INTRA-CELLULAR THERAPIES, INC. You should read the following in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto that appear elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K filed onMarch 2, 2020 . In addition to historical information, the following discussion and analysis includes forward-looking information that involves risks, uncertainties and assumptions. Our actual results and the timing of events could differ materially from those anticipated by these forward-looking statements as a result of many factors, including those discussed under "Risk Factors" in our Annual Report on Form 10-K filed onMarch 2, 2020 , as updated from time to time in our subsequent periodic and current reports filed with theSEC . Overview We are a biopharmaceutical company focused on the discovery, clinical development and commercialization of innovative, small molecule drugs that address underserved medical needs primarily in neuropsychiatric and neurological disorders by targeting intracellular signaling mechanisms within the central nervous system, or CNS. InDecember 2019 CAPLYTA (lumateperone) was 21 -------------------------------------------------------------------------------- Table of Contents approved by the FDA for the treatment of schizophrenia in adults (42 mg/day) and we initiated the commercial launch of CAPLYTA in late March of 2020 . In support of our commercialization efforts, we hired a national sales force consisting of approximately 240 sales representatives. As used in this report, "CAPLYTA" refers to lumateperone approved by the FDA for the treatment of schizophrenia in adults, and " lumateperone " refers to, where applicable, CAPLYTA as well as lumateperone for the treatment of indications beyond schizophrenia. Lumateperone is also in Phase 3 clinical development as a novel treatment for bipolar depression. Our lumateperone bipolar depression Phase 3 clinical program currently consists of three monotherapy studies and one adjunctive study. In the first quarter of 2020 we initiated our third monotherapy Phase 3 study, Study 403, evaluating lumateperone as monotherapy in the treatment of major depressive episodes associated with Bipolar I or Bipolar II disorder. We anticipate reporting topline results from Study 403 in the second half of 2021. OnJuly 8, 2019 , we announced topline results from our first monotherapy study, Study 401, conducted in theU.S. , and our second monotherapy study, Study 404, conducted globally, evaluating lumateperone as monotherapy in the treatment of major depressive episodes associated with Bipolar I or Bipolar II disorder. In Study 404, lumateperone 42 mg met the primary endpoint for improvement in depression as measured by change from baseline versus placebo on the MADRS total score (p<0.0001; effect size = 0.56). These benefits were statistically significant in both Bipolar I and Bipolar II patients. Study 404 also met its key secondary endpoint, Clinical Global Impression Scale for Bipolar for Severity of Illness (CGI-BP-S) Total Score (p<0.001; effect size = 0.46). Study 401 tested two doses of lumateperone, 42 mg and 28mg along with placebo. In this trial, neither dose of lumateperone met the primary endpoint of statistical separation from placebo as measured by change from baseline on the MADRS total score. There was a high placebo response in this trial. Lumateperone was generally well-tolerated in both bipolar depression studies, with a favorable safety profile. The rates of discontinuation due to treatment emergent adverse events for both doses of lumateperone were low. Our global study evaluating adjunctive lumateperone in bipolar depression (Study 402) is ongoing and we anticipate reporting topline results from this study by mid-September 2020 . Subject to the results of Study 402 and our interactions with the FDA regarding our bipolar depression program, in late 2020 or early 2021 we expect to submit a supplemental new drug application, or sNDA, to the FDA for potential regulatory approval of lumateperone for the treatment of bipolar depression. We are also pursuing clinical development of lumateperone for the treatment of additional CNS diseases and disorders. We believe lumateperone may have utility for treating agitation, aggression and sleep disturbances in diseases that include dementia, Alzheimer's disease, or AD, Huntington's disease and autism spectrum disorders. At a dose of 42 mg, lumateperone has been shown effective in treating the symptoms associated with schizophrenia, and we believe this dose may merit further investigation for the treatment of bipolar disorder, depressive disorders and other neuropsychiatric diseases. Within the lumateperone portfolio, we are also developing a long-acting injectable formulation to provide more treatment options to patients suffering from mental illness. We have completed the preclinical development of a long-acting injectable formulation and plan to initiate a Phase 1 clinical trial in 2020. Given the encouraging tolerability data to date with oral lumateperone, we believe that a long-acting injectable option, in particular, may lend itself to being an important formulation choice for patients. We may investigate the use of lumateperone, either on our own or with a partner, as a treatment for agitation, aggression and sleep disturbances in additional diseases that include autism spectrum disorders, depressive disorder, intermittent explosive disorder, non-motor symptoms and motor complications associated with Parkinson's disease, and post-traumatic stress disorder. We hold exclusive, worldwide commercialization rights to lumateperone and a family of compounds from Bristol-Myers Squibb Company pursuant to an exclusive license. We have a second major program called ITI-002 that has yielded a portfolio of compounds that selectively inhibit the enzyme phosphodiesterase type 1 , or PDE 1 . PDE 1 enzymes are highly active in multiple disease states and our PDE 1 inhibitors are designed to reestablish normal function in these disease states. Abnormal PDE 1 activity is associated with cellular proliferation and activation of inflammatory cells. Our PDE 1 inhibitors ameliorate both of these effects in animal models. We intend to pursue the development of our phosphodiesterase, or PDE, program, for the treatment of several CNS and non-CNS conditions with a focus on diseases where excessive PDE 1 activity has been demonstrated and