Sage Therapeutics, Inc. (SAGE) Earnings Call Transcript & Summary

Good morning, and welcome to Sage Therapeutics conference call. [Operator Instructions] This call is being webcast live on the Investor and Media section of Sage's website at sagerx.com. This call is the property of Sage Therapeutics and recording, reproduction or transmission of this call without the expressed written consent of Sage Therapeutics is strictly prohibited. Please note that this call is being recorded. I would now like to introduce Jeff Boyle, Head of Investor Relations at Sage.

Good morning, and thank you for joining Sage's conference call to discuss our strategic collaboration with Biogen. Before we begin, I encourage everyone to go to the Investors and Media section of our website at sagerx.com, where you can find the press release related to today's call. Let me first point out that we will be making forward-looking statements, which are based on our current expectations and beliefs. These statements are subject to certain risks and uncertainties, and our actual results may differ materially. Please consult the risk factors discussed in Friday's press release and in our SEC filings for additional details. On the call today are Dr. Jeff Jonas, our Chief Executive Officer, who will discuss the strategic rationale for the deal; Mike Cloonan, our Chief Operating Officer, to discuss the development and commercialization impact; and Kimi Iguchi, our Chief Financial Officer, who will review the value-enhancing elements of the deal. We will also be joined for the Q&A session of the call by Dr. Jim Doherty, our Chief Research Officer. And now I'll turn the call over to Jeff.

Okay. Thanks, Jeff, and good morning, everyone. Thanks for joining us today to discuss this strategically important and timely collaboration with Biogen. And first, I'm very glad to be back and feeling better. And I want to thank everyone who sent me well wishes over the last month. So let me start by saying how happy I am today to announce this transformational collaboration with Biogen. As we think about our innovative product opportunities and their potential to transform neurological and depressive diseases, to us, this is clearly a company-building collaboration and is another step for Sage to become a leading brain health company. For Sage, looking at developing innovative products in large markets with unmet need, the strategic question was how to get there in this capital-intensive business. To us, this collaboration enables Sage to build for the future. It gives us the capital and resources to expand and accelerate our pipeline without significant dilution to shareholders. It also gives us the opportunity and resources to seek more quickly to unlock the full value of zuranolone and SAGE-324, both in development and potential commercialization. This collaboration is just a great fit, and the timing is right, providing the resources, infrastructure and capabilities to help achieve our vision. I will let Mike and Kimi walk you through the collaboration in more detail, but I want to share the strategic and financial value I see in this deal. First, this is a cash flow-accretive deal as it can provide more than $3.1 billion comprised of cash, equity and potential milestone payments, with 50% upfront and $1.6 billion in potential milestones. On top of that, it provides immediate cost-sharing P&L relief once the deal closes. And assuming success, it will result in 50-50 shared profits in the U.S. and royalties outside the U.S., which, given the expected expansion of indications pursued, has the potential to be greatly accelerated from our base case plan. In a scenario with positive data readouts from the landscape program, this means a constant flow of cash from the collaboration, with $1.6 billion in potential milestone payments. Second, this deal gives us the opportunity to expand the number of indications, patient impact and, therefore, the commercial value of zuranolone and SAGE-324, assuming successful development. Together with Biogen, we can explore additional indications, some but not all of which we've already identified in a clinical work. To date, we have been considering bipolar disorder, generalized anxiety disorder and treatment-resistant depression in our plans for zuranolone. This deal also will allow us, we believe, to accelerate commercial readiness and capabilities necessary to optimize launch trajectory globally and potentially increase the commercial opportunities for these products. It's important to take a moment to recognize that we are going after diseases that affect millions of people worldwide in some of the largest pharmaceutical markets. This is a challenge, one that requires not only great science, but also significant infrastructure as well as development and commercialization expertise. This is unlike specialized markets, where there are less costly infrastructure builds. We believe this collaboration with a world-class CNS company may enable a more efficient launch, with more rapid uptake and greater overall sales for these 2 products. We're proud at Sage of the productivity of our discovery and translational scientists. This collaboration will allow us to optimize and advance our pipeline with new potential product candidates and take advantage of our product engine with the goal of creating new medicines for patients and other stakeholders, individuals, families and communities. A good example of this is SAGE-718. We believe in the financial and operational flexibility from this collaboration, by example, will allow us to fully evaluate the potential of this molecule, whether it's in Huntington's disease, Alzheimer's or wherever the data lead us. And importantly, many of you may recall some of the potential new targets we have made public in our FutureCast. The flexibility from this collaboration will allow us to fuel our product engine, enabling us to continue to identify and develop new product candidates. And finally, with this collaboration, we can leverage capabilities of Biogen while we continue to build the company to drive long-term growth and value. So to wrap up, I'm thrilled with this collaboration, not only because it provides a path to optimize the value of zuranolone and SAGE-324, but because it allows us to pursue a richer pathway of opportunities versus a slower, more highly dilutive go-it-alone path. With that, I'll turn this over to Mike, who will give you more details about this collaboration.

