Sage Therapeutics(US:SAGE)2021-02-24 12:15Part I Business Sage Therapeutics develops brain disorder medicines, with ZULRESSO® for PPD and key pipeline assets zuranolone and SAGE-324 - The company's primary focus is on modulating two critical central nervous system (CNS) receptor systems: GABA (major inhibitory) and NMDA (major excitatory)23 - Sage's first product, ZULRESSO® (brexanolone), is an IV-administered treatment for postpartum depression (PPD) in adults, launched commercially in the U.S. in June 201924 - A strategic collaboration with Biogen was established in December 2020 to jointly develop and commercialize zuranolone and SAGE-324 in the U.S., with Biogen holding rights for most ex-U.S. territories27 Key Product Pipeline Status | Product/Candidate | Indication(s) | Development Stage | Key Notes | | :--- | :--- | :--- | :--- | | ZULRESSO® (brexanolone) | Postpartum Depression (PPD) | Approved (U.S.) | IV infusion, REMS program required | | Zuranolone (SAGE-217) | Major Depressive Disorder (MDD), PPD | Phase 3 | Oral compound, co-developed with Biogen | | SAGE-324 | Essential Tremor, Epilepsy, Parkinson's | Phase 2 | Oral compound, co-developed with Biogen | | SAGE-718 | Cognitive disorders (Huntington's, Parkinson's, Alzheimer's) | Phase 2a | Oral NMDA modulator | | SAGE-689 / SAGE-904 | Acute GABA / NMDA hypofunction | Phase 1 | Early-stage candidates | Our Strategy Strategy focuses on advancing multi-franchise opportunities in depression, neurology, and neuropsychiatry, leveraging collaborations - Advance Phase 3 clinical development and regulatory activities for zuranolone in PPD and MDD in collaboration with Biogen32 - Continue commercialization of ZULRESSO in the U.S., with a primary focus on geographies with existing, active treating sites32 - Complete ongoing Phase 2 studies for SAGE-324 (essential tremor) and SAGE-718 (cognitive dysfunction) to inform further development32 - Support the Biogen collaboration for zuranolone and SAGE-324 in the U.S. and Biogen's development efforts ex-U.S., alongside Shionogi's development of zuranolone in its licensed territories33 Sales and Marketing ZULRESSO sales are impacted by complex administration, REMS, and COVID-19, leading to restructured commercial operations - ZULRESSO commercialization faces significant barriers due to its administration as a 60-hour continuous IV infusion requiring a certified healthcare setting under a REMS program69 - The COVID-19 pandemic has severely impacted ZULRESSO revenues by causing treatment sites to pause activities and reducing patient demand due to virus exposure concerns70 - In April 2020, a workforce reduction eliminated the sales force, and commercial efforts are now focused on geographies with existing active ZULRESSO treating sites, which is expected to substantially limit revenue71 - If zuranolone and SAGE-324 are approved, Sage will jointly commercialize them in the U.S. with Biogen, sharing sales and marketing activities, profits, and losses equally73 Licenses and Collaborations Sage has key collaborations with Biogen for zuranolone and SAGE-324, and with Shionogi for zuranolone in Asia Key Collaboration and License Agreements | Partner | Product(s) | Key Financials | Territory | | :--- | :--- | :--- | :--- | | Biogen | Zuranolone, SAGE-324 | $875M upfront, $650M equity investment, up to $1.6B in milestones, tiered royalties. 50/50 U.S. profit/loss share | U.S. (Joint), Ex-U.S. (Biogen exclusive, except Shionogi territory for zuranolone) | | Shionogi & Co. | Zuranolone | $90M upfront, up to $485M in milestones, tiered royalties | Japan, Taiwan, South Korea | | CyDex Pharma | ZULRESSO (brexanolone), SAGE-689 | Milestone payments up to specified amounts, low single-digit royalties | Global (for Captisol formulation tech) | | Univ. of California | ZULRESSO (brexanolone) | Milestone payments, low single-digit royalties | Global (for patent rights) | | Washington Univ. | SAGE-689 | Milestone payments, low single-digit royalties | Global (for patent rights) | Government Regulation Extensive government regulation covers drug development, post-approval marketing, and healthcare compliance, including REMS and DEA scheduling - The FDA regulates drugs in the U.S. through a rigorous process involving non-clinical studies, an Investigational New Drug (IND) application, and multi-phase clinical trials before an NDA can be submitted for approval128129 - ZULRESSO is subject to a Risk Evaluation and Mitigation Strategy (REMS) program to manage risks of excessive sedation and loss of consciousness, restricting its administration to certified healthcare