Sage Therapeutics(SAGE) - 2021 Q3 - Quarterly Report

Form 10-Q Filing Information Essential filing details for Sage Therapeutics, Inc.'s Form 10-Q, including registrant, securities, and filer status Registrant Details Basic filing information for Sage Therapeutics, Inc.'s Form 10-Q, covering registrant, securities, and filer status - Registrant: Sage Therapeutics, Inc., incorporated in Delaware[2] Securities Registered | 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 | - Filer Status: Large accelerated filer, not an emerging growth company[3][4] - 58,908,485 shares of common stock outstanding as of October 26, 2021[4] Cautionary Note Regarding Forward-Looking Statements This section warns of forward-looking statements subject to various risks and uncertainties within the report Overview of Forward-Looking Statements and Risks Forward-looking statements regarding ZULRESSO, zuranolone, and financial estimates are subject to significant risks and uncertainties - Forward-looking statements cover potential future results of ZULRESSO commercialization, planned clinical and regulatory activities for zuranolone (MDD and PPD), development of other brain health product candidates, and financial projections[6] - Actual results may differ materially due to known and unknown risks, uncertainties, and other factors, as detailed in Part II, Item 1A, Risk Factors[7] - Estimates and projections regarding industry, business environment, and market sizes are inherently uncertain and may not be accurate[8] - Key risks include competition, impact of COVID-19, and the success of ZULRESSO commercialization and product candidate development/approval[10][11] PART I – FINANCIAL INFORMATION This part presents the company's unaudited condensed consolidated financial statements and management's analysis Item 1. Financial Statements (Unaudited) Sage Therapeutics' unaudited condensed consolidated financial statements, including balance sheets, operations, cash flows, equity, and explanatory notes Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific points in time Condensed Consolidated Balance Sheets (in thousands) | Item | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $422,165 | $1,661,082 | | Marketable securities | $1,421,004 | $438,467 | | Total current assets | $1,901,697 | $2,122,370 | | Total assets | $1,927,180 | $2,159,246 | | Total current liabilities | $78,942 | $67,204 | | Total liabilities | $91,526 | $86,912 | | Total stockholders' equity | $1,835,654 | $2,072,334 | - Cash and cash equivalents decreased significantly from $1.66 billion at Dec 31, 2020, to $422.2 million at Sep 30, 2021[20] - Marketable securities increased from $438.5 million at Dec 31, 2020, to $1.42 billion at Sep 30, 2021[20] - Total assets decreased by approximately $232 million, while total liabilities increased by approximately $4.6 million[20] Condensed Consolidated Statements of Operations and Comprehensive Loss This section details the company's financial performance over specific periods, including revenue, operating costs, and net loss Condensed Consolidated Statements of Operations and Comprehensive Loss (in thousands, except per share data) | Item | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Product revenue, net | $1,440 | $1,639 | $4,666 | $5,014 | | Total operating costs and expenses | $132,334 | $108,797 | $340,088 | $382,764 | | Loss from operations | $(130,894) | $(107,158) | $(335,422) | $(377,750) | | Net loss | $(130,171) | $(105,735) | $(333,180) | $(368,822) | | Net loss per share—basic and diluted | $(2.21) | $(2.03) | $(5.69) | $(7.10) | - Net loss for the three months ended September 30, 2021, increased to $130.2 million from $105.7 million in the prior year period[22] - Net loss for the nine months ended September 30, 2021, decreased to $333.2 million from $368.8 million in the prior year period[22] - Product revenue, net, slightly decreased both for the three-month ($1.4 million vs $1.6 million) and nine-month ($4.7 million vs $5.0 million) periods year-over-year[22] Condensed Consolidated Statements of Cash Flows This section outlines the sources and uses of cash over specific periods, categorized into operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | Item | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(280,681) | $(346,691) | | Net cash provided by (used in) investing activities | $(972,187) | $397,165 | | Net cash provided by financing activities | $13,504 | $7,091 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $(1,239,364) | $57,565 | | Cash, cash equivalents and restricted cash at end of period | $423,434 | $186,637 | - Net