Thanks, Jeff, and good morning, everyone. I'm excited to be here to discuss what we believe is one of the largest strategic collaborations in brain health, a potential $3 billion-plus deal. We're pleased to announce that Sage has entered in a strategic collaboration with Biogen, a well-recognized pioneer in the neuroscience space, to develop 2 clinical-stage assets in Sage's exciting pipeline, zuranolone and SAGE-324, both positive allosteric modulators of GABAA receptors. This groundbreaking collaboration aligns efforts of 2 companies committed to patients and driven by a passion for brain health. This collaboration is game-changing for Sage and patients and has the potential to unlock additional value from zuranolone and SAGE-324, and as Jeff just highlighted, the rest of our rich wholly owned pipeline. Zuranolone is currently being evaluated in Phase III trials for the treatment of major depressive disorder, or MDD, and postpartum depression, or PPD, as part of the landscape and next clinical programs. As a reminder, the vision for zuranolone rests on its potential to work rapidly and continue providing benefit beyond the period of dosing. Together, these 2 features have successfully demonstrated in our Landscape and Nest programs in MDD and PPD may support a treat-as-needed alternative option to how depression is treated today. PPD is a major depressive episode that can occur during pregnancy or postpartum and is one of the most common medical complications during and after pregnancy. In the U.S., an estimated 1 in 8 mothers experience symptoms of PPD, which equates to approximately 500,000 annual cases. An estimated 17 million Americans experience symptoms of MDD each year. However, during the COVID-19 pandemic, we are seeing epidemic levels of mental health issues. In fact, in a September 2020 article in the Journal of the American Medical Association, found that depression symptoms are more than 3x higher during the pandemic than before. This puts the focus and the urgency in place now why treatments are needed. SAGE-324 is currently being evaluated in the Phase IIa kinetic study of the treatment of essential tremor, the most common movement disorder. It is estimated that more than 6 million people in the U.S. live with this disorder and the only pharmacological treatment approved for essential trauma, propranolol, was approved in 1967, more than 50 years ago. Innovation has been sorely lacking in the treatment of depression and essential tremor for many years, leaving millions of patients in the U.S. alone with limited or suboptimal treatment options. The effort of our 2 companies, if successful, has the potential to make a meaningful change in the lives of patients around the world. In a moment, Kimi will provide you with more details on the structure and financials of this collaboration. But first, I'd like to review how this collaboration positions Sage to potentially accelerate and expand the value across our depression, neuropsychiatry and neurology franchises and beyond. As Jeff said, Biogen is a great match and a natural fit with our mission to make medicines that matter so people can get better sooner. And this collaboration represents a valuable opportunity, if we're successful, to accelerate the global availability of these important products. The timing is right for this collaboration. The encouraging zuranolone data from the recently announced MOUNTAIN 6-month follow-up period and the top line interim SHORELINE study analysis suggest that potential for zuranolone to be uniquely positioned as a disruptive, distinct and novel treatment approach for patients. These data made us realize the opportunity with zuranolone should be much bigger. That, coupled with the expected readout of the zuranolone WATERFALL study in the first half of 2021, made the timing ideal for 2 like-minded companies to join forces. In fact, we expect the collaboration and associated cost-sharing with accelerated additional investment in the Landscape program and our other programs. Investment in the Landscape program has been our top priority. For example, due to the continued strong enrollments in the WATERFALL study, we are enhancing the potential value of the study. Without altering the time line, we are further increasing power of the study to detect differences in secondary endpoints, including subgroups and additional time points, while adding to our safety database. Enrollment has been going very well, as I mentioned, and we continue to expect top line data from this study in the first half of 2021. Moving forward together with Biogen, we will decide on additional opportunities to enhance and accelerate this important program. This collaboration reinforces our vision to think differently about brain health and our mission to change the lives of millions of patients. If we're successful in our development efforts, our goal is for zuranolone to provide a treatment option that allows depression to be thought about and treated differently and SAGE-324 to be the first new pharmacological treatment for essential tremor in more than 50 years. Through this collaboration, Sage and Biogen have the potential to deliver significant mutual value creation by giving both companies the opportunity to build something greater together than either could have done alone. We plan to leverage each other's existing expertise in our efforts to create paradigm shifts in the treatment of depression, PPD and essential tremor, all areas that have gone too long with little or no innovation. And the strong financial terms of the collaboration will enhance Sage's resource allocation and strengthen our multi-franchise strategy, while also allowing us to continue to build a fully integrated company. It's important to highlight that the structure of this collaboration is expected to provide significant flexibility for Sage in 3 ways. First, financially. The deal has total potential value of more than $3 billion, including an upfront $1.5 billion cash infusion and immediate joint cost- and risk-sharing that will provide us the opportunity to strengthen our balance sheet, potentially maximize the value of zuranolone and SAGE-324 and distribute additional resources to the rest of our rich pipeline. Second, strategically, we will gain a purposely-aligned collaboration partner, assuming a successful development program, will increase the commercial opportunity for zuranolone and SAGE-324 globally. In the U.S., this increase is driven by the combined resources and capabilities of the 2 companies launching paradigm-shifting therapies into large markets. This collaboration could also significantly accelerate launches outside the U.S., given Biogen's strong global capabilities. And last, operationally, this collaboration leverages Biogen's best-in-class and successful commercial and manufacturing infrastructure, while still enabling us to establish these key capabilities at Sage in the U.S., supporting our efforts to build a fully integrated company to drive long-term growth. Now I'll turn it over to Kimi, who will walk you through the financial details and structure of this collaboration.

