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 on March 1, 2022. 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 on March 1, 2022, as updated from time to time in our subsequent periodic
and current reports filed with the SEC.

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. In December 2019, CAPLYTA (lumateperone) was approved by
the U.S. Food and Drug Administration, or FDA, for the treatment of
schizophrenia in adults (42mg/day) and we initiated the commercial launch of
CAPLYTA in late March 2020. In support of our commercialization efforts, we
employ a national sales force. In December 2021, CAPLYTA was approved by the FDA
for the treatment of bipolar depression in adults (42mg/day). CAPLYTA is the
only
FDA-approved
treatment for depressive episodes associated with bipolar I or II disorder
(bipolar depression) in adults as monotherapy and as adjunctive therapy with
lithium or valproate. We initiated the commercial launch of CAPLYTA for the
treatment of bipolar depression in late December 2021. In support of the
commercial launch of lumateperone for the treatment of bipolar depression, we
have expanded our sales force from approximately 240 sales representatives to
approximately 320 sales representatives. In addition, in April 2022, the FDA
approved two new dosage strengths of CAPLYTA, 10.5 mg and 21 mg capsules, to
provide dosage recommendations for patients concomitantly taking strong or
moderate CYP3A4 inhibitors, and 21 mg for patients with moderate or severe
hepatic impairment (Child-Pugh class B or C). As used in this report, "CAPLYTA"
refers to lumateperone approved by the FDA for the treatment of schizophrenia in
adults and for the treatment of bipolar depression in adults, and "lumateperone"
refers to, where applicable, CAPLYTA as well as lumateperone for the treatment
of indications beyond schizophrenia and bipolar depression.

Lumateperone is in Phase 3 clinical development as a novel treatment for major depressive disorder, or MDD. Patient enrollment in Study 501 and Study 502, our global Phase 3 clinical trials evaluating lumateperone 42 mg as an adjunctive therapy to antidepressants for the treatment of MDD is ongoing. We expect to file an sNDA with the FDA for approval of lumateperone as an adjunctive therapy to antidepressants for the treatment of MDD in 2024. In the first quarter of 2020, as part of our lumateperone bipolar depression clinical program, 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. Following the positive results in our adjunctive study that was part of our bipolar depression clinical program, Study 402, we amended Study 403 to evaluate major depressive episodes with mixed features in bipolar disorder in patients with bipolar I or bipolar II disorder and mixed features in patients with MDD. We expect to complete Study 403 in the second half of 2022 and following completion we intend to discuss the results with the FDA to determine whether Study 403, as amended, will provide supportive data for a potential future regulatory filing for this indication.



We have also initiated a Phase 3 study evaluating lumateperone for the
prevention of relapse in patients with schizophrenia. The study is being
conducted in five phases consisting of a screening phase, a
6-week,
open-label
run-in
phase during which all patients will receive 42 mg of lumateperone per day, a
12-week,
open-label stabilization phase during which all patients will receive 42 mg of
lumateperone per day; a double-blind treatment phase 26 weeks in duration during
which patients receive either 42 mg of lumateperone per day or placebo (1:1
ratio) and a
2-week
safety
follow-up
phase. This study is being conducted in accordance with our post approval
marketing commitment to the FDA in connection with the approval of CAPLYTA for
the treatment of schizophrenia as is typical for antipsychotics.

Within the lumateperone portfolio, we are also developing a long-acting injectable, or LAI, formulation to provide more treatment options to patients suffering from mental illness. We have completed the preclinical development of an LAI formulation, and in December 2020, we initiated a Phase 1 single ascending dose study of lumateperone LAI, a formulation of lumateperone designed to be administered subcutaneously and to maintain therapeutic levels of lumateperone for at least one month. This study is evaluating the pharmacokinetics, safety and tolerability of lumateperone LAI in patients with stable symptoms of schizophrenia. We are now exploring alternate sites of injection with this formulation as well as progressing other formulations. This will assist us in evaluating dosing strategies and formulation for our efficacy studies. The goal of our program is to develop LAI formulations that are effective, safe and well-tolerated with treatment durations of one month and longer. Given the encouraging tolerability data to date with oral lumateperone, we believe that an LAI option, in particular, may lend itself to being an important formulation choice for certain patients.



