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

Good afternoon, everybody. Thanks for joining us for the next session. I'm Matthew Harrison, one of the biotech analysts here at Morgan Stanley. Very pleased to have Sage Therapeutics with us. Quickly before we get started, I need to read a disclosure statement. Please note that all important disclosures, including personal holdings disclosures and Morgan Stanley disclosures, appear on the Morgan Stanley public website at morganstanley.com/researchdisclosures. And with that, pleased to turn it over to Barry Greene, the CEO, to make some opening comments and then we'll jump into Q&A.

Great. Thanks, Matthew, and especially thanks to Morgan Stanley for having us today. It really is an exciting time at Sage, and I'm thrilled with the substantial progress we've made so far this year, which is in line with the goals we laid out at the beginning of the year to expand and accelerate our pipeline. I'm thrilled with the data we've generated and the evidence that makes us, me, very excited for the potential to help patients with depression, essential tremor and cognition. And there's certainly more to come. Now looking forward, we've got multiple potential catalysts pending in the coming months, and we're demonstrating that the Sage methodology is working while executing across all 3 of our franchises. As I highlighted, we had positive data readouts for zuranolone, SAGE-324 and SAGE-718 just this year. And again, more to come. Additionally, we recently announced that we're terminating our Phase III study evaluating brexanolone in COVID-19-related acute respiratory distressed syndrome, which gives us an opportunity to pursue other life cycle management opportunities. I want to let you know that we expect to initiate a home infusion trial for ZULRESSO in PPD before the end of the year. And that is a demonstration of our ongoing commitment to moms, their families, as well as to continue to increase our understanding of how to best meet patients' needs. So you know the study is designed to demonstrate safety administration of ZULRESSO in a patient's home, which we currently can't do or haven't been able to do. Our PPD strategy has always been to develop multiple novel therapeutics to benefit moms, starting with ZULRESSO. And all the learnings we have in creating pathways and other treatment options, we can apply to zuranolone across all these capabilities. And of course, and very importantly, this is our first planned decentralized clinical trial and will provide many lessons to Sage because we, and, in fact, the industry at large, will do many of these really driven by the COVID pandemic and the need to do more decentralized studies. Again, looking forward to talking to you, Matthew, and your further questions.

Great, great. Thanks, Barry. Look, I mean there's a lot of ways we can go here. I thought maybe just as an opening question is there's clearly a disconnect with how the Street is thinking about the opportunity for 217 and the way you guys are thinking about the opportunity for 217, especially post the data. And so I thought maybe just as a starting place, you could give us your perspective on what you think the Street is missing as we're thinking -- as the Street's thinking about the opportunity or interpreting the clinical data.

Right. And there are several different levels of disconnect. So if we take a step back, Matthew, we're doing something that's never been done before. As we met with KOLs, they're saying things like, "You're changing the whole paradigm here. We think depression's chronic. We need to treat it chronically. You're doing something very, very different." But when we asked people treating MDD and PPD, what are you looking for? They basically say, "We need something that's more predictable, that works faster, that's durable." And we're falling right into that space. When we step back and look at the totality of the data across lots of patients. We have a drug that works rapidly. We see evidence at day 3, so after 1 or 2 evening doses. We had statistically significant results at day 15 across multiple trials. We see significant reductions at day 3, 8 and 12. And we see durable responses based upon the WATERFALL study and the SHORELINE study, where, as you might remember, even at the 30-milligram group, 70% of patients only needed 1 or 2 2-week doses. We're also seeing, and these are data that will be presented at medical meetings coming up, not only important improvement in depressive mood, but we're seeing improvement in anxiety and sleep, things that you don't really see with current standard of cares. And finally, when we look at the benefit/risk profile based upon the safety profile and the completion of the 2-week therapy, we're seeing a fundamentally different benefit/risk. So we're imagining a world that doesn't exist today. So I don't know if the Street's missing something. But I can imagine that people are doing their research, they're calling 10 of their favorite psychiatrists, they're not going to hear a complete understanding of a new way to treat. They're going to hear what, frankly, everyone was trained, which is you need to treat for 6 months. And if people are still depressed after that 6 months, treat chronically. And if they're better, fine. If they're better, check in every 3 months to see if their depressive symptoms occur. Nobody's imagined a world where you literally could treat someone with 2 weeks of evening therapy and get them better, faster and keep them better. So those -- that's the education that we have to do. What I'm excited about are how the data look and how the drug continues to perform, and we believe that this totality of data will start changing hearts and minds from a physician perspective. What's really important is if you ask patients what they think, no patient is going to say, "Wow, no 2 -- wait, I can take something for 2 weeks and get better?" And I'll end up with sort of an anecdote. I was out with some folks over the weekend, 3 people I didn't know before, and we're talking about work and what we do and they're asking about Sage and zuranolone and what people are missing. That's the same question you did. I said, imagine that you send your kid off to college and she's in a room for 2 weeks and won't get out. You're fortunate enough to get her help, get an intervention and she gets diagnosed with MDD. Would you rather have a cheap drug that might take 4 to 6 weeks to work? And if it works, have her gain weight? And if it doesn't work, she might lose a semester a year? Or give them something for 2 weeks? And 2 of the guys I was with had that exact thing happen with their kids. One has a son that never went back to college. The other one had a daughter that dropped out for 2 years and finally got better and went back. So these are very real issues in millions of people out there.