Thanks, Mike. I couldn't be more pleased to be here today to discuss this strategic collaboration with Biogen. As Jeff mentioned earlier, we are building a company for the long term, and that requires significant capital, expertise and coverage across the world. This collaboration sets us on a path to potentially accelerate, broaden and maximize the value of zuranolone and SAGE-324. Additionally, the cash from this collaboration gives us the capital to fuel our efforts to unlock the value across the entire wholly owned pipeline and it's an important step in helping us achieve our vision of becoming a leading brain health company. Before I get into more detail, and as Jeff mentioned, the go-it-alone path represented a much slower and more dilutive path to value creation than this transformational collaboration. Let me recap the strong financial terms of this global collaboration. There is the potential for a constant flow of potential cash in the near, mid and long term. We believe this is one of the largest collaborations in the brain health space, with a total potential deal value of up to $3.1 billion with 50% upfront. That's $1.5 billion upfront and $1.6 billion of potential milestone payments. The $1.5 billion upfront is comprised of $875 million of cash and a $650 million equity investment at a 40% premium. That's $104 per share. On top of the potential $3.1 billion, there's immediate cost-sharing once the deal closes. This further enhances Sage's flexibility to deploy capital by reducing the burn by an estimated $120 million plus annually. It also provides the potential opportunity to accelerate the development of our pipeline and expand it to new indications for zuranolone and SAGE-324. Further, the collaboration provides 50-50 profit sharing in the U.S. and, if we're successful, pure royalties in the high teens to low 20s from potential acceleration of commercial opportunities outside the U.S. Biogen will receive an exclusive license outside the U.S. to develop and commercialize zuranolone and SAGE-324, except in the territories covered by our existing collaboration with Shionogi for zuranolone, and that includes Japan, Taiwan and South Korea. As noted in Friday's press release, closing of the collaboration is contingent upon the completion of review under antitrust laws and other customary closing conditions. This collaboration represents a compelling opportunity that enables the 2 companies to leverage each other's capabilities with the goal of bringing new medicines to patients faster. The capital from the collaboration strengthens our balance sheet and provides significant financial flexibility with more than $2.1 billion in cash expected at the time of close. This will enable us to accelerate activities that have the potential to expand the value of zuranolone and SAGE-324 as well as the rest of our rich wholly owned pipeline. We believe the collaboration will deliver flexibility from a financial, strategic and operational perspective. With that, let me hand it back to Jeff for closing remarks.

Thanks, Kimi. As you can hear, we believe this is a monumental step in Sage's journey to build a leading brain health company. In a year where we focused on execution, we achieved progress across all of our franchises, initiated multiple new clinical trials and realized progress across the pipeline. This collaboration allows us to work with a well-recognized pioneer in the neuroscience space to develop 2 clinical-stage assets and Sage's pipeline with the potential, if successful, to benefit patients in need around the world. With that, let me open this up to Q&A. Operator?

[Operator Instructions] I show our first question comes from the line of Salveen Richter from Goldman Sachs.

And Jeff, good to hear all is well. I mean congratulations on this deal. Just a question here about the rationale of partnering out essential tremor in addition to depression here and how you're looking to divide up the sales effort.

Salveen, this is Mike.

You want to take -- go ahead.

Yes. Let me take that one. So yes, we think about, Salveen, of the combination of the 2 products, we think that these fit together really well when you think about the 2 assets together and also when you think about this specific partner, right? You heard us just say on the prepared remarks, right, we're really excited about this opportunity to work with Biogen. When we thought about a partner that would make sense for us, it had to be somebody that had the understanding of CNS and the landscape that we're entering into in large markets and commercialization. And when you think about their expertise being neurology, SAGE-324, very much a neurology asset that leads our franchise, by putting these 2 together, we think we have an opportunity to not only accelerate the development of these products and life cycle management but also, as Jeff mentioned, accelerate time to peak the area under the curve in revenue. So Biogen's really the perfect partner by putting both these products together. In terms of your questions around the sales force, et cetera, all the roles and responsibilities is a 50-50 in the U.S.. As you heard Kimi say, it's 50-50 collaboration in the U.S. and both parties will have meaningful responsibilities across both products, but that's to be defined going forward post the close of the deal.

Our next question comes from the line of Cory Kasimov from JPMorgan.

Jeff, yes, it's good to have you back. I just wanted to ask a little bit more about the thought process and timing of the deal. I guess, specifically, why did you decide to pull the trigger ahead of what's a major binary event with WATERFALL in the first half of next year instead of having your kind of key cards in hand. Can you just kind of talk about the thought process of doing it now versus holding up for that and doing it potentially or something like this potentially later?

Thanks, Cory. The timing was really the -- a couple of points that I'd make about this. One is, when -- we've always said that partnership for Sage was going to depend on the right partner and a partner that could accelerate the development of all of our programs. And with respect to this, I think Biogen taking -- firstly, Biogen, obviously, is a leading CNS company. And also Biogen making a commitment into the psychiatry space, which is obviously a major move. It just seems at this point that the timing is right. The other point, as you made, is something that we've sort of -- I'd say we have a very different view of it. We understand that to a lot of investors that WATERFALL's binary. But to Sage, our goal has always been to be an independent brain health company where we could exploit the value of our programs and monetize our product engine. And this really allowed us to do that. And with the opportunity we have, and frankly with the opportunity to enhance potentially, as Mike mentioned, even the value of WATERFALL and enhance the commercial value, it seemed the time was right to do it versus waiting for data and at that point deciding what to do. So the timing was right. This is a deal that we would have been pleased to do at any time. So we're -- that was basically our thinking. I don't know, Mike, if you want to add anything.

Yes. I mean -- yes, as Jeff just well said, and Cory, what I would say is, again, if you think about what we've seen in the last several months, right, we had the 6-month MOUNTAIN follow-up study showing additional durability in data. We also had the SHORELINE data that came out that we were very encouraged by. And we think the opportunity is -- it could be even bigger now with -- when we look at 217, right? And so as Jeff said, the timing was just right. This isn't just about waiting for WATERFALL. There's an opportunity here for us by partnering with Biogen to really drive additional value creation for us and for patients and for shareholders. And then you also heard us, in the script, talked a lot about acceleration. There's a big aspect of this is acceleration, not just on these 2 programs, right, not just 217 and 324, but also our wholly owned pipeline. This gives us resources, the cost sharing, as Kimi mentioned. There's a lot of value now that we can start to accelerate both of these programs and also both the rich pipeline that we have in-house.

