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Aug. 2, 2022, 7:23 a.m. EDT

10-Q: SAGE THERAPEUTICS, INC.

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(EDGAR Online via COMTEX) -- Item 2. 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 condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q, or Quarterly Report, and the audited financial statements and related notes contained in our Annual Report on Form 10-K for the year ended December 31, 2021, 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 Quarterly Report. We discuss risks and other factors that we believe could cause or contribute to these potential differences elsewhere in this Quarterly Report, including under Part II, Item 1A, "Risk Factors" and under "Cautionary Note Regarding Forward-Looking Statements." 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 Quarterly 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.

Overview

We are a biopharmaceutical company with a mission to pioneer solutions to deliver life-changing brain health medicines, so every person can thrive. Our first product, ZULRESSO(R) (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.

The following table summarizes the status of our product and product candidate portfolio as of the filing date of this Quarterly Report.

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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. In July 2022, we completed enrollment for the SUNBIRD Study evaluating the potential for safe-use administration of ZULRESSO in a patient's home for the treatment of PPD. We do not plan any label changes for ZULRESSO based on this trial.

Our next most advanced product candidate is zuranolone (SAGE-217), a novel oral compound being developed for major depressive disorder, or MDD, and PPD, and may in the future be developed for other affective disorders. Zuranolone is a neuroactive steroid that, like brexanolone, is a positive allosteric modulator of GABAA receptors, targeting both synaptic and extrasynaptic GABAA receptors. We began our rolling submission of a new drug application, or NDA, to the U.S. Food and Drug Administration, or FDA, in April 2022 seeking approval of zuranolone for the treatment of MDD. In June 2022, we announced that the NDA submission will include both MDD and PPD in one filing, which we expect to complete in the second half of 2022. The FDA granted Fast Track designation to zuranolone for the treatment of PPD in early 2022 and previously granted zuranolone Breakthrough Therapy designation and Fast Track designation to zuranolone for the treatment of MDD. If we meet our planned filing timelines and the NDA receives priority review, we expect the Prescription Drug User Fee Act target action date for zuranolone to be in the third quarter of 2023.

To date, we have completed six pivotal clinical trials of zuranolone, four in MDD and two in PPD. The completed pivotal trials 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 clinical trials of zuranolone in either 2021 or 2022:

SKYLARK Study (completed)

On June 1, 2022, we announced that the SKYLARK Study, a Phase 3 placebo-controlled clinical trial evaluating a two-week course of zuranolone 50 mg in women with PPD, met its primary and all key secondary endpoints. Women treated with zuranolone 50 mg (n=98) demonstrated a statistically significant and clinically meaningful improvement in depressive symptoms at Day 15, the primary endpoint, and at Days 3, 28, and 45, key secondary endpoints, in each case compared to women treated with placebo (n=97) as measured by a change from baseline in the 17-item Hamilton Rating Scale for Depression, or HAMD-17, total score. The least-squares mean change from baseline (standard error) in HAMD-17 total score at Day 15 for women who received zuranolone 50 mg was -15.6 (0.82) compared with -11.6 (0.82) for women who received placebo (LS mean difference -4.0 points; p=0.0007). Zuranolone 50 mg was generally well-tolerated and demonstrated a safety profile consistent with that observed prior in the clinical development program. In women who experienced treatment emergent adverse events, the majority were mild to moderate in severity. The most common treatment emergent adverse events (>5% in the zuranolone 50 mg arm) were somnolence, dizziness, sedation, headache, diarrhea, nausea, urinary tract infection and COVID-19.

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, met its primary endpoint of improvement in depressive symptoms at Day 3 and key secondary endpoint of improvement in depressive symptoms over the two-week treatment period.

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 March 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 has been completed, and the study is ongoing.

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.

In September 2021, Shionogi 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 and Biogen 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 are currently enrolling patients with

essential tremor in a Phase 2b dose-ranging clinical trial of SAGE-324, known as the KINETIC 2 Study. In May 2022, we also initiated an open-label Phase 2 clinical trial designed to evaluate the long-term safety and tolerability of SAGE-324 in patients with essential tremor, with incidence of treatment-emergent adverse events as the primary endpoint. This is intended to be a multi-year clinical trial, and will initially be open to rollover patients from other SAGE-324 clinical trials in patients with essential tremor, including the KINETIC 2 Study. We believe SAGE-324 also has potential for the treatment of a number of other neurological conditions, including epilepsy and Parkinson's disease. Additional development plans for SAGE-324 will be determined as part of our strategic collaboration with Biogen.

