INTRA-CELLULAR THERAPIES, INC. You should read the following in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto that appear elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K filed onMarch 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 onMarch 1, 2022 , as updated from time to time in our subsequent periodic and current reports filed with theSEC .
Overview
We are a biopharmaceutical company focused on the discovery, clinical development and commercialization of innovative, small molecule drugs that address underserved medical needs primarily in neuropsychiatric and neurological disorders by targeting intracellular signaling mechanisms within the central nervous system, or CNS. InDecember 2019 , CAPLYTA (lumateperone) was approved by theU.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 lateMarch 2020 . In support of our commercialization efforts, we employ a national sales force. InDecember 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 lateDecember 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, inApril 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. 12
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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 theNational 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. 13
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COVID-19
InDecember 2019 , a novel strain of coronavirus, SARS-CoV-2, which causes coronavirus disease 2019, or COVID-19, surfaced inWuhan, China . Since then, SARS-CoV-2 and COVID-19 have spread to countries worldwide, includingthe 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, inthe 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, includingthe United States andEurope , 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. 14
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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 inDecember 2019 and for the treatment of bipolar depression in adults inDecember 2021 . We initiated the commercial launch of CAPLYTA in lateMarch 2020 . During the three and six months endedJune 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 endedJune 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 endedJune 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 endedJune 30, 2021 , respectively. Net product sales were approximately$55.1 million and$89.8 million , respectively, for the three and six-month periods endedJune 30, 2022 and$19.0 million and$34.6 million for the three and six-month periods endedJune 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. 16
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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 endedJune 30, 2022 , compared to$2.0 million and$3.5 million , respectively, for the three and six-month periods endedJune 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 throughJune 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 endedJune 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 endedJune 30, 2022 were$100.3 million as compared to$69.9 million in the three-month period endedJune 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 endedJune 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 endedJune 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 endedJune 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 endedJune 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 endedJune 30, 2022 were$175.8 million as compared to$122.4 million in the six month period endedJune 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 endedJune 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 endedJune 30, 2022 and 2021 constituted approximately 35% and 37%, respectively, of our selling costs. General and administrative expenses for the six months endedJune 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$1.7 million , and the remainder for insurance, lease expense, and other administrative expenses. Salaries, bonuses and related benefit costs for our general and administrative functions for the six months endedJune 30, 2022 and 2021 constituted approximately 56% and 51%, respectively, of our general and administrative costs. We expect selling, general and administrative costs to increase moderately in 2022 as compared to 2021. We are expanding marketing, promotional, and advertising costs and increasing efforts to educate physicians, expand market access, and enhance our administrative infrastructure. 17
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Research and Development Expenses
The following tables set forth our research and development expenses for the three and six-month periods endedJune 30, 2022 and 2021 (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 External costs 25,863 8,733 45,156 16,480 Internal costs 12,673 8,564 22,423 15,875 Total research and development expenses$ 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
Research and development expenses increased to$38.5 million for the three-month period endedJune 30, 2022 as compared to$17.3 million for the three-month period endedJune 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 endedJune 30, 2022 as compared to$32.4 million for the six-month period endedJune 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 inthe 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 inthe 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 theactive pharmaceutical ingredient, or API, and finished drug product are
produced and tested to assess compliance with current Good Manufacturing
Practices, or cGMPs;
• satisfactory completion of FDA inspections of clinical trial sites to
assure that data supporting the safety and effectiveness of productcandidates has been generated in compliance with Good Clinical Practices;
and
• FDA review and approval of the NDA prior to any commercial marketing or
sale of the drug in
The successful development of our product candidates and the approval process requires substantial time, effort and financial resources, and is uncertain and subject to a number of risks. We cannot be certain that any of our product candidates will prove to be safe and effective, will meet all of the applicable regulatory requirements needed to receive and maintain marketing approval, or will be granted marketing approval on a timely basis, if at all. Data from pre-clinical studies and clinical trials are susceptible to varying interpretations that could delay, limit or prevent regulatory approval or could result in label warnings related to or recalls of approved products. We, the FDA, or other regulatory authorities may suspend clinical trials at any time if we or they believe that the subjects 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 endedDecember 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 theSEC .
Liquidity and Capital Resources
From inception throughJune 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 throughJune 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. OnJanuary 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 ofJune 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 endedJune 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. OnJanuary 6, 2020 , we filed an automatic shelf registration statement on Form S-3 with theSEC , 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" underSEC 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 endedJune 30, 2022 , interest rates have risen. This trend has resulted in approximately$4.8 million of unrealized loss on investments during the six months endedJune 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 at430 East 29th Street ,New York, New York 10016. InSeptember 2018 , we further amended the lease to obtain an additional 15,534 square feet of office space beginningOctober 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 inMay 2029 . OnMay 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 inMarch 2020 . Restricted cash of$1.4 million on our condensed consolidated balance sheet as ofJune 30, 2022 andDecember 31, 2021 relates to a letter of credit issued as part of the vehicle fleet lease. 20
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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 endedDecember 31, 2021 . There have been no material changes to our critical accounting policies during the six months endedJune 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 inthe United States , orU.S. GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses for the periods presented. Judgments must also be made about the disclosure of contingent liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management makes estimates and exercises judgment in research and development, including clinical trial accruals. Actual results may differ from those estimates and under different assumptions or conditions.
Recently Issued Accounting Pronouncements
We review new accounting standards to determine the expected financial impact, if any, that the adoption of each such standard will have. For the recently issued accounting standards that we believe may have an impact on our financial statements, see "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 endedDecember 31, 2021 filed onMarch 1, 2022 .
Certain Factors That May Affect Future Results of Operations
TheSEC encourages companies to disclose forward-looking information so that investors can better understand a company's future prospects and make informed investment decisions. This Quarterly Report on Form 10-Q contains such "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other important factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about: the accuracy of our estimates regarding expenses, 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 21
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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 inUkraine ; 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 theSEC . In light of these assumptions, risks and uncertainties, the results and events discussed in the forward-looking statements contained in this Quarterly Report on Form 10-Q or in any document incorporated by reference might not occur. Stockholders are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We are not under any obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. All subsequent forward-looking statements attributable to the Company or to any person acting on its behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.
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