increased inflammation is an important contributor to disease pathogenesis. Our potential disease targets include heart failure, immune system regulation, neurodegenerative diseases, and other non-CNS disorders. ITI-214 is our lead compound in this program. We believe ITI-214 is the first compound in its class to successfully advance into Phase 1 clinical trials. Following the favorable safety and tolerability results in our Phase 1 program, we initiated our development program for ITI-214 for Parkinson's disease and commenced patient enrollment in the third quarter of 2017 in a Phase 1/2 clinical trial of ITI-214 in patients with Parkinson's disease to evaluate safety and tolerability in this patient population, as well as motor and non-motor exploratory endpoints. In the fourth quarter of 2018 , we announced that the Phase 1/2 clinical trial of ITI-214 has been completed and topline results demonstrated ITI-214 was generally well-tolerated with a favorable safety profile and clinical signs consistent with improvements in motor symptoms and dyskinesias . In addition, in the second quarter of 2020 we announced topline results from Study ITI-214-104, a Phase 1/2 translational study of single ascending doses of ITI-214 in patients with chronic systolic heart failure with reduced ejection fraction. In this study, ITI-214 improved cardiac output by increasing heart contractility and decreasing vascular resistance. Agents that both increase heart contractility ( inotropism ) and decrease vascular resistance (vasodilation) are called 22 -------------------------------------------------------------------------------- Table of Contents inodilators . Inodilators in current clinical use are associated with the development of arrhythmias, which are abnormal heart rhythms that when serious can impair heart function and lead to mortality. ITI-214, which acts through a novel mechanism of action, was not associated with arrhythmias in this study and was generally well tolerated in all patients. Our pipeline also includes programs that are focused on advancing drugs for symptomatic and disease modifying treatments for schizophrenia, Parkinson's disease, AD and other neuropsychiatric and neurodegenerative disorders. We have an ongoing early stage clinical program evaluating a new molecule as a potential treatment for behavioral disturbances in patients with dementia. In addition, our ITI-333 development program is evaluating ITI-333 as a potential treatment for substance use disorders, pain and psychiatric comorbidities including depression and anxiety. There is a pressing need to develop new drugs to treat opioid addiction and safe, effective, non-addictive treatments to manage pain. We expect to initiate early phase clinical studies with ITI-333 in 2020. We have assembled a management team with significant industry experience to lead the discovery, development and potential commercialization of our product candidates. We complement our management team with a group of scientific and clinical advisors that includes recognized experts in the fields of schizophrenia and other CNS disorders. Results of Operations The following discussion summarizes the key factors our management believes are necessary for an understanding of our financial statements. Revenues Net revenues from product sales consist of sales of CAPLYTA, which was approved by the FDA onDecember 2019 . We initiated the commercial launch of CAPLYTA in lateMarch 2020 and generated approximately$1.9 million and$2.8 million in net revenue from product sales for the three and six months endedJune 30, 2020 , respectively. In addition, we had approximately$31,000 and$232,000 of grant revenues for the three and six months endedJune 30, 2020 , respectively, compared to no grant revenue for the three and six months endedJune 30, 2019 . We have received and may continue to receive grants fromU.S. government agencies and foundations. We do not expect any revenues that we may generate in the next several years to be significant enough to fund our operations. Expenses The process of researching, developing and commercializing drugs for human use is lengthy, unpredictable and subject to many risks. We are unable with certainty to estimate either the costs or the timelines in which those costs will be incurred. The costs associated with the commercialization of CAPLYTA will be substantial and will be incurred prior to our generating sufficient revenue to offset these costs. Costs for the clinical development of lumateperone for the treatment of bipolar depression consumes and, together with our anticipated clinical development programs for depressive disorders and ITI-214, will continue to consume a large portion of our current, as well as projected, resources. We intend to pursue other disease indications that lumateperone may address, but there are significant costs associated with pursuing FDA approval for those indications, which would include the cost of additional clinical trials. Our ITI-002 program has a compound, ITI-214, in Phase 1/2 development. We intend to pursue the development of our PDE program, including ITI-214 for the treatment of several CNS and non-CNS conditions, including cardiovascular disease. We have ongoing development programs for ITI-214 for Parkinson's disease and for the treatment of heart failure. Our other projects are still in the preclinical stages, and will require extensive funding not only to complete preclinical testing, but to commence and complete clinical trials. Expenditures that we incur on these projects will be subject to availability of funding in addition to the funding required for the advancement of lumateperone. Any failure or delay in the advancement of lumateperone could require us to re-allocate resources from our other projects to the advancement of lumateperone, which could have a material adverse impact on the advancement of these other projects and on our results of operations. Our operating expenses are comprised of (i) costs of product sales; (ii) research and development expenses; (iii) general and administrative and (iv) selling expenses. Costs of product sales are comprised of:
• Direct costs of formulating, manufacturing and packaging drug product;
• Overhead costs consisting of labor, customs, stock based compensation,
shipping, outside inventory management and other miscellaneous operating
costs; and
• Royalty payments on product sales.
