Sage Therapeutics(SAGE) - 2021 Q1 - Quarterly Report

Form 10-Q Filing Information The company filed its Q1 2021 Form 10-Q, detailing its filer status and outstanding common stock - Sage Therapeutics, Inc filed its Quarterly Report on Form 10-Q for the period ended March 31, 2021[1][2][3] - The company is incorporated in Delaware and its common stock trades on The Nasdaq Global Market under the symbol SAGE[1][2][3] Filing Details | Indicator | Value | | :--- | :--- | | Commission file number | 001-36544 | | Shares of Common Stock Outstanding (as of April 27, 2021) | 58,480,018 | | Filer Status | Large accelerated filer | Cautionary Note Regarding Forward-Looking Statements The report contains forward-looking statements subject to risks and uncertainties, with no obligation to update - This report contains forward-looking statements subject to risks and uncertainties, covering ZULRESSO commercialization, clinical development, financial estimates, and the impact of COVID-19[6][7][8] - Actual results may differ materially from current expectations due to various factors detailed in the Risk Factors section, and the company assumes no obligation to update these statements[9] Summary of Risks Related to our Business The company faces significant risks in commercialization, regulatory approval, competition, and financing - Key risks include unsuccessful ZULRESSO commercialization, challenges in developing and gaining regulatory approval for product candidates, and the potential for adverse events[11][12] - Further risks involve reliance on third-party manufacturers, market acceptance, competition, intellectual property protection, limited operating history, and the need for additional funding[13] - The COVID-19 pandemic continues to pose a significant risk, potentially impacting ZULRESSO sales and clinical trial execution[13] PART I – FINANCIAL INFORMATION This part presents the unaudited financial statements and management's analysis for the first quarter of 2021 Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements and accompanying notes for Q1 2021 Condensed Consolidated Balance Sheets The balance sheets show a significant shift from cash to marketable securities and a decrease in total assets Condensed Consolidated Balance Sheets (in thousands) | Item | March 31, 2021 | December 31, 2020 | | :-------------------------------- | :------------- | :---------------- | | Assets | | | | Cash and cash equivalents | $899,250 | $1,661,082 | | Marketable securities | $1,104,767 | $438,467 | | Total current assets | $2,051,866 | $2,122,370 | | Total assets | $2,080,698 | $2,159,246 | | Liabilities | | | | Total current liabilities | $62,011 | $67,204 | | Total liabilities | $77,422 | $86,912 | | Stockholders' Equity | | | | Total stockholders' equity | $2,003,276 | $2,072,334 | - Cash and cash equivalents decreased significantly from $1.66 billion to $899.3 million, while marketable securities increased from $438.5 million to $1.10 billion[18] Condensed Consolidated Statements of Operations and Comprehensive Loss The company's net loss improved year-over-year due to decreased operating expenses despite lower product revenue Condensed Consolidated Statements of Operations and Comprehensive Loss (in thousands) | Item | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Product revenue, net | $1,583 | $2,286 | | Cost of goods sold | $187 | $170 | | Research and development | $58,056 | $63,610 | | Selling, general and administrative | $39,847 | $70,130 | | Total operating costs and expenses | $98,090 | $133,910 | | Loss from operations | $(96,507) | $(131,624) | | Net loss | $(95,764) | $(126,740) | | Net loss per share—basic and diluted | $(1.64) | $(2.44) | - Net product revenue decreased from $2.3 million in Q1 2020 to $1.6 million in Q1 2021[20][185] - Total operating costs and expenses decreased by $35.8 million, primarily driven by reductions in SG&A expenses[20][185] - The net loss improved from $(126.7) million in Q1 2020 to $(95.8) million in Q1 2021, resulting in a lower net loss per share[20][185] Condensed Consolidated Statements of Cash Flows Cash flows show reduced operating cash burn but a significant use of cash for investing in marketable securities Condensed Consolidated Statements of Cash Flows (in thousands) | Item | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(109,086) | $(136,691) | | Net cash provided by (used in) investing activities | $(658,816) | $206,270 | | Net cash provided by financing activities | $5,623 | $3,160 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $(762,279) | $72,739 | | Cash, cash equivalents and restricted cash at end of period | $900,519 | $201,811 | - Net cash used in operating activities decreased from $(136.7) million in Q1 2020 to $(109.1) million in Q1 2021[22][194][195][196][197][198] - Investing activities shifted from providing $206.3 million to using $(658.8) million, primarily due to increased purchases of marketable securities[22][194][195][196][197][198] Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity decreased during the quarter primarily as a result of the net loss incurred Consolidated Statements of Changes in Stockholders' Equity (in thousands, except share data) | Item | March 31, 2021 | December 31, 2020 | | :------------------------------------ | :------------- | :---------------- | | Common Stock Shares | 58,406,821 | 58,308,411 | | Additional Paid-in Capital | $3,137,164 | $3,109,807 | | Accumulated Deficit | $(1,133,258) | $(1,037,494) | | Total Stockholders' Equity | $2,003,276 | $2,072,334 | - Total stockholders' equity decreased from $2.07 billion to $2.00 billion, primarily due to a net loss of $95.8 million and unrealized loss on marketable securities[24] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of accounting policies, financial components, and collaboration agreements 1. Nature of the Business Sage is a biopharmaceutical company with one approved product, a clinical pipeline, and a history of operating losses - Sage Therapeutics is a biopharmaceutical company focused on brain disorders, with ZULRESSO® (brexanolone) CIV injection approved for PPD in the U.S[26][27] - The company has incurred losses since inception, with an accumulated deficit of $1.1 billion as of March 31, 2021, except for a net income in 2020 due to the Biogen collaboration[30] - Existing cash is expected to fund operations for at least the next 12 months, but additional financing will be required thereafter[31] - The COVID-19 pandemic has negatively impacted ZULRESSO demand and could disrupt operations and development activities[32] 2. Summary of Significant Accounting Policies This note outlines key accounting policies for financial statement preparation, including revenue recognition - The condensed consolidated financial statements are prepared in accordance with GAAP for interim reports[34] - Management makes significant estimates and assumptions, particularly regarding the impact of the COVID-19 pandemic on sales, expenses, and clinical trials[37] - Revenue is recognized when control of goods or services is transferred, net of variable consideration like rebates and returns[41][52][53] - Collaboration revenue is recognized by allocating the transaction price to distinct performance obligations, such as licenses and clinical material supply[42][45][46][47][48] 3. Fair Value Measurements This note details the fair value hierarchy and composition of the company's cash equivalents and marketable securities - Cash equivalents and marketable securities are classified within Level 1 and Level 2 of the fair value hierarchy based on observable inputs[66][67] - As of March 31, 2021, most marketable securities had maturities of one year or less, with no impairments recorded during the period[71][72][73] Fair Value of Cash Equivalents and Marketable Securities (in thousands) | Item | March 31, 2021 (Total) | December 31, 2020 (Total) | | :-------------------------- | :--------------------- | :---------------------- | | Cash equivalents | $899,250 | $1,661,082 | | Marketable securities | $1,104,767 | $438,467 | | Total | $2,004,017 | $2,099,549 | Gross Unrealized Gains and Losses on Marketable Securities (in thousands) as of March 31, 2021 | Item | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | | :-------------------------- | :------------- | :--------------------- | :---------------------- | :--------- | | U.S. government securities | $173,073 | $30 | $(6) | $173,097 | | U.S. corporate bonds | $346,021 | $118 | $(282) | $345,857 | | International corporate bonds | $202,848 | $70 | $(148) | $202,770 | | U.S. commercial paper | $170,803 | $4 | $(11) | $170,796 | | International commercial paper | $212,258 | $0 | $(11) | $212,247 | | Total | $1,105,003 | $222 | $(458) | $1,104,767 | 4. Balance Sheet Components This note details the composition of property and equipment and accrued expenses, noting key changes - Property and equipment, net, decreased from $6.8 million to $4.2 million, due to asset removals and a write-off from an early lease termination[74][75][76] - Accrued expenses decreased from $54.9 million to $51.4 million, primarily due to a