News Column

SAGE THERAPEUTICS, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

August 14, 2014

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited financial information and the notes thereto included in our final prospectus for our initial public offering filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the "Securities Act"), with the Securities and Exchange Commission (the "SEC") on July 18, 2014 (the "Prospectus").

Our actual results and timing of certain events may differ materially from the results discussed, projected, anticipated, or indicated in any forward-looking statements. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report, they may not be predictive of results or developments in future periods.

The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in the Quarterly Report on Form 10-Q, including those risks identified under Part II, Item 1A. Risk Factors.

We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

Overview



We are a clinical-stage biopharmaceutical company committed to developing and commercializing novel medicines to treat life-threatening, rare central nervous system, or CNS, disorders, where there are inadequate or no approved existing therapies. We are targeting CNS indications where patient populations are easily identified, acute treatment is typically initiated in the hospital setting, clinical endpoints are well-defined, and development pathways are feasible. This focus allows us to make highly informed decisions when advancing our product candidates through the development process. Our initial product candidates are aimed at treating different stages of status epilepticus, or SE, a life-threatening condition in which the brain is in a state of persistent seizure.

The lead product candidate in our SE program, SAGE-547, is an intravenous, or IV, agent in Phase 1/2 clinical development as an adjunctive therapy, a therapy combined with current therapeutic approaches, for the treatment of super-refractory SE, or SRSE. The current standard of care for SRSE is empiric, and there are no therapies at present that have been specifically approved for this indication. We thus believe there is a significant unmet medical need for SAGE-547.

SE is diagnosed when a patient has a seizure lasting longer than five minutes, and is associated with substantial morbidity and mortality. We estimate that in the United States each year there are up to 150,000 cases of SE, of which 30,000 SE patients die. We estimate that there are 35,000 patients with SE in the United States that are hospitalized in the intensive care unit, or ICU, each year. An SE patient is first treated with benzodiazepines, or BDZs, and if no response then treated with other, second-line, anti-seizure drugs. If the seizure persists after second-line therapy the patient is diagnosed as having refractory SE, or RSE, admitted to the ICU and placed into a medically induced coma. Currently, there are no therapies that have been specifically approved for refractory SE, or RSE; however, physicians typically use anesthetic agents to induce the coma and stop the seizure immediately. After a period of 24 hours, an attempt is made to wean the patient from the anesthetic agents to evaluate whether or not the seizure condition has resolved. Unfortunately, not all patients respond to weaning attempts, in which case the patient must be maintained in the medically induced coma. At this point, the patient is diagnosed as having SRSE.

We have compiled evidence which we believe supports the safety and activity of SAGE-547 for treatment of SRSE. Six patients have been treated with SAGE-547 by independent centers under emergency-use Investigational New Drug Applications, or INDs. Five of these patients treated with SAGE-547 achieved resolution of SRSE either during the course of or soon after SAGE-547 treatment. The one patient that did not achieve resolution of SRSE during the course of or soon after SAGE-547 treatment had low plasma exposures of SAGE-547. On October 30, 2013, we filed an IND for SAGE-547 for the treatment of SRSE with the U.S. Food and Drug Administration, or FDA, and we received notification allowing us to proceed with our Phase 1/2 clinical trial of SAGE-547

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on November 27, 2013. We commenced our Phase 1/2 clinical trial to study safety, tolerability and efficacy of SAGE-547 in adult patients with SRSE in January 2014. This clinical trial is an open-label study in at least ten patients diagnosed with SRSE. As of August 8, 2014, there are 10 active study sites in the United States, and we plan to open up to 10 additional study sites in the United States to achieve full enrollment of this clinical trial. As previously reported in the Prospectus, four patients have been enrolled in this trial and treated with SAGE-547 with the remainder of enrollment expected during the second half of 2014. While data collection in and data review from these patients is ongoing, all four patients met the key efficacy endpoint, in that each was successfully weaned off his or her anesthetic agent while SAGE-547 was being administered. Three of these patients were subsequently weaned off SAGE-547 without reinstating general anesthesia, while one patient experienced recurrence of SE upon withdrawal of SAGE-547 requiring reinstitution of general anesthesia. Of the three patients that have completed the three-week follow up period, one patient was discharged to a rehabilitation facility to continue recovery, one remained hospitalized to continue to be treated for severe ongoing medical conditions, and one experienced recurrence of SE. We believe this data provides preliminary evidence of the pharmacological effect of SAGE-547. We plan to report data from this Phase 1/2 clinical trial in the second half of 2014. In April 2014, the FDA granted us orphan drug designation for SAGE-547 as a treatment for SE. In July, we announced that the FDA granted fast track designation for the SAGE-547 development program. Fast track designation is intended to facilitate the review of drug candidates that are intended to treat serious or life-threatening conditions and that demonstrate the potential to address unmet medical needs.