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Research and development costs are comprised of:
• internal recurring costs, such as costs relating to labor and fringe
benefits, materials, supplies, facilities and maintenance; and
• fees paid to external parties who provide us with contract services, such
as
pre-clinical
testing, manufacturing and related testing, clinical trial activities and
license milestone payments.
General and administrative expenses are incurred in three major categories:
• salaries and related benefit costs; • patent, legal, and professional costs; and • office and facilities overhead.
Selling expenses are incurred in three major categories:
• salaries and related benefit costs of a dedicated sales force; • sales operation costs; and • marketing and promotion expenses. Product sold throughJune 30, 2020 generally consisted of drug product that was previously charged to research and development expense prior to FDA approval of CAPLYTA. Because the Company previously expensed drug product, the cost of drug product sold is lower than it would have been and has a positive impact on our cost of product sales and related product gross margins for the three and six months endedJune 30, 2020 . The Company's reported cost of product sales as a percentage of product sales, net was 6.9% or approximately$129,000 for the three months endedJune 30, 2020 , and was 7.2% or approximately$198,000 for the six months endedJune 30, 2020 . Had direct and overhead costs not been previously recognized into research and development expense, the percentage would have been 10.4% or approximately$195,000 for the three months endedJune 30, 2020 and 11.8% or approximately$325,000 for the six months endedJune 30, 2020 . We will expect to continue to have this favorable impact on cost of product sales and related product gross margins until our sales of CAPLYTA include drug product that is manufactured after the FDA approval. We are currently unable to estimate how long it will be until we begin selling product manufactured post FDA approval. We expect that research and development expenses will increase moderately as we proceed with our Phase 3 clinical trials of lumateperone for the treatment of bipolar depression and depressive disorders, other clinical trials, increased manufacturing of drug product for clinical trials and pre-clinical development activities. We also expect that our selling , general and administrative costs will increase from prior periods primarily due to costs associated with building and maintaining infrastructure and promotional activities to support the commercial sales of CAPLYTA, which will include hiring additional personnel
and
increasing technological capabilities. OnSeptember 28 , 2018 , we signed a lease with a related party to acquire 15,534 square feet of additional office space in our current headquarters facility. We granted options to purchase 1,833,102 shares of our common stock in 2019 and have granted options to purchase an additional 782,237 shares of our common stock in the six months endedJune 30 , 2020 . We also granted time based restricted stock units, or RSUs, for 950,449 shares of our common stock in 2019 and time based RSUs for 1,003,006 shares of our common stock in the six months endedJune 30 , 2020 . We will recognize expense associated with these RSUs and options over three years in both research and development expenses and general and administrative expenses. In the first quarter of 2017 , we also granted performance based RSUs, which vest based on the achievement of certain milestones that include (i) the submission of an NDA with the FDA, (ii) the approval of the NDA by the FDA, or the Milestone RSUs, and (iii) the achievement of certain comparative shareholder returns against our peers, or the TSR RSUs. The Milestone RSUs were valued at the closing price onMarch 8 , 2017 . The RSUs related to the NDA submission were amortized throughDecember 31 , 2018 based on the probable vesting date. The NDA submission milestone was achieved in the third quarter of 2018 . The Milestone RSUs related to the NDA submission vested onDecember 31 , 2018 . The NDA approval milestone was achieved in the fourth quarter of 2019 . The Milestone RSUs related to the NDA approval vested onDecember 31 , 2019 . The TSR RSUs were valued using the Monte Carlo simulation method and were amortized over the life of the RSU's which vested onJanuary 24 , 2020 . In the first quarter of 2020 , we also granted performance based RSUs, which vest based on the achievement of certain milestones that include (i) the approval of a planned NDA by the FDA, or the 2020 Milestone RSUs, and (ii) the achievement of certain comparative shareholder returns against our peers, or the 2020 TSR RSUs. The 2020 Milestone RSUs were valued at the closing price onFebruary 18 , 2020 . The 2020 TSR RSUs were valued using the Monte Carlo simulation method. We expect to continue to grant stock options and other stock-based awards in the future, which with our growing employee base will increase our stock-based compensation expense in future periods. 24 -------------------------------------------------------------------------------- Table of Contents The following table sets forth our revenues, operating expenses, interest income and income tax expense for the three and six month periods endedJune 30, 2020 and 2019 (in thousands): For the Three Months For the Six Months Ended June 30, Ended June 30, 2020 2019 2020 2019 (Unaudited) (Unaudited) Revenues Product sales, net$ 1,876 $ -$ 2,758 $ - Grant revenue 31 - 232 - Total revenues, net 1,907 - 2,990 - Expenses Cost of product sales 129 - 198 - Research and development 25, 2 05 23,728 41,208 48,719
General and administrative 41,446 15,443 75,542
