial-of-service attacks, supply chain attacks, social
engineering schemes and other means to affect service reliability and threaten the confidentiality, integrity and availability of information). If
such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our programs or cause us to
have liability for disclosure of personal information of our customers. For example, the loss of clinical trial data for our product candidates
could result in delays in our regulatory submission and approval efforts and significantly increase our costs to recover or reproduce the data,
if possible. To the extent that any disruption, disaster or security breach results 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 confidential or proprietary information, we
could incur liabilities and the further development of our product candidates could be delayed or prevented.
We could be required to expend significant amounts of money and other resources to respond to these threats or breaches and to
repair or replace information systems or networks or cloud platforms. We also could suffer financial loss or the loss of valuable confidential
information. In addition, we could be subject to regulatory actions and/or claims made by individuals and groups in private litigation
involving privacy issues related to data collection and use practices and other data privacy laws and regulations, including claims for misuse
or inappropriate disclosure of data, as well as unfair or deceptive acts or practices in violation of Section 5(a) of the Federal Trade
Commission Act, or the FTC Act. The Federal Trade Commission, or the FTC, expects a company’s data security measures to be reasonable
and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business, and the cost
of available tools to improve security and reduce vulnerabilities. Individually identifiable health information is considered sensitive data that
merits stronger safeguards. The guidance of the FTC for appropriately securing consumers’ personal information is similar to what is
required by the HIPAA Security Rule, which establishes national standards for covered entities to protect individuals’ electronic personal
health information. The HIPAA Security Rule requires covered entities to have appropriate administrative, physical and technical safeguards
to help ensure the confidentiality, integrity, and security of electronic protected health information. Enforcement by the FTC under the FTC
Act can result in civil penalties or enforcement actions.
Although we develop and maintain systems and controls designed to prevent these events from occurring and we have a process to
identify and mitigate threats, the development and maintenance of these systems, controls and processes are costly and require ongoing
monitoring and updating as technologies change and efforts to overcome security measures become increasingly sophisticated. Moreover, we
cannot guarantee that our, or our third-party CROs’ or our other contractors’, consultants’ or service providers’ security measures will be
sufficient to prevent data loss and other security breaches. Despite our efforts, the possibility of these events occurring cannot be eliminated
entirely and there can be no assurance that any measures we take will prevent cyber-attacks or security breaches that could adversely affect
our business, including security breaches that may remain undetected for extended periods of time, which can substantially increase the
potential for a material adverse impact resulting from the breach.
81
Risks Related to Our Financial Position and Need for Capital
We are a biopharmaceutical company with a limited operating history, and have not generated significant revenue to date. We have
incurred significant operating losses since our inception, and anticipate that we will incur losses for the foreseeable future.
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. We have only one approved product, and only began generating revenue from product sales in the second quarter of 2019.
We have funded our operations to date primarily through proceeds from sales of common stock, including the sale of stock to
BIMA; redeemable convertible preferred stock prior to our initial public offering and, to a lesser extent, the issuance of convertible notes.
From our inception through December 31, 2021, we had received aggregate net proceeds of $2.8 billion from such transactions. We also
received $1.0 billion in upfront payments under our collaborations with Biogen and Shionogi. As of December 31, 2021, our cash, cash
equivalents and marketable securities were $1.7 billion. We have incurred net losses in each year since our inception, except for net income
of $606.1 million for the year ended December 31, 2020, reflecting revenue recognized under a collaboration and license agreement with
Biogen. Our net loss was $457.9 million for the year ended December 31, 2021, and our accumulated deficit was $1.5 billion as of
December 31, 2021.
Substantially all of our operating losses have resulted from costs incurred in connection with our research and development
programs and from selling, general and administrative costs associated with our operations. We expect to incur increasing levels of operating
losses over the next several years and for the foreseeable future. Our prior losses, combined with expected future losses, have had, and will
continue to have, an adverse effect on our stockholders’ equity and working capital. We expect our research and development expenses to
significantly increase, particularly as we advance our product candidates in non-clinical studies and clinical trials, seek regulatory approval
for zuranolone and any other product candidates that successfully complete clinical development, and continue our discovery efforts. We also
incur significant selling, general and administrative costs in support of ongoing commercialization efforts with respect to ZULRESSO and in
connection with other activities, including permitted pre-launch and launch-readiness activities associated with zuranolone and other product
candidates as they advance in development. In addition, if we obtain marketing approval for zuranolone or any of our other current or future
product candidates beyond ZULRESSO, we will incur significant sales, marketing and outsourced-manufacturing expenses. We incur
significant legal and accounting costs associated with operating as a public company. We expect to continue to incur additional significant
and increasing operating losses for 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, if at all. Even if we do
become profitable, we may not be able to sustain or increase our profitability on a quarterly or annual basis.
Our ability to become profitable depends upon our ability to generate product revenue. We began to generate revenue from product
sales in the second quarter of 2019 in conjunction with launch of our first product, ZULRESSO, which commenced in June 2019. We expect
that our revenue opportunity for ZULRESSO will continue to be limited. Our ability to generate significant product revenue from any future
approved product depends on a number of factors, including, but not limited to:
•
•
our ability to successfully file NDAs with the FDA for approval of zuranolone in MDD and PPD, and to gain marketing approval of
zuranolone in those indications, in each case on the timelines we expect;
our ability to initiate and successfully complete all efficacy and safety clinical trials and non-clinical studies required to file for, and
obtain, U.S. and foreign marketing approval for our other product candidates; and our ability to file for and receive marketing
approval to commercialize our product candidates, if successfully developed; and
82
•
with respect to an approved product, our ability, alone or with collaborators, to commercialize the product by developing and
effectively deploying a sales force, and to achieve market acceptance and satisfactory reimbursement of such product in the medical
community, with patients and with third-party payors.
If we are unable to generate significant product revenue, we will not become profitable, and may be unable to continue operations
without continued funding.
We expect we will need to raise additional funding at some point in the future, which may not be available on acceptable terms, or at all.
Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our product development efforts or other
operations. Even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital if market
conditions are favorable or in light of other strategic considerations. To the extent that we raise additional capital through the sale of
common stock or securities convertible or exchangeable into common stock, the ownership interest of our stockholders in our company
will be diluted.
We are currently commercializing ZULRESSO, preparing to file for marketing approval of zuranolone in the U.S. and beginning
permitted pre-launch and launch-readiness activities associated with zuranolone’s potential approval, and advancing our other product
candidates through non-clinical and clinical development. Commercializing a product and developing additional small molecule products are
expensive. We expect our research and development expenses to increase significantly, particularly as we advance our product candidates in
non-clinical studies and clinical trials and continue our discovery efforts. We also incur significant expenses in connection with the
commercialization of ZULRESSO and in connection with other activities, including permitted pre-launch and launch-readiness activities
associated with zuranolone, and would expect commercialization expenses to increase significantly to commercialize other products,
including zuranolone, if approved. We expect we will require additional capital in the future to fund operating needs. We may need to raise
additional funds sooner if we choose to pursue additional indications and/or geographies for our product candidates, conduct additional
clinical trials for indications we are already pursuing beyond the anticipated trials, identify new potential opportunities or otherwise expand
our activities more rapidly than we presently anticipate.
As of December 31, 2021, our cash, cash equivalents and marketable securities were $1.7 billion. Based on our current operating
plans, we expect that our existing cash, cash equivalents and marketable securities, in addition to ongoing collaboration funding, will be
sufficient to fund our anticipated level of operations for at least the next 24 months from the filing date of this Annual Report. Our current
operating plan does not contemplate 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 completed 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 funds
sooner than planned, through equity or debt financings, government or other third-party funding, marketing and distribution arrangements
and other collaborations, strategic alliances and licensing arrangements or a combination of these approaches. In any event, we anticipate we
will require additional capital to expand future development efforts for, obtain regulatory approval for, and to commercialize our product
candidates. If current or future economic conditions impact capital markets for an extended period, or if our business prospects are impaired
or the capital markets disrupted for any other reason, additional capital may not be available to us on acceptable terms, or at all. Failure to
obtain capital if and when needed may force us to delay, limit or terminate our product development efforts or other operations. Even if we
believe we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable
or in light of other strategic considerations.
We cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. In the event
we receive negative data from our key clinical programs or encounter other major setbacks in our development or regulatory activities or in
our commercialization efforts, our stock price is likely to decline which would make a future financing more difficult and potentially more
dilutive to our existing stockholders. For example, after the announcement of the topline results of the Phase 3 MOUNTAIN Study of
zuranolone on December 5, 2019, our stock price declined significantly. Moreover, the terms of any financing may adversely affect the
holdings or the rights of our stockholders. 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 incurrence of indebtedness would result in increased fixed payment
obligations, and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur
83
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 unfavorable to us, any of which may have a material adverse effect on our
business, operating results and prospects.
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 stockholders in our company will be diluted. Debt financing, if available, would increase our
fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such
as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaboration, strategic
partnerships and licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates, our
intellectual property, future revenue streams or grant licenses on terms that are not favorable to us.
If we are unable to obtain funding 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 approved product, or be unable to expand our operations or otherwise
capitalize on our business opportunities, as desired, which could materially affect our business, financial condition and results of operations.
Risks Related to Our Common Stock
Market volatility may affect our stock price and the value of an investment in our stock.
The market price for our common stock, similar to that of other biopharmaceutical companies, is volatile. The market price of our
common stock may fluctuate significantly in response to a number of factors, most of which we cannot control, including, among others:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the results of our commercialization efforts with respect to ZULRESSO, and our ability to attain commercial success;
plans for, progress of, timing of, changes to, delays in or results from clinical trials or non-clinical studies of any of our product
candidates, including positive or negative key data from such studies or clinical trials, serious adverse events arising in the course of
development, or any delays or major announcements related to such studies or trials;
the success or failure of any regulatory activities with respect to our product candidates, including our planned submission of an
NDA to the FDA seeking approval of zuranolone for the treatment of MDD in the second half of 2022 and the planned submission
of an associated NDA filing for the treatment of PPD in the first half of 2023, and whether or not we receive FDA approval of
zuranolone in such indications;
the impact of the COVID-19 pandemic;
announcements of new products, technologies, commercial relationships, acquisitions, collaborations or other events by us or our
competitors;
the success or failure of our therapies;
regulatory or legal developments in the U.S. and other countries;
adverse developments with respect to our intellectual property portfolio or failure to obtain or loss of exclusivity;
failure of our future product candidates, if successfully developed and approved, to achieve commercial success;
fluctuations in stock market prices and trading volumes of similar companies;
the state of the U.S. and world economies, general market conditions and overall fluctuations in U.S. equity markets, including as a
result of U.S. or world events;
changes in healthcare laws affecting pricing, reimbursement or access;
variations in our quarterly operating results;
changes in our financial guidance or securities analysts’ estimates of our financial performance;
84
•
•
•
•
•
•
changes in accounting principles;
our ability 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 officers, 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 factors.
We have broad discretion in how we use our existing cash and the proceeds from potential future follow-on public offerings, and may not
use such cash and proceeds effectively, which could affect our results of operations and cause our stock price to decline.
We have considerable discretion in the use of our cash and the application of the net proceeds from potential future follow-on public
offerings. We may use cash and net proceeds for purposes that do not yield a significant return or any return at all for our stockholders. In
addition, pending their use, we may invest the net proceeds from any potential future follow-on offerings in a manner that does not produce
income or that loses value.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, even one that may be
beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current
management.
Provisions in our amended and restated certificate 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 actions by written
consent of our stockholders and the ability of our board of directors to issue preferred stock without stockholder 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 ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us. Although we
believe these provisions collectively provide for an opportunity to obtain greater value for stockholders by requiring potential acquirers to
negotiate with our board of directors, they would apply even if an offer rejected by our board were considered beneficial by some
stockholders. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current
management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing
the members of our management.
Future sales of our common stock may cause our stock price to decline.
Sales of a substantial number 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 impair our ability to raise adequate capital through the sale of
additional equity securities. For example, the 6,241,473 shares of our common stock held by BIMA are subject to an 18-month lockup
period, which expires June 30, 2022, after which BIMA will be able to sell a certain amount of its shares, subject to certain sales and volume
limitations, or, if BIMA requests registration of its shares pursuant to its registration rights, without such sales and volume limitations.
Following a second 18-month period, which expires December 31, 2023, BIMA will be able to sell shares without limitation.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our corporate headquarters are located in Cambridge, Massachusetts. We lease 63,017 square feet of office space in a multi-tenant
building pursuant to a lease dated as of December 2011, as amended in March 2019, that will expire on August 31, 2024.
85
In May 2016, we entered into a lease, as amended in April 2018, under which we rent 40,419 square feet of additional office space in a
separate multi-tenant building in Cambridge, Massachusetts. The term for this lease will expire on August 31, 2024.
We have entered into other non-material leases and may lease additional space prior to the expiration of our leases to meet the needs of
the business.
Item 3. Legal Proceedings
We are not a party to any legal proceedings, and we are not aware of any material claims or actions pending or threatened against us. In
the future, we might from time to time become involved in litigation relating to claims arising from our ordinary course of business, the
resolution of which we do not anticipate would have a material adverse impact on our financial position, results of operations or cash flows.
Item 4. Mine Safety Disclosures
Not applicable.
86
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
On July 18, 2014, our common stock began trading on the Nasdaq Global Market under the symbol “SAGE”. Prior to that time, there was no
PART II
public market for our common stock.
Stockholders
As of February 16, 2022, there were five stockholders of record of our common stock. The actual number of holders of our common
stock is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares 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 by other entities.
Performance Graph
The following graph illustrates a comparison of the total cumulative stockholder return for our common stock since January 1, 2017
through December 31, 2021, to two indices: the Nasdaq Composite Index and the Nasdaq Biotechnology Index. The graph assumes an initial
investment of $100 on December 31, 2016 in our common stock, the stocks comprising the Nasdaq Composite Index, and the stocks
comprising the Nasdaq Biotechnology Index. Historical stockholder return is not necessarily indicative of the performance to be expected for
any future periods.
Comparison of Cumulative Total Return*
Among Sage Therapeutics, Inc., the Nasdaq Composite Index and the Nasdaq Biotechnology Index
*
$100 invested on December 31, 2016 in stock or index.
The performance graph shall not be deemed to be incorporated by reference by means of any general statement incorporating by
reference this Annual Report 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 reference, and shall not otherwise be deemed filed under
such acts.
87
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 foreseeable future. We intend to retain all available funds and any future earnings to fund the development and
expansion of our business. Any future determination to pay dividends will be at the discretion of our board of directors and will depend upon
a number of factors, including our results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by
applicable law and other factors that our board of directors deems relevant.
Issuer Purchases of Equity Securities
We did not purchase any of our registered equity securities during the period covered by this Annual Report.
Item 6. [Reserved]
88
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our
consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K, or Annual Report. In addition
to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions.
We caution you that forward-looking statements are not guarantees of future performance, and that our actual results of operations, financial
condition and liquidity, and the developments in our business and the industry in which we operate, may differ materially from the results
discussed or projected in the forward-looking statements contained in this Annual Report. We discuss risks and other factors that we believe
could cause or contribute to these potential differences elsewhere in this report, including under Part I, Item 1A, “Risk Factors” and under
“Cautionary Note Regarding Forward-Looking Statements” in this Annual Report. In addition, even if our results of operations, financial
condition and liquidity, and the developments in our business and the industry in which we operate are consistent with the forward-looking
statements contained in this Annual Report, they may not be predictive of results or developments in future periods. We caution readers not to
place undue reliance on any forward-looking statements made by us, as such statements speak only as of the date they are made. We disclaim
any obligation, except as specifically required by law and the rules of the Securities and Exchange Commission, or SEC, to publicly update
or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such
statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking
statements.
Information pertaining to fiscal year 2019 was included in the Company’s Annual Report on Form 10-K for the year-ended December
31, 2020, on pages 82 through 100, under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” which was filed with the SEC on February 24, 2021.
Overview
We are a biopharmaceutical company committed to developing and commercializing novel medicines with the potential to transform
the lives of people with debilitating disorders of the brain. Our first product, ZULRESSO® (brexanolone) CIV injection, is approved in the
U.S. for the treatment of postpartum depression, or PPD, in adults. We have a portfolio of other product candidates with a current focus on
modulating two critical central nervous system, or CNS, receptor systems, GABA and NMDA. The GABA receptor family, which is
recognized as the major inhibitory neurotransmitter in the CNS, mediates downstream neurologic and bodily function via activation of
GABAA receptors. The NMDA-type receptors of the glutamate receptor system are a major excitatory receptor system in the CNS.
Dysfunction in these systems is implicated in a broad range of CNS disorders. We are currently targeting diseases and disorders of the brain
with three key focus areas: depression, neurology and neuropsychiatry.
Our first product, ZULRESSO, is a proprietary intravenous formulation of brexanolone, approved in the U.S. as a treatment for PPD in
adults. Brexanolone is chemically identical to allopregnanolone, a naturally occurring neuroactive steroid that acts as a positive allosteric
modulator of GABAA receptors. We launched ZULRESSO commercially in the U.S. for the treatment of PPD in June 2019. Currently,
ZULRESSO may only be administered in qualified, medically-supervised healthcare settings. We have initiated an open-label clinical trial
designed to assess the potential for safe-use administration of ZULRESSO in a patient’s home for the treatment of PPD, known as the
SUNBIRD Study, which is anticipated to be completed in late 2022.
Our next most advanced product candidate is zuranolone (SAGE-217), a novel oral compound being developed for certain affective
disorders, including major depressive disorder, or MDD, and PPD. Zuranolone is a neuroactive steroid that, like brexanolone, is a positive
allosteric modulator of GABAA receptors, targeting both synaptic and extrasynaptic GABAA receptors. We plan to submit a new drug
application, or NDA, to the U.S. Food and Drug Administration, or FDA, in the second half of 2022 seeking approval of zuranolone for the
treatment of MDD. An associated NDA filing seeking approval of zuranolone for PPD is anticipated in the first half of 2023, pending the
completion and results of the ongoing SKYLARK Study in PPD. The FDA granted Fast Track designation to zuranolone in PPD in early
2022, and previously granted zuranolone Breakthrough Therapy designation and Fast Track designation to zuranolone for the treatment of
MDD.
89
To date, we have completed five pivotal clinical trials of zuranolone, four in MDD and one in PPD. The completed pivotal trial
evaluating zuranolone for the treatment of PPD and three of the four completed pivotal trials evaluating zuranolone for the treatment of MDD
met their primary endpoints. We announced results from the following pivotal clinical trials of zuranolone in either 2021 or early 2022:
•
CORAL Study (completed)
On February 16, 2022, we announced results from the CORAL Study, a placebo-controlled Phase 3 clinical trial evaluating a two-
week course of zuranolone 50 mg, when co-initiated with a newly administered open-label standard antidepressant therapy, or ADT,
compared with open-label standard of care ADT co-initiated with placebo, as an acute rapid response treatment in patients with
MDD. Patients in the clinical trial received zuranolone 50 mg co-initiated with an open-label standard of care ADT or open-label
standard of care ADT co-initiated with placebo once nightly for 14 days followed by continuation of the ADT for an additional
short-term follow-up period. In the CORAL Study, zuranolone 50 mg co-initiated with an ADT met the primary endpoint of
statistically significant reduction in depressive symptoms at Day 3 and met the key secondary endpoint of a statistically significant
improvement in depressive symptoms over the two-week treatment period, in each case as compared to ADT co-initiated with
placebo.
• WATERFALL Study (completed)
In June 2021, we announced that the WATERFALL Study, a pivotal, Phase 3, double-blind, randomized, placebo-controlled clinical
trial evaluating the efficacy and safety of zuranolone 50 mg in adults aged 18 to 64 years with MDD, met its primary endpoint.
•
SHORELINE Study (ongoing)
In 2021, we reported positive topline 12-month data from both the 30 mg cohort and the 50 mg cohort of the SHORELINE Study,
an open-label Phase 3 clinical trial of zuranolone in MDD, which is designed to evaluate the safety, tolerability, and need for repeat
dosing of zuranolone in adults for up to one year. Enrollment in the 50 mg cohort of the study is ongoing.
The SKYLARK Study, a Phase 3 placebo-controlled clinical trial evaluating a two-week course of zuranolone 50 mg in women with
PPD, with additional short-term follow-up, is ongoing, and we expect to report topline results in mid-2022.
We are jointly developing zuranolone and another of our late-stage compounds, SAGE-324, in the U.S. with Biogen MA Inc., or
BIMA, and Biogen International GmbH, or, together with BIMA, Biogen, under a collaboration and license agreement, or the Biogen
Collaboration Agreement, that became effective in December 2020. Under the Biogen Collaboration Agreement, we will also jointly
commercialize products containing zuranolone, which we refer to as Licensed 217 Products, and products containing SAGE-324, which we
refer to as Licensed 324 Products, with Biogen in the U.S. if our development efforts are successful. We refer to the Licensed 217 Products
and Licensed 324 Products collectively as the Licensed Products. In addition, we have granted Biogen sole rights to develop and
commercialize the Licensed Products outside the U.S., other than in Japan, Taiwan and South Korea, or the Shionogi Territory, with respect
to zuranolone, where we have granted such rights to Shionogi & Co., Ltd., or Shionogi. We refer to the territories outside the U.S. to which
Biogen has rights under the Biogen Collaboration Agreement with respect to the applicable Licensed Product as the Biogen Territory.
Shionogi recently reported completion of a Phase 2 clinical trial of zuranolone for the treatment of patients with moderate to severe MDD in
Japan, which Shionogi reported achieved its primary endpoints.
In addition to zuranolone, we have a portfolio of other novel compounds that target GABAA receptors, including SAGE-324. SAGE-
324 is a novel GABAA receptor positive allosteric modulator intended for chronic oral dosing. In April 2021, we announced that our
placebo-controlled Phase 2 KINETIC Study evaluating SAGE-324 for the treatment of adults with essential tremor had achieved its primary
endpoint. We initiated a Phase 2b dose-ranging clinical trial of SAGE-324 in patients with essential tremor in late 2021, known as the
KINETIC 2 Study. Additional development plans for SAGE-324 will be determined as part of our strategic collaboration with Biogen. We
plan to initiate a Phase 2 clinical
90
trial evaluating the safety of SAGE-324 in patients with essential tremor in mid-2022. We believe SAGE-324 also has potential for the
treatment of a number of other neurological conditions, including epilepsy and Parkinson’s disease.
Our second area of focus for development is novel compounds that target the NMDA receptor. Our lead product candidate selected in
this area is SAGE-718, an oxysterol-based positive allosteric modulator of the NMDA receptor, which we are exploring in certain cognition-
related disorders associated with NMDA receptor dysfunction, including cognition dysfunction associated with diseases such as Huntington’s
disease, Parkinson’s disease and Alzheimer’s disease. We achieved development milestones in 2021 evaluating SAGE-718 for the treatment
of cognitive issues associated with Huntington’s disease, Parkinson’s disease and Alzheimer’s disease.
SAGE-718 is currently being studied in a double-blind placebo-controlled Phase 2 clinical trial of SAGE-718 in patients with
Huntington’s disease cognitive impairment, known as the DIMENSION Study. The DIMENSION Study is designed to evaluate the efficacy
of once-daily dosed SAGE-718 over three months. Dosing in the DIMENSION Study commenced in early 2022. We plan to initiate, in mid-
2022, a second placebo-controlled Phase 2 clinical trial of SAGE-718 in patients with Huntington’s disease cognitive impairment, with a
healthy volunteer component, known as the SURVEYOR Study, with the goal of generating evidence linking efficacy signals on cognitive
performance to domains of real-world functioning. We also plan to initiate a Phase 3 open-label study of SAGE-718 in patients with
Huntington’s disease cognitive impairment in late 2022. The FDA has granted SAGE-718 Fast Track designation as a potential treatment for
patients with Huntington’s disease.