SAGE-689 and SAGE-217, two additional product candidates in our SE program, are currently in IND-enabling toxicology and safety pharmacology testing. SAGE-689 is being developed as an adjunctive second-line therapy for the treatment of SE, and SAGE-217 is being developed as both an IV monotherapy for the treatment of RSE, and as an orally delivered maintenance therapeutic to prevent recurrent seizures in patients whose SE, RSE or SRSE has resolved.

We anticipate that SAGE-217 may also have the potential for use in a broader range of seizure conditions beyond maintenance therapy, including orphan genetic seizure disorders, such as Rett syndrome and Dravet syndrome. In addition, we believe related molecules from our portfolio may be useful in the treatment of a variety of neurological and psychiatric disorders, including, for example, fragile X syndrome, anxiety and tremor. With respect to our near-term SE programs, we plan to file an IND for SAGE-689 in the second half of 2014 and to begin a Phase 1 clinical trial thereafter. We are currently conducting IND-enabling studies of SAGE-217, with a plan to file an IND in the first half of 2015.

Since our inception in April 2010, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, identifying and developing our product candidates, preparing to conduct clinical studies of our product candidates, providing general and administrative support for these operations and protecting our intellectual property. We have funded our operations to date through sales of redeemable convertible preferred stock and, to a lesser extent, the issuance of convertible notes. From our inception through June 30, 2014, we had received net proceeds of $90.7 million from such transactions. On July 23, 2014, we completed the sale of 5,750,000 shares of our common stock in an initial public offering, or IPO, at a price to the public of $18.00 per share, resulting in net proceeds of $94.0 million after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

We are an early-stage company and have not generated any revenue. We have incurred net losses in each year since our inception, and we have a deficit accumulated $44.8 million as of June 30, 2014. Our net losses were $9.6 million and $18.3 million for the years ended December 31, 2012 and 2013, respectively, and $12.0 million for the six months ended June 30, 2014. These losses have resulted principally from costs incurred in connection with research and development activities and general and administrative costs associated with our operations. We expect to incur significant expenses and increasing operating losses for the foreseeable future.

We expect that our expenses will increase substantially in connection with our ongoing activities, as we:

advance clinical development of SAGE-547, our lead product candidate in our SE program, including completing the Phase 1/2 clinical trial currently underway and commencing other clinical trials thereafter; advance development of SAGE-689, the first follow-on product candidate in our SE program, including filing an Investigational New Drug Application, or IND, in the second half of 2014 and conducting a Phase 1 clinical trial thereafter; advance development of SAGE-217, the second follow-on product candidate in our SE program, including completing the IND-enabling toxicology and safety pharmacology testing currently underway; 18



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continue our research and development efforts for other drug candidates in the treatment of CNS disorders; continue to engage contract manufacturing organizations, or CMOs, to manufacture our clinical study materials and to develop large-scale manufacturing capabilities; seek regulatory approvals for our product candidates; add personnel, including personnel to support our product development and future commercialization; add operational, financial and management information systems; maintain, leverage and expand our intellectual property portfolio; and operate as a public company.



As a result, we will need additional financing to support our continuing operations. Until such time that we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity or debt financings or other sources, which may include collaborations with third parties. Arrangements with collaborators or others may require us to relinquish rights to certain of our technologies or product candidates. In addition, we may never successfully complete development of any of our product candidates, obtain adequate patent protection for our technology, obtain necessary regulatory approval for our product candidates or achieve commercial viability for any approved product candidates. Adequate additional financing may not be available to us on acceptable terms, or at all. Our inability to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We will need to generate significant revenue to achieve profitability, and we may never do so.