Our next question comes from the line of Paul Matteis from Stifel.

Congrats on the deal. One question on how you guys thought about the economics. If you go back pre-MOUNTAIN, the market cap of Sage was $10 billion or higher. So the investment community was ascribing something like $5 billion in value to half of zuranolone on a risk-adjusted basis. Obviously, there's no guarantees. But if this next study were positive, one would think that the economics you could have gotten are considerably richer. How did you guys think about this and getting this money now ahead of data as being a kind of good deal or good value for the drug? And then, Jeff, just on your one point on the pipeline, what does this mean now for 718 and other molecules? What are your kind of updated plans there with more cash and how quickly can you move?

Thanks for the questions, Paul, sort of 2 in 1. But we'll give you dispensation, because that's my first day really back, so. I woke up nicer. Yes, our thinking -- and there are a couple of points to make. One is, I think just in terms of timing, one of the unexpected positives was the data from MOUNTAIN. And if you think about the MOUNTAIN data, nearly half the patients had a response -- basically had a response and they were one-and-done for the year. And as we looked at that, it became clear to us that this -- the potential for this. And then if you look at -- 70% just needed 1 additional treatment, the potential for zuranolone was quite large. And we're actually probably more optimistic than we had initially anticipated. So we think that the preparation for launch and the rationale -- and this is only the 30-milligram, really behooved us to think about how we can accelerate that. But -- and the other interest we've had, and I think you were at FutureCast, we have targets in multiple areas. And so this, by example, for 718, we know we've had good data, open-label with Huntington's. If we have data like that in, let's say, Alzheimer's or an ADHD or other areas with executive dysfunction, we would -- we are now able to move those products along without having to sustain further dilution or further cash raises. So it really will allow us to move our -- to really monetize our product engine. You know we have other novel targets, some of which we've revealed. And so this really unleashes our translational and discovery groups in a way we couldn't when we were completely focused on zuranolone and on SAGE-324. Yes, Kimi, go ahead. You want to talk about the financial questions?

Yes. Yes. So I think a little bit more on the economic terms. We're really pleased with where we got to with regards to the financial terms. And when you think about it from 2 elements, you think about all the cash that's coming into the company, the potential cash in the near, mid and long term that I just talked about, that's one element that is really going to help us not only maximize the investment in zuranolone and SAGE-324 together with Biogen. In a way, that's not just about doing what we were going to do at Sage, it's about doing more and really increasing and expanding the commercial opportunity there that Mike talked about which has the potential to increase the peak opportunity and really the launch trajectory. So there's a tremendous amount of value that could be created together with -- with Biogen. But -- so there's that. And then there's the flipside also, all the capital that will come in there will allow us to invest in the rest of our pipeline, right? Our NMDA platform, led by our neuropsych franchise with SAGE-718, that's some exciting information and data that we've seen in cognition and executive functioning. So we're now exploring that. We have our discovery that Jeff just talked about. And there's a whole host of other opportunities. So the cash, the capital that comes in from this collaboration will allow us to invest in there and create additional value. So we're really pleased with the terms here, and it's another step forward in advancing our goal of building a leading brain health company.

Yes. And Paul, one other comment I was trying to -- if you think about this just practically, you're running a business. 324 is a really good example. We made some prioritization decisions on 324 to move forward with essential tremor where we know there's significant unmet medical need. But if you remember, we've also had very interesting data in Parkinson's in 324, which we've had to prioritize due to resources. With a partner like Biogen, we'll have those discussions, they will also have interest in Parkinson's, interest in epilepsy. And now these are indications that we can advance more quickly potentially and enhance the value of that asset. The same thing is true of zuranolone. I think regardless of what the models used to say, we think data from MOUNTAIN and the data -- the 6-month data and SHORELINE suggest that the value may be even larger. But we independently may not have been in a position to demonstrate that enhanced value or, for example, accelerate a launch into this gigantic pharmaceutical market. This is not a specialty product. So this -- as Mike said earlier, this collaboration allows us to potentially accelerate value across both the clinical programs and the early programs.

I show our next question comes from the line of Tazeen Ahmad from Bank of America.

And Jeff welcome back, good to hear your voice. Maybe just wanted to get a little bit of color on the specifics about what you think the advantage of partnering with BIIB is. So we appreciate that they're a big CNS company. Their major areas of focus up until now have been in neurology. And so I was wondering what your thoughts are on what potential readthrough there could be from the relationships in neurology to now expanding in to psychiatry. And then I also wanted to get your thoughts about when your discussions with them started and whether or not the process would have been competitive with other companies expressing interest.