settings146 - Brexanolone (ZULRESSO) is classified as a Schedule IV controlled substance under the Controlled Substances Act (CSA), subjecting it to DEA regulations for manufacturing, storage, and distribution163 - The company is subject to U.S. healthcare laws, including the federal Anti-Kickback Statute and the False Claims Act, which govern interactions with healthcare professionals and payors and prohibit off-label promotion164311 Risk Factors The company faces substantial risks, including ZULRESSO revenue challenges, pipeline development uncertainty, third-party reliance, and regulatory compliance - The company may never generate meaningful revenues from ZULRESSO due to significant barriers from its complex IV administration, REMS program, and the negative impact of the COVID-19 pandemic230231 - Future business prospects depend heavily on the successful development and regulatory approval of product candidates, especially zuranolone, which faces risks of clinical trial failure, as seen with the MOUNTAIN Study not meeting its primary endpoint236237 - The company relies completely on third-party suppliers for manufacturing commercial and clinical drug supplies, posing risks related to quality control, regulatory compliance (cGMP), and supply chain disruptions272273 - Sage is dependent on licensed intellectual property for certain products and may lose these rights if it breaches agreements. The company also faces risks of infringing on third-party patents and challenges to the validity of its own patents355 - The company is subject to extensive healthcare regulations, including fraud and abuse laws, pricing and reimbursement programs (Medicaid, 340B), and data privacy laws (GDPR, CCPA), non-compliance with which could result in significant penalties310311317 Properties Corporate headquarters are in Cambridge, Massachusetts, leasing approximately 103,436 square feet of office space - Corporate headquarters are in Cambridge, MA, with a primary lease of 63,017 sq. ft. expiring August 31, 2024399 - An additional 40,419 sq. ft. of office space is leased in a separate Cambridge, MA building, also expiring August 31, 2024402 Legal Proceedings As of the filing date, Sage Therapeutics is not a party to any material legal proceedings or aware of any pending claims - The company is not currently a party to any legal proceedings and is unaware of any material pending or threatened claims403 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Sage Therapeutics' common stock trades on Nasdaq, with no cash dividends paid or anticipated, retaining earnings for business development - The company's common stock trades on the Nasdaq Global Market under the symbol "SAGE"407 - The company has never paid or declared any cash dividends and does not intend to in the foreseeable future414 Management's Discussion and Analysis of Financial Condition and Results of Operations In 2020, Sage recorded net income of $606.1 million, driven by $1.1 billion in Biogen collaboration revenue and reduced operating expenses Results of Operations Total revenue surged to $1.11 billion in 2020 due to Biogen collaboration, resulting in net income of $606.1 million Comparison of Results of Operations (2020 vs. 2019) | (in thousands) | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Total revenue | $1,114,200 | $6,868 | $1,107,332 | | Product revenue, net | $6,700 | $3,957 | $2,743 | | Collaboration revenue | $1,107,500 | $2,911 | $1,104,589 | | Total operating costs and expenses | $517,974 | $714,992 | ($197,018) | | Cost of goods sold | $565 | $400 | $165 | | Research and development | $292,714 | $368,815 | ($76,101) | | Selling, general and administrative | $196,952 | $345,777 | ($148,825) | | Restructuring | $27,743 | $— | $27,743 | | Net income (loss) | $606,073 | ($680,238) | $1,286,311 | - Collaboration revenue surged to $1.1 billion in 2020 from the Biogen agreement, consisting of an $875.0 million upfront payment and $232.5 million in excess proceeds from an equity investment489 - R&D expenses decreased by $76.1 million, primarily due to the completion of the zuranolone MOUNTAIN Study and reduced spending on early-stage programs495496 - SG&A expenses decreased by $148.8 million, mainly due to the April 2020 restructuring which reduced personnel-related costs and commercial activities for ZULRESSO497 Liquidity and Capital Resources As of December 31, 2020, Sage had $2.1 billion in cash, primarily from the Biogen agreement, sufficient for 12 months of operations - As of December 31, 2020, the company had cash, cash equivalents, and marketable securities totaling $2.1 