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We are developing
ITI-1284-ODT-SL
for the treatment of behavioral disturbances in patients with dementia, the
treatment of dementia-related psychosis and for the treatment of certain
depressive disorders in the elderly.
ITI-1284-ODT-SL
is a deuterated form of lumateperone, a new molecular entity formulated as an
oral disintegrating tablet for sublingual administration.
ITI-1284-ODT-SL
is formulated as an oral solid dosage form that dissolves almost instantly when
placed under the tongue, allowing for ease of use in the elderly and may be
particularly beneficial for patients who have difficulty swallowing conventional
tablets. Phase 1 single and multiple ascending dose studies in healthy
volunteers and healthy elderly volunteers (> than 65 years of age) evaluated the
safety, tolerability and pharmacokinetics of
ITI-1284-ODT-SL.
In these studies, there were no reported serious adverse events in either age
group. In the elderly cohort, reported adverse events were infrequent with the
most common adverse event being transient dry mouth (mild). Based on these
results, we have initiated our program evaluating
ITI-1284-ODT-SL
for the treatment of agitation in patients with probable Alzheimer's disease. We
are in discussions with the FDA regarding the
non-clinical
toxicological profile of
ITI-1284-ODT-SL.
The FDA has informed us that they do not believe the deuterated and undeuterated
forms of lumateperone are identical. As a result, the
non-clinical
data from lumateperone may not be broadly applied to
ITI-1284-ODT-SL
and we may be required to conduct additional toxicology studies in
non-rodent
species. This could delay the commencement of our clinical program. We expect to
commence clinical conduct in this program in 2022. Additional studies in
dementia-related psychosis and certain depressive disorders in the elderly are
also planned for late 2022 or early 2023.

We have another major program that has yielded a portfolio of compounds that
selectively inhibit the enzyme phosphodiesterase type 1, or PDE1. PDE1 enzymes
are highly active in multiple disease states and our PDE1 inhibitors are
designed to reestablish normal function in these disease states. Abnormal PDE1
activity is associated with cellular proliferation and activation of
inflammatory cells. Our PDE1 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 aberrant immune system activation in several
CNS
and non-CNS conditions
with a focus on diseases where excessive PDE1 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, cancers and
other non-CNS disorders. Lenrispodun (ITI-214)
is our lead compound in this program. Following the favorable safety and
tolerability results in our Phase 1 program, we initiated our development
program for lenrispodun for Parkinson's disease and commenced patient enrollment
in the third quarter of 2017 in a Phase 1/2 clinical trial of lenrispodun 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 lenrispodun had been completed and topline results
demonstrated lenrispodun was generally well-tolerated with a favorable safety
profile and clinical signs consistent with improvements in motor symptoms and
dyskinesias. We have initiated our Phase 2 clinical program with lenrispodun for
Parkinson's disease and expect to commence patient enrollment in the first half
of 2022. 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 lenrispodun in
patients with chronic systolic heart failure with reduced ejection fraction. In
this study, lenrispodun 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 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. Lenrispodun, which
acts through a novel mechanism of action, was not associated with arrhythmias in
this study and was generally well-tolerated in all patients.

We also have a development program with
our ITI-333 compound
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 for safe, effective,
non-addictive
treatments to manage pain.
ITI-333
is a novel compound that uniquely combines activity as an antagonist at
serotonin 5-HT2A receptors
and a partial agonist at µ-opioid receptors. These combined actions support the
potential utility
of ITI-333 in
the treatment of opioid use disorder and associated comorbidities (e.g.,
depression, anxiety, sleep disorders) without opioid-like safety and
tolerability concerns. In December 2020, we initiated a Phase 1 single ascending
dose study evaluating the safety, tolerability and pharmacokinetics of
ITI-333
in healthy volunteers. This study was recently completed and
ITI-333
achieved plasma exposures at or above those required for efficacy and was
generally safe and well-tolerated. We have received a grant from the National
Institute on Drug Abuse under the Helping to End Addiction Long-term Initiative,
or NIH HEAL Initiative, that we expect will fund a significant portion of the
early stage clinical development costs associated with this program.