27,148 Total costs and expenses 66,780 39,171 116,948 75,867 Loss from operations (64,873 ) (39,171 ) (113,958 ) (75,867 ) Interest income 1,160 1,732 2,838 3,592 Income tax expense - (2 ) (3 ) (2 ) Net loss$ (63,713 ) $ (37,441 ) $ (111,123 ) $ (72,277 ) Comparison of Three and Six Month Periods EndedJune 30, 2020 andJune 30, 2019 Revenues Revenues for the three and six months endedJune 30, 2020 were approximately$1.9 million and$3.0 million , respectively, compared to$0 for the comparable periods in 2019. Net product sales were approximately$1.9 million and$2.8 million for the three and six months endedJune 30, 2020 , respectively, and were comprised of sales of CAPYLTA, which was approved by the FDA onDecember 20, 2019 and became available to wholesalers inMarch 2020 . No similar net product sales were recognized during the three and six months endedJune 30, 2019 . In addition, revenue from a government grant was approximately$31,000 and$232,000 for the three and six months endedJune 30, 2020 , respectively. Cost of Product Sales Cost of product sales was approximately$129,000 for the three months endedJune 30, 2020 . Cost of product sales consisted primarily of product royalty fees, overhead and minimal direct costs. Product sold during the three months endedJune 30, 2020 generally consisted of drug product that was previously charged to research and development expense prior to FDA approval of CAPLYTA. This minimal cost drug product had a positive impact on our cost of product sales and related product gross margins for the three months endedJune 30, 2020 . No similar cost of product sales was recognized during the three months endedJune 30, 2019 . Cost of product sales was approximately$198,000 for the six months endedJune 30, 2020 . Cost of product sales consisted primarily of product royalty fees, overhead and minimal direct costs. Product sold during the six months endedJune 30, 2020 generally consisted of drug product that was previously charged to research and development expense prior to FDA approval of CAPLYTA. This minimal cost drug product had a positive impact on our cost of product sales and related product gross margins for the six months endedJune 30, 2020 . No similar cost of product sales was recognized during the six months endedJune 30, 2019 . 25 -------------------------------------------------------------------------------- Table of Contents We will continue to have a lower cost of product sales that excludes the cost of the drug product that was incurred prior to FDA approval until our sales of CAPLYTA include drug product that is manufactured after the FDA approval. We expect that this will be the case for the near-term and as a result, our cost of product sales will be less than we anticipate it will be in future periods. Research and Development Expenses The following tables set forth our research and development expenses for the three and six month periods endedJune 30, 2020 and 2019 (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 External costs 18,075 16,127 27,081 33,930 Internal costs 7,130 7,601 14,127 14,789 Total research and development expenses$ 25,205 $ 23,728 $ 41,208 $ 48,719 Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Lumateperone costs 18,998 14,350 26,043 21,767 Manufacturing costs 621 5,999 3,294 11,859 Stock based compensation 2,741 2,354 5,041 4,762 Other projects and overhead 2,845 1,025 6,830 10,331
Total research and development expenses
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Research and development expenses increased to $25.2 million for the three month
period ended June 30, 2020 as compared to $23.7 million for the three month
period ended June 30, 2019 , representing an increase of approximately 6%. This
increase is due primarily to an increase of approximately $9.2 million of
lumateperone clinical costs and an increase of approximately $0.6 million in
stock compensation expense and overhead expenses.
This increase
is offset by a decrease of approximately $5.3 million of lumateperone
manufacturing costs, a decrease of approximately $3.0 million of costs for
lumateperone
non-clinical
efforts. For the quarter ending June 30, 2020 the Company recorded a change in
estimate of approximately $4.5 million of accrued expenses for clinical trials
related to the first quarter of 2020 which resulted in an increase of clinical
trial expense in the quarter ending June 30, 2020 . Manufacturing costs decreased
because production of lumateperone prior to FDA approval was expensed and
current production is now being capitalized. Internal costs decreased by
approximately $0.4 million for the period due to lower travel and other
operating costs.
Materially all of the research and development expense incurred for the three
and six month periods ended June 30, 2020 and 2019 related to lumateperone.
Research and development expenses decreased to $41.2 million for the six month
period ended June 30, 2020 as compared to $48.7 million for the six month period
ended June 30, 2019 , representing a decrease of approximately 15%. This decrease
is due primarily to a decrease of approximately $8.5 million in manufacturing
expense, and a decrease of approximately $3.5 million of
non-lumateperone
projects and overhead expenses and is offset by approximately $4.5 million of
costs associated with lumateperone clinical trials. Internal costs decreased by
approximately $0.7 million for the period due to lower bonus accrual, stock
compensation expense, travel and other operating costs.
As development of lumateperone progresses, we anticipate costs for lumateperone
to increase due primarily to ongoing and planned clinical trials relating to our
lumateperone programs in the next several years as we conduct Phase 3 and other
clinical trials. We are also required to complete
non-clinical
testing to obtain FDA approval and manufacture material needed for clinical
trial use, which includes
non-clinical
testing of the drug product and the creation of an inventory of drug product in
anticipation of possible FDA approval. We received FDA approval on December 20,
2019 for lumateperone
for the
treatment for schizophrenia in adults.
We currently have several projects, in addition to lumateperone, that are in the
research and development stages, including in the areas of cognitive dysfunction
and the treatment of neurodegenerative diseases, including AD, among others. We
have used internal resources and incurred expenses not only in relation to the
development of lumateperone, but also in connection with these additional
projects as well, including our PDE program. We have not, however, reported
these costs on a
project-by-project
basis, as these costs are broadly spread among these projects. The external
costs for these projects have been modest and are reflected in the amounts
discussed in this section "-Research and Development Expenses."
