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

Great. Good morning, everyone. Thank you so much for joining us. I'm Salveen Richter, biotechnology analyst at Goldman Sachs, and we're really pleased to have Barry Greene, CEO of Sage with us here today. Thank you, Barry.

Thank you. Great to be here. Thanks for having the sun come out, and thanks for Goldman for having us.

Did the sun come out?

[indiscernible]

Great.

Great. So maybe to start here. Zuranolone is up for approval in 3Q to be followed by scheduling in 4Q, and this is partnered with Biogen, an asset that's partnered with Biogen. Maybe we could just jump into commercialization. So to start, pricing. I think you've talked about the importance here of kind of working through a pricing dynamic where you're essentially taking an annual price for once every 2, weeks or not once every, but a 2-week period or a 4-week period of course for this asset. How are you -- how are these discussions progressing? And what are the upper and lower bounds to keep in mind? And how would dispersion work in this case?

So for zuranolone, discussions are going well. But before I dive into that maybe if you allow me just to quickly take a step back for those less familiar with Sage. So Sage is a company dedicated to brain health. We believe that we have some leading thinking in brain health and have aspirations to become a top-tier biopharmaceutic company. The strength of Sage from the beginning was a deep understanding of the GABA and MDD pathways. GABA being inhibitory pathway and MDD excitatory pathway, and understanding how dysregulation of those pathways is involved with pathophysiology of the disease. We have a really strong capability that actually mimics endogenous mechanisms with neuroactive steroids and oxysterol chemistries that regulate these pathways allosterically. And that methodology has proven out, as you're well aware, we use that methodology to develop and get approval for ZULRESSO, the first drug ever approved for postpartum depression. And that's important context because we believe that zuranolone is critically important. We'll talk about that. We have a broad pipeline behind zuranolone. And even the basis of zuranolone is the belief set that in depression, the GABA pathway is dysregulated. And we believe what we're doing with zuranolone with an oral medication given every night for 2 weeks, is reregulating that pathway and taking someone from depression back to a normative state, which is why that we see that after 2 weeks of data, those that respond, don't need drug for a course of a year. So we really believe there's a strong background from a mechanism perspective. In terms of pricing dynamics, since you asked that, when we started talking about the potential launch of zuranolone for PPD and MDD, and if approved, we said that we'd be working with payers proactively with value-based agreements. And a proactive value-based agreement means going to a payer and telling them we've got a brand-new drug that's being studied MDD and PPD. And if this drug is approved, we plan on working with you payer to understand epidemiology, the patient types that might be the right patients for this drug. We plan on working with you on some guarantees. So rather than just talking about price and discount, we really want a robust conversation about unmet need and about zuranolone. Where we are today is that we've met with all of the major payers a couple of times. We met with a lot of the regional payers. And what we're hearing back, and the caveat here until we sign value-based agreements and get approval, this is all discussions we're having, no promises until we execute. But in general, what we're hearing from payers, number one is that they appreciate the depression is a very significant unmet need. Now the category, the drug category of depression is not a large category because it's hardly genericized. But they appreciate that in their plans, people that they have living with depression that are underdiagnosed or undertreated actually go on to have downstream comorbidities like cardiovascular disease, diabetes, increased instance of depression and even are more subject to infectious diseases and cancer. So someone that's not properly treated with depression doesn't necessarily cost them a lot for depression per se, but they cost a lot with downstream comorbidities. So the unmet need is there. The second thing we hear from them is that the product profile that we've shared compliantly and appropriately with all payers, the product profile of zuranolone that is -- which we studied over 3,500 patients in PPD and MDD is similar in each and every trial. What we see is a rapid onset of action. After 2 oral doses at night, those that respond report starting to feel better. And in all the trials we've run that are placebo controlled, we have in our minds, not in our minds -- we've statistically significant in our mind, clinically meaningful reductions even as early as day 3. And then at day 14, those who respond continue to stay well. So surprisingly, payers are not pushing back on the product profile. We're further hearing from them that since ZULRESSO is the only drug approved for PPD, and this would be the first oral medication approved for PPD, they agree with our assessment that if they can get moms diagnosed and a prescription that zuranolone is the kind of drug to be used frontline. In MDD, what we're hearing from payers, and we've been [indiscernible] about this, is that because of the value-based agreement, and I'll talk more about sort of how we're thinking about that, they think that MDD -- this should be used in MDD, but they'd like a patient to try something first. So you've got to think about the launch temporary. At the beginning, there'll be kind of a one step. Now with the value-based agreements, what they're further telling us is that the SHORELINE data suggests that their population will have less than 4 weeks of drug in the calendar year, at a population level. That means you take a pack of zuranolone for 2 weeks, and you might need another 1 sometime later for 2 weeks, but at a population level, they'll never be over 4 weeks of drug. And what they've said to us is you're free to price however you want but if you can stay below specialty tier in that 4 weeks of drug, then we won't put automatic adjudications in the system, we can design prior auths or steps that are more physician attestation than more rigorous prior auth. So that's where we are with payers at this point.