decrease in employee-related accruals[78] Property and Equipment, net (in thousands) | Item | March 31, 2021 | December 31, 2020 | | :-------------------------- | :------------- | :---------------- | | Computer hardware and software | $1,302 | $2,758 | | Furniture and equipment | $964 | $1,865 | | Leasehold improvements | $6,559 | $9,220 | | Less: Accumulated depreciation | $(4,652) | $(7,088) | | Total | $4,173 | $6,755 | Accrued Expenses (in thousands) | Item | March 31, 2021 | December 31, 2020 | | :-------------------------- | :------------- | :---------------- | | Accrued research and development costs | $39,276 | $34,398 | | Employee-related | $3,640 | $14,769 | | Professional services | $7,817 | $5,184 | | Other | $687 | $500 | | Total | $51,420 | $54,851 | 5. Leases, Commitments and Contingencies This note outlines operating leases and various license agreements with milestone and royalty obligations - The company terminated an operating lease for office space in Cambridge, Massachusetts, during Q1 2021[81] - Under the CyDex license agreement, the company has paid $1.0 million in licensing fees and $3.6 million in clinical/regulatory milestones[83][84] - For the University of California license agreements, the company pays royalties of less than 1% on net sales and has paid $0.3 million in milestones[86][87] - The Washington University license agreement includes up to $1.2 million in future milestones and low single-digit royalties[89][90] 6. Collaboration Agreements This note details strategic collaborations with Shionogi and Biogen, including financial terms and revenue recognition - The Shionogi collaboration grants rights for zuranolone in Japan, Taiwan, and South Korea for a $90.0 million upfront payment and up to $485.0 million in milestones[92][93] - The Biogen collaboration involves joint U.S development and commercialization of SAGE-217 and SAGE-324[99][100][104] - Sage received $1.5 billion from Biogen, comprising an $875.0 million upfront payment and a $650.0 million equity investment, with eligibility for up to $1.6 billion in future milestones[101][102] - In Q1 2021, Sage recorded a net reimbursement of $24.8 million from Biogen, reducing R&D and SG&A expenses[113][114] - The $1.1 billion transaction price for the Biogen collaboration was allocated to licenses and recognized as revenue in 2020[114][116] 7. Common Stock This note states the completion of a common stock sale to BIMA, generating $650.0 million in gross proceeds - On December 31, 2020, the company sold 6,241,473 shares of common stock to BIMA, generating $650.0 million in gross proceeds[121] 8. Stock-Based Compensation This note details equity incentive plans, award activity, and a year-over-year decrease in compensation expense - As of March 31, 2021, total unrecognized stock-based compensation expense for unvested RSUs was $85.6 million[132] - Total unrecognized stock-based compensation expense for unvested stock options was $152.7 million, expected to be recognized over a weighted average period of 2.41 years[133] - Stock-based compensation expense decreased from $31.1 million in Q1 2020 to $22.0 million in Q1 2021, primarily due to employee terminations[139] Stock-Based Compensation Expense (in thousands) | Category | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Research and development | $9,281 | $12,224 | | Selling, general and administrative | $12,695 | $18,886 | | Total | $21,976 | $31,110 | 9. Net Loss Per Share This note presents the calculation of basic and diluted net loss per share, excluding anti-dilutive securities - Common stock equivalents totaling 8.3 million shares in Q1 2021 and 8.2 million shares in Q1 2020 were excluded from diluted EPS calculations as their effect would have been anti-dilutive[141] Net Loss Per Share (Basic and Diluted) | Item | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Net loss (in thousands) | $(95,764) | $(126,740) | | Weighted average common stock outstanding—basic and diluted | 58,374,219 | 51,908,760 | | Net loss per share—basic and diluted | $(1.64) | $(2.44) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes financial condition and results of operations, covering performance, pipeline, and liquidity Overview Sage is a biopharmaceutical company advancing its pipeline for brain disorders while facing continued operating losses - The company's pipeline includes zuranolone (SAGE-217) in Phase 3, SAGE-324 in Phase 2 for essential tremor, and SAGE-718 in Phase 2a for cognition-related disorders[145][149][151][152][153] - The SHORELINE Study for zuranolone showed that