We have assembled a management team with significant industry experience to lead the commercialization of our product and 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, bipolar depression and other CNS disorders.



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COVID-19



In December 2019, a novel strain of
coronavirus, SARS-CoV-2,
which causes coronavirus disease 2019, or
COVID-19,
surfaced in Wuhan, China. Since then,
SARS-CoV-2
and
COVID-19
have spread to countries worldwide, including the United States. The
COVID-19
pandemic continues to evolve, and to date has led to the implementation of
various responses, including government-imposed quarantines, travel restrictions
and other public health safety measures. As a result of the
COVID-19
pandemic, or similar pandemics, we may experience disruptions that could
severely impact our business, including our ability to successfully
commercialize our only commercial product, CAPLYTA, in the United States, and
these disruptions could negatively impact our sales of CAPLYTA. Depending on the
severity of the pandemic, our commercial organization, sales force and medical
organization may have significantly reduced personal interactions with
physicians and customers and may need to conduct many promotional activities
virtually, and we may elect to cease
in-person
interactions with physicians and customers entirely for some period of time in
the interest of employee and community safety. In addition, this could result in
a decrease in the number of patient visits to healthcare providers. Business
interruptions from the current or future pandemics may also adversely impact the
third parties we rely on to sufficiently manufacture CAPLYTA and to produce our
product candidates in quantities we require, which may impair the
commercialization and our research and development activities.

We conduct clinical trials for our product candidates in many countries and
regions, including the United States and Europe and may expand to other
geographies. Timely enrollment of, completion of and reporting on our clinical
trials is dependent upon these global clinical trial sites which are, or in the
future may be, adversely affected by
the COVID-19 pandemic
or other pandemics. Some factors from the
COVID-19
pandemic that have or may adversely affect the timing and conduct of our
clinical trials and adversely impact our business generally, include but are not
limited to delays or difficulties in clinical site initiation, patient
enrollment, diversion of healthcare resources away from clinical trials to
pandemic concerns, limitations on travel, regulatory delays and supply chain
disruptions.

In response to the
COVID-19
pandemic, in March 2020, the FDA announced its intention to temporarily postpone
most inspections of foreign manufacturing facilities and products, as well as
routine surveillance inspections of domestic manufacturing facilities, and it
also provided guidance regarding the conduct of clinical trials, which has been
further updated several times since that time. In
mid-2020,
the FDA noted it was continuing to ensure timely reviews of applications for
medical products during the
COVID-19
pandemic in line with its user fee performance goals and conducting
mission-critical domestic and foreign inspections to ensure compliance of
manufacturing facilities with FDA quality standards. The FDA subsequently
publicized its development and use of an internal rating system, called the
COVID-19
Advisory Rating system, to assist in determining when and where it is safest to
conduct such inspections based on data about the virus's trajectory in a given
country, state and locality and the rules and guidelines that are put in place
by foreign, state and local governments. As of October 2021, FDA is either
continuing to, on a
case-by-case
basis, conduct only "mission-critical" inspections, or, where possible to do so
safely, resuming prioritized domestic inspections, which generally include
pre-approval
inspections, or PAIs. Foreign PAIs that are not deemed mission-critical remain
postponed, while those deemed mission-critical will be considered for inspection
on a
case-by-case
basis. FDA will use similar data to inform resumption of other prioritized
operations abroad as it becomes feasible and advisable to do so.