And so when you think of the pricing dynamics, then are you thinking for pricing around the 4 week because you wouldn't know if a patient is going to be on it for 2 weeks or 4 weeks. So therefor you're thinking of a 4 week use situation to price this?

Right. So what we're thinking about from a payer perspective is that the value-based agreements will be -- and we haven't signed any yet. So the value-based agreements we focused on, on a population level, making sure that the payer is not paying for more than 4 weeks of drug in a population level. We haven't talked specifics about pricing, but your logic that a 2-week pack or a 4-patient pack should stay under that special tier is what we're thinking.

And help us understand how a VBA would work here and what proportion of the population that would be targeted would be held under VBA because CMS and VA I believe, would be carved out.

Right. In order for Medicare patients to be covered under a value-based agreement, then we'd have to do something with CMS. And I'd love to do -- I would love to actually have a value-based agreement with CMS, but that may or may not happen. The Managed Medicare plans are not necessarily under VBA, but will likely follow the same is my experience, follow the same policies as the commercial plan managing the Managed Medicare. They won't have a VBA, but they'll use the same policies. So it's hard to estimate how many lives will be covered. What I can tell you at this point is that the large payers and the PBMs we met with are enthusiastic to put something in place, a value-based agreement in place for zuranolone, if approved. We might have some of those in and around approval. Some of them may take months after approval. But our hope is that the large patient population will be covered under a value-based agreement. So for example, if one of the PBMs is -- we have a letter of intent on or around launch. That's 100 million lives. So we think that we can have a significant number of lives covered under a value-based agreement.

Is there any precedent here? And is it like a -- I mean, would it be, I guess, a clawback situation? Like how do we think about this? And what would be the strategy for payers that can't wait for the VBA to be implemented?

Well, so the proactive value-based agreements, and the proactive part is important because there are drugs that reactively after being told no, back up and put some kind of value-based or outcome-based agreement. The proactive value based is to my knowledge, are really been more of the orphan, orphan-like indicated Alnylam, Argenx, Krystal, kind of all Alnylam or Alnylam alumni, frankly, right? They have done this before and understand that you can get these things done. There has not been a large -- to my knowledge, a proactive large market value-based agreement done to date. So this will be a first. I think that's out there. But what we're hearing from payers is tremendous enthusiasm. As I said, unmet need is clear. The unique product profile of zuranolone if approved in MDD and PPD is unique for them. So they kind of like what they're seeing. Practically, from experience, once a drug is launched, if a value-based agreement is in place, there are certain medical policies. If the value-based agreement isn't in place being signed, but you're on the way to signing it, they often implement those same medical policies. So you get benefit of a signed value-based agreement like prior auths, physician attestation even before the VBA is signed because you're in process. So it's our hope that, that's sort of the state -- that will be the state in at launch. We haven't added -- it's a delay, but an added benefit in this context is that because we believe that zuranolone will be a Schedule IV drug. After PDUFA, if approved, there'll be a 3-month DEA scheduling period. And then that's when you get your full label. We think that zuranolone is a Schedule IV drug, which is really about how supply chain and pharmacies handle, less about prescribing. And then there'll be a couple of weeks after getting the full label for packaging and shipping and getting stock. So call it, 3.5 months after PDUFA to have drug available for sale. So there's more time to be working with payers and making sure the right systems are set up. So that when a script is written, the patient gets the drug.