We expect that our existing cash and cash equivalents as of June 30, 2014, along with proceeds from our initial public offering which closed on July 23, 2014, will enable us to fund our operating expenses and capital expenditures requirements for at least the next 12 months. See "-Liquidity and Capital Resources."

Financial Operations Overview Revenue



We have not generated any revenue from product sales since our inception and do not expect to generate any revenue from the sale of products in the near future. If our development efforts result in clinical success and regulatory approval or collaboration agreements with third parties for our product candidates, we may generate revenue from those product candidates.

Operating Expenses

Our operating expenses since inception have consisted of research and development activities and general and administrative costs.

Research and Development Expenses

Research and development expenses, which consist of costs associated with our product research and development efforts, are expensed as incurred. Research and development expenses consist primarily of:

personnel costs, including salaries, related benefits, stock-based compensation and related travel expenses for employees engaged in scientific research and development functions; 19



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expenses incurred under agreements with contract research organizations, or CROs, and investigative sites that conduct our non-clinical studies and clinical trials; expenses associated with manufacturing clinical study materials and developing external manufacturing capabilities; costs of outside consultants, including their fees, stock-based compensation and related travel expenses; other expenses related to our non-clinical studies and expenses related to our regulatory activities; and payments made under our third-party licensing agreements.



Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites.

We have been developing SAGE-547, SAGE-689 and SAGE-217 and are focusing on other research and development programs related to exploratory efforts, target validation, and lead optimization for our earlier-validated programs. Our direct research and development expenses are tracked on a program-by-program basis and consist primarily of external costs, such as fees paid to investigators, central laboratories, CROs and CMOs in connection with our non-clinical studies and clinical trials; third-party license fees related to our product candidates; fees paid to outside consultants who perform work on our programs; and costs related to manufacturing or purchasing clinical trial materials. We do not allocate employee related costs and other indirect costs to specific research and development programs because these costs are deployed across multiple product programs under research and development and, as such, are separately classified as unallocated research and development expenses.

The following table summarizes our research and development expenses by program:

Six Months Ended June 30, 2014 2013 Change (in thousands) SAGE-547 $ 2,614$ 1,240$ 1,374 SAGE-689 1,766 1,697 69 SAGE-217 1,392 - 1,392 Other research and development programs 259 2,116 (1,857 ) Unallocated expenses 2,523 1,384 1,139 Total research and development expenses $ 8,554$ 6,437$ 2,117



Research and development activities are central to our business. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will continue to increase in the foreseeable future as we initiate clinical trials for certain product candidates and pursue later stages of clinical development of our product candidates.

We cannot determine with certainty the duration and completion costs of the current or future clinical trials of our product candidates or if, when, or to what extent we will generate revenue from the commercialization and sale of any of our product candidates that obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our product candidates. The duration, costs, and timing of clinical trials and development of our product candidates will depend on a variety of factors, including:

the scope, rate of progress, and expense of our ongoing as well as any additional non-clinical studies, clinical trials and other research and development activities; 20



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future clinical trial results; uncertainties in clinical trial enrollment rate or design; significant and changing government regulation; and the timing and receipt of any regulatory approvals.



A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel costs, consisting of salaries, related benefits, stock-based compensation and related travel expenses of our executive, finance, business and corporate development and other administrative functions. General and administrative expenses also include facilities, information technology and other expenses, including rent, depreciation, maintenance of facilities, insurance and supplies; and professional fees for auditing, tax and legal services, including legal expenses to pursue patent protection of our intellectual property.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support the expected growth in our research and development activities and the potential commercialization of our product candidates. We also anticipate increased expenses associated with being a public company, including costs related to audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums, and investor relations costs. Additionally, if and when we believe that a regulatory approval of the first product candidate appears likely, we anticipate an increase in payroll and related expenses as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of our product candidates.

