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INTRA-CELLULAR THERAPIES, INC.

(ITCI)
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INTRA-CELLULAR THERAPIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

08/09/2022 | 07:49am EDT
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 clinical
conduct in Study 403 in late 2022 and, following completion of data analysis, we
expect to report topline results in the first quarter of 2023. Following
completion of Study 403, we intend to discuss the results with the FDA to
determine whether this study 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 we have conducted a Phase 1 single ascending dose study
with this formulation. This study evaluated 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 are conducting additional toxicology studies and we expect to commence
clinical conduct in a Phase 2 study in agitation in patients with probable
Alzheimer's disease in 2023. Additional studies in dementia-related psychosis
and certain depressive disorders in the elderly are also planned for 2023. We
are continuing with Phase 1 studies with
ITI-1284-ODT-SL
including drug-drug interaction studies.

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 conducted 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 this study 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 second half of 2022.
In addition, we have conducted 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. We have conducted a Phase 1 single ascending dose study
evaluating the safety, tolerability and pharmacokinetics of
ITI-333
in healthy volunteers. In this study
ITI-333
achieved plasma exposures at or above those required for efficacy and was
generally safe and well-tolerated. We have commenced a neuroimaging study to
investigate brain occupancy for receptors that play a role in substance use
disorder and also have applicability for pain. The results of this study will
support the dose selection for future studies. 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, we expect to continue to experience disruptions, which could
severely impact our business, including our ability to successfully
commercialize our only commercial product, CAPLYTA, in the United States, and
could negatively impact our sales of CAPLYTA. Our commercial organization, sales
force and medical organization have had, and, depending on the severity and
duration of the pandemic, may continue to have significantly reduced personal
interactions with physicians and customers and may need to continue 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, the pandemic may
continue to impact the willingness of patients to visit their healthcare
provider. 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.

During the global response to the COVID-19 pandemic, moreover, the responses of
the federal, international, state and regional governments to the public health
emergency, including but not limited to the shelter in place orders, the
allocation of healthcare resources to treating those infected with the virus,
and the strategic redeployment of FDA and EMA resources and staff to priority
projects, 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.

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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 and six months
ended June 30, 2022, net sales increased to approximately $55.1 million and
$89.8 million, respectively, from approximately $19.0 million and $34.6 million
for the three and six months ended June 30, 2021, respectively.

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) selling expenses; (iii) general and administrative expenses; and (iv) research and development 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.

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;



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 •   patent, legal, and professional costs; and



  •   office and facilities overhead.

Research and development costs are comprised of:

• 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; and



     •    internal recurring costs, such as costs relating to labor and fringe
          benefits, materials, supplies, facilities and maintenance.


Product sold through June 30, 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 and
six-month
periods ended June 30, 2022 and 2021. 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 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.

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 and
six-month
periods ended June 30, 2022 and 2021 (in thousands):

                                              For the Three Months              For the Six Months
                                                 Ended June 30,                   Ended June 30,
                                              2022            2021             2022             2021
                                                  (Unaudited)                       (Unaudited)
Revenues
Product sales, net                         $   55,074       $  19,007       $   89,829       $   34,586
Grant revenue                                     505           1,040              746            1,339

Total revenues, net                            55,579          20,047           90,575           35,925

Expenses
Cost of product sales                           4,650           2,040            7,805            3,495
Selling, general and administrative           100,316          69,851          175,776          122,435
Research and development                       38,536          17,297           67,579           32,355

Total costs and expenses                      143,502          89,188          251,160          158,285

Loss from operations                          (87,923 )       (69,141 )       (160,585 )       (122,360 )
Interest income                                 1,320             421            1,868              905
Income tax expense                                 -              (24 )             (5 )            (29 )

Net loss                                   $  (86,603 )     $ (68,744 )     $ (158,722 )     $ (121,484 )



Comparison of Three and
Six-Month
Periods Ended June 30, 2022 and June 30, 2021

Total Revenues, Net


Total revenues, net for the three and
six-month
periods ended June 30, 2022 were approximately $55.6 million and $90.6 million,
respectively, compared to $20.0 million and $35.9 million for the three and
six-month
periods ended June 30, 2021, respectively. Net product sales were approximately
$55.1 million and $89.8 million, respectively, for the three and
six-month
periods ended June 30, 2022 and $19.0 million and $34.6 million for the three
and
six-month
periods ended June 30, 2021, respectively. Net product revenue in 2021 was
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.

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Cost of Product Sales


Cost of product sales was approximately $4.7 million and $7.8 million,
respectively, for the three and
six-month
periods ended June 30, 2022, compared to $2.0 million and $3.5 million,
respectively, for the three and
six-month
periods ended June 30, 2021. Cost of product sales consisted primarily of
product royalty fees, overhead and direct costs. Drug product costs, including
certain direct, indirect, and overhead costs, incurred through June 30, 2022
were previously charged to research and development expense prior to FDA
approval and are not a component of cost of product sales. This minimal cost
drug product had a positive impact on our cost of product sales and related
product gross margins for the three and
six-month
periods ended June 30, 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.

Selling, General and Administrative Expenses


Selling, general and administrative costs for the three-month period ended
June 30, 2022 were $100.3 million as compared to $69.9 million in the
three-month period ended June 30, 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 $81.3 million for the three-month period ended June 30, 2022
as compared to selling costs of $52.1 million in the same period in 2021, which
represents an increase of 56%. This increase is primarily due to increases of
marketing and advertising expenses of approximately $20.9 million, sales related
labor costs of approximately $6.8 million, and approximately $1.5 million in
travel and other costs. Salaries, bonuses and related benefit costs for our
sales and marketing functions for the three months ended June 30, 2022 and 2021
constituted approximately 29% and 33%, respectively, of our selling costs.