Sampling strategy. So you've talked about the importance of a targeted sampling program. Can you just describe how this might work? How many physicians and patients would you target given it's a short course of treatment, you don't want to take away the sales opportunity. So how do you put this into play?

So we haven't talked about details of sampling or numbers, but we can give a little bit of flavor, and we and Biogen are highly aligned. So when we launching a new medicine like this, the idea is to get people well and have them stay well. From a strategy perspective, it's really about physicians and the results they see in their own hands with their depressed patients. We've got a number of physicians that have been part of the clinical trials, and there are many who are telling us, and they've been on record being with you about seeing results in patients that they hadn't seen in their clinical practice before. Some have joked, they were going to retire, but now they have a tool to help patients, they don't want to retire. So there's a lot of enthusiasm. Once a health care provider uses zuranolone, and this is the evidence we have to date in 3,500 patients. Once they use zuranolone, they become believers. And wow, I've seen a patient respond in 2 or 3 days. I've seen them take their full 14 days. And when I check back with them in 6 months, they're still doing well and they're not on zuranolone any more. So the strategy sampling or otherwise would be for physicians to get comfortable using zuranolone. Practically, we think what's going to happen when we put samples out there, and this is full course treatment. This isn't a sample for 2 weeks so they're on a chronic medication. This is about physician experience. So we hope that when we're launched, a physician will assess whether that patient's insurance is adequate and they can pay for the drug. And that will be a commercial script. And if they're not, and sampling is required to help that patient because that's the only way they can get drug, they will. And we'll have all those programs in between with patient assistant and co-pays and that kind of stuff. Because the point is and our strategy is if the script is written, we want that script filled.

Is there anything important to keep in mind in this context given DA scheduling or with regard to distribution? Or is that pretty well understood in this field right now?

It's well understood. So just for background for everybody in the audience, DA scheduling is from Schedule 1 to a Schedule 5, 1 being the more severe, rules and regulations, 5 being the least, but they're all scheduled drugs. For most part, the reason for scheduling is handling raw material supply chain because of potential addictive properties along the way. And then when it gets to a retail pharmacy, there's a place in the pharmacy that scheduled drugs are held and locked up so that they can't fly off the shelf. The other place that's scheduling -- so writing the script and getting a script just like any other drug, and people use generic Ambien kind of as an example, all the time and don't have any problems filling it. So that's the dynamic. There are certain sampling rules in certain states. So in -- for example, in the State of New York, a live sample is in an office of something like a voucher would be in the office. But there are ways of ensuring sampling can work everywhere.

Great. You talked about Biogen and yourselves and the work you're doing together. Help us understand how you're sitting there and deciding on pricing, commercialization and dividing out the tasks at this point?

So zuranolone is partnered in with a Japanese partner for Japan, Taiwan and Korea, and 50-50 [indiscernible] in the United States and then Biogen has rest of the world. Biogen is driving the rest of the world strategy, and feel free to ask Chris and the team about that strategy, not appropriate for me to comment. In terms of the United States, it really has been a very collaborative effort. So if you back up, the Biogen Sage deal was signed around Thanksgiving of 2020. It's been a really strong partnership from day 1. We're both in Kendall Square, literally hundreds of yards away from each other, so it's easy to go to each other's offices, and we do. We've known each other and people for a long time. Lots of people live in the Cambridge area. They are former Sage employees that were Biogen, Biogen that were Sage. Many people have millennium backgrounds and Gen Z background. So there's lots of familiarity, really good relationships along the way. Obviously, Chris starting has been a boost to Biogen in general in the partnership call it, faster times to smart decisions are happening because there's some really strong leadership at Biogen, but it's been a very good partnership from the beginning. We have not -- and it's a 50-50. We haven't talked about specifics. What I can tell you is that we've been upfront in terms of payer, payer strategy and their teams are very well aligned. We're completely aligned on kind of the go-to-market strategy, the call universe, who's going to call on whom. And just for color, we haven't given numbers, but what we said is we're going to launch with a significant omnichannel presence. So digitization, virtualization and live presence. And in terms of live presence, we're going to target psych, OB/GYN and primary care that see lots of patients, write large number of scripts, particularly branded scripts. And to the extent that there's a gentle prior auth or steps understand how to handle that. So that's the target. That our strategy is that we're thinking very big, but we're starting in a very focused way and we're prepared to scale with success, so enlarge over time. And we haven't given numbers, but we've said things like the sales force isn't in the thousands, it's in the hundreds.