Other Income (Expense)

Interest income (expense), net. Interest income (expense), net consists of interest earned on our cash and cash equivalents and interest expense on prior debt. Our interest income has not been significant due to low interest earned on invested balances. We anticipate that our interest income will increase in the future due to increased balances from the net proceeds of our IPO. During the six months ended June 30, 2014 and 2013, interest income (expense) was not material.

Other income (expense), net. Other income (expense), net consists of the realized and unrealized net gains and losses from foreign currency-denominated vendor payables. During the six months ended June 30, 2014 and 2013, other income (expense) was not material.

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Results of Operations

Comparison of Three Months Ended June 30, 2014 and 2013

The following table summarizes our results of operations for the three months ended June 30, 2014 and 2013:

Three Months Ended June 30, 2014 2013 Change (in thousands) Operating expenses: Research and development $ 4,381$ 3,854$ 527 General and administration 1,807 801 1,006 Total operating expenses 6,188 4,655 1,533 Loss from operations (6,188 ) (4,655 ) (1,533 ) Interest income (expense), net 1 - 1 Other income (expense), net (5 ) - (5 ) Net loss $ (6,192 )$ (4,655 )$ (1,537 )



Research and development expenses

Three Months Ended June 30, 2014 2013 Change (in thousands) SAGE-547 $ 1,441$ 841$ 600 SAGE-689 905 904 1 SAGE-217 706 - 706 Other research and development programs 3 1,345 (1,342 ) Direct research and development expenses 3,055 3,090 (35 ) Personnel related expenses 1,178 602 576 Other expenses 148 162 (14 ) Total research and development expenses $ 4,381$ 3,854$ 527 Research and development expenses for the three months ended June 30, 2014 were $4.4 million compared to $3.9 million for the three months ended June 30, 2013. The increase of $0.5 million period over period was primarily due to the following: an increase of $0.6 million in expenses of our SAGE-547 program, consisting of expenses related to the completion of toxicology studies and the external clinical and drug supply costs associated with our ongoing Phase 1/2 clinical trial of SAGE-547; an increase of $0.7 million of expenses of our SAGE-217 program with advancement of lead optimization program into IND-enabling non-clinical development; a net decrease $1.3 million in expenses of our other research and development programs reflecting portfolio priorities and timing of investment in certain research programs; and an increase of $0.6 million in unallocated personnel-related R&D spending reflecting the effects of hiring additional, full-time employees during 2013 and the first quarter of 2014 to support advancement of development programs. 22



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General and administrative expenses

Three Months Ended June 30, 2014 2013 Change (in thousands) Personnel related $ 827$ 296$ 531 Professional fees 693 295 398 Facilities 87 81 6 Other 200 129 71 Total general and administrative expenses $ 1,807$ 801$ 1,006



General and administrative expenses for the three months ended June 30, 2014 were $1.8 million, compared to $0.8 million for the three months ended June 30, 2013. The increase of $1 million in general and administrative expenses was primarily due to $0.5 million increase in personnel related costs including salary and bonus increases of $0.4 million due to the effects of hiring additional, full-time employees during 2013 to support corporate operations, finance and business development activities as well as an increase in stock compensation expense. The increase period over period in general and administrative expenses was also due to a $0.4 million increase in professional fees incurred primarily in connection with preparation for our planned IPO and professional fees to support the requirements of being a public company.

Other income (expense), net

Interest income (expense), net and other income (expense), net was in insignificant for the three months ended June 30, 2014 and 2013.

Comparison of Six Months Ended June 30, 2014 and 2013

The following table summarizes our results of operations for the six months ended June 30, 2014 and 2013:

Six Months Ended June 30, 2014 2013 Change (in thousands) Operating expenses: Research and development $ 8,554$ 6,437$ 2,117 General and administration 3,424 1,607 1,817 Total operating expenses 11,978 8,044 3,934 Loss from operations (11,978 ) (8,044 ) (3,934 ) Interest income (expense), net 1 - 1 Other income (expense), net (5 ) - (5 ) Net loss $ (11,982 )$ (8,044 )$ (3,938 ) 23



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Research and development expenses