The research and development process necessary to develop a pharmaceutical
product for commercialization is subject to extensive regulation by numerous
governmental authorities in the United States and other countries. This process
typically takes years to complete and requires the expenditure of substantial
resources. The steps required before a drug may be marketed in the United States
generally include the following:
• completion of extensive
pre-clinical
laboratory tests, animal studies, and formulation studies in accordance
with the FDA's Good Laboratory Practice, or GLP, regulations;
• submission to the FDA of an Investigational New Drug application, or IND,
for human clinical testing, which must become effective before human
clinical trials may begin;
• performance of adequate and well-controlled human clinical trials to
establish the safety and efficacy of the drug for each proposed
indication;
• submission to the FDA of a New Drug Application, or NDA, after completion
of all clinical trials;
• satisfactory completion of an FDA
pre-approval
inspection of the manufacturing facility or facilities at which theactive pharmaceutical ingredient, or API, and finished drug product are
produced and tested to assess compliance with current Good Manufacturing
Practices, or cGMPs;
• satisfactory completion of FDA inspections of clinical trial sites to
assure that data supporting the safety and effectiveness of productcandidates has been generated in compliance with Good Clinical Practices;
and
• FDA review and approval of the NDA prior to any commercial marketing or
sale of the drug in
The successful development of our product candidates and the approval process
requires substantial time, effort and financial resources, and is uncertain and
subject to a number of risks. We cannot be certain that any of our product
candidates will prove to be safe and effective, will meet all of the applicable
regulatory requirements needed to receive and maintain marketing approval, or
will be granted marketing approval on a timely basis, if at all. Data from
pre-clinical
studies and clinical trials are susceptible to varying interpretations that
could delay, limit or prevent regulatory approval or could result in label
warnings related to or recalls of approved products. We, the FDA, or other
regulatory authorities may suspend clinical trials at any time if we or they
believe that the subjects
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participating in such trials are being exposed to unacceptable risks or if such
regulatory agencies find deficiencies in the conduct of the trials or other
problems with our product candidates. Other risks associated with our product
candidates are described in the section entitled "Risk Factors" in our Annual
Report on Form
10-K
for the year ended December 31, 2019 , as updated by the section entitled "Risk
Factors" in this Quarterly Report on Form
10-Q
and from time to time in our other periodic and current reports filed with the
SEC .
Selling, General and Administrative Expenses
Selling, general and administrative costs for the three month period ended
June 30, 2020 were $41.4 million as compared to $15.4 in the three-month period
ended June 30, 2019 which represents an increase of 168%. Below is a breakout of
these expenses into selling and general administrative costs for the periods.
General and administrative expenses were $13.1 million in the three month period
ended June 30, 2020 as compared to $7.7 million for the same period in 2019, an
increase of 70%. This increase is due to increased stock compensation expense of
$1.6 million , information technology costs of $1.5 million , professional fees of
$1.0 million , labor and bonus expense of $0.7 million , and the remainder on
insurance, lease expense, and other administrative expenses. Salaries, bonuses
and related benefit costs for our general and administrative functions for the
three months ended June 30, 2020 and 2019 constituted approximately 54% and 62%,
respectively, of our general and administrative costs.
Selling costs were $28.4 million for the three month period ended June 30, 2020
as compared to
pre-commercialization
costs of $7.8 million in the same period in 2019, or an increase of 265%. This
increase is primarily due to an increase in sales related labor costs of
$15.0 million and commercialization and marketing costs of $5.8 million .
Salaries, bonuses and related benefit costs for our sales and marketing
functions for the three months ended June 30, 2020 and 2019 constituted
approximately 57% and 14%, respectively, of our selling costs. We expect
selling, general and administrative costs to increase moderately from the second
quarter of 2020. We are expanding post approval marketing and market access
efforts as well as our administrative infrastructure.
Selling, general and administrative costs for the six month period ended
June 30, 2020 were $75.5 million as compared to $27.1 in the six month period
ended June 30, 2019 , which represents an increase of 178%.
General and administrative expenses for the six months ended June 30, 2020 were
$26.3 million in 2020 as compared to $14.2 for the same period in 2019, an
increase of 85%. This increase is due to increased professional fees of
$3.0 million , labor and bonus expense of $2.2 million , information technology
services of $3.1 million , stock compensation expense of $2.1 million , and the
remainder on insurance, lease expense, and other administrative expenses.
Salaries, bonuses and related benefit costs for our general and administrative
functions for the six months ended June 30, 2020 and 2019 constituted
approximately 51% and 64%, respectively, of our general and administrative
costs.
Selling costs were $49.2 million for the six month period ended June 30, 2020 as
compared to
pre-commercialization
costs of $12.9 million in the same period in 2019, or an increase of 281%. This
increase is primarily due to an increase in sales related labor costs of
$25.0 million and commercialization costs of $10.3 million . Salaries, bonuses
and related benefit costs for our sales and marketing functions for the six
months ended June 30, 2020 and 2019 constituted approximately 55% and 17%,
respectively, of our selling costs.
We expect selling, general and administrative costs to increase moderately in
the second half of 2020 as the onboarding of our sales force was completed
during the three months ended March 31, 2020 and we are expanding post approval
marketing and market access efforts as well as our administrative
infrastructure.