cash used in operating activities decreased from $346.7 million in 2020 to $280.7 million in 2021[25] - Net cash from investing activities shifted from a $397.2 million inflow in 2020 to a $972.2 million outflow in 2021, primarily due to purchases of marketable securities[25] - Net cash provided by financing activities increased to $13.5 million in 2021 from $7.1 million in 2020[25] Condensed Consolidated Statements of Changes in Stockholders' Equity This section details the changes in the company's equity over time, reflecting net losses, stock transactions, and other comprehensive income - Total stockholders' equity decreased from $2.07 billion at December 31, 2020, to $1.84 billion at September 30, 2021[28] - Accumulated deficit increased from $(1.04) billion to $(1.37) billion, reflecting ongoing net losses[28] - Additional paid-in capital increased by approximately $97 million, primarily due to stock option exercises and stock-based compensation expense[28] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering accounting policies, fair value, and specific balance sheet components 1. Nature of the Business This section describes Sage Therapeutics' core business as a biopharmaceutical company focused on brain disorders, its approved product ZULRESSO, and financial outlook - Sage Therapeutics is a biopharmaceutical company focused on developing and commercializing medicines for debilitating brain disorders[30] - The company's first approved product is ZULRESSO® (brexanolone) CIV injection for postpartum depression (PPD) in adults, launched in June 2019[31] - Current product candidates focus on modulating GABA and NMDA receptor systems for depression, neurology, and neuropsychiatry[31] - The company expects existing cash, cash equivalents, and marketable securities to fund operations for at least the next 12 months, but anticipates needing additional financing thereafter[35] - The COVID-19 pandemic has negatively impacted ZULRESSO demand and clinical trial recruitment, particularly for older patients and PPD patients in the SKYLARK Study[36] 2. Summary of Significant Accounting Policies This section outlines the key accounting principles and methods used in preparing the financial statements, including revenue recognition, R&D costs, and fair value measurements - Financial statements are condensed and unaudited, prepared in accordance with GAAP, and include normal recurring adjustments[38][39] - Estimates and assumptions are made, particularly regarding the impact of the COVID-19 pandemic, which may change[41] - Research and development costs are expensed as incurred, with accruals based on progress and contractual terms[43][44] - Revenue is recognized when control of promised goods or services transfers to the customer, following a five-step model (Topic 606)[46][47] - Product revenue from ZULRESSO is recognized net of variable consideration (e.g., chargebacks, government rebates, trade discounts, financial assistance, product returns)[56][58] - Collaboration arrangements are assessed under Topic 808 and Topic 606, with co-development/commercialization activities recorded as expense adjustments[65][66] - Fair value measurements classify cash equivalents and marketable securities primarily within Level 1 and Level 2 of the fair value hierarchy[67][72] 3. Fair Value Measurements This section details the fair value hierarchy and valuation methods applied to the company's financial assets, primarily cash equivalents and marketable securities Fair Value of Cash Equivalents and Marketable Securities (in thousands) as of September 30, 2021 | Category | Total | Level 1 | Level 2 | Level 3 | | :--- | :--- | :--- | :--- | :--- | | Cash equivalents | $422,165 | $421,570 | $595 | $— | | Marketable securities | $1,421,004 | $— | $1,421,004 | $— | | Total | $1,843,169 | $421,570 | $1,421,599 | $— | Fair Value of Cash Equivalents and Marketable Securities (in thousands) as of December 31, 2020 | Category | Total | Level 1 | Level 2 | Level 3 | | :--- | :--- | :--- | :--- | :--- | | Cash equivalents | $1,661,082 | $1,637,609 | $23,473 | $— | | Marketable securities | $438,467 | $— | $438,467 | $— | | Total | $2,099,549 | $1,637,609 | $461,940 | $— | - Marketable securities are primarily U.S. government securities, U.S. and international corporate bonds, and commercial paper, classified within Level 2[75] - As of September 30, 2021, $486.1 million of marketable securities had maturities of one to two years; all others had maturities of one year or less[78] 4. Balance Sheet Components This section provides a detailed breakdown of specific balance sheet items, including