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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)

11/03/2022 | 06:48am EST
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 and employed 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. 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). We initiated
the commercial launch of these special population doses in August 2022. 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 have been 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 agitation 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. 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 first
quarter of 2023. 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.

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

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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 may 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.

The COVID-19 pandemic continues to 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. In addition, in
April 2022, the FDA approved two new dosage strengths of CAPLYTA for certain
patients. We initiated the commercial launch of CAPLYTA in late March 2020.
During the three and nine months ended September 30, 2022, net sales increased
to approximately $71.9 million and $162.4 million, respectively, from
approximately $22.2 million and $58.1 million for the three and nine months
ended September 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;




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• 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;



  •   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 September 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 nine-month periods ended September 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. In addition, inflation
generally may affect us by increasing clinical trial and other operational
costs. To date, inflation has not had a material impact on our business, but if
the global inflationary trends continue, we expect appreciable increases in
clinical trial, selling, labor, and other operating costs.

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) benefit for the three and nine-month periods ended September 30, 2022 and 2021 (in thousands):

                                              For the Three Months              For the Nine Months
                                              Ended September 30,               Ended September 30,
                                              2022            2021             2022             2021
                                                  (Unaudited)                       (Unaudited)
Revenues
Product sales, net                         $   71,870       $  21,606       $  161,699       $   56,192
Grant revenue                                      -              601              746            1,940

Total revenues, net                            71,870          22,207          162,445           58,132

Expenses
Cost of product sales                           5,850           2,001           13,655            5,496
Selling, general and administrative            88,375          70,498          264,151          192,933
Research and development                       33,274          27,032          100,853           59,387

Total costs and expenses                      127,499          99,531          378,659          257,816

Loss from operations                          (55,629 )       (77,324 )       (216,214 )       (199,684 )
Interest income                                 2,122             393            3,990            1,298
Income tax (expense) benefit                       (1 )            23               (6 )             (6 )

Net loss                                   $  (53,508 )     $ (76,908 )     $ (212,230 )     $ (198,392 )




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Comparison of Three and Nine-Month Periods Ended September 30, 2022 and September 30, 2021

Product sales, net


Net product sales were approximately $71.9 million and $161.7 million,
respectively, for the three and nine-month periods ended September 30, 2022 and
$21.6 million and $56.2 million for the three and nine-month periods ended
September 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.

Cost of Product Sales

Cost of product sales was approximately $5.9 million and $13.7 million,
respectively, for the three and nine-month periods ended September 30, 2022,
compared to $2.0 million and $5.5 million, respectively, for the three and
nine-month periods ended September 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, for product sales
through September 30, 2022 were previously charged to research and development
expense prior to FDA approval in December 2019 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
nine-month periods ended September 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 September 30, 2022 were $88.4 million as compared to $70.5 million in the three-month period ended September 30, 2021, which represents an increase of 25%.


Selling costs were $68.1 million for the three-month period ended September 30,
2022 as compared to selling costs of $52.6 million in the same period in 2021,
which represents an increase of 29%. This increase is primarily due to increases
of marketing and advertising expenses of approximately $8.1 million, sales
related labor costs of approximately $6.1 million, and approximately
$1.3 million in travel and other costs. Salaries, bonuses and related benefit
costs for our sales and marketing functions for the three months ended
September 30, 2022 and 2021 constituted approximately 34% and 32%, respectively,
of our selling costs.

General and administrative expenses were $20.3 million in the three-month period
ended September 30, 2022 as compared to $17.9 million for the same period in
2021, an increase of 13%. This increase is due to increases in labor related
costs of approximately $0.7 million, stock-based compensation of approximately
$0.7 million, franchise related taxes of approximately $0.5 million, and
insurance and other expenses of approximately $0.5 million. Salaries, bonuses
and related benefit costs for our general and administrative functions for the
three months ended September 30, 2022 and 2021 constituted approximately 58% and
57%, respectively, of our general and administrative costs.