Liquidity and Capital Resources
Through June 30, 2020 , we provided funds for our operations by obtaining a total
of approximately $1.2 billion of cash primarily through public and private
offerings of our common stock and other securities, grants from government
agencies and foundations and payments received under a terminated license and
collaboration agreement. In the first half of 2020, we have collected
$1.3 million from sales of product, which we believe will increase going
forward. We do not believe that grant revenue will be a significant source of
funding in the near future.
On January 10, 2020 , we completed a public offering of 10,000,000 shares of our
common stock. All of the shares in the offering were sold by the Company, with
gross proceeds to the Company of $295.0 million and net proceeds of
approximately $277.0 million , after deducting underwriting discounts,
commissions and offering expenses.
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In June 2020 , we issued 230,000 shares of common stock under our
at-the-market
equity program generating $5.6 million in net proceeds which was received in
July 2020 . In the third quarter of 2020, we have issued an additional 512,791
shares of common stock utilizing the
at-the-market
program and received $12.3 million of net proceeds.
As of June 30, 2020 , we had a total of approximately $409.2 million in cash and
cash equivalents,
available-for-sale
investment securities and restricted cash, and approximately $40.2 million of
short-term liabilities consisting entirely of liabilities from operations,
including approximately $3.9 million of short-term lease obligations. In the six
months ended June 30, 2020 , we spent approximately $102.4 million in cash for
operations and equipment, not including an offset of $2.8 million of interest
income and $1.3 million of collected product sales. The use of cash was
primarily for selling and marketing costs in connection with our commercial
launch of CAPLYTA, conducting clinical trials and
non-clinical
testing, product manufacturing, and funding recurring operating expenses.
Based on our current operating plans, we expect that our existing cash, cash
equivalents and marketable securities will enable us to fund our operating
expenses and capital expenditure requirements for at least the next 12 months
from the filing date of this quarterly report. During that time, we expect that
our expenses will increase substantially due primarily to our commercialization
activities and related infrastructure expansion in connection with the
commercialization of CAPLYTA for the treatment of schizophrenia; the development
of lumateperone in our late stage clinical programs; the development of our
other product candidates, including
ITI-214;
the continuation of manufacturing activities for anticipated future sales of
product and in connection with the development of lumateperone; and general
operations.
For the remainder of the year 2020, we expect to spend up to $165 million
primarily related to the marketing and commercialization of CAPLYTA,
lumateperone clinical development including clinical trial conduct, regulatory
activities, manufacturing, expansion of our administrative infrastructure and
other development activities. Our other development activities will include
efforts related to our
ITI-214
and
ITI-333
programs, among others. However, the
COVID-19
pandemic may negatively impact our commercialization of CAPLYTA, our ability to
complete our ongoing or planned preclinical and clinical trials, our ability to
obtain approval of any product candidates from the FDA or other regulatory
authorities, and our workforce and therefore our research, development and
commercialization activities. This may ultimately have a material adverse effect
on our liquidity, although we are unable to make any prediction with certainty
given the rapidly changing nature of the pandemic and governmental and other
responses to it.
We will require significant additional financing in the future to continue to
fund our operations. We believe that we have the funding in place to
commercialize CAPLYTA in patients with schizophrenia. With our existing cash,
cash equivalents and
available-for-sale
investment securities, we believe that we have the funds to complete our ongoing
clinical trials of lumateperone in bipolar disorder as a monotherapy and as an
adjunctive therapy with lithium or valproate. We also plan to fund additional
clinical trials of lumateperone for the treatment of depressive
disorders and other CNS
disorders; preclinical and clinical development of our
ITI-007
long acting injectable development program; additional clinical trials of
lumateperone; continued clinical development of our PDE program, including
ITI-214;
research and preclinical development of our other product candidates; and the
continuation of manufacturing activities in connection with the development of
lumateperone. We anticipate requiring additional funds for further development
of lumateperone in patients with bipolar disorder, depressive disorders and
other indications, and for development of our other product candidates. We have
incurred losses in every year since inception with the exception of 2011, when
we received an
up-front
fee and a milestone payment related to a license agreement that has been
terminated. These losses have resulted in significant cash used in operations.
For the six months ended June 30, 2020 , we used net cash in operating activities
and purchases of equipment of approximately $102.4 million . This total does not
include an offset for $2.8 million of interest income received and $1.3 million
from product sales. While we have several research and development programs
underway, the lumateperone program has advanced the furthest and will continue
to consume increasing amounts of cash for conducting clinical trials and the
testing and manufacturing of product material. As we continue to conduct the
activities necessary to pursue FDA approval of lumateperone beyond schizophrenia
and our other product candidates, as well as commercialization efforts, we
expect the amount of cash to be used to fund operations to increase over the
next several years.