During the global response to the
COVID-19
pandemic, moreover, there have been strategic redeployments of government
resources to priority projects, including FDA and EMA resources and staff, which
could have an impact on the timeline for review and approval of new marketing
applications. Over the course of the pandemic, FDA's new drug review programs
continued to meet key performance goals related to working with applicants and
approving NDAs and NDA supplements, although the agency has also stated that the
uncertainty of the
COVID-19
situation may make it difficult to sustain that level of performance
indefinitely. The FDA may not be able to maintain its normal pace with respect
to new drug applications and delays or setbacks are possible in the future. The
FDA has told industry that it intends to be as transparent as possible about its
workload and performance metrics as the situation evolves, and also that it
intends to communicate proactively with applicants during the review cycle
regarding the need for a
pre-approval
inspection and whether such PAI is considered "mission-critical."

Should FDA determine that a PAI is necessary for approval of an NDA or NDA supplement and such an inspection cannot be completed during the review cycle due to restrictions on travel or other safety protocols, FDA has stated that it generally intends to issue a complete response letter. Further, if there is inadequate information to make a determination on the acceptability of a facility, FDA may defer action on the application until an inspection can be completed. Such decisions will be based on the totality of the information available to the FDA, including considerations of whether it can obtain existing inspection reports from trusted foreign regulatory partners through mutual recognition and confidentiality agreements and/or secure additional records from the applicant, the manufacturing facility, or other inspected entities. Accordingly, FDA has encouraged applicants to effectively communicate with all of their facilities and sites to ensure timely responses to any inquiries from FDA for information needed to support its assessment of pending drug applications. FDA has also stated that it is using all available tools and sources of information to support regulatory decisions on NDAs such as the historical compliance status of a manufacturing facility and other risk-benefit considerations pertaining to the proposed new drug product and its manufacturing process and facilities. In addition, whether or not FDA considers a facility inspection to be "mission-critical" involves several factors related to the public health benefits of the proposed new drug product,



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including but not limited to whether the candidate has been granted breakthrough
therapy designation and whether the candidate is intended to treat or prevent a
serious disease or medical condition for which there is no other appropriate
substitute. Regulatory authorities outside the United States, including but not
limited to the EMA, may adopt similar restrictions or other policy measures in
response to
the COVID-19
pandemic.

The COVID-19 pandemic continues to rapidly evolve, and the severity and duration of the pandemic remain uncertain. The extent to which the pandemic impacts our business, including our commercial results, clinical trials, and preclinical studies will depend on future developments, which are highly uncertain.

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 for the treatment of schizophrenia in adults in December 2019 and for the treatment of bipolar depression in adults in December 2021. We initiated the commercial launch of CAPLYTA in late March 2020. During the three months ended March 31, 2022 and 2021, net sales increased from approximately $15.6 million for the three-month period ended March 31, 2021 to approximately $34.8 million for the three-month period ended March 31, 2022. In addition, we had approximately $0.2 million of grant revenues for the three-month period ended March 31, 2022, compared to approximately $0.3 million of grant revenues for the three-month period ended March 31, 2021. We have received and may continue to receive grants from U.S. government agencies and foundations.

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 are substantial and will be incurred prior to our generating sufficient revenue to offset these costs. Costs for the clinical development of lumateperone-related projects, including for the treatment of MDD, consumes and, together with our other anticipated clinical development programs, 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 PDE,
ITI-1284
and
ITI-333
development programs are currently in clinical stage development. Our other
programs are still in the preclinical stages and will require extensive funding
not only to complete preclinical testing, but also to commence and complete
clinical trials. Expenditures that we incur on these programs 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 programs to the advancement of lumateperone, which
could have a material adverse impact on the advancement of these other programs
and on our results of operations.

Our operating expenses are comprised of (i) costs of product sales; (ii) research and development expenses; (iii) selling expenses; and (iv) general and administrative expenses.

Costs of product sales are comprised of:



  •   direct costs of formulating, manufacturing and packaging drug product;



     •    overhead costs consisting of labor, customs, share-based compensation,
          shipping, outside inventory management and other miscellaneous operating
          costs; and



  •   royalty payments on product sales.