Maybe jumping over to the launch outlook here. So you've outlined patient and physician groups that you're focused on during the initial period of launch. Help us understand who they are? What kind of sales ramp you expect during that first year? And the ability to use social media, there clearly is the young adult population that you've discussed in the past. So how do you go about doing this within your first year and beyond?

Yes, the way we're thinking about the zuranolone in terms of what line and what patients really is in a temporal fashion. So I mentioned this before, but I'll repeat, with payers, the discussions are going really, really well. And many of you know that there's a lot to go into launch. There's activating patients, there's educating health care providers. But very often, it's the payers that are a key gate for who can get drug. And where we are with payers right now is with big -- we've got to execute on these, but light prior auths for PPD, being able to use frontline and light prior auths and light steps for MDD, 1 or 2 tried it, but it's physician attestation. So your office will get a box. So given that it's likely that the launch trajectory will be moms that get diagnosed with depression. Shout out to ACOG because there are now new guidelines that are asking health care providers to diagnose more quickly for depression in moms than before. Typically, a physician might wait 2 weeks, call it, baby blues. But some will go up to 4, 8 and even 12 weeks. At that point with ACOG saying way before that, they've got depression diagnosed. So that's -- that dynamic will help. For MDD, it's likely -- again, someone will have tried something that physician attestation. And my desire is, call it, 6 months or 12 months after launch, when everyone is comfortable with zuranolone, where it's used, how it's used, is to go back to payers and for certain populations like young adults, like the elderly, in places that it makes sense, sort of waive the step. Because if any of you who've had an adult daughter, an 18-year-old daughter in college and she's fortunate enough to get diagnosed, and I've talked about this. You don't want to losing a whole semester waiting for an antidepressant to kick in. You want her back in class in 3 days. And I'm sure we all have stories like that. So to all of us that make sense, we'll just have to make sure that as people are comfortable we'll get there with the payers.

And just with social media and targeting young adults or older populations, how does that kind of play into you?

Yes. As I mentioned, we're planning on launching with an omnichannel approach. So that's using digital, virtual, multimedia channels. So even at launch, there'll be a highly leveraged low-cost direct-to-consumer. So if someone is on their phone, looking for treatment, there's ways of picking it up and directing them to patient education or other places. And that goes broadly for anybody using their social media. We'll be on a variety of social media channels, making sure that disease state education is known. And you know the first step is for people to ask for help. And we're still living in a world with depression that there's stigma, there's inability to ask for help, they afraid, so getting people asking for help and seeking help really still remains the very first step.

And with physician feedback, clearly, you're changing a treatment paradigm here where this diseases or MDD has been treated chronically. Where are you getting areas of pushback from the physician base if you are? And how do you address that? I guess you've commented on the sampling program and that helping. But how are you thinking about it overall?