We seek to balance the level of cash, cash equivalents and investments on hand
with our projected needs and to allow us to withstand periods of uncertainty
relative to the availability of funding on favorable terms. Until we can
generate significant revenues from operations, we will need to satisfy our
future cash needs through public or private sales of our equity securities,
sales of debt securities, incurrence of debt from commercial lenders, strategic
collaborations, licensing a portion or all of our product candidates and
technology and, to a lesser extent, grant funding. On August 30, 2019 , we filed
a universal shelf registration statement on Form
S-3,
which was declared effective by the SEC on September 12, 2019 , on which we
registered for sale up to $350 million of any combination of our common stock,
preferred stock, debt securities, warrants, rights and/or units from time to
time and at prices and on terms that we may determine, which includes up to
$75 million of common stock that we may issue and sell from time to time,
through SVB Leerink LLC acting as our sales agent, pursuant to the sale
agreement that we entered into with SVB Leerink on August 29, 2019 for our
"at-the-market"
equity program. In the quarter ended June 30, 2020 , we issued 230,000 shares of
common stock under our
"at-the-market"
equity program which resulted in our receiving net proceeds of $5.6 million in
July 2020 . Subsequent to the quarter ended June 30, 2020 , we issued an
additional 512,791 shares of common
29
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Table of Contents
stock under our
"at-the-market"
equity program and received approximately $12.3 million of net proceeds. In
addition, on January 6, 2020 , we filed an automatic shelf registration statement
on Form
S-3
with the SEC , which became effective upon filing, on which we registered for
sale an unlimited amount of any combination of its common stock, preferred
stock, debt securities, warrants, rights, and/or units from time to time and at
prices and on terms that we may determine, so long as we continue to satisfy the
requirements of a "well-known seasoned issuer" under SEC rules. These
registration statements will remain in effect for up to three years from the
respective dates they became effective.
We cannot be sure that future funding will be available to us when we need it on
terms that are acceptable to us, or at all. We sell securities and incur debt
when the terms of such transactions are deemed favorable to us and as necessary
to fund our current and projected cash needs. The amount of funding we raise
through sales of our common stock or other securities depends on many factors,
including, but not limited to, the magnitude of sales of CAPLYTA, the status and
progress of our product development programs, projected cash needs, availability
of funding from other sources, our stock price and the status of the capital
markets. Due to the volatile nature of the financial markets, equity and debt
financing may be difficult to obtain. Additionally, the continued spread of
COVID-19
and uncertain market conditions may limit our ability to access any financing.
In addition, any unfavorable results in the commercialization of CAPLYTA and
unfavorable development or delay in the progress of our lumateperone program
could have a material adverse impact on our ability to raise additional capital.
To the extent that we raise additional capital through the sale of equity or
convertible debt securities, the ownership interest of our existing stockholders
will be diluted, and the terms may include liquidation or other preferences that
adversely affect the rights of our stockholders. Debt financing, if available,
may involve agreements that include covenants limiting or restricting our
ability to take specific actions, such as incurring debt, making capital
expenditures or declaring dividends. If we raise additional funds through
government or other third-party funding, marketing and distribution arrangements
or other collaborations, strategic alliances or licensing arrangements with
third parties, we may have to relinquish valuable rights to our technologies,
future revenue streams, research programs or product candidates or to grant
licenses on terms that may not be favorable to us.
If adequate funds are not available to us on a timely basis, we may be required
to: (1) delay, limit, reduce or terminate
pre-clinical
studies, clinical trials or other clinical development activities for one or
more of our product candidates, including our lead product candidate
lumateperone,
ITI-214,
and our other product candidates; (2) delay, limit, reduce or terminate our
discovery research or
pre-clinical
development activities; or (3) enter into licenses or other arrangements with
third parties on terms that may be unfavorable to us or sell, license or
relinquish rights to develop or commercialize our product candidates,
technologies or intellectual property at an earlier stage of development and on
less favorable terms than we would otherwise agree.
Our cash is maintained in checking accounts, money market accounts, money market
mutual funds, U.S. government agency securities, certificates of deposit,
commercial paper, corporate notes and corporate bonds at major financial
institutions. Due to the current low interest rates available for these
instruments, we are earning limited interest income. We do not expect interest
income to be a significant source of funding over the next several quarters. Our
investment portfolio has not been adversely impacted by the problems in the
credit markets that have existed over the last several years, but there can be
no assurance that our investment portfolio will not be adversely affected in the
future.
In 2014, we entered into a long-term lease with a related party which, as
amended, provided for a lease of 16,753 square feet of useable laboratory and
office space located at 430 East 29th Street , New York, New York 10016.
Concurrent with this lease, we entered into a license agreement to occupy
certain vivarium related space in the same facility for the same term, rent and
escalation provisions as the lease. This license has the primary characteristics
of a lease and is characterized as a lease in accordance with ASU
2016-02
for accounting purposes. In September 2018 , we further amended the lease to
obtain an additional 15,534 square feet of office space beginning October 1,
2018 and to extend the term of the lease for previously acquired space. The
lease, as amended, has a term of 14.3 years ending in May 2029 . In February
2019 , we entered into a long-term lease for 3,164 square feet of office space in
Towson, Maryland beginning March 1, 2019 . The lease has a term of 3.2 years
ending in April 2022 . We anticipate acquiring additional space in 2020 to
accommodate our commercial and infrastructure expansion which could result in a
moderate increase in facility costs. On May 17, 2019 , we entered into a vehicle
fleet lease with a company to acquire motor vehicles for certain employees. The
vehicle fleet lease provides for individual leases for the vehicles, which at
each lease commencement was determined to qualify for operating lease treatment.
We began leasing vehicles under the vehicle fleet lease in March 2020 .
Off-Balance
Sheet Arrangements
We do not have any
off-balance
sheet arrangements.