billion504 Summary of Cash Flows (2020 vs. 2019) | (in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by (used in) Operating activities | $664,280 | ($528,706) | | Net cash provided by (used in) Investing activities | $442,684 | ($143,156) | | Net cash provided by Financing activities | $426,762 | $607,624 | - In December 2020, the company received $1.5 billion from Biogen, comprising an $875.0 million upfront payment and $650.0 million from a private placement of common stock499503 - Management expects existing cash, cash equivalents, and marketable securities to be sufficient to fund operations for at least the next 12 months from the filing date of the report510 Financial Statements and Supplementary Data This section contains the company's audited consolidated financial statements for 2020 and the independent auditor's report Report of Independent Registered Public Accounting Firm PwC issued an unqualified opinion on financial statements and internal controls, identifying 'Accrued R&D Costs' as a Critical Audit Matter - The auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion on both the consolidated financial statements and the effectiveness of internal control over financial reporting546 - The audit identified 'Accrued Research and Development Costs' as a Critical Audit Matter, highlighting the significant management judgment and auditor subjectivity required to evaluate these estimates555556 Consolidated Financial Statements As of December 31, 2020, total assets were $2.16 billion, with net income of $606.1 million, driven by Biogen collaboration Consolidated Balance Sheet Highlights (as of Dec 31, 2020) | (in thousands) | Amount | | :--- | :--- | | Cash and cash equivalents | $1,661,082 | | Marketable securities | $438,467 | | Total Assets | $2,159,246 | | Total current liabilities | $67,204 | | Total Liabilities | $86,912 | | Total Stockholders' Equity | $2,072,334 | Consolidated Statement of Operations Highlights (Year ended Dec 31, 2020) | (in thousands) | Amount | | :--- | :--- | | Total revenue | $1,114,200 | | Total operating costs and expenses | $517,974 | | Income from operations | $596,226 | | Net income | $606,073 | | Net income per share—diluted | $11.43 | Notes to Consolidated Financial Statements Notes detail Biogen collaboration revenue, 2020 restructuring charge, and a full valuation allowance against deferred tax assets - Biogen Collaboration: The company recognized $1.1 billion in revenue in Q4 2020, comprising an $875.0 million upfront payment and a $232.5 million premium from Biogen's equity investment700714718 - Restructuring: In April 2020, the company initiated a restructuring plan, eliminating approximately 53% of its workforce and incurring a charge of $27.7 million776 - Income Taxes: The company maintains a full valuation allowance of $376.1 million against its net deferred tax assets as of Dec 31, 2020, despite reporting taxable income for the year, due to its history of losses766770 - Stock-Based Compensation: Total stock-based compensation expense was $96.0 million in 2020, a decrease from $153.2 million in 2019751 Controls and Procedures Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2020 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2020525 - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2020, based on the COSO framework526 - No changes in internal control over financial reporting occurred during the fourth quarter of 2020 that have materially affected, or are reasonably likely to materially affect, internal controls528 Part III Directors, Executive Officers, Corporate Governance, Compensation, and Security Ownership Information for Items 10-14 is incorporated by reference from the forthcoming 2021 Proxy Statement - Information regarding Directors, Executive Officers, Corporate Governance (Item 10), Executive Compensation (Item 11), Security Ownership (Item 12), Certain Relationships and Related Transactions (Item 13), and Principal Accounting Fees and Services (Item 14) is incorporated by reference from the forthcoming 2021 Proxy Statement532534535536537 Part IV Exhibits, Financial Statement Schedules This section lists financial statements, schedules, and exhibits, including key material contracts and CEO/CFO certifications - The filed exhibits include key material contracts, such as the Biogen Collaboration and License Agreement and the Biogen Stock Purchase Agreement785 - All required financial statements are filed as part of the report, while financial statement schedules have been omitted as they are not applicable or the required information is included elsewhere539