Six Months Ended June 30, 2014 2013 Change (in thousands) SAGE-547 $ 2,614$ 1,240$ 1,374 SAGE-689 1,766 1,697 69 SAGE-217 1,392 - 1,392 Other research and development programs 259 2,116 (1,857 ) Direct research and development expenses 6,031 5,053 978 Personnel related expenses 2,293 1,152 1,141 Other expenses 230 232 (2 ) Total research and development expenses $ 8,554$ 6,437$ 2,117



Research and development expenses for the six months ended June 30, 2014 were $8.6 million, compared to $6.4 million for the six months ended June 30, 2013. The increase of $2.1 million period over period was primarily due to the following:

an increase of $1.4 million in expenses of our SAGE-547 program. We initiated the Phase 1/2 clinical trial of SAGE-547 in SRSE in early 2014; an increase of $1.4 million in expenses of our SAGE-217 program with advancement of the lead optimization program into IND-enabling non-clinical development (e.g. toxicology and chemistry, manufacturing and controls, or CMC studies); a net decrease $1.8 million in expenses of our other research and development programs reflecting focus on advancing SAGE-689 and SAGE-217 into IND-enabling non-clinical development, portfolio priorities, and timing of investment in certain research programs; and an increase of $1.1 million in employee related spending to support the growth in our research and development activities, reflecting the effects of hiring additional, full-time employees during 2014.



General and administrative expenses

Six Months Ended June 30, 2014 2013 Change (in thousands) Personnel related $ 1,454$ 612$ 842 Professional fees 1,430 594 836 Facilities 185 158 27 Other 355 243 112 Total general and administrative expenses $ 3,424$ 1,607$ 1,817 24



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General and administrative expenses for the six months ended June 30, 2013 were $1.6 million, compared to $3.4 million for the six months ended June 30, 2014. The increase of $1.8 million in general and administrative expenses was primarily due to increased personnel related costs of $0.8 million, which were principally due to employee salary and bonus increases of $0.7 million, including the effects of hiring additional, full-time employees during 2014 to support corporate operations, finance and business development activities. The increase period over period in general and administrative expenses was also due to a $0.8 million increase in professional fees Incurred primarily in connection with preparation for our planned IPO and professional fees to support the requirements of being a public company.

Other income (expense), net

Interest income (expense), net and other income (expense), net was insignificant for the three months ended June 30, 2014 and 2013.

Liquidity and Capital Resources

Since our inception in April 2010, we have not generated any revenue and have incurred recurring net losses. As of June 30, 2014, we had an accumulated deficit of $44.8 million. We have funded our operations since inception primarily through sales of redeemable convertible preferred stock and, to a lesser extent, the issuance of convertible notes. From our inception through June 30, 2014, we have received net proceeds of $90.7 million from such transactions. On July 23, 2014, we completed the sale of 5,750,000 shares of common stock in our IPO, at a price to the public of $18.00 per share, resulting in net proceeds of $94.0 million after deducting underwriting discounts and commissions and estimated offering expense payable by us.

As of June 30, 2014, excluding the proceeds from the IPO we had cash and cash equivalents totaling $49.1 million. We invest our cash equivalents in money market accounts in order to preserve principal.

The following table summarizes our sources and uses of cash for each of the periods presented: Six Months Ended June 30, 2014 2013 (in thousands) Cash used in operating activities $ (10,889 )$ (7,306 ) Cash used in investing activities (5 ) (3 ) Cash provided by financing activities 51,955 5,030 Net increase (decrease) in cash and cash equivalents $ 41,061$ (2,279 )



Net cash used in operating activities

Operating activities used $10.9 million of cash in the six months ended June 30, 2014. The cash flow used in operating activities resulted primarily from our net loss of $12.0 million for the period and cash used for changes in our operating assets and liabilities of $0.5 million, offset by non-cash charges of $0.7 million. Our net loss was primarily attributable to research and development activities related to our lead programs in development and our general and administrative expenses, as we had no revenue in the period. Our net non-cash charges during the six months ended June 30, 2014 primarily consisted of stock-based compensation expenses of $0.5 million and non-cash licensing fees paid in shares of our common stock of $0.1 million. Net cash used in changes in our operating assets and liabilities consisted of a decrease in prepaid expenses and other current assets of $0.4 million, a decrease in accounts payable of $0.4 million and an increase in accrued expenses and other liabilities of $1.3 million. Our prepaid expenses and other current assets, accounts payable and accrued expense balances were affected by the timing of vendor invoicing and payments.