Tazeen, it's Mike. I'll take that one. Overall, we took a very thoughtful approach to this, to your second question. I mean we won't get into the details of when the discussions started, et cetera. We are very thoughtful. As Jeff said, we're really looking for -- if we were going to partner these 2 meaningful assets, right, there was very specific criteria that we were looking for with a partner. And with Biogen, one of the first things that really jumped out is when we started talking to them was the shared vision, right? These assets are unique. They're disruptive. They have this potential that we've talked about to change the way postpartum depression, major depressive disorder and essential tremor are all treated. And that was the first thing, is that philosophical agreement that we see, the same thing with these opportunities, right? They saw all the data. They did their diligence. And they came away seeing what we see with these 2 products. And that shared vision was really important to us if we're going to have a partner like this in the U.S. And then the second thing was when you look at the criteria that I mentioned before, the opportunity here for these commercial launches is massive, right? There's real potential here to disrupt these marketplaces, big, large markets. So we were looking for somebody who understood how to launch blockbusters. And Biogen has done that over and over again, have shown the ability to launch blockbuster products, not only in the U.S. but outside the U.S. And I think that was important for us. We see an opportunity to expand the pie for both 217 and 324, accelerating time to peak, maybe increasing the peak revenue in the area under the curve. And then when you look at outside the U.S., right, they're established affiliate infrastructure, they can roll these products out. As you've heard us say many times before, Europe and other markets just weren't a priority, right? They were a resource allocation challenge for us at this point. And so leveraging a partner like Biogen really gives us an opportunity to accelerate and drive that access for patients around the world, which then, for us, translates to high teens, low 20 percentile royalties, right, which is really meaningful for us in terms of how we think of the economics of this deal, right? So -- so those are all the things we looked at. I mean, they're a pioneer in the neuroscience space. They've got a track record there. We're going to build this together. The shared vision was there. But those strong capabilities and the people we're working with were really important as we selected them as a partner.

And had you spoken with anyone else outside of BIIB?

Yes. We're not going to get into those details. We're very happy with this deal. We took a very thoughtful approach overall in terms of how we selected Biogen, but we won't get into those details today.

Our next question comes from the line of Marc Goodman from SVB Leerink.

Can you give us a little more detail on the $1.6 billion of milestones? What percent are development? What percent commercial? What percent come from each drug? If you would be willing to help us a little bit there. And then secondly, just on IP for 324. It hasn't been disclosed before. Could you disclose it today?

Yes, why don't I start. This is Kimi. On the milestones, the $1.6 billion of milestones. There's $470 million that relate to zuranolone for regulatory and commercial milestones. Commercial being first commercial sale. And then for SAGE-324, it's about $520 million for the same thing. And then there's potential for sales of up to $300 million for each. So a total of $1.6 billion potential.

Yes. And this is Jim. From -- your other question around the IP perspective. I think what I'd say is we take a very robust approach to IP for all of our programs. We remain very confident in the IP around both zuranolone and SAGE-324.

I show our next question comes from the line of Neena Bitritto-Garg from Citi.

Congrats on the deal. So just wondering if you could talk a little bit more about how we should kind of model the deal and just thinking about kind of the cost sharing. I know, Kimi, you mentioned kind of $120 million annually. But if you could just talk a little bit more about how we should think about the cost sharing and the impact there, that would be great.

Yes. So the cost sharing, it's a 50-50 cost-sharing in the U.S. for zuranolone and SAGE-324 in the collaboration, right? And the ex U.S. has been -- will be with Biogen. So from that perspective, from the cost, it's about $120 million in reduction in burn annually going forward. And of course, it will depend on the plans that we make together with Biogen and what we pursue that we'll go forward with. So I think we'll have to have more to come on that as we work together with Biogen to optimize the plan for zuranolone and SAGE-324.

Our next question comes from the line of Laura Chico from Wedbush Securities. .

Welcome back, Jeff. I guess kind of following up on that a little bit. I think zuranolone accounted for about 45% of the R&D spend as of the last filing. So I'm just trying to understand directionally how should we think about the R&D spend. Obviously, there's still a number of zuranolone efforts going on, but it sounds like you may try to also increase efforts with 718. So just trying to kind of work through the pieces there. If you could add any color, that would be helpful.

Great. Thanks, Laura, for that question around R&D. And as you recall, we now have 3 ongoing Phase III trials with zuranolone. So we're going to see that ramp up in R&D naturally from the efforts in zuranolone. We also had SAGE-324 and SAGE-718 begin Phase II trials. So that would also have a ramp-up in the R&D spend. With regards to how we're going to look at the rest, I think we need time to step back and to really look at the resource allocation across our other pipeline or internal pipeline, and we'll be making decisions about that in the upcoming weeks and months. So I guess from an overall perspective, we will see increases in the R&D spend. But again, that will be reimbursed 50-50 from Biogen for the zuranolone and SAGE-324 in the U.S.

And Laura, just to add, this is Jim, from the R&D side of things, as Kimi is saying, we take the same proactive and predictable approach to R&D that we talk about all the time, most recently in FutureCast. And so although we're talking a lot about the specific programs and specific trials going along with our most mature programs, we take the same approach with our earlier programs. And so as Kimi said, we'll take the time to really think through those plans and those thoughts that we put together and decide what's the best way to invest moving forward. But I think really, the theme today is that this collaboration really strengthens our multi-franchise strategy, both in terms of enhancing the work around zuranolone and 324, but importantly, the capital really does allow us for a lot more investment in the rest of the pipeline.

I show our next question comes from the line of Andrew Tsai from Jefferies.

Jeff, glad to hear you're back and doing well. So obviously, this cash will help you accelerate development of your compound. So for 217 specifically, I mean, could we expect programs in anxiety, bipolar to start up or resume again in 2021? Basically, what are the next steps? And how early can we hear about them?