We also achieved development milestones in 2021 evaluating SAGE-718 for the treatment of cognitive issues associated with
Parkinson’s disease and Alzheimer’s disease. In May 2021, we announced results from the first part of a Phase 2a open-label study of SAGE-
718 evaluating patients with mild cognitive impairment due to Parkinson’s disease, known as the PARADIGM Study. Data from the
PARADIGM Study showed that SAGE-718 had a positive impact on multiple domains of cognition, including executive function and
learning and memory, while leaving domains altering simple attention or reaction time unaffected. A four-week dosing cohort in the
PARADIGM Study is ongoing to gather additional data in the Parkinson’s disease patient population. We plan to initiate a placebo-controlled
Phase 2 clinical trial of SAGE-718 in patients with mild cognitive impairment due to Parkinson’s disease in mid-2022. In December 2021,
we reported topline data from a Phase 2a open-label clinical trial of SAGE-718 in patients with mild cognitive impairment and mild dementia
due to Alzheimer’s disease, known as the LUMINARY Study. Data from the LUMINARY Study showed treatment with SAGE-718 resulted
in consistent improvement across multiple tests of executive performance, as well as improvement on key tests of learning and memory. In
addition, SAGE-718 has been well-tolerated in studies to date. We also plan to initiate a randomized placebo-controlled Phase 2 clinical trial
of SAGE-718 in patients with mild cognitive impairment and mild dementia due to Alzheimer’s disease in late 2022.
We have other programs at earlier stages of development with a focus on both acute and chronic brain health disorders. We expect to
continue our work on allosteric modulation of the GABAA and NMDA receptor systems in the brain. The GABAA and NMDA receptor
systems are broadly accepted as impacting many psychiatric and neurological disorders, spanning disorders of mood, seizure, cognition,
anxiety, sleep, pain, and movement, among others. We believe that we may have the opportunity to develop molecules from our internal
portfolio with the goal of addressing a number of these disorders in the future. We also believe that we may have the opportunity to use our
scientific approach to explore targets beyond the GABAA and NMDA receptor systems and to develop compounds in areas of unmet need
outside of brain health.
We began to generate revenue from product sales in the second quarter of 2019 in conjunction with the launch of our first product,
ZULRESSO, in June 2019. In the fourth quarter of 2020, we recorded revenue from the strategic collaboration with and stock purchase by
Biogen.
We have incurred net losses in each year since our inception, except for net income of $606.1 million for the year ended December 31,
2020, reflecting revenue recognized under the Biogen Collaboration Agreement, and we had an accumulated deficit of $1.5 billion as of
December 31, 2021. Our net losses were $457.9 million and $680.2 million for the years ended December 31, 2021 and 2019, respectively.
These losses have resulted principally from costs incurred in connection with research and development activities and selling, general and
administrative costs associated with our operations and our commercial build. We expect to incur significant expenses and increasing
operating losses for the foreseeable future.
91
We expect that our expenses will increase significantly in the foreseeable future in connection with our ongoing activities, if and as we:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
complete ongoing Phase 3 clinical trials of zuranolone in MDD and PPD; advance our regulatory, permitted pre-launch and
launch-readiness activities with respect to zuranolone, including activities focused on the planned filing of an NDA for
zuranolone in MDD in the U.S. in the second half of 2022, and the planned associated NDA filing for zuranolone in PPD in the
U.S. in the first half of 2023; and potentially advance the development of zuranolone in additional indications as part of our
strategic collaboration with Biogen;
continue our commercialization efforts with respect to ZULRESSO for the treatment of PPD in the U.S., with a primary focus on
geographies that have existing, active ZULRESSO treating sites;
complete the ongoing KINETIC 2 Study of SAGE-324 in patients with essential tremor, and initiate additional development
activities with SAGE-324, including potential future development in epilepsy, Parkinson’s disease, and other neurological
conditions, as part of our strategic collaboration with Biogen;
complete the ongoing Phase 2 clinical trials evaluating SAGE-718 in the treatment of Huntington’s disease and in patients with
mild cognitive impairment due to Parkinson’s disease, and initiate the planned Phase 2 clinical trials evaluating SAGE-718 in the
treatment of Huntingon’s disease cognitive impairment, in patients with mild cognitive impairment due to Parkinson’s disease,
and in patients with mild cognitive impairment and mild dementia due to Alzheimer’s disease, and the planned open-label Phase
3 clinical trial of SAGE-718 in patients with Huntington’s disease cognitive impairment;
support our collaboration with Biogen with respect to zuranolone and SAGE-324 in the U.S., and support Biogen’s development
of zuranolone and SAGE-324 in Biogen’s licensed territories outside the U.S. and Shionogi’s development of zuranolone in the
Shionogi Territory;
advance our earlier-stage compounds;
continue our research and development efforts to evaluate the potential for our existing product candidates for the treatment of
additional indications or in new formulations;
identify new targets, and generate and test new compounds and product candidates, with a focus on indications where we believe
we can make well-informed, rapid go/no-go decisions, with the goal of developing a diversified portfolio of assets with
differentiated features;
prepare and file new drug applications with the U.S. Food and Drug Administration, or FDA, and conduct permitted pre-launch
activities with respect to any of our other product candidates that we believe have been successfully developed;
commercialize any product candidates for which we obtain regulatory approval, including the manufacture of commercial
supplies;
as our development efforts progress, add personnel, including personnel to support product development and ongoing and future
commercialization efforts;
evaluate the market potential and regulatory pathways for our product candidates beyond zuranolone and SAGE-324 in the
European Union and other countries outside the U.S., and determine how best to move forward where and when it may make
business and strategic sense;
continue to build, maintain, defend, leverage, and expand our intellectual property portfolio, including by utilizing the strengths
of our proprietary chemistry platform and scientific know-how to expand our portfolio of new chemical entities to lessen our
long-term reliance on the success of any one program and to facilitate long-term growth; and
continue to explore opportunities to establish agreements or alliances with other pharmaceutical companies, at the appropriate
time, where we believe a collaboration will add significant value to our efforts, including through capabilities, infrastructure,
speed or financial contributions, or to acquire new compounds, product candidates or products if we believe such opportunities
will help us achieve our goals or meet other strategic objectives.
Until such time that we can generate significant revenue from product sales, if ever, we expect to finance our operations primarily
through a combination of revenue, equity or debt financings and other sources, including our
92
collaborations with Biogen and Shionogi and potential future collaborations. We may not be successful in our commercialization of
ZULRESSO or any other product, and may not generate meaningful revenue or revenue at the levels or on the timing necessary to support
our investment and goals. We may never successfully complete development of any of our current or future product candidates, file for or
obtain necessary regulatory approval for such product candidates, or achieve commercial viability for any resulting approved product. We
may not obtain or maintain adequate patent protection or other exclusivity for our products or product candidates. Adequate additional
financing may not be available to us on acceptable terms, or at all. Our inability to raise capital if and when needed would have a negative
impact on our financial condition and on our ability to pursue our business strategy. Arrangements with our existing collaborators have
required us to relinquish rights to certain of our technologies or product candidates, and any future collaborations may require us to relinquish
additional rights. We will need to generate significant revenue to achieve profitability, and we may never do so.
We expect that our existing cash, cash equivalents and marketable securities as of December 31, 2021, in addition to ongoing
collaboration funding, will enable us to fund our operating expenses and capital expenditure requirements, based on our current operating
plans, for at least the next 24 months from the filing date of this Annual Report. See “—Liquidity and Capital Resources”.
93
Financial Operations Overview
Revenue
We began to generate revenue from product sales in the second quarter of 2019 in conjunction with the launch of our first product,
ZULRESSO, in June 2019.
Our revenue from sales of ZULRESSO has been negatively impacted by significant barriers arising from the complex requirements for
treatment, and, more recently, by the spread of COVID-19 in the U.S. ZULRESSO is administered as a continuous infusion given over two
and a half days. Because of the risk of serious harm resulting from excessive sedation or sudden loss of consciousness during the
ZULRESSO infusion, ZULRESSO must be administered only in a medically-supervised healthcare setting that has been certified under a
Risk Evaluation and Mitigation Strategies, or REMS, program and meets the other requirements of the REMS program, including
requirements related to monitoring of the patient during the infusion. The actions required for a healthcare setting to be ready and willing to
treat women with PPD are complex and time-consuming. These actions include: becoming REMS-certified; achieving formulary approvals;
establishing protocols for administering ZULRESSO; and securing satisfactory reimbursement. Sites must often negotiate reimbursement on
a payor-by-payor basis under commercial coverage. These requirements have created significant barriers to treatment, and are expected to
continue to limit future revenue growth. These barriers have been compounded by the COVID-19 pandemic. The spread of COVID-19 in the
U.S. resulted in a significant number of sites of care pausing, limiting or delaying treatment of new patients with ZULRESSO and potential
new sites of care pausing site activation activities for a period of time. We believe concerns about exposure to the virus or its variants as well
as the disruption to the healthcare system in the U.S. caused by the pandemic have also caused a significant reduction in the number of
women with PPD seeking treatment with ZULRESSO and in the number of physicians willing to prescribe it. Given continuing concerns
about the COVID-19 pandemic across the country, including as a result of the spread of variants and “breakthrough” cases among fully-
vaccinated people, and the resulting disruption in many locations to healthcare resources, we expect the significant adverse impact of the
pandemic on ZULRESSO revenues, and our results of operations from sales of ZULRESSO, to continue for the foreseeable future. The
scope and timing of the expected negative impact will depend on, among other factors, the scope and duration of the pandemic and the timing
of any return to normal business operations across the U.S.; the effectiveness of vaccination campaigns, vaccine mandates, and other efforts
to control the pandemic; the duration of the vaccines’ efficacy against COVID-19 and its variants; the extent to which variants of the virus
that causes COVID-19 negatively impact vaccination and other efforts to control the pandemic; the duration and severity of any restrictive
measures taken to curb the spread of COVID-19; the extent of healthcare staffing shortages due to COVID-19; and the impact of the
pandemic on our customers and vendors. Given the continued fluidity of the COVID-19 pandemic, we cannot predict its course or for how
long and to what extent it will have an adverse impact on ZULRESSO sales.
In April 2020, we implemented a workforce reduction that primarily affected the ZULRESSO commercial operation and related
support functions, including eliminating the entirety of our salesforce at that time. While we remain committed to working with healthcare
providers and women with PPD seeking access to ZULRESSO and plan to continue to evaluate opportunities to raise awareness and help
reduce hurdles to appropriate treatment, our ongoing commercial efforts, including our account management field-based team and sales
representatives now in place, are primarily focused on geographies that have existing, active ZULRESSO treating sites. We expect that this
approach to our commercial efforts may continue to substantially limit the revenue opportunity for ZULRESSO.
We expect that ZULRESSO revenues are likely to fluctuate quarter to quarter. We will not generate revenue from other products unless
and until we or any of our collaborators successfully develop, obtain regulatory approval of, and commercialize one of our current or future
product candidates. If we enter into additional collaboration agreements with third parties for our product candidates, we may generate
revenue from those collaborations. We expect that revenue, if any, that we may generate under our existing or future collaboration
agreements will fluctuate from quarter to quarter as a result of the timing and amount of license fees, payments for clinical materials or
manufacturing services, milestone payments, royalties paid to us and our share of collaboration profits or losses resulting from sales of any
commercialized products, and other payments.
In June 2018, we entered into a strategic collaboration with Shionogi for the clinical development and commercialization of
zuranolone for the treatment of MDD and other potential indications in the Shionogi Territory. Under the terms of the agreement, Shionogi is
responsible for all clinical development, regulatory filings and commercialization and manufacturing of zuranolone for MDD, and potentially
other indications, in the Shionogi
94
Territory. In October 2018, we also entered into a supply agreement with Shionogi for zuranolone clinical material. To date, revenue from our
collaboration with Shionogi has come from an initial, upfront license fee upon execution of the collaboration agreement of $90.0 million,
which was recorded as collaboration revenue in the year ended December 31, 2018, and for the supply of active pharmaceutical agreement,
or API, for Shionogi’s clinical trials.
In November 2020, we entered into the Biogen Collaboration Agreement with Biogen for the development, manufacture and
commercialization of the Licensed Products. In connection with the execution of the Biogen Collaboration Agreement, we also entered into a
stock purchase agreement for the sale and issuance to BIMA of 6,241,473 shares of our common stock. The Biogen Collaboration Agreement
became effective in December 2020, and the sale of the common stock under the stock purchase agreement closed on December 31, 2020. As
a result of the purchase of common stock by BIMA, Biogen has become a related party of ours. Under the terms of the Biogen Collaboration
Agreement, we will jointly develop and, if successful, commercialize the Licensed Products in the U.S., and Biogen solely will develop and
commercialize the Licensed Products in the Biogen Territory. We and Biogen have agreed to share equally all costs for activities under the
Biogen Collaboration Agreement solely for the U.S. Biogen is solely responsible for all costs for activities under the Biogen Collaboration
Agreement in the Biogen Territory. In the year ended December 31, 2020, we recorded collaboration revenue – related party of $1.1 billion,
consisting of an upfront payment of $875.0 million plus $232.5 million in excess proceeds from the equity investment under the stock
purchase agreement, when measured at fair value. For further discussion regarding the accounting for the Biogen Collaboration Agreement,
please refer to Note 6, Collaboration Agreements, in the accompanying Notes to Consolidated Financial Statements appearing elsewhere in
this Annual Report.
Collaborative Arrangements
We analyze our collaboration arrangements to assess whether such arrangements involve joint operating activities performed by parties
that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such
activities and therefore within the scope of Accounting Standards Codification, or ASC, Topic 808, Collaborative Arrangements, or Topic
808. This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the
arrangement. For collaboration arrangements within the scope of Topic 808 that contain multiple elements, we first determine which
elements of the collaboration are deemed to be within the scope of Topic 808 and which elements of the collaboration are more reflective of a
vendor-customer relationship and therefore within the scope of ASC Topic 606, Revenue from Contracts with Customers, or Topic 606. For
elements of collaboration arrangements that are accounted for pursuant to Topic 808, an appropriate recognition method is determined and
applied consistently, either by analogy to authoritative accounting literature or by applying a reasonable and rational policy election. For
those elements of the arrangement that are accounted for pursuant to Topic 606, we apply the five-step revenue recognition model and
present the arrangement as collaboration revenue in the consolidated statements of operations and comprehensive income (loss). For further
discussion regarding the accounting for the Biogen Collaboration Agreement, please refer to Note 6, Collaboration Agreements, in the
accompanying Notes to Consolidated Financial Statements appearing elsewhere in this Annual Report.
For collaboration arrangements that are within the scope of Topic 808, we evaluate the income statement classification for presentation
of amounts due from or owed to other participants associated with multiple activities in a collaboration arrangement based on the nature of
each separate activity. Payments or reimbursements that are the result of a collaborative relationship, instead of a customer relationship, such
as co-development and co-commercialization activities, are recorded as research and development expense or selling, general and
administrative expense in the event of a payment to the collaborative partner in a period, or a reduction to these expense line items in the
event of a reimbursement from the collaboration partner in a period, as appropriate.
Cost of Goods Sold
Cost of goods sold includes direct and indirect costs related to the manufacturing and distribution of ZULRESSO, including third-party
manufacturing costs, packaging services, freight, third-party royalties payable on our net product revenues and amortization of intangible
assets associated with ZULRESSO. We estimate that our cost of goods sold as a percentage of net product revenue will remain in the mid-
single digit percentage range for the foreseeable future. We expect to utilize zero-cost inventory with respect to ZULRESSO for an extended
period of time.
95
Operating Expenses
Our operating expenses since inception have consisted primarily of costs associated with research and development activities and
selling, general and administrative activities.
Research and Development Expenses
Research and development expenses, which consist primarily of costs associated with our product research and development efforts,
are expensed as incurred. Research and development expenses consist primarily of:
•
•
•
•
•
•
•
personnel costs, including salaries, benefits, stock-based compensation and travel expenses, for employees engaged in research
and development functions;
expenses incurred under agreements with contract research organizations, or CROs, and sites that conduct our non-clinical
studies and clinical trials;
expenses associated with manufacturing materials for use in non-clinical studies and clinical trials and developing external
manufacturing capabilities;
costs of outside consultants engaged in research and development activities, including their fees and travel expenses;
other expenses related to our non-clinical studies and clinical trials and expenses related to our regulatory activities, including
the planned submission of NDAs to the FDA for zuranolone in 2022 and 2023;
payments made under our third-party license agreements; and
a portion of our information technology, facilities and other related expenses, including rent, depreciation, maintenance of
facilities, insurance and supplies.
We consider the collaborative activities associated with the co-development, co-commercialization, and co-manufacturing of SAGE-
217 products and SAGE-324 products in the U.S. to be separate units of account within the scope of Topic 808 as we and Biogen are both
active participants in the development and commercialization activities and are exposed to significant risks and rewards that are dependent on
the development and commercial success of the activities in the arrangement. Payments to or reimbursements from Biogen related to the co-
development and co-manufacturing activities are accounted for as an increase to or reduction of research and development expense. During
the year ended December 31, 2021, we recorded net reimbursement of $79.8 million from Biogen that was deducted from our research and
development expenses because we incurred a greater amount of these expenses than Biogen. There were no comparable costs or
reimbursements in the year ended December 31, 2020.
Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using
information and data provided to us by our vendors and our clinical sites.
We have been developing our product candidates and focusing on other research and development programs, including exploratory
efforts to identify new compounds, target validation for identified compounds and lead optimization for our earlier-validated programs. Our
direct research and development expenses are tracked on a program-by-program basis, and consist primarily of external costs, such as fees
paid to investigators, central laboratories, CROs and contract manufacturing organizations, in connection with our non-clinical studies and
clinical trials; third-party license fees related to our product candidates; and fees paid to outside consultants who perform work on our
programs. We do not allocate employee-related costs and other indirect costs to specific research and development programs because these
costs are deployed across multiple product programs under research and development and, as such, are separately classified as unallocated or
stock-based compensation in research and development expenses.
Research and development activities are central to our business. Product candidates in later stages of clinical development generally
have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-
stage clinical trials. We expect that our research and development expenses will continue to increase in the foreseeable future as we continue
or initiate clinical trials and non-clinical studies for certain product candidates and pursue later stages of clinical development of our product
candidates.
96
We cannot determine with certainty the duration and costs of the current or future clinical trials of our product candidates. The
duration, costs, and timing of clinical trials and development of our product candidates will depend on a variety of factors, including:
•
•
•
•
•
•
the scope, size, rate of progress, and expense of our ongoing as well as any additional clinical trials, non-clinical studies, and
other research and development activities;
future results of ongoing, planned or future clinical trials and non-clinical studies;
decisions by regulatory authorities related to our product candidates;
uncertainties in clinical trial enrollment rate or design;
significant and changing government regulation; and
the receipt and timing of regulatory approvals, if any.
In addition, the ongoing COVID-19 pandemic may also negatively impact our ongoing and planned development activities and
increase our research and development costs. Concerns, precautions and restrictions arising from the COVID-19 pandemic may substantially
slow clinical site recruitment and initiation and enrollment in our clinical trials, may impair the conduct, auditing, monitoring, or completion
of our trials, may impair or impede the timeliness and completion of our data collection and analysis efforts or the integrity of our data, or
may cause us to pause trials, in each case which may significantly impact our ability to meet our expected timelines or cause us to change our
plans and may significantly increase our research and development costs. For example, we have seen some slower recruitment in certain of
our clinical trials, especially with respect to older patients and in our SKYLARK Study in patients with PPD, which caused us to revise our
expected timeline for reporting topline data from that study.
A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant
change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory
authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical
development of a product candidate or for regulatory approval, or if we experience significant delays in enrollment in any of our clinical
trials or need to enroll additional patients, we could be required to expend significant additional financial resources and time on the
completion of clinical development.
Any failure to complete any stage of the development of any potential product candidates in a timely manner could have a material
adverse effect on our operations, financial position and liquidity. A discussion of some of the risks and uncertainties associated with not
completing our programs on schedule, or at all, and the potential consequences of failing to do so, are set forth in Part I, Item 1A, “Risk
Factors”.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of personnel costs, including salaries, benefits and travel expenses for
our executive, finance, business, commercial, corporate development and other administrative functions, and stock-based compensation
expense. Selling, general and administrative expenses also include professional fees for expenses incurred under agreements with third
parties relating to the commercialization of ZULRESSO; permitted pre-launch and launch-readiness activities related to zuranolone; public
relations, audit, tax and legal services, including legal expenses to pursue patent protection of our intellectual property; and a portion of our
information technology, facilities and other related expenses, including rent, depreciation, maintenance of facilities, insurance and supplies.
In April 2020, we implemented a workforce reduction that primarily affected the ZULRESSO commercial operation and related
support functions, including eliminating the entirety of our salesforce at that time. While we remain committed to working with healthcare
providers and women with PPD seeking access to ZULRESSO and plan to continue to evaluate opportunities to raise awareness and help
reduce hurdles to appropriate treatment, our ongoing commercial efforts, including our account management field-based team and sales
representatives now in place, are primarily focused on geographies that have existing, active ZULRESSO treating sites. We expect to
continue to incur significant commercialization expenses, including payroll and related expenses, to support our ongoing commercial
activities associated with ZULRESSO. We expect that selling, general and administrative expenses will increase in the future as we
97
progress development efforts and prepare for potential commercialization of zuranolone, if approved, and our other current or future product
candidates, if successfully developed and approved. We expect to continue to incur significant expenses associated with general operations,
including costs related to accounting and legal services, director and officer insurance premiums, facilities and other corporate infrastructure
and office-related costs, such as information technology costs.
We consider the collaborative activities associated with the co-development, co-commercialization, and co-manufacturing of SAGE-
217 products and SAGE-324 products in the U.S. to be separate units of account within the scope of Topic 808 as we and Biogen are both
active participants in the development and commercialization activities and are exposed to significant risks and rewards that are dependent on
the development and commercial success of the activities in the arrangement. Payments to or reimbursements from Biogen related to the co-
commercialization activities are accounted for as an increase to or reduction of selling, general and administrative expense. During the year
ended December 31, 2021, we recorded net reimbursement of $11.3 million from Biogen that was deducted from our selling, general and
administrative expenses because we incurred a greater amount of these expenses than Biogen. There were no comparable costs or
reimbursements in the year ended December 31, 2020.
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the U.S. The
preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the
reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. We believe that the estimates and assumptions
involved in the accounting policies described below may have the greatest potential impact on our consolidated financial statements and,
therefore, consider these to be our critical accounting policies. We evaluate our estimates and assumptions on an ongoing basis. Our actual
results may differ from these estimates under different assumptions and conditions. While our significant accounting policies are described in
more detail in the notes to our consolidated financial statements appearing elsewhere in this Annual Report, we believe that the following
accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.
Revenue Recognition
We generate revenue from the sale of ZULRESSO and from collaboration and supply agreements with our collaborators. To date,
revenue from collaboration agreements has come from initial, upfront payments allocated to licenses of intellectual property delivered to our
collaborators, from the sale of shares of our common stock to Biogen in connection with the Biogen Collaboration Agreement, or the Biogen
Equity Purchase, and from the supply of material for clinical trials under a supply agreement.
Under ASC Topic 606, Revenue from Contracts with Customers, or Topic 606, an entity recognizes revenue when its customer obtains
control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those
goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity
performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii)
determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in
the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. Arrangements that include rights to
additional goods or services that are exercisable at a customer’s discretion are generally considered options. We assess if these options
provide a material right to the customer and if so, they are considered performance obligations. The exercise of a material right may be
accounted for as a contract modification or as a continuation of the contract for accounting purposes.
For contracts determined to be within the scope of Topic 606, we assess whether the goods or services promised within each contract
are distinct to identify those that are performance obligations. This assessment involves subjective determinations and requires management
to make judgments about the individual promised goods or services and whether such are separable from the other aspects of the contractual
relationship. Promised goods and services are considered distinct provided that: (i) the customer can benefit from the good or service either
on its own or together with other
98
resources that are readily available to the customer and (ii) the entity’s promise to transfer the good or service to the customer is separately
identifiable from other promises in the contract.
We allocate the transaction price (the amount of consideration we expect to be entitled to from a customer in exchange for the
promised goods or services) to each performance obligation and recognize the associated revenue when (or as) each performance obligation
is satisfied. Our estimate of the transaction price for each contract includes all variable consideration to which we expect to be entitled.
Collaboration and License Revenue
In assessing whether a promised good or service is distinct in the evaluation of a collaboration or license arrangement subject to Topic
606, we consider factors such as the research, manufacturing and commercialization capabilities of the collaboration partner, and the
availability of the associated expertise in the general marketplace. We also consider the intended benefit of the contract in assessing whether
a promised good or service is separately identifiable from other promises in the contract. If a promised good or service is not distinct, we are
required to combine that good or service with other promised goods or services until we identify a bundle of goods or services that is distinct.