Okay. Great. Thank you, Barry. Why don't we talk about CORAL because I think that's obviously the major focus for a lot of people on the stock? Maybe just for everybody's benefit in case there are people that are listening that aren't as familiar with Sage, just tell everybody what CORAL is and what you guys are looking for in terms of an outcome from that study.

Right. So Matthew, I think it's important. Let's take a step back and remind everybody since you said it. When our team sat down with the agency last year after a Phase III that just missed its primary endpoint. And what everybody appreciated, number one, is there's a huge unmet need in depression. It's growing. Even with all the drugs we have, depression's been growing at an unbelievably rapid pace. As we know, that pace has been quickened or strengthened or exacerbated by the pandemic. So we recognize on that need. What the team did with the agencies designed 3 different Phase IIIs, any one of which hit based upon the rest of the data led to a fileable package, 2 in MDD and 1 in PPD. The first one was WATERFALL, which we talked about, designed for patients as an add-on to a stable antidepressant or as a monotherapy. About 1/3 were on a stable antidepressant, about 2/3 were on monotherapy. The second was designed for a rapid response. One of the unmet needs with current antidepressants, as I said, is it might take 6 to 8 weeks to work. So can we concomitantly prescribe an antidepressant and zuranolone and see what happens over that period of time? And the third, SKYLARK, a PPD study. Again, 3 different studies, 3 unique designs, any one of which hit gave us a viable package. So with WATERFALL on hand, which is really important for us now to see in CORAL is, when you give someone an SSRI at the same time as WATERFALL, first of all, is the side effect profile different? Do we see the side effects that you see with SSRIs because we don't see many of the weight gain, anxiety and other side effects you see? We don't see that with zuranolone. In fact, we have a very clean profile relative to current antidepressants. And then what do we see for the efficacy side? Do we see what we've seen every other time, which is a rapid reduction at day 3, day 8, day 12 and day 15 with sustainable results? And in that 42-day time period, you actually see the SSRIs kick in. And when do we see them kick in? So a positive result for me are data consistent with the data we've seen to date.

Okay, okay. Helpful. And then I guess as a follow-up to that, I mean let's just sort of talk about regulatory strategy. I want to come back to a couple of things on CORAL, but I think we should talk about regulatory first. So you obviously haven't filed yet, and CORAL is hopefully coming by the end of the year. So I think it seems likely that you're waiting on CORAL before you file. You can correct me if that's not the case. And I guess just from people's perspective, if CORAL were to fail, would you still plan on filing? How should people interpret having a fileable package, given what you talked about just needing one of those studies to work from a regulatory standpoint?

Right. So just so we're clear, Matthew, and we highlighted this in a couple of different meetings but it slips people's minds. When we decided to move from 30 milligram to 50 milligram, we also agreed to rerun many of the classic pharmacology studies. No surprises here, but driving studies like [ those kinds of things ]. So we started those this year. Those aren't due to read out until the end of the year. So that action is a critical path anyway. Now if we're going to be at the end of the year anyway and we have CORAL anyway, it's an unnatural act to file without results that you might have in hand. So that's what we're clarifying with the agency of what part. What we've talked to the agency about 4 different times and agreeing to this pathway is we need one more positive Phase III to file. But if we have CORAL, we're going to file, and if nothing else, how rapidly CORAL demonstrates benefit with zuranolone plus an antidepressant will be important. And then the safety database will be very important. If in fact we see, again, side effects that we have not seen to date, given the numbers, those side effects are unlikely zuranolone side effects, they're probably antidepressant side effects. So all that will be important as we commercialize zuranolone.