Selling, general and administrative costs for the nine-month period ended
September 30, 2022 were $264.2 million as compared to $192.9 million in the nine
month period ended September 30, 2021, which represents an increase of 37%,
which was due to an increase in selling, marketing, and advertising expenses and
an increase in general and administrative expenses.

Selling costs were $205.4 million for the nine-month period ended September 30,
2022 as compared to $143.0 million in the same period in 2021, or an increase of
44%. This increase is primarily due to increases in commercialization costs of
approximately $35.4 million, sales related labor costs of approximately
$20.5 million and travel and other sales related expenses of approximately
$6.5 million. Salaries, bonuses and related benefit costs for our sales and
marketing functions for the nine months ended September 30, 2022 and 2021
constituted approximately 35% and 35%, respectively, of our selling costs.

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General and administrative expenses for the nine months ended September 30, 2022
were $58.7 million as compared to $50.0 million for the same period in 2021, an
increase of 17%. This increase is due to increases in stock compensation expense
of approximately $2.7 million, labor related expense of approximately
$2.4 million, IT related services of approximately $1.5 million, franchise
related taxes of approximately $0.9 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 nine months
ended September 30, 2022 and 2021 constituted approximately 56% and 56%,
respectively, of our general and administrative costs.

We expect selling, general and administrative costs to increase 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.

Research and Development Expenses

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


                                    Three Months Ended September 30,        

Nine Months Ended September 30,

                                      2022                   2021                   2022                   2021
External costs                            21,428                 17,679                 66,584                33,554
Internal costs                            11,846                  9,353                 34,269                25,833

Total research and
development expenses             $        33,274        $        27,032       $        100,853        $       59,387

                                    Three Months Ended September 30,             Nine Months Ended September 30,
                                      2022                   2021                   2022                   2021
Lumateperone costs                        17,104                 16,676                 56,555                35,924
Non-lumateperone project
costs                                      9,991                  5,797                 27,120                11,584
Stock based compensation                   4,682                  3,183                 12,560                 8,367
Overhead and other                         1,497                  1,376                  4,618                 3,512

Total research and
development expenses             $        33,274        $        27,032       $        100,853        $       59,387



Research and development expenses increased to $33.3 million for the three-month
period ended September 30, 2022 as compared to $27.0 million for the three-month
period ended September 30, 2021, representing an increase of approximately
$6.3 million, or 23%. This increase is due primarily to an increase of
$4.2 million non lumateperone projects including the ITI-1284, ITI-214, and
ITI-333 programs, among others, $1.5 million for stock based compensation,
$0.4 million for lumateperone clinical trial and other costs, and $0.2 million
in overhead expenses. Internal costs increased by approximately $2.5 million for
the period due primarily to labor related costs and share-based compensation.

Research and development expenses increased to $100.9 million for the nine-month
period ended September 30, 2022 as compared to $59.4 million for the nine-month
period ended September 30, 2021, representing an increase of approximately 70%.
This increase is due primarily to an increase of approximately $20.6 million for
lumateperone costs, an increase of approximately $15.6 million for other
projects including the ITI-1284, ITI-214, and ITI-333 programs, among others, an
increase of approximately $4.2 million for stock based compensation, and an
increase of approximately $1.1 million for overhead costs. Internal costs
increased by approximately $8.4 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 will increase 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."