The transaction price is then determined and allocated to the identified performance obligations in proportion to their standalone
selling prices, or SSP, on a relative SSP basis. SSP is determined at contract inception and is not updated to reflect changes between contract
inception and when the performance obligations are satisfied. Determining the SSP for performance obligations requires significant
judgment. In developing the SSP for a performance obligation, we consider applicable market conditions and relevant entity-specific factors,
including factors that were contemplated in negotiating the agreement with the customer and estimated costs. In certain circumstances, we
may apply the residual method to determine the SSP of a good or service if the standalone selling price is considered highly variable or
uncertain. We validate the SSP for performance obligations by evaluating whether changes in the key assumptions used to determine the SSP
will have a significant effect on the allocation of arrangement consideration between multiple performance obligations.
If the consideration promised in a contract includes a variable amount, we estimate the amount of consideration to which we will be
entitled in exchange for transferring the promised goods or services to a customer. We determine the amount of variable consideration by
using the expected value method or the most likely amount method. We include the unconstrained amount of estimated variable consideration
in the transaction price. The amount included in the transaction price is constrained to the amount for which it is probable that a significant
reversal of cumulative revenue recognized will not occur. At the end of each subsequent reporting period, we re-evaluate the estimated
variable consideration included in the transaction price and any related constraint, and if necessary, adjust our estimate of the overall
transaction price. Any such adjustments are recorded on a cumulative catch-up basis in the period of adjustment.
If an arrangement includes development and regulatory milestone payments, we evaluate whether the milestones are considered
probable of being reached and estimate the amount to be included in the transaction price using the most likely amount method. If it is
probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone
payments that are not within our control or the licensee’s control, such as regulatory approvals, are generally not considered probable of
being achieved until those approvals are received.
In determining the transaction price, we adjust consideration for the effects of the time value of money if the timing of payments
provides us with a significant benefit of financing. We do not assess whether a contract has a significant financing component if the
expectation at contract inception is such that the period between payment by the licensees and the transfer of the promised goods or services
to the licensees will be one year or less. We assessed our arrangements with Shionogi and Biogen and concluded that a significant financing
component does not exist for either arrangement. For arrangements with licenses of intellectual property that include sales-based royalties,
including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate,
we recognize royalty revenue and sales-based milestones at the later of (i) when the related sales occur, or (ii) when the performance
obligation to which the royalty has been allocated has been satisfied.
We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or
as) each performance obligation is satisfied at a point in time or over time, and if over time this is based on the use of an output or input
method. Revenue from our collaboration agreement with Shionogi has come from initial, upfront consideration upon execution of the
agreement and for the supply of drug product for Shionogi clinical
99
trials. Revenue from our collaboration agreement with Biogen has come from initial, upfront consideration related to the execution of the
Biogen Collaboration Agreement and from the Biogen Equity Purchase. For additional information, refer to Note 6, Collaboration
Agreements, to our consolidated financial statements appearing elsewhere in this Annual Report.
Product Revenue, Net
We recognize product revenues, net of variable consideration related to certain allowances and accruals that are determined using the
expected value method, in our consolidated financial statements at the point in time when control transfers to the customer, which is typically
when the product has been delivered to the customer’s location. The amount included in the transaction price is constrained to the amount for
which it is probable that a significant reversal of cumulative revenue recognized will not occur. Our only performance obligation identified
for ZULRESSO is to deliver the product to the location specified by the customer’s order. We record shipping and handling costs associated
with delivery of product to our customers within selling, general and administrative expenses on our consolidated statements of operations
and comprehensive income (loss). We expense incremental costs of obtaining a contract as incurred if the expected amortization period of the
asset would be less than one year. If we were to incur incremental costs with an amortization period greater than a year, such costs would be
capitalized as contract assets, as they are expected to be recovered, and would be expensed by amortizing on a systematic basis that is
consistent with the transfer to the customer of the goods or services to which the asset relates. We did not have any contract assets (unbilled
receivables) at December 31, 2021, as customer invoicing generally occurs before or at the time of revenue recognition. We did not have any
contract liabilities at December 31, 2021, as we did not receive any payments in advance of satisfying our performance obligations to our
customers. Amounts billed or invoiced that are considered trade accounts receivable are included in prepaid expenses and other current assets
on the consolidated balance sheets. As of December 31, 2021 and 2020, the Company had not provided any allowance for bad debts against
the trade accounts receivable, and the amount of trade accounts receivable was not significant.
We record reserves, based on contractual terms, for the following components of variable consideration related to product sold during
the reporting period, as well as our estimate of product that remains in the distribution channel inventory of our customers at the end of the
reporting period. On a quarterly basis, we update our estimates, if necessary, and record any material adjustments in the period they are
identified.
Chargebacks: We estimate chargebacks from our customers who directly purchase the product from us for discounts resulting from
contractual commitments to sell products to eligible healthcare settings at prices lower than the list prices charged to our customers.
Customers charge us for the difference between what they pay to us for the product and the selling price to the eligible healthcare
settings. Reserves for chargebacks consist of credits that we expect to issue for units that remain in the distribution channel
inventories at the end of each reporting period that we expect will be sold to eligible healthcare settings, and chargebacks that
customers have claimed, but for which we have not yet issued a credit.
Government Rebates: We are subject to discount obligations under government programs, including Medicaid. We record reserves
for rebates in the same period the related product revenue is recognized, resulting in a reduction of ZULRESSO product revenues
and a current liability that is included in accrued expenses on our consolidated balance sheets. Our liability for these rebates consists
of invoices received for claims from prior quarters that have not been paid or for which an invoice has not yet been received,
estimates of claims for the current quarter, and estimates of future claims that will be made for product that has been recognized as
revenue, but which remains in the distribution channel at the end of each reporting period.
Trade Discounts and Allowances: We generally provide customary invoice discounts on ZULRESSO sales to our customers for
prompt payment and we pay fees for sales order management, data, and distribution services. We estimate our customers will earn
these discounts and fees and deduct these discounts and fees in full from gross ZULRESSO revenues and accounts receivable at the
time we recognize the related revenues.
Financial Assistance: We provide voluntary financial assistance programs to patients with commercial insurance that have coverage
and reside in states that allow financial assistance. We estimate the financial assistance amounts for ZULRESSO and record any
such amounts within accrued expenses on the consolidated balance sheets. The calculation of the accrual for financial assistance is
based on an estimate of claims and the cost per claim that we expect to receive using demographics for patients who have registered
and been approved for assistance. Any adjustments are recorded in the same period the related revenue is recognized, resulting in a
100
reduction of product revenue and the establishment of a current liability, which is included as a component of accrued expenses on
the consolidated balance sheets.
Product Returns: Consistent with industry practice, we offer product return rights to customers for damaged, defective or expiring
product, provided it is within a specified period around the product expiration date as set forth in our return goods policy. We
estimate the amount of our product sales that may be returned by our customers and record this estimate as a reduction of revenue in
the period the related product revenue is recognized, as well as a reserve within accrued expenses on our consolidated balance
sheets. Product returns have been immaterial to date and are expected to remain immaterial in the future.
Collaborative Arrangements
We analyze our collaboration arrangements to assess whether such arrangements involve joint operating activities performed by parties
that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such
activities and therefore within the scope of ASC Topic 808, Collaborative Arrangements, or Topic 808. This assessment is performed
throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration
arrangements within the scope of Topic 808 that contain multiple elements, we first determine which elements of the collaboration are
deemed to be within the scope of Topic 808 and which elements of the collaboration are more reflective of a vendor-customer relationship
and therefore within the scope of Topic 606. For elements of collaboration arrangements that are accounted for pursuant to Topic 808, an
appropriate recognition method is determined and applied consistently, either by analogy to authoritative accounting literature or by applying
a reasonable and rational policy election. For those elements of the arrangement that are accounted for pursuant to Topic 606, we apply the
five-step revenue recognition model described above and presents the arrangement as collaboration revenue in the consolidated statements of
operations and comprehensive income (loss).
For collaboration arrangements that are within the scope of Topic 808, we evaluate the income statement classification for presentation
of amounts due from or owed to other participants associated with multiple activities in a collaboration arrangement based on the nature of
each separate activity. Payments or reimbursements that are the result of a collaborative relationship instead of a customer relationship, such
as co-development and co-commercialization activities, are recorded as research and development expense or selling, general and
administrative expense, in the event of a payment to the collaborative partner in a period, or a reduction to these expense line items in the
event of a reimbursement from the collaboration partner in a period, as appropriate.
Accrued Research and Development Expenses
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and
development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel and vendors
to identify services that have been performed on our behalf and estimating the level of service performed and the associated costs incurred for
the services when we have not yet been invoiced or otherwise notified of the actual costs. The majority of our service providers invoice us in
arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance
payments. We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts
and circumstances known to us at that time. Examples of estimated accrued research and development expenses include fees paid to:
•
•
•
•
CROs in connection with performing research and development services on our behalf;
other providers in connection with clinical trials;
vendors in connection with non-clinical development activities; and
vendors related to product manufacturing, development and distribution of clinical supplies.
We base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with
multiple CROs that conduct and manage clinical trials on our behalf. The financial terms of these agreements vary from contract to contract
and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services
provided and result in a prepayment of the clinical expense. Payments under some of these contracts depend on factors such as the successful
enrollment of patients and the
101
completion of clinical trial milestones. When determining accruals, we estimate the time period over which services will be performed,
enrollment of patients, number of sites activated and level of effort to be expended in each period. If the actual timing of the performance of
services or the level of effort varies from our estimate, we adjust the accrual or prepaid accordingly. Although we do not expect our estimates
to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the
actual status and timing of services performed may vary and may result in reporting expenses that are too high or too low in any particular
period. To date, we have not made any material adjustments to our prior estimates of accrued research and development expenses.
Stock-Based Compensation
We recognize compensation expense for stock-based awards, including grants of stock options and restricted stock units, made to
employees, non-employee directors and non-employee consultants based on the estimated fair value on the date of grant, over the requisite
service period. We recognize stock-based compensation expense for only the portion of awards that are expected to vest.
For awards that vest upon achievement of a performance condition, we recognize compensation expense when achievement of the
performance condition is met or during the period from which meeting the condition is deemed probable until the expected date of meeting
the performance condition, using management’s best estimates, which consider the inherent risk and uncertainty regarding the future
outcomes of the milestones.
The fair value of each stock option grant is estimated using the Black-Scholes option-pricing model. Through the year ended
December 31, 2019, we estimated our expected volatility using a weighted average of the historical volatility of publicly-traded peer
companies and the volatility of our common stock. Effective January 1, 2020, we began using the historical volatility of only our common
stock, as there is adequate historical data for the duration of the expected term.
The expected term of the stock options granted to employees, non-employee directors and non-employee consultants by us has been
determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” stock options. The risk-free interest rate is determined
by reference to the U.S. Treasury yield curve in effect at the date of grant for time periods approximately equal to the expected term of the
award. The expected dividend yield is based on the fact that we have never paid cash dividends and do not expect to pay any cash dividends
in the foreseeable future.
We also apply a forfeiture rate in order to calculate stock-based compensation expense. Expected forfeitures are based on our historical
experience and management’s expectations of future forfeitures. To the extent actual forfeitures differ from the estimates, the difference is
recorded as a cumulative adjustment in the period in which the estimates are revised.
The fair value of each stock option granted under our equity plans has been calculated on the date of grant using the following
weighted average assumptions:
Expected dividend yield
Expected volatility
Risk-free interest rate
Expected term
2021
Year Ended December 31,
2020
2019
0%
75.92%
0.63%
0%
77.86%
0.97%
0%
71.34%
2.21%
5.92 years
5.98 years
6.05 years
These assumptions represented our best estimates, but the estimates involve inherent uncertainties and the application of our judgment.
As a result, if factors change and we use significantly different assumptions or estimates when valuing our stock options, our stock-based
compensation expense could be materially different. In developing a forfeiture rate estimate for pre-vesting forfeitures, we have considered
our historical experience of actual forfeitures. In the future, if our actual forfeiture rate is materially different from our estimate, then our
stock-based compensation expense could be significantly different from what we have recognized in the current period.
As of December 31, 2021, we had unrecognized stock-based compensation expense related to our unvested time-based stock option
awards of $86.0 million, which is expected to be recognized over the remaining weighted average vesting period of 2.62 years.
102
As of December 31, 2021, 684,010 performance-based stock options were both outstanding and unvested, the total unrecognized
stock-based compensation expense related to those awards was $10.8 million and the timing of recognition of this stock-based compensation
expense is subject to our judgment as to when the performance conditions are considered probable of being achieved.
As of December 31, 2021, 1,256,098 time-based restricted stock units and performance restricted stock units were both outstanding
and unvested, and the total unrecognized stock-based compensation expense related to those awards was $59.2 million.
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of
operations is set forth in Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements appearing elsewhere
in this Annual Report.
Results of Operations
Comparison of the Years Ended December 31, 2021 and 2020
The following table summarizes our results of operations for the years ended December 31, 2021 and 2020:
Product revenue, net
Collaboration revenue - related party
Total revenue
Operating costs and expenses:
Cost of goods sold
Research and development
Selling, general and administrative
Restructuring
Total operating costs and expenses
Income (loss) from operations
Interest income, net
Other income, net
Net income (loss)
$
Year Ended December 31,
2020
2021
(in thousands)
Increase
(Decrease)
6,308 $
—
6,308
6,700 $
1,107,500
1,114,200
(392)
(1,107,500)
(1,107,892)
553
283,166
183,498
—
467,217
(460,909)
2,883
134
(457,892) $
565
292,714
196,952
27,743
517,974
596,226
9,597
250
(12)
(9,548)
(13,454)
(27,743)
(50,757)
(1,057,135)
(6,714)
(116)
606,073 $ (1,063,965)
$
Product Revenue, Net
During the years ended December 31, 2021 and 2020, we recognized $6.3 million and $6.7 million, respectively, of net product
revenues related to sales of ZULRESSO. Sales allowances and accruals consisted of chargebacks, discounts, distribution fees and patient
financial assistance, and were not significant during either year.
Collaboration Revenue
During the year ended December 31, 2021, we recognized no collaboration revenue – related party from our agreement with Biogen.
During the year ended December 31, 2020, we recognized collaboration revenue – related party of $1.1 billion related to the execution of the
Biogen Collaboration Agreement and the Biogen Equity Purchase. The revenue consisted of an upfront payment of $875.0 million plus
$232.5 million in excess proceeds from the Biogen Equity Purchase, when measured at fair value.
During the years ended December 31, 2021 and 2020, we recognized no collaboration revenue from our agreement with Shionogi.
103
We expect that revenue, if any, that we may generate under our collaboration agreements will fluctuate from quarter to quarter as a
result of the timing and amount of license fees, payments for clinical materials or manufacturing services, milestone payments, royalties paid
to us and our share of collaboration profits or losses resulting from sales of any commercialized products, and other payments. For further
discussion regarding our collaboration agreements with Shionogi and Biogen and the accounting for revenue from collaboration agreements,
please refer to Note 2, Summary of Significant Accounting Policies; and Note 6, Collaboration Agreements in the Notes to Consolidated
Financial Statements, appearing elsewhere in this Annual Report.
Cost of Goods Sold
During the years ended December 31, 2021 and 2020, cost of goods sold was $0.6 million and $0.6 million, respectively, and is made
up of a low-single digit royalty paid to CyDex Pharmaceuticals, Inc., a wholly owned subsidiary of Ligand Pharmaceuticals Incorporated, or
CyDex and The Regents of the University of California, or the Regents, on net product revenue from sales of ZULRESSO, the amortization
of intangible assets associated with ZULRESSO and third-party manufacturing and distribution costs associated with labeling, packaging,
and shipping of ZULRESSO. Prior to receiving initial FDA approval for ZULRESSO in March 2019, we manufactured ZULRESSO
inventory to be sold upon commercialization and recorded $8.9 million related to this inventory build-up as research and development
expense. As a result, the manufacturing costs related to the ZULRESSO inventory build-up incurred before FDA approval were already
expensed in a prior period and are therefore excluded from the cost of goods sold for the years ended December 31, 2021 and 2020. We
estimate that our cost of goods sold as a percentage of net product revenue will remain in the mid-single digit percentage range for the
foreseeable future. We expect to utilize zero-cost inventory with respect to ZULRESSO for an extended period of time.
Research and Development Expenses
zuranolone (SAGE-217)
SAGE-324
SAGE-718
Other research and development programs
Unallocated expenses
Stock-based compensation
Net reimbursement from Biogen
$
Total research and development expenses
$
Year Ended December 31,
2021
2020
(in thousands)
Increase
(Decrease)
122,256 $
18,771
25,440
59,633
87,168
49,746
(79,848)
283,166 $
116,614 $
19,482
6,388
38,222
69,638
42,370
—
292,714 $
5,642
(711)
19,052
21,411
17,530
7,376
(79,848)
(9,548)
Research and development expenses for the year ended December 31, 2021 were $283.2 million, compared to $292.7 million for the
year ended December 31, 2020. The decrease of $9.5 million was primarily due to the following:
•
•
•
an increase of $5.6 million in expenses for development of zuranolone. The increase in expenses was primarily due to spending
on manufacturing-related activities, including process validation and production of zuranolone for clinical and commercial use,
if approved for commercial sale; offset by a decrease in spending on the WATERFALL Study;
an increase of $19.1 million in expenses for development of SAGE-718. The increase in expenses was primarily due to the
initiation of a Phase 2 clinical trial and clinical pharmacology studies that were initiated during 2021;
an increase of $21.4 million in expenses for other research and development programs. The increase in expenses was primarily
due to Phase 1 clinical trials of SAGE-689 and SAGE-904 and increased work on early-stage research programs;
104
•
•
•
an increase of $17.5 million in expenses for unallocated expenses. The increase in expenses was primarily due to an increase in
the hiring of employees and corporate infrastructure costs, such as information technology costs;
an increase of $7.4 million in expenses for non-cash stock-based compensation expense. The increase in expenses was
primarily due to the achievement of milestones for certain outstanding performance restricted stock units, resulting in the
recognition of $9.8 million of expense during the year ended December 31, 2021, offset by the cancellation of stock options held
by former employees. During the year ended December 31, 2020, no non-cash stock-based compensation expense was
recognized related to the achievement of performance-based vesting criteria; and
during the year ended December 31, 2021, the reduction in expenses due to net reimbursement from Biogen pursuant to the
Biogen Collaboration Agreement was $79.8 million. The amount of net reimbursement was $61.1 million for zuranolone, $9.4
million for SAGE-324 and $9.3 million for costs that are reimbursable and included in unallocated expenses.
Selling, General and Administrative Expenses
Personnel-related
Stock-based compensation
Professional fees
Other
Net reimbursement from Biogen
$
Total selling, general and administrative expenses
$
Year Ended December 31,
2021
2020
(in thousands)
Increase
(Decrease)
52,100 $
54,883
43,428
44,369
(11,282)
183,498 $
58,403 $
51,836
50,533
36,180
-
196,952 $
(6,303)
3,047
(7,105)
8,189
(11,282)
(13,454)
Selling, general and administrative expenses for the year ended December 31, 2021 were $183.5 million, compared to $197.0 million
for the year ended December 31, 2020. The decrease of $13.5 million was primarily due to the following:
•
•
•
•
•
a decrease of $6.3 million of expenses for personnel-related costs. The decrease in expenses was primarily due to the termination
of employees in the April 2020 restructuring;
an increase of $3.0 million of expenses for non-cash stock-based compensation expense. The increase in expenses was
primarily due to the achievement of milestones for certain outstanding performance restricted stock units, resulting in the
recognition of $6.7 million of expense during the year ended December 31, 2021, offset by the cancellation of stock options held
by former employees. During the year ended December 31, 2020, no non-cash stock-based compensation expense was
recognized related to the achievement of performance-based vesting criteria;
a decrease of $7.1 million in expenses for professional fees. The decrease in expenses was primarily due to transaction-related
expenses for the Biogen Collaboration Agreement that were incurred in the year ended December 31, 2020, with no
corresponding costs in the year ended December 31, 2021; the decrease was offset by an increase in activities focused on
commercialization, including disease awareness and increased launch-readiness activities for a potential product launch, if our
zuranolone development and regulatory efforts are successful;
an increase of $8.2 million in expenses for other costs. The increase in expenses was primarily due to corporate infrastructure
costs, such as information technology costs; and
during the year ended December 31, 2021, the reduction in expenses due to net reimbursement from Biogen pursuant to the
Biogen Collaboration Agreement was $11.3 million. The amount of net reimbursement was $9.3 million for external costs and
$2.0 million for personnel-related costs.
105
Restructuring
In the year ended December 31, 2021, we recorded no expense for restructuring. In April 2020, we announced a restructuring plan to
enable us to advance our corporate strategy and pipeline that included the elimination of approximately 53% of our workforce. The
workforce reduction primarily affected the ZULRESSO commercial operation and related selling, general and administrative support
functions. In the year ended December 31, 2020, we recorded $27.7 million of expense for restructuring, primarily for one-time termination
benefits to the affected employees, primarily for cash payments of severance, healthcare benefits and outplacement assistance.
Interest Income, Net and Other income, Net
Interest income, net, and other income, net, for the years ended December 31, 2021 and 2020 were $3.0 million and $9.8 million,
respectively. The primary reason for the decrease was the reduction in interest rates that started in early 2020.
Liquidity and Capital Resources
We began to generate revenue from product sales in the second quarter of 2019 in conjunction with the launch of our first product,
ZULRESSO, in June 2019. To date, we have incurred recurring net losses, except for net income of $606.1 million for the year ended
December 31, 2020, reflecting revenue recognized under the Biogen Collaboration Agreement. As of December 31, 2021, we had an
accumulated deficit of $1.5 billion. On December 31, 2020, we completed the sale of 6,241,473 shares of our common stock in a private
placement to BIMA at a price of approximately $104.14 per share, resulting in aggregate gross proceeds of $650.0 million. From our
inception through December 31, 2021, we have received aggregate net proceeds of $2.8 billion from the sales of redeemable convertible
preferred stock prior to our initial public offering, the issuance of convertible notes, and the sales of common stock in our initial public
offering in July 2014, follow-on offerings and in the Biogen Equity Purchase. We also received $1.0 billion in upfront payments under our
collaborations with Biogen and Shionogi.
As of December 31, 2021, our primary sources of liquidity were our cash, cash equivalents and marketable securities, which totaled
$1.7 billion. We invest our cash in money market funds, U.S. government securities, corporate bonds and commercial paper, and our primary
objectives are to preserve principal, provide liquidity and maximize income without significantly increasing risk.
The following table summarizes the primary sources and uses of cash for the years ended December 31, 2021 and 2020:
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Total
Operating Activities
Year Ended December 31,
2021
2020
(in thousands)
$
$
(378,182) $
(1,002,448)
13,334
(1,367,296) $
664,280
442,684
426,762
1,533,726
During the year ended December 31, 2021, net cash used in operating activities primarily resulted from our net loss of $457.9 million,
which was primarily attributable to our research and development activities and our selling, general and administrative expenses, along with
changes in our operating assets and liabilities of $18.5 million, partially offset by $98.2 million of non-cash items.
During the year ended December 31, 2020, net cash provided by operating activities primarily resulted from our net income of $606.1
million, which was primarily attributable to collaboration revenue – related party from our collaboration with Biogen, partially offset by our
research and development activities and our selling, general and administrative
106
expenses; and $97.9 million of non-cash items. It was partially offset by changes in our operating assets and liabilities of $39.7 million.
Investing Activities
During the years ended December 31, 2021 and 2020, net cash used by investing activities was $1.0 billion and net cash provided by
investing activities was $442.7 million, respectively. During the years ended December 31, 2021 and 2020, we purchased marketable
securities and had sales and maturities of our marketable securities as part of managing our cash and investments portfolio. Additionally,
during the year ended December 31, 2021, we invested the majority of the cash that we received from Biogen under the Biogen Collaboration
Agreement and the Biogen Equity Purchase in marketable securities.
Financing Activities
During the years ended December 31, 2021 and 2020, net cash provided by financing activities was $13.3 million and $426.8 million,
respectively. During the year ended December 31, 2021, the amounts were mainly from proceeds from the exercises of stock options. During
the year ended December 31, 2020, we received $650.0 million of proceeds from our sale of 6,241,473 shares of our common stock to
Biogen under the stock purchase agreement, of which $417.5 million was recorded as equity and the remainder was recorded as revenue.