over 70% of patients achieved positive response after initial treatment[150] - SAGE-324's Phase 2 KINETIC Study met its primary endpoint, showing a statistically significant 36% reduction in upper limb tremor score versus placebo[152] - The company incurred a net loss of $95.8 million for Q1 2021 and had an accumulated deficit of $1.1 billion, expecting continued significant operating losses[156] Financial Operations Overview This section details revenue streams, operating expense components, and the financial impact of collaborations - ZULRESSO revenue has been negatively impacted by complex treatment requirements and the COVID-19 pandemic[162][163] - A workforce reduction in April 2020 has further limited ZULRESSO's revenue opportunity[164] - Collaboration revenue includes a $90.0 million license fee from Shionogi (2018) and $1.1 billion from Biogen (2020)[166][167] - The Biogen collaboration resulted in a $22.1 million reduction in R&D expenses and a $2.7 million reduction in SG&A expenses for Q1 2021 due to net reimbursements[174][184] - R&D expenses are expected to increase as product candidates advance, while SG&A expenses are expected to increase with potential future commercialization[173][177][183] Results of Operations This section compares Q1 2021 to Q1 2020, showing lower revenue but a reduced net loss due to cost-cutting Results of Operations (in thousands) | Item | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | Increase (Decrease) | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :------------------ | | Product revenue, net | $1,583 | $2,286 | $(703) | | Cost of goods sold | $187 | $170 | $17 | | Research and development | $58,056 | $63,610 | $(5,554) | | Selling, general and administrative | $39,847 | $70,130 | $(30,283) | | Total operating costs and expenses | $98,090 | $133,910 | $(35,820) | | Loss from operations | $(96,507) | $(131,624) | $35,117 | | Interest income, net | $708 | $4,729 | $(4,021) | | Other income, net | $35 | $155 | $(120) | | Net loss | $(95,764) | $(126,740) | $30,976 | - Net product revenue from ZULRESSO decreased by 30.7% from $2.3 million in Q1 2020 to $1.6 million in Q1 2021[185][186] - Total operating costs and expenses decreased by $35.8 million (26.7%), driven by a $30.3 million (43.2%) decrease in SG&A expenses due to restructuring[185][190][191] - R&D expenses decreased by $5.6 million (8.7%) due to a $16.8 million reimbursement from Biogen, partially offset by increased clinical trial spending[185][189] - Net loss improved by $31.0 million (24.4%) from $(126.7) million in Q1 2020 to $(95.8) million in Q1 2021[185] Liquidity and Capital Resources The company has sufficient liquidity for the next 12 months but will require additional future funding - As of March 31, 2021, primary liquidity sources were cash, cash equivalents, and marketable securities, totaling $2.0 billion[193] - Net cash used in operating activities was $(109.1) million in Q1 2021, while net cash used in investing activities was $(658.8) million[194][195](index=195&type=chunk][197] - The company expects existing cash to fund operations for at least the next 12 months but anticipates needing substantial additional funding for future operations[199][200] - Future capital requirements depend on ZULRESSO revenue, clinical trial progress, and collaboration payments, with potential for stockholder dilution from future financings[202][203] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's primary market risk from interest rate fluctuations on its cash and investments - The company's primary market risk exposure is to interest rate fluctuations on its $2.0 billion in cash and marketable securities[212] - Due to the short-term nature of its investments, a sudden change in market interest rates is not expected to have a material impact on financial condition[212] - The company has immaterial exposure to foreign currency exchange rates and does not hedge against this exposure[213] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - As of March 31, 2021, management concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level[217] - No material changes to internal control over financial reporting occurred during the period[218] PART II – OTHER INFORMATION This part covers legal proceedings, risk factors, and exhibits filed with the report Item 1. Legal Proceedings The company was not a party to any material legal proceedings as of the reporting date - As of March 31, 2021, the company was not involved in any legal proceedings expected to have a material adverse impact on its financial