property and equipment, and accrued research and development costs Property and Equipment, net (in thousands) | Item | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Computer hardware and software | $1,260 | $2,758 | | Furniture and equipment | $897 | $1,865 | | Leasehold improvements | $5,799 | $9,220 | | Less: Accumulated depreciation | $(5,049) | $(7,088) | | Total | $2,907 | $6,755 | - Depreciation expense for the nine months ended September 30, 2021, was $3.8 million, up from $2.0 million in 2020[83] - Accrued research and development costs increased to $44.8 million at Sep 30, 2021, from $34.4 million at Dec 31, 2020[87] 5. Leases, Commitments and Contingencies This section outlines the company's lease obligations, contractual commitments, and potential contingencies, including license agreements and milestone payments - The company leases office space and equipment, with remaining lease terms up to approximately three years[88] - Operating leases for office space in Cambridge, Massachusetts, were terminated or subleased during 2021, leading to de-recognition of right-of-use assets[90][85] - The company has license agreements with CyDex, University of California, and Washington University for various compounds, involving royalties and milestone payments[93][97][98][100] - An additional clinical development milestone for SAGE-689 under the CyDex agreement resulted in $0.1 million expense in Q3 2021[95] - An additional clinical development milestone for SAGE-689 under the Washington University agreement resulted in $0.1 million expense in Q3 2021[102] 6. Collaboration Agreements This section details the company's strategic collaboration agreements with Shionogi and Biogen, outlining their scope, financial terms, and cost-sharing arrangements - Shionogi Collaboration: For zuranolone in Japan, Taiwan, and South Korea; Shionogi is responsible for development, regulatory filings, and commercialization; Sage received a $90.0 million upfront payment in 2018 and is eligible for up to $485.0 million in milestones and tiered royalties[103][104][105] - Biogen Collaboration: Joint development and commercialization of SAGE-217 (zuranolone) and SAGE-324 in the U.S., with Biogen having exclusive rights outside the U.S. (excluding Shionogi Territory)[111][112] - Biogen Collaboration Financials: Sage received $1.5 billion in consideration in December 2020 ($875.0 million upfront payment + $650.0 million from stock purchase); Eligible for up to $1.6 billion in additional milestones and tiered royalties (high teens to low twenties)[113][114] - Biogen Collaboration Cost Sharing: In the U.S., Sage and Biogen share equally in development, commercialization costs, profits, and losses; Biogen is solely responsible for costs in the Biogen Territory[117] - Net reimbursement from Biogen: $24.2 million for Q3 2021 and $72.6 million for the nine months ended Sep 30, 2021, reducing R&D and SG&A expenses[126][127] - Biogen Stock Purchase Agreement: BIMA purchased 6,241,473 shares for $650.0 million at a 40% premium; The excess proceeds of $232.5 million were included in the Biogen Collaboration Agreement's transaction price[129][131] 7. Common Stock This section provides details on the company's common stock, including significant transactions such as the private placement with BIMA - On December 31, 2020, the company sold 6,241,473 shares of common stock to BIMA for $650.0 million in a private placement[133] 8. Stock-Based Compensation This section details the company's stock-based compensation plans, including unrecognized expenses and the impact on operating costs - Total unrecognized stock-based compensation expense for unvested time-based restricted stock units and performance restricted stock units was $64.7 million as of September 30, 2021[148] - Unrecognized stock-based compensation expense for unvested time-based stock options was $115.8 million, to be recognized over 2.25 years[149] - Stock-based compensation expense for Q3 2021 was $34.3 million (vs $20.1 million in Q3 2020), and for the nine months ended Sep 30, 2021, was $84.0 million (vs $75.3 million in 2020)[156] - The increase in Q3 2021 stock-based compensation was primarily due to the determination that a milestone for certain performance restricted stock units was probable, resulting in $7.9 million of expense[207] 9. Net Loss Per Share This section presents the calculation of basic and diluted net loss per share, reflecting the company's overall profitability relative to its outstanding shares Net Loss Per Share (Basic and Diluted) | Period | Net Loss (in thousands) | Weighted Average Common Stock Outstanding | Net Loss Per Share | | :--- | :--- | :--- | :--- | | 3 Months Ended Sep 30, 2021 | $(130,171) | 58,819,548 | $(2.21) | | 3 Months Ended Sep 30, 2020 | $(105,735) | 51,981,468 | $(2.03) | | 9 Months Ended Sep 30, 2021 | $(333,180) | 58,593,743 | $(5.69) | | 9 Months Ended Sep 30, 2020 | $(368,822) | 51,938,923 | $(7.10) | - Common stock equivalents (stock options, restricted stock units, ESPP) were excluded from diluted EPS calculation as they were anti-dilutive due to net losses[158] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, highlighting key business developments, financial performance, and liquidity Overview This section provides a high-level summary of Sage Therapeutics' business, product pipeline, financial performance, and capital resources - Sage Therapeutics is a biopharmaceutical company focused on brain disorders, with ZULRESSO® (brexanolone) CIV injection approved for PPD in the U.S.[161][164] - Key product candidates include zuranolone (MDD and PPD, NDA planned for MDD in H2 2022, PPD in H1 2023), SAGE-324 for essential tremor (Phase 2 dose-ranging trial in late 2021), and SAGE-718 for cognition-related disorders (Fast Track for Huntington's, Phase 2 trials planned)[165][166][168][169][170] - The company has incurred significant net losses, with an accumulated deficit of $1.4 billion as of September 30, 2021, and expects increasing operating losses due to R&D and commercialization costs[173] - Existing cash, cash equivalents, and marketable securities are expected to fund operations for at least the next 12 months[176] Financial Operations Overview This section provides an overview of the company's financial operations, including revenue streams, collaborative arrangements, cost of goods sold, and operating expenses Revenue This section discusses the company's revenue sources, primarily ZULRESSO product sales and collaboration revenue, and factors impacting their performance - ZULRESSO product sales revenue has been negatively impacted by complex treatment requirements (REMS, formulary approvals, reimbursement) and the COVID-19 pandemic[179][180] - Commercial efforts for ZULRESSO are focused on existing, active treating sites, which is expected to limit revenue growth[181] - Collaboration revenue from Shionogi ($90.0 million upfront in 2018) and Biogen ($1.1 billion in 2020) is recognized based on license fees, clinical materials, and milestone payments[183][184] Collaborative Arrangements This section explains the accounting treatment for collaborative arrangements, particularly how payments and reimbursements from partners are recorded - Collaboration arrangements are assessed under ASC Topic 808 (joint operating activities) and Topic 606 (vendor-customer relationships)[185][186] - Payments or reimbursements from collaborative partners for co-development and co-commercialization activities are recorded as adjustments to R&D or SG&A expenses[187] Cost of Goods Sold This section defines the components of cost of goods sold, including manufacturing, distribution, royalties, and the impact of expensed pre-approval inventory - Cost of goods sold includes manufacturing, distribution, third-party royalties, and amortization of intangible assets for ZULRESSO[188] - Manufacturing costs for ZULRESSO inventory built before FDA approval were expensed in prior periods, resulting in zero-cost inventory for an extended period[205] Operating Expenses This section broadly categorizes the company's operating expenses into research and development and selling, general and administrative activities - Operating expenses primarily consist of research and development (R&D) and selling, general and administrative (SG&A) activities[189] Research and Development Expenses This section details the components of R&D expenses, including personnel, clinical trial costs, and the impact of collaboration reimbursements - R&D expenses are expensed as incurred and include personnel, CROs, manufacturing materials, consultants, regulatory activities, and license payments[190] - R&D expenses were reduced by $21.6 million (Q3 2021) and $63.8 million (9M 2021) due to net reimbursement from Biogen for co-development activities[191] - R&D expenses are expected to increase due to advancing clinical trials and non-clinical studies for product candidates[194] - COVID-19 pandemic may negatively impact development activities, causing delays and increased R&D costs, particularly in patient recruitment[195] Selling, General and Administrative Expenses This section outlines the components of SG&A expenses, including personnel, professional fees, and the impact of collaboration