Operating Capital Requirements
We began to generate revenue from product sales in the second quarter of 2019 in conjunction with the launch of our first product,
ZULRESSO. We anticipate that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we
continue the development of our current and future product candidates, and seek regulatory approvals for zuranolone and those other product
candidates that are successfully developed; prepare for potential future commercialization of zuranolone and other product candidates beyond
ZULRESSO that are successfully developed and approved, including pre-launch and launch-readiness activities; begin to commercialize any
such products, if approved; and continue our efforts to identify and develop new product candidates beyond our current portfolio. We also
expect to incur significant costs associated with general operations. In addition, we expect to incur significant commercialization expenses
for product sales, marketing and outsourced manufacturing with respect to ZULRESSO, zuranolone, if approved and any other future
products that are successfully developed and approved. Accordingly, we anticipate that we will need substantial additional funding in
connection with our continuing operations.
Based on our current operating plans, we expect that our existing cash, cash equivalents and marketable securities as of December 31,
2021, in addition to ongoing collaboration funding, will enable us to fund our operating expenses and capital expenditure requirements for at
least the next 24 months from the filing date of this Annual Report. During that time, we expect to incur significant expenses as we continue
to commercialize ZULRESSO; complete ongoing clinical trials of zuranolone and advance regulatory, permitted pre-launch and launch-
planning activities; advance development of our other product candidates; expand our research activities; and pursue our strategic plan.
Our current operating plan does not contemplate other activities that we may pursue or that all of our currently planned activities will
proceed at the same pace, or that all of these activities will be fully initiated or completed during that time. We have based our estimates on
assumptions that could change, and we may use our available capital resources sooner than we currently expect. We may also choose to
change or increase our development, commercialization or other efforts. Because of the numerous risks and uncertainties associated with the
development and commercialization of any product or product candidates, we are unable to estimate the amounts of increased capital outlays
and operating expenditures necessary to complete development of our current or future product candidates or to commercialize any approved
product.
Our future capital requirements will depend on many factors, including:
•
the amount and timing of revenues from sales of ZULRESSO, which we expect will continue to be impacted by a number of
factors, including: the rate, degree and level of market acceptance for ZULRESSO for the treatment of PPD in the U.S.; our
decision to focus our efforts primarily on geographies that have existing, active ZULRESSO treating sites; the continued
availability of healthcare settings in those geographies to administer ZULRESSO and the ability and willingness of such
healthcare settings to make sufficient capacity
107
available; the level of reimbursement for both ZULRESSO and the infusion in the healthcare setting both by commercial and
government payors, and the nature of limitations on coverage and reimbursement; the number of healthcare professionals willing
to prescribe ZULRESSO and women with PPD who agree to be treated with ZULRESSO; and the scope, duration and timing of
the impact of the COVID-19 pandemic;
the timing and amount of costs associated with our commercialization of ZULRESSO;
the costs of regulatory, permitted pre-launch and launch-readiness activities associated with zuranolone and, if zuranolone is
approved for one or more indications, the costs associated with its commercial launch;
the initiation, progress, completion, timing, costs, and results of ongoing, planned and future non-clinical studies and clinical
trials for our existing and future product candidates; the number and length of clinical trials required by regulatory authorities to
support regulatory approval; and the costs of preparing, submitting and supporting regulatory filings for our product candidates;
the length, severity and costs of disruptions, if any, associated with the COVID-19 pandemic on initiation and conduct of our
clinical trials or on our supply chain;
the ability of zuranolone, SAGE-324 and SAGE-718 and our other clinical-stage product candidates to progress through clinical
development successfully; the outcome of discussions with regulatory authorities on regulatory pathways with respect to our
product candidates; the timing, scope and outcome of regulatory filings and reviews and approvals of such product candidates, if
we are successful in our development efforts; the scope and cost of any clinical trials or other commitments required post-
approval for any approved products resulting from such development efforts, if successful; and the level, timing and amount of
costs associated with permitted prelaunch activities and preparing for a potential future commercial launch of any such product
candidate that is successfully developed and approved;
the amounts we are entitled to receive, if any, from Biogen and Shionogi under our collaborations for cost-sharing, development,
regulatory, and sales milestones, and royalty payments;
the size of the PPD market and the portion of the population for which ZULRESSO may be prescribed; the size of the markets
for which zuranolone and our other product candidates may be approved in the future, if successfully developed; the portion of
the population in the approved indications for which our future products are actually prescribed; the rate and degree of market
acceptance for our products, and the pricing, availability and level of reimbursement for our products;
the number and characteristics of the product candidates we pursue in development and the nature and scope of our discovery
and development programs;
the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and
defending intellectual property-related claims;
the extent to which we acquire or in-license other products and technologies; and
our ability to establish any future collaboration arrangements on favorable terms, if at all.
•
•
•
•
•
•
•
•
•
•
•
Until such time, if ever, as we can generate substantial product revenue and achieve profitability, we expect to also finance our cash
needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other sources
of funding. Even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital if market
conditions are favorable or in light of other strategic considerations. To the extent that we raise additional capital through the sale of equity or
convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include
liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing, if available, may involve
agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital
expenditures or declaring dividends and may require the issuance of warrants, which could potentially dilute the ownership interest of our
stockholders. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may
have to relinquish valuable rights to our technologies, future revenue streams or research programs or to grant licenses on terms that may not
be favorable to us. Raising funds may present challenges. Markets may experience volatility or become disrupted in the future for any
number of reasons,
108
including if current efforts to control the COVID-19 pandemic are not successful. If we are unable to raise additional funds through equity or
debt financings or other means when needed, we may be required to delay, limit, reduce or terminate our product development or future
commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and
market ourselves.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations at December 31, 2021 and the effect such obligations are expected to have
on our liquidity and cash flow in future periods:
Operating lease commitments(1)
Total(1)(2)(3)
Total
Less Than
1 Year
Payments Due by Period
1-3 Years
(in thousands)
3-5 Years
More Than
5 Years
$
$
20,427 $
20,427 $
7,468 $
7,468 $
12,959 $
12,959 $
— $
$
—
—
Amounts related to contingent milestone payments are not considered contractual obligations as they are contingent on the successful
achievement of certain milestones. These contingent milestones may not be achieved. We have not included any of these amounts in the table
as we cannot estimate or predict when, or if, these amounts will become due. We do not include amounts related to milestones for indications
that we are no longer pursuing.
(1) We lease office space in two multi-tenant buildings in Cambridge, Massachusetts, consisting, as of December 31, 2021, of 63,017
square feet in the first building under an operating lease, as amended, that will expire on August 31, 2024 and 40,419 square feet in the
second building under an operating lease, as amended, that will expire on August 31, 2024. We lease office space in a multi-tenant
building in Raleigh, North Carolina, consisting of 15,525 square feet under an operating lease that will expire on November 30, 2024.
We may lease additional space prior to the expiration of our leases to meet the needs of the business. The minimum lease payments in
the table do not include related common area maintenance costs or real estate taxes, because those costs are variable.
109
(2) We have acquired exclusive and non-exclusive rights to use, research, develop and offer for sale certain products and patents under
license agreements. The license agreements obligate us to make payments to the licensors for license fees, milestones, license
maintenance fees and royalties. We are obligated to make future remaining milestone payments under these agreements of up to an
aggregate of $23.8 million upon achieving certain milestones, related to clinical development, regulatory approvals and sales. During
the year ended December 31, 2021, we recorded expense of $0.2 million for milestones under these license agreements.
(3) We enter into contracts in the normal course of business with CROs for clinical trials, non-clinical research studies and testing,
manufacturing and other services and products as part of general operations. These contracts generally provide for termination upon
notice, and we believe that our non-cancelable obligations under these agreements are not material.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We had cash, cash equivalents and marketable securities of $1.7 billion as of December 31, 2021. 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 affected by changes in the general level of U.S. interest rates. Given
the short-term nature of our cash, cash equivalents and marketable securities, we do not expect that a sudden change in market interest rates
would have a material impact on our financial condition and/or results of operations. We do not own any derivative financial instruments.
We contract with vendors in foreign countries and have subsidiaries in Europe. As such, we have exposure to adverse changes in
exchange rates of foreign currencies associated with our foreign transactions. We believe this exposure to be immaterial. We do not hedge
against this exposure to fluctuations in exchange rates.
We do not believe that our cash, cash equivalents and marketable securities have significant risk of default 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
future our investments will not be subject 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 federally insured limits.
Inflation generally affects us by increasing our cost of labor and clinical trial costs. We do not believe that inflation had a material
effect on our results of operations during the year ended December 31, 2021.
Item 8. Financial Statements and Supplementary Data
The financial statements required to be filed pursuant to this Item 8 are appended to this Annual Report. An index of those financial
statements is found 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 (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended, or the Securities Exchange Act of 1934) that are designed to ensure that information required to be disclosed in the reports
that we file or submit under the Securities Exchange Act of 1934 is (1) recorded, processed, summarized, and reported within the time
periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our President and Chief
Executive Officer, who is our principal executive officer, and our Chief Financial Officer, who is also our principal financial and accounting
officer, as appropriate, to allow timely decisions regarding required disclosure.
110
As of December 31, 2021, our management, with the participation of our principal executive officer and principal financial and
accounting officer, evaluated the effectiveness of our disclosure controls and procedures. 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
officer and principal financial and accounting officer have concluded, based upon the evaluation described above, that, as of December 31,
2021, our disclosure controls and procedures were effective at the reasonable assurance level.
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 Rule
13a-15(f) under the Securities Exchange Act of 1934). Our internal control over financial reporting is a process designed under the
supervision of our principal executive officer and principal financial officer to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting
principles. Management evaluated the effectiveness of our internal control over financial reporting using the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (the 2013
Framework). Management, under the supervision and with the participation of the principal executive officer and principal financial officer,
assessed the effectiveness of our internal control over financial reporting as of December 31, 2021 and concluded that it was effective based
on those criteria.
The effectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, 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 (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities
Exchange Act of 1934) that occurred during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Item 9B. Other Information
Not applicable.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
111
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information required by this Item is incorporated herein by reference to the information that will be contained in “Election of
Directors” and “Corporate Governance” in our proxy statement related to the 2022 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.
Code of Business Conduct and Ethics. We have adopted a Code of Business Conduct and Ethics, which we call our Values Code,
that applies to all of our employees, officers and directors, including those officers responsible for financial reporting. The current version of
the Values Code, as may be amended from time to time, is available on our website at http://investor.sagerx.com/corporate-governance. A
copy of the Values Code may also be obtained, free of charge, upon a request directed to: Sage Therapeutics, Inc., 215 First Street,
Cambridge, Massachusetts 02142, Attention: SVP, General Counsel. We intend to disclose any amendment or waiver of a provision of the
Values Code that applies to our principal executive officer, principal financial officer, or principal accounting officer, or persons performing
similar functions, by posting such information on our website (available at www.sagerx.com) and/or in our public filings with the Securities
and Exchange Commission.
Item 11. Executive Compensation
The information required by this Item is incorporated herein by reference to the information that will be contained in “Executive
Officer and Director Compensation,” “Compensation Committee Interlocks and Insider Participation” and “Compensation Committee
Report” in our proxy statement related to the 2022 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.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item is incorporated herein by reference to the information that will be contained in “Securities
Authorized for Issuance Under Equity Compensation Plans” and “Security Ownership of Certain beneficial Owners and Management” in our
proxy statement related to the 2022 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.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated herein by reference to the information that will be contained in “Corporate
Governance” and “Certain Relationships and Related Party Transactions” in our proxy statement related to the 2022 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.
Item 14. Principal Accounting Fees and Services
The information required by this Item is incorporated herein by reference to the information that will be contained in “Ratification of
Appointment of Auditors” in our proxy statement related to the 2022 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.
112
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) The following documents are filed as part of this report:
(1) Financial Statements:
Report of Independent Registered Public Accounting Firm (PCAOB ID 238)
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Income (Loss)
Consolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules:
F-1
F-3
F-4
F-5
F-6
F-7
All financial 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 are set forth on the Exhibit Index immediately following our consolidated
financial statements. The Exhibit Index is incorporated herein by reference.
Item 16. Form 10-K Summary
Not applicable.
113
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Sage Therapeutics, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Sage Therapeutics, Inc. and its subsidiaries (the “Company”) as of
December 31, 2021 and 2020, and the related consolidated statements of operations and comprehensive income (loss), of changes in
stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes
(collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial
reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the
Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion,
the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on
criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report
on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s
consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or
fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures
as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’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 company; (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
F-1
and directors of the company; 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 effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject 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.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that
was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to
the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to
which it relates.
Accrued Research and Development Costs
As described in Notes 2 and 4 to the consolidated financial statements, the Company has entered into various research and development
contracts with research institutions and other companies. When billing terms under these contracts do not coincide with the timing of when
the work is performed, management is required to make estimates of outstanding obligations to those third parties as of the end of the
reporting period. Within accrued expenses, total accrued research and development costs amounted to $39.1 million as of December 31,
2021, which include accruals for these estimated ongoing research and development costs. Any accrual estimates are based on a number of
factors, including management’s knowledge of the progress towards completion of the research and development activities, invoicing to date
under the contracts, communication from the research institution or other companies of any actual costs incurred during the period that have
not yet been invoiced, and the costs included in the contracts. Significant judgments and estimates are made in determining the accrued
balances at the end of any reporting period.
The principal considerations for our determination that performing procedures relating to accrued research and development costs is a critical
audit matter are the significant judgment by management in determining the accrued costs which in turn led to a high degree of auditor
judgment, subjectivity and effort in performing procedures and evaluating audit evidence for these accrued costs and the factors related to
progress towards completion of the research and development activities, invoicing to date under the contracts, and communication from the
research institution or other companies of any actual costs incurred during the period that have not yet been invoiced.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the
consolidated financial statements. These procedures included testing the effectiveness of controls relating to accrued research and
development costs, including controls over the review of contracts, accumulating information on actual costs incurred during the period, and
assessment of progress towards completion of the research and development activities. These procedures also included, among others, (i)
testing management’s process for estimating accrued research and development costs; (ii) evaluating the appropriateness of the method used
by management to develop the estimates; (iii) evaluating the reasonableness of the factors used in determining the estimates related to
progress towards completion of specific research and development activities and the associated cost incurred for services the Company has
not yet been invoiced or otherwise notified of the actual cost at period end; and (iv) testing the completeness and accuracy of the underlying
data including total costs included within executed contracts and actual billed expenses under these contracts.
/s/PricewaterhouseCoopers LLP
Boston, Massachusetts
February 24, 2022
We have served as the Company’s auditor since 2013.
F-2
Sage Therapeutics, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share and per share data)
Assets
Current assets:
Cash and cash equivalents
Marketable securities
Prepaid expenses and other current assets
Collaboration receivable - related party
Total current assets
Property and equipment, net
Restricted cash
Right-of-use operating asset
Other long-term assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued expenses
Operating lease liability, current portion
Total current liabilities
Operating lease liability, net of current portion
Other liabilities
Total liabilities
Commitments and contingencies (Note 5)
Stockholders’ equity:
Preferred stock, $0.0001 par value per share; 5,000,000 shares
authorized at December 31, 2021 and December 31, 2020; no shares
issued or outstanding at December 31, 2021 and December 31, 2020
Common stock, $0.0001 par value per share; 120,000,000 shares
authorized at December 31, 2021 and December 31, 2020;
58,940,083 and 58,311,444 shares issued at
December 31, 2021 and December 31, 2020; 58,937,050
and 58,308,411 shares outstanding at December 31, 2021 and
December 31, 2020
Treasury stock, at cost, 3,033 shares at December 31, 2021 and
December 31, 2020
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive gain (loss)
Total stockholders’ equity
Total liabilities and stockholders’ equity
December 31,
2021
December 31,
2020
294,233 $
1,448,063
39,841
18,506
1,800,643
3,016
1,269
16,109
4,251
1,825,288 $
10,450 $
67,275
7,468
85,193
10,964
100
96,257
1,661,082
438,467
22,821
—
2,122,370
6,755
1,716
25,064
3,341
2,159,246
3,691
54,851
8,662
67,204
19,438
270
86,912
—
—
6
6
(400)
3,227,471
(1,495,386)
(2,660)
1,729,031
1,825,288 $
(400)
3,109,807
(1,037,494)
415
2,072,334
2,159,246
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-3
Sage Therapeutics, Inc. and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income (Loss)
(in thousands, except share and per share data)
Product revenue, net
Collaboration revenue
Collaboration revenue - related party
Total revenue
Operating costs and expenses:
Cost of goods sold
Research and development
Selling, general and administrative
Restructuring
Total operating costs and expenses
Income (loss) from operations
Interest income, net
Other income, net
Net income (loss)
Net income (loss) per share—basic
Net income (loss) per share—diluted
Weighted average number of common shares
outstanding—basic
Weighted average number of common shares
outstanding—diluted
Comprehensive income (loss):
Net income (loss)
Other comprehensive items:
Unrealized gain (loss) on marketable
securities
Total other comprehensive gain (loss)
Total comprehensive income (loss)
2021
2020
2019
Year Ended December 31,
6,308 $
—
—
6,308
553
283,166
183,498
—
467,217
(460,909)
2,883
134
(457,892) $
(7.80) $
(7.80) $
6,700 $
—
1,107,500
1,114,200
565
292,714
196,952
27,743
517,974
596,226
9,597
250
606,073 $
11.66 $
11.43 $
3,957
2,911
—
6,868
400
368,815
345,777
—
714,992
(708,124)
27,804
82
(680,238)
(13.38)
(13.38)
$
$
$
$
58,670,230
51,983,188
50,833,837
58,670,230
53,003,115
50,833,837
$
(457,892) $
606,073 $
(680,238)
(3,075)
(3,075)
(460,967) $
(880)
(880)
605,193 $
1,810
1,810
(678,428)
$
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Sage Therapeutics, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
(in thousands, except share data)
Common Stock
Treasury Stock
Amount
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
Stockholders’
Equity
Balances at December 31, 2018
Issuance of common stock from exercises of stock options
Issuance of common stock under the employee stock purchase
plan
Stock-based compensation expense
Purchase of treasury stock
Public offering of common stock, net of offering costs
Vesting of restricted stock units, net of employee tax obligations
Unrealized gain on available-for-sale securities
Net loss
Balances at December 31, 2019
Issuance of common stock from exercises of stock options
Issuance of common stock under the employee stock purchase
plan
Stock-based compensation expense
Issuance of common stock under the Stock Purchase Agreement
- related
party
Unrealized loss on available-for-sale securities
Net income
Balances at December 31, 2020
Issuance of common stock from exercises of stock options
Issuance of common stock under the employee stock purchase
plan
Stock-based compensation expense
Vesting of restricted stock units, net of employee tax obligations
Unrealized loss on available-for-sale securities
Net loss
Balances at December 31, 2021
Shares
46,888,263
1,031,989
$
55,404
—
—
3,833,334
68,204
—
—
51,877,194
117,025
72,719
—
6,241,473
—
—
58,308,411
307,378
46,759
—
274,502
—
—
58,937,050
$
5
—
—
—
—
—
—
—
—
5
—
—
—
1
—
—
6
—
—
—
—
—
—
6
$
3,033
—
(211 ) $
—
1,827,021
44,276
$
(515 ) $
—
(963,329 ) $
—
862,971
44,276
—
—
—
—
—
—
—
3,033
—
—
—
—
—
—
3,033
—
—
—
—
—
—
3,033
—
—
(189 )
—
—
—
—
(400 )
—
—
—
—
—
—
(400 )
—
—
—
—
—
—
$
(400 ) $
5,744
151,508
—
560,948
(2,175 )
—
—
2,587,322
5,082
4,936
94,968
417,499
—
—
3,109,807
12,397
2,761
103,891
(1,385 )
—
—
3,227,471
$
—
—
—
—
—
1,810
—
1,295
—
—
—
—
(880 )
—
415
—
—
—
—
(3,075 )
—
(2,660 ) $
—
—
—
—
—
—
(680,238 )
(1,643,567 )
—
—
—
—
—
606,073
(1,037,494 )
—
—
—
—
—
(457,892 )
(1,495,386 ) $
5,744
151,508
(189 )
560,948
(2,175 )
1,810
(680,238 )
944,655
5,082
4,936
94,968
417,500
(880 )
606,073
2,072,334
12,397
2,761
103,891
(1,385 )
(3,075 )
(457,892 )
1,729,031
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Sage Therapeutics, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
Cash flows from operating activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating
activities:
Stock-based compensation expense
Premium on marketable securities
Amortization of premium (discount) on marketable securities
Depreciation
Changes in operating assets and liabilities:
Prepaid expenses and other current assets
Collaboration receivable - related party
Other long-term assets
Right-of-use operating asset
Operating lease liabilities, current
Operating lease liabilities, non-current
Accounts payable
Accrued expenses and other liabilities
Net cash provided by (used in) operating activities
Cash flows from investing activities
Proceeds from sales and maturities of marketable securities
Purchases of marketable securities
Purchases of property and equipment
Net cash provided by (used in) investing activities
Cash flows from financing activities
Proceeds from stock option exercises and employee stock purchase
plan issuances
Payment of employee tax obligations related to vesting of restricted
stock units
Payments of offering costs
Proceeds from the sale of common stock under the Stock Purchase
Agreement - related party
Proceeds from public offerings of common stock, net of commissions
and underwriting discounts
Net cash provided by financing activities
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period
Supplemental disclosure of non-cash operating and investing
activities
Purchases of property and equipment included in accounts payable
Right-of-use assets obtained in exchange for new operating lease
liabilities
Lease asset de-recognized upon lease cancellation
2021
Year Ended December 31,
2020
2019
$
(457,892) $
606,073 $
(680,238)
104,629
(23,641)
13,046
4,182
(17,020)
(18,506)
(910)
5,221
206
(5,944)
6,689
11,758
(378,182)
95,994
(1,736)
1,048
2,630
3,879
—
452
6,397
36
(6,825)
(11,511)
(32,157)
664,280
153,231
(3,674)
(6,966)
2,283
(4,781)
—
(3,793)
8,168
2,804
(10,761)
(18,783)
33,804
(528,706)
988,075
(1,990,151)
(372)
(1,002,448)
901,749
(458,720)
(345)
442,684
1,171,270
(1,308,675)
(5,751)
(143,156)
14,719
9,262
48,850
(1,385)
—
—
—
(2,175)
(328)
—
417,500
—
—
13,334
(1,367,296)
1,662,798
295,502
$
—
426,762
1,533,726
129,072
1,662,798 $
561,277
607,624
(64,238)
193,310
129,072
70
$
—
$
—
3,733
$
$
—
2,310
$
$
65
872
—
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-6
SAGE THERAPEUTICS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Nature of the Business
Sage Therapeutics, Inc. (“Sage” or the “Company”) is a biopharmaceutical company committed to developing and commercializing
novel medicines with the potential to transform the lives of people with debilitating disorders of the brain.
The Company’s first product, ZULRESSO® (brexanolone) CIV injection, is approved in the U.S. as a treatment for postpartum
depression (“PPD”) in adults. The Company launched ZULRESSO commercially in the U.S. in June 2019. The Company has a portfolio of
other product candidates with a current focus on modulating two critical central nervous system (“CNS”) receptor systems, GABA and
NMDA. The GABA receptor family, which is recognized as the major inhibitory neurotransmitter in the CNS, mediates downstream
neurologic and bodily function via activation of GABAA receptors. The NMDA-type receptors of the glutamate receptor system are a major
excitatory receptor system in the CNS. Dysfunction in these systems is implicated in a broad range of CNS disorders. The Company is
currently targeting diseases and disorders of the brain with three key focus areas: depression, neurology and neuropsychiatry.
The Company 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 September 13, 2011, the Company changed its name to Sage Therapeutics, Inc.
Risks and Uncertainties
The Company is subject to risks and uncertainties common to companies in the biotechnology and pharmaceutical industries, including,
but not limited to, the risks associated with developing product 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 the marketing and sale of
pharmaceutical products; the potential for development by third parties of new technological innovations that may compete with the
Company’s products and product candidates; the dependence on key personnel; the challenges of protecting proprietary technology; the need
to comply with government regulations; the high costs of drug development; the uncertainty of being able to secure additional capital when
needed to fund operations; and the potential impact of the COVID-19 pandemic on its development activities, operations and financial
condition.
The product candidates developed by the Company require approvals from the U.S. Food and Drug Administration (“FDA”) or foreign
regulatory agencies prior to commercial sales. There can be no assurance that the current and future product candidates of the Company will
receive, or that the Company’s current product, ZULRESSO, will maintain, the necessary approvals. If the Company fails to successfully
complete clinical development and generate results sufficient to file for regulatory approval or is denied approval or approval is delayed for
any of its product candidates, such occurrences may have a material adverse impact on the Company’s business and its financial statements.
The ongoing COVID-19 pandemic has caused and may continue to cause major disruptions to businesses and economies worldwide.