position or operations[220] Item 1A. Risk Factors This section details significant risks related to product development, commercialization, IP, and financial position Risks Related to Product Development, Regulatory Approval and Commercialization This subsection outlines risks in drug development, regulatory approval, and commercialization, including COVID-19 impacts - ZULRESSO revenue is negatively impacted by complex administration requirements and the COVID-19 pandemic, creating significant barriers to treatment[222][223] - The company's commercial strategy for ZULRESSO is expected to substantially limit revenue growth[225] - Drug development is a long, expensive, and uncertain process; success in early trials may not predict later-stage success, as shown by the MOUNTAIN Study failure[228][229] - The COVID-19 pandemic continues to adversely impact ZULRESSO sales and development activities, potentially causing delays in clinical trials and supply chain operations[231][232][244][245] - The company relies completely on third-party suppliers for manufacturing, posing risks related to compliance, supply disruptions, and IP protection[262][263][264][265] Risks Related to Our Intellectual Property Rights This subsection details risks associated with obtaining, enforcing, and defending intellectual property rights - The company's success depends on obtaining and maintaining patent protection, but there is no assurance that patents will issue or be enforceable[316][317][318][319] - Patent litigation is costly and time-consuming, and successful infringement claims against the company could lead to substantial damages or halt commercialization[320][321][322][323](index=323&type=chunk][326][327] - The company is dependent on licensed intellectual property, and a breach of license agreements could result in the loss of critical rights[342][346] - Changes in U.S patent law could diminish the value of patents and weaken the company's ability to protect its products[352][353][354] Risks Related to our Industry This subsection addresses industry-specific risks from healthcare regulations, data privacy, and foreign market entry - Healthcare regulations and drug pricing controls could adversely affect revenue and limit profitability[357][358][361][362][363] - The company is subject to numerous healthcare laws (e.g, anti-kickback, False Claims Act), and non-compliance could lead to significant penalties[299][300][301][302][303] - Strict data privacy regulations (HIPAA, GDPR, CCPA) impose complex obligations and potential fines for non-compliance[306][307][308] - Penetrating foreign markets subjects the company to additional regulatory burdens, price controls, and political or economic instability[310][311][312][313][314] Risks Related to Our Financial Position and Need for Capital This subsection highlights the company's history of losses and the need for substantial additional funding - Sage has a limited operating history and has incurred significant losses, with an accumulated deficit of $1.1 billion as of March 31, 2021[367][368] - The company expects to incur increasing operating losses for the foreseeable future due to substantial R&D and commercialization costs[369][370] - While existing cash of $2.0 billion is expected to fund operations for at least 12 months, additional funding will be required thereafter[373][374][375] - Failure to obtain necessary capital could force delays or termination of development programs[375][378] Risks Related to Our Common Stock This subsection addresses risks related to common stock volatility, use of capital, and anti-takeover provisions - The market price of the company's common stock is volatile and can fluctuate significantly due to clinical, regulatory, and commercial developments[380] - Management has broad discretion in using existing cash, which may not yield significant returns[381] - Anti-takeover provisions in charter documents could make an acquisition more difficult[382] - Future sales of a substantial number of common shares could significantly reduce the market price of the stock[383] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including agreements and officer certifications - Exhibits filed include a Separation Agreement, certifications of Principal Executive and Financial Officers, and Inline XBRL documents[384][386] SIGNATURES The report is duly signed by the company's Principal Executive Officer and Principal Financial Officer - The report was signed on May 4, 2021, by Barry E Greene, Chief Executive Officer, and Kimi Iguchi, Chief Financial Officer[388][390]