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The research and development process necessary to develop a pharmaceutical
product for commercialization is subject to extensive regulation by numerous
governmental authorities in the United States and other countries. This process
typically takes years to complete and requires the expenditure of substantial
resources. The steps required before a drug may be marketed in the United States
generally include the following:

• completion of extensive pre-clinical laboratory tests, animal studies,

and formulation studies in accordance with the FDA's Good Laboratory

          Practice, or GLP, regulations;


• submission to the FDA of an Investigational New Drug application, or IND,

          for human clinical testing, which must become effective before human
          clinical trials may begin;


• performance of adequate and well-controlled human clinical trials to

          establish the safety and efficacy of the drug for each proposed
          indication;


• submission to the FDA of a New Drug Application, or NDA, after completion

          of all clinical trials;



     •    satisfactory completion of an FDA pre-approval inspection of the

manufacturing facility or facilities at which the active pharmaceutical

ingredient, or API, and finished drug product are produced and tested to

          assess compliance with current Good Manufacturing Practices, or cGMPs;



     •    satisfactory completion of FDA inspections of clinical trial sites to

assure that data supporting the safety and effectiveness of product

candidates has been generated in compliance with Good Clinical Practices;

          and


• FDA review and approval of the NDA prior to any commercial marketing or

sale of the drug in the United States.



The successful development of our product candidates and the approval process
requires substantial time, effort and financial resources, and is uncertain and
subject to a number of risks. We cannot be certain that any of our product
candidates will prove to be safe and effective, will meet all of the applicable
regulatory requirements needed to receive and maintain marketing approval, or
will be granted marketing approval on a timely basis, if at all. Data from
pre-clinical studies and clinical trials are susceptible to varying
interpretations that could delay, limit or prevent regulatory approval or could
result in label warnings related to or recalls of approved products. We, the
FDA, or other regulatory authorities may suspend clinical trials at any time if
we or they believe that the subjects participating in such trials are being
exposed to unacceptable risks or if such regulatory agencies find deficiencies
in the conduct of the trials or other problems with our product candidates.
Other risks associated with our product candidates are described in the section
entitled "Risk Factors" in our Annual Report on Form 10-K for the year ended
December 31, 2021, as updated by the section entitled "Risk Factors" in this
Quarterly Report on Form 10-Q and from time to time in our other periodic and
current reports filed with the SEC.

Liquidity and Capital Resources


From inception through September 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 September 30, 2022, we have collected approximately
$267.4 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 September 30, 2022, we had a total of approximately $630.5 million in cash
and cash equivalents, available-for-sale investment securities and restricted
cash, and approximately $77.4 million of short-term liabilities consisting
entirely of liabilities from operations. In the nine months ended September 30,
2022, we used approximately $370 million in cash for operating costs. During
this period, we collected $163.3 million from product sales, $4.0 million of
interest income, and we paid approximately $29.0 million related to our customer
program liabilities which resulted in $231.8 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.

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Based on our current operating plans, we expect that our existing cash, cash
equivalents, marketable securities, and product sales 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 continued
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-1284 and ITI-214;
and infrastructure expansion and general operations.

For the first nine months of 2022, we used approximately $370 million for
operating costs. We expect to spend up to an additional $130 million in the
fourth quarter, totaling approximately $500 million for 2022. The fourth quarter
spend will be used to continue 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, ITI-214
and ITI-333 programs, among others. However, the COVID-19 pandemic may
negatively impact our commercialization of CAPLYTA, our ability to complete our
ongoing or planned 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 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 effects 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 non-clinical studies, clinical trials
or other clinical development activities for one or more of our product
candidates, including our lead product candidate lumateperone, ITI-214, and our
other product candidates; (2) delay, limit, reduce or terminate our discovery
research or pre-clinical development activities; (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 nine
months ended September 30, 2022, however, interest rates have risen which is
increasing interest income. This increase in interest rates has, however,
resulted in approximately $5.5 million of unrealized loss on investments during
the nine months ended September

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30, 2022. Due to the short-term nature of these investments and our intention to
hold these investments to maturity, 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 $1.75 million and $1.4 million, respectively, on our
condensed consolidated balance sheet as of September 30, 2022 and December 31,
2021 relates to a letter of credit issued as part of the vehicle fleet lease.

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 nine months ended September 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

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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 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; risks related to
inflation and global supply chain disruptions on our business; 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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