The rapid spread of COVID-19 in the U.S. resulted in a significant reduction in patient demand for ZULRESSO and in the number of sites
available to administer ZULRESSO. This has had a negative impact on the Company’s revenue from sales of ZULRESSO. While the
Company has not experienced any other material disruptions to date as a result of the COVID-19 pandemic, any prolonged material
disruptions to the work of the Company’s employees, suppliers, contract manufacturers, or vendors could negatively impact the Company’s
activities, availability of supplies, or operating results. While the Company has seen slower recruitment in certain of its clinical trials due to
the COVID-19 pandemic, especially with respect to older patients and in the SKYLARK Study in patients with PPD, which caused us to
revise our expected timeline for reporting topline data from that study, the Company to date has not experienced other significant impacts to
the Company’s development activities as a result of the COVID-19 pandemic. Any material disruption to the Company’s development
activities may cause delays, increase the Company’s costs and impact the Company’s operating results. In addition, the COVID-19 pandemic
initially caused major volatility in capital markets and
F-7
a significant global economic downturn, and the Company’s ability to access the capital markets in the future could be negatively impacted if
current efforts to control the COVID-19 pandemic are not successful.
Going Concern
Under Accounting Standards Update (“ASU”) No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40),
the Company has the responsibility to evaluate whether conditions and/or events raise substantial doubt about its ability to meet its future
financial obligations as they become due within one year after the date that the financial statements are issued. The Company has incurred
losses and negative cash flows from operations since its inception, except for net income of $606.1 million for the year ended December 31,
2020, reflecting revenue recognized under a collaboration and license agreement with Biogen MA Inc. (“BIMA”) and Biogen International
GmbH (collectively with BIMA, “Biogen”) (the “Biogen Collaboration Agreement”). As of December 31, 2021, the Company had an
accumulated deficit of $1.5 billion. From its inception through December 31, 2021, the Company has received aggregate net proceeds of $2.8
billion from the sales of redeemable convertible preferred stock prior to its initial public offering, the issuance of convertible notes, and the
sales of common stock in its initial public offering (“IPO”) in July 2014, in follow-on public offerings and to BIMA under a stock purchase
agreement executed in connection with the Biogen Collaboration Agreement. The Company has also received $1.0 billion in upfront
payments under its collaborations with Biogen and Shionogi & Co., Ltd. (“Shionogi”). Until such time, if ever, as the Company can generate
substantial product revenue and achieve profitability, the Company expects to finance its cash needs through a combination of equity offerings,
debt financings, collaborations, strategic alliances, licensing arrangements and other sources of funding. If the Company is unable to raise
additional funds through equity or debt financings or other sources of funding when needed, the Company may be required to delay, limit,
reduce or terminate product development or future commercialization efforts or grant rights to develop and market products or product
candidates that the Company would otherwise prefer to develop and market itself.
The Company expects that, based on its current operating plans, the Company’s existing cash, cash equivalents and marketable
securities will be sufficient to fund its currently planned operations for at least the next 12 months from the filing date of this Annual Report.
At some point after that time, the Company anticipates it will require additional financing to fund its future operations. Even if the Company
believes it has sufficient funds for its current or future operating plans, the Company may seek to raise additional capital if market conditions
are favorable or in light of other strategic considerations.
2.
Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed in the preparation of these consolidated financial statements.
Basis of Presentation
The accompanying consolidated financial statements include those of the Company 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 U.S. (“GAAP”).
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts
and transactions have been eliminated.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of contingent assets
F-8
and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting
period. The full extent to which the COVID-19 pandemic may directly or indirectly impact the Company’s business, results of operations and
financial condition, including sales, expenses, reserves and allowances, manufacturing, clinical trials, research and development costs and
employee-related amounts, will depend on future developments that are highly uncertain, including: the scope and duration of the pandemic;
the effectiveness of vaccination campaigns, vaccine mandates, and other efforts to control the pandemic; the duration of the vaccines’
efficacy against COVID-19 and its variants; the duration and severity of any restrictive measures taken to curb the spread of COVID-19;
healthcare staffing shortages; and the impact of the pandemic on the Company’s customers and vendors. The Company has made estimates of
the impact of the COVID-19 pandemic within its consolidated financial statements. Due to the evolving nature of the COVID-19 pandemic,
and the emergence of highly contagious variants, there may be changes to those estimates in future periods, and actual results could differ
from those estimates.
Cash Equivalents
The Company considers all highly liquid investments with an original maturity of 90 days or less to be cash equivalents. As of
December 31, 2021, cash equivalents were comprised of money market funds, U.S. commercial paper and international commercial paper.
As of December 31, 2020, cash equivalents were comprised of commercial paper, money market funds and U.S. treasury securities.
Marketable Securities
Marketable securities consist of investments with original maturities greater than 90 days. The Company has classified its investments
with maturities beyond one year as short-term, based on their highly liquid nature and because such marketable securities represent the
investment of cash that is available for current operations. The Company considers its investment portfolio of marketable securities to be
available-for-sale. Accordingly, these investments are recorded at fair value, which is based on quoted market prices. Unrealized gains and
losses are reported as the accumulated other comprehensive items in stockholders’ equity. When the fair value is below the amortized cost of
the asset, an estimate of expected credit losses is made. The credit-related impairment amount is recognized in net income (loss); the
remaining impairment amount and unrealized gains are reported as a component of accumulated other comprehensive items in stockholders’
equity. Credit losses are recognized through the use of an allowance for credit losses account and subsequent improvements in expected
credit losses are recognized as a reversal of an amount in the allowance for credit losses account. If the Company has the intent to sell the
security or it is more likely than not that the Company will be required to sell the security prior to recovery of its amortized cost basis, then
the allowance for the credit loss is written-off and the excess of the amortized cost basis of the asset over its fair value is recorded in the
consolidated statements of operations and comprehensive income (loss). Regardless of the Company’s intent to sell a security, it performs
additional analysis on all securities with unrealized losses to evaluate losses associated with the creditworthiness of the security. Credit losses
are identified where the Company does not expect to receive cash flows sufficient to recover the amortized cost basis of a security.
Accounts Receivable
The Company’s trade accounts receivable consist of amounts due from specialty distributors, specialty pharmacies, and medically-
supervised healthcare settings that have been certified under a Risk Evaluation and Mitigation Strategy (“REMS”) program in the U.S.
related to sales of ZULRESSO and have standard payment terms that generally require payment within 30 to 90 days from the invoice date.
The Company monitors the financial performance and creditworthiness of customers so that it can properly assess and respond to changes in
their credit profiles. The Company makes judgments as to its ability to collect outstanding receivables and provides an allowance for bad
debts against the trade account receivables, when appropriate. Trade accounts receivable are included in prepaid expenses and other current
assets on the consolidated balance sheets. As of December 31, 2021, the Company has not provided any allowance for bad debts against the
trade accounts receivable, and the amount of trade accounts receivable was not significant.
F-9
Inventory
Inventory is stated at the lower of cost or estimated net realizable value with cost determined on a first-in, first-out basis. Inventory costs
include raw materials, third-party contract manufacturing, third-party packaging services, and freight. Raw and intermediate materials that
may be utilized for either research and development or commercial purposes are classified as inventory. Amounts in inventory that are used
for research and development purposes are charged to research and development expense when the product enters the research and
development process and can no longer be used for commercial purposes and, therefore, does not have an “alternative future use” as defined
in authoritative guidance. The Company performs an assessment of the recoverability of capitalized inventory during each reporting period
and, if needed, writes down any excess and obsolete inventory to its estimated net realizable value in the period it is identified. If they occur,
such impairment charges are recorded as a component of cost of goods sold in the consolidated statements of operations and comprehensive
income (loss). Inventory is included in prepaid expenses and other current assets on the consolidated balance sheets and the amount was not
significant as of December 31, 2021.
Prior to the initial date that regulatory approval is received, costs related to the production of inventory are recorded as research and
development expense on the Company’s consolidated statements of operations and comprehensive income (loss) in the period incurred. In
connection with the FDA approval of ZULRESSO in March 2019, the Company subsequently began capitalizing inventory manufactured or
purchased after this date.
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 accumulated depreciation are removed from the accounts and any resulting
gain or loss is credited or charged to income. Repairs and maintenance costs are expensed as incurred.
Leases
The Company determines if an arrangement is a lease at contract inception. Operating lease assets represent the Company’s right to use
an underlying asset for the lease term and operating lease liabilities represent the Company’s obligation to make payments arising from the
lease. Operating lease assets and liabilities are recognized at the commencement date of the lease based upon the present value of lease
payments over the lease term. When determining the lease term, the Company includes options to extend or terminate the lease when it is
reasonably certain that the Company will exercise those options. The Company uses the implicit interest rate when readily determinable and
uses the Company’s incremental borrowing rate when the implicit interest rate is not readily determinable based upon the information
available at the commencement date of the lease in determining the present value of the lease payments.
The lease payments used to determine the Company’s operating lease assets may include lease incentives, stated rent increases and
escalation clauses linked to rates of inflation, when determinable, and are recognized in the Company’s operating lease assets in the
Company’s consolidated balance sheets. In addition, the Company’s contracts may contain lease and non-lease components. The Company
combines lease and non-lease components, which are accounted for together as lease components.
The Company’s operating leases are reflected in the right-of-use operating asset; operating lease liability, current portion; and operating
lease liability, net of current portion in the Company’s consolidated balance sheets. Lease expense for minimum lease payments is recognized
on a straight-line basis over the lease term. Short-term leases, defined as leases that have a lease term of 12 months or less at the
commencement date, are not recorded on the Company’s consolidated balance sheets and are recognized in the consolidated statements of
operations and comprehensive income (loss) on a straight-line basis over the term of the lease.
Variable lease payments are the amounts owed by the Company to a lessor that are not fixed, such as reimbursement for common area
maintenance and utilities costs for facility leases and maintenance and tolls for leased vehicles. Variable lease payments are expensed when
incurred.
F-10
Impairment of Long-Lived Assets
Long-lived assets consist of property and equipment. Long-lived assets to be held and used are tested for recoverability whenever events
or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company
considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations,
significant negative industry or economic trends, and significant changes or planned changes in the use of the assets. If an impairment review
is performed to evaluate a long-lived asset group for recoverability, the Company compares forecasts of undiscounted cash flows expected to
result from the use and eventual disposition of the long-lived asset group to its carrying value. The impairment loss would be based on the
excess of the carrying value of the impaired asset over its fair value, determined based on discounted cash flows. To date, the Company has
not recorded any impairment losses on long-lived assets.
Cost of Goods Sold
Cost of goods sold includes direct and indirect costs related to the manufacturing and distribution of ZULRESSO, including third-party
manufacturing costs, packaging services, freight, third-party royalties payable on the Company’s net product revenues and amortization of
intangible assets associated with ZULRESSO. Cost of goods sold may also include period costs related to certain inventory manufacturing
services, inventory adjustment charges, as well as manufacturing variances. In connection with the FDA approval of ZULRESSO in March
2019, the Company subsequently began capitalizing inventory manufactured or purchased after this date. As a result, certain manufacturing
costs associated with product shipments of ZULRESSO were expensed prior to FDA approval and, therefore, are not included in cost of
goods sold during the years ended December 31, 2021 and 2020.
Research and Development Costs and Accruals
Research and development expenses are comprised of costs incurred in performing research and development activities, including
salaries and benefits, overhead costs, depreciation, contract services and other related costs. Research and development costs are expensed to
operations as the related obligation is incurred.
The Company has entered into various research and development contracts with research institutions and other companies both inside
and outside of the U.S. These agreements are generally cancelable, and related costs are recorded as research and development expenses as
incurred. The Company records accruals for estimated ongoing research and development costs. When billing terms under these contracts do
not coincide with the timing of when the work is performed, the Company is required to make estimates of outstanding obligations to those
third parties as of the end of the reporting period. Any accrual estimates are based on a number of factors, including the Company’s
knowledge of the progress towards completion of the research and development activities, invoicing to date under the contracts,
communication from the research institution or other companies of any actual costs incurred during the period that have not yet been
invoiced, and the costs included in the contracts. Significant judgments and estimates are made in determining the accrued balances at the
end of any reporting period. Actual results could differ from the estimates made by the Company. The historical accrual estimates made by
the Company have not been materially different from the actual costs.
Stock-Based Compensation
The Company recognizes compensation expense for stock-based awards, including grants of stock options and restricted stock units,
made to employees, non-employee directors and non-employee consultants based on the estimated fair value on the date of grant, over the
requisite service period. The Company recognizes stock-based compensation expense for only the portion of awards that are expected to vest.
For awards that vest upon achievement of a performance condition, the Company recognizes compensation expense when achievement
of the performance condition is met or during the period from which meeting the condition is deemed probable until the expected date of
meeting the performance condition, using management’s best estimates, which consider the inherent risk and uncertainty regarding the future
outcomes of the milestones.
F-11
The fair value of each stock option grant is estimated using the Black-Scholes option-pricing model. Through the year ended December
31, 2019, the Company estimated its expected volatility using a weighted average of the historical volatility of publicly-traded peer
companies and the volatility of its common stock. Effective January 1, 2020, the Company began using the historical volatility of only its
common stock, as there is adequate historical data for the duration of the expected term.
The expected term of the stock options granted to employees, non-employee directors and non-employee consultants by the Company
has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” stock options. The risk-free interest rate is
determined by reference to the U.S. Treasury yield curve in effect at the date of grant for time periods approximately equal to the expected
term of the award. The expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to
pay any cash dividends in the foreseeable future.
The Company also applies a forfeiture rate in order to calculate stock-based compensation expense. Expected forfeitures are based on
the historical experience of the Company and management’s expectations of future forfeitures. To the extent actual forfeitures differ from the
estimates, the difference is recorded as a cumulative adjustment in the period in which the estimates are revised.
Treasury Stock
The Company records treasury stock at cost. Treasury stock consists of shares of the Company’s common stock received from a then-
employee as consideration for exercises of stock options.
Basic and Diluted Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of common
stock that were outstanding during the period. Diluted net income (loss) per share is computed by adjusting the weighted average number of
shares of common stock that were outstanding during the period for the dilutive effect of common stock equivalents outstanding for the
period by using the treasury stock method.
For periods in which the Company has reported net losses, diluted net loss per share is the same as basic net loss per share, because
dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. The Company reported a net loss for the years
ended December 31, 2021 and 2019.
Concentration of Credit Risk and of Significant Suppliers
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents
and marketable securities. The Company maintains accounts for all cash and cash equivalents at accredited financial institutions, in amounts
that exceed federally insured limits. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk
associated with commercial banking relationships.
The Company is dependent on third-party manufacturers to supply products for research and development activities for its programs.
The Company also relies and expects to continue to rely on third-party manufacturers to supply it with active pharmaceutical ingredients
(“API”) and formulated drugs; and to provide other services related to manufacturing activities for these programs. These programs could be
adversely affected by a significant interruption in the supply of API and formulated drugs, or the interruption of manufacturing related
services.
Income Taxes
The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to differences between financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted rates in effect for the year in
which these temporary differences are expected to be recovered or settled. Valuation allowances are provided if, based on the weight of
available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
F-12
The Company accounts for uncertain tax positions in accordance with the provisions of Accounting Standards Codification (“ASC”)
Topic 740, “Income Taxes” (“Topic 740”). When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the
extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be
realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. The Company
accrues for potential interest and penalties related to unrecognized tax benefits in income tax expense.
Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer 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 following
three categories:
Level 1 — Quoted market prices in active markets for identical assets or liabilities.
Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that
are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full
term of the assets or liabilities.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or
liabilities.
The Company’s cash equivalents and marketable securities at December 31, 2021 and 2020 were carried at fair value, determined
according to the fair value hierarchy; see Note 3, Fair Value Measurements.
The carrying amounts reflected in the consolidated balance sheets for the collaboration receivable – related party, accounts payable and
accrued expenses approximate their fair values due to their short-term maturities at December 31, 2021 and 2020, respectively.
Segment Data
The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions.
The singular focus of the Company is developing and commercializing novel therapies with the potential to transform the lives of people
with debilitating disorders of the brain.
Comprehensive Income (Loss)
Comprehensive income (loss) includes net income (loss) and other changes in stockholders’ equity that result from transactions and
economic events other than those with stockholders. The Company’s only element of other comprehensive income (loss) is unrealized gains
and losses on marketable securities that are considered to be available-for-sale.
Revenue Recognition
The Company generates revenue from the sale of ZULRESSO, which was approved by the FDA in March 2019 and the Company
subsequently began selling in June 2019, and from collaboration and supply agreements with the Company’s collaborators. To date, revenue
from collaboration agreements has come from initial, upfront payments allocated to licenses of intellectual property delivered to the
Company’s collaborators and from the supply of material for clinical trials under a supply agreement.
Under ASC Topic 606, Revenue from Contracts with Customers (“Topic 606”), an entity recognizes revenue when its customer obtains
control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those
goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity
performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii)
determine the transaction price,
F-13
including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize
revenue when (or as) the entity satisfies a performance obligation. Arrangements that include rights to additional goods or services that are
exercisable at a customer’s discretion are generally considered options. The Company assesses if these options provide a material right to the
customer and if so, they are considered performance obligations. The exercise of a material right may be accounted for as a contract
modification or as a continuation of the contract for accounting purposes.
For contracts determined to be within the scope of Topic 606, the Company assesses whether the goods or services promised within each
contract are distinct to identify those that are performance obligations. This assessment involves subjective determinations and requires
management to make judgments about the individual promised goods or services and whether such are separable from the other aspects of
the contractual relationship. Promised goods and services are considered distinct provided that: (i) the customer can benefit from the good or
service either on its own or together with other resources that are readily available to the customer and (ii) the entity’s promise to transfer the
good or service to the customer is separately identifiable from other promises in the contract.
The Company allocates the transaction price (the amount of consideration it expects to be entitled to from a customer in exchange for
the promised goods or services) to each performance obligation and recognizes the associated revenue when (or as) each performance
obligation is satisfied. The Company’s estimate of the transaction price for each contract includes all variable consideration to which the
Company expects to be entitled.
Collaboration and License Revenue
In assessing whether a promised good or service is distinct in the evaluation of a collaboration or license arrangement subject to Topic
606, the Company considers factors such as the research, manufacturing and commercialization capabilities of the collaboration partner, and
the availability of the associated expertise in the general marketplace. The Company also considers the intended benefit of the contract in
assessing whether a promised good or service is separately identifiable from other promises in the contract. If a promised good or service is
not distinct, the Company is required to combine that good or service with other promised goods or services until it identifies a bundle of
goods or services that is distinct.
The transaction price is then determined and allocated to the identified performance obligations in proportion to their standalone selling
prices (“SSP”) on a relative SSP basis. SSP is determined at contract inception and is not updated to reflect changes between contract
inception and when the performance obligations are satisfied. Determining the SSP for performance obligations requires significant
judgment. In developing the SSP for a performance obligation, the Company considers applicable market conditions and relevant entity-
specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs. In certain
circumstances, the Company may apply the residual method to determine the SSP of a good or service if the standalone selling price is
considered highly variable or uncertain. The Company validates the SSP for performance obligations by evaluating whether changes in the
key assumptions used to determine the SSP will have a significant effect on the allocation of arrangement consideration between multiple
performance obligations.
If the consideration promised in a contract includes a variable amount, the Company estimates the amount of consideration to which it
will be entitled in exchange for transferring the promised goods or services to a customer. The Company determines the amount of variable
consideration by using the expected value method or the most likely amount method. The Company includes the unconstrained amount of
estimated variable consideration in the transaction price. The amount included in the transaction price is constrained to the amount for which
it is probable that a significant reversal of cumulative revenue recognized will not occur. At the end of each subsequent reporting period, the
Company re-evaluates the estimated variable consideration included in the transaction price and any related constraint, and if necessary,
adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis in the period of
adjustment.
If an arrangement includes development and regulatory milestone payments, the Company evaluates whether the milestones are
considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method.
If it is probable that a significant revenue reversal would not occur, the associated
F-14
milestone value is included in the transaction price. Milestone payments that are not within the Company’s control or the licensee’s control,
such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received.
In determining the transaction price, the Company adjusts consideration for the effects of the time value of money if the timing of
payments provides the Company with a significant benefit of financing. The Company does not assess whether a contract has a significant
financing component if the expectation at contract inception is such that the period between payment by the licensees and the transfer of the
promised goods or services to the licensees will be one year or less. The Company assessed its arrangements with Shionogi and Biogen and
concluded that a significant financing component does not exist for either arrangement. For arrangements with licenses of intellectual
property that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the
predominant item to which the royalties relate, the Company recognizes royalty revenue and sales-based milestones at the later of (i) when
the related sales occur, or (ii) when the performance obligation to which the royalty has been allocated has been satisfied.
The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation
when (or as) each performance obligation is satisfied at a point in time or over time, and if over time this is based on the use of an output or
input method. Revenue from the Company’s collaboration agreement with Shionogi has come from initial, upfront consideration upon
execution of the agreement and for the supply of drug product for Shionogi clinical trials. Revenue from the Company’s collaboration
agreement with Biogen has come from initial, upfront consideration related to the execution of the Biogen Collaboration Agreement. For
additional information, refer to Note 6, Collaboration Agreements.
Product Revenue, Net
The Company recognizes product revenues, net of variable consideration related to certain allowances and accruals that are determined
using the expected value method, in its consolidated financial statements at the point in time when control transfers to the customer, which is
typically when the product has been delivered to the customer’s location. The amount included in the transaction price is constrained to the
amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur. The Company’s only performance
obligation identified for ZULRESSO is to deliver the product to the location specified by the customer’s order. The Company records
shipping and handling costs associated with delivery of product to its customers within selling, general and administrative expenses on its
consolidated statements of operations and comprehensive income (loss). The Company expenses incremental costs of obtaining a contract as
incurred if the expected amortization period of the asset would be less than one year. If the Company were to incur incremental costs with an
amortization period greater than a year, such costs would be capitalized as contract assets, as they are expected to be recovered, and would be
expensed by amortizing on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset
relates. The Company did not have any contract assets (unbilled receivables) at December 31, 2021, as customer invoicing generally occurs
before or at the time of revenue recognition. The Company did not have any contract liabilities at December 31, 2021, as the Company did
not receive any payments in advance of satisfying its performance obligations to its customers. Amounts billed or invoiced that are
considered trade accounts receivable are included in prepaid expenses and other current assets on the consolidated balance sheets.
As of December 31, 2021 and 2020, the Company had not provided any allowance for bad debts against the trade accounts receivable,
and the amount of trade accounts receivable was not significant.
The Company records reserves, based on contractual terms, for the following components of variable consideration related to product
sold during the reporting period, as well as its estimate of product that remains in the distribution channel inventory of its customers at the
end of the reporting period. On a quarterly basis, the Company updates its estimates, if necessary, and records any material adjustments in the
period they are identified.
F-15
Chargebacks: The Company estimates chargebacks from its customers who directly purchase the product from the Company for
discounts resulting from contractual commitments to sell products to eligible healthcare settings at prices lower than the list prices
charged to its customers. Customers charge the Company for the difference between what they pay to the Company for the product
and the selling price to the eligible healthcare settings. Reserves for chargebacks consist of credits that the Company expects to issue
for units that remain in the distribution channel inventories at the end of each reporting period that the Company expects will be sold
to eligible healthcare settings, and chargebacks that customers have claimed, but for which the Company has not yet issued a credit.
Government Rebates: The Company is subject to discount obligations under government programs, including Medicaid. The
Company records reserves for rebates in the same period the related product revenue is recognized, resulting in a reduction of
ZULRESSO product revenues and a current liability that is included in accrued expenses on its consolidated balance sheets. The
Company’s liability for these rebates consists of invoices received for claims from prior quarters that have not been paid or for which
an invoice has not yet been received, estimates of claims for the current quarter, and estimates of future claims that will be made for
product that has been recognized as revenue, but which remains in the distribution channel at the end of each reporting period.
Trade Discounts and Allowances: The Company generally provides customary invoice discounts on ZULRESSO sales to its
customers for prompt payment and the Company pays fees for sales order management, data, and distribution services. The Company
estimates its customers will earn these discounts and fees and deducts these discounts and fees in full from gross ZULRESSO
revenues and accounts receivable at the time the Company recognizes the related revenues.