General and administrative expenses were $19.0 million in the three-month period
ended June 30, 2022 as compared to $17.7 million for the same period in 2021, an
increase of 7%. This increase is due to increases in labor related costs of
approximately $0.9 million, stock-based compensation of $0.7 million, and
$0.3 million for insurance and other expenses, partially offset by a decrease in
professional fees of $0.6 million. Salaries, bonuses and related benefit costs
for our general and administrative functions for the three months ended June 30,
2022 and 2021 constituted approximately 58% and 54%, respectively, of our
general and administrative costs.

Selling, general and administrative costs for the
six-month
period ended June 30, 2022 were $175.8 million as compared to $122.4 million in
the six month period ended June 30, 2021, which represents an increase of 44%,
which was due to an increase in selling, marketing, and advertising expenses and
an increase in general and administrative expenses as discussed below.

Selling costs were $137.3 million for the
six-month
period ended June 30, 2022 as compared to $90.4 million in the same period in
2021, or an increase of 52%. This increase is primarily due to increases in
commercialization costs of $27.4 million, sales related labor costs of
approximately $14.4 million and approximately $5.2 million in travel and other
sales related expenses. Salaries, bonuses and related benefit costs for our
sales and marketing functions for the six months ended June 30, 2022 and 2021
constituted approximately 35% and 37%, respectively, of our selling costs.

General and administrative expenses for the six months ended June 30, 2022 were
$38.4 million as compared to $32.0 million for the same period in 2021, an
increase of 20%. This increase is due to increases in stock compensation expense
of $2.0 million, labor and bonus expense of $1.7 million, and the remainder for
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, 2022 and 2021 constituted approximately 56% and 51%,
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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Research and Development Expenses


The following tables set forth our research and development expenses for the
three and
six-month
periods ended June 30, 2022 and 2021 (in thousands):

                                               Three Months Ended June 30,              Six Months Ended June 30,
                                                2022                 2021               2022                2021
External costs                                     25,863                8,733             45,156              16,480
Internal costs                                     12,673                8,564             22,423              15,875

Total research and development expenses    $       38,536       $       17,297      $      67,579       $      32,355


                                               Three Months Ended June 30,              Six Months Ended June 30,
                                                2022                 2021               2022                2021
Lumateperone costs                                 21,978               10,364             39,451              18,891
Non-lumateperone
project costs                                      10,885                3,723             19,892               7,411
Stock based compensation                            5,507                2,862              7,878               5,184
Overhead                                              166                  348                358                 869

Total research and development expenses $ 38,536 $ 17,297 $ 67,579 $ 32,355




Research and development expenses increased to $38.5 million for the three-month
period ended June 30, 2022 as compared to $17.3 million for the three-month
period ended June 30, 2021, representing an increase of approximately
$21.2 million, or 123%. This increase is due primarily to an increase of
$11.6 million for lumateperone clinical trial and other costs, and approximately
$7.2 million for other projects including the
ITI-1284,
ITI-214,
and
ITI-333
programs, among others, and an increase of approximately $2.6 million for stock
based compensation, partially offset by a decrease of approximately $0.2 million
of overhead costs. Internal costs increased by approximately $4.1 million for
the period due primarily to labor related costs and share-based compensation.

Research and development expenses increased to $67.6 million for the
six-month
period ended June 30, 2022 as compared to $32.4 million for the
six-month
period ended June 30, 2021, representing an increase of approximately 109%. This
increase is due primarily to an increase of approximately $20.6 million for
lumateperone costs, an increase of approximately $12.5 million for other
projects including the
ITI-1284,
ITI-214,
and
ITI-333
programs, among others, and an increase of approximately $2.7 million for stock
based compensation, partially offset by a decrease of approximately $0.5 million
of overhead costs. Internal costs increased by approximately $6.5 million for
the period due primarily to labor related costs and stock based compensation.

As the development of lumateperone and
non-lumateperone
programs progress, we anticipate research and development costs to increase
moderately due primarily to
pre-clinical
testing and conducting ongoing and planned clinical trials during the next
several years. We are also required to complete
non-clinical
testing to obtain FDA approval and manufacture materials 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
."

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;



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     •    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.

Liquidity and Capital Resources


From inception through June 30, 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. From the date of approval of CAPLYTA
through June 30, 2022, we have collected approximately $192.6 million from
product sales, 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, we completed a public offering of common stock in which we
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 June 30, 2022, we had a total of approximately $679.2 million in cash and
cash equivalents,
available-for-sale
investment securities and restricted cash, and approximately $70.6 million of
short-term liabilities consisting entirely of liabilities from operations,
including approximately $7.7 million of short-term lease obligations. In the six
months ended June 30, 2022, we spent approximately $260 million in cash for
operations and equipment. During this period, we collected $88 million from
product sales and $1.8 million of interest income and cost of product sales was
$7.8 million which resulted in $178.3 million of net cash used for operations
and equipment. 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, primarily due 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 first six months of 2022, we used approximately $260 million for
operating costs. We expect to spend up to $240 million in the second half of
2022, primarily for 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


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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.

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.

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 uncertain market
conditions and continued spread of
COVID-19
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 six
months ended June 30, 2022, interest rates have risen. This trend has resulted
in approximately $4.8 million of unrealized loss on investments during the six
months ended June 30, 2022. 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 lease of 16,753 square feet of useable laboratory and
office space located at 430 East 29th Street, New York, New York 10016. 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. 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 June 30, 2022 and December 31, 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 six months ended June 30, 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, inflation 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

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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 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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