reimbursements - SG&A expenses include personnel, stock-based compensation, professional fees (commercialization, pre-launch, legal), and corporate infrastructure costs[198] - SG&A expenses were reduced by $2.6 million (Q3 2021) and $8.8 million (9M 2021) due to net reimbursement from Biogen for co-commercialization activities[200] - SG&A expenses are expected to increase with development and potential commercialization of zuranolone and other product candidates[199] Results of Operations This section provides a comparative analysis of the company's financial performance for the three and nine months ended September 30, 2021 and 2020 Comparison of the Three Months Ended September 30, 2021 and 2020 This section compares key financial metrics for the three-month periods, highlighting changes in revenue, operating expenses, and net loss Key Financials (Three Months Ended September 30, in thousands) | Item | 2021 | 2020 | Increase (Decrease) | | :--- | :--- | :--- | :--- | | Product revenue, net | $1,440 | $1,639 | $(199) | | Research and development | $83,497 | $74,078 | $9,419 | | Selling, general and administrative | $48,706 | $35,099 | $13,607 | | Net loss | $(130,171) | $(105,735) | $(24,436) | - Product revenue decreased by $0.2 million due to complex treatment requirements and COVID-19 impact[203] - R&D expenses increased by $9.4 million, driven by SAGE-718 and other early-stage programs, and stock-based compensation, partially offset by Biogen reimbursements and decreased zuranolone/SAGE-324 expenses[206][207] - SG&A expenses increased by $13.6 million, primarily due to higher personnel costs, stock-based compensation (milestone achievement), and professional fees for disease awareness and launch readiness[208][209] Comparison of the Nine Months Ended September 30, 2021 and 2020 This section compares key financial metrics for the nine-month periods, detailing changes in revenue, operating expenses, and net loss Key Financials (Nine Months Ended September 30, in thousands) | Item | 2021 | 2020 | Increase (Decrease) | | :--- | :--- | :--- | :--- | | Product revenue, net | $4,666 | $5,014 | $(348) | | Research and development | $207,723 | $211,008 | $(3,285) | | Selling, general and administrative | $131,899 | $143,454 | $(11,555) | | Restructuring | $— | $27,873 | $(27,873) | | Net loss | $(333,180) | $(368,822) | $35,642 | - Net loss decreased by $35.6 million, primarily due to lower restructuring expenses and reduced personnel-related SG&A costs[210][217] - R&D expenses decreased by $3.3 million, mainly due to Biogen reimbursements for zuranolone and SAGE-324, offset by increased spending on SAGE-718 and other early-stage programs[215][216] - SG&A expenses decreased by $11.6 million, primarily due to the April 2020 workforce reduction, partially offset by increased stock-based compensation and professional fees[217] - Restructuring expense of $27.9 million in 2020 was for one-time termination benefits from the April 2020 workforce reduction[218] Liquidity and Capital Resources This section assesses the company's ability to meet its financial obligations, detailing cash flows from operating, investing, and financing activities, and future capital requirements Operating Activities This section details the net cash used in operating activities, driven by net loss and changes in working capital, partially offset by non-cash items - Net cash used in operating activities was $280.7 million for the nine months ended September 30, 2021, primarily due to net loss and changes in operating assets/liabilities, partially offset by non-cash items[222] Investing Activities This section describes the net cash used in investing activities, primarily reflecting the investment of Biogen collaboration proceeds into marketable securities - Net cash used in investing activities was $972.2 million for the nine months ended September 30, 2021, primarily due to investing the majority of cash received from Biogen into marketable securities[224] Financing Activities This section outlines the net cash provided by financing activities, primarily from stock option exercises - Net cash provided by financing activities was $13.5 million for the nine months ended September 30, 2021, an increase from $7.1 million in 2020, driven by stock option exercises[226] Operating Capital Requirements This section discusses the company's future funding needs, dependence on existing capital, and potential impacts of raising additional capital - The company expects existing cash, cash equivalents, and marketable securities ($1.8 billion as of Sep 30, 2021) to fund operations for at least the next 12 