Financial Assistance: The Company provides voluntary financial assistance programs to patients with commercial insurance that have
coverage and reside in states that allow financial assistance. The Company estimates the financial assistance amounts for ZULRESSO
and records any such amounts within accrued expenses on its consolidated balance sheets. The calculation of the accrual for financial
assistance is based on an estimate of claims and the cost per claim that the Company expects to receive using demographics for
patients who have registered and been approved for assistance. Any adjustments are recorded in the same period the related revenue is
recognized, resulting in a reduction of product revenue and the establishment of a current liability, which is included as a component
of accrued expenses on the consolidated balance sheets.
Product Returns: Consistent with industry practice, the Company offers product return rights to customers for damaged, defective or
expiring product, provided it is within a specified period around the product expiration date as set forth in the Company’s return goods
policy. The Company estimates the amount of its product sales that may be returned by its customers and records this estimate as a
reduction of revenue in the period the related product revenue is recognized, as well as a reserve within accrued expenses on the
consolidated balance sheets. Product returns have been immaterial to date and are expected to remain immaterial in the future.
Collaborative Arrangements
The Company analyzes its collaboration arrangements to assess whether such arrangements involve joint operating activities performed
by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success
of such activities and therefore within the scope of ASC Topic 808, Collaborative Arrangements (“Topic 808”). This assessment is performed
throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration
arrangements within the scope of Topic 808 that contain multiple elements, the Company first determines which elements of the
collaboration are deemed to be within the scope of Topic 808 and which elements of the collaboration are more reflective of a vendor-
customer relationship and therefore within the scope of Topic 606. For elements of collaboration arrangements that are accounted for
pursuant to Topic 808, an appropriate recognition method is determined and applied consistently, either by analogy to authoritative
accounting literature or by applying a reasonable and rational policy election. For those elements of the arrangement that are accounted for
pursuant to Topic 606, the Company applies the five-step model described above, and presents the arrangement as collaboration revenue in
the consolidated statements of operations and comprehensive income (loss).
F-16
For collaboration arrangements that are within the scope of Topic 808, the Company evaluates the income statement classification for
presentation of amounts due from or owed to other participants associated with multiple activities in a collaboration arrangement based on
the nature of each separate activity. Payments or reimbursements that are the result of a collaborative relationship instead of a customer
relationship, such as co-development and co-commercialization activities, are recorded as research and development expense or selling,
general and administrative expense, in the event of a payment to the collaborative partner in a period, or a reduction to these expense line
items in the event of a reimbursement from the collaboration partner in a period, as appropriate.
Recently Issued Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, Financial Instruments - Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments. This standard amends the impairment model by requiring entities to
use a forward-looking approach based on expected losses to estimate credit losses for most financial assets and certain other instruments that
are not measured at fair value through net income. For available-for-sale debt securities, entities are required to recognize an allowance for
credit losses rather than a reduction in carrying value of the asset. Entities are no longer permitted to consider the length of time that fair
value has been less than amortized cost when evaluating when credit losses should be recognized. The Company adopted the standard on the
required effective date of January 1, 2020, on a prospective basis. This guidance did not have a significant impact on the Company’s
consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the
Disclosure Requirements for Fair Value Measurement. This standard modifies certain disclosure requirements on fair value measurements.
The Company adopted the standard on the required effective date of January 1, 2020. This guidance did not have a significant impact on the
Company’s consolidated financial statements and related disclosures.
In November 2018, the FASB issued ASU No. 2018-18, Clarifying the Interaction between Topic 808 and Topic 606. This standard
clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when
the collaborative arrangement participant is a customer for a promised good or service that is distinct within the collaborative arrangement.
The guidance also precludes entities from presenting amounts related to transactions with a collaborative arrangement participant that is not a
customer as revenue, unless those transactions are directly related to third-party sales. The Company adopted the standard on the required
effective date of January 1, 2020. This guidance did not have a significant impact on the Company’s consolidated financial statements and
related disclosures.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This
standard enhances and simplifies various aspects of the income tax accounting guidance in ASC Topic 740, Income Taxes, including
requirements related to hybrid tax regimes, the tax basis step-up in goodwill obtained in a transaction that is not a business combination,
separate financial statements of entities not subject to tax, the intra-period tax allocation exception to the incremental approach, ownership
changes in investments, changes from a subsidiary to an equity method investment, interim-period accounting for enacted changes in tax law,
and the year-to-date loss limitation in interim-period tax accounting. The Company adopted the standard on the required effective date of
January 1, 2021. This guidance did not have a significant impact on the Company’s consolidated financial statements and related disclosures.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption
until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.
3. Fair Value Measurements
The Company’s cash equivalents are classified within Level 1 and Level 2 of the fair value hierarchy. The Company’s investments in
marketable securities are classified within Level 2 of the fair value hierarchy.
The fair values of the Company’s marketable securities are based on prices obtained from independent pricing sources. Consistent with the
fair value hierarchy described in Note 2, Summary of Significant Accounting Policies, marketable
F-17
securities with validated quotes from pricing services are reflected within Level 2, as they are primarily based on observable pricing for
similar assets or other market observable inputs. Typical inputs used by these pricing services include, but are not limited to, reported trades,
benchmark yields, issuer spreads, bids, offers or estimates of cash flow, prepayment spreads and default rates. The Company performs
validation procedures to ensure the reasonableness of this data. The Company performs its own review of prices received from the
independent pricing services by comparing these prices to other sources. After completing the validation procedures, the Company did not
adjust or override any fair value measurements provided by the pricing services as of December 31, 2021 and 2020.
The following tables summarize the Company’s cash equivalents and marketable securities as of December 31, 2021 and 2020:
Cash equivalents:
Cash equivalents
Total cash equivalents
Marketable securities:
U.S. government securities
U.S. corporate bonds
International corporate bonds
U.S. commercial paper
International commercial paper
U.S. municipal securities
Total marketable securities
Cash equivalents:
Cash equivalents
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
December 31, 2021
Quoted
Prices in
Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
(in thousands)
Significant
Unobservable
Inputs
(Level 3)
Total
$
294,233 $
294,233
290,234 $
290,234
3,999 $
3,999
324,532
627,780
236,812
80,176
142,335
36,428
1,448,063
$ 1,742,296 $
324,532
—
627,780
—
236,812
—
80,176
—
142,335
—
—
36,428
— 1,448,063
290,234 $ 1,452,062 $
—
—
—
—
—
—
—
—
—
—
December 31, 2020
Quoted
Prices in
Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
(in thousands)
Significant
Unobservable
Inputs
(Level 3)
Total
$ 1,661,082 $ 1,637,609 $
1,661,082 1,637,609
23,473 $
23,473
160,588
123,107
57,676
45,963
51,133
438,467
—
—
—
—
—
—
$ 2,099,549 $ 1,637,609 $
160,588
123,107
57,676
45,963
51,133
438,467
461,940 $
—
—
—
—
—
—
—
—
—
During the years ended December 31, 2021 and 2020, there were no transfers among the Level 1, Level 2 and Level 3 categories.
F-18
The following tables summarize the gross unrealized gains and losses of the Company’s marketable securities as of December 31, 2021
and 2020:
Assets:
U.S. government securities
U.S. corporate bonds
International corporate bonds
U.S. commercial paper
International commercial paper
U.S. municipal securities
Assets:
U.S. government securities
U.S. corporate bonds
International corporate bonds
U.S. commercial paper
International commercial paper
Amortized
Cost
Gross Unrealized
Gains
December 31, 2021
Gross Unrealized
Losses
(in thousands)
Credit Losses
Fair Value
325,514 $
628,836
237,303
80,194
142,358
36,518
1,450,723 $
— $
27
—
—
—
—
27 $
(982) $
(1,083)
(491)
(18)
(23)
(90)
(2,687) $
— $
—
—
—
—
—
— $
324,532
627,780
236,812
80,176
142,335
36,428
1,448,063
Amortized
Cost
Gross Unrealized
Gains
December 31, 2020
Gross Unrealized
Losses
(in thousands)
Credit Losses
Fair Value
160,589 $
122,882
57,485
45,963
51,133
438,052 $
11 $
240
200
—
—
451 $
(12) $
(15)
(9)
—
—
(36) $
— $
—
—
—
—
— $
160,588
123,107
57,676
45,963
51,133
438,467
$
$
$
$
As of December 31, 2021, all marketable securities held by the Company had remaining contractual maturities of one year or less,
except for U.S. government securities, U.S. corporate bonds, international corporate bonds and municipal securities with a fair value of
$436.1 million that had maturities of one to two years.
As of December 31, 2020, all marketable securities held by the Company had remaining contractual maturities of one year or less,
except for corporate bonds with a fair value of $5.1 million that had maturities of one to two years.
All marketable securities, including those with remaining contractual maturities of more than one year, are classified as current assets on
the balance sheet because they are considered to be “available for sale” and the Company can convert them into cash to fund current
operations.
As of December 31, 2021, the marketable securities in a loss position had a maturity of less than one year, except for U.S. government
securities, U.S. corporate bonds, international corporate bonds and municipal securities. with a fair value of $431.5 million, that had
maturities of one to two years. As of December 31, 2020, the marketable securities in a loss position had a maturity of less than one year.
There have been no impairments of the Company’s assets measured and carried at fair value during the years ended December 31, 2021
and 2020.
F-19
4. Balance Sheet Components
Property and Equipment, net
Property and equipment, net consists of the following:
Computer hardware and software
Furniture and equipment
Leasehold improvements
Less: Accumulated depreciation
December 31,
2021
December 31,
2020
(in thousands)
$
$
1,391 $
1,208
5,390
7,989
(4,973)
3,016 $
2,758
1,865
9,220
13,843
(7,088)
6,755
Depreciation expense for the years ended December 31, 2021, 2020 and 2019 was $4.2 million, $2.6 million and $2.3 million,
respectively.
The useful life for computer hardware and software is three years, furniture and equipment is five years and leasehold improvements is
the lesser of the useful life or the term of the respective lease.
Accrued Expenses
Accrued expenses consist of the following:
Accrued research and development costs
Employee-related
Professional services
Other
December 31,
2021
December 31,
2020
(in thousands)
$
$
39,147 $
18,618
8,893
617
67,275 $
34,398
14,769
5,184
500
54,851
5. Leases, Commitments and Contingencies
Operating Leases
The Company leases office space and certain equipment. All of the leases recorded on the consolidated balance sheets are operating
leases. The Company’s leases have remaining lease terms ranging from less than one year to approximately three years. Some of the leases
include options to extend the leases for up to five years. These options were not included for the purpose of determining the right-of-use
assets and associated lease liabilities as the Company determined that the renewal of these leases is not reasonably certain so only the original
lease term was taken into consideration. The leases do not include any restrictions or covenants that had to be accounted for under the lease
guidance.
As of January 1, 2019, the Company leased office space in three multi-tenant buildings in Cambridge, Massachusetts, consisting of
58,442 square feet in the first building, under an operating lease that will expire on August 31, 2024; 40,419 square feet in the second
building, under an operating lease that will expire on August 31, 2024 and 15,975 square feet in the third building, under an operating lease
that began on March 1, 2019 and was initially scheduled to expire on February 29, 2024; and in a multi-tenant building in Raleigh, North
Carolina, consisting of 15,525 square feet under an operating lease that will expire on November 30, 2024.
F-20
In March 2019, the Company entered into the Eighth Amendment to the operating lease for office space in the first multi-tenant building
in Cambridge, Massachusetts, and thereby increased the amount of square feet of office space from 58,442 square feet to 63,017 square feet.
The increase of 4,575 square feet began on June 1, 2019. The term for this additional space will expire on August 31, 2024.
During the year ended December 31, 2021, the Company terminated the operating lease for office space in the third multi-tenant
building in Cambridge, Massachusetts and the remaining right-of-use asset of $3.7 million and the associated liabilities related to this lease
were de-recognized upon termination of the lease. Additionally, during the year ended December 31, 2021, the Company entered into a
sublease for a portion of the leased office space in the second multi-tenant building in Cambridge, Massachusetts.
From June 2018 to January 2019, the Company entered into leases for vehicles for field-based employees. These leases were determined
to be operating leases and a right-of-use operating asset in the amount of $5.3 million was recorded on the balance sheet upon
implementation of the new lease standard on January 1, 2019. The leases were for a term of three years and were to expire on various dates
through January 31, 2022. During the year ended December 31, 2020, these leases were terminated as part of the April 2020 restructuring
(see Note 13, Restructuring), and the remaining right-of-use asset of $2.3 million and the associated liabilities related to these leases were de-
recognized upon termination of the leases. During the year ended December 31, 2020, the restricted cash of $0.7 million related to these
leases was returned to the Company by the lessor.
The following table shows the amounts of operating leases in the balance sheets as of December 31, 2021 and 2020:
Balance sheet location
Balance sheet caption
Assets
2021
December 31,
(in thousands)
2020
Right-of-use operating asset
Right-of-use operating asset
$
16,109 $
25,064
Liabilities
Current operating lease
liabilities
Long-term operating lease
liabilities
Total operating lease
liabilities
Operating lease liability, current portion
7,468
Operating lease liability, net of current portion
10,964
8,662
19,438
$
18,432 $
28,100
Lease expense by lease type recognized during the years ended December 31, 2021, 2020 and 2019 was as follows:
Operating lease cost
Variable lease cost
Short-term lease cost
Sublease income
2021
Year Ended December 31,
2020
(in thousands)
2019
$
$
8,748 $
1,600
101
(234)
10,215 $
8,838 $
2,285
74
-
11,197 $
9,804
2,675
438
-
12,917
The Company made an accounting policy election not to apply the recognition requirements to short-term leases. The Company
recognizes the lease payments for short-term leases as expense on a straight-line basis over the lease term, and variable lease payments in the
period in which the obligation for those payments is incurred.
F-21
The minimum lease payments are expected to be as follows:
Years Ending December 31,
2022
2023
2024
2025
2026
Thereafter
Total lease payments
Less imputed interest
(In thousands)
$
Present value of operating lease liabilities
$
7,468
7,643
5,316
-
-
-
20,427
(1,995)
18,432
The weighted average remaining lease term and weighted average discount rate of the operating leases are as follows:
Weighted average remaining lease term in years
Weighted average discount rate
December 31, 2021
2.68
7.5%
The interest rate implicit in lease contracts is typically not readily determinable and as such, the Company uses its incremental
borrowing rate based on the information available at the lease commencement date, which represents an internally developed rate that would
be incurred to borrow, on a collateralized basis, over a similar term, an amount equal to the lease payments in a similar economic
environment.
Supplemental disclosure of cash flow information related to the operating leases included in cash flows used by operating activities in
the consolidated statements of cash flows is as follows:
Cash paid for amounts included in
the measurement of lease liabilities
Right-of-use assets obtained in
exchange for lease obligations:
Operating leases
Lease asset de-recognized upon lease
cancellation
Operating leases
License Agreements
CyDex License Agreement
2021
Year Ended December 31,
2020
(in thousands)
2019
$
9,264 $
9,231 $
9,946
$
— $
— $
872
$
3,733 $
2,310 $
—
In September 2015, the Company and CyDex, a wholly owned subsidiary of Ligand Pharmaceuticals, Inc., 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 Company an exclusive license to CyDex’s Captisol drug formulation technology and related intellectual property for the manufacture of
pharmaceutical products incorporating brexanolone and the Company’s compound known as SAGE-689, and the development and
commercialization of the resulting products 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
F-22
inflammatory conditions; (iii) treatment and prophylaxis of fungal infections in humans; and (iv) any ocular treatment for retinal
degeneration. The Company is required to pay a royalty to CyDex on sales of brexanolone and will be required to pay a royalty on any sales
of SAGE-689, if such product candidate is successfully developed in the future. Royalty rates are in the low single digits based on levels of
net sales. As of December 31, 2021, the Company has paid to CyDex $1.0 million for licensing fees, which was recorded as research and
development expense.
Under the amended and restated license agreement with CyDex, the Company agreed to make milestone payments 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 first two fields with respect to brexanolone; up to $1.3 million in clinical milestones and up to $8.5
million in regulatory milestones for each of the third and fourth fields with respect to brexanolone; and up to $0.8 million in clinical
milestones and up to $1.8 million in regulatory milestones for one field with respect to SAGE-689. As of December 31, 2021, the Company
has recorded research and development expense and made cash payments of $3.7 million related to these clinical development and regulatory
milestones and has recorded an intangible asset and made a cash payment of $3.0 million related to these regulatory milestones.
For the year ended December 31, 2019, the Company recorded an intangible asset of $3.0 million related to a regulatory milestone for
the brexanolone program under the license agreement with CyDex and the amount was paid in cash.
For the year ended December 31, 2020, additional clinical development milestones were met for the brexanolone program under the
license agreement with CyDex, and accordingly, the Company recorded research and development expense and accrued expenses totaling
$1.3 million. The amount was paid in cash during the year ended December 31, 2021.
For the year ended December 31, 2021, a clinical development milestone was met related to SAGE-689 under the license agreement
with CyDex, and accordingly, the Company recorded research and development expense and made a cash payment of $0.1 million.
University of California License Agreements
In October 2013, the Company entered into a non-exclusive license agreement with the Regents under which the Company was granted
a non-exclusive license to certain clinical data and clinical material related to brexanolone for use in the development and commercialization
of biopharmaceutical products in the licensed field, including status epilepticus and postpartum depression. In May 2014, the license
agreement was amended to add the treatment of essential tremor to the licensed field of use, materials and milestone fee provisions of the
agreement. The Company paid to the Regents clinical development milestones of $0.1 million, prior to December 31, 2015; no other
milestones are outstanding under this non-exclusive license agreement. The Company is required to pay royalties of less than 1% on net sales
for a period of fifteen years following the sale of the first product developed using the data and materials. The license will terminate on the
earlier to occur of (i) 27 years after the effective date or (ii) 15 years after the last-derived product is first commercially sold.
F-23
In June 2015, the Company entered into an exclusive license agreement with the Regents 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 upfront 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 Company is obligated to make milestone payments following the achievement of
specified regulatory and sales milestones of up to $0.7 million and $2.0 million in the aggregate, respectively. The Company pays royalties at
a low single digit percentage of net sales of ZULRESSO, subject to specified 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 applications expire, whichever is later. As of December 31, 2021, the Company has recorded research
and development expense and made cash payments of $0.3 million related to these regulatory and sales milestones; and has recorded an
intangible asset and made a cash payment of $0.5 million related to these regulatory and sales milestones.
For the year ended December 31, 2019, the Company recorded an intangible asset of $0.5 million related to a regulatory milestone for
the brexanolone program under the license agreements with the Regents and the amount was paid in cash.
For the years ended December 31, 2021 and 2020, the Company did not record any expense or make any milestone or royalty payments
under the license agreements with the Regents.
6. Collaboration Agreements
Shionogi
In June 2018, the Company entered into a strategic collaboration with Shionogi for the clinical development and commercialization of
zuranolone for the treatment of major depressive disorder (“MDD”) and other potential indications in Japan, Taiwan and South Korea (the
“Shionogi Territory”). In October 2018, the Company entered into a supply agreement with Shionogi for zuranolone clinical material.
Under the terms of the collaboration agreement, Shionogi is responsible for all clinical development and regulatory filings for
zuranolone in MDD and other indications in the Shionogi Territory and would be responsible for commercialization in the Shionogi Territory,
if zuranolone is successfully developed and obtains marketing approval in any of the countries within the Shionogi Territory. Shionogi was
required to make an upfront payment to the Company of $90.0 million, and the Company will be eligible to receive additional payments of
up to $485.0 million if certain regulatory and commercial milestones are achieved by Shionogi. The potential future milestone payments
include up to $70.0 million for the achievement of specified regulatory milestones, up to $30.0 million for the achievement of specified
commercialization milestones, and up to $385.0 million for the achievement of specified net sales milestones. The Company is eligible to
receive tiered royalties on sales of zuranolone in the Shionogi Territory, if development efforts are successful, with tiers averaging in the low
to mid-twenty percent range, subject to other terms of the agreement. Shionogi has also granted to the Company certain rights to co-promote
zuranolone in Japan. The Company maintains exclusive rights to develop and commercialize zuranolone outside of the Shionogi Territory.
The upfront cash payment and any payments for milestones and royalties are non-refundable and non-creditable. Due to the uncertainty of
pharmaceutical development and the high historical failure rates generally associated with drug development, the Company may not receive
any milestone payments or any royalty payments from Shionogi.
The Company concluded that Shionogi meets the definition to be accounted for as a customer because the Company is delivering
intellectual property and know-how rights for the zuranolone program in support of territories in which the parties are not jointly sharing the
risks and rewards. In addition, the Company determined that the Shionogi collaboration met the requirements to be accounted for as a
contract, including that it was probable that the Company will collect the consideration to which the Company was entitled in exchange for
the goods or services that will be delivered to Shionogi.
In determining the appropriate amount of revenue to be recognized under Topic 606, the Company performed the following steps: (i)
identified the promised goods or services in the contract; (ii) determined whether the promised goods or services are performance obligations
including whether they are distinct in the context of the contract; (iii) measured the transaction price, including the constraint on variable
consideration; (iv) allocated the transaction price to the performance obligations; and (v) recognized revenue when (or as) the Company
satisfied each performance obligation.
The Company determined that the performance obligations in the Shionogi collaboration agreement included the license to zuranolone
and the supply of certain materials during the clinical development phase, which includes the supply of API. The performance obligation
related to the license to zuranolone was determined to be distinct from other performance obligations and therefore was a separate
performance obligation for which control was transferred upon signing. The obligation to provide certain clinical materials, including API for
use during the development period, was determined to be a separate performance obligation. Given that Shionogi is not obligated to purchase
any minimum amount or quantities of commercial API, the supply of API to Shionogi for commercial use was determined to be an option for
Shionogi, rather than a performance obligation of the Company at contract inception and will be accounted for if and when exercised. The
Company also determined that there was no separate material right in connection with the supply of API for commercial use as the expected
pricing was not at a discount. Given this fact pattern, the Company has concluded the agreement has two performance obligations.
F-24
Under the clinical supply agreement, the Company will manufacture and supply to Shionogi (i) clinical quantities of API reasonably
required by Shionogi for the development of licensed products in the Shionogi territory under the collaboration and license agreement and (ii)
quantities of drug product reasonably required for use by Shionogi in Phase 1 clinical trials of zuranolone in the Shionogi territory under the
collaboration and license agreement, in the quantities agreed to by the parties. Collaboration revenue from the clinical supply agreement,
which excludes the $90.0 million upfront payment, pertains to the clinical material sold under the terms of the clinical supply agreement. The
Company records the costs related to the clinical supply agreement in research and development expense on its consolidated statements of
operations and comprehensive income (loss). For the years ended December 31, 2021 and 2020, the Company recognized no collaboration
revenue from the Company’s agreement with Shionogi.
The Company completed the evaluation of the standalone selling prices of each of the performance obligations and determined that the
standalone selling price of the license performance obligation was $90.0 million. The Company recognized the transaction price allocated to
the license performance obligation of $90.0 million as revenue during the quarter upon delivery of the license to Shionogi and resulting
ability of Shionogi to use and benefit from the license, which was in the three months ended June 30, 2018. The remaining transaction price
related to the performance obligation for the supply of certain clinical material is not significant. The potential milestone payments that the
Company is eligible to receive were excluded from the transaction price, as all milestone amounts were fully constrained based on the
probability of achievement. The Company will re-evaluate the transaction price at the end of each reporting period and as uncertain events
are resolved or other changes in circumstances occur, and, if necessary, adjust its estimate of the transaction price.
Biogen
In November 2020, the Company entered into the Biogen Collaboration Agreement to jointly develop and commercialize SAGE-217
products for MDD, PPD and other disorders and SAGE-324 products for essential tremor and other disorders. Concurrently, the Company
also entered into a stock purchase agreement with BIMA (the “Biogen Stock Purchase Agreement”) to purchase shares of the Company’s
common stock. The Biogen Collaboration Agreement became effective on December 28, 2020 (the “Effective Date”).
Under the terms of the Biogen Collaboration Agreement, the Company granted Biogen co-exclusive licenses to develop and
commercialize SAGE-217 products and SAGE-324 products (each, a “Product Class” and together, the “Licensed Products”) in the U.S., an
exclusive license to develop and commercialize SAGE-217 products in all countries of the world other than the U.S. and the Shionogi
Territory, and an exclusive license to develop and commercialize SAGE-324 products in all countries of the world other than the U.S. The
Company refers to the territories outside the U.S. to which Biogen has rights under the Biogen Collaboration Agreement with respect to the
applicable Licensed Product as the “Biogen Territory”.