Hey, Andrew, it's Mike. I'll answer that one. Yes, I think what you heard was what we really are excited about this deal is the flexibility that it provides, right? And what you're speaking to is so that strategic flexibility, and what Jim was saying, the ability to develop our own internal assets. But when we look at 217, we always had to take in zuranolone, we had to take this path of portfolio prioritization, right? We had obviously started to develop it in major depressive disorder and postpartum depression, but you've heard us talk about general anxiety disorder, bipolar, TRD. And so in our conversations with Biogen, that's where we started to really go with how could we maximize the full value of this program and 324, as Jeff said, Parkinson's, orphan epilepsy. There's other indications that these -- both these products have, that Sage, in its current state, would have to do this at a pace that matched up to our resourcing, right? We have to be very disciplined, allocate the resources in a way and then still have money left over for 718 and some of the programs Jim was talking about before. So as we look to close the deal out and post the HSR filing, those are the strategic conversations we'll have with Biogen. We'll develop the programs together in terms of what other life cycle indications, new indications we want to go into. But that really was a big part of this deal for us is the potential ability to accelerate new indications for zuranolone and 324 that we couldn't do on our own. Jeff?

Yes. I think we should take this in a broader view, which we just take considering zuranolone. And if you look at the development of a molecule that I think both companies clearly believe is clinically active and in an area of mood disorders, the opportunity is very, very large. And as Mike has just said, it's one that now we may not have to develop these indications at seriatim. So if you look at, say, what's happened in the past with SSRIs or other mood agents, the potential to go into generalize anxiety disorder, bipolar, in areas like that are now open to us. So one of the major features of this collaboration for us is a like-minded partner who is also extremely interested in psychiatry and developing a swath of potential indications. And I can't speak for Biogen, and we have to have these discussions, but their interest in psychiatry parallels our own. And that's what probably is the most -- one of the most encouraging features of this deal strategically, is their willingness to do what needs to get done to optimize the value of a psychiatric asset like zuranolone.

Our next question comes from the line of Brian Abrahams from RBC Capital Markets.

And Jeff, welcome back. Can you talk a little bit more about the process by which development decisions will be made alongside Biogen? And then maybe make any comments on the opt-out and standstill components of the deal?

Hey, Brian, it's Mike. I'll take that. So yes, the process, as we said, in the U.S., it's a 50-50 collaboration rights.. We will have collaboration structures put in place where this will be joint decisioning. The 2 companies together will decide the path forward on the development side for both zuranolone and 217 and also commercialization strategy, our go-to-market approach. Outside the U.S., Biogen has the decision rights to move forward outside the U.S. So again, this is great. As Jeff said, we saw a like-minded partner who saw what we saw in our 2 programs, has the shared vision of what we want to see together and what we can grow and develop together. And they've already seen, obviously, all of our clinical development plans. It's fully endorsed what those look like now and say about how do we accelerate, how do we add more value and drive additional value. In terms of your second question on opt-out, et cetera, right, there's some details in the 8-K. There's not a lot in there. And at this point, we're not going to share a lot of details. But what I can say is there's a lot of standard language in the collaboration that we put in place. What I'm also very confident is it retains a lot of flexibility for Sage and some of the other terms that we were able to negotiate in the transaction.

Our next question comes from the line of Akash Tewari from Wolfe Research.

Jeff, really nice to have you back. So how important do you think ultimate effect size is when we think about 217's commercial prospects and if that's changed since the MOUNTAIN failure? Let's say you have an effect size of like, I don't know, 2 points on HAM-D at day 15. That's enough for a [ stat thing ] but a drop from your Phase II study. Why wouldn't that reduce the potential commercial market for 217? And is the Biogen deal today somehow changed your prospect of launching this drug with a lower-than-expected effect size?

Well, thanks for the question. A couple of points I'd make and now we're sort of getting technical. One is comparing effect sizes across populations is always hazardous and so many things affect that. But if you look at 217 the value proposition is really very different. So let's -- if you look at the real-world data, for example, you're talking about a high rate of response and remission. And you're just talking -- and the real package or the real value proposition is the ability to be one-and-done or 2-and-done for an entire year, not require chronic pharmacotherapy. And frankly, with a side effect profile that will be unique, we believe, across the mood disorder space. So that's really what you're talking about. The effect size is really more an issue of clinical trials because, as you know, when you treat patients, physicians aren't treating patients for 2 points or 4 points or 6 points on HAM-D. They're looking at response rates and they're looking at remission rates. And then they make the decision whether to continue the patient or not. So when you look at, for example, the real-world data at 30 milligrams, which is not our top dose any longer, you're talking about a response rate of almost 70% in the MOUNTAIN study at 30 milligrams. So that is what we believe is going to drive the market. And that is what's really going to make a difference because, as I say, physicians aren't looking at effect size and you can't really compare across studies. What they're going to be looking at when they treat is, is the patient getting better? And if they get better, what's the treatment regimen going to look like? And when you consider that, zuranolone is literally unique in the space. So we think that, that's what's going to create the value for this agent as a potential first-line therapeutic intervention.

Yes. And I'll just add, Jeff. I think just as a reminder, Akash, on that, for folks, that we obviously have these 3 distinct paths, right, for zuranolone. We've got PPD, and then we have the 2 MDD paths, a rapid response treatment and the treat-as-needed. And at the end of the day, we see that treat-as-needed is the end game, as Jeff was saying. And the SHORELINE data that we saw recently really was encouraging and, as we talked about, really was an impetus for us that we think this opportunity for zuranolone could be even bigger given that profile of the product. It is very differentiated, if that profile can be replicated. And the other thing is everyone's still asking about WATERFALL, the reality is the work really starts -- has started already on commercialization and how we think through this. And by partnering now, again, it really helps us accelerate thinking through this and not waiting for WATERFALL, right? Because there's a lot of -- if WATERFALL is positive, there's a lot of work, obviously, that will trigger. And having the resources and the like mindedness approach that we have with Biogen, we really do think this is going to increase the overall value of both of these programs, and it's going to create acceleration opportunities, both from a commercial perspective, but, as we said many times, the indication expansion as well. And also outside of Europe -- and outside of U.S., I should say.