Got you. Right. And so from a labeling perspective, it's probably important so that people understand what are 217 side effects versus potential combination side effects and to make sure that, that's obvious.

I mean, yes, from a labeling perspective, but really importantly as we do medical education and reach out in the community, we don't want physicians or patients to believe that what they might be experiencing is necessarily the zuranolone part of the drug regimen of their polypharmacy. It's probably something else because there's a lot of experimentation that goes on in these patients.

Yes, yes. All right. So back to CORAL then, I guess touching on a couple of themes. So obviously, one of the sort of investor debates heading out of WATERFALL was, let's call it, durability for lack of a better word. But people were -- despite the fact that the primary endpoint was the [ efficacy ], people were very focused on day 42 results. And so I'm wondering if you have a different view on how -- on the -- I mean, I guess I'll just say 2 things. One, we know it wasn't powered to demonstrate something at day 42. But the flip side is with CORAL on top of SSRIs, which kick in later and maybe have an impact, would you expect to see a different kind of outcome at day 42? Or just how are you encouraging investors to think about that profile, just given how much focus they had on that previously?

Right. Let's talk about what we don't want to see and then we can talk about what we want to see. What you don't want to see, and this happens with drugs, not zuranolone, is you don't want to see someone get better and be better at day -- end of dosing is day 14. Day 15, they remain better. But by 20, they're all rebounding and they're all back to their depressive events. What does that mean? That means their mood darkens, their anxiety increases and they can't sleep again. We didn't see that. What we saw was a rapid response, people got better and they stayed better longer. The fact that at day 42, we saw numerically about 85% reduction in HAM-D suggests this. It suggests that most patients stayed better and some might even have improved, but some rebounded. Not all of them rebounded, but some rebounded. And we know for SHORELINE, if someone rebounds at day 42 and they responded, a retreatment likely leads to another response. So in the real world, if most people are better 4 weeks after drug, great. If a few people aren't and they reach their depressive episode again, mood, anxiety, sleep, they can get another 2 weeks of drug. And what gets me excited when you look at the SHORELINE data, again, this is the 30-milligram group, so we'll see if we get better results with the 50-milligram group, is most people only require 1 or 2 2-week doses. And those that required more, 3, 4 or 5, about 8% of patients required 5 2-week doses. Ten weeks of drug in the life of someone with depression is still better than having to take something every single day that reminds them of their depression. Again, it could lead to some of these unfortunate side effects that often lead to discontinuation.

Okay, okay, okay. Good. Maybe let's touch on commercial a little bit, and then I want to make sure we spend some time on the rest of the pipeline. But obviously, you're partnered with Biogen here. Just talk about what you're doing to prepare from a commercial standpoint in the U.S., how you're thinking about that and especially the point that you're making, which is this is a different way of treating. So what do you need to do to prepare the market for that?

Yes, that's a great question. So first of all, Biogen has been a phenomenal partner. I can tell you that their senior team, Al and Michel are very excited that they're partnered with us and are tremendously excited about the data. One of the things that they appreciate is that some of the neutral to negative views are actually driven by expectations of what a chronic treatment at 6 weeks might look like, not what a rapid treatment of 2 weeks would look like. So there's a disconnect between what we expect for chronic versus something that has this different benefit/risk. So they've been very, very enthused. We've worked with them hand in hand on the regulatory front, and they've got really strong regulatory teams and clinical teams. We're also engaging on the medical payer and patient front. So we really are an integrated team. Now specifically, it's important for us to make sure that on the payer front that we lean in with proactive value-based agreements. This is not -- we need to make sure we educate the payers that this is not a well-served community that you could treat with cheap drugs and really bring the facts and the data to bear so that when a physician writes a script, that script will be filled. And by leaning in with proactive value-based agreements, we're willing to demonstrate that we're going to take some risks along with the plans to make sure that we can get people better faster. So we're driving that. We are, with the data in hand, doing research with KOLs. People are actually treating the depression. And the world is moving from this is a well-served community to -- I can treat with cheap drugs, to, wow, if this works faster or more predictably, this could be something in my toolkit to help my patients. And I can tell you that probably, the second or third time we go through the data, the light bulbs are going on. And we're getting great feedback on how to present and talk about the data and good feedback on other data that might need to be generated as the drug's on the market for approval. So the physician interface has been very strong. And when we launch, we're doing the prep of targeting neurology, psychology, large primary care, that access to psychologist, that work is going on. And then very importantly, on the patient advocacy front, we're making sure that patient groups are voicing the fact that they don't believe that they're well served with current medicines, that something new is required. So I think we're doing really well on all of those fronts.