months[228] - Significant additional funding will be required in the future to support ongoing development, regulatory approvals, and potential commercialization of product candidates[227][231] - Future capital requirements depend on ZULRESSO revenue, zuranolone launch costs, clinical trial progress, collaboration payments, market acceptance, and intellectual property costs[230][233] - Raising additional capital may dilute existing stockholders, impose restrictive covenants, or require relinquishing rights to technologies[231] Contractual Obligations and Commitments This section confirms that there have been no material changes to the company's contractual obligations and commitments since the last annual report - No material changes to contractual obligations and commitments since the Annual Report[232] Off-Balance Sheet Arrangements This section states that the company does not have any off-balance sheet arrangements that would materially impact its financial position - The company does not have any off-balance sheet arrangements[234] Application of Critical Accounting Policies This section identifies the critical accounting policies, including revenue recognition and collaborative arrangements, and notes no material changes - Critical accounting policies include revenue recognition, collaborative arrangements, accrued research and development expenses, and stock-based compensation[235] - No material changes to critical accounting policies, except for collaborative arrangements[236] Recently Issued Accounting Pronouncements This section discusses the impact of recently issued accounting standards, noting no significant material effects on the company's financial statements - Adoption of ASU No. 2019-12 (Income Taxes) on January 1, 2021, did not have a significant impact[70] - Other recently issued or proposed accounting standards are not expected to have a material impact[71] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks, primarily interest rate fluctuations, foreign currency, and inflation, concluding they are currently immaterial - Primary market risk exposure is to fluctuations in interest rates, but due to the short-term nature of investments, a sudden change is not expected to have a material impact[240] - Exposure to foreign currency exchange rates from foreign vendors and subsidiaries is believed to be immaterial, and no hedging is performed[241] - No significant risk of default or illiquidity in cash, cash equivalents, and marketable securities, though investments are in excess of federally insured limits[242] - Inflation is not believed to have had a material effect on results of operations for the nine months ended September 30, 2021 and 2020[243] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures This section confirms that management, with CEO and CFO, concluded the disclosure controls and procedures were effective as of September 30, 2021 - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2021[245] Changes in Internal Control over Financial Reporting This section reports that no material changes to internal control over financial reporting occurred during the period covered by this report - No material changes to internal control over financial reporting occurred during the period covered by this Quarterly Report[246] PART II – OTHER INFORMATION This part contains additional information not covered in the financial statements, including legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings This section confirms that as of September 30, 2021, no legal proceedings are expected to materially impact the company's financial position or operations - As of September 30, 2021, no legal proceedings are expected to have a material adverse impact on the company's financial position, results of operations, or cash flow[248] Item 1A. Risk Factors This section details significant risks that could materially affect the company's business, financial condition, and operating results, spanning product development, intellectual property, and financial position Risks Related to Product Development, Regulatory Approval and Commercialization This section details risks associated with developing, gaining approval for, and commercializing products, including ZULRESSO sales, clinical trial outcomes, and market acceptance - ZULRESSO commercialization faces significant barriers due to complex administration requirements (REMS, infusion setting), reimbursement challenges, and negative impact from the COVID-19 pandemic, limiting revenue growth[250][251][253] - Future business heavily depends on successful development and regulatory approval of