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.



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Selling expenses are incurred in three major categories:



  •   salaries and related benefit costs of a dedicated sales force;



  •   sales operation costs; and



  •   marketing, promotional and advertising expenses.

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.


Product sold through March 31, 2022 consisted of drug product that was
previously charged to research and development expense prior to FDA approval of
CAPLYTA and other direct, indirect, and overhead costs required to make final
product for sale. Because the Company's policy does not allow for the
capitalization of
pre-approval
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 for the three-month periods ended
March 31, 2022 and 2021. The Company's reported cost of product sales as a
percentage of product sales, net was 9.1% or approximately $3.2 million for the
three-month period ended March 31, 2022, as compared to 9.3% or approximately
$1.5 million for the three-month period ended March 31, 2021, of which more than
half related to royalty payments accrued to BMS.

We 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 entirely after the FDA approval. We are currently unable to estimate how long it will be until we begin selling product entirely manufactured post FDA approval.



We expect that research and development expenses will increase as we proceed
with our clinical trials, including 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 promotional activities to support the commercial sales of
CAPLYTA as well as costs associated with building and maintaining
infrastructure, which will include hiring additional personnel and increasing
technological capabilities. We granted significant share-based awards in 2021
and 2022. We expect to continue to grant share-based awards in the future due to
our growing employee base, which will increase our share-based compensation
expense in future periods.

The following table sets forth our revenues, operating expenses, interest income
and income tax expense for the three-month periods ended March 31, 2022 and 2021
(in thousands):

                                        For the Three Months
                                           Ended March 31,
                                         2022           2021

                                             (Unaudited)
Revenues
Product sales, net                    $   34,755      $  15,579
Grant revenue                                241            299

Total revenues, net                       34,996         15,878
Expenses
Cost of product sales                      3,155          1,455
Research and development                  29,043         15,058

Selling, general and administrative 75,460 52,584



Total costs and expenses                 107,658         69,097

Loss from operations                     (72,662 )      (53,219 )
Interest income                              548            484
Income tax expense                             ( )
                                               5             (5 )

Net loss                              $  (72,119 )    $ (52,740 )




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Comparison of Three-Month Periods Ended March 31, 2022 and March 31, 2021

Total Revenues, Net

Total revenues, net for the three-month period ended March 31, 2022 were approximately $35.0 million compared to $15.9 million for the three-month period ended March 31, 2021. Net product sales were approximately $34.8 million for the three-month period ended March 31, 2022 and $15.6 million for the three-month period ended March 31, 2021. Net product revenue in 2021 were comprised of sales of CAPLYTA for the treatment of schizophrenia, while net product revenue in 2022 was comprised of sales of CAPLYTA for the treatment of schizophrenia and bipolar depression. In addition, revenue from a government grant was approximately $0.2 million and $0.3 million for the three-month period ended March 31, 2022 and 2021, respectively.

Cost of Product Sales

Cost of product sales was approximately $3.2 million and $1.5 million for the three-month period ended March 31, 2022 and 2021, respectively. Cost of product sales consisted primarily of product royalty fees, overhead and direct costs. Product sold through March 31, 2022 consisted of drug product that was previously charged to research and development expense prior to FDA approval of CAPLYTA and other direct, indirect and overhead costs required to make final product for sale. This minimal cost drug product had a positive impact on our cost of product sales and related product gross margins for the three-month period ended March 31, 2022 and 2021.