Barry, can you talk a little bit more about the reimbursement work? Because I think that's another area that investors are very focused on, just given the fact that we know there are a lot of cheap generic SSRIs out there. And commercial insurance companies tend to like to use step edits when you have an expensive branded therapy come into a class that's highly genericized. And so how do you get good access, I guess? And I know you touched on it with these value-based agreements, but maybe you could just be a little bit more specific for people so they understand how you plan to get good access.

Right. I can't get into all of it because of competitive reasons, and frankly, these conversations are still confidential. But let me outline some broad pieces. So we might work with a plan that has several thousand covered lives. And we present the data and we present the fact that in their plan, patients are cycling through multiple clusters. They know this. And people that work in the insurance companies, they actually want people to be better, too. It's not like they want people to fail on drug. So the big thing we have to change is why treat to fail when you might have some patients who are already on an antidepressant, for example, but still are depressed, are anxious and not sleeping. If you can get that person better, why not add this as a monotherapy or concomitant? So we'll have presentations to help them understand how the drug might be used, what kind of patients it might be used. But if they come back and say, "Look, we're nervous that it's not 10% of my patient population, it's 50%." Under a value-based agreement, we can be protected. If they're worried that I might use your drug, and 3 months later, they also have to have a -- they can prescribe an SSRI, again, in the context of a value-based agreement, we can draw some protections in there as well. So it really is listening to payers' concerns, understanding their concerns, and in the context of these VBAs, designing in mechanisms to share the risk and address those concerns. And really, it's a simple ask. We -- if a doc writes a prescription, we'd like that prescription filled for that patient with lots -- without a lot of hurdles. And it will be a first in a large market, although we are seeing other companies do interesting things like this in other countries and in the United States. So I'm hearing good feedback already, and I'm pretty enthusiastic that this kind of let's-share-risk strategy will work to get an excess. And probably finally, I mean, we're talking about 19 million people. So this is a very, very large market. So even in those rare instances where some plans are blocking some patients, we have lots of patients we can help.

Okay, okay. Great. Good. Why don't we -- in the last 5, 10 minutes here, let's just talk briefly on the rest of the pipeline. We probably can get a lot of airtime. But why don't we just talk about 324 to start with? Just sort of -- I mean, I think the best thing for people here is you've talked about starting a Phase II later this year. How should we think about the design of that study? And what's really the path ahead for that drug?

Right. So just first, SAGE-324 was designed as a GABA PAM with a long half-life for those kinds of diseases that unlike we're able to -- with zuranolone, really resetting brain circuitry, those kind of diseases that are constantly misfiring, probably can't be reset and require chronic treatment. So that's how the drug was designed. The first indication we felt warranted, SAGE-324 was essential tremor, the largest movement disorder in the world. Millions of people have essential tremor. And it's minor essential tremor, too. I can't work. I can't type. I can't go to school or text my friend. So lots of people for essential tremor that requires this kind of chronic treatment. We saw positive results from the Phase II, and I won't get in all the details, but very enthusiastic results there. So what's the next question that we ask? Now we need a dose and frequency where we maintain plasma concentrations that translate into sustained tumor control and with a profile where patients stay on the drug, and that's the key. People talk about side effects, but the real question are, do they keep taking their drug? So the Phase II that we'll be running will be a dose-ranging study. We're on track to start later this year at multiple doses, maybe different frequencies, and we intend on running it for longer than the 30-day data we have now. And I'll remind you that what we saw for KINETIC were patients continued to improve at that 30-day mark. So do we see even better results out of 2 or 3 months, as measured by both TETRAS, item 4 upper limb score and by activities of daily living. And those 2, statistically significantly correlated, which is also very exciting.