30-------------------------------------------------------------------------------- Table of Contents Critical Accounting Policies and Estimates Our critical accounting policies are those policies which require the most significant judgments and estimates in the preparation of our condensed consolidated financial statements. We evaluate our estimates, judgments, and assumptions on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions. A summary of our critical accounting policies is presented in Part II, Item 7, of our Annual Report on Form 10-K for the year endedDecember 31, 2019 and Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. There have been no material changes to our critical accounting policies during the three and six months endedJune 30, 2020 . With the launch of product sales during the first quarter of 2020, the accounting policy for revenue recognition, which was previously developed, was implemented. The discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States , orU.S. GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses for the periods presented. Judgments must also be made about the disclosure of contingent liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management makes estimates and exercises judgment in research and development, including clinical trial accruals. Actual results may differ from those estimates and under different assumptions or conditions. Recently Issued Accounting Pronouncements We review new accounting standards to determine the expected financial impact, if any, that the adoption of each such standard will have. For the recently issued accounting standards that we believe may have an impact on our financial statements, see "Recently Issued Accounting Standards" in Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, and "Recently Issued Accounting Standards" in Note 2 to our audited consolidated financial statements and "Recently Issued Accounting Pronouncements" in our Annual Report on Form 10-K for the year endedDecember 31, 2019 filed onMarch 2, 2020 . Certain Factors That May Affect Future Results of Operations TheSEC encourages companies to disclose forward-looking information so that investors can better understand a company's future prospects and make informed investment decisions. This Quarterly Report on Form 10-Q contains such "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other important factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about: the accuracy of our estimates regarding expenses, future revenues, uses of cash, cash equivalents and investment securities, capital requirements and the need for additional financing; our expectations regarding our commercialization of CAPLYTA, including the impact of COVID-19 on the commercialization of CAPLYTA and our ability to adapt our approach as appropriate; the duration and severity of the COVID-19 pandemic and its impact on our business; the supply and availability of and demand for our product, the initiation, cost, timing, progress and results of our development activities, non-clinical studies and clinical trials; the timing of and our ability to obtain and maintain regulatory approval, or submit an application for regulatory approval, of lumateperone and our other existing product candidates, any product candidates that we may develop, and any related restrictions, limitations, and/or warnings in the label of any approved product candidates; our plans to research, develop and commercialize lumateperone and our other current and future product candidates; the election by any collaborator to pursue research, development and commercialization activities; our ability to obtain future reimbursement and/or milestone payments from our collaborators; our ability to attract collaborators with development, regulatory and commercialization expertise; our ability to obtain and maintain intellectual property protection for our product candidates; our ability to successfully commercialize lumateperone and our other product candidates; the performance of our third-party suppliers and manufacturers and our ability to obtain alternative sources of raw materials; our ability to obtain additional financing; our use of the proceeds from our securities offerings; our exposure to investment risk, interest rate risk and capital market risk; and our ability to attract and retain key scientific or management personnel. Words such as "may," "anticipate," "estimate," "expect," "may," "project," "intend," "plan," "believe," "potential," "predict," "project," "likely," "will," "would," "could," "should," "continue" and words and terms of similar substance used in connection with any discussion of future operating or financial performance, identify forward-looking statements. All forward-looking statements are management's present expectations of future events and are subject to a number of risks and uncertainties that could cause actual results to differ materially and adversely from those described in the forward-looking statements. These risks include, but are not limited to, the following: there are no guarantees that CAPLYTA will be commercially successful; we may encounter issues, delays or 31
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Table of Contents other challenges in commercializing CAPLYTA; the COVID-19 pandemic may negatively impact our commercial plans and sales for CAPLYTA; the COVID-19 pandemic may negatively impact the conduct of, and the timing of enrollment, completion and reporting with respect to, our clinical trials, whether CAPLYTA receives adequate reimbursement from third-party payers; the degree to which CAPLYTA receives acceptance from patients and physicians for its approved indication; challenges associated with execution of our sales activities, which in each case could limit the potential of our product; results achieved in CAPLYTA in the treatment of schizophrenia following commercialization may be different than observed in clinical trials, and may vary among patients; any other impacts on our business as a result of or related to the COVID-19 pandemic; risks associated with our current and planned clinical trials; we may encounter unexpected safety or tolerability issues with CAPLYTA for the treatment of schizophrenia or in ongoing or future trials and other development activities; our other product candidates may not be successful or may take longer and be more costly than anticipated; product candidates that appeared promising in earlier research and clinical trials may not demonstrate safety and/or efficacy in larger-scale or later clinical trials; our proposals with respect to the regulatory path for our product candidates may not be acceptable to the FDA; our reliance on collaborative partners and other third parties for development of our product candidates; and the other risk factors detailed under the heading "Risk Factors" in our most recent Annual Report on Form 10-K, as updated under the heading "Risk Factors" from time to time in our subsequent periodic and current reports filed with theSEC . In light of these assumptions, risks and uncertainties, the results and events discussed in the forward-looking statements contained in this Quarterly Report on Form 10-Q or in any document incorporated by reference might not occur. Stockholders are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We are not under any obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. All subsequent forward-looking statements attributable to the Company or to any person acting on its behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.
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