Yes. So it's interesting. Over the last 2.5, 3 years, there's been a big shift, I think, in the lift to educate health care providers. So if you go back before all the totality of data, this idea that I could have a medicine that works quickly, only given for 2 weeks was really a stretch in people's minds. They couldn't imagine something like that. Now that we have data in over 3,500 patients in MDD and PPD and we're in scientific exchanges, there's papers being published. The investigators are presenting at various congresses that lift has gotten a lot lighter because health care providers are appreciating that, wow, an oral medication that can work in 2 to 3 days, that's given 14 days, they might not need again for calendar year is very helpful. And some context here, we're all hearing about the rapid use of psychedelics, the use of ketamine in therapy sessions. That wave is people looking for something to work fast without being on a chronic med their whole life. So I'd say that shift is happening dramatically. In a physician practice, people are also recognizing that it's not a very big change. Today, if I come to your office, you diagnose me with depression. You'll tell me what you're prescribing and you'll suggest that I take it every day. It might take 4 to 6 weeks to kick in, so be patient, stay with it. And if you have issues, call me. So I might call the office day 3 or 4 saying, I can't sleep. Okay, I got something for that. Two weeks later, I've got anxiety. I've got something for that. 4 weeks after that, I have got sexual dysfunction, got something for that. 3 months after that, I call the office and say, I gained a bunch of weight. I've got something for that. So 3 months out, today's standard is polypharmacy, unfortunately, practice. We've got an opportunity to -- I'm going to give you something, you should feel about in 2 or 3 days, let's check in. I'll check in with you at 2 weeks. After the 2 or 3 days, you're feeling better, finish your 14 days. And then it's a normal check ins, we hope without the polypharmacy. And what we're reminding the health care community is that -- and this -- people forget this, SSRIs and SNRIs were never developed for chronic treatments. They were developed to be 3 or 6 months course of treatment. Practice has made them chronic because in that description I just, took you 6 months to get me well. Why wean me off of all those medications if I'm not having issues. Keep me on because if I have another depressive episode, it might take you a couple of months to get me back on there. So it's become chronic treatment in practice because of the medicines we've had to treat. We believe the paradigm shift here is moving back to an understanding that depression is episodic. And with a drug like zuranolone, if approved, we can treat it episodically.

Great. Maybe let's jump over to the rest of the pipeline...

Yes, please.

Because you have a pretty deep pipeline. Just to level set, what are you most excited about from a data standpoint from the pipeline outside of the zuranolone that we should be focused on over the next year?

Being a bio-pharmaceutical company, we like all of our babies, but I will highlight that, that we're really excited by SAGE-718. SAGE-718 is an NMDA positive allosteric modulator being developed for the improvement of cognition. And when I talk about the improvement of cognition, I'm talking in neurodegenerative diseases. So I'm talking about higher order cognition, things like executive function, learning and memory, which many of you are aware is highly problematic in Huntington's, Parkinson's and Alzheimer's. Different parts of that cognition are problematic -- but highly problematic. We've got 5 clinical studies up and running now, 3 in Huntington's and then a Parkinson's and Alzheimer's study. The strategy behind the Huntington's clinical programs are a robust program, the key study there is 178 patients. So given that it's a rare orphan disease where there's not been a medicine developed in Huntington's specifically for cognition, we're hopeful that if the data are robust, the package we design are sufficient to speed regulatory discussions. And then the Parkinson's and Alzheimer's studies are set up in a way to give us really robust information if we're successful, that leads us to Phase IIIs. So the strategy for Sage would be to globalized Sage on the back of SAGE-718, going to those countries in a very -- lack of capital -- a very capital-efficient way because of disease -- going to those countries where Huntington's exist. And if things play out launch in Huntington, follow on with the Alzheimer's and Parkinson's type indication. That's the plan today. We will have data for SAGE-718 next year.

Any questions from the audience? Could we have a microphone. Thank you.

So on pricing, you mentioned you want the 4-week course to be below that threshold for specialty pricing. Is that -- that's around 2,500 or so? Is that what the threshold is for commercial?

Yes. So Matt, just to repeat the question, what we've said is that when we met with payers, what they've told us is that they're happy having a value-based agreement with a commitment that they would get reimbursed if their population was over 4 weeks of drug. So that's 2 2-week packs at a population level. And we haven't said, but they've said to us, do what you want, but we'd like that 4 weeks to be under special tier, which it's a math calculation, it's roughly under $10,000 per patient per year. So they're not focused on per pill or per pack, they're focused on per patient per year.

Got it. And then also, you mentioned that you could drop some of these step edits if you guys have a really strong launch. Could you drop potentially maybe the VBAs altogether and kind of -- if you see a lot of demand and you have more leverage there, could you just kind of come up with more favorable reimbursement?

Yes. So the kind of the contracting process, as you put these value-based agreements in place and then every 6 months to a year, you sort of how are we doing. And our hope is that as the payers and the providers get much more comfortable with zuranolone than the gates to use start falling away and it can be used where a physician thinks their patient needs the drug. That's the hope over time.

Great.

Thank you very much. Appreciate everyone. Standing ovation. Thank you.