And just because people are probably less familiar with enrollment times here and things like that, is this something where we can see some data next year? Or is it more likely a 2023 event?

Yes, Matthew, once we get the study started later this year, we'll be a lot more transparent about the exact design, timing. And then when we have sites set up and we understand that cadence, we'll be back with the guidance. It's not so much. There's a lot of patients. These studies are not that difficult to enroll because there's not a lot of innovation going on with essential tremors. But clinical stay time, as you're aware, really have more to do with the front end, site initiation and contracting. So once that gets going, we can be a lot more transparent on timing.

Okay, okay. Great. Good. 718, right, we've got a readout from LUMINARY later this year. So maybe just remind people what your expectations are around that study and what you're looking forward to seeing.

Right. So what's exciting about SAGE-718, it was started as a clear biologic hypothesis, 24S-hydroxycholesterol, which we saw a reduction of in Huntington's patients as a basis to believe that if we could upregulate via NMDA this pathway allosterically, which was what SAGE-718 is designed to do and we've seen, that we can, in fact, improve executive function, the kind of the orchestra of cognition in the brain. We saw positive results in Huntington's and Parkinson's, and we're looking for the Alzheimer's readout later this year. What's really interesting is that we've seen this improvement in all 5 of 5 test and paradigm and executive function and consistent improvement in Parkinson's and Huntington's. So don't know the data yet. We'll see what we see in Alzheimer's patients. It certainly is a much more heterogeneous patient population, so the data might be a little bit more heterogeneous, but I'm enthusiastic to see if we also have cognitive performance improvement in Alzheimer's patients. I think -- I don't have the data other than late 2021.

Okay. Good. And then Huntington's, how are you thinking about that as an indication?

Yes. So again, later this year, we intend to initiate a randomized, placebo-controlled, a very robust Phase II study with this kind of cognitive battery that we've now standardized across the studies. And if that study is positive, we expect that we're one step closer in the initial regulatory indication for SAGE-718. And as you're aware, based upon the orphan nature of Huntington's, the fact that this is really blue ocean, nothing exists to improve cognition in Huntington's or other neurodegenerative diseases. If other things are going well, this is the kind of drug that we could globalize Sage upon and really launch not only in the United States but other countries that have high epidemiology of Huntington's around the world. So very exciting if the data continue to play out.

Okay, okay. Good. Maybe in the last 2 minutes, just 2 sort of rapid-fire questions. But when -- you've got a lot of stuff also cooking behind 324 and 718. Maybe just highlight for everybody which assets you're most focused on there or what people -- what you think people aren't asking about that they should be.

Yes. What's important, Matthew, for people to understand is because of the -- and I mentioned this upfront, because of the approach that Sage has used in the methodology, we truly do have -- I believe that we have a real pipeline engine. We have the ability to generate many, many organic drugs time and time again with different properties against GABA and NMDA for specific indications. So we're bringing these forward. We believe we know what the drug does. You've got to do Phase I studies to learn it. And then we're matching up the results, the design of the drugs with specific unmet needs, and we're looking for big effect sizes then to move them forward. So I'm excited about our deep pipeline of Sage-invented, in-house programs that we're going to continue to generate for the next -- for time to come. And then we mentioned this at the beginning of the year, too early to talk about, but there are other pathways in the brain that we might be able to have a differential impact on with our unique chemical approach as well. So stay tuned.

Okay. Good, good. And then I guess last thing, just you've got a sizable cash balance now. Obviously, as you start to get into ramping up commercial, et cetera, spend should increase. Just give people a sense for how you're thinking about cash usage.

We tend to be smart with it. I mean the good thing about the Biogen deal is that the things that we're spending the most on zuranolone, 324 because they're the most furthest ahead, Biogen is paying for half of that. So while we're spending more on those, Biogen is reimbursing that. With a couple of billion dollars in the bank, we believe with 718 in many of those programs, we can take forward. And we'll be smart about our cash usage and the toggling of that cash usage. We can speed things up or slow things down based upon how everything is going. I'm excited that we -- I'm excited by what we have. And as you know, our mission is to be the leader in brain health and a top-tier biopharmaceutical company by developing these medicines and transforming the lives of people with debilitating brain health disorders. We've got a great cash balance to prove that out over the next several years.

Okay. Great. Good. Barry, thanks for being here. Nice to see you. I appreciate the time.

Appreciate it. Thank you very much.