In connection with the effectiveness of the Biogen Collaboration Agreement and the closing of the sale of shares to BIMA in December
2020, the Company received $1.5 billion in consideration, comprised of an upfront payment of $875.0 million and the $650.0 million
purchase price for 6,241,473 newly issued shares of the Company’s common stock (the “Biogen Shares”). As a result of the purchase of the
Biogen Shares, Biogen has become a related party of the Company.
The Company is eligible to receive additional payments of up to $1.6 billion if certain regulatory and commercial milestones are
achieved. The potential future milestone payments for SAGE-217 products include up to $475.0 million for the achievement of specified
regulatory and commercial milestones and up to $300.0 million for the achievement of specified net sales milestones. The potential future
milestone payments for SAGE-324 products include up to $520.0 million for the achievement of specified regulatory and commercial
milestones and up to $300.0 million for the achievement of specified net sales milestones. The Company is also eligible to receive tiered
royalties on net sales of SAGE-217 products and SAGE-324 products in the Biogen Territory at percentage rates ranging from the high teens
to low twenties.
F-25
Due to the uncertainty of pharmaceutical development and the high historical failure rates generally associated with drug development,
the Company may never receive any milestone payments or any royalty payments under the Biogen Collaboration Agreement.
Development and commercialization activities in the U.S. will be conducted pursuant to plans agreed to by the Company and Biogen
and overseen by a joint steering committee that will consist at all times of an equal number of representatives of each party. The Company
and Biogen will share equally in the costs for development and commercialization, as well as the profits and losses, in the U.S., subject to the
Company’s opt-out right described below. Biogen will be solely responsible for all development activities and costs related to any
development and commercialization of SAGE-217 products and SAGE-324 products for the Biogen Territory, and the Company will receive
royalties on any sales in the Biogen Territory, as mentioned above.
The Company will supply API and bulk drug product for the Biogen Territory and API and final drug product for the U.S. to support
development and commercialization activities. Biogen has the right to assume manufacturing responsibilities for API for the Biogen Territory
at any time during the term of the agreement and will, within a reasonable period of time after the Effective Date, assume manufacturing
responsibility for bulk drug product for the Biogen Territory.
Unless terminated earlier, the Biogen Collaboration Agreement will continue on a Licensed Product-by-Licensed Product and country-
by-country basis until the date on which (a) in any country in the Biogen Territory, the royalty term has expired for all Licensed Products in a
Product Class in such country, and (b) for the U.S., the parties agree to permanently cease to commercialize all Licensed Products in a
Product Class. Biogen also has the right to terminate the Biogen Collaboration Agreement for convenience in its entirety, on a Product Class-
by-Product Class basis or as to a particular region, upon advance written notice. The Company has an opt-out right to convert the co-
exclusive licenses in the U.S. to an exclusive license to Biogen on a Product Class-by-Product Class basis. Following the exercise of the opt-
out right, the Company would no longer share equally in the profits and losses in the U.S. and would be entitled to receive certain royalty
payments at percentage rates ranging from the high teens to low twenties and additional sales milestones.
The Company concluded that the Biogen Collaboration Agreement and the Biogen Stock Purchase Agreement should be combined and
treated as a single arrangement for accounting purposes as the agreements were entered into contemporaneously and in contemplation of one
another. The Company determined that the combined agreements had elements that were within the scope of Topic 606 and Topic 808.
As of the Effective Date, the Company identified the following promises in the Biogen Collaboration Agreement that were evaluated
under the scope of Topic 606: delivery of (i) a co-exclusive license for SAGE-217 products in the U.S.; (ii) an exclusive license for SAGE-
217 products in the Biogen Territory; (iii) a co-exclusive license for SAGE-324 products in the U.S.; (iv) an exclusive license for SAGE-324
products in the Biogen Territory; (v) the clinical manufacturing supply of API and bulk drug product for SAGE-217 products in the Biogen
Territory; and (vi) the clinical manufacturing supply of API and bulk drug product for SAGE-324 products in the Biogen Territory.
The Company also evaluated whether certain options outlined within the Biogen Collaboration Agreement represented material rights
that would give rise to a performance obligation and concluded that none of the options convey a material right to Biogen and therefore are
not considered separate performance obligations within the Biogen Collaboration Agreement.
The Company assessed the above promises and determined that the co-exclusive licenses for SAGE-217 products and SAGE-324
products in the U.S. are reflective of a vendor-customer relationship and therefore represent performance obligations within the scope of
Topic 606. The co-exclusive license for SAGE-217 products and SAGE-324 products in the U.S. are considered functional intellectual
property and distinct from other promises under the contract. The exclusive licenses for SAGE-217 products and SAGE-324 products in the
Biogen Territory are considered functional licenses that are distinct in the context of the Biogen Collaboration Agreement as Biogen can
benefit from the licenses on its own or together with other readily available resources. As the co-exclusive licenses in the U.S. and the
exclusive licenses in the Biogen Territory are delivered at the same time, they are considered one performance obligation at contract
inception. The
F-26
clinical manufacturing supply of API and bulk drug product for SAGE-217 products and SAGE-324 products for the Biogen Territory are
considered distinct in the context of the Biogen Collaboration Agreement as Biogen can benefit from the manufacturing services together
with the licenses transferred by the Company at the inception of the agreement. Therefore, each represents a separate performance obligation
within a contract with a customer under the scope of Topic 606 at contract inception.
The Company considers the collaborative activities associated with the co-development, co-commercialization, and co-manufacturing of
SAGE-217 products and SAGE-324 products in the U.S. to be separate units of account within the scope of Topic 808 as the Company and
Biogen are both active participants in the development and commercialization activities and are exposed to significant risks and rewards that
are dependent on the development and commercial success of the activities in the arrangement. The Company has determined that the supply
of API and bulk drug product for the Biogen Territory and API and final drug product for the U.S. to Biogen will be classified as
collaboration revenue – related party in the consolidated statements of operations and comprehensive income (loss). During the year ended
December 31, 2021, no collaboration revenue – related party was recognized related to the Biogen Collaboration Agreement.
Payments to or reimbursements from Biogen related to the co-development, co-commercialization, and co-manufacturing activities and
the agreement of the parties to share equally the cost of these activities will be accounted for as an increase to or reduction of research and
development expenses or selling, general and administrative expenses, depending on the nature of the activity.
During the year ended December 31, 2021, the Company recorded a net reimbursement of $91.1 million for the amounts due from
Biogen as a reduction of the related operating expense categories in the consolidated statement of operations and comprehensive income
(loss). As of December 31, 2021, the Company recorded a Collaboration Receivable – Related Party of $18.5 million in the consolidated
balance sheet for the amounts due for the three months ended December 31, 2021. During the year ended December 31, 2021, no payments
were made to Biogen and the Company received $72.6 million from Biogen for the amounts due for the nine months ended September 30,
2021.
The following table summarizes expenses related to the Biogen Collaboration Agreement that were incurred by the Company and the
related reimbursement from Biogen, reflected by category of operating expenses:
Expenses related to the Biogen Collaboration Agreement
incurred by Sage
Net reimbursement from Biogen reflected in the
consolidated statement of operations and comprehensive
loss:
Research and development expenses
Selling, general and administrative expenses
Total net expenses related to the Biogen Collaboration
Agreement in the consolidated statement of
operations and comprehensive income (loss)
Year Ended December 31,
2021
(in thousands)
$
193,776
(79,848)
(11,282)
(91,130)
$
102,646
The Company determined the transaction price under Topic 606 at the inception of the Biogen Collaboration Agreement to be $1.1
billion, consisting of the upfront payment of $875.0 million plus $232.5 million in excess proceeds from the equity investment under the
Biogen Stock Purchase Agreement, when measured at fair value, plus future variable consideration for manufacturing supply of clinical API
and bulk drug product for the Biogen Territory. The amount of variable consideration related to the future manufacturing services was not
material. The Company determined that any variable consideration related to clinical development and regulatory milestones is deemed to be
fully constrained and therefore excluded from the transaction price due to the high degree of uncertainty and risk associated with these
potential payments, as the Company determined that it could not assert that it was probable that a significant reversal in the amount
F-27
of cumulative revenue recognized will not occur. The Company also determined that royalties and sales milestones relate solely to the
licenses of intellectual property and are therefore excluded from the transaction price under the sales- or usage-based royalty exception of
Topic 606. Revenue related to these royalties and sales milestones will only be recognized when the associated sales occur, and relevant
thresholds are met.
As noted above, the Company identified three performance obligations in the Biogen Collaboration Agreement: (i) the delivery of the
co-exclusive licenses for SAGE-217 products and SAGE-324 products in the U.S. and the exclusive licenses for SAGE-217 products and
SAGE-324 products in the Biogen Territory; (ii) the clinical manufacturing supply of API and bulk drug product for SAGE-217 products in
the Biogen Territory; and (iii) the clinical manufacturing supply of the API and bulk drug product for SAGE-324 products in the Biogen
Territory. The selling price of each performance obligation in the Biogen Collaboration Agreement was determined based on the Company’s
SSP with the objective of determining the price at which it would sell such an item if it were to be sold regularly on a standalone basis. The
Company allocated the variable consideration related to the manufacturing obligations to the future clinical supply of SAGE-217 products
and SAGE 324 products in the Biogen Territory and the remaining fixed consideration to the license obligation. The variable consideration
related to the manufacturing obligations was not material. As such, the entirety of the $1.1 billion fixed consideration of the transaction price
has been allocated to the transfer of the co-exclusive licenses for SAGE-217 products and SAGE-324 products in the U.S. and the exclusive
licenses for SAGE-217 products and SAGE-324 products in the Biogen Territory. The Company recognizes revenue for the license
performance obligations at a point in time, that is upon transfer of the licenses to Biogen. As control of these licenses was transferred on the
Effective Date and Biogen could begin to use and benefit from the licenses, the Company recognized $1.1 billion of license revenue during
the year ended December 31, 2020 under the Biogen Collaboration Agreement. The Company will recognize revenue for the clinical
manufacturing supply obligations at a point in time, that is upon the delivery of the supply to Biogen.
Accounting for the Biogen Stock Purchase Agreement
In connection with the execution of the Biogen Collaboration Agreement, the Company and BIMA entered into the Biogen Stock
Purchase Agreement. Pursuant to the Biogen Stock Purchase Agreement, the Company sold the Biogen Shares to BIMA at a price of
approximately $104.14 per share, which represented a 40 percent premium over the 30-day volume-weighted average share price as of the
last trading day prior to the date the Biogen Collaboration Agreement and Biogen Stock Purchase Agreement were executed in November
2020, for aggregate consideration of $650.0 million. The sale of the shares to BIMA closed on December 31, 2020.
The Biogen Stock Purchase Agreement includes certain standstill provisions, lock-up restrictions, and a voting agreement with respect
to the Biogen Shares. Pursuant to the terms of the Biogen Stock Purchase Agreement
F-28
, BIMA has agreed not to, and to cause its affiliates not to, directly or indirectly acquire the Company’s securities, seek or propose a tender or
exchange offer or merger between the Company and Biogen, solicit proxies or consents with respect to any matter, or undertake other
specified actions, in each case subject to specified conditions. The standstill restrictions terminate on the earliest of (i) a specified regulatory
milestone under the Biogen Collaboration Agreement, (ii) the date one year following the termination of the Biogen Collaboration
Agreement and (iii) the seventh anniversary of the Effective Date. BIMA has also agreed not to, and to cause its affiliates not to, sell or
transfer any of the Biogen Shares for a period of eighteen months from the closing of the sale of the Biogen Shares, which expires June 30,
2022, and to limit sales and transfers of the Biogen Shares for an additional eighteen-month period, in each case subject to specified
conditions and exceptions.
The Company determined the fair value of the common shares issued using an option pricing valuation model to take into consideration
the holding period restrictions. The fair value of the Company’s common stock was considered a level 2 fair value measurement within the
fair value hierarchy. The most significant assumptions within the model are the Company’s stock price, the term of the restrictions and the
stock price volatility, which is based upon a blend of historical and implied volatility of the Company’s stock. Based on the fair value
adjustments made by management, the fair value of the shares issued was determined to be $417.5 million, which was $232.5 million less
than the proceeds received from BIMA for the issuance of the Company’s common stock under the Biogen Stock Purchase Agreement. As
such, the $232.5 million in excess proceeds has been included in the $1.1 billion transaction price of the Biogen Collaboration Agreement
determined above.
7. Preferred Stock
The Board of Directors of the Company (the “Board”) is authorized, without action by the stockholders, to designate and issue up to an
aggregate of 5,000,000 shares of preferred stock in one or more series. The Board can designate the rights, preferences and privileges of the
shares of each series and any of its qualifications, limitations or restrictions. The Board may authorize the issuance of preferred stock with
voting or conversion rights that could adversely affect the voting power or other rights of the holders of common stock. As of December 31,
2021 and 2020, the Company had no shares of preferred stock issued or outstanding and preferred stock was classified as stockholders’
equity.
8. Common Stock
As of December 31, 2021 and 2020, the Company 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 submitted to a vote of the Company’s stockholders. Common
stockholders are entitled to receive dividends, as may be declared by the Board, if any. As of December 31, 2021 and 2020, no dividends
have been declared.
On February 27, 2019, the Company completed the sale of 3,833,334 shares of its common stock at a price to the public of $150.00 per
share, resulting in net proceeds to the Company of $560.9 million after deducting underwriting discounts and commissions and offering costs
paid by the Company.
On December 31, 2020, the Company completed the sale of 6,241,473 shares of its common stock in a private placement to BIMA at a
price of approximately $104.14 per share, resulting in aggregate gross proceeds to the Company of $650.0 million. For additional
information, refer to Note 6, Collaboration Agreements.
As of December 31, 2021, the Company had received 3,033 shares of the Company’s common stock from a then-employee as
consideration for exercises of stock options. The total cost of shares held in treasury at December 31, 2021 was $0.4 million.
9.
Stock-Based Compensation
Equity Plans
On July 2, 2014, the stockholders of the Company approved the 2014 Stock Option and Incentive Plan (the “2014 Plan”), which became
effective immediately prior to the completion of the Company’s IPO. The 2014 Plan provides for the grant of restricted stock awards,
restricted stock units, incentive stock options and non-statutory stock options. The 2014 Plan replaced the Company’s 2011 Stock Option and
Grant Plan (the “2011 Plan”). The Company no longer grants stock options or other awards under its 2011 Plan, but any stock options
outstanding under the 2011 Plan remain outstanding and effective in accordance with their terms.
The 2014 Plan provides for an annual increase, to be added on the first day of each fiscal year, by up to 4% of the Company’s
outstanding shares of common stock as of the last day of the prior year. On January 1, 2021, 2,332,336 shares of common stock, representing
4% of the Company’s outstanding shares of common stock as of December 31, 2020, were added to the 2014 Plan.
F-29
On December 15, 2016, the Board approved the 2016 Inducement Equity Plan (as amended and restated, the “2016 Plan”). The 2016
Plan provides for the grant of equity awards to individuals who have not previously been an employee or a non-employee director of the
Company to induce them to accept employment and to provide them with a proprietary interest in the Company. On September 20, 2018, the
Board amended the 2016 Plan to increase the total number of shares reserved for issuance by 1,200,000 shares.
Terms of equity grants, including vesting requirements, are determined by the Board or the Compensation Committee of the Board,
subject to the provisions of the applicable plan. Stock options granted by the Company that are not performance-based are considered time-
based because they vest based on the continued service of the grantee with the Company during a specified period following grant. These
awards, when granted to employees, generally vest ratably over four years, with 25% vesting at the one-year anniversary. All stock option
awards expire 10 years after the date of grant.
As of December 31, 2021, the total number of shares underlying outstanding awards under all equity plans was 8,539,537 and the total
number of shares available for future issuance under all equity plans was 5,672,875 shares.
Restricted Stock Units
The table below summarizes activity relating to time-based restricted stock units and performance restricted stock units:
Outstanding as of December 31, 2020
Granted
Vested
Forfeited
Outstanding as of December 31, 2021
Shares
957,695
799,295
(302,661)
(198,231)
1,256,098
At December 31, 2021, 1,256,098 time-based restricted stock units and performance restricted stock units were both outstanding and
unvested, and the total unrecognized stock-based compensation expense related to these awards was $59.2 million.
Time-based restricted stock units
During the year ended December 31, 2017, the Company granted 32,500 time-based restricted stock units to certain employees of the
Company. These time-based restricted stock units vested ratably over two years, with vesting of 50% at both the one-year and two-year
anniversary of the grant date, which was in February 2018 and 2019, respectively. The fair value of the time-based restricted stock units that
vested during the years ended December 31, 2019 and 2018 was $2.0 million and $2.6 million, respectively.
During the year ended December 31, 2020, the Company granted 550,890 time-based restricted stock units to certain employees of the
Company. These time-based restricted stock units will vest over two years, with 25% vesting at the one-year anniversary of the grant date and
75% vesting at the two-year anniversary of the grant date, which was in April 2021 and will be in April 2022, respectively. During the year
ended December 31, 2021, 113,941 time-based restricted stock units vested, and the fair value of the restricted stock units that vested was
$8.8 million.
During the year ended December 31, 2021, the Company granted 268,119 time-based restricted stock units to certain employees of the
Company. These time-based restricted stock units will vest ratably over four years, with 25% vesting at the one-year anniversary.
During the year ended December 31, 2019, the Company granted no time-based restricted stock units and no time-based restricted stock
units vested during the year ended December 31, 2020.
F-30
Performance restricted stock units
During the year ended December 31, 2019, the Company granted 393,539 performance restricted stock units to employees of the
Company. These performance restricted stock units are related to the achievement of certain clinical and regulatory development milestones
related to product candidates and commercial milestones.
During the year ended December 31, 2020, the Company granted 471,386 performance restricted stock units to employees of the
Company. These performance restricted stock units are related to the achievement of certain clinical and regulatory development milestones
related to product candidates and commercial milestones.
During the year ended December 31, 2021, the Company granted 531,176 performance restricted stock units to employees of the
Company. These performance restricted stock units are related to the achievement of certain clinical and regulatory development milestones
related to product candidates and commercial milestones.
Recognition of stock-based compensation expense associated with performance restricted stock units commences when the performance
condition is considered probable of achievement, using management’s best estimates, which consider the inherent risk and uncertainty
regarding the future outcomes of the milestones.
As of December 31, 2021, 2020 and 2019, for performance restricted stock units that were outstanding, the achievement of the
milestones that had not been met was considered not probable, and therefore no expense has been recognized related to these awards in the
years ended December 31, 2021, 2020 and 2019, respectively.
During the year ended December 31, 2019, one milestone for outstanding performance restricted stock units was achieved. The fair
value of the performance restricted stock units that vested upon achievement was $11.1 million and the Company recognized stock-based
compensation expense related to this milestone of $10.9 million. 18% of the performance restricted stock units that were granted during the
year ended December 31, 2019 included this milestone as a vesting condition.
No performance restricted stock units vested during the year ended December 31, 2020.
During the year ended December 31, 2021, two milestones for outstanding performance restricted stock units were achieved. For the
first milestone that was met, the fair value of the performance restricted stock units that vested upon achievement was $6.1 million and the
Company recognized stock-based compensation expense related to this milestone of $3.8 million. 39% of the performance restricted stock
units that were granted during the year ended December 31, 2020 included this milestone as a vesting condition. For the second milestone
that was met, the fair value of the performance restricted stock units that vested upon achievement was $3.4 million and the Company
recognized stock-based compensation expense related to this milestone of $12.8 million. 38% of the performance restricted stock units that
were granted during the year ended December 31, 2019 included this milestone as a vesting condition.
Stock Option Rollforward
The table below summarizes activity related to time-based and performance-based stock options:
Shares
Weighted
Average Exercise
Price
Weighted Average
Remaining Life
(in years)
Outstanding as of December 31, 2020
Granted
Exercised
Forfeited
Outstanding as of December 31, 2021
Vested and expected to vest as of December 31, 2021
Exercisable as of December 31, 2021
7,157,830 $
2,095,363 $
(306,078) $
(1,663,676) $
7,283,439 $
6,220,652 $
4,434,049 $
91.41
79.76
40.35
117.80
84.17
84.00
85.68
F-31
Aggregate
Intrinsic Value
(in thousands)
167,242
6.91 $
6.74 $
6.37 $
5.47 $
16,590
16,493
15,713
At December 31, 2021, the Company had unrecognized stock-based compensation expense related to its unvested time-based stock
option awards of $86.0 million, which is expected to be recognized over the remaining weighted average vesting period of 2.62 years.
The intrinsic value of stock options exercised during the years ended December 31, 2021, 2020 and 2019 was $9.0 million, $2.1 million
and $119.1 million, respectively.
Performance-Based Stock Options
Recognition of stock-based compensation expense associated with performance-based stock options commences when the performance
condition is considered probable of achievement, using management’s best estimates, which consider the inherent risk and uncertainty
regarding the future outcomes of the milestones.
As of December 31, 2021, 2020 and 2019, for performance-based stock option grants that were outstanding, the achievement of the
milestones that had not been met was considered not probable, and therefore no expense has been recognized related to these awards in the
years ended December 31, 2021, 2020 and 2019, respectively.
During the year ended December 31, 2021, in connection with the hiring of its chief executive officer, the Company granted to its chief
executive officer 650,000 stock options to purchase shares of common stock that contain performance-based vesting criteria which will vest
upon the achievement of certain regulatory and commercial milestones. During the years ended December 31, 2020 and 2019, the Company
granted no stock options to employees to purchase shares of common stock that contain performance-based vesting criteria.
During the year ended December 31, 2019, one commercial milestone was achieved under performance-based stock options granted to
employees. Stock options with this milestone were granted during the years ended December 31, 2018 and 2017, respectively. This milestone
represented 20% and 33% of the performance-based stock option grants that were made during the years ended December 31, 2018 and
2017, respectively. During the year ended December 31, 2019, the Company recognized stock-based compensation expense related to this
milestone of $16.3 million.
During the year ended December 31, 2020, no milestones were achieved under performance-based stock options granted to employees.
During the year ended December 31, 2020, one milestone for performance-based stock option grants that were made during the year ended
December 31, 2018 that had to be met by December 31, 2020 or else the stock option grants would be cancelled was not met, and
accordingly, those stock option grants were cancelled. This milestone represented 19% of the performance-based stock option grants that
were made during the year ended December 31, 2018. The Company recognized no stock-based compensation expense related to this
milestone.
During the year ended December 31, 2021, no milestones were achieved under performance-based stock options granted to employees.
F-32
During the year ended December 31, 2021, one milestone for performance-based stock option grants that were made during the year
ended December 31, 2017 that had to be met by December 31, 2021 or else the stock option grants would be cancelled was not met, and
accordingly, those stock option grants were cancelled. This milestone represented 34% of the performance-based stock option grants that
were made during the year ended December 31, 2017. The Company recognized no stock-based compensation expense related to this
milestone.
During the year ended December 31, 2021, three milestones for performance-based stock option grants that were made during the year
ended December 31, 2018 that had to be met by December 31, 2021 or else the stock option grants would be cancelled were not met, and
accordingly, those stock option grants were cancelled. These milestones represent 41% of the performance-based stock option grants that
were made during the year ended December 31, 2018. The Company recognized no stock-based compensation expense related to these
milestones.
As of December 31, 2021, 684,010 performance-based stock options were both outstanding and unvested, the total unrecognized stock-
based compensation expense related to these awards was $10.8 million and the timing of recognition of this stock-based compensation
expense is subject to judgment of the Company as to when the performance conditions are considered probable of being achieved.
Stock-Based Compensation Expense
Stock-based compensation expense recognized during the years ended December 31, 2021, 2020 and 2019 was as follows:
Research and development
Selling, general and administrative
Restructuring
2021
Year Ended December 31,
2020
(in thousands)
2019
$
$
49,746 $
54,883
—
104,629 $
42,370 $
51,836
1,788
95,994 $
62,931
90,300
—
153,231
Stock-based compensation expense recognized during the years ended December 31, 2021, 2020 and 2019 by award type was as
follows:
Stock options
Restricted stock units
Employee stock purchase plan
2021
Year Ended December 31,
2020
(in thousands)
2019
$
$
78,516 $
25,375
738
104,629 $
90,064 $
4,904
1,026
95,994 $
140,517
10,992
1,722
153,231
The stock-based compensation expense recorded for the restructuring in the year ended December 31, 2020 is the incremental amount
related to modifying the exercise period for outstanding, vested stock option grants that had been made to employees whose employment was
terminated in the restructuring.