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 entirely 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-month periods ended March 31, 2022 and 2021 (in thousands):



                                             Three Months Ended March 31,
                                               2022                 2021
External costs                                    19,293                7,312
Internal costs                                     9,750                7,746

Total research and development expenses $ 29,043 $ 15,058



Lumateperone costs                                17,473                8,527
Non-lumateperone
project costs                                      9,007                3,688
Stock based compensation                           2,371                2,322
Overhead                                             192                  521

Total research and development expenses $ 29,043 $ 15,058





Research and development expenses increased to $29.0 million for the three-month
period ended March 31, 2022 as compared to $15.1 million for the three-month
period ended March 31, 2021, representing an increase of approximately
$13.9 million, or 93%. This increase is due primarily to an increase of
$8.9 million for lumateperone clinical trial and other costs, and approximately
$5.3 million for other projects including the
ITI-1284,
ITI-214,
and
ITI-333
programs, among others, and is offset by a decrease of approximately
$0.3 million of overhead costs. Internal costs increased by approximately $2.0
million for the period due primarily to labor related costs and share-based
compensation.

As the development of lumateperone and
non-lumateperone
progress, we anticipate research and development costs to increase moderately
due primarily to
pre-clinical
testing and conducting ongoing and planned Phase 1, 2, 3 and other clinical
trials in the next several years. 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 manufacturing of drug product in anticipation
of possible additional FDA approvals of lumateperone for indications beyond
schizophrenia and bipolar depression.

We currently have several projects, in addition to lumateperone, that are in the
research and development stages. 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 table above
in this section "-
Research and Development Expenses
."

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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 the
          active 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 product
          candidates 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 United States.


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 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, 2021, 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 March 31, 2022 were $75.5 million as compared to $52.6 million in the three-month period ended March 31, 2021, which represents an increase of 44%, which was due to an increase in selling costs and an increase in general and administrative expenses as discussed below.

Selling costs were $56.1 million for the three-month period ended March 31, 2022 as compared to selling costs of $38.3 million in the same period in 2021, which represents an increase of 46%. This increase is primarily due to increased sales related labor costs of approximately $7.6 million, $6.5 million in commercialization, marketing and advertising expenses, and approximately $3.6 million in travel and other costs. Salaries, bonuses and related benefit costs for our sales and marketing functions for the three months ended March 31, 2022 and 2021 constituted approximately 43% and 40%, respectively, of our selling costs.

General and administrative expenses were $19.4 million in the three-month period ended March 31, 2022 as compared to $14.3 million for the same period in 2021, an increase of 36%. This increase is primarily due to increases in stock-based compensation of $1.3 million, labor related costs of approximately $0.9 million, approximately $1.0 million in IT costs, and the remainder for insurance, professional fees, and other expenses. Salaries, bonuses and related benefit costs for our general and administrative functions for the three months ended March 31, 2022 and 2021 constituted approximately 53% and 57%, respectively, of our general and administrative costs.

We expect selling, general and administrative costs to increase moderately in 2022 as compared to 2021. We are expanding marketing, promotional, and advertising costs and increasing efforts to educate physicians, expand market access, and enhance our administrative infrastructure.



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Liquidity and Capital Resources

From inception through March 31, 2022, we have financed the Company primarily through the issuance of public and private offerings of our common stock and other securities, and to a far lesser extent, through proceeds from grants from government agencies and foundations. Through March 31, 2022, we have collected approximately $136.9 million from product sales of CAPLYTA, which we believe will increase going forward. We do not believe that grant revenue will be a significant source of funding in the future.

On January 7, 2022, the Company completed a public offering of common stock in which the Company sold 10,952,381 shares of common stock at a public offering price of $42.00 per share for aggregate gross proceeds of $460.0 million. After deducting underwriting discounts, commissions and offering expenses, the net proceeds to the Company were approximately $433.7 million.



As of March 31, 2022, we had a total of approximately $773.2 million in cash and
cash equivalents,
available-for-sale
investment securities and restricted cash, and approximately $59.1 million of
short-term liabilities consisting entirely of liabilities from operations,
including approximately $7.6 million of short-term lease obligations. In the
three months ended March 31, 2022, we spent approximately $116.8 million in cash
for operations and equipment. During this period, we collected $32.7 million
from product sales and $0.5 million of interest income, resulting in net cash
used of $82.8 million. The use of cash was primarily for selling and marketing
costs in connection with our commercialization of CAPLYTA, conducting clinical
trials and
non-clinical
testing, funding recurring operating expenses, and product manufacturing.