I show our next question comes from the line of Sumant Kulkarni from Canaccord.

Jeff, nice to hear you back on the call. On zuranolone, can you at least qualitatively talk about what data specifically on safety or efficacy that Biogen may have seen that outsiders have not? And how are the soon-to-be-partners thinking about the competitive profile of zuranolone versus PRAX-114, for example?

Yes. I mean, I'll take that one. So yes, for the first question, Biogen sees what we see, right? Obviously, they see the data. They did very thorough diligence on all of the programs, the Landscape program, the Nest program. And so we can't get into more detail than that. They've seen all the data that we share. They've done extensive diligence. And as I said, we're very pleased to see they came out with the same shared vision of these 2 products, right, which gets us really excited. From a competitive perspective, as we've said, we feel very well positioned in this marketplace and we see zuranolone as very differentiated, right? We just went through the level of change that we're looking to make in this marketplace of shifting from what is a chronically treated disease to this on-demand or treatment-as-needed approach really is going to be supported by that overall landscape program. And we talked extensively with Biogen about the [ plans ], the approach, and they're very excited about the full potential of what this product can bring. And they think they can help unlock some of the additional value for the program.

Yes. I think there are 2 points. As Mike said, they did extensive due diligence. And obviously, I think to your point, they will have seen all of our regulatory filings and the things -- our communications with the FDA. With respect to competitors, I think it -- we really don't know publicly what the actual PRAX drug is. They only had about 30 patients. So I think it's very -- it's premature at this point to even speculate what the profile of that agent might even look like.

I show our next question comes from the line of Ritu Baral from Cowen.

I just wanted to dig down a little further into Brian's question about who's deciding strategy going forward. It sounds like you've got joint committees going forward, both on commercialization and R&D. Can you give us a little more detail into what the structure of those committees could be, especially who might have the tie-breaking vote, given you're deciding between RRT still and episodic? And also on the commercial side, given that as AD associate, I was scarred by the [ Amren ] Lilly collaboration.

Yes, Ritu, it's Mike. Yes, look -- thanks for the question. And I'll first start off by saying, a lot of these conversations start as you go through the deal, right? You're getting into strategy, you're getting into what do you see and the potential, lots of questions that Biogen had just in terms of how they're getting up to speed and what they expect of the product. So a lot of that starts in the very beginning that you align again on what the vision for the products are. So your question about RRT and treat-as-needed, very much was part of the conversations. And again, very much aligned with how we see the program Biogen sees it. Going forward, as we start to work together, what we said is these will be joint decisions. Yes, there'll be the typical collaboration committee that got put in place, the JSC, the JDC, the JCC, et cetera. But it really is in the U.S., this is joint decision-making. We will decide together on what the strategy and the go-forward plans are going to be for both products. And then we'll allocate roles and responsibilities to the various parties based on what makes the most sense for both products.

Got it. And a very quick follow-up housekeeping question. Who's going to book revenues? And how are COGS going to be booked?

I'll take that one, Ritu. I think you're asking more detail around some of the financial components. And look, first of all, we're really pleased with the collaboration and the terms that we've negotiated. I think the real takeaway here is this is a 50-50 profit share in the United States with zuranolone and SAGE-324. And as I mentioned earlier, there's a lot of capital that come into the company from the collaboration potentially in the near, mid and long term. From diving into deal sales a little bit, from a revenue perspective, Sage will be recording the revenue for SAGE-324 in the U.S. and Biogen will be recording 217 on a worldwide basis. But again, I think the real takeaway here is that it's a 50-50 profit share for the collaboration.

Got it. And sorry, the COGS, just how is that going to be booked on the P&L?

Yes, that will also follow. That will follow.

[Operator Instructions] Our next question comes from the line of Gary Nachman from BMO Capital Markets.

And Jeff, good to hear you. As you and Biogen rethink the development path for zuranolone in depression specifically, what could potentially change in any sort of meaningful way? So will you look at additional types of studies in depression or just accelerate the existing studies? And then should we expect a potential filing for the initial indication? Would that be pushed out or then accelerated? What's a reasonable time frame for that?

Gary, thanks for the question. I'll take that one. So -- and by the way, thanks for welcoming me back. This is the only time people seemed happy to hear from me. So I'm enjoying it. Our view of this is that we think this can accelerate both filing and maybe commercialization. With respect to the actual plans around depression, I think Mike had mentioned this, one of the things this offers us is the potential to potentially expand the label by looking at powering for some secondary endpoints. The data from the 6 months MOUNTAIN study and SHORELINE have given us a really different perspective. Whatever other people think about the data, we really think it's really helped confirm a potentially unique and differentiated profile. But beyond that, I don't believe -- as with any other molecule, if we move forward into other indications, those are likely to be sNDAs versus waiting for multiple indications to file simultaneously. So -- and as Mike said earlier, a lot of this work, we can now move more rapidly, whether it's prelaunch work, commercialization, regulatory work, which is why...

So just to confirm, that would lead to the initial depression indication as well.

Initial depression. But I think to the point, if we are going to pursue indications, other indications, we haven't committed to those yet. But now we have resources. Remember, we also have cost-sharing, which is new. We have additional resources to move those indications forward more rapidly in areas that might be of interest to both companies.

Our next question comes from the line of Jay Olson from Oppenheimer.

Congrats on the deal. Welcome back to Jeff. I'm pleased to see that you retained 100% ownership of 718. But what was your rationale behind keeping all of 718 since it seems to offer the same solid strategic fit with Biogen's neuroscience portfolio that zuranolone and 324 do?