For stock option awards, the fair value is estimated at the grant date using the Black-Scholes option-pricing model, taking into account
the terms and conditions upon which stock options are granted. The fair value of the stock options is amortized on a straight-line basis for
stock option awards to employees, non-employee directors and non-employee consultants over the requisite service period of the awards.
The weighted average grant date fair value per share of stock options granted under the Company’s stock option plans during the years
ended December 31, 2021, 2020 and 2019 was $51.87, $37.53 and $82.39, respectively.
F-33
The fair value of each stock option granted under the Company’s equity plans has been calculated on the date of grant using the
following weighted average assumptions:
Expected dividend yield
Expected volatility
Risk-free interest rate
Expected term
2021
Year Ended December 31,
2020
2019
0%
75.92%
0.63%
0%
77.86%
0.97%
0%
71.34%
2.21%
5.92 years
5.98 years
6.05 years
Expected dividend yield: the Company has not paid, and does not anticipate paying, any dividends in the foreseeable future.
Risk-free interest rate: the Company 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 effect as of the date of grant.
Expected volatility: beginning in 2016, the Company estimated its expected volatility in the Black-Scholes calculations using a weighted
average of the historical volatility of a group of publicly-traded peer companies and the historical volatility of its common stock and expected
to continue to do so until it had adequate historical data regarding the volatility of its common stock price for the duration of the expected
term. Effective January 1, 2020, the Company began using the historical volatility of only its common stock, as there is adequate historical
data for the duration of the expected term.
Expected term (in years): the expected term represents the period that the Company’s stock option grants are expected to be outstanding.
The expected term of the stock options granted to employees, non-employee directors and non-employee consultants by the Company has
been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” stock options. Under this approach, the weighted
average expected life is presumed to be the average of the vesting term and the contractual term of the stock option.
Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from estimates.
The Company estimates forfeitures based on historical terminations. For the years ended December 31, 2021, 2020 and 2019, the weighted-
average forfeiture rates were 16.7%, 20.6% and 13.7%, respectively.
2014 Employee Stock Purchase Plan
On July 2, 2014, the Company’s stockholders approved the 2014 Employee Stock Purchase Plan (the “ESPP”), which had been
previously approved by the Board. The ESPP became effective upon the completion of the IPO. A total of 282,000 shares of common stock
were authorized for issuance under the ESPP. As of December 31, 2021, 224,638 shares have been issued and 57,362 shares are available for
issuance under the ESPP. At December 31, 2021, accrued expenses includes $0.3 million of stock-based compensation expense related to an
enrollment period for which the related shares had not been issued as of December 31, 2021.
F-34
10. Net Income (Loss) Per Share
Basic and diluted net income (loss) per share was calculated as follows for the years ended December 31, 2021, 2020 and 2019:
Basic net income (loss) per share:
Numerator:
Net income (loss) (in thousands)
Denominator:
Weighted average common stock outstanding
—basic
Effect of dilutive securities:
Stock options
Restricted stock units
Employee Stock Purchase Plan
Total dilutive securities
2021
Year Ended December 31,
2020
2019
$
(457,892) $
606,073 $
(680,238)
58,670,230
51,983,188
50,833,837
—
—
—
—
721,791
292,241
5,895
1,019,927
—
—
—
—
Weighted average common stock outstanding
—diluted
Net income (loss) per share—basic
Net income (loss) per share—diluted
58,670,230
(7.80) $
(7.80) $
53,003,115
11.66 $
11.43 $
50,833,837
(13.38)
(13.38)
$
$
The following common stock equivalents outstanding as of December 31, 2021, 2020 and 2019 were excluded from the calculation of
diluted net loss per share for the periods presented because including them would have been anti-dilutive:
Stock options
Restricted stock units
Employee stock purchase plan
2021
6,599,429
563,334
23,625
7,186,388
Year Ended December 31,
2020
4,781,737
—
—
4,781,737
2019
7,677,518
—
33,429
7,710,947
Stock options and restricted stock units that are outstanding and contain performance-based vesting criteria for which the performance conditions have not been met
are excluded from the calculation of common stock equivalents outstanding.
11. Income Taxes
Income (loss) before income tax expense consists of the following:
Domestic
Foreign
2021
Year Ended December 31,
2020
(in thousands)
$
$
(457,693) $
(199)
(457,892) $
639,986 $
(33,913)
606,073 $
2019
(634,289)
(45,949)
(680,238)
There is no current or deferred provision for income taxes because the Company has historically incurred and utilized operating losses
prior to the year ended December 31, 2021. As of December 31, 2021, the Company continues to maintain a full valuation allowance against
its net deferred tax assets. The reported amount of income tax expense for the
F-35
years differs from the amount that would result from applying domestic federal statutory tax rates to pretax losses primarily because of
changes in the valuation allowance.
A reconciliation of the U.S. statutory rate to the Company’s effective tax rate is as follows:
Tax due at statutory rate
State taxes, net of federal
Biogen transaction-related items
Stock-based compensation
Foreign rate differential
Federal and state credits
Change in valuation allowance
Other
2021
Year Ended December 31,
2020
2019
21.0%
1.9
—
(5.2)
—
3.5
(20.7)
(0.5)
0.0%
21.0%
5.7
(10.1)
0.9
1.2
(1.5)
(17.6)
0.4
0.0%
21.0%
2.8
—
1.4
(1.6)
2.4
(25.8)
(0.2)
0.0%
For the year ended December 31, 2021, the impact from stock-based compensation on the Company’s effective tax rate was primarily
caused by shortfalls related to exercises and cancellations of non-qualified stock options.
For the year ended December 31, 2020, the Biogen transaction-related items consisted primarily of the excess proceeds from the
equity investment under the Biogen Stock Purchase Agreement.
Significant components of the Company’s net deferred tax assets at December 31, 2021 and 2020 are as follows:
Net operating losses
Capitalized start-up costs
Tax credit carryforwards
Accrued expenses
Depreciation and amortization
Stock-based compensation
Right of use asset
Lease liability
Other
Total net deferred tax asset before valuation
allowance
Valuation allowance
Net deferred tax asset
$
December 31,
2021
2020
(in thousands)
305,824 $
735
106,176
6,684
1,401
49,281
(3,702)
4,236
(31)
222,607
873
90,460
3,157
1,614
56,520
(5,981)
6,705
148
470,604
(470,604)
— $
376,103
(376,103)
—
$
As of December 31, 2021, the Company had federal net operating loss carryforwards of $1.3 billion, of which $30.2 million begin to
expire in 2033 and the remainder do not expire but are subject to 80% limitation. As of December 31, 2021, the Company had state net
operating loss carryforwards of $584.8 million that begin to expire in 2031. As of December 31, 2021, the Company had federal and state
research and development tax credits carryforwards of $56.9 million and $11.6 million, respectively, which begin to expire in 2031 and 2028,
respectively. As of December 31, 2021, the Company had federal orphan drug tax credit carry forwards of $40.1 million, which begin to
expire in 2034.
As of December 31, 2021, net deferred tax assets before the valuation allowance increased $94.5 million, primarily due to the increase
of federal and state net operating loss carryforwards due to the loss generated for the year ended December 31, 2021. This increase in net
deferred tax assets was offset by a corresponding increase in the valuation allowance.
F-36
Management of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets,
which are comprised principally of federal and state net operating loss 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 Company will
not recognize the benefits of its federal and state deferred tax assets. Accordingly, a full valuation allowance of $470.6 million and $376.1
million has been established at December 31, 2021 and 2020, respectively. The valuation allowance increased by $94.5 million, decreased by
$107.2 million and increased by $174.9 million for the years ended December 31, 2021, 2020 and 2019, respectively, primarily due to
generation or utilization of net operating losses.
Pursuant to Section 382 of the Internal Revenue Code, and similar state tax law, certain substantial changes in the Company’s ownership
may result in a limitation on the amount of net operating loss and tax credit carryforwards that may be used in future years. Utilization of the
net operating loss and tax credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue
Code of 1986, as amended, due to ownership change limitations that have occurred previously or that could occur in the future. These
ownership changes may limit the amount of net operating loss and tax credit carryforwards that can be utilized annually to offset future
taxable income and tax, respectively. The Company completed a Section 382 study through December 31, 2020. Based on the study, the
Company underwent two ownership changes for Section 382 purposes which occurred on March 11, 2014 and December 31, 2015. As a
result of the ownership changes, the Company’s net operating loss and tax credit carryforwards as of the ownership change dates are subject
to limitation under Section 382; however, these limitations are not expected to cause any of the impacted net operating loss and tax credit
carryforwards to expire unused. Any net operating losses or tax credits generated after the December 2015 change are not subject to this
annual limitation. However, subsequent ownership changes, as defined by Section 382, may potentially further limit the amount of net
operating loss and tax credit carryforwards that could be utilized to offset future taxable income and tax.
The Company applies the authoritative guidance on accounting for and disclosure of uncertainty in tax positions, which requires the
Company to determine whether a tax position of the Company is more likely than not to be sustained upon examination, including resolution
of any related appeals of litigation processes, based on the technical merits of the position. For tax positions meeting the more likely than not
threshold, the tax amount recognized in the financial 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.
The following table reconciles the beginning and ending amounts of gross unrecognized tax benefits, excluding interest and penalties, if
any, for the year ended December 31, 2021:
Balance as of January 1
Increases related to current year tax positions
Increases related to prior year tax positions
Balance as of December 31
2021
(in thousands)
-
396
5,688
6,084
$
$
For the years ended December 31, 2020 and 2019, there were no gross unrecognized tax benefits.
For the year ended December 31, 2021, the increases in unrecognized tax benefits related to current year and prior year tax positions
primarily related to the Company’s federal and state tax credits.
The Company’s policy is to record interest and penalties related to income taxes as part of the tax provision. As of December 31, 2021
and 2020, the Company had no accrued interest or penalties related to income taxes and no amounts have been recognized in the Company’s
statements of operations and comprehensive income (loss) for the years ended December 31, 2021, 2020 and 2019.
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business,
the Company is subject to examination by federal, state and foreign jurisdictions, where applicable.
F-37
There are currently no pending tax examinations, and the Company’s tax returns are generally open under statute from 2018 to the present.
Tax attributes such as net operating losses and tax credits generated prior to 2018 and utilized in open years may still be adjusted upon
examination.
12. Employee Benefit Plan
The Company maintains a 401(k) profit sharing plan (the “401(k) Plan”) for its employees. Each employee may elect to contribute a
portion of his or her compensation to the 401(k) Plan, subject to annual limits established by the Internal Revenue Service. For the years
ended December 31, 2021, 2020 and 2019, the Company matched 50% of eligible contributions to the 401(k) Plan up to 6% of employee
contributions. For the years ended December 31, 2021, 2020 and 2019 the Company contributed $1.8 million, $2.2 million and $3.6 million,
respectively, to the 401(k) Plan.
13. Restructuring
In April 2020, the Company announced a restructuring plan to enable the Company to advance its corporate strategy and pipeline that
included the elimination of approximately 53% of the Company’s workforce. The workforce reduction primarily affected the ZULRESSO
commercial operation and related selling, general and administrative support functions. During the year ended December 31, 2020, the
Company recorded $27.7 million of expense for restructuring, primarily for one-time termination benefits to the affected employees,
primarily for cash payments of severance, healthcare benefits and outplacement assistance. Substantially all of the accrued restructuring
charges were paid in cash as of December 31, 2020. As of December 31, 2021, the balance of the restructuring accrual was zero.
Restructuring activity during the years ended December 31, 2021 and December 31, 2020 was as follows:
Balance as of January 1, 2020
Restructuring expenses incurred
Cash paid
Non-cash activity
Balance as of December 31, 2020
Cash paid
Balance as of December 31, 2021
Restructuring accrual
(in thousands)
-
27,743
(25,102)
(2,438)
203
(203)
-
$
$
F-38
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+
Exhibit Index
Description
Fifth Amended and Restated Certificate of Incorporation of the Registrant, as currently in effect (incorporated by reference to Exhibit 3.1 of
the Registrant’s Current Report on Form 8-K (File No. 000-36544) filed on July 25, 2014)
Amended and Restated Bylaws of the Registrant, as amended on August 6, 2020 (incorporated by reference to Exhibit 3.1 of the
Registrant’s Quarterly Report on Form 10-Q (File No. 001-36544) filed on August 10, 2020)
Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form S-1 (File
No. 333-196849) filed on July 8, 2014)
Description of Securities (incorporated by reference to Exhibit 4.2 of the Registrant’s Annual Report on Form 10-K (File No. 001-36544)
filed on February 27, 2020)
2014 Stock Option and Incentive Plan and forms of award agreements thereunder (incorporated by reference to Exhibit 10.2 of the
Registrant’s Registration Statement on Form S-1 (File No. 333-196849) filed on July 8, 2014)
Amended and Restated Commercial License by and between the Registrant and CyDex Pharmaceuticals, Inc., dated September 25, 2015
(incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36544) filed on November 6,
2015)
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 reference 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 December 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)
Offer letter by and between the Registrant and Jeffrey M. Jonas, dated July 18, 2013 (incorporated by reference to Exhibit 10.7 of the
Registrant’s Registration Statement on Form S-1 (File No. 333-196849) filed on July 8, 2014)
Offer letter by and between the Registrant and Albert J. Robichaud, dated September 25, 2011 (incorporated by reference to Exhibit 10.8 of
the Registrant’s Registration Statement on Form S-1 (File No. 333-196849) filed on July 8, 2014)
Offer letter by and between the Registrant and Kimi Iguchi, dated February 7, 2013 (incorporated by reference to Exhibit 10.10 of the
Registrant’s Registration Statement on Form S-1 (File No. 333-196849) filed on July 8, 2014)
Non-Solicitation, Confidentiality and Assignment Agreement by and between the Registrant and Jeffrey 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, Confidentiality and Assignment Agreement by and between the Registrant and Albert J. Robichaud, dated November 7,
2011 (incorporated by reference to Exhibit 10.12 of the Registrant’s Registration Statement on Form S-1 (File No. 333-196849) filed on
July 8, 2014)
124
Exhibit
No.
10.10+
10.11
10.12
10.13**
10.14+
10.15+
10.16+
10.17**
10.18
10.19
10.20
10.21
10.22
Description
Non-Solicitation, Confidentiality and Assignment Agreement by and between the Registrant and Kimi Iguchi, dated March 8, 2013
(incorporated by reference to Exhibit 10.14 of the Registrant’s Registration Statement on Form S-1 (File No. 333-196849) filed on July 8,
2014)
Form of Indemnification 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 Indemnification Agreement to be entered into between the Registrant and its officers (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)
Supply Agreement by and between the Registrant and CyDex Pharmaceuticals, Inc., dated December 13, 2012, as amended August 21,
2013 and April 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)
Severance and Change In Control Agreement between the Registrant and Jeffrey M. Jonas, dated September 25, 2014 (incorporated by
reference to Exhibit 10.20 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 Kimi Iguchi, dated September 30, 2014 (incorporated by
reference to Exhibit 10.21 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 Albert J. Robichaud, dated September 25, 2014 (incorporated by
reference to Exhibit 10.23 of the Registrant’s Annual Report on Form 10-K (File No. 001-36544) filed on March 6, 2015)
Exclusive License Agreement by and between the Registrant and the Regents of the University of California, dated June 6, 2015
(incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q/A (File No. 001-36544) filed on October 31,
2015)
Third Amendment to Lease, by and between Registrant and ARE-MA Region No. 38, LLC, dated September 9, 2015 (incorporated by
reference to Exhibit 10.3 of the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36544) filed on November 6, 2015)
Fourth Amendment to Lease, by and between the Registrant and ARE-MA Region No. 38, LLC, dated October 27, 2015 (incorporated by
reference to Exhibit 10.4 of the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36544) filed on November 6, 2015)
Amendment No. 3 to Supply Agreement, by and between the Registrant and CyDex Pharmaceuticals, Inc., dated September 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 November 6,
2015)
Fifth Amendment to Lease, by and between the Registrant and ARE-MA Region No. 38, LLC, dated December 9, 2015 (incorporated by
reference to Exhibit 10.29 of the Registrant’s Annual Report on Form 10-K (File No. 001-36544) filed on February 29, 2016)
Lease Agreement, by and between the Registrant and Jamestown Premier 245 First, LLC, dated May 24, 2016 (incorporated by reference to
Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36544) filed on August 9, 2016)
10.23+
2016 Annual Bonus Incentive Plan (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (File No.
001-36544) filed on May 3, 2016)
125
Exhibit
No.
10.24
10.25+
10.26
10.27+
10.28+
10.29
10.30
10.31+
10.32†
10.33†
10.34+
10.35+
10.36+
10.37+
10.38+
10.39+
10.40
Description
Sixth Amendment to Lease by and between ARE-MA Region No. 38, LLC and the Registrant, dated May 8, 2017 (incorporated by
reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36544) filed on August 3, 2017)
2014 Employee Stock Purchase Plan, dated June 7, 2017 (incorporated by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on
Form 10-Q (File No. 001-36544) filed on August 3, 2017)
First Amendment to Lease by and between CLPF-Cambridge Science Center LLC and the Registrant dated April 4, 2018 (incorporated by
reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36544) filed on May 5, 2018)
Amended and Restated 2016 Inducement Equity Plan and forms of agreements thereunder, as amended and restated on September 20, 2018
(incorporated by reference to Exhibit 10.1 of the Registration’s Quarterly Report on Form 10-Q (File No. 001-36544) filed on November 6,
2018)
Amended and Restated Non-Employee Director Compensation Policy, dated September 20, 2018 (incorporated by reference to Exhibit 10.2
of the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36544) filed on November 6, 2018)
Seventh Amendment to Lease by and between ARE-MA Region No. 38, LLC and the Registrant, dated October 23, 2018 (incorporated by
reference to Exhibit 10.3 of the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36544) filed on November 6, 2018)
Eighth Amendment to Lease by and between ARE-MA Region No. 38, LLC and the Registrant, dated March 29, 2019 (incorporated by
reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36544) filed on August 6, 2019)
Form of Performance-Based Restricted Stock Unit Award Agreement Under the Sage Therapeutics, Inc. 2014 Stock Option
and Incentive Plan (incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q (File No. 001-36544)
filed on August 10, 2020)
Biogen Collaboration and License Agreement by and among the Registrant, Biogen MA Inc. and Biogen International GmbH, dated
November 27, 2020 (incorporated by reference to Exhibit 10.38 of the Registrant's Annual Report on Form 10-K (File No. 001-36544) filed
on February 24, 2021)
Stock Purchase Agreement by and between the Registrant and Biogen MA Inc., dated November 27, 2020 (incorporated by reference to
Exhibit 10.39 of the Registrant's Annual Report on Form 10-K (File No. 001-36544) filed on February 24, 2021)
Offer Letter by and between the Registrant and Barry Greene, dated December 15, 2020 (incorporated by reference to Exhibit 10.40 of the
Registrant's Annual Report on Form 10-K (File No. 001-36544) filed on February 24, 2021)
Severance and Change In Control Agreement between the Registrant and Barry Greene, dated December 15, 2020 (incorporated by
reference to Exhibit 10.41 of the Registrant's Annual Report on Form 10-K (File No. 001-36544) filed on February 24, 2021)
Letter Agreement between the Registrant and Jeffrey Jonas, dated December 15, 2020 (incorporated by reference to Exhibit 10.42 of the
Registrant's Annual Report on Form 10-K (File No. 001-36544) filed on February 24, 2021)
Separation Agreement, by and between the Registrant and Michael Cloonan, dated March 12, 2021 (incorporated by reference
to Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q (File No. 001-36544) filed on May 4, 2021)
Offer Letter by and between the Registrant and Christopher Benecchi, dated September 13, 2021 (incorporated by reference to Exhibit 10.1
of the Registrant's Quarterly Report on Form 10-Q (File No. 001-36544) filed on November 2, 2021)
Severance and Change in Control Agreement between the Registrant and Christopher Benecchi, dated September 13, 2021 (incorporated by
reference to Exhibit 10.2 of the Registrant's Quarterly Report on Form 10-Q (File No. 001-36544) filed on November 2, 2021)
Side Letter to Biogen Collaboration and License Agreement, by and among the Registrant, Biogen MA Inc. and Biogen International
GmbH, dated October 21, 2021 (incorporated by reference to Exhibit 10.4 of the Registrant's Quarterly Report on Form 10-Q (File No.
001-36544) filed on November 2, 2021)
126
Exhibit
No.
21.1*
23.1*
24.1*
31.1*
31.2*
32.1***
101.INS*
Subsidiaries of the Registrant
Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm
Power of Attorney (see signature page of this Annual Report on Form 10-K)
Description
Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded
within the Inline XBRL document)
101.SCH*
Inline XBRL Taxonomy Extension Schema Document
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101.*)
(+) Management contract or compensatory plan or arrangement.
(*)
Filed herewith.
(**) Confidential treatment has been granted by the Securities and Exchange Commission as to certain portions.
(***) The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Annual Report on Form 10-K and will not be deemed
“filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. Such certifications will not be 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 reference.
(†)
Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K.
127
Pursuant to the requirements of 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, 2022
By: /s/ Barry E. Greene
Barry E. Greene
Chief Executive Officer, President and Director
(Principal Executive Officer)
We, the undersigned directors and officers of Sage Therapeutics, Inc., hereby severally constitute and appoint Barry E. Greene and
Kimi Iguchi, and each of them singly, our true and lawful attorneys-in-fact, with full power to them, and to each of them singly, to sign for us
and in our names in the capacities indicated below, any and all amendments to this Annual Report on Form 10-K, and to file or cause to be
filed the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and purposes as each of us might or could do in person, and hereby
ratifying and confirming all that said attorneys-in-fact, and each of them, or their substitute or substitutes, shall do or cause to be done by
virtue of this power of attorney.
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
/s/ Barry E. Greene
Barry E. Greene
/s/ Kimi Iguchi
Kimi Iguchi
/s/ Jeffrey M. Jonas
Jeffrey M. Jonas, M.D.
/s/ Michael F. Cola
Michael F. Cola
/s/ Steven Paul
Steven Paul, M.D.
/s/ Kevin P. Starr
Kevin P. Starr
/s/ James Frates
James Frates
/s/ Geno Germano
Geno Germano
/s/ Elizabeth Barrett
Elizabeth Barrett
/s/ George Golumbeski
George Golumbeski, Ph.D.
Title
Date
Chief Executive Officer, President and Director (Principal
February 24, 2022
Executive Officer)
Chief Financial Officer (Principal Financial and Accounting
February 24, 2022
Officer)
Director
Director
Director
Director
Director
Director
Director
Director
128
February 24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
SUBSIDIARIES
Exhibit 21.1
1
2
3
4
5
Subsidiary
Sage Securities Corporation
Sage (Bermuda) Ltd.
Sage Therapeutics Limited
Sage Therapeutics GmbH
Sage Therapeutics GmbH
Jurisdiction of Incorporation
Massachusetts
Bermuda
England and Wales
Switzerland
Germany
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (File No. 333-261708) and on Forms S-8 (File Nos. 333-
197498, 333-204549, 333-209831, 333-216202, 333-223146, 333-228246, 333-229732, 333-236680 and 333-253431) of Sage Therapeutics, Inc. of our
report dated February 24, 2022 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this
Form 10-K.
Exhibit 23.1
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 24, 2022
Exhibit 31.1
I, Barry E. Greene, certify that:
1. I have reviewed this annual report on Form 10-K of Sage Therapeutics, Inc.;
CERTIFICATIONS UNDER SECTION 302
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: February 24, 2022
/s/ Barry E. Greene
Name:
Title:
Barry E. Greene
Chief Executive Officer, President and Director
(Principal Executive Officer)
Exhibit 31.2
I, Kimi Iguchi, certify that:
1. I have reviewed this annual report on Form 10-K of Sage Therapeutics, Inc.;
CERTIFICATIONS UNDER SECTION 302
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: February 24, 2022
/s/ Kimi Iguchi
Name:
Title:
Kimi Iguchi
Chief Financial Officer (Principal Financial and
Accounting Officer)
CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with this Annual Report on Form 10-K of Sage Therapeutics, Inc. (the “Company”) for the fiscal year ended December 31, 2021, as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers hereby certifies, pursuant to 18
U.S.C. (section) 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his or her knowledge:
(1)
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
Company.
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
/s/ Barry E. Greene
Name: Barry E. Greene
Title: Chief Executive Officer, President and Director (Principal Executive
Officer)
Date: February 24, 2022
/s/ Kimi Iguchi
Name: Kimi Iguchi
Title: Chief Financial Officer (Principal Financial and Accounting Officer)
Date: February 24, 2022