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 the commercialization
of CAPLYTA for the treatment of schizophrenia and bipolar depression; 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 product
sales and in connection with the development of lumateperone; and infrastructure
expansion and general operations.

For the remainder of 2022, we expect to spend up to $385 million primarily
relating to the marketing and commercialization of CAPLYTA, lumateperone
clinical development including clinical trial conduct, regulatory activities,
manufacturing and inventory production, expansion of our administrative
infrastructure and other development activities. Our other development
activities will include efforts relating to our
ITI-1284,
lenrispodun
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 nonclinical 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 may require 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 and bipolar depression. 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; clinical development of
ITI-1284,
continued clinical development of our PDE product candidates, including
lenrispodun; research and preclinical 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.

In the three months ended March 31, 2022, we spent approximately $116.8 million in cash for operations and equipment. We have sources of cash which included $32.7 million of collected product sales and $0.5 million of interest income, resulting in net cash used in operations of $82.8 million. 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. As we continue to conduct the activities necessary to pursue FDA approval of lumateperone beyond schizophrenia and bipolar depression 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. Subject to our
ability to generate significant revenues from operations, we may 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 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. This
registration statement will remain in effect for up to three years from the date
it became effective.

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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 nonclinical studies, clinical trials
or other clinical development activities for one or more of our product
candidates, including our lead product candidate lumateperone, lenrispodun, and
our other product candidates; (2) delay, limit, reduce or terminate our
discovery research or
pre-clinical
development activities; (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; or (4) limit or reduce commercialization
efforts related to CAPLYTA.

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 recent history of low interest rates available for these instruments, we have been earning limited interest income. During the three -months ended March 31, 2022, interest rates have risen. This trend has resulted in approximately $3.3 million of unrealized loss on investments during the three months ended March 31, 2022. We believe due to the short-term nature of these investments; we do not expect to recognize these losses. Even with the rise or further potential rise in interest rates, we do not expect interest income to be a significant source of funding over the next several quarters. In addition, our investment portfolio historically has not been adversely impacted by problems in the credit markets, 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 Towson lease had a term of 3.2 years ending in April 2022. In April 2022, we amended the lease to obtain an additional 736 square feet of office space beginning May 1, 2022 and to extend the term of the lease for the previously acquired space. The Towson lease, as amended, has a term of four years ending in April 2026. 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. Restricted cash of $1.4 million on our condensed consolidated balance sheet as of March 31, 2022 and 2021 relates to a letter of credit issued as part of the vehicle fleet lease.



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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 ended December 31, 2021. There have been no material changes to our critical accounting policies during the three months ended March 31, 2022.

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 in the United States, or U.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 "Recent Accounting Pronouncements" 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 Part II,
Item 7, in our Annual Report on
Form 10-K
for the year ended December 31, 2021 filed on March 1, 2022.

Certain Factors That May Affect Future Results of Operations



The SEC 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,
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, management, or sales and marketing 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 and uncertainties include, but are not limited to, the
following: there are no guarantees that CAPLYTA will be commercially successful;
we may encounter issues, delays or 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 payors; the degree to which
CAPLYTA receives acceptance from patients and physicians for its approved
indications; 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 and bipolar depression following
commercial launch of the product may be

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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; challenges associated with supply and manufacturing activities, which
in each case could limit our sales and the availability of our product; impacts
on our business, including on the commercialization of CAPLYTA and our clinical
trials, as a result of the conflict in Ukraine; risks associated with our
current and planned clinical trials; we may encounter unexpected safety or
tolerability issues with CAPLYTA following commercial launch for the treatment
of schizophrenia or bipolar depression 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 or in clinical
trials for other indications; 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,
commercialization, manufacturing or supply of our product and 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 the SEC.

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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