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. 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. In March 2022, we initiated a second placebo-controlled Phase 2 clinical trial of SAGE-718, known as the SURVEYOR Study, in patients with Huntington's disease cognitive impairment, with a healthy volunteer component, 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 to evaluate the long-term safety and tolerability 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 are also 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. As expected, no appreciable effect was observed on measures of simple attention or reaction time in keeping with the profile of SAGE-718 based on data to-date. We have completed enrollment for a four-week dosing cohort in the PARADIGM Study to gather additional data in the Parkinson's disease patient population. In March 2022, we initiated a double-blind, placebo-controlled Phase 2 clinical trial of SAGE-718 in patients with mild cognitive impairment due to Parkinson's disease, known as the PRECEDENT Study. The PRECEDENT Study is designed to evaluate the safety and efficacy of SAGE-718 in patients with mild cognitive impairment due to Parkinson's disease over 42 days, followed by a controlled follow-up period.

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. SAGE-718 has been well-tolerated in studies to date. 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.

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 $1.7 billion as of June 30, 2022. Our net loss was $248.3 million for the six months ended June 30, 2022. 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.

We expect that our expenses will increase in the foreseeable future in connection with our ongoing activities, including if and as we:

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 the ongoing open-label Phase 2 clinical trial evaluating the safety of SAGE-324 in patients with essential tremor, and potentially 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 cognitive impairment due to Huntington's disease and in patients with mild cognitive impairment due to Parkinson's disease and initiate the planned Phase 2 clinical trial evaluating SAGE-718 in patients with mild cognitive impairment and mild dementia due to Alzheimer's disease and the planned open-label Phase 3 safety 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 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 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 geographies 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 licenses, collaborations or other agreements or alliances with other biotechnology and 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 collaborations with Biogen and Shionogi and potential future collaborations. We may not be successful in our commercialization of ZULRESSO, zuranolone, if approved, 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, successfully 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 June 30, 2022, in addition to anticipated funding from our ongoing collaborations, 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 Quarterly Report. See "-Liquidity and Capital Resources".

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 as a treatment for PPD, in June 2019.

Our revenue from sales of ZULRESSO has been negatively impacted by significant barriers arising from the complex requirements for administration of the treatment, and, more recently, by the spread of COVID-19 in the U.S. and the related disruption to the U.S. healthcare system, particularly healthcare staffing shortages. 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 are expected to continue to limit future revenue growth. These barriers have been compounded by the COVID-19 pandemic, its disruptive impact on the U.S. healthcare system, and other changes to the macroeconomic environment. 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 that, at certain points during the pandemic, concerns about exposure to the virus or its variants caused a significant and sustained reduction in the number of women with PPD seeking treatment with ZULRESSO and in the number of physicians willing to prescribe it, and that difficulties in accessing treatment with ZULRESSO have now been

compounded by healthcare staffing shortages and other changes to the macroeconomic environment as the pandemic has continued. Given continuing concerns about the COVID-19 pandemic across the country, and the resulting disruption in many locations to healthcare resources, including as a result of staffing shortages, 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, duration and severity of ongoing and future waves of the pandemic, including the impact of any variant strains of the COVID-19 virus; the extent of healthcare staffing shortages that have continued even as COVID-19-related restrictions have eased; the impact of the pandemic on the willingness of women with PPD to seek treatment with ZULRESSO and the number of physicians willing to prescribe it; the timing of any widespread return to normal business operations across the U.S.; the impact of the pandemic on the Company's customers and vendors, including capacity and resource constraints; and the scope and extent of any future actions or restrictive measures taken to contain or mitigate the impact of the pandemic. Given the ongoing nature of the COVID-19 pandemic and the sustained disruption to the healthcare system in the U.S., we cannot predict for how long and to what extent ZULRESSO sales will be adversely impacted.

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, 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 Territory. In October 2018, we also entered into a supply agreement with Shionogi under which we supply Shionogi with 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 . . .

Aug 02, 2022

COMTEX_411409718/2041/2022-08-02T07:23:29

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