product candidates like zuranolone (MDD, PPD) and SAGE-324, with risks of clinical trial failures, delays, and regulatory non-approval[257][258][259] - Undesirable side effects from ZULRESSO or product candidates could limit commercial profile, delay approval, or lead to regulatory actions like boxed warnings or REMS modifications[265][267] - Obtaining regulatory approval is complex, lengthy, and uncertain; the FDA may delay, limit, or deny approval for various reasons, including insufficient data or disagreements on trial design[268] - The COVID-19 pandemic continues to adversely impact ZULRESSO sales and may cause delays in clinical trial initiation, enrollment, and completion, increasing R&D costs[273][274] - Market size estimates for target diseases (PPD, MDD, essential tremor) may be smaller than anticipated, affecting revenue potential and patient enrollment[276][277] - Positive results from early-stage studies are not predictive of later-stage success, and interim results may not be replicated in completed trials[278][279] - Reliance on third parties (CROs, manufacturers) for clinical trials and supply carries risks of non-compliance, delays, and quality control issues, potentially hindering regulatory approval and commercialization[291][292][293][294][295] - Broad market acceptance and adequate reimbursement for ZULRESSO or future products are not guaranteed, facing challenges from payor restrictions, cost containment, and competition[296][297][298][299][300] - Post-marketing obligations, potential controlled substance scheduling, and ongoing regulatory compliance (GMPs) pose significant costs and risks, including market withdrawal or manufacturing suspension[302][304][306][307][308] - Intense competition from other biopharmaceutical companies, including those with greater resources and similar products, could adversely affect revenue generation[310][311][312][313][314][315] - Collaborations (Biogen, Shionogi) may not lead to successful development or commercialization due to competing priorities, conflicting incentives, or termination, impacting financial prospects[317][319] - Failure to identify new product candidates or successfully advance IND applications, or misallocation of limited resources, could hinder future growth[322][323] - Future growth requires significant expansion of the company, including personnel and systems, which may be difficult to manage effectively[324] - Inability to attract and retain qualified personnel, especially in a competitive environment, could adversely affect development efforts[326] - Product liability exposure from ZULRESSO sales and clinical trials could result in substantial liabilities, even with insurance coverage[327][328] - Non-compliance with government pricing programs (Medicaid Drug Rebate Program) could lead to penalties, sanctions, and fines[329][330] - Subject to various healthcare laws and regulations (anti-kickback, False Claims Act, HIPAA, Sunshine Act), non-compliance could result in criminal sanctions, civil penalties, and reputational harm[331][332][335] - Strict regulations on data collection, privacy (GDPR, CCPA), and cross-border data transfer pose compliance challenges, potential fines, and litigation risks[338][339][340] - Improper promotion of off-label uses could lead to significant liability, fines, and regulatory actions[342] - Penetrating foreign markets involves additional regulatory burdens, price controls, reimbursement issues, and political/economic instability, potentially impacting U.S. business[343][344][345][346][347] Risks Related to Our Intellectual Property Rights This section outlines risks concerning the company's ability to protect its intellectual property, including patent enforceability, trade secret protection, and potential infringement claims - Inability to adequately protect proprietary technology or obtain/maintain issued patents could lead to direct competition and adverse business impact[349] - Patent applications may not issue, issued patents may be unenforceable or have limited scope (e.g., ZULRESSO formulation-specific claims), and third-party patents could overlap or dominate[351][352] - Patents can be challenged, invalidated, or circumvented through various proceedings (e.g., opposition, inter partes review), leading to loss or reduction of patent rights[354] - Failure to prevent unauthorized disclosure of trade secrets by employees or consultants, or independent discovery by competitors, could harm the business[358] - Risk of infringing third-party intellectual property rights, leading to costly litigation, substantial damages, royalties, or forced cessation