During the six months ended June 30, 2013, operating activities used $7.3 million of cash, primarily resulting from our net loss of $8.0 million, partially offset by cash provided by changes in our operating assets and liabilities of $0.7 million. Our net loss was primarily attributed to research and development activities related to our lead programs in development and our general and

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administrative expenses. Net cash provided by changes in our operating assets and liabilities for the six months ended June 30, 2013 consisted primarily of increases in accounts payable and accrued expenses totaling $0.7 million. Our prepaid expenses and other current assets, accounts payable and accrued expense balances were affected by the timing of vendor invoicing and payments.

Net cash used in investing activities

During the six months ended June 30, 2014, we used $5,000 of cash for purchases of property and equipment.

During the six months ended June 30, 2013, we used $3,000 of cash for purchases of property and equipment.

Net cash provided by financing activities

During the six months ended June 30, 2014 and 2013, net cash provided by financing activities was $52 million and $0.5 million, respectively. Net cash provided by financing activities in the six months ended June 30, 2014 consisted of $52.9 million from the issuance of Series B and Series C redeemable convertible preferred stock and from the exercise of stock options, offset by the payment of fees incurred in connection with our planned IPO of $0.9 million. Net cash provided by financing activities in the six months ended June 30, 2013 consisted of $5 million from the issuance of Series A redeemable convertible preferred stock and from the exercise of stock options.

Operating Capital Requirements

To date, we have not generated any revenue from product sales. We do not know when, or if, we will generate any revenue from product sales. We do not expect to generate significant revenue from product sales unless and until we obtain regulatory approval of and commercialize one of our current or future product candidates. We anticipate that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates and begin to commercialize any approved products. We expect to incur additional costs associated with operating as a public company. In addition, subject to obtaining regulatory approval of any of our product candidates, we expect to incur significant commercialization expenses for product sales, marketing and manufacturing. Accordingly, we anticipate that we will need substantial additional funding in connection with our continuing operations.

Based on our current operating plan, we expect that our existing cash and cash equivalents as of June 30, 2014, together with net proceeds from our IPO which closed on July 23, 2014, will enable us to fund our operating expenses and capital expenditures requirements for at least the next 12 months. In that time, we expect that our expenses will increase substantially as we fund Phase 1/2 clinical development of SAGE-547, fund IND-enabling activities and Phase 1 clinical development of SAGE-689, fund IND-enabling activities for SAGE-217, fund new and ongoing research and development activities and working capital and other general corporate purposes. We have based our estimates on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures necessary to complete the development and commercialization of our product candidates.

Our future capital requirements will depend on many factors, including:

the costs, timing and outcome of regulatory reviews and approvals; the ability of our product candidates to progress through clinical development successfully; the initiation, progress, timings, costs and results of non-clinical studies and clinical trials for our other programs and potential product candidates; the number and characteristics of the product candidate we pursue; the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; the extent to which we acquire or in-license other products and technologies; and 26



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our ability to establish any future collaboration arrangements on

favorable terms, if at all.



Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends and may require the issuance of warrants, which could potentially dilute your ownership interest. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or research programs or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves.

Contractual Obligations and Commitments

There have been no material changes to our contractual obligations and commitments from those described under "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Prospectus filed by us with the SEC on July 18, 2014.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under Securities and Exchange Commission rules, such as relationships with unconsolidated entities or financial partnerships, which are often referred to as structured finance or special purpose entities, established for the purpose of facilitating financing transactions that are not required to be reflected on our balance sheets.

Application of Critical Accounting Policies

We have prepared our financial statements in accordance with U.S. generally accepted accounting principles. Our preparation of these financial statements requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets, liabilities, expenses, and related disclosures at the date of the financial statements, as well as revenue and expenses recorded during the reporting periods. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could therefore differ materially from these estimates under different assumptions or conditions.

There have been no material changes to our critical accounting policies from those described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Prospectus.


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