Yes, Jay, it's Mike. I'll take that one. When you step back from the deal, we're really pleased with the 2 assets that we do have. There's a natural fit for these two, 324 and zuranolone, to be together. And when you look at the overlap on the neurology side with Biogen and their expertise, we thought that was a great place. And we're very pleased, right, with the economics. As Kimi said, we see this as a $3 billion-plus deal with cost sharing, very financially flexible deal in terms of the stock that we've issued, the $650 million of equity at $104 a share. So we looked at the full composite of that. And we still want to retain very meaningful assets for Sage. But our goal here is to drive long-term value creation and long-term growth, right? Our goal is to build a fully integrated company. We're really excited about SAGE-718, I can let Jim speak a little bit more about SAGE-718 for those who don't know. But that was the thinking, is that we thought, these 2 assets that we put together made a lot of sense for this collaboration, but also providing more resources to fund the rich pipeline that we do have, right? And that was really the strategy behind it. Let's drive incremental value for zuranolone and 324. Let's accelerate where we can. Let's take the additional resources and use that to fund the rich pipeline and accelerate there as well. But Jim, maybe you want to speak a little bit about how we think about 718.

Yes, sure, Mike. And of course, as Mike is saying, [ Sage has ] multi-franchise approach and we're talking, of course, a lot about the depression and neurology franchises being enhanced by the collaboration today. But of course, the NMDA programs as well in our neuropsychiatric franchise offers a different approach, is focused on a different molecular target in the brain and potentially adds opportunity in complementary patient populations. And I think, for the moment, the theme there is improvement of cognitive performance, and that has potential opportunity for a number of patient populations. As we've been talking about really for the last year, Sage has been focused on opportunities in Huntington's disease, Parkinson's disease and Alzheimer's disease with SAGE-718 and the NMDA platform. But of course, playing such a central role in brain function, there are a number of opportunities for enhancing NMDA receptor function. And one of the things I see today is that we just have an opportunity to even further extend what we think are the possibilities in the NMDA platform. And that's certainly something that is an approach we've taken in the past with our more mature programs.

Our next question comes from the line of Vamil Divan from Mizuho Securities.

Welcome back, Jeff. Maybe just following up on the 718 question there, just because we've got some investor question on this also on a Friday. So is this -- is it fair to say you did not sort of offer 718 to be part of this collaboration? Or was it part of the discussion and sort of Biogen deciding not to include it from their side? Just trying to understand if you want to hold on to this one or maybe no interest on the other side? So you can maybe just expand on that, that would be helpful.

Yes. I mean the quick answer -- this is Mike. The quick answer is, again, we're very pleased with the 2 assets that we included, right? And probably just as excited that we've got the opportunity to expand 718, right? That's -- that's probably the level of detail. We don't want to give too much detail of that level. But again, I really -- we're really pleased with having 324 and zuranolone together in this collaboration, which we think, again, is one the largest that has ever been executed in the brain health space, right? And with 718, this really gives us an opportunity to accelerate, advance and beyond [indiscernible] NMDA franchise, that's an opportunity now to pull in additional resources. So we're really pleased with how this played out, right, of the 2 products in the deal and then retaining the rest of the rich pipeline for Sage.

And is there any sort of restrictions going forward on 718 or any sort of broader sort of merger between the companies based on that turning to collaboration?

No. This is Jeff. There are no restrictions on 718. I think anything else would be speculative. I think to Mike's point, I think I would say this, this -- the extent of the collaboration is something that we're really pleased with. 718 remains an independent asset. We're delighted with that as well, frankly. And as I said earlier on, one of the -- all of you guys who have run a business or looked at numbers know that when you're resource constrained, it's less fun than when you have the ability to really maximize value of a pipeline. And 718 is an asset that we are very, very excited about.

Our last question comes from the line of Tim Lugo from William Blair.

Welcome back, Jeff, as well. You mentioned enrichment to WATERFALL, but no time line changes. What were the exact changes made to the program? Is it just number of sites and patients? Or were there additional kind of secondary endpoints or subpopulations you were interested in, but maybe the trial was not robust enough as it was originally conceived?

Sure, Tim. This is Jim. I'm happy to take that one. I think it's important to remember that investment in the Landscape program has been our top priority, and we do continue to expect top line data from WATERFALL in the first half of '21. And really, it's due to continued strong enrollment to date that we've been able to look at enhancing the potential value of the study. And so no alteration to study time lines, but it really comes down to increasing the power to detect differences in secondary endpoints, things like subgroups, additional time points. Of course, it always adds to our safety database as well. But it's really a fairly relatively small investment, but it adds potential substantial downstream value.

Okay. Is there a number of patients you're hoping to enroll? Is it 400? 500?

Yes. So not getting into the specifics today, but really, it is those 2 elements that I think are most important, that it allows us to enhance and it really doesn't change the time line to delivering WATERFALL in the first half.

This concludes our Q&A session. At this time, I'd like to turn the call back over to Dr. Jeff Jonas, CEO, for closing remarks.

Well, listen, thanks, everybody, for welcoming me back. I really appreciate it. And I hope you'll welcome me back from my next call as well. And -- but having said that, we're really very excited by the collaboration. We really appreciate your interest and your questions today. And we -- I know that Biogen's call is coming up right now, and we're all going to tune in for that. But again, we think it's a great day for Sage. We think it's a real great opportunity for Sage to build ourselves into a fully integrated company. And I hope all of you are staying healthy, and I look forward to talking to you soon in the near future.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Good day.