of development/commercialization[359][360] - Claims challenging inventorship or ownership of patents and IP could result in loss of valuable rights or costly litigation[362][363][364] - Non-compliance with procedural requirements of patent agencies can lead to abandonment or lapse of patent rights[365] - Lawsuits to protect or enforce patents can be expensive, time-consuming, and unsuccessful, potentially invalidating patents or leading to narrow interpretations[366][368] - Not seeking IP protection in all jurisdictions, or weak enforcement in foreign countries, allows competitors to use technologies or export infringing products[371][372][373][374] - Loss of rights to licensed intellectual property due to breach of agreements or failure to meet development deadlines could prevent continued development or commercialization[376][379][380][381] - Licensed IP from government-funded programs may be subject to 'march-in' rights, reporting requirements, and U.S. industry preference, limiting exclusive rights and manufacturing options[382][383] - Failure to obtain new chemical entity (NCE) or other marketing/data exclusivity, or patent term extensions, could facilitate earlier generic competition[385][386] - Changes in U.S. patent law (e.g., America Invents Act, Supreme Court rulings) could diminish patent value and weaken protection capabilities[387][388][389] - Proposed legislation to limit patent exclusivity or facilitate generic entry could adversely affect products and accelerate generic competition[390] Risks Related to our Industry This section addresses industry-specific risks, including healthcare regulations impacting costs and reimbursement, and potential cybersecurity failures - Healthcare regulations aimed at reducing costs (e.g., ACA, drug pricing controls) could adversely affect revenue, limit profitability, and reduce reimbursement for products[393][394][395][396][397][398] - Internal computer systems or those of collaborators/contractors may fail or suffer security breaches, disrupting development programs, causing data loss, and incurring liabilities[399][400] Risks Related to Our Financial Position and Need for Capital This section highlights financial risks, including a limited operating history, significant accumulated losses, and the ongoing need for substantial additional funding - The company has a limited operating history, incurred significant operating losses ($1.4 billion accumulated deficit as of Sep 30, 2021), and anticipates continued losses due to high R&D and commercialization costs[402][404][405] - Future profitability depends on generating substantial product revenue, which is uncertain given ZULRESSO's limited opportunity and the challenges in developing and commercializing new candidates[406][407] - Additional funding will be needed in the future, which may not be available on acceptable terms or at all, potentially forcing delays or termination of development programs[408][410][411][414] - Raising additional capital through equity or convertible debt will dilute existing stockholders; debt financing may impose restrictive covenants; collaborations may require relinquishing valuable rights[412][413] Risks Related to Our Common Stock This section addresses risks related to the company's common stock, including market price volatility, anti-takeover provisions, and potential dilution from future sales - Market price of common stock is volatile, influenced by clinical trial results, regulatory approvals, COVID-19 impact, competition, financial performance, and general market conditions[417] - Broad discretion in using cash and future offering proceeds may not yield significant returns, potentially affecting results and stock price[417] - Anti-takeover provisions in charter documents and Delaware law could make acquisitions difficult and prevent changes in management[418] - Future sales of common stock, including by significant stockholders like BIMA after lock-up periods, could cause the stock price to decline[419] Item 6. Exhibits This section lists all exhibits filed as part of the Quarterly Report on Form 10-Q, including various agreements and certifications - Exhibits include offer letters, severance agreements, license agreement amendments, collaboration side letters, officer certifications (Sarbanes-Oxley Act), and Inline XBRL documents[422] Signatures This section contains the required signatures for the Form 10-Q, confirming its submission by the Chief Executive Officer, President, and Chief Financial Officer - Report signed by Barry E. Greene (CEO, President, and Director) and Kimi Iguchi (CFO) on November 2, 2021[427]